<PAGE>
This report is for the information of persons participating in The Prudential
Variable Contract Account-2 (VCA-2, Long Term Growth Account, or the Account).
Under contracts entered into in 1968, The Prudential Insurance Company of
America (The Prudential) is responsible for providing administrative and
investment management services to VCA-2. During 1984, The Prudential reorganized
its pension and investment departments and transferred certain of their
personnel to subsidiary companies. As a result, The Prudential now receives,
from The Prudential Asset Management Company, Inc. and The Prudential Investment
Corporation, the administrative and investment management services,
respectively, that The Prudential requires to perform its obligations under
contracts with VCA-2. These changes in no way affect Prudential's responsibility
to VCA-2 for these services.
INVESTMENT OBJECTIVE
VCA-2 will invest primarily in common stocks selected with the objective of
long-term growth, taking into account both income and capital appreciation.
Investments will be made according to the standards of a prudent investor
concerned primarily with the preservation of capital and the long-term prospects
for its growth in relation to both the growth of the economy and the changing
value of the dollar. There is no assurance that this investment objective will
be attained. There is no guarantee that the amount available to a person for
whom purchase payments have been made will equal or exceed the total purchase
payments made on that person's behalf. The value of the investments held in
VCA-2 fluctuates daily, and is subject to the risks of changing economic
conditions and risks inherent in the selection of investments necessary to meet
the Account's objective.
GP-4402
<PAGE>
VCA-2
INVESTMENT ENVIRONMENT
The S&P 500 index barely budged for the fourth quarter of 1994, losing 0.02%;
thereby posting only a 1.3% return for the year. Both periods were a tug-of-war
between the positive of strong corporate earnings and the negative of rising
interest rates.
The technology sector was, by far, the best performing sector for both the
quarter and the year. Strong personal computer (PC) sales to both businesses and
consumers allowed those in the PC business to more than make up in volume what
they have lost in pricing. Conversely, the consumer cyclical sector was the
worst performer for the fourth quarter and the year. Poor performance in the
retail industry was the main driver of a weak fourth quarter. Investors had
expected a strong Christmas selling season, but were disappointed by slower than
expected sales and extensive (and early) price cutting. Responsibility for the
poor performance of the cyclical sector is placed on the retail, autos/trucks,
and housing related industries. Fears of a slowdown in the economy, which would
affect consumer confidence, and hence consumers' housing and auto purchases,
were evident.
The utility sector also performed poorly for both the quarter and year. The
telecommunications industry was largely responsible for the quarter's weak
performance, as a long distance price war hurt the prospects of AT&T, MCI and
Sprint. Electric utility companies were primarily at fault for the year's poor
performance as they were hurt by both rising interest rates and deregulation.
Rising interest rates and derivatives exposure (and potential
derivatives-related scandals) caused the finance sector to underperform for the
quarter and the year. The only areas of strength, other than the technology
sector, were in the energy (mainly large integrated oil companies) and consumer
growth/stable sectors. Their more predictable earnings attracted investors as
the uncertainty surrounding a possible economic slowdown persisted.
INVESTMENT PERFORMANCE
STOCK MARKET RETURNS
(with dividends reinvested)
<TABLE>
<CAPTION>
PERIODS ENDING DECEMBER
31, 1994
SIX MONTHS ONE YEAR
<S> <C> <C>
S&P 500 4.9% 1.3%
Returns By Economic Sector:
Technology 19.7% 20.4%
Energy 3.7% 3.9%
Industrial 1.7% (0.7)%
Utility (1.2)% (7.6)%
Finance (4.4)% (3.2)%
Consumer Cyclical (6.2)% (12.2)%
Consumer Growth & Stable 13.5% 7.5%
</TABLE>
The VCA-2 Account was down 1.3% during 1994, underperforming the S&P 500 index
by 2.6%. This was primarily the result of bad performance in the consumer
growth/stable sector.
2
<PAGE>
INVESTMENT ACTIVITY
During 1994, VCA-2 retained its strongest sector bets, remaining underweighted
in the utility and energy sectors and overweighted in the finance and industrial
sectors. The most significant shift in sector weighting for the year was in the
technology sector, as it was moved from a small overweighting to an
underweighted position. The second most significant shift in sector weighting
was in the consumer growth/stable sector, reducing its underweighting. This was
primarily the result of purchases in the drug and medical supply, hospital
management, and media industries.
INVESTMENT OUTLOOK
U.S. corporate earnings are expected to continue to grow, although at a somewhat
reduced rate. Despite the interest rate increases in 1994, investors were
pleasantly surprised by profits during the past year, which were achieved
largely on the basis of increased corporate efficiency. While this efficiency
will be a factor going forward, its impact will not be nearly as great, but as
the global economy recovers, earnings should benefit. The equity returns of 1995
are expected to surpass those of 1994. We believe returns should approach their
long-term average of about 10%, but remain lower than the 14+% average that has
been experienced over the last ten years. While much further tightening by the
Fed is not anticipated, there is concern that significant interest rate
increases by the Fed could lead to recession.
3
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR VCA-2
NET INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT
(For an Accumulation Unit outstanding throughout the year)
(Covered by the Independent Auditors' Report on Page 6)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME................................................... $ .1896 $ .2823 $ .1635 $ .1629 $ .2278
- ------------------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee..................................... .0151 .0138 .0111 .0094 .0079
For assuming mortality and expense risks.......................... .0453 .0412 .0335 .0285 .0239
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME............................................... .1292 .2273 .1189 .1250 .1960
- ------------------------------------------------------------------------------------------------------------
CAPITAL CHANGES
Net realized gain on investments.................................. 1.0028 1.1147 1.2862 .6231 .1523
Net unrealized appreciation/(depreciation) of investments......... (1.2955) .9803 (.2121) 1.4671 (.5709)
- ------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN ACCUMULATION UNIT VALUE.................. (.1635) 2.3223 1.1930 2.2152 (.2226)
- ------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE
Beginning of year................................................. 12.1567 9.8344 8.6414 6.4262 6.6488
End of year....................................................... $ 11.9932 $ 12.1567 $ 9.8344 $ 8.6414 $ 6.4262
- ------------------------------------------------------------------------------------------------------------
SUM OF AVERAGE RATIOS for the year of (a) charge for investment
management fee to net assets*, and (b) charge for assuming
mortality and expense risks to net assets*........................ .4991% .4984% .4975% .4970% .4999%
- ------------------------------------------------------------------------------------------------------------
AVERAGE RATIO for the year of net investment income to net assets... 1.0664% 2.056% 1.3253% 1.6372% 3.0779%
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................................. 36.85% 46.91% 73.24% 78.94% 107.56%
- ------------------------------------------------------------------------------------------------------------
NUMBER OF ACCUMULATION UNITS OUTSTANDING
for Participants at end of year (000 omitted)..................... 32,624 32,968 33,147 34,228 35,218
- ------------------------------------------------------------------------------------------------------------
<FN>
*These calculations exclude The Prudential's equity in VCA-2.
</TABLE>
The above table does not reflect the annual administration charge, which does
not affect the Accumulation Unit Value. This charge is made by reducing
Participants' Accumulation Accounts by a number of Accumulation Units equal in
value to the charge.
While both income and capital changes are shown above, the distinction between
these sources of change in VCA-2 is not particularly significant to
Participants. There is no distinction between income and realized and
unrealized gains and losses on investments in determining the amount of the
Participant's benefits and the taxes payable by the Participant on them.
4
<PAGE>
REPORT OF MANAGEMENT
The accompanying financial statements and all information in the annual report
are the responsibility of management of The Prudential Insurance Company of
America (The Prudential). These financial statements have been prepared in
accordance with generally accepted accounting principles, and necessarily
include amounts based on best estimates and judgments. Information presented in
one section of the annual report is consistent with information dealing with the
same or substantially similar subject matter presented elsewhere in the annual
report.
The system of internal controls for VCA-2 is an integral part of that for The
Prudential. This system is designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with proper authorization. The concept of reasonable assurance is
based on the premise that the cost of internal controls should not exceed the
benefits derived. In addition, The Prudential maintains a professional staff of
internal auditors who monitor VCA-2's control structure through periodic reviews
and tests of the control aspects of accounting, financial and operating
activities. The internal auditors coordinate their program with that of the
independent certified public accountants.
The financial statements have been audited by Deloitte & Touche LLP, Certified
Public Accountants. The Independent Auditors' Report, which appears in this
annual report, expresses an independent professional opinion on the fairness of
presentation, in all material respects, of management's financial statements.
The auditors review VCA-2's financial and accounting controls and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement.
The Prudential's Board of Directors, through its Auditing Committee, and the
VCA-2 Committee monitor management's fulfillment of its responsibilities for
accurate accounting, statement preparation and protection of assets. The
Auditing Committee is composed solely of outside directors and the VCA-2
Committee has a majority of outside members. Both The Prudential's Auditing
Committee and the outside members of the VCA-2 Committee meet with the
independent certified public accountants, management and internal auditors
periodically to evaluate each party's execution of their respective
responsibilities. Each has free and separate access to the Auditing and VCA-2
Committees to discuss accounting, financial reporting, internal control and
auditing matters.
Mark R. Fetting
Chairman
VCA-2 Committee
Eugene M. O'Hara
Chief Financial Officer
The Prudential Insurance Company of America
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE COMMITTEE OF AND PERSONS PARTICIPATING IN THE PRUDENTIAL VARIABLE
CONTRACT ACCOUNT-2:
We have audited the accompanying statement of net assets of The Prudential
Variable Contract Account-2 of The Prudential Insurance Company of America as of
December 31, 1994, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the condensed financial information for each of the five years
in the period then ended. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodians and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and condensed financial information
present fairly, in all material respects, the financial position of The
Prudential Variable Contract Account-2 as of December 31, 1994, the results of
its operations, the changes in its net assets and the condensed financial
information for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 16, 1995
6
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.7%)
Gen Corp. 218,500 $ 2,594,687
General Motors Corp. (Class 'H' Stock) 116,900 4,076,887
Littelfuse, Inc.+ 75,000 2,193,750
Litton Industries, Inc.+ 70,000 2,590,000
------------
11,455,324
- ---------------------------------------------------
AUTOS & TRUCKS (3.3%)
Automotive Industries Holding, Inc.+ 243,600 4,932,900
Ford Motor Co. 120,000 3,345,000
General Motors Corp. 49,200 2,072,550
Modine Manufacturing Co. 117,000 3,363,750
------------
13,714,200
- ---------------------------------------------------
CHEMICALS (1.6%)
Imperial Chemical Industries (ADRs) 100,000 4,650,000
W. R. Grace & Co. 49,800 1,923,525
------------
6,573,525
- ---------------------------------------------------
COMMERCIAL SERVICES (0.3%)
UNC, Inc.+ 213,200 1,279,200
- ---------------------------------------------------
COMPUTER SOFTWARE & SERVICES (2.0%)
General Motors Corp. (Class 'E' Stock) 106,700 4,094,613
National Data Corp. 158,700 4,086,525
------------
8,181,138
- ---------------------------------------------------
CONTAINERS & PACKAGING (2.0%)
Aptargroup, Inc. 33,600 966,000
Ball Corp. 126,000 3,969,000
Owens-Illinois, Inc. (New)+ 191,000 2,101,000
Seda Specialty Packaging+ 105,400 1,238,450
------------
8,274,450
- ---------------------------------------------------
CONSUMER CYCLICAL INDICES (0.1%)
Florsheim Shoe Company+ 44,980 253,012
- ---------------------------------------------------
CONSUMER SERVICES (2.0%)
ADT Ltd.+ 204,300 2,196,225
Diebold, Inc. 144,900 5,959,013
------------
8,155,238
- ---------------------------------------------------
COSMETICS & SOAPS (0.5%)
Bush Boake Allen, Inc.+ 84,700 2,286,900
- ---------------------------------------------------
DIVERSIFIED CONSUMER PRODUCTS (2.0%)
Eastman Kodak Co. 75,000 3,581,250
Whitman Corp. 269,900 4,655,775
------------
8,237,025
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
DRUGS & MEDICAL SUPPLIES (4.4%)
Gelman Sciences, Inc.+ 122,100 $ 1,816,238
Schering Plough Corp. 52,200 3,862,800
Sterile Concepts Holdings+ 171,000 2,736,000
Warner Lambert Co. 57,900 4,458,300
Zeneca Group PLC (ADRs) 132,000 5,428,500
------------
18,301,838
- ---------------------------------------------------
ELECTRICAL EQUIPMENT (1.8%)
Belden, Inc. 180,900 4,002,413
Cable Design Technologies+ 202,600 3,342,900
------------
7,345,313
- ---------------------------------------------------
ENGINEERING & CONSTRUCTION (0.6%)
Giant Cement Holding, Inc.+ 200,000 2,375,000
- ---------------------------------------------------
ELECTRONICS (2.0%)
Marshall Industries+ 166,900 4,464,575
Methode Electronics, Inc. 230,000 3,910,000
------------
8,374,575
- ---------------------------------------------------
EXPLORATION & PRODUCTION (3.1%)
Cabot Oil & Gas Corp. 203,500 2,950,750
Enron Oil & Gas 52,200 978,750
Mesa Incorporated+ 303,000 1,477,125
Murphy Oil Corp. 12,500 531,250
Oryx Energy Co.+ 300,000 3,562,500
Parker & Parsley Petroleum Co. 62,700 1,285,350
Seagull Energy Corp.+ 121,800 2,329,425
------------
13,115,150
- ---------------------------------------------------
FINANCIAL SERVICES (5.0%)
American Express Co. 125,000 3,687,500
Dean Witter Discover & Co. 188,300 6,378,663
Financial Security Assurance Holdings
Ltd. 94,700 1,988,700
ITT Corp. 49,200 4,360,350
Safecard Services, Inc. 225,000 4,246,875
------------
20,662,088
- ---------------------------------------------------
FOOD/DRUG RETAIL (0.5%)
Rite Aid Corp. 91,000 2,127,125
- ---------------------------------------------------
FOODS (0.2%)
Universal Foods Corp. 36,800 1,012,000
- ---------------------------------------------------
FOREST PRODUCTS (1.5%)
Mead Corp. 125,000 6,078,125
- ---------------------------------------------------
HOSPITAL MANAGEMENT (4.8%)
Community Health Systems+ 200,000 5,450,000
Healthtrust, Inc.+ 250,100 7,940,675
National Medical Enterprises+ 480,000 6,780,000
------------
20,170,675
- ---------------------------------------------------
</TABLE>
7
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
HOUSING RELATED (3.4%)
Leggett & Platt, Inc. 43,700 $ 1,529,500
Mueller Industries, Inc.+ 141,400 4,224,325
Owens Corning Fiberglass Corp. (New)+ 135,300 4,312,687
Ply-Gem Industries, Inc. 216,900 4,148,213
------------
14,214,725
- ---------------------------------------------------
INSURANCE (7.1%)
Emphesys Financial Group 86,600 2,749,550
Equitable of Iowa Companies 240,000 6,780,000
Life Reinsurance Corp. 71,700 1,263,712
NAC Re Corp. 40,000 1,340,000
National Re Corp. 103,000 2,703,750
Provident Life & Accident Insurance
(Class 'B' Stock) 132,200 2,875,350
Reinsurance Group of America 52,100 1,282,963
TIG Holdings, Inc. 150,000 2,812,500
Trenwick Group, Inc. 60,000 2,542,500
Western National Corp. 277,600 3,574,100
W. R. Berkley Corp. 42,000 1,575,000
------------
29,499,425
- ---------------------------------------------------
INTEGRATED PRODUCERS (1.3%)
Societe Nat Elf Aquitane (ADRs)+ 150,000 5,287,500
- ---------------------------------------------------
LODGING/GAMING (1.2%)
Caesars World, Inc.+ 73,600 4,912,800
- ---------------------------------------------------
MACHINERY (6.2%)
Applied Power Co. (Class 'A' Stock) 180,000 4,567,500
Donaldson Co., Inc. 220,000 5,255,932
Idex Corp.+ 90,000 3,802,500
Indresco, Inc.+ 296,700 4,227,975
Kaydon Corp. 106,400 2,553,600
Parker-Hannifan Corp. 25,700 1,169,350
Regal Beloit Corp. 307,900 4,195,137
------------
25,771,994
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
MEDIA (9.7%)
American Publishing Co. (Class 'A'
Stock) 218,300 $ 2,401,300
Central Newspapers (Class 'A' Stock) 65,300 1,836,562
Comcast Corp. (Class 'A' Stock) 180,000 2,767,500
Comcast Corp. Special (Class 'A' Stock) 90,000 1,411,875
Harcourt General, Inc. 68,800 2,425,200
Lee Enterprises 114,500 3,950,250
Pulitzer Publishing Co. 44,600 1,789,575
Scripps (EW) Co. (Class 'A' Stock) 80,000 2,420,000
T C A Cable TV, Inc. 120,000 2,610,000
Tele-Communications, Inc. (New) (Class
'A' Stock)+ 240,000 5,220,000
Time Warner, Inc. 206,900 7,267,362
Times Mirror Co. Ser A 115,700 3,630,088
Western Publishing Group, Inc.+ 296,100 2,812,950
------------
40,542,662
- ---------------------------------------------------
MISCELLANEOUS-INDUSTRIAL (8.9%)
Ametek, Inc. 227,800 3,844,125
Coltec Industries, Inc.+ 105,300 1,803,262
Danaher Corp. 65,500 3,422,375
Itel Corp. (New)+ 64,900 2,247,162
Jason, Inc.+ 285,400 2,568,600
Mark IV Industries, Inc. 204,000 4,029,000
Material Sciences Corp.+ 262,500 4,167,188
Pentair, Inc. 124,300 5,313,825
Rockwell International Corp. 64,000 2,288,000
Varlen Corp. 150,000 3,900,000
Wolverine Tube, Inc.+ 138,500 3,289,375
------------
36,872,912
- ---------------------------------------------------
MONEY CENTER BANKS (1.2%)
First Interstate Bancorp 75,000 5,071,875
- ---------------------------------------------------
RAILROADS (2.4%)
Chicago & Northwestern Transp.+ 110,000 2,145,000
Greenbrier Companies, Inc. 231,200 3,814,800
Illinois Central Corp. 124,500 3,828,375
------------
9,788,175
- ---------------------------------------------------
REGIONAL BANKS (6.7%)
Cullen Frost Bankers, Inc. 150,000 4,631,250
First Bank System Inc. 187,310 6,219,273
Keycorp (New) 241,000 6,025,000
Norwest Corp. 328,500 7,678,687
Summit Bancorp 173,360 3,358,850
------------
27,913,060
- ---------------------------------------------------
</TABLE>
8
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
RESTAURANTS (1.7%)
CKE Restaurants, Inc. 99,300 $ 682,688
Morrison Restaurants, Inc. 66,600 1,631,700
Sbarro, Inc. 187,500 4,875,000
------------
7,189,388
- ---------------------------------------------------
RETAIL (1.1%)
Ethan Allen Interiors, Inc.+ 70,800 1,716,900
Haverty Furniture, Inc. 100,500 1,180,875
K Mart Corp. 128,900 1,675,700
------------
4,573,475
- ---------------------------------------------------
SPECIALTY CHEMICALS (3.0%)
Ferro Corp. 227,400 5,429,175
M.A. Hanna Co. 144,100 3,422,375
OM Group, Inc. 151,000 3,624,000
------------
12,475,550
- ---------------------------------------------------
TELECOMMUNICATION SERVICES (3.5%)
Airtouch Communications, Inc.+ 65,000 1,893,125
Century Telephone Enterprises, Inc. 150,000 4,425,000
MCI Communications Corp. 217,700 4,000,238
Rochester Telephone Corp. 200,000 4,225,000
------------
14,543,363
- ---------------------------------------------------
TEXTILES/APPAREL (1.3%)
Interco, Inc.+ 306,600 2,069,550
Paxar Corp.+ 343,750 3,437,500
------------
5,507,050
- ---------------------------------------------------
TRUCKING/SHIPPING (0.5%)
Ryder System, Inc. 90,000 1,980,000
- ---------------------------------------------------
TOTAL COMMON STOCK INVESTMENTS (99.6%)
(Cost: $365,724,336) $414,115,855
<CAPTION>
- ---------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Bell Atlantic Network Funding Corp.,
6.00%
Loan Participation, Due 01/03/95 $ 2,902,000 $ 2,902,000
- ---------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (0.7%)
(Cost: $2,902,000) $ 2,902,000
- ---------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost: $368,626,336) $417,017,855
- ---------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Bank Overdraft $ (1,998,081)
Dividends and Interest Receivable 334,101
Receivables for Investments Sold 16,932
Payables for Investments Purchased (502,931)
Pending Transfers 1,011,360
- ---------------------------------------------------
TOTAL OTHER ASSETS, LESS
LIABILITIES (-0.3%) $ (1,138,619)
- ---------------------------------------------------
NET ASSETS (100.0%) $415,879,236
- ---------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
32,623,680 Accumulation Units at an
Accumulation Unit Value of
$11.9932 (rounded) $391,261,951
Equity of Annuitants 21,164,456
Equity of The Prudential Insurance
Company of America 3,452,829
- ---------------------------------------------------
$415,879,236
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipts
PLC Public Limited Company
+Non income producing securities
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2]
Dividends $ 6,498,407
Interest 307,902
- ------------------------------------------------------------------------------------------------------------
6,806,309
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Services 544,330
Fees Charged to Participants (other than Annuitants) for Assuming Mortality and Expense
Risks 1,540,861
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 4,721,118
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NET
Realized Gain on Investments--Net 35,115,467
Unrealized Decrease in Value of Investments--Net (45,435,899)
- ------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (10,320,432)
- ------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (5,599,314)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income--Net $ 4,721,118 $ 8,014,542
Realized Gain on Investments--Net 35,115,467 40,030,376
Unrealized Increase/(Decrease) in Value of
Investments--Net (45,435,899) 35,197,371
- -------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS (5,599,314) 83,242,289
- -------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In [Note 3] 18,494,103 15,597,429
Withdrawals and Transfers Out (22,143,730) (16,927,292)
Annual Administration Charges Deducted From Participants'
Accumulation
Accounts [Note 3] (42,008) (42,616)
Mortality & Expense Risk Charges Deducted From Annuitants'
Accounts [Note 3] (92,130) (95,183)
Variable Annuity Payments (2,855,584) (2,749,317)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (6,639,349) (4,216,979)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (13,605) (7,513,535)
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE/(DECREASE)IN NET ASSETS (12,252,268) 71,511,775
NET ASSETS
Beginning of Year 428,131,504 356,619,729
- -------------------------------------------------------------------------------------------------------
End of Year $ 415,879,236 $ 428,131,504
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-2 (VCA-2 or the Account) was
established by The Prudential Insurance Company of America (The
Prudential) under the laws of the State of New Jersey and is registered
as an open-end, diversified management investment company under the
Investment Company Act of 1940, as amended. VCA-2 has been designed for
use by public school systems and certain tax-exempt organizations to
provide for the purchase and payment of tax-deferred variable
annuities. Its investments are composed primarily of common stocks. All
contractual and other obligations arising under contracts participating
in VCA-2 are general corporate obligations of The Prudential, although
Participants' payments from the Account will depend upon the investment
experience of the Account.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. INVESTMENTS
EQUITY SECURITIES
The value of securities (except convertible bonds) held in VCA-2 will
be determined once daily as of 5:00 P.M., New York time ("Valuation
Time") using composite pricing which reflects prices as of the close of
business on all major exchanges, on each day on which the New York
Stock Exchange ("NYSE") is open for trading and, as provided below, on
any other day in which there is sufficient trading in VCA-2's portfolio
securities to result in a material change in the value of the Account.
A security that is traded on a national securities exchange will be
valued at the last sale price for such security on any major exchange
on which such security is traded as of Valuation Time, or, in the
absence of recorded sales on such exchange on the valuation date, at
the average of readily available bid and asked prices on such exchange
at the Valuation Time. Any security not traded on a national securities
exchange but traded in the over-the-counter market for which quotations
are furnished through the nationwide automated quotation system
approved by the National Association of Securities Dealers, Inc.
("NASDAQ") will be valued based on the last sale price as of the
Valuation Time on each day on which the NYSE is open for trading, or,
in the absence of recorded sales on such day, at the average of readily
available bid and asked prices, as established by NASDAQ at the
Valuation Time. Unlisted securities not quoted on NASDAQ are valued at
the average of the quoted bid and asked prices in the over-the-counter
market at the Valuation Time. Portfolio securities for which market
quotations are not readily available will be valued at fair value as
determined in good faith under the direction of the Account's
Committee.
FIXED INCOME SECURITIES
Fixed income securities including convertible bonds are valued based on
prices provided by an industry-recognized pricing service when such
prices are believed to reflect the fair market value of such
securities. Fixed income securities including convertible bonds not
priced in this manner are valued at the mean of the last reported bid
and asked prices provided by principal market makers and recognized
securities dealers in such securities.
SHORT-TERM INVESTMENTS
Short-term investments having maturities of sixty days or less are
valued at amortized cost, which approximates market value. Amortized
cost is computed using the cost on the date of purchase, adjusted for
constant accrual of discount or amortization of premium to maturity.
B. INCOME RECOGNITION
Income and realized and unrealized gains and losses on investments are
allocated to the Participants (including Annuitants) and The Prudential
on a daily basis in proportion to their respective equities in VCA-2.
Realized gains and losses from equity transactions are determined and
accounted for on the basis of average cost. Realized gains and losses
from convertible bond transactions are determined and accounted for on
the basis of identified cost. Dividend income is recorded on the
ex-dividend date at the declared value. Interest income is accrued
daily. Equity and long-term bond transactions are recorded on the first
business day following the trade date, except that transactions on the
last business day of the year are recorded on that date. Short-term
security transactions are recorded on the trade date.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
C. TAXES
The operations of VCA-2 are part of, and are taxed with, the operations
of The Prudential. Under the current provisions of the Internal Revenue
Code, The Prudential does not expect to incur federal income taxes on
earnings of VCA-2 to the extent the earnings are credited under the
Contracts. As a result, the Unit Value of VCA-2 has not been reduced by
federal income taxes.
D. EQUITY OF ANNUITANTS
Reserves are computed for purchased annuities using The Prudential 1950
Group Annuity Valuation (GAV) Table, adjusted, and a valuation interest
rate related to the Assumed Investment Result (AIR). The valuation
interest rate is equal to the AIR less .5% which is a charge defined in
Note 3A. The AIRs are selected by the Contract-holder and are described
in the prospectus.
NOTE 3: CHARGES
A. The expenses charged to VCA-2 consist of the following contract
charges which are paid to The Prudential:
(i) An investment management fee is calculated daily at an
effective annual rate of 0.125% of the current value of the
accounts of Participants (other than Annuitants). An
equivalent charge is made monthly in determining the amount
of Annuitants' payments.
(ii) A daily charge for assuming mortality and expense risks is
calculated at an effective annual rate of 0.375% of the
current value of the accounts of Participants (other than
Annuitants). A one-time equivalent charge is deducted when
the initial Annuity Units for Annuitants are determined.
Thus, the first and subsequent annuity payments reflect the
reduced number of Annuity Units.
B. An annual administration charge is deducted from the accumulation
account of each Participant at the time of withdrawal of the value
of all of the Participant's accounts or at the end of the
accounting year by cancelling Accumulation Units. This deduction
may be made from a fixed-dollar annuity contract if the Participant
is enrolled under such a contract. The charge is not greater than
$60 in a Participant's first year of coverage and not greater than
$30 annually thereafter.
C. A deduction of 2.5% for sales and other marketing expenses is made
from each Participant's purchase payments.
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the year ended December 31, 1994, excluding short-term investments
and U.S. government securities, the aggregate cost of purchases and the
proceeds from sales of securities were $157,752,797 and $153,958,850,
respectively.
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years
ended December 31, 1994 and 1993 is as follows:
<TABLE>
<S> <C> <C>
1994 1993
--------------------------------------------
Units issued 1,540,899 1,419,600
--------------------------------------------
Units redeemed 1,885,478 1,597,909
--------------------------------------------
</TABLE>
NOTE 6: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents
the net withdrawals from the Equity of The Prudential from VCA-2.
NOTE 7: RELATED PARTY TRANSACTIONS
For the year ended December 31, 1994, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of The Prudential,
earned $5,851 in brokerage commissions from portfolio transactions
executed on behalf of VCA-2.
12
