Prudential 2007 Annual Report Download - page 123

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
4. INVESTMENTS (continued)
of zero million) and $341 million (net of a valuation allowance of zero million), respectively. As of December 31, 2007 and 2006, all of the
Company’s commercial loans held for sale were collateralized, with collateral primarily consisting of office buildings, retail stores,
apartment complexes and industrial buildings. In certain transactions, the Company prearranges that it will sell the loan to an investor. As
of December 31, 2007 and 2006, $306 million and $93 million, respectively, of loans held for sale are subject to such arrangements.
Commercial mortgage loans in securitization transactions accounted for by the Company as sales totaled $3,589 million, $2,704
million and $2,437 million, for the years ended December 31, 2007, 2006 and 2005, respectively. The Company generally retains the
servicing responsibilities related to its commercial loan securitizations. As of December 31, 2007, the Company also held commercial
mortgage-backed securities representing a $191 million retained beneficial interest in the mortgage loans the Company transferred to
certain securitization vehicles in 2007. These commercial mortgage-backed securities are classified as “Other trading account assets.” The
Company recognized net pre-tax losses of $57 million for the year ended December 31, 2007, and net pre-tax gains of $36 million and $36
million for the years ended December 31, 2006 and 2005, respectively, in connection with securitization transactions, which are recorded in
“Realized investment gains (losses), net.”
Other Long-term Investments
“Other long-term investments” are comprised as follows at December 31:
2007 2006
(in millions)
Joint ventures and limited partnerships:
Real estate related .......................................................................... $ 956 $ 764
Non real estate related ....................................................................... 2,797 1,426
Total joint ventures and limited partnerships .......................................................... 3,753 2,190
Real estate held through direct ownership ................................................................ 1,832 1,168
Other ............................................................................................ 846 1,387
Total other long-term investments .................................................................. $6,431 $4,745
In certain investment structures, the Company’s asset management business invests with other co-investors in an investment fund
referred to as a feeder fund. In these structures, the invested capital of several feeder funds is pooled together and used to purchase
ownership interests in another fund, referred to as a master fund. The master fund utilizes this invested capital, and in certain cases other
debt financing, to purchase various classes of assets on behalf of its investors. Specialized industry accounting for investment companies
calls for the feeder fund to reflect its investment in the master fund as a single net asset equal to its proportionate share of the net assets of
the master fund, regardless of its level of interest in the master fund. In cases where the Company consolidates the feeder fund, it retains the
feeder fund’s net asset presentation and reports the consolidated feeder fund’s proportionate share of the net assets of the master fund in
“Other long-term investments,” with any unaffiliated investors’ minority interest in the feeder fund reported in “Other liabilities.” As of
December 31, 2007 and 2006 respectively, the consolidated feeder funds’ investments in these master funds, reflected on this net asset
basis, totaled $839 million and $225 million. The minority interest in the consolidated feeder funds was $59 million and $0 million as of
December 31, 2007 and 2006, respectively, and the master funds had gross assets of $11.0 billion and $8.5 billion, respectively, and gross
liabilities of $10.0 billion and $8.2 billion, respectively, which are not included on the Company’s balance sheet.
Prudential Financial 2007 Annual Report 121