Our IPO was truly historic—the largest ever in the insurance industry. And it was the culmination of a lot of years of hard work.

To the more than 4 million shareholders of Prudential Financial, I welcome you. And to the 60,000 employees who worked to get us here, I thank you.

Drawing on our heritage as an insurance company and an asset manager, we've clearly defined our market position as a company that helps clients around the world both grow and protect their wealth.

We've introduced strict disciplines around the use of capital and human resources, exiting businesses that do not support our mission and acquiring valuable new businesses that do. And our management process is driven by consistent adherence to measurable, objective results.

We're improving existing business models and developing new ones to meet the demands of our retail customer base of 11 million households.

Prudential Financial now begins its public life well-capitalized, strategically focused and well-positioned to create value for customers and shareholders. That boils down to two fundamental objectives: growing our businesses and raising our return on equity to market standards.

In the U.S., we believe the keys to growth are threefold:

• raising the quality and value of our products and services;
• expanding our distribution capabilities; and
• increasing productivity.

With these priorities in mind, we're in the process of an important transformation.

We've changed the way we build our portfolio of insurance and investment products. Since 2000, we've applied a unique, research-driven strategy we call "advised choice," which makes selective use of outside asset managers to provide investment advice for our products. Additionally, we've consolidated our self-managed equity products under the highly regarded Jennison Associates, to bring a stronger growth orientation to our product mix. The result of these changes is a range of products—managed both internally and by others—that meets the marketplace demand for greater choice and objectivity.

We've changed the way we deliver investment research and advisory services, focusing on the needs of investors rather than on issuers. We limited our investment banking activities to co-managed roles, simplified our stock rating system, and encouraged greater clarity from our research analysts.

We've changed the way we distribute our products, making greater use of third-party distributors than ever before. Of course, our own domestic sales force—more than 9,000 strong—continues to be the backbone of our franchise.

And in recent years, we've made steady gains in agent productivity through higher production standards, selective recruiting and improved training. We believe the changes we've made in the infrastructure and organization of our field force give us a solid, more cost-effective platform on which to grow.

Prudential Financial has an exciting international growth story, which started in Japan and has extended to other markets in Asia and around the world. We first entered the Japanese market in 1988, and today we're one of the country's fastest growing life insurers.

One key to our success is our "needs-based" business model, which raised the standard for life insurance selling in Japan, and thus contributed to higher productivity, policy persistency and customer satisfaction. During the past decade, we've transferred skills learned in Japan to build successful businesses in Korea and Taiwan, as well as start-up businesses in Europe and Latin America.

Not all of our overseas growth has been organic. Through the years, we've made selected acquisitions that have enhanced our overseas presence and reached beyond the affluent market. A recent example is our April 2001 acquisition of Kyoei Life Insurance, now called Gibraltar Life.

Gibraltar was the 11th-largest insurance company in Japan at the time we purchased it. It has given us instant access to the middle-market consumer and added more than 6,000 agents, 500 offices and nearly 5 million in-force policies. And it has made an immediate positive impact on our bottom line.

Altogether, our international life insurance sales have produced an annual growth rate of 28 percent over the past three years, not including Gibraltar Life. In 2001, with Gibraltar's contribution, they generated nearly $700 million of new annualized premium. To put that in perspective, those new premium numbers would rank among the top five sellers of life insurance in the U.S.

With our overseas life insurance business anchored by our well-established presence in Japan and Korea, we've expanded our asset management, advisory and private client businesses in key international markets. After several years of investment, we're now beginning to see benefits in markets such as Japan, Korea, Taiwan and Mexico.

In our recent history as a mutual company, Prudential's balance sheet has been strong, but our return on equity has lagged public company standards. We've already taken steps to address our cost structure, reducing operating expenses by $170 million in 2001. And our business strategy is focused on using our strengths to bring our return on equity to market standards over the next few years. We believe our success in attaining this goal will translate directly into increased shareholder value.

Diversified earnings can mitigate risk. Our adjusted operating income in 2001 came from a mix of financial services businesses and geographic areas. Twenty-five percent of 2001 adjusted operating income came from our U.S. consumer businesses, 17 percent from asset management businesses, 15 percent from employee benefits businesses, and 41 percent from international businesses.

International business growth trends are positive. Our international insurance business has delivered strong earnings growth over a number of years and contributes an increasing percentage of our adjusted operating income.

Our domestic life insurance business has made the infrastructure changes we believe are necessary to produce increases in earnings. We have restructured our sales force, improved service and expanded our third-party distribution. Agent productivity and policy persistency have been rising since 1996.

We are transforming our U.S. securities business to help reduce earnings volatility. Our goal is to increase recurring revenue, as opposed to transaction revenue which is largely dependent on retail stock market trading volume. This year, 35 percent of total non-interest revenue was derived from recurring revenue sources, such as wrap-fee programs and managed money accounts. That's up from about 30 percent in 2000.

Specific earnings targets by business create accountability for results.  Over the past several years, we've given our management team clear ROE targets for each of our businesses.

Institutional relationships can provide opportunities for leverage. More than 24,000 institutions rely on Prudential Financial for high-quality employee benefits. Through worksite marketing, we have an excellent opportunity to create new individual customer relationships and deepen existing ones.

Redeployment of capital gives us flexibility. After demutualization we held over $2 billion in cash at the parent company which may be used to accelerate growth of existing businesses, buy back stock, or make acquisitions. Our selection among these alternatives will be driven by our commitment to building shareholder value through ROE growth. In addition, we believe that we have other underutilized capital that will be aggressively managed to enhance our ROE.

Acquisitions will be part of our strategy but will continue to be pursued with discipline. In evaluating candidates, our number one priority will be return on equity. Our acquisition of Kyoei Life in 2001 is an example of a transaction that has enhanced our ROE.

Raising our return on equity is, of course, also dependent on many factors beyond our control. Chief among them is performance of the financial markets. Our plans assume that market conditions will be consistent with their long-term historical norms, although our goal is to build our businesses to sustain profitability even in uncertain times.

Prudential Financial is ready to meet the demands of public ownership.

Our mission is clear: to help clients around the world both grow and protect their wealth.

Our domestic business is in the midst of an important transformation, focusing on serving the right clients, with the right products and services, and at the right cost.

Our international businesses have expanded rapidly, and we will continue to look abroad for sources of future growth.

Our target for raising our return on equity is challenging, but we believe it is appropriate for Prudential, and our resolve for meeting it is strong.

Having a globally recognized brand is a great source of strength.

And, our history is an important reminder of what Prudential Financial can achieve. Our company has stood strong for more than 125 years. Through it all, we've been challenged, and we've adapted. We will continue to grow and change. But one thing remains constant: We are, and will always be, Rock Solid.

Arthur F. Ryan Chairman & Chief Executive Officer

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