THE
PRUDENTIAL
LONG TERM
GROWTH ACCOUNT
SEMI-ANNUAL REPORT TO
CONTRACT OWNERS
June 30, 2000
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
Pruco Life Insurance Company
213 Washington Street
Newark, NJ 07102-2992
<PAGE>
================================================================================
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>
LETTER TO CONTRACT OWNERS
--------------------------------------------------------------------------------
Six Months Ended June 30, 2000
[FOTO]
CHAIRMAN
JOHN R. STRANGFELD
"The first six months of the new century were among the most tumultuous in
recent market history."
DEAR CONTRACT OWNER:
This Semiannual Report reviews the investment strategies and performance of the
portfolios in your variable life insurance or variable annuity contract
available through Prudential.
LOOKING BACK
The first six months of the new century were among the most tumultuous in recent
market history. The seemingly endless upward trajectory of new economy
stocks--those in the technology, media and telecommunications industries--came
to an abrupt halt in late March. Signs that inflation might be rising in the
U.S., continued interest rate hikes, and high stock valuations caused investors
to flee the technology-laden Nasdaq market in droves. A long-anticipated U.S.
market correction was underway, and its impact was felt across the global
marketplace.
MAINTAIN A LONG-TERM OUTLOOK
In summary, it was an eventful period in the financial markets--one that we
believe magnifies the value of several time-tested investment fundamentals.
First, maintaining a long-term outlook for your investments is vital. Market
fluctuations will occur, and reacting to short-term events is often ill-advised.
As a case in point, we've already seen a rebound in several sectors that
performed poorly during the second quarter of the year.
DIVERSIFICATION IS KEY
Second, the financial markets are a moving target. As such, many investors find
themselves buying at market highs when they gravitate to the
strongest-performing sectors. A more sound approach is to diversify your
portfolio across a wide variety of investments. And take special care to
rebalance your portfolio should your asset allocation strategy veer from its
original course.
RELY ON YOUR FINANCIAL PROFESSIONAL
Third, if you find yourself tempted to react to the latest market gyrations,
turn to your financial professional for guidance. He or she can review your
overall goals and determine if changes to your portfolio are necessary. This is
particularly important during periods of extreme market volatility.
Sincerely,
/s/ JOHN R. STRANGFELD
-----------------------------
John R. Strangfeld
Chairman,
The Prudential Series Fund, Inc. July 17, 2000
2
<PAGE>
VCA-2 LONG TERM GROWTH ACCOUNT
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
--------------------------------------------------------------------------------
[LINE CHART OMITTED]
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: Lipper
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.
Performance Summary
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Average Annual Returns through June 30, 2000 Six Months 1-Year 3-Year 5-Year 10-Year
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Term Growth Account(1) -0.21 -8.871% 3.78% 13.00% 14.09%
------------------------------------------------------------------------------------------------
Long Term Growth Account(2) -3.84 -12.28% 1.78% 11.30% 12.67%
------------------------------------------------------------------------------------------------
Lipper (VIP) Multi-Cap Value Funds Average(3) -0.47 -3.99% 7.78% 14.20% 12.90%
------------------------------------------------------------------------------------------------
S&P 500(4) -0.43 7.24% 19.67% 23.80% 17.79%
------------------------------------------------------------------------------------------------
</TABLE>
VCA-2 Long Term Growth Account inception date: 7/1/68.
(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 2-1/2% 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. Investors cannot invest
directly in an index.
(5) Six month returns are not annualized.
During the first half of 2000, the restructuring (see Strategy Session for
details) of your Account progressed, bringing its industry profile closer to
that of the S&P 500. As a result, the Account was able to provide a return in
line with both the S&P 500 Index and the Lipper Multi-Cap Value Fund Average,
(-0.21%, -0.43%, and -0.47%, respectively) through a very volatile market.
Although technology stocks were still underrepresented in the Account, the
excellent returns on those it did hold more than compensated for the
underweighting. In addition, it had a strong focus on energy stocks, which had
excellent returns, on average. Its healthcare holdings also added substantially
to its performance. The Account's focus on industrial stocks was considerably
reduced, but its position was still somewhat overweighted compared with the
overall market, and these stocks lost ground.
Performance Review.
--------------------------------------------------------------------------------
TECHNOLOGY AND TELECOMMUNICATIONS MIXED. We were able to add to the Account's
technology holdings after these stocks had come down somewhat in price. Two of
our semiconductor companies, Micron Technology and National Semiconductor, had
excellent returns, helped by strong demand for computer chips. Hewlett-Packard
and Harris (a telecommunications equipment company) also contributed to our
strong technology performance. We fared less well in the software and services
group, including Unisys, Computer Associates International and Electronic Data
Systems. This sector underwent a sharp decline. So did the telecommunications
services sector, which corrected sharply from gains in 1999. Loral Space and
Communications (satellite wireless) and Alltel were among our worst performers.
WE FARED BEST IN ENERGY. We also substantially increased our energy holdings at
an advantageous time. We anticipated the tight oil and natural gas markets,
overweighting energy exploration and natural gas pipelines companies. These
energy-related firms--notably Devon Energy, Baker Hughes, Coastal, and
PECO--made substantial contributions to our return.
BASIC MATERIALS DROPPED. Our paper companies and aluminum stocks had a strong
rally early in 1999, but they started to drop in price when the Federal Reserve
began to raise interest rates and continued to fall in 2000. The performance of
basic materials stocks is strongly linked to economic cycles, and investors
feared that rising interest rates would choke off economic growth. Our shares of
Georgia-Pacific, Mead, and Alcoa declined.
3
<PAGE>
Strategy Session.
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WE ARE GIVING GREATER WEIGHT TO GROWTH POTENTIAL. During the fourth quarter of
1999, a new team of portfolio managers took over management of the Account. They
will continue to manage it in a value style, but they will give greater
consideration to a company's capacity for long-term earnings growth.
Nonetheless, they expect the Account to benefit when today's huge disparities in
measures of value move closer to historical levels. For example, the price to
earnings ratio (P/E) of stocks in the Standard and Poor's 500/ Barra Growth
Index on July 31 was 2.6 times that of those in the Barra Value Index, compared
with only 1.5 times five years ago. (The difference in P/E was 29.7 in 2000
versus 7.0 in 1995.
The Account will be kept much closer to the economic sector weights of the S&P
500 than it has been in the past. Moreover, it will tend to own
large-capitalization companies like those that make up the S&P 500. However,
within these limits, the account will favor stocks that the managers believe to
be underpriced for their capacity for earnings growth, their cash flow, and
their assets.
Outlook
--------------------------------------------------------------------------------
"We are changing the management style of the Account somewhat. It will still be
a value style, which has an excellent long-term history, but it will not be so
tightly focused on the price of a share. We will take into account a company's
historical earnings growth rate and its potential for further growth as well. As
the market swings from favoring one investment style to another, these changes
should reduce the volatility of the Account's return.
"The advantage that growth-style investing has had over the past few years has
been unprecedented. In 2000, many excellent growth stocks have had major
corrections (price declines), creating opportunities to build our growth
holdings at bargain prices."
Portfolio Composition
------------------------------------
Cash 1.57%
------------------------------------
Utility 12.61%
------------------------------------
Energy 10.46%
------------------------------------
Consumer Cyclical 2.64%
------------------------------------
Consumer Growth 23.27%
------------------------------------
Technology 21.68%
------------------------------------
Finace 16.03%
------------------------------------
Industrial 11.74%
------------------------------------
Source: Prudential. Holdings are subject to change.
Top Ten Holdings
------------------------------------
Coastal Corp. 2.7%
------------------------------------
Eastman Kodak Co. 2.4%
------------------------------------
Micron Tech Inc. 2.4%
------------------------------------
Baker Huges 2.4%
------------------------------------
Unitedhealth Group 2.3%
------------------------------------
Royal Dutch 2.1%
------------------------------------
Lockheed Martin Corp. 2.1%
------------------------------------
Convergys Corp. 2.0%
------------------------------------
Mediaone Group Inc. 2.0%
------------------------------------
Peco Energy Co. 2.0%
------------------------------------
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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2000 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME ................................ $.2068 $.4596 $.3414 $.2633 $.2056 $.2000
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee ................. (.0155) (.0316) (.0325) (.0284) (.0215) (.0170)
For assuming mortality and expense risks ...... (.0463) (.0948) (.0974) (.0850) (.0646) (.0511)
------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ............................ .1450 .3332 .2115 .1499 .1195 .1319
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CHANGES
Net realized gain on investments .............. .8969 1.3723 3.1604 4.7245 2.3368 1.5228
Net change in unrealized appreciation
(depreciation) of investments ............... (1.0961) (1.4043) (4.3161) 1.3843 1.7641 1.7558
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN ACCUMULATION
UNIT VALUE (.0542) .3012 (0.9442) 6.2587 4.2204 3.4105
------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE
Beginning of period ........................... 25.2398 24.9386 25.8828 19.6241 15.4037 11.9932
End of period ................................. $25.1856 $25.2398 $24.9386 $25.8828 $19.6241 $15.4037
------------------------------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** .......................... .50%+ .50% .50% .50% .50% .50%
------------------------------------------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** .......................... 1.18%+ 1.33% .81% .70% .69% .96%
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE .......................... 35% 81% 43% 47% 53% 42%
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF ACCUMULATION UNITS OUTSTANDING
for Participants at end of period
(000 omitted) ................................. 17,805 20,424 26,278 28,643 30,548 31,600
------------------------------------------------------------------------------------------------------------------------------------
</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, 2000
(UNAUDITED)
LONG-TERM VALUE
INVESTMENTS - 98.1% SHARES [NOTE 2A]
--------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE/DEFENSE - 2.7%
Lockheed Martin Corp. 393,100 $ 9,753,794
Loral Space & Communication, Ltd. (a) 470,200 3,262,012
-----------
13,015,806
--------------------------------------------------------------------------------
AUTOS & TRUCKS - 1.6%
General Motors Corp. 83,613 4,854,780
Tower Automotive, Inc. (a) 208,800 2,610,000
-----------
7,464,780
--------------------------------------------------------------------------------
CHEMICALS - 3.8%
Agrium, Inc. 223,400 1,926,825
Crompton Corp. 381,700 4,675,825
Cytec Industries, Inc. (a) 171,700 4,238,844
Praxair, Inc. 189,600 7,098,150
-----------
17,939,644
--------------------------------------------------------------------------------
COMPUTER - 3.8%
Compaq Computer Corp. 333,700 8,530,206
Hewlett-Packard Co. 41,100 5,132,362
International Business Machines Corp. 42,500 4,656,406
-----------
18,318,974
--------------------------------------------------------------------------------
COMPUTER RELATED - 6.6%
Computer Association International, Inc. 146,600 7,504,087
Compuware Corp. (a) 229,600 2,382,100
Electronic Data Systems Corp. 127,000 5,238,750
Microsoft Corp. (a) 72,700 5,816,000
NCR Corp. (a) 107,200 4,174,100
3Com Corp. (a) 109,700 6,321,463
-----------
31,436,500
--------------------------------------------------------------------------------
CONSUMER SERVICES - 4.7%
Cendant Corp. (a) 372,200 5,210,800
Convergys Corp. (a) 180,400 9,358,250
Procter & Gamble Co. 78,700 4,505,575
Unisys Corp. (a) 234,900 3,420,731
-----------
22,495,356
--------------------------------------------------------------------------------
DIVERSIFIED CONSUMER PRODUCTS - 3.7%
Eastman Kodak Co. 194,900 11,596,550
Philip Morris Companies, Inc. 234,900 6,239,531
-----------
17,836,081
--------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING OPERATIONS - 1.1%
Honeywell International, Inc. 152,800 5,147,450
--------------------------------------------------------------------------------
ELECTRONIC PARTS DISTRIBUTION - 0.3%
Avnet, Inc. 27,500 1,629,375
--------------------------------------------------------------------------------
COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
--------------------------------------------------------------------------------
ELECTRONICS - 8.1%
Harris Corp. 185,700 $ 6,081,675
Micron Technology, Inc. 127,900 11,263,194
Motorola, Inc. 195,400 5,678,813
National Semiconductor Corp. (a) 93,570 5,310,097
SCI Systems, Inc. (a) 120,200 4,710,338
Tellabs, Inc. (a) 78,300 5,358,656
-----------
38,402,773
--------------------------------------------------------------------------------
OIL & GAS - 8.1%
Devon Energy Corp. 145,300 8,164,044
Kerr-McGee Corp. 108,299 6,382,872
Phillips Petroleum Co. 137,000 6,944,187
Royal Dutch Petroleum Co. 164,000 10,096,250
Texaco, Inc. 130,600 6,954,450
-----------
38,541,803
--------------------------------------------------------------------------------
FINANCIAL SERVICES - 5.1%
Chase Manhattan Corp. 118,800 5,472,225
Citigroup, Inc. 128,048 7,714,892
Freddie Mac 79,400 3,215,700
Washington Mutual, Inc. 278,700 8,047,462
-----------
24,450,279
--------------------------------------------------------------------------------
FOODS/BEVERAGES - 2.6%
Diageo PLC SA ADR 210,200 7,475,238
Sara Lee Corp. 246,600 4,762,462
-----------
12,237,700
--------------------------------------------------------------------------------
HEALTHCARE - 9.5%
Abbott Laboratories 186,200 8,297,537
HCA--The Healthcare Corp. 254,900 7,742,588
Tenet Healthcare Corp. (a) 337,900 9,123,300
UnitedHealth Group, Inc. 125,900 10,795,925
Wellpoint Health Networks, Inc. (a) 128,100 9,279,244
-----------
45,238,594
--------------------------------------------------------------------------------
INSURANCE - 8.0%
Berkley (W.R.) Corp. 108,200 2,028,750
Conseco, Inc. 369,200 3,599,700
Loews Corp. 127,100 7,626,000
Old Republic International Corp. 274,350 4,526,775
Torchmark Corp. 307,800 7,598,812
Trenwick Group, Inc. 300,000 4,368,750
XL Capital Ltd. (Class 'A' Stock) 158,084 8,556,297
-----------
38,305,084
--------------------------------------------------------------------------------
MACHINERY - 0.6%
Applied Power, Inc. (Class 'A' Stock) 83,600 2,800,600
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS AS OF JUNE 30, 2000
(UNAUDITED)
COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
--------------------------------------------------------------------------------
MEDIA - 2.0%
MediaOne Group, Inc. (a) 139,700 $ 9,237,663
--------------------------------------------------------------------------------
METALS - 2.7%
Alcoa, Inc. 200,800 6,403,200
Broken Hill Proprietary Co., Ltd. ADR 201,300 4,780,875
The Carbide/Graphite Group, Inc.(a) 443,700 1,774,800
------------
12,958,875
--------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 1.3%
Xerox Corp. 306,700 6,364,025
--------------------------------------------------------------------------------
OIL & GAS SERVICES - 2.3%
Baker Hughes, Inc. 348,800 11,161,600
--------------------------------------------------------------------------------
PAPER PRODUCTS - 2.3%
Georgia-Pacific Group (GP Group) 233,300 6,124,125
Georgia-Pacific Corp. (Timber Group) 112,400 2,430,650
Mead Corp. 85,700 2,163,925
------------
10,718,700
--------------------------------------------------------------------------------
REGIONAL BANKS - 2.8%
Bank One Corp. 236,977 6,294,702
PNC Financial Services Group 151,000 7,078,125
------------
13,372,827
--------------------------------------------------------------------------------
RESTAURANTS - 1.4%
Darden Restaurants, Inc. 419,500 6,816,875
--------------------------------------------------------------------------------
RETAIL - 1.1%
Sears, Roebuck & Co. 155,300 5,066,663
--------------------------------------------------------------------------------
TELECOMMUNICATIONS - 6.4%
ALLTEL Corp. 117,772 7,294,503
Global Crossing, Ltd. (a) 59,800 1,573,488
GTE Corp. 104,900 6,530,025
SBC Communications, Inc. 165,700 7,166,525
Sprint Corp. (FON Group) 153,000 7,803,000
------------
30,367,541
--------------------------------------------------------------------------------
UTILITY - ELECTRIC & GAS - 5.5%
Coastal Corp. 210,600 12,820,275
PECO Energy Co. 230,800 9,304,125
Southern Co. 176,900 4,123,981
------------
26,248,381
--------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 98.1%
(Cost $445,577,081) $467,573,949
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) VALUE
SHARES [NOTE 2A]
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 1.6%
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Bear Stearns & Co., Inc., 6.53%,
dated 6/30/00, due 7/03/00 in the amount of
$7,798,241 (collateralized by
$7,990,810 U.S. Treasury Note,
6.5%, Due 8/15/19) (cost $7,794,000) $7,794 $ 7,794,000
--------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.7%
(Cost $453,371,081) 475,367,949
--------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Cash 207
Dividends and Interest Receivable 743,434
Receivable for Investments Sold 4,868,164
Payable for Investments Purchased (3,962,218)
Payable for Pending Capital Transactions (494,104)
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS, LESS LIABILITIES - 0.3% 1,155,483
--------------------------------------------------------------------------------
NET ASSETS - 100% $476,523,432
--------------------------------------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
(other than Annuitants)
17,804,869 Accumulation Units at an
Accumulation Unit Value of $25.1856 $448,427,154
Equity of Annuitants 25,746,857
Equity of Prudential Insurance
Company of America 2,349,421
------------
$476,523,432
--------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
ADR - American Depository Receipts.
PLC - Public Limited Company.
SA - Sociedad Anomie (Spanish Corporation).
(a) Non-Income Producing Security.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2B]
Dividends (net of $33,814 foreign withholding tax) $ 3,816,994
Interest 261,031
--------------------------------------------------------------------------------
TOTAL INCOME 4,078,025
--------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants and Annuitants
for Investment Management Services 302,315
Fees Charged to Participants (other than Annuitants)
for Assuming Mortality and Expense Risks 867,806
--------------------------------------------------------------------------------
TOTAL EXPENSES 1,170,121
--------------------------------------------------------------------------------
INVESTMENT INCOME - NET 2,907,904
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET [NOTE 2B]
Realized Gain on Investments - Net 17,735,955
Decrease in Unrealized Depreciation on Investments - Net (23,710,597)
--------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (5,974,642)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,066,738)
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2000 1999
--------------------------------------------------------------------------------
OPERATIONS
Investment Income - Net $ 2,907,904 $ 8,092,375
Realized Gain on Investments - Net [NOTE 2B] 17,735,955 38,765,596
Decrease In Unrealized Appreciation on
Investments - Net [NOTE 2B] (23,710,597) (39,937,856)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (3,066,738) 6,920,115
--------------------------------------------------------------------------------
CAPITAL TRANSACTIONS [NOTES 3 & 5]
Purchase Payments and Transfers In 15,538,967 36,304,405
Withdrawals and Transfers Out (79,626,482) (182,549,022)
Annual Administration Charges Deducted from
Participants' Accumulation Accounts (1,220) (23,655)
Mortality and Expense Risk Charges Deducted
from Annuitants' Accounts (39,140) (121,395)
Variable Annuity Payments (1,814,681) (3,689,243)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (65,942,556) (150,078,910)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] 1,055,372 406,121
--------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (67,953,922) (142,752,674)
NET ASSETS
Beginning of Period 544,477,354 687,230,028
--------------------------------------------------------------------------------
End of Period $476,523,432 $544,477,354
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2 (UNAUDITED)
--------------------------------------------------------------------------------
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. The investment objective of the Account is long-term
growth of capital. Its investments are composed primarily of common
stocks. Although variable annuity payments differ according to the
investment performance of the Account, they are not affected by
mortality or expense experience because Prudential assumes the expense
risk and the mortality risk under the contracts.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2 (UNAUDITED)
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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% in contract charges 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 deducted monthly in
determining the amount of Annuitants' payments.
(ii) A daily charge for Prudential 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 fiscal 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, 2000, Prudential has advised the Account it has received
$2,825 for such charges.
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the six months ended June 30, 2000, the aggregate cost of purchases
and the proceeds from sales of securities, excluding short-term
investments, were $169,085,849 and $233,530,922 respectively.
10
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NOTES TO FINANCIAL STATEMENTS OF VCA-2 (UNAUDITED)
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NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the six months
ended June 30, 2000 and year ended December 31, 1999 is as follows:
SIX MONTHS ENDED
JUNE 30, 2000 1999
-----------------------------------------------------
Units issued 640,161 1,408,871
-----------------------------------------------------
Units redeemed 3,259,319 7,262,232
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NOTE 6: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase (decrease) in net assets resulting from surplus transfers
represents the net increases/reductions to/from the equity of Prudential
from VCA-2.
NOTE 7: RELATED PARTY TRANSACTIONS
For the six months ended June 30, 2000 Prudential Securities
Incorporated, an indirect, wholly owned subsidiary of Prudential, earned
$3,582 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, 2000 and the year ended December 31,
1999, $11,960 and $31,490 of participant loan principal and interest has
been paid to VCA-2, respectively. The participant loan principal and
interest repayments are included in purchase payments and transfers in
within the Statement of Changes in Net Assets.
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================================================================================
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT - 2
COMMITTEE MEMBERS
JOHN R. STRANGFELD W. SCOTT MCDONALD, JR., PH.D.
Chairman, Vice President,
The Prudential Variable Kaludis Consulting Group
Contract Accounts - 2, 10 and 11
SAUL K. FENSTER, PH.D. JOSEPH WEBER, PH.D.
President, Vice President,
New Jersey Institute of Technology Interclass (international corporate
learning)
================================================================================
The toll-free numbers shown below can be used to make transfers and
reallocations, review how your premiums are being allocated and receive current
investment option values in your contract. Unit values for each investment
option are available to all Contract Owners from the toll-free numbers. The
phone lines are open each business day during the hours shown. Please be sure to
have your contract number available when you call.
If you own a VARIABLE LIFE INSURANCE CONTRACT, please call the following
telephone number:
(800)778-2255
8 A.M. - MIDNIGHT EASTERN TIME
If you own a VARIABLE ANNUITY CONTRACT, please call the following telephone
number:
(800)458-6333
8 A.M. - 8 P.M. EASTERN TIME
================================================================================
STANDARD & POOR'S 500 INDEX comprises 500 large, established, publicly traded
stocks. MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX comprises
approximately 620 European companies. SALOMON BROTHERS EXTENDED MARKET INDEX
defines the small capitalization stock universe or remaining 20% of the
available capital of each country and includes the remaining 75% of the BMI
issues. The BMI measures the performance of the entire universe of
institutionally investable securities. MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALIA, FAR EAST INDEX is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P/BARRA VALUE INDEX contains companies within the S&P 500 with lower
price-to-book ratios. S&P/BARRA GROWTH INDEX contains companies within the S&P
500 with higher price-to-book ratios. RUSSELL 2000 VALUE INDEX measures the
performance of those Russell 2000 companies with lower price-to-book ratios.
RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies with higher price-to-book ratios. MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD FREE INDEX contains those companies in the MCSI WORLD INDEX that reflect
actual buyable opportunities for the non-domestic investor by taking into
account local market restrictions on share ownership by foreigners. These
indexes are calculated in U.S. dollars, without dividends reinvested. MORGAN
STANLEY CAPITAL INTERNATIONAL JAPAN INDEX measures the performance of Japan's
stock market.
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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.
================================================================================
In the past, Contract Owners who held several variable contracts at the same
address received multiple copies of annual and semi-annual reports. In an effort
to lessen waste and reduce your fund's expenses of postage and printing, we will
attempt to mail only one copy of this report for the contracts listed on the
cover, based on our current records for Contract Owners with the same last name
and same address. No action on your part is necessary. Upon request, we will
furnish you with additional reports. The toll-free numbers listed on the inside
back cover of this report should be used to request any additional copies. Proxy
material and tax information will continue to be sent to each account of record.
The Prudential Insurance Company of America ------------
30 Scranton Office Park PRSRT.STD.
Scranton, PA 18507-1789 U.S. POSTAGE
(800) 458-6333 PAID
SUMMIT NJ
Permit # 657
------------
UNION BUG Printed in the U.S.A. MD.RS.007.0700
M1095 on recycled paper. INST-20000915-A004795
