Prudential Financial, Inc. Announces Second Quarter 2005 Results

For the first half of 2005, net income for the Financial ServicesBusinesses amounted to $1.520 billion ($2.96 per Common share)compared to $809 million ($1.59 per Common share) for the first halfof 2004. First half 2005 after-tax adjusted operating income for theFinancial Services Businesses amounted to $1.171 billion ($2.30 perCommon share) compared to $880 million ($1.72 per Common share) forthe first half of 2004.

"This quarter's results reinforce our confidence that we are ontrack to achieve our goals. Each division is contributing to ourimproving performance. Within the Investment Division, integration ofoperations we acquired from CIGNA last year is progressing well. Inaddition, our Asset Management segment is benefiting from a strongcommercial real estate market, which has bolstered income fromperformance-based fees as well as proprietary investing. The InsuranceDivision's protection businesses are performing well, and recentactions we've taken have reduced the cost structure in IndividualLife. We've also invested in the growth potential of our annuitybusiness by expanding our product offerings and distributionplatforms. These efforts are enjoying encouraging initial success.Finally, our international businesses again produced strong resultsthis quarter, reflecting continuing business growth, enhancedinvestment results, and a contribution from our acquisition of AobaLife late last year," said Chairman and CEO Arthur F. Ryan.

"Considering our results for the first half of the year, includingthe effect of items that may be non-recurring, we believe thatPrudential Financial will achieve Common Stock earnings per share inthe range of $4.50 to $4.60 for the year 2005, based on after-taxadjusted operating income of the Financial Services Businesses. Thisexpectation assumes appreciation in the S&P 500 Index of 2 percent perquarter for the balance of the year," Ryan said. The 2005 expectationis subject to change if this assumption is not realized and asdiscussed under "Forward-Looking Statements" below.

Adjusted operating income excludes "Realized investment gains(losses), net" (other than those associated with terminating hedges offoreign currency earnings and current period yield adjustments) andrelated charges and adjustments, and results from divested businesses.In addition, recorded changes in asset values that will ultimatelyinure to contractholders are excluded from adjusted operating income.Similarly, recorded changes in contractholder liabilities resultingfrom changes in related asset values are also excluded from adjustedoperating income. Adjusted operating income also excludes discontinuedoperations and a charge in the first quarter of 2004 for thecumulative effect of an accounting change, which are presented asseparate components of net income under generally accepted accountingprinciples (GAAP).

The company acquired the retirement business of CIGNA Corporationon April 1, 2004. Results of the Financial Services Businesses includethe results of this business from the date of acquisition. Adjustedoperating income of the Financial Services Businesses for the secondquarter of 2005 includes after-tax transition costs of 2 cents perCommon share related to the retirement business acquisition and thecombination of the company's retail securities brokerage operationswith Wachovia in 2003. Results of the Financial Services Businessesfor the second quarter of 2005 benefited from the acquisition, onNovember 1, 2004, of Aoba Life, a Japanese life insurance company.

Financial Services Businesses

Prudential Financial's Common Stock (NYSE:PRU) reflects theperformance of its Financial Services Businesses, which consist of itsInsurance, Investment, and International Insurance and Investmentsdivisions and its Corporate and Other operations.

Presented below is a discussion of the results of our divisions,based on a non-GAAP financial measure we call adjusted operatingincome. We believe that the presentation of adjusted operating incomeas we measure it for management purposes enhances understanding of theresults of operations of the Financial Services Businesses byhighlighting the results from ongoing operations and the underlyingprofitability of our businesses. The schedules accompanying thisrelease provide a reconciliation of adjusted operating income for theFinancial Services Businesses to income from continuing operations inaccordance with GAAP.

In the following business-level discussion, adjusted operatingincome refers to pre-tax results.

The Insurance division reported adjusted operating income of $266million for the second quarter of 2005, an increase of $28 millionfrom $238 million in the year-ago quarter. Our Individual Life andAnnuities segment reported adjusted operating income of $220 millionfor the current quarter, compared to $192 million in the year-agoquarter. The segment's individual life insurance business reportedadjusted operating income of $119 million in the current quarter, a$21 million increase from the year-ago quarter. Current quarterresults benefited from lower expenses, reflecting earlier actions toreduce staffing and occupancy costs; from increased fees; and fromincreased investment income, net of interest credited and interestexpense. The segment's individual annuity business reported adjustedoperating income of $101 million in the current quarter, compared to$94 million in the year-ago quarter. Current quarter adjustedoperating income included $6 million from refinements to our reservefor guaranteed minimum income benefits. The benefit from higherasset-based fees and increased net interest spread on general accountannuities in comparison to a year ago was essentially offset by higherexpenses, reflecting distribution costs charged to expense associatedwith increased variable annuity sales and our expansion of third partydistribution channels. Our Group Insurance segment reported adjustedoperating income of $46 million in the current quarter, unchanged froma year ago.

The Investment division reported adjusted operating income of $150million in the second quarter of 2005, an increase of $78 million from$72 million in the year-ago quarter. The Retirement segment reportedadjusted operating income of $142 million for the current quarter,compared to $92 million in the year-ago quarter. Current quartersegment results include a $52 million contribution from the retirementbusiness acquired from CIGNA, an increase of $16 million from theyear-ago quarter, reflecting greater net interest spread on generalaccount business. The segment's original retirement business reportedadjusted operating income of $90 million for the current quarter, anincrease of $34 million from the year-ago quarter. Current quarterresults benefited from mortgage prepayment income of $19 million aswell as reserve releases from refinements and updates of client censusdata amounting to $16 million. The Asset Management segment reportedadjusted operating income of $105 million for the current quarter, anincrease of $45 million from the year-ago quarter. Current quarterresults included income of $23 million from a single sale in theprincipal investing business, while results for the year-ago quarterincluded expenses of $7 million to exit an operating facility. Inaddition, current quarter results benefited from increased incentiveand transaction fees primarily related to management of real estate,and greater fees from administration of managed accounts, whichtogether more than offset lower income from the segment's commercialmortgage operations. Our Financial Advisory segment, which reflectsthe combination of our retail securities brokerage business withWachovia Securities, LLC on July 1, 2003, reported a loss, on anadjusted operating income basis, of $97 million for the currentquarter. Our 38% share of the venture's results, before transitioncosts, resulted in adjusted operating income of $47 million for thecurrent quarter. However, current quarter results also includeexpenses of $136 million related to obligations and costs we retainedin connection with the contributed businesses primarily for litigationand regulatory matters, including an accrual for estimated settlementcosts related to market timing issues under discussion with state andfederal authorities. In addition, current quarter results include $9million of transition costs. In the year-ago quarter, the FinancialAdvisory segment reported a loss, on an adjusted operating incomebasis, of $80 million.

The International Insurance and Investments division reportedadjusted operating income of $347 million for the second quarter of2005, an increase of $78 million from $269 million in the year-agoquarter. The International Insurance segment reported adjustedoperating income of $327 million for the current quarter, compared to$244 million for the year-ago quarter. Adjusted operating income fromour international insurance operations other than Gibraltar Lifeincreased $54 million to $183 million in the current quarter,reflecting continued business growth in our Life Planner operationsand a contribution to current quarter results from the business ofAoba Life, which was acquired by the company on November 1, 2004 andintegrated with our existing Japanese insurance operations during thefirst quarter. Adjusted operating income also benefited from a morefavorable level of policy benefits and expenses in the currentquarter, improved investment results, and a favorable impact of $5million, versus the year-ago quarter, from currency exchange rates.The segment's Gibraltar Life operations reported adjusted operatingincome of $144 million for the current quarter, an increase of $29million from the year-ago quarter. Current quarter results benefited$9 million from refinements in reserves for a block of business, whileresults for the year-ago quarter benefited $9 million fromextinguishment of liabilities established in connection with GibraltarLife's restructuring in April 2001. The $29 million increase inadjusted operating income reflected increased investment incomemargins and a more favorable level of policy benefits and expenses,together with a favorable impact of $7 million from foreign currencyexchange rates, versus the year-ago quarter. The InternationalInvestments segment reported adjusted operating income of $20 millionfor the current quarter, compared to $25 million in the year-agoquarter.

Corporate and Other operations resulted in adjusted operatingincome of $60 million in the second quarter of 2005, compared to $64million in the year-ago quarter. The company's real estate andrelocation services business contributed $31 million to currentquarter results, unchanged from the year-ago quarter.

Assets under management amounted to $511 billion at June 30, 2005,compared to $474 billion a year earlier and $500 billion at December31, 2004.

Net income of the Financial Services Businesses for the secondquarter of 2005 amounted to $754 million, compared to $519 million inthe year-ago quarter. Current quarter net income includes $249 millionof net realized investment gains and related charges and adjustments,before income taxes. The net realized investment gains reflectedfluctuations in value of hedging instruments covering our foreigncurrency risks and investments. Net income for the second quarter alsoreflects pre-tax increases of $193 million in recorded asset valuesand $148 million in recorded liabilities pertaining to contracts,primarily in connection with the retirement business we acquired fromCIGNA, for which such changes in value will ultimately inure tocontractholders. These changes primarily represent interest-raterelated mark-to-market adjustments. Net income for the current quarteralso includes a loss from discontinued operations of $44 million (netof related taxes), primarily related to our discontinued Dryden WealthManagement business.

Net realized investment gains in the current quarter include $8million of losses from impairments and sales of credit-impairedsecurities. At June 30, 2005, gross unrealized losses on fixedmaturity investments of the Financial Services Businesses amounted to$334 million, including $288 million on investment-grade securities,which are substantially all interest rate related. Gross unrealizedlosses on fixed maturity investments of the Financial ServicesBusinesses amounted to $529 million at year-end 2004.

Net income of the Financial Services Businesses for the year-agoquarter included $143 million of net realized investment gains andrelated charges and adjustments, before income taxes. Net income forthe year-ago quarter also reflected declines of $322 million inrecorded asset values and $183 million in recorded liabilities forwhich changes in value will ultimately inure to contractholders. Netincome for the year-ago quarter also included a $20 millionextraordinary gain related to an acquisition and an $11 million lossfrom discontinued operations, in each case net of related taxes.

Closed Block Business

Prudential's Class B Stock, which is not traded on any exchange,reflects the performance of its Closed Block Business.

The Closed Block Business includes our in-force participating lifeinsurance and annuity policies, and assets that are being used for thepayment of benefits and policyholder dividends on these policies, aswell as other assets and equity that support these policies. We haveceased offering these participating policies.

The Closed Block Business reported second quarter 2005 net incomeof $129 million, compared to $30 million for the year-ago quarter.

The Closed Block Business reported income from operations beforeincome taxes of $198 million for the second quarter of 2005 and $45million for the year-ago quarter. Closed Block Business resultsincluded net realized investment gains of $210 million in the currentquarter and $60 million in the year-ago quarter.

For the first half of 2005, the Closed Block Business reported netincome of $292 million, compared to $141 million for the first half of2004.

The Closed Block Business reported income from operations beforeincome taxes of $443 million for the first half of 2005 and $217million for the first half of 2004.

Consolidated Results

There is no legal separation of the Financial Services Businessesand the Closed Block Business, and holders of the Common Stock and theClass B Stock are both common stockholders of Prudential Financial,Inc.

On a consolidated basis, which includes the results of both theFinancial Services Businesses and the Closed Block Business,Prudential Financial, Inc. reported net income of $883 million for thesecond quarter of 2005 and $549 million for the year-ago quarter, andreported net income of $1.812 billion for the first half of 2005 and$950 million for the first half of 2004.

Share Repurchases and Issuance

During the second quarter of 2005, the company acquired 7.8million shares of its Common Stock, at a total cost of $476 million.From the commencement of share repurchases in May 2002, through June30, 2005, the company has acquired 101.9 million shares of its CommonStock at a total cost of $4.142 billion. This included 1.7 millionshares repurchased and reissued directly to a company deferredcompensation plan during 2002.

Forward-Looking Statements

Certain of the statements included in this release, including (butnot limited to) those in the fourth paragraph hereof, constituteforward-looking statements within the meaning of the U.S. PrivateSecurities Litigation Reform Act of 1995. Words such as "expects,""believes," "anticipates," "includes," "plans," "assumes,""estimates," "projects," "intends," "should," "will," "shall," orvariations of such words are generally part of forward-lookingstatements. Forward-looking statements are made based on management'scurrent expectations and beliefs concerning future developments andtheir potential effects upon Prudential Financial, Inc. and itssubsidiaries. There can be no assurance that future developmentsaffecting Prudential Financial, Inc. and its subsidiaries will bethose anticipated by management. These forward-looking statements arenot a guarantee of future performance and involve risks anduncertainties, and there are certain important factors that couldcause actual results to differ, possibly materially, from expectationsor estimates reflected in such forward-looking statements, including,among others: (1) general economic, market and political conditions,including the performance of financial markets and interest ratefluctuations; (2) domestic or international military or terroristactivities or conflicts; (3) volatility in the securities markets; (4)fluctuations in foreign currency exchange rates and foreign securitiesmarkets; (5) regulatory or legislative changes, including changes intax law; (6) changes in statutory or U.S. GAAP accounting principles,practices or policies; (7) differences between actual experienceregarding mortality, morbidity, persistency, surrender experience,interest rates, or market returns and the assumptions we use inpricing our products, establishing liabilities and reserves or forother purposes; (8) reestimates of our reserves for future policybenefits and claims; (9) changes in our assumptions related todeferred policy acquisition costs; (10) events resulting incatastrophic loss of life; (11) investment losses and defaults; (12)changes in our claims-paying or credit ratings; (13) competition inour product lines and for personnel; (14) economic, political,currency and other risks relating to our international operations;(15) Prudential Financial, Inc.'s primary reliance, as a holdingcompany, on dividends or distributions from its subsidiaries to meetdebt payment obligations and the applicable regulatory restrictions onthe ability of the subsidiaries to pay such dividends ordistributions; (16) risks due to the lack of legal separation betweenour Financial Services Businesses and our Closed Block Business; (17)adverse determinations in litigation or regulatory matters and ourexposure to contingent liabilities; and (18) the effects ofacquisitions, divestitures and restructurings, including possibledifficulties in integrating and realizing the projected results ofacquisitions. Prudential Financial, Inc. does not intend, and is underno obligation, to update any particular forward-looking statementincluded in this document.

As indicated above, our expectation of Common Stock earnings pershare is based on after-tax adjusted operating income. Adjustedoperating income, which is not measured in accordance with GAAP,excludes Realized investment gains (losses), net (other than thoseassociated with terminating hedges of foreign currency earnings andcurrent period yield adjustments). A significant element of realizedlosses is impairments and losses from sales of credit-impairedsecurities, the timing of which depends largely on market creditcycles and can vary considerably across periods. The timing of othersales that would result in gains or losses is largely subject to ourdiscretion and influenced by market opportunities. Similarly, adjustedoperating income excludes investment gains and losses on tradingaccount assets supporting insurance liabilities and changes inexperience-rated contractholder liabilities due to asset valuechanges, because these recorded changes in asset and liability valueswill ultimately inure to contractholders. Trends in the underlyingprofitability of our businesses can be more clearly identified withoutthe fluctuating effects of these transactions. Adjusted operatingincome also excludes the results of divested businesses, which are notrelevant to our ongoing operations. Because we do not predict futurerealized investment gains / losses or recorded changes in asset andliability values that will ultimately inure to contractholders, wecannot provide a measure of our Common Stock earnings per shareexpectation based on income from continuing operations of theFinancial Services Businesses, which is the GAAP measure mostcomparable to adjusted operating income.

The information referred to above, as well as the risks of ourbusinesses described in our Annual Report on Form 10-K for the yearended December 31, 2004, should be considered by readers whenreviewing forward-looking statements contained in this release.Additional historical information relating to our financialperformance is located on our Web site at www.investor.prudential.com.

Earnings Conference Call

Members of Prudential's senior management will host a conferencecall on Thursday, August 4, 2005, at 11 a.m. ET, to discuss with theinvestment community the company's second quarter results. Theconference call will be broadcast live over the company's InvestorRelations Web site at: www.investor.prudential.com. Please log onfifteen minutes early in the event necessary software needs to bedownloaded. The call will remain on the Investor Relations Web sitefor replay through August 18. Institutional investors, analysts, andother members of the professional financial community are invited tolisten to the call and participate in Q&A by dialing (888) 428-4479(domestic callers) or (651) 291-5254 (international callers). Allothers are encouraged to dial into the conference call in listen-onlymode, using the same numbers. To listen to a replay of the conferencecall starting at 4:15 p.m. on August 4, through August 11, dial (800)475-6701 (domestic callers) or (320) 365-3844 (international callers).The access code for the replay is 765308.

Prudential Financial companies serve individual and institutionalcustomers worldwide and include The Prudential Insurance Company ofAmerica, one of the largest life insurance companies in the U.S. Thesecompanies offer a variety of products and services, including lifeinsurance, mutual funds, annuities, pension and retirement relatedservices and administration, asset management, securities brokerage,banking and trust services, real estate brokerage franchises andrelocation services. For more information, visit www.prudential.com.

Financial Highlights
(in millions, except per share data, unaudited)

Three Months Six Months
Ended Ended
June 30 June 30
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------

Financial Services Businesses Income
Statement Data:
Adjusted Operating Income (1):
Revenues:
Premiums $2,598 $2,210 $5,127 $4,401
Policy charges and fee income 629 600 1,255 1,167
Net investment income 1,515 1,330 3,014 2,574
Commissions, investment
management fees, and other
income 982 917 1,959 1,593
------- ------- ------- -------
Total revenues 5,724 5,057 11,355 9,735
------- ------- ------- -------
Benefits and expenses:
Insurance and annuity benefits 2,544 2,243 5,103 4,532
Interest credited to
policyholders' account balances 623 582 1,226 1,009
Interest expense 134 57 245 110
Other expenses 1,600 1,532 3,072 2,891
------- ------- ------- -------
Total benefits and
expenses 4,901 4,414 9,646 8,542
------- ------- ------- -------
Adjusted operating income before
income taxes 823 643 1,709 1,193
Income taxes, applicable to adjusted
operating income 253 142 538 313
------- ------- ------- -------
Financial Services Businesses after-tax
adjusted operating income (1) 570 501 1,171 880
------- ------- ------- -------
Items excluded from adjusted operating
income:
Realized investment gains
(losses), net, and related
charges and adjustments 249 143 485 144
Investment gains (losses) on
trading account assets
supporting insurance
liabilities, net 193 (322) 63 (272)
Change in experience-rated
contractholder liabilities due
to asset value changes (148) 183 (62) 133
Divested businesses 1 (3) (4) (19)
------- ------- ------- -------
Total items excluded from
adjusted operating income
before income taxes 295 1 482 (14)
Income taxes, applicable to items
excluded from adjusted operating
income 67 (8) 88 (20)
------- ------- ------- -------
Total items excluded from
adjusted operating income,
after income taxes 228 9 394 6
------- ------- ------- -------
Income from continuing operations
(after-tax) of Financial Services
Businesses before extraordinary gain on
acquisition and cumulative effect of
accounting change 798 510 1,565 886
Loss from discontinued operations,
net of taxes (44) (11) (45) (18)
Extraordinary gain on acquisition,
net of taxes - 20 - 20
Cumulative effect of accounting
change, net of taxes - - - (79)
------- ------- ------- -------
Net income of Financial Services
Businesses $ 754 $ 519 $1,520 $ 809
======= ======= ======= =======

Direct equity adjustment for earnings
per share calculation (2) 22 23 44 42
------- ------- ------- -------

Earnings available to holders of Common
Stock after direct equity adjustment:

Based on net income $ 776 $ 542 $1,564 $ 851
======= ======= ======= =======

Based on after-tax adjusted
operating income $ 592 $ 524 $1,215 $ 922
======= ======= ======= =======

See footnotes on last page.



Financial Highlights
(in millions, except per share data, unaudited)

Three Months Six Months
Ended Ended
June 30 June 30
----------------- ---------------
2005 2004 2005 2004
-------- -------- ------- -------

Earnings per share of Common Stock
(diluted) (2):

Financial Services Businesses
after-tax adjusted operating
income $ 1.13 $ 0.98 $ 2.30 $ 1.72
Items excluded from adjusted
operating income:
Realized investment gains
(losses), net, and related
charges and adjustments 0.47 0.27 0.92 0.27
Investment gains (losses) on
trading account assets
supporting insurance
liabilities, net 0.37 (0.60) 0.12 (0.51)
Change in experience-rated
contractholder liabilities
due to asset value changes (0.28) 0.34 (0.12) 0.25
Divested businesses - (0.01) (0.01) (0.04)
-------- -------- ------- -------
Total items excluded from adjusted
operating income, before income
taxes 0.56 - 0.91 (0.03)
Income taxes, applicable to
items excluded from adjusted
operating income 0.13 (0.02) 0.17 (0.04)
-------- -------- ------- -------
Total items excluded from adjusted
operating income, after income
taxes 0.43 0.02 0.74 0.01
-------- -------- ------- -------
Income from continuing operations
(after-tax) of Financial Services
Businesses before extraordinary
gain on acquisition and
cumulative effect of accounting
change 1.56 1.00 3.04 1.73
Loss from discontinued
operations, net of taxes (0.08) (0.02) (0.08) (0.03)
Extraordinary gain on
acquisition, net of taxes - 0.04 - 0.04
Cumulative effect of accounting
change, net of taxes - - - (0.15)
-------- -------- ------- -------
Net income of Financial Services
Businesses $ 1.48 $ 1.02 $ 2.96 $ 1.59
======== ======== ======= =======

Weighted average number of
outstanding Common shares
(diluted basis) 525.2 532.2 527.6 536.0
======== ======== ======= =======

Financial Services Businesses
Attributed Equity
(as of end of period):

Total attributed equity $22,375 $19,619
Per share of Common
Stock - diluted 42.82 37.11

Attributed equity excluding
unrealized gains and losses
on investments $20,311 $18,695
Per share of Common
Stock - diluted 38.87 35.36

Number of diluted shares at
end of period 522.5 528.7
======== ========


Adjusted operating income before
income taxes, by Segment (1):
Individual Life and Annuities $ 220 $ 192 $ 437 $ 377
Group Insurance 46 46 84 72
-------- -------- ------- -------
Total Insurance Division 266 238 521 449
-------- -------- ------- -------
Asset Management 105 60 239 118
Financial Advisory (97) (80) (82) (94)
Retirement 142 92 297 144
-------- -------- ------- -------
Total Investment Division 150 72 454 168
-------- -------- ------- -------
International Insurance 327 244 612 459
International Investments 20 25 46 31
-------- -------- ------- -------
Total International Insurance
and Investments Division 347 269 658 490
-------- -------- ------- -------
Corporate and other operations 60 64 76 86
-------- -------- ------- -------
Financial Services Businesses
adjusted operating income before
income taxes 823 643 1,709 1,193
-------- -------- ------- -------
Items excluded from adjusted
operating income:
Realized investment gains
(losses), net, and related
charges and adjustments 249 143 485 144
Investment gains (losses) on
trading account assets
supporting insurance
liabilities, net 193 (322) 63 (272)
Change in experience-rated
contractholder liabilities due
to asset value changes (148) 183 (62) 133
Divested businesses 1 (3) (4) (19)
-------- -------- ------- -------
Total items excluded from adjusted
operating income before income
taxes 295 1 482 (14)
-------- -------- ------- -------
Income from continuing operations
before income taxes, extraordinary
gain on acquisition and cumulative
effect of accounting change -
Financial Services Businesses $ 1,118 $ 644 $2,191 $1,179
======== ======== ======= =======

See footnotes on last page.


Financial Highlights
(in millions, except per share data or as otherwise noted, unaudited)


Three Months Six Months
Ended Ended
June 30 June 30
----------------- ----------------
2005 2004 2005 2004
-------- -------- -------- -------

Insurance Division:

Individual Life Insurance
Sales (3):
Excluding corporate-owned life
insurance
Variable life $ 18 $ 27 $ 37 $ 53
Universal life 53 39 104 71
Term life 30 28 59 60
-------- -------- -------- -------
Total excluding
corporate-owned life
insurance 101 94 200 184
Corporate-owned life insurance 1 1 2 7
-------- -------- -------- -------
Total $ 102 $ 95 $ 202 $ 191
======== ======== ======== =======

Fixed and Variable Annuity Sales
and Account Values:
Gross sales $ 2,022 $ 1,732 $ 3,507 $3,547
======== ======== ======== =======

Net sales $ 499 $ 418 $ 540 $ 830
======== ======== ======== =======

Total account value at end
of period $51,466 $48,649
======== ========

Group Insurance New Annualized
Premiums (4):
Group life $ 30 $ 34 $ 304 $ 161
Group disability 46 15 122 105
-------- -------- -------- -------
Total $ 76 $ 49 $ 426 $ 266
======== ======== ======== =======

Investment Division:

Asset Management Segment:
Assets managed by Investment
Management and Advisory
Services (in billions,
as of end of period):
Retail customers $ 65.7 $ 74.4
Institutional customers 125.3 106.3
General account 157.6 147.6
-------- --------
Total Investment
Management and
Advisory Services $ 348.6 $ 328.3
======== ========
Mutual Funds and Wrap-Fee
Products:

Mutual Funds and Wrap-Fee
Products Sales:

Gross sales, other than
money market $ 6,911 $ 2,694 $13,457 $5,721
======== ======== ======== =======

Net sales (redemptions),
other than money market $ 2,594 $ (441) $ 4,711 $ (133)
======== ======== ======== =======

Assets at end of period:
Mutual funds, excluding
money markets $26,610 $26,463
Money markets 3,836 13,311
Wrap-fee products 46,621 27,728
-------- --------
Total $77,067 $67,502
======== ========


Retirement Segment Sales:

Defined Contribution:

Gross sales $ 2,180 $ 2,239 $ 5,376 $3,363
======== ======== ======== =======

Net sales (withdrawals) $ (54) $ (281) $ 413 $ (692)
======== ======== ======== =======

Guaranteed Products:

Gross sales $ 1,820 $ 1,704 $ 3,753 $2,205
======== ======== ======== =======

Net withdrawals $ (103) $ (617) $ (73) $ (958)
======== ======== ======== =======

International Insurance and
Investments Division:

International Insurance New
Annualized Premiums (5):

Actual exchange rate basis $ 343 $ 224 $ 651 $ 464
======== ======== ======== =======

Constant exchange rate basis $ 333 $ 227 $ 630 $ 467
======== ======== ======== =======

See footnotes on last page.


Financial Highlights
(in millions, except per share data or as otherwise noted, unaudited)


Three Months Six Months
Ended Ended
June 30 June 30
--------------- -----------------
2005 2004 2005 2004
------- ------- -------- --------

Closed Block Business Data:

Income Statement Data:
Revenues $2,117 $1,990 $ 4,098 $ 3,978
Benefits and expenses 1,919 1,945 3,655 3,761
------- ------- -------- --------
Income from operations before
income taxes 198 45 443 217
Income taxes 69 15 151 76
------- ------- -------- --------
Closed Block Business net income $ 129 $ 30 $ 292 $ 141
======= ======= ======== ========

Direct equity adjustment for earnings
per share calculation (2) (22) (23) (44) (42)
------- ------- -------- --------

Earnings available to holders of
Class B Stock after direct equity
adjustment $ 107 $ 7 $ 248 $ 99
======= ======= ======== ========

Net income per share of Class B
Stock $53.50 $ 3.50 $124.00 $ 49.50
======= ======= ======== ========

Weighted average diluted shares
outstanding during period 2.0 2.0 2.0 2.0
======= ======= ======== ========

Closed Block Business Attributed
Equity (as of end of period):

Total attributed equity $1,199 $1,008
Per Share of Class B Stock 599.50 504.00

Attributed equity excluding
unrealized gains and losses on
investments $1,011 $ 375
Per Share of Class B Stock 505.50 187.50

Number of Class B Shares at end
of period 2.0 2.0
======= =======



Consolidated Data:

Consolidated Income Statement Data:
Revenues $8,361 $6,882 $16,110 $13,598
Benefits and expenses 7,045 6,193 13,476 12,202
------- ------- -------- --------
Income from continuing operations
before income taxes,
extraordinary gain on
acquisition and cumulative
effect of accounting change 1,316 689 2,634 1,396
Income tax expense 389 149 777 369
------- ------- -------- --------
Income from continuing operations
before extraordinary gain on
acquisition and cumulative
effect of accounting change 927 540 1,857 1,027
Loss from discontinued operations,
net of taxes (44) (11) (45) (18)
Extraordinary gain on acquisition,
net of taxes - 20 - 20
Cumulative effect of accounting
change, net of taxes - - - (79)
------- ------- -------- --------
Consolidated net income $ 883 $ 549 $ 1,812 $ 950
======= ======= ======== ========

Net income:
Financial Services Businesses $ 754 $ 519 $ 1,520 $ 809
Closed Block Business 129 30 292 141
------- ------- -------- --------
Consolidated net income $ 883 $ 549 $ 1,812 $ 950
======= ======= ======== ========

Assets and Asset Management
Information (in billions, as of end
of period)

Total assets $409.5 $374.8

Assets under management
(at fair market value):
Managed by Investment
Division:
Asset Management Segment -
Investment
Management and
Advisory Services $348.6 $328.3
Non-proprietary assets
under management 46.5 43.6
------- -------
Total managed by
Investment Division 395.1 371.9
Managed by International
Insurance and Investments
Division 74.1 67.0
Managed by Insurance Division 41.8 35.3
------- -------
Total assets under
management 511.0 474.2
Client assets under
administration 90.0 64.6
------- -------
Total assets under
management and
administration $601.0 $538.8
======= =======

See footnotes on last page.




(1) Adjusted operating income is a non-GAAP measure that excludes
Realized investment gains (losses), net (other than those
associated with terminating hedges of foreign currency
earnings and current period yield adjustments), and related
charges and adjustments; net investment gains and losses on
trading account assets supporting insurance liabilities;
extraordinary gain on acquisition; change in experience-rated
contractholder liabilities due to asset value changes; results
of divested businesses and discontinued operations; cumulative
effect of accounting change; and the related tax effects
thereof. Revenues and benefits and expenses shown as
components of adjusted operating income, are presented on the
same basis as pre-tax adjusted operating income and exclude
these items as well.

Adjusted operating income does not equate to "Income from
continuing operations before income taxes, extraordinary gain
on acquisition and cumulative effect of accounting change" as
determined in accordance with GAAP but is the measure of
profit or loss we use to evaluate segment performance.
Adjusted operating income should not be viewed as a substitute
for income determined in accordance with GAAP, and our
definition of adjusted operating income may differ from that
used by other companies. The excluded items are important to
an understanding of our overall results of operations.
However, we believe that the presentation of adjusted
operating income as we measure it for management purposes
enhances the understanding of our results of operations by
highlighting the results from ongoing operations and the
underlying profitability factors of our businesses.

(2) Net income for the Financial Services Businesses and the
Closed Block Business is determined in accordance with GAAP
and includes general and administrative expenses charged to
each of the businesses based on the Company's methodology for
allocation of such expenses. Cash flows between the Financial
Services Businesses and the Closed Block Business related to
administrative expenses are determined by a policy servicing
fee arrangement that is based upon insurance and policies in
force and statutory cash premiums. To the extent reported
administrative expenses vary from these cash flow amounts, the
differences are recorded, on an after-tax basis, as direct
equity adjustments to the equity balances of each business.
The direct equity adjustments modify earnings available to
holders of Common Stock and Class B Stock for earnings per
share purposes. Earnings per share of Common Stock based on
adjusted operating income of the Financial Services Businesses
reflects these adjustments as well.

(3) Scheduled premiums from new sales on an annualized basis and
first year excess premiums and deposits on a cash-received
basis.

(4) Amounts exclude new premiums resulting from rate changes on
existing policies, from additional coverage issued under our
Servicemembers' Group Life Insurance contract, and from excess
premiums on group universal life insurance that build cash
value but do not purchase face amounts. Group insurance new
annualized premiums include premiums from the takeover of
claim liabilities.

(5) Annualized new business premiums. Actual amounts reflect the
impact of currency fluctuations. Constant exchange rates
amounts are based on the average exchange rates for the year
ended December 31, 2004.