Prudential's
Long Term Growth Account
[PHOTO]
Semi-Annual Report
to Participants
June 30, 1998
[LOGO] Prudential
The Prudential Insurance Company of America
30 Scranton Office Park
Scranton, PA 18507-1789
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Committed to providing superior
investment, administrative and
recordkeeping services to
institutional clients.
<PAGE>
[LOGO]
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This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for VCA-2. It is for the
information of persons participating in The Prudential Variable Contract
Account-2 (VCA-2, Long Term Growth Account, or the Account). VCA-2 is
distributed by Prudential Investment Management Services LLC, an affiliate of
The Prudential Insurance Company of America. VCA-2 is a group annuity insurance
product issued by The Prudential Insurance Company of America, Newark, NJ.
<PAGE>
Six Months Ended June 30, 1998
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Letter
To Participants
Dear Participant:
We are pleased to provide our Semiannual Report to you on the investment
performance of the Long Term Growth Account.
The past six months were a time of solid growth. U.S. Gross Domestic Product,
which measures the country's total output of goods and services, grew at an
annualized rate of 3.5% for the six months ended June 30, according to
Prudential economists.
Given this environment, stock prices continued to gain, with the Dow Jones
Industrial Average rising 13.2% during the six-month period, while the Standard
& Poor's 500 Composite Stock Price Index climbed 17.7%. But, not all stocks were
equal. Large capitalization growth stocks with predictable earnings were the
market's favorites. Indeed, as reported by Morningstar, the average large
capitalization growth fund returned 20.3%, while the average small
capitalization value fund returned 4.7% over the prior six months. Bonds also
provided dependable total returns of 3.9%, according to the Lehman Brothers
Aggregate Index.
How Did Our Portfolios Perform?
The Long Term Growth Account delivered returns similar to those of the broader
markets and consistent with the strategies around which it is designed. In fact,
the Long Term Growth Account beat the Lipper Variable Insurance Products Growth
Average, for the three-, five-, and ten-year periods.
Thirty Years And Growing.
The Long Term Growth Account is celebrating 30 years of providing you with the
opportunity to maximize the results of your variable annuity, subject to the
risks associated with this kind of investment. As of June 30, 1998, we had
assets of $826 million under management. We have worked through the years to
meet the needs of our clients by continuing to provide solid returns over the
long term.
<PAGE>
Staying the Course for the Long Term.
As we reached the midpoint of another year, the financial news was decidedly
upbeat. However, there were times during the reporting period when price
volatility affected the stock and bond markets. These market swings illustrate
the importance of investors "staying the course" for the long term.
Of course, this does not mean you should ignore change. Indeed, with record
valuations in the U.S. stock market at a time when U.S. corporate earnings are
slowing, now may be a good time to review the asset allocation of all your
investments. While stocks continue to be the investment of choice for many
seeking long-term wealth accumulation, you may wish to consider diversifying a
portion of your holdings to help lessen the effects of market uncertainty. Your
Prudential professional would be happy to assist you in reviewing and
structuring a program to meet your needs.
All of us at Prudential thank you for your business and look forward to helping
you plan for your future financial security.
/s/ Mendel A. Melzer
Mendel A. Melzer, CFA
Chairman
[PHOTO]
Mendel A. Melzer, CFA
Chairman
2
<PAGE>
VCA-2 Long Term Growth Account
Performance Summary.
The account returned 8.10% for the six months ended June 30, 1998, compared to
16.2% for the Lipper Variable Insurance Products Growth Average. During this
period a select number of the largest, highest quality stocks -- typically
growth stocks -- performed better than large stocks and much better than
mid-size and smaller company stocks. For example, for the six months, the
Russell 2000, an index of small company stock performance, rose only 4.93%. The
Account held few of these top performing, highest quality, large company stocks
because their valuations were unattractive relative to the value style of
management we follow.
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Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Year Year Year
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Long Term Growth Account(1) 8.10% 24.20% 26.97% 20.50% 17.85%
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Long Term Growth Account(2) 4.27% 19.97% 24.78% 18.76% 16.42%
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Lipper (VIP) Growth Avg.(3) 16.23% 28.06% 25.44% 20.07% 16.76%
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S&P 500(4) 17.72% 30.17% 30.23% 23.06% 18.54%
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Long Term Growth Account inception date: 7/1/68.
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$10,000 Invested Over Ten Years.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
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These results represent past performance and are no guarantee of future
performance. Investment return and principal value of the Long Term Growth
Account will fluctuate resulting in a value which may at any time, including the
time of withdrawal of the cash value, be more or less than the total principal
investment made. Source: Prudential
Investment in the Long Term Growth Account involves various risks which are more
fully described in the prospectus. For more complete information about the
Account, including charges and expenses, contact Prudential for a free
prospectus. Please read it carefully before investing. The Long Term Growth
Account is a group annuity insurance product issued by The Prudential Insurance
Company of America, Newark, NJ and is distributed by Prudential Investment
Management Services LLC, an affiliate of Prudential.
(1) The results are shown after the deduction of all expenses including
investment management and mortality and expense charges but do not include
the effect of any sales charge.
(2) The results are shown after the deduction of all expenses including
investment management, mortality and expense charges and in addition
reflect the deduction of a front-end 21/2% sales charge and the impact of
an annual account charge.
(3) The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(4) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Account. The securities that comprise the S&P 500 may differ substantially
from the securities in the Account. The S&P 500 is not the only index that
may be used to characterize performance of this Account, and other indices
may portray different comparative performance.
Investment Goal
Long term growth of capital.
Types of Investments
Primarily stocks of a diversified group of major established companies in a
variety of industries.
Investment Style
This Account uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures of value.
Performance Review.
What Went Well. During the reporting period Account performance was lifted by
our good stock selection in the consumer growth and staples sector. We placed
less emphasis on the utility sector, which turned out to be a good decision
since utilities turned in poor performance.
And Not So Well. Account performance was affected by our significant exposure
to the poor performing industrial group as Asian crisis concerns escalated with
the abundance of disappointing earnings forecasts. Our limited exposure to
technology, which was the second-best performing sector during the reporting
period, also restrained performance. We were also hurt by some of our selections
in the consumer cyclical, energy and finance sectors.
We Took Profits. A large part of our sales were from companies which had
performed well and therefore profit-taking appeared to be in order, including
Lincoln National, Sonic Corporation, Harcourt General, Time Warner and Haverty
Furniture. continued Other sales were of companies where we believed slowing
economic activity, especially in Asia, would have a negative affect including
Olin Corporation, American Standard, and Dallas Semiconductor.
continued
3
<PAGE>
Performance Review continued
Other sales were of companies where we believed slowing economic activity,
especially in Asia, would have a negative affect including Olin Corporation,
American Standard, and Dallas Semiconductor.
Strategy Session.
We focused on value. During the past six months the Account increased its
financial stock exposure by buying two mortgage guarantee companies (Old
Republic and PMI Group) as well as insurers: Torchmark Corporation, Travelers
Property & Casualty and W.R. Berkeley. Other areas of purchase emphasis were:
semiconductor companies, negatively affected by the Asian crisis but whose
valuations looked attractive, specialty chemical companies and business forms
companies.
We like industrials. We have confidence in industrial stocks. While we have
concerns that the Asian situation will slow economic growth, we believe that
this impact has been reflected in these companies' relative valuations.
Financials look good, too. We like financial companies, in particular, insurance
companies, which have not yet participated in the current bull market to the
extent of banks and financial services companies. In addition, we think the
insurance industry is ripe for consolidation.
Small and mid-caps are attractive. We continue to hold stock of some
small/mid-size companies. We believe that after another quarter of severe
underperformance their valuations are significantly more attractive than the
typical large company.
Outlook
Portfolio Manager
Roger Ford
Modest Market Gains Forecast.
"Our forecast for the rest of 1998 is that the economy will grow very moderately
and inflation will remain under control. The Asian situation will continue to
negatively affect all the world's economies. Within this environment, we believe
corporate profits will be okay, but not great. Current equity market levels seem
to more than adequately reflect this subdued environment. Therefore, we think
stock market gains will be modest at best. Our exposure to industrial and
insurance stocks reflects their attractive valuations relative to most other
sectors. In addition, we continue to favor companies outside the universe of
very large, high quality companies that have led this market. It is our belief
that the rest of the market, including small and mid-cap companies, will close
the inordinate valuation differential that currently exists."
[PHOTO]
Portfolio Manager
Roger Ford
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Portfolio Composition.
6/30/98
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Industrials 43.6%
Finance 19.4%
Consumer Growth 16.1%
Technology 7.7%
Consumer Cyclicals 7.4%
Energy 4.9%
Utilities 0.9%
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Source: Prudential. Holdings are subject to change.
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Top Ten Holdings
6/30/98
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Medianone Group Inc. 1.9%
Century Commun ClA 1.9%
NACRE Corp. 1.8%
Berkley WR Corp. 1.7%
Wolverine Tube Inc. 1.6%
Trenwick Group Inc. 1.5%
Telecom Inc. Liberty Media 1.5%
United Dominion Inds. 1.5%
Giant Cement Holding Inc. 1.5%
Carbide/Graphite Group 1.4%
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Source: Prudential. Holdings are subject to change.
4
<PAGE>
Financial Highlights for VCA-2
Income and Capital Changes Per Accumulation Unit*
(For an Accumulation Unit outstanding throughout the period)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
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1998 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C>
Investment Income .................................. $ .1618 $ .2633 $ .2056 $ .2000 $ .1896 $ .2823
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Expenses
For investment management fee ................... .0172 .0284 .0215 .0170 .0151 .0138
For assuming mortality and expense risks ........ .0515 .0850 .0646 .0511 .0453 .0412
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Net Investment Income .............................. .0931 .1499 .1195 .1319 .1292 .2273
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Capital Changes
Net realized gain on investments ................ 2.0486 4.7245 2.3368 1.5228 1.0028 1.1147
Net unrealized appreciation (depreciation)
of investments .................................. (.0448) 1.3843 1.7641 1.7558 (1.2955) .9803
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Net Increase (Decrease) in Accumulation Unit Value . 2.0969 6.2587 4.2204 3.4105 (.1635) 2.3223
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Accumulation Unit Value
Beginning of period 25.8828 19.6241 15.4037 11.9932 12.1567 9.8344
End of period ................................... $27.9797 $25.8828 $ 19.6241 $ 15.4037 $ 11.9932 $12.1567
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Ratio Of Expenses To
Average Net Assets** ............................ .50%+ .50% .50% .50% .50% .50%
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Ratio Of Net Investment Income To
Average Net Assets** ............................ .70%+ .70% .69% .96% 1.07% 2.06%
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Portfolio Turnover Rate ............................ 21% 47% 53% 42% 37% 47%
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Number of Accumulation Units Outstanding
for Participants at end of period
(000 omitted) ................................... 27,967 28,643 30,548 31,600 32,624 32,968
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</TABLE>
*Calculated by accumulating the actual per unit amounts daily.
**These calculations exclude Prudential's equity in VCA-2.
+Annualized.
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.
See Notes to Financial Statements
5
<PAGE>
Financial Statements of VCA-2
Statement of Net Assets as of June 30, 1998
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
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Aerospace/Defense -- 2.7%
Doncasters PLC-- (ADR) 199,700 $ 5,554,156
(United Kingdom)+
Gen Corp. 388,000 9,797,000
Litton Industries, Inc.+ 116,600 6,879,400
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22,230,556
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Autos & Trucks -- 2.3%
Borg-Warner Automotive, Inc. 226,400 10,881,350
Lear Corp.+ 75,000 3,848,438
Tower Automotive, Inc.+ 98,100 4,206,038
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18,935,826
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Chemicals -- 6.1%
Agrium, Inc.
BOC Group PLC (ADR) 682,200 8,612,775
(United Kingdom) 175,300 4,755,013
Chemfirst, Inc.+ 280,000 7,070,000
Cytec Industries, Inc.+ 140,100 6,199,425
Dow Chemical Co. 68,400 6,613,425
Mississippi Chemical Corp. 448,114 7,365,874
Solutia, Inc. 146,400 4,199,850
Union Carbide 106,600 5,689,775
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50,506,137
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Computer Related -- 0.4%
Bay Networks Inc. 100,900 3,254,025
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Consumer Services -- 4.1%
Archer-Daniels-Midland Co.
Hilton Hotels Corp.+ 163,700 4,665,450
Innkeepers USA Trust 310,400 3,918,800
MGM Grand, Inc. 102,900 3,247,781
Ogden Corp. 163,900 4,537,981
The Reynolds & Reynolds Co. 301,300 5,479,894
(Class "A" Stock)
RFS Hotel Investors, Inc. 304,200 5,779,800
360 Communications Co.+ 197,800 6,329,600
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33,959,306
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Containers and Packaging -- 1.8%
ACX Technologies, Inc.+
Alltrista Corp.+ 253,100 6,469,869
AptarGroup, Inc. 65,100 4,048,406
U.S. Can Corp.+ 279,700 4,108,094
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14,626,369
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Electrical Equipment -- 1.5%
EMCOR Group, Inc. 254,000 4,857,750
Belden, Inc. 106,700 3,267,688
Hussman International, Inc. 225,150 4,179,347
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12,304,785
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Electronics -- 3.0%
Dallas Semiconductor Corp. 27,600 855,600
Marshall Industries+ 224,300 6,112,175
Methode Electronics, Inc.
(Class "A" Stock) 164,100 2,543,550
National Semiconductor Corp.+ 258,500 3,408,969
Pioneer Standard
Electronics, Inc. 528,800 5,089,700
VSLI Technology, Inc.+ 413,900 6,945,780
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24,955,774
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Enginering & Construction -- 3.8%
Apogee Enterprises, Inc. 294,400 4,508,000
Cameron Ashley Building
Products+ 172,600 2,912,625
Giant Cement Holding, Inc.+ 431,600 12,354,550
Gradall Industries, Inc.+ 410,000 5,996,250
Texas Industries, Inc. 112,000 5,936,000
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31,707,425
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Exploration & Production -- 4.4%
Cabot Oil & Gas Corp. 216,600 4,332,000
Chesapeake Energy Corp. 279,400 1,117,600
Comstock Resources, Inc.+ 433,000 3,220,438
Occidental Petroleum Corp. 231,400 6,247,800
Oryx Energy Co.+ 335,600 7,425,150
Pioneer Natural Resources Co. 365,700 8,731,088
Vintage Petroleum, Inc. 278,800 5,262,350
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36,336,426
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Financial Services -- 4.8%
Financial Security Assurance
Holdings Corp. 176,000 10,340,000
Heller Financial, Inc. 149,700 4,491,000
Norwest Corp. 194,400 7,265,700
The PMI Group, Inc. 100,000 7,337,500
Travelers Group, Inc. 161,599 9,796,939
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39,231,139
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Healthcare -- 1.7%
Columbia HCA Healthcare 167,000 4,863,875
Mallinckrodt, Inc. 106,300 3,155,781
Tenet Healthcare Corp.+ 196,400 6,137,500
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14,157,156
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See Notes to Financial Statements
6
<PAGE>
Financial Statements of VCA-2
Statement of Net Assets as of June 30, 1998
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
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Housing Related -- 2.2%
Furniture Brands
International, Inc.+ 214,400 $ 6,016,600
Owens Corning Fiberglass Corp. 111,200 4,538,350
Triangle Pacific Corp.+ 142,500 7,837,500
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18,392,450
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Insurance -- 10.9%
Allied Group, Inc. 130,125 6,091,477
MMI Companies, Inc. 406,511 9,400,567
NAC Re Corp. 281,800 15,041,075
Old Republic International Corp. 277,050 8,121,028
Reinsurance Group of America 164,950 9,752,669
Safeco Corp.
Torchmark Corp. 198,700 9,090,525
Travelers Property Casualty Corp.
(Class "A" Stock) 155,500 6,667,063
Trenwick Group, Inc. 327,500 12,721,345
W.R. Berkley Corp. 327,200 13,108,450
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89,994,199
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Leisure -- 1.8%
Darden Restaurants, Inc. 573,600 9,105,900
Servico, Inc.+ 397,100 5,956,500
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15,062,400
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Machinery -- 6.0%
Allied Products Corp. 341,250 7,230,234
Applied Power Inc. 175,700 6,039,688
Columbus McKinnon Corp. 250,000 6,500,000
Denison International, PLC -
(ADR) (United Kingdom)+ 228,800 4,518,800
Hardinge, Inc. 304,050 7,411,219
Harnischfeger Industries, Inc. 279,900 7,924,669
Ingersoll-Rand Co.+ 153,600 6,768,000
New Holland N.V 147,500 2,894,688
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49,287,298
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Media -- 9.6%
Century Communications Corp. 840,200 15,753,750
(Class "A" Stock)+
Comcast Corp. 165,000 6,558,750
(Class "A" Stock)
Comcast Corp. 262,926 10,673,165
(Class "A" Stock) Special
Cox Communication, Inc.+
(Class "A" Stock) 114,087 5,526,089
MediaOne Group, Inc. 362,200 15,914,163
Tele-Communications, Inc. 322,150 12,503,447
Liberty Media Group (Series A)+
Time Warner, Inc. 58,000 4,955,375
U.S. West Media Group+ 9,892 464,909
Viacom, Inc. 117,500 6,844,375
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(Class "B" Stock)+
79,194,023
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Metals -- 3.6%
The Carbide/Graphite Group, Inc.+ 417,400 11,608,929
Cleveland Cliffs, Inc.+ 142,000 7,614,750
Reliance Steel and Aluminum 163,200 6,303,600
UCAR International, Inc.+ 153,600 4,483,200
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30,010,479
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Miscellaneous-Industrial -- 12.1%
Clarcor, Inc. 174,150 3,657,150
Coltec Industries, Inc.+ 346,000 6,876,750
Crane Co. 152,300 7,396,069
Dexter Corp. 137,900 4,386,944
Flowserve Corp. 195,771 4,820,861
Global Industrial
Technologies, Inc.+ 477,000 6,856,875
Harsco Corp. 189,600 8,686,050
Idex Corp. 99,900 3,446,550
Mark IV Industries, Inc. 305,087 6,597,506
Pentair, Inc. 113,100 4,806,750
PPG Industries, Inc. 108,500 7,547,531
Regal Beloit Corp. 181,100 5,161,350
United Dominion Industries, Ltd. 370,300 12,358,763
Varian Associates, Inc. 112,200 4,375,800
Wolverine Tube, Inc.+ 350,000 13,300,000
-------------
100,274,949
- --------------------------------------------------------------------------------
Paper Products -- 2.7%
Boise Cascade Corp. 112,500 3,684,375
Ennis Business Forms, Inc. 373,100 4,337,288
Georgia Pacific Corp.
(Georgia - PAC Group) 84,700 4,992,006
Georgia Pacific Corp.
(Timber - Group) + 72,200 1,665,113
International Paper Co. 103,000 4,429,000
The Mead Corp 97,900 3,108,325
The Standard Register Co. 2,500 88,438
-------------
22,304,545
- --------------------------------------------------------------------------------
Railroads -- 2.6%
Burlington Northern Santa Fe 79,400 7,796,088
CSX Corp. 92,400 4,204,200
Greenbrier Companies, Inc. 191,300 3,299,925
Varlen Corp. 192,882 6,654,429
-------------
21,954,642
- --------------------------------------------------------------------------------
Regional Banks -- 2.3%
Banc One Corp. 80,080 4,469,465
First Chicago NBD Corp. 99,480 8,816,415
PNC Bank Corp. 107,800 5,800,988
-------------
19,086,868
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See Notes to Financial Statements
7
<PAGE>
Financial Statements of VCA-2
Statement of Net Assets as of June 30, 1998
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
- -------------------------------------------------------------------------------
Retail -- 3.1%
BJ's Wholesale Club, Inc.+ 114,400 $ 4,647,500
Food Lion, Inc. 373,500 3,968,438
(Class "A" Stock)
Food Lion, Inc. 137,500 1,383,594
(Class "B" Stock)
Haverty Furniture, Inc. 390,200 8,633,175
The Limited, Inc. 209,200 6,929,750
-------------
25,562,457
- -------------------------------------------------------------------------------
Specialty Chemicals -- 3.9%
Cambrex Corp. 237,600 6,237,000
Engelhard Corp. 239,100 4,841,775
Ferro Corp. 271,500 6,872,344
French Fragances, Inc.+ 377,200 5,893,750
IMC Global, Inc. 133,400 4,018,675
OM Group, Inc. 99,200 4,092,000
-------------
31,955,544
- -------------------------------------------------------------------------------
Trucking/Shipping -- 0.4%
Interpool, Inc. 247,200 3,568,950
- -------------------------------------------------------------------------------
Total Common Stocks Investment -- 97.8%
(Cost $595,318,296) 808,853,728
- -------------------------------------------------------------------------------
Preferred Stocks Investment -- 0.5%
Chesapeake Energy Corp.
(Cost $4,299,058) 86,700 $ 3,695,588
- -------------------------------------------------------------------------------
Total Long-Term Investments -- 98.3%
(Cost $599,617,354) $ 812,549,316
- -------------------------------------------------------------------------------
Short-Term Investment -- 1.2%
Principal
Amount
(000)
- -------------------------------------------------------------------------------
Repurchase Agreement
Goldman, Sachs & Co., 5.00%
6/30/98-7/01/98, Amount Due-
$9,727,350 (collaterized by
$9,935,485, U.S. Treasury Bonds,
13.13%, Due 7/1/98)
(Cost $9,726,000) $9,726 $ 9,726,000
- -------------------------------------------------------------------------------
Total Investments -- 99.5%
(Cost $609,343,354) 822,275,316
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities
Cash 1,201
Dividends and Interest Receivable 964,096
Receivable for Investments Sold 13,185,184
Payable for Investments Purchased (9,726,000)
Payable for Pending
Capital Transactions (284,591)
- -------------------------------------------------------------------------------
Total Other Assets
Less Liabilities-- 0.5% 4,139,890
- -------------------------------------------------------------------------------
Net Assets-- 100% $ 826,415,206
- -------------------------------------------------------------------------------
Net Assets representing:
Equity of Participants
(other then Annuitants)
27,966,504 Accumulation Units
at an Accumulation Unit Value of
$27.9797 $ 782,493,743
Equity of Annuitants 36,924,105
Equity of Prudential Insurance
Company of America 6,997,358
===============================================================================
$ 826,415,206
===============================================================================
The following abbreviations are used in portfolio descriptions
ADR-American Depository Receipts
N.V.-Naamloze VennooSchap (Dutch Corporation)
PLC-Public Limited Company
+Non-Income Producing Security
See Notes to Financial Statements
8
<PAGE>
Financial Statements of VCA-2
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- ------------------------------------------------------------------------------------------------
<S> <C>
Investment Income [Note 2B]
Dividends $ 4,370,159
Interest 473,052
- ------------------------------------------------------------------------------------------------
Total Income 4,843,211
- ------------------------------------------------------------------------------------------------
Expenses [Note 3]
Fees Charged to Participants and Annuitants for Investment Management Services 507,262
Fees Charged to Participants (other than Annuitants) for Assuming
Mortality and Expense Risks 1,471,477
- ------------------------------------------------------------------------------------------------
Total Expenses 1,978,739
- ------------------------------------------------------------------------------------------------
Investment Income - Net 2,864,472
- ------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments - Net [Note 2B]
Realized Gain on Investments - Net 61,501,531
Decrease in Unrealized Appreciation on Investments - Net (780,263)
Net Gain on Investments 60,721,268
- ------------------------------------------------------------------------------------------------
Net Increase In Net Assets Resulting from Operations $ 63,585,740
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets (Unaudited)
- ---------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Investment Income - Net $ 2,864,472 $ 4,884,485
Realized Gain on Investments - Net [Note 2B] 61,501,531 147,369,906
Increase In Unrealized
Appreciation on Investments - Net [Note 2B] (780,263) 43,649,467
- ---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 63,585,740 195,903,858
- ---------------------------------------------------------------------------------------------------
Capital Transactions [Notes 3 & 5]
Purchase Payments and Transfers In 16,916,872 37,581,652
Withdrawals and Transfers Out (35,484,513) (80,261,096)
Annual Administration Charges Deducted from
Participants' Accumulation Accounts (28,993) (28,266)
Mortality and Expense Risk Charges Deducted
from Annuitants' Accounts (50,309) (123,028)
Variable Annuity Payments (2,377,047) (4,174,661)
- ---------------------------------------------------------------------------------------------------
Net Decrease In Net Assets
Resulting from Capital Transactions (21,023,990) (47,005,399)
- ---------------------------------------------------------------------------------------------------
Net Decrease In Net Assets
Resulting from Surplus Transfers [Note 6] -- 78,656
- ---------------------------------------------------------------------------------------------------
Total Increase in Net Assets 42,561,750 148,977,115
Net Assets
Beginning of Period 783,853,456 634,876,341
- ---------------------------------------------------------------------------------------------------
End of Period $ 826,415,206 $ 783,853,456
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</TABLE>
See Notes to Financial Statements
9
<PAGE>
Notes to Financial Statements of VCA-2 (Unaudited)
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NOTE 1: General
The Prudential Variable Contract Account-2 (VCA-2 or the Account) was
established on January 9, 1968 by The Prudential Insurance Company of
America (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 (Contracts) are general obligations of
Prudential, although Participants' payments from the Account will
depend upon the investment experience of the Account.
NOTE 2: Summary of Significant Accounting Policies
A. Securities Valuation
Equity Securities
Any security for which the primary market is on an exchange is
generally valued at the last sale price on such exchange as of the
close of the NYSE (which is currently 4:00 p.m. Eastern time) or, in
the absence of recorded sales, at the mean between the most recently
quoted bid and asked prices. Nasdaq National Market System equity
securities are valued at the last sale price or, if there was no sale
on such day, at the mean between the most recently quoted bid and
asked prices. Other over-the-counter equity securities are valued at
the mean between the most recently quoted bid and asked prices.
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 Pricing Committee.
Fixed Income Securities
Fixed income securities will be valued utilizing an independent
pricing service to determine valuations for normal institutional size
trading units of securities. The pricing service considers such
factors as security prices, yields, maturities, call features, ratings
and developments relating to specific securities in arriving at
securities valuations. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for
which the primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked
prices provided by an independent pricing service.
Short-Term Investments
Short-term investments having maturities of 60 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. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains
and losses on sales of securities are calculated on the identified
cost basis. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Income and realized
and unrealized gains and losses are allocated to the Participants and
Prudential on a daily basis in proportion to their respective
ownership in VCA-2. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management.
10
<PAGE>
Notes to Financial Statements of VCA-2 (Unaudited)
- --------------------------------------------------------------------------------
C. Taxes
The operations of VCA-2 are part of, and are taxed with, the
operations of Prudential. Under the current provisions of the Internal
Revenue Code, 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 each Contract-holder and
are described in the prospectus.
NOTE 3: Charges
A. Prudential acts as investment manager for VCA-2 under an
agreement for Investment Management Services. The expenses
charged to VCA-2 consist of the following contract charges which
are paid to 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 and
Prudential). 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 and Prudential). A one-time equivalent charge is
deducted when the initial Annuity Units for Annuitants are
determined.
B. An annual administration charge of not more than $30 annually, is
deducted from the accumulation account of certain Participants
either at the time of withdrawal of the value of the entire
Participant's account or at the end of the accounting year by
canceling Accumulation Units. This deduction may be made from a
fixed-dollar annuity contract if the Participant is enrolled
under such a contract.
C. A charge of 2.5% for sales and other marketing expenses is made
from certain Participant's purchase payments. For the six months
ended June 30, 1998, Prudential has advised the account it has
received $5,083 for such charges.
NOTE 4: Purchases and Sales of Portfolio Securities
For the six months ended June 30, 1998, the aggregate cost of
purchases and the proceeds from sales of securities, excluding
short-term investments, were $175,619,226 and $192,098,889,
respectively.
11
<PAGE>
Notes to Financial Statements of VCA-2 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 5: Unit Transactions
The number of Accumulation Units issued and redeemed for the six
months ended June 30, 1998 and the year ended December 31, 1997 is as
follows:
1998 1997
Units issued 1,241,975 4,486,054
Units redeemed 1,918,625 6,391,015
NOTE 6: Net Decrease in Net Assets Resulting from Surplus Transfers
The decrease in net assets resulting from surplus transfers represents
the net reductions from the equity of Prudential from VCA-2.
NOTE 7: Related Party Transactions
For the six months ended June 30, 1998 Prudential Securities
Incorporated, an indirect, wholly owned subsidiary of Prudential,
earned $6,582 in brokerage commissions from portfolio transactions
executed on behalf of VCA-2.
NOTE 8: Participant Loans
Participant loan initiations are not permitted in VCA-2. However,
participants who initiated loans in other accounts are permitted to
direct loan repayments into VCA-2.
For the six months ended June 30, 1998 and the year ended December
31,1997, $18,320 and $18,529 of participant loan principal and
interest has been paid to VCA-2, respectively.
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 Investment
Management Services LLC, Distributor, is an affiliate of The Prudential
Insurance Company of America. VCA-2 is a group annuity insurance product issued
by The Prudential Insurance Company of America.
12
<PAGE>
The Prudential Variable
Contract Account - 2
Committee Members
MENDEL A. MELZER, CFA
Chairman,
The Prudential Variable
Contract Account - 2
W. SCOTT McDONALD, JR., Ph.D.
Vice President,
Kaludis Consulting Group
JONATHAN M. GREENE
President,
The Prudential Variable
Contract Account - 2
SAUL K. FENSTER, Ph.D.
President, New Jersey
Institute of Technology
JOSEPH WEBER, Ph.D.
Vice President,
Interclass (international corporate learning)
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Whether providing insurance protection for home, family and business, or
arranging to cover future education and retirement expenses, Prudential people
have always been able to deliver something more: personal service, quality,
attention to detail and the financial strength of The Rock(R). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
The Prudential Insurance Company of America
30 Scranton Office Park
Scranton, PA 18507-1789
(800) 458-6333
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U.S. Postage
PAID
Summit, NJ
Address Service Requested Permit No. 657
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on recycled paper. MRA-1998-A031025
MD.RS.004.0898
