The
Prudential
Long Term
Growth Account
[PHOTO OMITTED]
Annual Report to
Contract Owners
December 31, 1999
[LOGO] Prudential
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
- --------------------------------------------------------------------------------
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
CHAIRMAN
JOHN R. STRANGFELD
"People differ in their level of comfort when the value of their investments
fluctuates. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable life insurance or
variable annuity contract in the context of your entire portfolio of
investments."
DEAR CONTRACT OWNER:
This Annual Report reviews the investment strategies and performance of the
portfolios available in your Prudential variable life insurance or variable
annuity contract.
A LOOK BACK AT 1999
Last year, technology growth stocks far outperformed most other investments.
Around the world, the spread of computers, the Internet, and wireless
telecommunications is transforming the way people live. This resulted in
increases in the valuation of many companies in that sector. Emerging market
securities also had particularly strong returns, as the economic recovery of
Asia restored investor confidence in these countries. Meanwhile, most bond
investments did not perform well, nor did small-cap value stocks.
2000: A FIRST GLANCE
The new year began with a wave of profit taking, offset by good news on
inflation, only to be driven lower by renewed concerns about inflation. The
result has been significant daily market moves, both positive and negative.
These daily, monthly, and even yearly developments in the market are important,
and can be very interesting. It's equally important, however, to keep in mind
the fundamentals of investing: asset allocation, diversification, and a
systematic plan to reach long-term goals.
KNOW YOUR OWN COMFORT LEVEL
People differ in their level of comfort when the value of their investments
fluctuates. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable life insurance or
variable annuity contract in the context of your entire portfolio of
investments.
REBALANCING YOUR PORTFOLIO
After a divergent market such as the past year's, when returns were concentrated
in a narrow group of securities, you may find that the balance among your
holdings has changed. You may have a larger proportion in stocks than you are
comfortable with, or a larger proportion in growth stocks. It may be a good idea
to rebalance your holdings to restore the allocation that you had chosen to meet
your needs.
THE VALUE OF PROFESSIONAL GUIDANCE
Your financial professional can help you determine if adjustments should be
made, whether in light of today's dynamic marketplace, or if your needs have
changed. The important point is for you to be comfortable with a plan to help
reach your personal goals, rather than allowing your assets to drift with market
activity.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman
VCA-2 Long Term Growth Account January 26, 2000
<PAGE>
VCA-2 LONG TERM GROWTH ACCOUNT
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
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.
(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. Investors cannot invest
directly in an index.
Performance Summary
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Average Annual Returns through December 31, 1999 1-Year 3-Year 5-Year 10-Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Term Growth Account(1) 1.21% 8.75% 16.04% 14.26%
- ------------------------------------------------------------------------------------
Long Term Growth Account(2) -2.45% 6.71% 14.32% 12.84%
- ------------------------------------------------------------------------------------
Lipper (VIP) Multi-Cap Value Funds Average 7.75% 13.60% 18.45% 13.27%
- ------------------------------------------------------------------------------------
S&P 500 21.03% 27.56% 28.54% 18.19%
- ------------------------------------------------------------------------------------
</TABLE>
VCA-2 Long Term Growth Account inception date: 7/1/68.
Your account returned 1.21% in 1999, while the Lipper Multi-Cap Value Fund
Average gained 7.75%. Although value stocks moved up sharply in the second
quarter of the year 2000, stock market performance over the full year was
tightly focused in technology growth stocks. Your account's strict value
orientation through most of the year hurt its return, as the Account had
substantially less invested in technology stocks than its benchmark. Moreover,
the inexpensive technology stocks it did own didn't keep up with the sector
average. Its consumer cyclicals, industrials, and financials also
underperformed, while it benefited from the superior performance of its holdings
in the consumer growth, energy, and utility sectors.
Performance Review
- --------------------------------------------------------------------------------
A SPLIT MARKET. Technology stocks make up 30% of the S&P 500 Index, and their
75% gain for the year drove the Index return, while several other sectors,
including health care and utilities, had negative average returns. The narrow
market focus on technology and telecommunications rewarded growth investors,
while punishing strict value managers. Although the Account substantially
increased its technology holdings in the fourth quarter, its return for the year
trailed.
INDUSTRIALS AND FINANCIALS. Two of the Account's largest focuses over the year
were industrials and financials, but in the fourth quarter we reduced the
emphasis on industrials. Overall, our holdings in these sectors did not perform
well.
CONSUMER GROWTH. Our consumer growth stocks had superior performance,
particularly MediaOne, our largest holding at year-end. The third largest cable
operator in the United States, it is being acquired by AT&T.
ENERGY. Our energy holdings benefited from rising oil prices and strong demand
driven by global economic growth. Our shares in Kerr McGee, an oil exploration
company, made a particularly substantial contribution to our return.
3
<PAGE>
Strategy Session
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WE ARE GIVING GREATER WEIGHT TO GROWTH POTENTIAL. During the fourth quarter, a
new team of portfolio managers, Phil Schettewi and David Kiefer, 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 from a rebound
in value stocks when today's huge disparities in measures of relative value move
toward their historical averages.
BASIC MATERIALS HAVE FURTHER TO GO. Our largest focus currently is on basic
materials stocks. Despite recent gains, they still are attractively priced,
while the strongly growing world economy is increasing demand for industrial
commodities. We will be looking to take profits as these stocks move up.
ENERGY SUPPLY/DEMAND IMBALANCE. While OPEC has a new-found production
discipline, demand for energy commodities is rising as Asian, European, and
Latin American countries join the United States in strong economic growth.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS DAVID A. KIEFER AND PHILLIP J. SCHETTEWI
[PHOTO OMITTED]
"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 recent advantage of
growth investing produced unprecedented differences in value. Whereas we do not
believe such disparities can be sustained, we are reducing our dependence upon
their being corrected in the short term."
Portfolio Composition
- ------------------------------------
Consumer Cyclical 6.9%
- ------------------------------------
Consumer Growth & Stable 24.3%
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Technology 17.6%
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Industrial 17.6%
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Energy 3.7%
- ------------------------------------
Finace 19.1%
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Utilities 10.8%
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Source: Prudential. Holdings are subject to change.
Top Ten Holdings
- ------------------------------------
Georgia Pacific Corp. 2.8%
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MediaOne Group, Inc. 2.6%
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Eastman Kodak Co. 2.5%
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XL Capital Ltd. 2.4%
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Tenet Healthcare 2.4%
- ------------------------------------
ALLTEL Corp. 2.3%
- ------------------------------------
Loral Space Communication 2.2%
- ------------------------------------
Columbia/HCA Healthcare Corp. 2.0%
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Citigroup Inc. 1.9%
- ------------------------------------
Seagate Technology Inc. 1.9%
- ------------------------------------
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 YEAR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME .................................... $ .4596 $ .3414 $ .2633 $ .2056 $ .2000
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee ...................... (.0316) (.0325) (.0284) (.0215) (.0170)
For assuming mortality and expense risks ........... (.0948) (.0974) (.0850) (.0646) (.0511)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ................................ .3332 .2115 .1499 .1195 .1319
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CHANGES
Net realized gain on investments ................... 1.3723 3.1604 4.7245 2.3368 1.5228
Net change in unrealized appreciation
(depreciation) of investments ...................... (1.4043) (4.3161) 1.3843 1.7558 1.7641
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN ACCUMULATION UNIT VALUE ... .3012 (0.9442) 6.2587 4.2204 3.4105
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE
Beginning of year .................................. 24.9386 25.8828 19.6241 15.4037 11.9932
End of year ........................................ $ 25.2398 $ 24.9386 $ 25.8828 $ 19.6241 $ 15.4037
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** ............................... .50% .50% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** ............................... 1.33% .81% .70% .69% .96%
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PORTFOLIO TURNOVER RATE .............................. 81% 43% 47% 53% 42%
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NUMBER OF ACCUMULATION UNITS OUTSTANDING
for Participants at end of year
(000 omitted) ...................................... 20,424 26,278 28,643 30,548 31,600
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</TABLE>
*Calculated by accumulating the actual per unit amounts daily.
**These calculations exclude 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.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1999
LONG-TERM VALUE
INVESTMENTS - 98.5% SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
COMMON STOCKS
AEROSPACE/DEFENSE - 4.0%
Lockheed Martin Corp. 444,300 9,719,063
Loral Space Communication 492,900 11,983,631
----------
21,702,694
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APPAREL - 0.2%
Liz Claiborne, Inc. 27,400 1,030,925
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AUTOS & TRUCKS - 2.2%
General Motors Corp. 116,400 8,460,825
Tower Automotive, Inc. (a) 218,900 3,379,269
----------
11,840,094
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CHEMICALS - 4.8%
Agrium, Inc. 234,200 1,844,325
CK Witco Corp. 400,100 5,351,338
Cytec Industries, Inc. (a) 429,900 9,941,438
French Fragrances, Inc. (a) 73,000 469,938
Praxair, Inc. 172,500 8,678,906
----------
26,285,945
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COMPUTER - 3.4%
Compaq Computer Corp. 349,800 9,466,463
Hewlett Packard Co. 78,300 8,921,306
----------
18,387,769
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COMPUTER RELATED - 6.0%
Computer Association
International 125,000 8,742,188
Electronic Data Systems Corp. 81,300 5,442,019
Seagate Technology, Inc. (a) 217,600 10,132,000
3COM Corp. 174,700 8,210,900
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32,527,107
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 4.8%
Convergys Corp. 308,700 9,492,525
Reynolds & Reynolds Co.
(Class 'A' Stock) 362,100 8,147,250
Service Corp. International 125,500 870,656
Unisys Corp. 246,200 7,863,013
----------
26,373,444
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ELECTRICAL EQUIPMENT - 1.0%
Belden, Inc. 93,700 1,967,700
Hussmann International, Inc. 233,850 3,522,366
----------
5,490,066
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ELECTRONIC PARTS DISTRIBUTION - 0.6%
Arrow Electronics, Inc. (a) 68,300 1,733,113
Avnet, Inc. 28,800 1,742,400
----------
3,475,513
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COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
ELECTRONICS - 4.5%
Micron Technology 65,000 5,053,750
National Semiconductor Corp. (a) 142,170 6,086,653
Peco Energy Co. 241,900 8,406,025
SCI System Inc. 63,000 5,177,813
----------
24,724,241
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCTION - 5.1%
Coastal Corp. 236,000 8,363,250
Devon Energy Corp. 147,600 4,852,350
Kerr McGee Corp. 109,999 6,819,938
Royal Dutch Petroleum Co. 133,000 8,038,188
----------
28,073,726
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FINANCIAL SERVICES - 5.4%
Citigroup, Inc. 188,248 10,459,530
Financial Security Assurance
Holdings Corp. 73,000 3,805,125
Household International 209,500 7,803,875
Washington Mutual 286,300 7,443,800
----------
29,512,330
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FOODS/BEVERAGES - 2.8%
Diageo PLC SA 220,300 7,049,600
Sara Lee Corp. 172,500 3,805,781
Suiza Foods Corp. (a) 112,200 4,445,925
----------
15,301,306
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HEALTHCARE - 9.2%
Columbia/HCA Healthcare Corp. 379,500 11,124,096
Foundation Health Systems (a)
(Class 'A' Stock) 127,000 1,262,063
Mallinckrodt, Inc. 157,000 4,994,563
Pacificare Health Systems (a) 72,800 3,858,400
Tenet Healthcare Corp. (a) 548,000 12,878,000
United HealthCare Corp. 131,900 7,007,188
Wellpoint Health Networks,
Inc. (Class 'A' Stock) (a) 141,000 9,297,188
----------
50,421,498
<PAGE>
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HOTELS & MOTELS - 0.7%
Hilton Hotels Corp. 352,000 3,388,000
RFS Hotel Investors, Inc. 39,100 408,106
----------
3,796,106
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INSURANCE - 10.7%
Ace Ltd. 57,070 952,356
Berkley (W.R.) Corp. 344,200 7,185,175
Conseco, Inc. 387,000 6,917,625
Loews Corp. 108,500 6,584,594
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1999
COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
INSURANCE (CONT'D)
Old Republic International Corp. 287,450 3,916,506
Torchmark Corp. 322,700 9,378,469
Travelers Property Casualty
(Class 'A' Stock) 151,600 5,192,300
Trenwick Group, Inc. 314,400 5,325,150
XL Capital Ltd.
(Class 'A' Stock) 250,984 13,019,785
------------
58,471,960
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LEISURE - 0.1%
Brunswick Corp. 32,500 723,125
- --------------------------------------------------------------------------------
MACHINERY - 1.2%
Applied Power Co.
(Class 'A' Stock) 87,500 3,215,625
Columbus McKinnon Corp. 18,300 185,288
Hardinge, Inc. 225,250 2,942,328
------------
6,343,241
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MEDIA - 3.1%
Belo (A.H.) Corp.
(Class 'A' Stock) 119,900 2,285,594
MediaOne Group, Inc. (a) 187,600 14,410,025
Young Broadcasting Corp. (a)
(Class 'A' Stock) 1,200 61,200
------------
16,756,819
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METALS - 3.3%
Alcoa, Inc. 115,700 9,603,100
Broken Hill Proprietary
Company Ltd. 204,000 5,418,750
The Carbide/Graphite Group (a) 465,100 3,023,150
------------
18,045,000
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MISCELLANEOUS-INDUSTRIAL - 0.5%
Varian Medical Systems, Inc. 93,600 2,790,450
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 2.4%
Harris Corp. 227,800 6,079,413
Xerox Corp. 321,500 7,294,031
------------
13,373,444
- --------------------------------------------------------------------------------
PAPER PRODUCTS - 3.5%
Georgia Pacific Corp.
(GP Group) 244,600 12,413,450
Georgia Pacific Corp.
(Timber Group) 117,800 2,900,825
Mead Corp. 89,900 3,905,031
------------
19,219,306
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PHOTOGRAPHY - 2.5%
Eastman Kodak Co. 204,300 13,534,875
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RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 186,700 4,527,475
- --------------------------------------------------------------------------------
REGIONAL BANKS - 2.6%
Bank One Corp. 296,977 9,521,825
PNC Bank Corp. 104,700 4,659,150
------------
14,180,975
- --------------------------------------------------------------------------------
RESTAURANTS - 2.1%
CKE Restaurants, Inc. 214,300 1,259,013
Darden Restaurants, Inc. 558,100 10,115,563
------------
11,374,576
- --------------------------------------------------------------------------------
RETAIL - 4.5%
Dillards, Inc.
(Class 'A' Stock) 255,500 5,157,906
Federated Department Stores 164,500 8,317,531
Limited, Inc. 117,299 5,080,513
Payless Shoesource (a) 32,400 1,522,800
Toys R Us, Inc. 307,000 4,393,938
------------
24,472,688
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TELECOMMUNICATIONS - 4.9%
ALLTEL Corp. 154,372 12,764,635
GTE Corp. 115,000 8,114,688
SBC Communications, Inc. 117,100 5,708,625
------------
26,587,948
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TOBACCO 1.1%
Philip Morris Co. 246,200 5,708,763
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UTILITY - ELECTRIC 0.5%
Niagara Mohawk Holdings, Inc. (a) 21,500 299,656
NSTAR 65,200 2,640,600
------------
2,940,256
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TOTAL LONG-TERM INVESTMENTS - 98.5%
(Cost $492,286,199) $537,993,665
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<PAGE>
SHORT-TERM INVESTMENT - 1.5% PRINCIPAL
AMOUNT
(000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Bear Stearns & Co., Inc., 2.73%,
dated 12/31/99, due 1/3/00 in the
amount of $8,071,835 (cost
$8,070,000), value of the
collateral including accrued
interest - $8,285,186
$ 8,070 8,070,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100%
(Cost $500,356,198) $546,063,665
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1999
VALUE
[NOTE 2A]
- --------------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS
Dividends and Interest Receivable 896,710
Receivable for Investments Sold 7,195,757
Payable to Bank (6,486)
Payable for Investments Purchased (9,026,676)
Payable for Pending Capital Transactions (645,616)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES,
LESS OTHER ASSETS (1,586,311)
- --------------------------------------------------------------------------------
NET ASSETS - 100% $ 544,477,354
- --------------------------------------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
(other than Annuitants)
20,424,027 Accumulation Units at an
Accumulation Unit Value of
$25.2398 $ 515,497,896
Equity of Annuitants 27,142,430
Equity of Prudential Insurance
Company of America 1,837,028
-------------
$ 544,477,354
- --------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
PLC - Public Limited Company
(a) Non-Income Producing Security
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2B]
Dividends (net of $4,916 foreign withholding tax) $ 8,779,371
Interest 2,243,982
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME 11,023,353
- -----------------------------------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants and Annuitants for Investment Management Services 763,093
Fees Charged to Participants (other than Annuitants) for Assuming
Mortality and Expense Risks 2,167,885
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,930,978
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME - NET 8,092,375
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET [NOTE 2B]
Realized Gain on Investments - Net 38,765,596
Decrease in Unrealized Appreciation on Investments - Net (39,937,856)
- -----------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (1,172,260)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,920,115
===========================================================================================================
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income - Net $ 8,092,375 $ 6,334,477
Realized Gain on Investments - Net [NOTE 2B] 38,765,596 93,450,128
Decrease In Unrealized Appreciation on Investments -
Net [NOTE 2B] (39,937,856) (128,066,902)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM OPERATIONS 6,920,115 (28,282,297)
- -----------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS [NOTES 3 & 5]
Purchase Payments and Transfers In 36,314,405 25,857,801
Withdrawals and Transfers Out (182,549,022) (85,141,729)
Annual Administration Charges Deducted from
Participants' Accumulation Accounts (23,655) (26,137)
Mortality and Expense Risk Charges Deducted
from Annuitants' Accounts (121,395) (91,240)
Variable Annuity Payments (3,689,243) (4,762,987)
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (150,068,910) (64,164,292)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE/DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] 396,121 (4,176,839)
- -----------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (142,752,674) (96,623,428)
NET ASSETS
Beginning of Year 687,230,028 783,853,456
- -----------------------------------------------------------------------------------------------------------
End of Year $ 544,477,354 $ 687,230,028
===========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
- --------------------------------------------------------------------------------
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.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
- --------------------------------------------------------------------------------
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 year ended
December 31, 1999, Prudential has advised the Account it has
received $6,721 for such charges.
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the year ended December 31, 1999, the aggregate cost of purchases
and the proceeds from sales of securities, excluding short-term
investments, were $461,455,965 and $587,808,860 respectively.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-2
- --------------------------------------------------------------------------------
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years ended
December 31, 1999 and December 31, 1998 is as follows:
1999 1998
----------------------------------------------------
Units issued 1,408,871 1,824,158
----------------------------------------------------
Units redeemed 7,262,232 4,188,962
----------------------------------------------------
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 year ended December 31, 1999 Prudential Securities Incorporated,
an indirect, wholly owned subsidiary of Prudential, earned $23,040 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 years ended December 31, 1999 and December 31, 1998, $31,490 and
$36,727 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.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Committee and Participants
of The Prudential Variable Contract Account - 2
of The Prudential Insurance Company of America
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Prudential Varaible Contract Account - 2 of The Prudential Insurance Company
of America (the "Account") at December 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the four years
in the period then ended in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying financial highlights for
the years ended December 31, 1995 were audited by other independent accountants,
whose opinion dated February 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
New York, New York
February 23, 2000
<PAGE>
================================================================================
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
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:
[GRAPHIC OMITTED]
(800)778-2255
8 A.M. - MIDNIGHT EASTERN TIME
If you own a VARIABLE ANNUITY CONTRACT, please call the following telephone
number:
[GRAPHIC OMITTED]
(888)778-2888
8 A.M. - 9 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.
<PAGE>
================================================================================
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
Address Service Requested Permit # 657
------------
Printed in the U.S.A. MD.RA.005.0100
on recycled paper.
