<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
LONG TERM GROWTH ACCOUNT
COMMITTED TO PROVIDING
SUPERIOR INVESTMENT,
ADMINISTRATIVE AND
RECORDKEEPING SERVICES
TO INSTITUTIONAL CLIENTS
Prudential Defined Contribution Services
30 Scranton Office Park
Moosic, PA 18507-1789
(1) 800-458-6333
DECEMBER 31, 1995 REPORT TO PARTICIPANTS
<PAGE>
VCA-2
INVESTMENT ENVIRONMENT
In the fourth quarter the S&P 500 continued its upward surge returning 6.0%.
This brought the S&P 500's full year return to 37.6%, its best calendar year
showing since 1958. For the fourth quarter, as well as for the year, the
market's outstanding performance was attributable to generally good corporate
earnings, subdued inflation, falling interest rates and favorably viewed
corporate restructurings.
The Technology sector, which had been the best performing sector for the first
nine months, "cooled-off" during the fourth quarter and was the worst performing
sector, down 2.8%. Disappointing earnings reports from a number of companies
contributed to this underperformance, as did some signs of pricing
deterioration. The Consumer Cyclical sector was the second worst performer for
the fourth quarter (-0.04%) and by far the worst performer for the year, up
"only" 13.3%. Retail was the worst performing industry within the sector for
both periods, as it has been hurt by a glut of stores and a retrenching
consumer.
The Energy sector was the best performing sector for the fourth quarter, up
11.6%. The Integrated Producers industry, which comprises most of the sector,
appeared to be playing "catch-up" with the rest of the market. In addition,
colder weather and low natural gas inventories also contributed. The Consumer
Growth & Stable sector was the second best performer for the fourth quarter, as
many growth stock investors appeared to be redeploying cash generated from
selling within the Technology sector.
INVESTMENT PERFORMANCE
STOCK MARKET RETURNS
(with dividends reinvested)
<TABLE>
<CAPTION>
PERIODS ENDING DECEMBER
31, 1995
SIX MONTHS ONE YEAR
<S> <C> <C>
S&P 500 14.45% 37.58%
Returns By Economic Sector:
Technology 2.64% 42.74%
Energy 14.13% 30.86%
Industrial 9.95% 30.19%
Utility 22.55% 38.87%
Finance 21.05% 53.45%
Consumer Cyclical 1.31% 13.32%
Consumer Growth & Stable 19.61% 42.92%
</TABLE>
The VCA-2 Account was up 28.4% for full-year 1995 underperforming the S&P 500
index by 9.2%. The Account's relative performance was hurt by underweightings
and poor selection in the Consumer Growth and Technology sectors which were both
up over 42 percent. The Account also had an overweighting in Industrial
companies which did poorly late in the year when the economy slowed. Poor
selection in Energy, where the Account's concentration on smaller exploration
and production companies was the wrong strategy, also hurt performance. In this
sector, larger integrated companies performed better on a relative basis. In
addition, the Account had approximately a 1/3 weighting in smaller companies
which underperformed large cap companies. The only significant positive effect
was the Account's substantial overweighting in Finance, the best performing
sector.
1
<PAGE>
INVESTMENT ACTIVITY
During the year the Account's Consumer Cyclical exposure was reduced as a result
of sales in the automotive area where the fundamentals were slowing, and in the
housing industry where profits were taken in several suppliers. The Account's
Consumer Growth sector weightings were also reduced as selected drug, hospital
supply and computer service companies moved up and their valuations became less
compelling. Absorbing most of these cash proceeds on the purchase side were
niche industrial companies in the chemical area where restructurings made
attractive buy candidates, in industrial companies with exposure to the
commercial aerospace cycle and in certain capital equipment makers who will
benefit in the late stages of this economic cycle.
INVESTMENT OUTLOOK
After the market's 37.6% gain in 1995 it would not be surprising to see it
languish this year. A substantial decline is not expected and the same holds
true for another large gain, but a modest positive return is possible. This is
based on forecasts that the economy will grow, albeit moderately, and inflation
will remain under control. Within this environment corporate profits should
continue to grow, but at a slower rate, as the slow economy may hurt earnings.
Continuing initiatives by companies to trim expenses is a positive offset. If
inflation stays in check, interest rates in an election year should stay at
relatively low levels enhancing the case for moderate equity gains. Within this
scenario financial stocks, especially the laggard insurance companies, should do
well, as should companies with high earnings visibility, although their
valuations seem high. In addition to financials, the Account continues to be
overweighted in a select group of industrial companies, primarily in the
Manufacturing and Capital Equipment sector. A slow growth environment and
reasonable valuations, because of underperformance in the latter part of 1995,
should help the performance of this sector.
VCA-2
AVERAGE ANNUAL RETURNS
for Periods ended December 31, 1995
<TABLE>
<CAPTION>
FIVE
ONE YEAR YEARS TEN YEARS
Unit Value1 28.44% 19.09% 15.43%
<S> <C> <C> <C>
With Max. Sales Charge2 25.23% 18.50% 15.14%
Standard & Poor's 5003 37.58% 16.58% 14.79%
Lipper Growth Average4 31.78% 16.52% 13.52%
</TABLE>
These returns represent past performance. Past performance cannot guarantee
comparable future results. Investment return and principal value will fluctuate
so that units, upon redemption, may be worth more or less than their original
cost.
1Unit Value performance is calculated based on the change in the accumulation
unit value and does not take into account the payment of a sales charge at the
time of purchase.
2With Maximum Sales Charge performance is based on the change in accumulation
unit values and reflects the maximum sales charge of 2.5% at time of purchase
and the impact of any account fees.
3Standard & Poor's 500 Index (S&P 500) is a capital weighted index, representing
the aggregate market value of the common equity of 500 stocks primarily on the
New York Stock Exchange. The S&P 500 is an unmanaged index and includes
reinvestment of dividends, but does not reflect payment of transaction costs and
expenses associated with an investment in VCA-2.
4Lipper average is an average of the total return performance (calculated based
on net asset value) of mutual funds with similar objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking service.
2
<PAGE>
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.
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).
It is not authorized for distribution to prospective investors unless preceded
or accompanied by a current prospectus for VCA-2. Prudential Retirement
Services, Inc., Distributor, is an affiliate of Prudential Defined Contribution
Services and The Prudential Insurance Company of America.
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 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME................................................... $ .2000 $ .1896 $ .2823 $ .1635 $ .1629
- ------------------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee..................................... .0170 .0151 .0138 .0111 .0094
For assuming mortality and expense risks.......................... .0511 .0453 .0412 .0335 .0285
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME............................................... .1319 .1292 .2273 .1189 .1250
- ------------------------------------------------------------------------------------------------------------
CAPITAL CHANGES
Net realized gain on investments.................................. 1.5228 1.0028 1.1147 1.2862 .6231
Net unrealized appreciation/(depreciation) of investments......... 1.7558 (1.2955) .9803 (.2121) 1.4671
- ------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN ACCUMULATION UNIT VALUE.................. 3.4105 (.1635) 2.3223 1.1930 2.2152
- ------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE
Beginning of year................................................. 11.9932 12.1567 9.8344 8.6414 6.4262
End of year....................................................... $ 15.4037 $ 11.9932 $ 12.1567 $ 9.8344 $ 8.6414
- ------------------------------------------------------------------------------------------------------------
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*........................ .4959% .4991% .4984% .4975% .4970 %
- ------------------------------------------------------------------------------------------------------------
AVERAGE RATIO for the year of net investment income to net assets... .9602% 1.0664% 2.056% 1.3253% 1.6372 %
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................................. 42.21% 36.85% 46.91% 73.24% 78.94 %
- ------------------------------------------------------------------------------------------------------------
NUMBER OF ACCUMULATION UNITS OUTSTANDING
for Participants at end of year (000 omitted)..................... 31,600 32,624 32,968 33,147 34,228
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*These calculations exclude The Prudential's equity in VCA-2.
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
Mark B. Grier
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, 1995, 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, 1995, 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, 1995, 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 15, 1996
6
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.9%)
Gen Corp. 218,500 $ 2,676,625
General Motors Corp. (Class 'H' Stock) 107,700 5,290,762
Litton Industries, Inc.+ 126,800 5,642,600
UNC, Inc.+ 193,600 1,161,600
------------
14,771,587
- ---------------------------------------------------
AUTOS & TRUCKS (1.0%)
A.O. Smith Corp. 240,000 4,980,000
- ---------------------------------------------------
CHEMICALS (6.7%)
Cytec Industries, Inc.+ 125,500 7,828,062
E.I. Dupont De Nemours & Co. 86,200 6,023,225
Imperial Chemical Industries (ADRs) 100,000 4,675,000
Mississippi Chemical Corp. 141,700 3,294,525
Olin Corp. 80,600 5,984,550
Uniroyal Chemical Corp.+ 446,600 3,684,450
W.R. Grace & Co. 49,800 2,944,425
------------
34,434,237
- ---------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.4%)
Oak Industries, Inc.+ 117,800 2,194,025
- ---------------------------------------------------
COMPUTER HARDWARE (0.1%)
Insilco Corp.+ 22,300 710,812
- ---------------------------------------------------
CONSUMER SERVICES (0.6%)
ADT, Ltd.+ 204,300 3,064,500
- ---------------------------------------------------
CONTAINERS & PACKAGING (1.3%)
Owens Illinois, Inc.+ 171,900 2,492,550
U.S. Can Corp.+ 304,800 4,114,800
------------
6,607,350
- ---------------------------------------------------
COSMETICS & SOAPS (0.3%)
Bush Boake Allen, Inc.+ 67,300 1,842,337
- ---------------------------------------------------
DIVERSIFIED CONSUMER PRODUCTS (2.4%)
Pittston Services Group 141,500 4,439,563
Whitman Corp. 350,000 8,137,500
------------
12,577,063
- ---------------------------------------------------
DRUGS & MEDICAL SUPPLIES (4.0%)
Gelman Sciences, Inc.+ 268,900 6,789,725
Guidant Corp. 33,400 1,411,150
Schering Plough Corp. 77,300 4,232,175
Warner Lambert Co. 37,300 3,622,763
Zeneca Group PLC (ADRs) 75,000 4,378,125
------------
20,433,938
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (2.5%)
Belden, Inc. 180,900 $ 4,658,175
Cable Design Technologies+ 90,000 3,960,000
Littelfuse, Inc.+ 112,400 4,130,700
------------
12,748,875
- ---------------------------------------------------
ELECTRONICS (4.1%)
Anixter International+ 263,200 4,902,100
Marshall Industries+ 166,900 5,361,663
Methode Electronics, Inc. 545,000 7,766,250
Pioneer Standard Electronics 241,000 3,193,250
------------
21,223,263
- ---------------------------------------------------
ENGINEERING & CONSTRUCTION (0.8%)
Giant Cement Holding, Inc.+ 367,400 4,225,100
- ---------------------------------------------------
EXPLORATION & PRODUCTION (3.9%)
Basin Exploration, Inc.+ 71,300 352,044
Cabot Oil & Gas Corp. 225,600 3,299,400
Enron Oil & Gas 149,100 3,578,400
Oryx Energy Co.+ 300,000 4,012,500
Parker & Parsley Petroleum Co. 150,000 3,300,000
Santa Fe Energy Resources+ 181,100 1,743,088
Seagull Energy+ 121,800 2,710,050
Vintage Petroleum, Inc. 55,100 1,239,750
------------
20,235,232
- ---------------------------------------------------
FINANCIAL SERVICES (4.3%)
Allmerica Financial Corp.+ 11,300 305,100
American Express Co. 115,000 4,758,125
Dean Witter Discover & Co. 150,000 7,050,000
Financial Security Assurance Holdings 85,000 2,114,375
Finova Group, Inc. 99,800 4,815,350
Travelers Group, Inc. 47,200 2,955,900
------------
21,998,850
- ---------------------------------------------------
FOOD/DRUG RETAIL (0.5%)
Eckerd Corp.+ 53,700 2,396,362
- ---------------------------------------------------
HOSPITAL MANAGEMENT (3.1%)
Community Health Systems+ 169,600 6,042,000
Tenet Healthcare+ 480,000 9,900,000
------------
15,942,000
- ---------------------------------------------------
</TABLE>
7
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
HOUSING RELATED (2.8%)
Interco, Inc.+ 450,000 $ 4,050,000
Mueller Industries, Inc.+ 144,000 4,212,000
Owens Corning Fiberglass Corp.+ 135,300 6,071,588
------------
14,333,588
- ---------------------------------------------------
INSURANCE (9.0%)
Equitable of Iowa Companies 240,000 7,710,000
NAC Re Corp. 120,000 4,320,000
National Re Corp. 103,000 3,914,000
Reinsurance Group of America 240,000 8,790,000
TIG Holdings, Inc. 150,000 4,275,000
Trenwick Group, Inc. 60,000 3,375,000
Unionamerica Holdings PLC+ 157,100 2,670,700
Western National Corp. 336,800 5,430,900
W.R. Berkley Corp. 108,900 5,853,375
------------
46,338,975
- ---------------------------------------------------
INTEGRATED PRODUCERS (0.8%)
Occidental Petroleum Corp. 188,200 4,022,775
- ---------------------------------------------------
MACHINERY (7.3%)
Applied Power Co. (Class 'A' Stock) 264,000 7,920,000
Bearings, Inc. Delaware 53,850 1,575,112
Donaldson, Inc. 220,000 5,527,500
Global Industrial Technologies+ 343,400 6,481,675
Greenfields Industries, Inc. 190,400 5,950,000
Idex Corp. 130,000 5,297,500
Regal Beloit Corp. 218,600 4,754,550
------------
37,506,337
- ---------------------------------------------------
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
MEDIA (9.5%)
Central Newspapers (Class 'A' Stock) 65,300 $ 2,048,787
Century Communication (Class 'A' Stock)+ 300,000 2,400,000
Comcast Corp. (Class 'A' Stock) 180,000 3,172,500
Comcast Corp. Special (Class 'A' Stock) 90,000 1,636,875
Cox Communication (Class 'A' Stock)+ 173,687 3,386,896
E.W. Scripps Co. (Class 'A' Stock) 100,000 3,937,500
Harcourt General, Inc. 62,000 2,596,250
Hollinger International (Class 'A'
Stock) 218,300 2,292,150
Lee Enterprises 220,000 5,060,000
Pulitzer Publishing Co. 50,000 2,387,500
TCA Cable TV, Inc. 50,000 1,381,250
Tele-Communications, Inc. TCI Group
(Series A)+ 240,000 4,770,000
Tele-Communications, Inc. Liberty Media
Group (Series A)+ 60,000 1,612,500
Time Warner, Inc. 206,900 7,836,338
Times Mirror Co. (Class A) 127,294 4,312,084
------------
48,830,630
- ---------------------------------------------------
MISCELLANEOUS-INDUSTRIAL (10.5%)
Allied Products 150,000 3,600,000
Allied Signal, Inc. 52,400 2,489,000
Alltrista Corp.+ 222,300 4,001,400
Ametek, Inc. 190,000 3,562,500
Coltec Industries, Inc.+ 176,600 2,052,975
Crane Co. 95,300 3,514,187
Danaher Corp. 125,000 3,968,750
Figgie International, Inc. (Class 'A'
Stock)+ 375,000 3,890,625
Honeywell, Inc. 116,600 5,669,675
Jason, Inc.+ 277,300 1,802,450
Mark IV Industries, Inc. 224,200 4,427,950
Pentair, Inc. 100,000 4,975,000
Varlen Corp. 85,050 1,828,575
Wolverine Tube, Inc.+ 217,800 8,167,500
------------
53,950,587
- ---------------------------------------------------
NON-FERROUS METALS (1.5%)
The Carbide/Graphite Group+ 340,700 4,897,563
Ucar International, Inc.+ 81,300 2,743,875
------------
7,641,438
- ---------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES (0.5%)
Lexmark International Group (Class 'A'
Stock)+ 146,000 2,664,500
- ---------------------------------------------------
</TABLE>
8
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENTS [NOTE 2] SHARES MARKET VALUE
- --------------------------------------------------------------------
<S> <C> <C>
RAILROADS (2.8%)
Greenbrier Companies, Inc. 375,000 $ 4,546,875
Illinois Central Corp. 124,500 4,777,688
Union Pacific Corp. 80,700 5,326,200
------------
14,650,763
- ---------------------------------------------------
REGIONAL BANKS (5.2%)
Bank of Boston Corp. 77,700 3,593,625
Cullen Frost Bankers, Inc. 120,000 6,000,000
First Bank System, Inc. 85,510 4,243,434
First Chicago NBD Corp. 86,880 3,431,760
Norwest Corp. 288,700 9,527,100
------------
26,795,919
- ---------------------------------------------------
RESTAURANTS (0.8%)
Sbarro, Inc. 187,500 4,031,250
- ---------------------------------------------------
RETAIL (1.1%)
Ethan Allen Interiors, Inc.+ 70,800 1,442,550
Haverty Furniture, Inc. 147,300 2,043,787
May Department Stores 48,200 2,030,425
------------
5,516,762
- ---------------------------------------------------
SPECIALTY CHEMICALS (2.1%)
Ferro Corp. 227,400 5,315,475
M.A. Hanna Co. 40,000 1,120,000
OM Group, Inc. 140,000 4,637,500
------------
11,072,975
- ---------------------------------------------------
STEEL (0.9%)
United Dominion Industries 208,400 4,506,650
- ---------------------------------------------------
TELECOMMUNICATION SERVICES (4.3%)
AT&T Corp. 71,400 4,623,150
Airtouch Communications, Inc.+ 65,000 1,828,125
Century Telephone Enterprises, Inc. 125,000 3,968,750
Frontier Corporation 200,000 6,000,000
MCI Communications Corp. 217,700 5,687,413
------------
22,107,438
- ---------------------------------------------------
TEXTILES/APPAREL (1.3%)
Fieldcrest Cannon, Inc.+ 185,900 3,067,350
Paxar Corp.+ 298,475 3,954,794
------------
7,022,144
- ---------------------------------------------------
TOTAL COMMON STOCK INVESTMENTS (99.3%)
(Cost: $403,275,623) $511,378,262
<CAPTION>
- ---------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Canadian Imperial Bank of Commerce,
5.75%
Time Deposit, Due 01/02/96 $ 4,695,000 $ 4,695,000
- ---------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (0.9%)
(Cost: $4,695,000) $ 4,695,000
- ---------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost: $407,970,623) $516,073,262
- ---------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Bank Overdraft $ (98,703)
Dividends and Interest Receivable 406,088
Receivables for Investments Sold 1,005,545
Payables for Investments Purchased (673,174)
Pending Transfers (1,540,405)
- ---------------------------------------------------
TOTAL OTHER ASSETS, LESS
LIABILITIES (-0.2%) $ (900,649)
- ---------------------------------------------------
NET ASSETS (100.0%) $515,172,613
- ---------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
31,600,436 Accumulation Units at an
Accumulation Unit Value of
$15.4037 (rounded) $486,763,526
Equity of Annuitants 24,286,477
Equity of The Prudential Insurance
Company of America 4,122,610
- ---------------------------------------------------
$515,172,613
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</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 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2]
Dividends $ 6,419,206
Interest 468,587
- ------------------------------------------------------------------------------------------------------------
6,887,793
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Services 571,007
Fees Charged to Participants (other than Annuitants) for Assuming Mortality and Expense
Risks 1,624,979
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 4,691,807
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NET
Realized Gain on Investments--Net 51,878,963
Unrealized Increase in Value of Investments--Net 59,711,120
- ------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 111,590,083
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 116,281,890
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income--Net $ 4,691,807 $ 4,721,118
Realized Gain on Investments--Net 51,878,963 35,115,467
Unrealized Increase/(Decrease)in Value of Investments--Net 59,711,120 (45,435,899)
- -------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 116,281,890 (5,599,314)
- -------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In [Note 3] 27,724,309 18,494,103
Withdrawals and Transfers Out (41,532,255) (22,143,730)
Annual Administration Charges Deducted From Participants'
Accumulation
Accounts [Note 3] (34,067) (42,008)
Mortality & Expense Risk Charges Deducted From Annuitants'
Accounts [Note 3] (88,043) (92,130)
Variable Annuity Payments (3,045,807) (2,855,584)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (16,975,863) (6,639,349)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (12,650) (13,605)
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE/(DECREASE)IN NET ASSETS 99,293,377 (12,252,268)
NET ASSETS
Beginning of Year 415,879,236 428,131,504
- -------------------------------------------------------------------------------------------------------
End of Year $ 515,172,613 $ 415,879,236
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
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 fixed income securities including
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 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. SECURITY TRANSACTIONS AND 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.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
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
$30 annually.
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, 1995, excluding short-term investments
and U.S. government securities, the aggregate cost of purchases and the
proceeds from sales of securities were $193,827,668 and $208,134,457,
respectively.
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years
ended December 31, 1995 and 1994 is as follows:
<TABLE>
<S> <C> <C>
1995 1994
--------------------------------------------
Units issued 2,022,197 1,540,899
--------------------------------------------
Units redeemed 3,045,441 1,885,478
--------------------------------------------
</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, 1995, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of The Prudential,
earned $0 in brokerage commissions from portfolio transactions executed
on behalf of VCA-2.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 8: PARTICIPANT LOANS
Participant loan initiations are not permitted in VCA-2. However,
participants who initiated loans in other funds are permitted to direct
loan repayments into VCA-2.
For the year ended December 31, 1995, $1,311 of participant loan
principal has been paid to VCA-2.
13
<PAGE>
The Prudential Insurance Company of America BULK RATE
c/o Prudential Defined Contribution Services U.S. POSTAGE
30 Scranton Office Park PAID
Moosic, Pennsylvania 18507-1789 PERMIT No. 2145
Newark, N.J.
ADDRESS CORRECTION REQUESTED
FORWARDING AND
RETURN POSTAGE GUARANTEED
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A Unit of
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