<PAGE>
THE PRUDENTIAL [Logo]
Annual
Report to
Planholders
December 31, 1994
PRUDENTIAL'S
FINANCIAL SECURITY
PROGRAM
[Logo]
Prudential's Gibraltar Fund
and
Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
The Prudential Insurance Company of America
<PAGE>
[Logo]
<PAGE>
TABLE OF CONTENTS
NOTE: **The back inside cover provides important
telephone numbers for customer service.
PAGE
I. LETTER TO PLANHOLDERS
Summarizes the results of Prudential's Financial Security Program
and provides an economic overview................................. 4
II. PRUDENTIAL'S GIBRALTAR FUND
The Prudential's Financial Security Program is the only account
investing in Prudential's Gibraltar Fund.
1. FINANCIAL STATEMENTS............................................ A1
2. SCHEDULE OF INVESTMENTS
Lists the holdings in the Prudential's Gibraltar Fund........... A2
3. NOTES TO THE FINANCIAL STATEMENTS............................... A4
4. INDEPENDENT AUDITOR'S REPORT.................................... A6
III. PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
1. FINANCIAL STATEMENTS
Provides financial data at the product level including
investment results net of certain product related charges....... B1
2. NOTES TO FINANCIAL STATEMENTS................................... B4
3. INDEPENDENT AUDITOR'S REPORT.................................... B8
IV. APPENDIX
1. REPORT OF MANAGEMENT............................................ i
2. GLOSSARY........................................................ ii
3. BOARDS OF DIRECTORS............................................. iii
4. NOTICE OF ELECTION.............................................. iv
3
<PAGE>
Prudential's Gibraltar Fund Year Ended December 31, 1994
DEAR PLANHOLDER:
AS AN INVESTOR IN PRUDENTIAL'S GIBRALTAR FUND, YOU'VE ENTRUSTED US WITH YOUR
ASSETS. WE APPRECIATE THE CONFIDENCE YOU HAVE SHOWN IN US.
AS YOU MAY KNOW, DRAMATICALLY RISING INTEREST RATES MADE 1994 A DIFFICULT YEAR
IN THE FINANCIAL MARKETS. IN OUR VIEW, 1995 WON'T BE A YEAR FOR TAKING RISKS,
EITHER. BE PREPARED FOR A YEAR OF MODEST RETURNS.
THAT'S WHY WE'VE WRITTEN THIS REPORT. WE WANT TO REVIEW WITH YOU WHAT HAS
HAPPENED IN THE STOCK MARKET OVER THE LAST YEAR, INCLUDING A DESCRIPTION OF
INVESTMENT ACTIVITY. WE CONCLUDE THIS LETTER WITH OUR OUTLOOK FOR THE FINANCIAL
MARKETS IN 1995 -- WE LOOK FOR RETURNS IN THE STOCK MARKET THAT ARE CLOSER TO
LONG-TERM, HISTORICAL AVERAGES.
U.S. Financial Markets Review
THE BEST OF TIMES. THE WORST OF TIMES.
For the economy, 1994 was the best of times. Employment surged, manufacturing
output rose and consumer confidence was at its highest in years. It was a good
year to look for a job.
Interest rates rose
higher and higher.
For the stock and bond markets, though, it felt like the worst of times. The
Standard & Poor's 500 Stock Index gained 1.3% on a total return basis. The bond
market had its worst year since 1927. The Lehman Brothers Aggregate Bond Index
fell 2.9%.
What happened? While optimists thought the economy was soaring like a rocket,
the Federal Reserve saw an unguided missile. As commodity prices began to climb
in late 1993 and early 1994, the nation's central bank feared higher inflation.
So the Federal Reserve raised short term interest rates: not once, but six times
in 1994, from 3% to 5.5%.
Ironically, it was the fear of inflation, not real inflation, that drove the
markets, since actual reported inflation never rose above 3% in 1994. Inflation
not only erodes our purchasing power, it also reduces the value of financial
assets: stock prices sag because corporate costs climb and the price of bonds
fall as interest rates rise.
Let's look a little closer at the stock market:
STOCKS: A TUG-OF-WAR.
In the stock market, simultaneously rising corporate earnings and higher
interest rates puzzled investors throughout the year.
As corporate earnings improved, so did the price of stocks. As the Federal
Reserve pushed interest rates higher, though, stock prices declined.
Despite this volatility, your portfolio managers were able to find some
opportunities:
/ / INDUSTRIAL company stocks benefited from increasing economic activity
around the world. Demand for steel, paper and chemicals surged, and as
their prices rose, so did the stock prices of companies that produced
them.
/ / TECHNOLOGY stocks performed well as world markets tried to catch up to
the U.S.'s prowess in technology.
/ / FINANCIAL stocks, including banks and insurance companies, looked
inexpensive. Financial services stocks had fallen because of fears of
rising interest rates, but did not recover as much as we had hoped.
HOW U. S. STOCKS FARED COMPARED WITH OTHER ASSET CLASSES.
1994 Investment Total Returns
[Graph] #1
Source: Prudential Investment Corporation. For purposes of comparison only.
Bonds as measured by the Lehman Brothers Government/Corporate Aggregate. U.S.
stocks as measured by the S&P 500 Index. Global stocks as measured by the Morgan
Stanley Capital International-World Index.
- -------------------------------------------------------------------------------
THE RATES OF RETURN QUOTED ON THE FOLLOWING PAGES REFLECT DEDUCTION OF
INVESTMENT MANAGEMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THEY
REFLECT THE REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. THEY ARE
NOT AN ESTIMATE OR A GUARANTEE OF FUTURE PERFORMANCE. CONTRACT UNIT VALUES
INCREASE OR DECREASE BASED ON THE PERFORMANCE OF THE PORTFOLIO. CHANGES IN
CONTRACT VALUES DEPEND NOT ONLY ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIO,
BUT ALSO ON THE INSURANCE AND ADMINISTRATIVE CHARGES, APPLICABLE SALES CHARGES,
AND THE MORTALITY AND EXPENSE RISK CHARGE THAT MAY BE APPLICABLE UNDER A
CONTRACT. THESE CONTRACT CHARGES EFFECTIVELY REDUCE THE DOLLAR AMOUNT OF ANY NET
GAINS AND INCREASE THE DOLLAR AMOUNT OF ANY NET LOSSES.
4
<PAGE>
Investment Review
PRUDENTIAL'S GIBRALTAR FUND
PORTFOLIO MANAGER Bob Fetch
[Photo}
The Fund performed in line with the Lipper VIP Growth Fund Average in 1994, but
both were in negative territory. The Fund fell 1.3% while the average Lipper
fund lost 1%. The S&P 500 was up 1.3% for the year.
The Fund uses a value investment strategy; Portfolio Manager Bob Fetch buys
stocks that are inexpensively priced in relation to certain financial measures
of business worth, including earnings, book value and cash flow. As interest
rates rose in 1994, stock prices declined, presenting a number of value
investment opportunities. The Advisor has aggressively positioned the Fund to
take advantage of these situations.
Our holdings in 1994 were concentrated primarily in the industrial, consumer
growth, technology and financial sectors. In a year of turbulence, all of these
sectors with the exception of the financial sector were in positive territory.
INVESTMENT ACTIVITY.
The Fund's Advisor has continued its strategy to take advantage of the growing
global economic recovery.
INCREASED INDUSTRIALS.
As economic growth intensified during the year, the Fund continued to add to its
holdings in its largest sector, industrial stocks. By year end, 42% of assets
were in this sector, up from 33% at mid-year. The Fund sold two railroad stocks
which were among its top holdings during the year, Kansas City Southern and
Southern Pacific Rail, when they reached their valuation targets. Later, as the
price of Kansas City stock fell under intense selling pressure, the stock
became an excellent value once again because its growth potential remained
intact. So the Advisor elected to purchase the stock again.
We did have a disappointment in this sector this year: Trinity Industries, a
railcar builder, fell 25% in price and was the Fund's fifth highest holding at
year end. It performed well in 1993 but gave back much of its gains in 1994.
CONSUMER GROWTH STOCKS SURGED.
Weakness in Trinity was offset in part by the Fund's exposure to consumer growth
stocks, where we held 15% of assets -- our second largest sector. The Fund's
largest single holding is in this sector: Archer Daniels Midland, one of the
nation's largest food processing companies, which gained 43% in 1994. The stock
rose because the company's earnings climbed after several flat years. Profits
improved on higher worldwide demand and improved crop yields.
Financial Sector: Stock Selection Crucial.
In the financial sector, we benefited from stock selection, since the S&P
Financial Index was off 3% while our holdings fell by less than a percentage
point. Financial stocks amount to about 8% of assets. The advisor expected bank
stocks to rise as regional banks continued to be considered as merger and
acquisition candidates by larger financial institutions. One disappointment in
this sector was Key Corp., a Cleveland-based regional bank, which fell 17% in
price during the year.
Value of $10,000 Invested in Gibraltar Fund vs. S&P 500 and Lipper VIP Growth
Average Over Ten Years
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
PORTFOLIO PERFORMANCE DOES NOT REFLECT SEPARATE ACCOUNT EXPENSES OR
OTHER PRODUCT CHARGES.
[Graph] #2
S&P 500 Index . . . . . $38,269
Lipper VIP Growth Avg. $34,760
Gibraltar Port. . . . . $45,359
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gibraltar Portfolio -1.3% 12.8% 13.4% 16.3%
- --------------------------------------------------------------------
Lipper VIP Growth Avg. -1.0 6.5 9.1 13.5
- --------------------------------------------------------------------
S&P 500 1.3 6.3 8.7 14.4
- --------------------------------------------------------------------
</TABLE>
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES, THE
LIPPER AVERAGE AND INDEX INCEPTION RETURNS REFLECT THE FUND'S FIRST FULL
CALENDAR MONTH OF PERFORMANCE.
- -------------------------------------------------------------------------------
THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF 4,842 GOVERNMENT AND CORPORATE
BONDS. THE LAI 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 PORTFOLIO. THE SECURITIES THAT
COMPRISE THE LAI MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO.
THE LAI IS NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF
INCOME FUNDS AND OTHER INDICES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) AVERAGE IS CALCULATED BY LIPPER
ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF PORTFOLIOS
UNDERLYING VARIABLE LIFE AND INSURANCE PRODUCTS. THESE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
5
<PAGE>
Investment Review
Investment Advisor's Outlook
INVESTMENT ADVISOR'S OUTLOOK.
1995 may be a better year for investors than 1994. But it won't be a year for
taking big risks. So be prepared for a year of returns closer to long-term
historical averages.
GROWTH AND INFLATION.
/ / In 1995, we're looking for moderate growth from the U.S. economy. This
means Gross Domestic Product should slow from the 4.0% in 1994 to between 2.0%
to 2.5% by the end of 1995--a manageable figure and one that shouldn't cause
concern in either the bond or stock markets.
/ / Inflation, 1994's big concern, will likely creep up to between 3.0% and
4.0% next year. Much of that increase has already been discounted by the markets
and shouldn't have a significant impact on long-term interest rates.
THE BIGGEST RISK TO OUR OUTLOOK? THE FEDERAL RESERVE'S INTEREST RATE HIKES COULD
CHOKE OFF GROWTH, OR THERE COULD BE A BIG CHANGE IN THE AVAILABILITY OF CERTAIN
COMMODITIES (POSSIBLY BECAUSE OF A WAR OR NATURAL DISASTER) THAT COULD RAISE THE
INFLATION ANTE.
THE U.S. STOCK MARKET.
/ / The U.S. stock market appears headed for an average year in 1995. That
means total returns possibly in the high single digits. Of course, we haven't
thought for awhile that the handsome double-digit returns we enjoyed in the
1980s would materialize again any time soon, so anything in excess of inflation
looks pretty fair. And if inflation remains relatively benign as we expect,
market returns after inflation will be close to historic averages.
/ / Corporate earnings growth and investor demand should play a big role in
stock performance in 1995. However, if either is tepid, expect our return
forecast to fall accordingly. Stock values are still a bit ahead of earnings, as
well, which could indicate some type of correction is likely. This is a year
when stock selection will be crucial.
ON THE OTHER HAND? IF ECONOMIC GROWTH STALLS OUT, EXPECT STOCK PRICES TO FALL.
THAT COMPLETES OUR REVIEW OF 1994 AND OUR OUTLOOK FOR 1995. WE TRUST YOU FOUND
IT HELPFUL.
YOUR PRUDENTIAL/PRUCO SECURITIES REPRESENTATIVE STANDS READY TO DISCUSS THESE
ISSUES AND TO ASSIST YOU IN ANY WAY HE OR SHE CAN. WE BELIEVE THAT YOUR PERSONAL
FINANCIAL REPRESENTATIVE -- THE ONE WHO UNDERSTANDS YOU AND YOUR LONG-TERM
INVESTMENT NEEDS -- IS A VERY VALUABLE RESOURCE GIVEN TODAY'S TURBULENT
FINANCIAL MARKETS. WE URGE YOU TO TAKE ADVANTAGE OF YOUR REPRESENTATIVE'S
TRAINING AND EXPERIENCE TO HELP YOU MANAGE YOUR INVESTMENTS IN A MANNER MOST
BENEFICIAL TO YOU AND YOUR FAMILY.
ALL OF US AT THE PRUDENTIAL THANK YOU FOR YOUR BUSINESS AND LOOK FORWARD TO
HELPING YOU PROVIDE FOR YOUR FUTURE FINANCIAL SECURITY.
E. Michael Caulfield
PRESIDENT
Prudential's Gibraltar Fund
Robert P. Hill
CHAIRMAN
Prudential's Gibraltar Fund
6
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$238,622,448)............................ $ 246,093,497
Cash....................................... 68
Interest and dividends receivable.......... 310,191
Receivable for securities sold............. 3,286,900
--------------
Total Assets............................. 249,690,656
--------------
LIABILITIES
Accrued expenses........................... 31,286
Payable for securities purchased........... 7,078,271
Payable to investment adviser.............. 76,789
--------------
Total Liabilities........................ 7,186,346
--------------
NET ASSETS................................... $ 242,504,310
--------------
--------------
Net assets were comprised of:
Common stock, at $1 par value............ $ 25,803,061
Paid-in capital, in excess of par........ 211,423,062
--------------
237,226,123
Accumulated distributions in excess of net
investment income........................ (294,643)
Distributions in excess of net realized
gains.................................... (1,898,219)
Net unrealized appreciation................ 7,471,049
--------------
Net assets, December 31, 1994.............. $ 242,504,310
--------------
--------------
Net asset value per share of 25,803,061
outstanding shares of common stock
(authorized 75,000,000 shares)........... $ 9.3983
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 4,588,901
Interest................................... 856,854
---------------
5,445,755
---------------
EXPENSES
Investment management fee.................. 318,934
State franchise tax expense................ 34,675
Foreign withholding tax.................... 18,716
Directors' expense......................... 7,779
Custodian expense -- net................... 5,001
---------------
385,105
---------------
NET INVESTMENT INCOME........................ 5,060,650
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments
[identified cost basis].................. 16,126,282
Net unrealized loss on investments......... (24,285,324)
---------------
NET LOSS ON INVESTMENTS...................... (8,159,042)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 3,098,392)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 5,060,650 $ 3,667,891
Net realized gain on investments....................................................... 16,126,282 58,092,048
Net unrealized loss on investments..................................................... (24,285,324) (8,040,521)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (3,098,392) 53,719,418
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (5,085,500) (3,690,635)
Net realized gain from investment transactions......................................... (34,178,638) (44,376,736)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (39,264,138) (48,067,371)
------------------ -------------------
CAPITAL TRANSACTIONS:
Reinvestment of dividend distributions [4,008,764 and 4,215,813 shares,
respectively]......................................................................... 38,225,359 46,841,213
Capital stock repurchased [(1,619,845) and (1,467,833) shares, respectively]........... (17,638,028) (18,289,066)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 20,587,331 28,552,147
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (21,775,199) 34,204,194
NET ASSETS:
Beginning of year...................................................................... 264,279,509 230,075,315
------------------ -------------------
End of year............................................................................ $ 242,504,310 $ 264,279,509
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A4 AND A5.
A1
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 97.5% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 5.8%
+Banner Aerospace, Inc.......................... 52,600 $ 236,700
Boeing Co....................................... 55,000 2,571,250
+Coltec Industries, Inc......................... 125,000 2,140,625
Precision Castparts Corp........................ 258,500 5,234,625
United Technologies Corp........................ 60,000 3,772,500
--------------
13,955,700
--------------
ALUMINUM -- 3.3%
Aluminum Co. of America......................... 92,500 8,012,813
--------------
AUTOS - CARS & TRUCKS -- 1.3%
General Motors Corp. (Class 'H' Stock).......... 60,000 2,092,500
Standard Products Co............................ 40,800 979,200
--------------
3,071,700
--------------
BANKS AND SAVINGS & LOANS -- 2.8%
KeyCorp......................................... 150,125 3,753,125
Norwest Corp.................................... 75,000 1,753,125
+Riggs National Corp............................ 150,000 1,218,750
--------------
6,725,000
--------------
CHEMICALS -- 3.0%
A. Schulman, Inc................................ 94,875 2,561,625
Dow Chemical Co................................. 70,000 4,707,500
--------------
7,269,125
--------------
CHEMICALS - SPECIALTY -- 3.7%
Raychem Corp.................................... 250,000 8,906,250
--------------
COMMERCIAL SERVICES -- 1.7%
Deluxe Corp..................................... 40,000 1,060,000
FlightSafety International, Inc................. 9,300 377,812
Measurex Corp................................... 110,000 2,598,750
--------------
4,036,562
--------------
COMPUTER SERVICES -- 2.3%
+Cisco Systems, Inc............................. 100,000 3,500,000
+Zilog, Inc..................................... 72,800 2,129,400
--------------
5,629,400
--------------
DIVERSIFIED GAS -- 0.6%
Mitchell Energy & Development Corp. (Class 'A'
Stock)........................................ 44,000 715,000
Mitchell Energy & Development Corp. (Class 'B'
Stock)........................................ 38,850 728,438
--------------
1,443,438
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.5%
International Business Machines Corp............ 50,000 3,675,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 1.5%
+ALZA Corp...................................... 200,000 3,600,000
--------------
ELECTRICAL EQUIPMENT -- 2.2%
Belden, Inc..................................... 60,000 1,327,500
W.W. Grainger, Inc.............................. 70,000 4,042,500
--------------
5,370,000
--------------
ELECTRONICS -- 6.6%
+ADT Ltd........................................ 200,000 2,150,000
+Altera Corp.................................... 28,400 1,185,700
+Cirrus Logic, Inc.............................. 119,200 2,682,000
+Marshall Industries............................ 98,800 2,642,900
Methode Electronics, Inc. (Class 'A' Stock)..... 192,500 3,176,250
+National Semiconductor Corp.................... 25,000 487,500
</TABLE>
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Texas Instruments, Inc.......................... 30,000 $ 2,246,250
+VeriFone, Inc.................................. 64,000 1,408,000
--------------
15,978,600
--------------
FINANCIAL SERVICES -- 1.0%
Dean Witter, Discover & Co...................... 8,200 277,775
Manufactured Home Communities, Inc.............. 50,800 1,009,650
+Mercer International, Inc...................... 33,000 449,625
West One Bancorp................................ 30,000 795,000
--------------
2,532,050
--------------
FOODS -- 6.1%
Archer-Daniels-Midland Co....................... 630,000 12,993,750
Dole Food Co., Inc.............................. 80,000 1,840,000
--------------
14,833,750
--------------
FOREST PRODUCTS -- 4.9%
Georgia-Pacific Corp............................ 20,000 1,430,000
Mosinee Paper Co................................ 45,000 1,125,000
Willamette Industries, Inc...................... 200,000 9,400,000
--------------
11,955,000
--------------
HOSPITAL MANAGEMENT -- 1.8%
Caremark International, Inc..................... 125,000 2,140,625
National Health Labs Holdings, Inc.............. 69,800 924,850
National Medical Enterprises, Inc............... 90,000 1,271,250
--------------
4,336,725
--------------
INSURANCE -- 1.8%
Aon Corp........................................ 25,000 800,000
Progressive Corp................................ 105,000 3,675,000
--------------
4,475,000
--------------
LEISURE -- 0.7%
+Caesars World, Inc............................. 25,000 1,668,750
--------------
MACHINERY -- 5.1%
Eaton Corp...................................... 155,000 7,672,500
Timken Co....................................... 130,000 4,582,500
--------------
12,255,000
--------------
MEDIA -- 2.1%
Comcast Corp. (Class 'A' Stock)................. 50,800 781,050
Comcast Corp. (Special Class 'A' Stock)......... 25,900 404,688
+Viacom, Inc. (Class 'B' Stock)................. 95,000 3,859,375
--------------
5,045,113
--------------
MINERAL RESOURCES -- 5.0%
Cyprus Amax Minerals Co......................... 100,000 2,612,500
Newmont Mining Corp............................. 100,007 3,600,251
Placer Dome, Inc................................ 125,000 2,718,750
Potash Corp. of Saskatchewan, Inc............... 50,000 1,700,000
+Sante Fe Pacific Gold Corp..................... 125,000 1,609,375
--------------
12,240,876
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 9.6%
Air Express International Corp.................. 103,200 2,012,400
American President Companies, Ltd............... 141,700 3,577,925
Canadian Pacific, Ltd........................... 125,000 1,875,000
Carlisle Companies, Inc......................... 49,500 1,788,187
Diebold, Inc.................................... 20,000 822,500
GATX Corp....................................... 22,400 985,600
Mark IV Industries, Inc......................... 42,000 829,500
Topps Company, Inc.............................. 121,000 620,125
</TABLE>
A2
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Trinity Industries, Inc......................... 255,000 $ 8,032,500
Tyco International Ltd.......................... 60,000 2,850,000
--------------
23,393,737
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.4%
Eastman Kodak Co................................ 70,000 3,342,500
--------------
PETROLEUM -- 4.1%
Cabot Corp...................................... 140,000 3,972,500
Diamond Shamrock, Inc........................... 51,000 1,319,625
KN Energy, Inc.................................. 106,974 2,540,633
Questar Corp.................................... 80,000 2,200,000
--------------
10,032,758
--------------
PETROLEUM SERVICES -- 2.1%
+Mesa, Inc...................................... 120,000 585,000
Murphy Oil Corp................................. 25,000 1,062,500
Sonat, Inc...................................... 120,000 3,360,000
--------------
5,007,500
--------------
RAILROADS -- 2.2%
+Chicago & North Western Transportation Co...... 44,800 862,400
Kansas City Southern Industries, Inc............ 144,200 4,452,175
--------------
5,314,575
--------------
REAL ESTATE DEVELOPMENT -- 2.3%
Duke Realty Investments, Inc.................... 50,000 1,412,500
Equity Residential Properties Trust............. 98,900 2,967,000
Weingarten Realty Investors..................... 35,000 1,325,625
--------------
5,705,125
--------------
RESTAURANTS -- 0.5%
Sbarro, Inc..................................... 51,000 1,326,000
--------------
RETAIL -- 2.5%
Nike, Inc. (Class 'B' Stock).................... 35,000 2,611,875
Stride Rite Corp................................ 140,200 1,559,725
Tiffany & Co.................................... 46,500 1,813,500
--------------
5,985,100
--------------
TELECOMMUNICATIONS -- 8.0%
Century Telephone Enterprises, Inc.............. 170,000 5,015,000
L.M. Ericsson Telephone Co. (Class 'B' Stock),
ADR........................................... 40,000 2,205,000
Rochester Telephone Corp........................ 500,000 10,562,500
TCA Cable TV, Inc............................... 73,900 1,588,850
--------------
19,371,350
--------------
TOTAL COMMON STOCKS
(Cost $229,023,448)............................................ 236,494,497
--------------
</TABLE>
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 4.0% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS
First Union National Bank, T.D.,
6.250%, 01/03/95.............................. $ 9,599,000 $ 9,599,000
--------------
LIABILITIES -- (1.5%)
(net of other assets).......................................... (3,589,187)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 242,504,310
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
T.D. Time Deposit
+No dividend was paid on this security during the 12 months ending December
31, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A4 AND A5.
A3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
NOTE 1: GENERAL
The Fund is registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION: Securities traded on a national securities exchange are
valued at the last sales price (or the last bid price if there were no sales of
the security that day) on the New York Stock Exchange, or if not traded on such
exchange, such last sales or bid price at the time of close of the New York
Stock Exchange on the principal exchange on which such securities are traded on
the last business day of the year. For any securities not traded on a national
securities exchange but traded in the over-the-counter market, the value is the
last bid price available, except that securities for which quotations are
furnished through a nationwide automated quotation system approved by the
National Association of Securities Dealers, Inc. (NASDAQ) are valued at the
closing best bid price on the date of valuation provided by a pricing service
which utilizes NASDAQ quotations. Short-term investments are valued at amortized
cost which, with accrued interest, approximates market value. Amortized cost is
computed using the cost on the date of purchase adjusted for constant
amortization of discount or premium to maturity.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Dividend income is recorded on
the ex-dividend date. Interest income is accrued daily on short-term
investments. Interest income also includes net amortization from the purchase of
fixed-income securities. Security transactions are recorded on the first
business day following the trade date, except that transactions on the last
business day of the reporting cycle are recorded on that day. Transactions in
short-term debt securities are recorded on the trade date. Realized gains and
losses from securities transactions are determined and accounted for on the
basis of identified cost.
DISTRIBUTIONS AND TAXES: As in prior years, the Fund intends to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code. As
a result, by distributing substantially all of its net investment income and net
realized capital gains, the Fund will not be subject to federal income tax on
the investment income and capital gains so distributed. Dividend distributions
to stockholders are recorded on the ex-dividend date.
NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT MANAGEMENT FEE: The investment management fee, which is computed
daily at an effective annual rate of 0.125% of the net assets of the Fund, is
payable to The Prudential Insurance Company of America (The Prudential) as
required by the investment advisory agreement. Under the terms of the investment
advisory agreement and a separate contract which remains in force as long as The
Prudential, or its separate accounts, or organizations approved by it are the
only purchasers of Fund shares, The Prudential pays all expenses of the Fund
except for fees and expenses of those members of the Fund's Board of Directors
who are not officers or employees of The Prudential and its affiliates; transfer
and any other local, state or federal taxes; and brokers' commissions and other
fees and charges attributable to investment transactions.
BROKERAGE COMMISSIONS: For the year ended December 31, 1994, Prudential
Securities Incorporated, an indirect, wholly owned subsidiary of The Prudential,
earned $0 in brokerage commissions from transactions executed on behalf of the
Fund.
NOTE 4: DISTRIBUTIONS
Dividends from net investment income and net realized capital gains of the Fund
will normally be declared and reinvested in additional full and fractional
shares twice a year.
NOTE 5: PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and the proceeds from sales of securities
(excluding short-term investments) for the year ended December 31, 1994 was
$265,077,782 and $216,410,458, respectively.
A4
<PAGE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments were as follows:
<TABLE>
<S> <C>
Gross Unrealized Appreciation: $ 19,473,180
Gross Unrealized Depreciation: 12,002,131
Net Unrealized Appreciation/Depreciation: 7,471,049
Tax Cost: 238,622,448
</TABLE>
NOTE 6: FINANCIAL HIGHLIGHTS
The following average per share data, ratios and supplemental information have
been derived from information provided in the financial statements.
<TABLE>
<CAPTION>
PRUDENTIAL'S GIBRALTAR FUND
------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290 $ 9.190 $ 12.440
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net investment income.... 0.214 0.180 0.184 0.220 0.340 0.360 0.310 0.400
Net realized and
unrealized gains
(losses) on
investments............ (0.405) 2.426 1.771 2.900 (0.640) 1.920 2.000 0.230
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations........... (0.191) 2.606 1.955 3.120 (0.300) 2.280 2.310 0.630
Distributions to
Shareholders:
Distributions from net
investment income...... (0.216) (0.188) (0.193) (0.260) (0.370) (0.370) (0.370) (0.650)
Distributions from net
realized gains......... (1.482) (2.264) (2.019) (0.870) (0.520) (1.610) (0.840) (3.230)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
distributions........ (1.698) (2.452) (2.212) (1.130) (0.890) (1.980) (1.210) (3.880)
Net increase (decrease)
in Net Asset Value..... (1.889) 0.154 (0.257) 1.990 (1.190) 0.300 1.100 (3.250)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value at end of
period................. $ 9.398 $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290 $ 9.190
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Investment Rate of
Return:**.............. (1.33%) 23.79 % 17.60 % 34.40 % (2.80 %) 22.30 % 25.60 % 2.53%
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $242.5 $264.3 $230.1 $214.2 $174.4 $197.0 $183.3 $170.0
Ratio of expenses net of
reimbursement to
average net assets..... 0.15 % 0.16 % 0.19 % 0.19 % 0.21 % 0.16 % 0.16 % 0.15%
Ratio of net investment
income to average net
assets................. 1.98 % 1.45 % 1.58 % 1.98 % 3.38 % 3.19 % 2.95 % 3.11%
Portfolio turnover
rate................... 92.49 % 91.83 % 72.82 % 76.35 % 108.08 % 66.79 % 31.69 % 31.53%
Number of shares
outstanding at end of
period (in millions)... 25.8 23.4 20.7 18.8 18.6 18.6 17.8 18.5
<CAPTION>
01/01/86 01/01/85
TO TO
12/31/86 12/31/85
----------- -----------
<S> <C> <C>
Net Asset Value at
beginning of period.... $ 14.660 $ 12.600
----------- -----------
Income From Investment
Operations:
Net investment income.... 0.360 0.470
Net realized and
unrealized gains
(losses) on
investments............ 1.650 3.310
----------- -----------
Total from investment
operations........... 2.010 3.780
Distributions to
Shareholders:
Distributions from net
investment income...... (0.450) (0.510)
Distributions from net
realized gains......... (3.780) (1.210)
----------- -----------
Total
distributions........ (4.230) (1.720)
Net increase (decrease)
in Net Asset Value..... (2.220) 2.060
----------- -----------
Net Asset Value at end of
period................. $ 12.440 $ 14.660
----------- -----------
----------- -----------
Total Investment Rate of
Return:**.............. 15.73 % 32.68 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $186.5 $181.1
Ratio of expenses net of
reimbursement to
average net assets..... 0.16 % 0.17 %
Ratio of net investment
income to average net
assets................. 2.76 % 3.28 %
Portfolio turnover
rate................... 67.56 % 108.28 %
Number of shares
outstanding at end of
period (in millions)... 15.0 12.4
</TABLE>
**Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
All calculations are based on average month-end shares outstanding, where
available.
A5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of Prudential's Gibraltar Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Prudential's Gibraltar Fund, as of December 31,
1994, the related statement of operations for the year then ended and the
statements of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential's Gibraltar Fund as of December
31, 1994, the results of its operations for the year then ended and the changes
in its net assets for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995
A6
<PAGE>
(This page intentionally left blank.)
A7
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1994
<S> <C>
Investment in 20,347,560 shares of
Prudential's Gibraltar Fund at net
asset value of $9.3983 per share
(Cost: $203,718,841)........................ $ 191,232,069
Accrued expenses................................ (27,152)
----------------
NET ASSETS...................................... $ 191,204,917
----------------
----------------
Net assets were comprised of:
Paid-in capital................................. $ 203,716,800
Distributions in excess of net
investment income............................. (3,714,398)
Accumulated net realized gains.................. 3,689,287
Net unrealized depreciation..................... (12,486,772)
----------------
Net assets, December 31, 1994................... $ 191,204,917
----------------
----------------
Net asset value per share of
20,641,598 outstanding
Securities Shares............................. $ 9.2631
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividend distributions received............... $ 3,999,602
EXPENSES
Administration charge [Note 1]................ 1,494,725
----------------
NET INVESTMENT INCOME........................... 2,504,877
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gains distributions received.......... 26,877,899
Realized loss on shares redeemed
[identified cost basis]..................... (111,234)
Net unrealized loss on investments............ (33,217,396)
----------------
NET LOSS ON INVESTMENTS......................... (6,450,731)
----------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (3,945,854)
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 2,504,877 $ 1,400,882
Capital gains distributions received.............................. 26,877,899 34,784,197
Realized gain (loss) on shares redeemed........................... (111,234) 2,182,967
Net unrealized gain (loss) on investments......................... (33,217,396) 2,403,134
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... (3,945,854) 40,771,180
---------------- ----------------
DIVIDENDS TO PLANHOLDERS FROM [NOTE 5]:
Net investment income............................................. (6,180,311) (1,376,522)
Net realized gain from investment transactions.................... (23,192,440) (34,784,397)
---------------- ----------------
TOTAL DIVIDENDS TO PLANHOLDERS........................................ (29,372,751) (36,160,919)
---------------- ----------------
SECURITIES SHARES TRANSACTIONS:
Purchase payments................................................. 30,028,358 36,256,328
Security Shares liquidated........................................ (13,361,790) (14,252,931)
---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM SECURITIES SHARES TRANSACTIONS:................................ 16,666,568 22,003,397
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (16,652,037) 26,613,658
NET ASSETS:
Beginning of year................................................. 207,856,954 181,243,296
---------------- ----------------
End of year....................................................... $ 191,204,917 $ 207,856,954
---------------- ----------------
---------------- ----------------
</TABLE>
B1
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1994
<S> <C>
Investment in 260,097 shares of
Prudential's Gibraltar Fund at net
asset value of $9.3983 per share
(Cost: $2,485,935).......................... $ 2,444,467
Accrued expenses................................ (75)
----------------
NET ASSETS...................................... $ 2,444,392
----------------
----------------
NET ASSETS, representing:
Equity of annuitants [Note 4]................. $ 2,289,415
Equity of The Prudential
Insurance Company
of America.................................. 154,977
----------------
$ 2,444,392
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividend distributions received............... $ 52,771
EXPENSES
Charges to annuitants for assuming mortality
and expense risks and for administration
[Note 1].................................... 9,761
----------------
NET INVESTMENT INCOME........................... 43,010
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gains distributions received.......... 362,212
Realized gain on shares redeemed
[identified cost basis]..................... 5,575
Net unrealized loss on investments............ (446,695)
----------------
NET LOSS ON INVESTMENTS......................... (78,908)
----------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (35,898)
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 43,010 $ 34,551
Capital gains distributions received.............................. 362,212 550,527
Realized gain on shares redeemed.................................. 5,575 80,295
Net unrealized gain (loss) on investments......................... (446,695) 10,267
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... (35,898) 675,640
---------------- ----------------
ANNUITY BENEFIT PAYMENTS.............................................. (521,684) (342,596)
---------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM SURPLUS TRANSFERS.............................................. (178,479) (177,750)
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (736,061) 155,294
NET ASSETS:
Beginning of year................................................. 3,180,453 3,025,159
---------------- ----------------
End of year....................................................... $ 2,444,392 $ 3,180,453
---------------- ----------------
---------------- ----------------
</TABLE>
B2
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1994
<S> <C>
Investment in 5,195,404 shares of
Prudential's Gibraltar Fund at net
asset value of $9.3983 per share
(Cost: $47,841,357)......................... $ 48,827,860
Accrued expenses................................ (3,940)
----------------
NET ASSETS...................................... $ 48,823,920
----------------
----------------
NET ASSETS, representing:
Equity of planholders [Notes 1 & 6]........... $ 47,914,174
Equity of annuitants [Note 6]................. 499,586
Equity of The Prudential Insurance
Company of America.......................... 410,160
----------------
$ 48,823,920
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividend distributions received............... $ 1,033,128
EXPENSES
Charges to planholders and annuitants
for assuming mortality and expense
risks and for administration [Note 2]....... 346,991
----------------
NET INVESTMENT INCOME........................... 686,137
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Capital gains distributions received.......... 6,938,526
Realized loss on shares redeemed
[identified cost basis]..................... (193,248)
Net unrealized loss on investments............ (8,399,444)
----------------
NET LOSS ON INVESTMENTS......................... (1,654,166)
----------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (968,029)
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 686,137 $ 408,526
Capital gains distributions received.............................. 6,938,526 9,042,012
Realized gain (loss) on shares redeemed........................... (193,248) 284,723
Net unrealized gain (loss) on investments......................... (8,399,444) 690,660
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... (968,029) 10,425,921
---------------- ----------------
ACCUMULATION AND ANNUITY TRANSACTIONS:
Purchase payments................................................. 761,329 762,898
Accumulation Shares liquidated.................................... (4,000,211) (3,419,180)
Annuity benefit payments.......................................... (80,619) (78,149)
---------------- ----------------
NET DECREASE IN NET ASSETS RESULTING FROM
ACCUMULATION AND ANNUITY TRANSACTIONS............................... (3,319,501) (2,734,431)
---------------- ----------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS.................................... (92,573) (265,204)
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... (4,380,103) 7,426,286
NET ASSETS:
Beginning of year................................................. 53,204,023 45,777,737
---------------- ----------------
End of year....................................................... $ 48,823,920 $ 53,204,023
---------------- ----------------
---------------- ----------------
</TABLE>
B3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
NOTE 1: ADMINISTRATION CHARGE
The administration charge is applied daily at an effective annual rate of 0.750%
against the net assets of the Account. This charge is paid to The Prudential
Insurance Company of America (The Prudential).
NOTE 2: TAXES
For federal income tax purposes, Prudential's Investment Plan Account is a
separate entity taxable as a corporation, and as such has elected to be taxed as
a regulated investment company under Subchapter M of the Internal Revenue Code.
As a result, by distributing substantially all of its net investment income and
net realized capital gains, the Account will not be subject to federal income
tax on the investment income and capital gains so distributed.
NOTE 3: SECURITIES SHARE TRANSACTIONS
The number of Securities Shares purchased and liquidated for the years ended
December 31, 1994 and December 31, 1993, respectively, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Securities Shares purchased: 120,448 118,334
Securities Shares liquidated: 1,161,767 1,145,308
Reinvestment of dividend distributions: 3,228,222 3,159,644
</TABLE>
NOTE 4: SECURITIES SHARE INFORMATION
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDENDS FROM NET CAPITAL GAINS
YEAR AT DECEMBER 31 INVESTMENT INCOME DISTRIBUTION
- --------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
1990 9.3873 .2954 .5359
1991 11.3754 .1785 .8650
1992 11.1042 .1045 2.0436
1993 11.2631 .0898 2.2692
1994 9.2631 .1427 1.5380
</TABLE>
NOTE 5: DISTRIBUTIONS
The date of distribution ordinarily occurs at the end of the calendar year.
$61,085 and $64,096 of the gross distributions of $29,372,751 and $36,160,919
were applied to pay custodial charges for the years ended December 31, 1994 and
December 31, 1993. The annual charges were not in excess of $3.80 per
planholder.
B4
<PAGE>
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
NOTE 1: MORTALITY RISK, EXPENSE RISK, AND ADMINISTRATION CHARGES
The mortality risk charge, the expense risk charge, and the administration
charge, at effective annual rates of 0.075%, 0.150%, and 0.150%, respectively
(for a total of 0.375% per year), are applied daily against the net assets of
the Account. These charges are paid to The Prudential.
NOTE 2: TAXES
The operations of Prudential's Annuity Plan Account form a part of, and are
taxed with, the operations of The Prudential. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the annuitants are not taxed
to The Prudential. As a result, the Annuity Share Value is not affected by
federal income taxes on such distributions received by the Account.
NOTE 3: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents the net
contributions of The Prudential to the Account.
NOTE 4: ANNUITY SHARE INFORMATION
Payments to annuitants are based on the value of an Annuity Share. The
investment results of the Account are reflected in changes in the value of an
Annuity Share to the extent that they are greater or less than the assumed
investment result in the annuitant's contract. The December 31 values are
reflected in the annuity payments made for February of the next year.
<TABLE>
<CAPTION>
ANNUITY SHARE VALUE AT DECEMBER 31 ANNUITY SHARE VALUE AT DECEMBER 31
YEAR USING A 3 1/2% ASSUMED INVESTMENT RESULT USING A 5% ASSUMED INVESTMENT RESULT
- --------- ----------------------------------------- ---------------------------------------
<S> <C> <C>
1990 2.6087 1.9713
1991 3.3758 2.5146
1992 3.8225 2.8064
1993 4.5546 3.2961
1994 4.3166 3.0794
</TABLE>
B5
<PAGE>
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
NOTE 1: EQUITY OF PLANHOLDERS
Equity of planholders at December 31, 1994 is divided as follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
SHARES SHARE VALUE EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
Class of contracts introduced prior to September 16, 1977 447,305 $ 105.4652 $ 47,175,112
Class of contracts introduced on September 16, 1977 8,268 $ 89.3888 739,062
-------------
$ 47,914,174
-------------
-------------
</TABLE>
NOTE 2: MORTALITY RISK, EXPENSE RISK, AND ADMINISTRATION CHARGES
The following charges, at effective annual rates as indicated, are applied daily
against the net assets of the Account attributable to the respective contracts
and are paid to The Prudential Insurance Company of America (The Prudential).
For the class of contracts introduced prior to September 16, 1977 the mortality
risk charge, the expense risk charge, and the administration charge are 0.100%,
0.200%, and 0.375%, respectively (for a total of 0.675% per year), during their
accumulation period and 0.075%, 0.150%, and 0.150%, respectively (for a total of
0.375% per year), during their payout period.
For the class of contracts introduced on September 16, 1977, the mortality risk
charge, the expense risk charge, and the administration charge are 0.600%,
0.200%, and 0.500%, respectively (for a total of 1.300% per year), during both
their accumulation period and their payout period.
NOTE 3: TAXES
The operations of Prudential's Annuity Plan Account-2 form a part of, and are
taxed with, the operations of The Prudential. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the annuitants and
planholders are not taxed to The Prudential. As a result, the share values of
the Account are not affected by federal income taxes on such distributions
received by the Account.
NOTE 4: ACCUMULATION SHARE TRANSACTIONS
The number of Accumulation Shares purchased and liquidated for the years ended
December 31, 1994 and December 31, 1993, respectively, are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulation Shares purchased: 6,413 7,045
Accumulation Shares liquidated: 37,258 33,469
</TABLE>
B6
<PAGE>
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2 (CONTINUED)
NOTE 5: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents the net
contributions of The Prudential to the Account.
NOTE 6: ACCUMULATION AND ANNUITY SHARE INFORMATION
A. Payments to annuitants are based on the value of an Annuity Share. The
investment results of the Account are reflected in changes in the value of
an Annuity Share to the extent that they are greater or less than the
assumed investment result in the annuitant's contract. The December 31
values are reflected in the annuity payments made for February of the next
year.
B. Columns (1) and (2) reflect share values applicable to the class of
contracts introduced prior to September 16, 1977 and the class of contracts
introduced on September 16, 1977, respectively.
<TABLE>
<CAPTION>
ANNUITY SHARE VALUE ANNUITY SHARE VALUE
AT DECEMBER 31 USING AT DECEMBER 31 USING
ACCUMULATION A A
SHARE VALUE 3 1/2% ASSUMED 5% ASSUMED
YEAR AT DECEMBER 31 INVESTMENT RESULT INVESTMENT RESULT
----- ------------------------ -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(1) (2) (1) (2) (1) (2)
1990 56.3262 48.9863 2.8883 3.0797 2.1255 2.5314
1991 75.1258 64.8977 3.7375 3.9442 2.7112 3.1957
1992 87.7124 75.2709 4.2320 4.4216 3.0258 3.5310
1993 107.8466 91.9758 5.0426 5.2202 3.5538 4.1093
1994 105.4652 89.3888 4.7791 4.9023 3.3202 3.8040
</TABLE>
B7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Planholders of Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
and the Board of Directors of The Prudential Insurance
Company of America:
We have audited the accompanying statements of net assets of:
Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
of The Prudential Insurance Company of America as of December 31, 1994, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the share information for each of the five years in the period then ended. These
financial statements and share information are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and share information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and share
information are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and share information present fairly,
in all material respects, the financial position of Prudential's Investment Plan
Account, Prudential's Annuity Plan Account and Prudential's Annuity Plan
Account-2 as of December 31, 1994, the results of their operations, the changes
in their net assets, and the share information for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995
B8
<PAGE>
REPORT OF MANAGEMENT
The accompanying financial statements and all information in the annual
report are the responsibility of management. They have been prepared in
conformity with generally accepted accounting principles. The statements
necessarily include amounts based on management's best estimates and judgments.
Information presented in one section of the annual report is consistent with
information dealing with the same or substantially similar subject matter
presented elsewhere in the annual report.
The systems of internal controls for Prudential's Gibraltar Fund,
Prudential's Investment Plan Account, Prudential's Annuity Plan Account and
Prudential's Annuity Plan Account-2 (Program) are integral parts of those for
The Prudential Insurance Company of America (The Prudential). As such,
management depends upon The Prudential's systems of internal controls in meeting
its responsibilities for reliable financial statements. These systems are
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
authorization. The concept of reasonable assurance is based on the premise that
the cost of internal controls should not exceed the benefits derived. The
control environment is enhanced by the selection and training of competent
management, a business ethics policy demanding the highest standards of conduct
by employees in carrying out the Program's affairs, organizational arrangements
that provide for segregation of duties and delegation of authority, and the
communication of accounting and operating policies and procedures throughout the
organization. In addition, The Prudential maintains a professional staff of
internal auditors who monitor the Program's control structure through periodic
reviews and tests of the control aspects of accounting, financial and operating
activities. The internal auditors coordinate their program with that of the
independent certified public accountants.
The financial statements have been audited by Deloitte & Touche, Certified
Public Accountants. The independent auditor's reports, which appear in this
annual report, each express an independent professional opinion on the fairness
of presentation of management's financial statements. The auditors review the
Program's financial and accounting controls and conduct such tests and
procedures as they deem necessary under generally accepted auditing standards.
The Prudential's Board of Directors, through its Auditing Committee, and
Prudential's Gibraltar Fund's Board of Directors monitor management's
fulfillment of its responsibilities for accurate accounting, statement
preparation and protection of assets. The Prudential's Auditing Committee is
composed solely of outside directors and Prudential's Gibraltar Fund's Board of
Directors has a majority of outside directors. Both The Prudential's Auditing
Committee and the outside directors of Prudential's Gibraltar Fund meet with the
independent certified public accountants, management and internal auditors
periodically to evaluate the discharge by each of their respective
responsibilities. Each has free and separate access to the Auditing Committee
and Prudential's Gibraltar Fund's Board of Directors to discuss accounting,
financial reporting, internal control and auditing matters.
<TABLE>
<S> <C>
Robert P. Hill Eugene M. O'Hara
Chairman of the Board Chief Financial Officer
The Prudential Series Fund, Inc. The Prudential Insurance Company of America
</TABLE>
I
<PAGE>
GLOSSARY OF TERMS FOR THE REPORT TO PLANHOLDERS
(NOTE: ADDITIONAL EXPLANATION WILL BE FOUND IN NOTES TO FINANCIAL STATEMENTS)
ACCUMULATION UNIT -- The measure for determining the Planholder's share in the
separate account of a deferred variable annuity during the accumulation period
before annuity benefits begin to be paid. Planholder transactions such as
purchase payments, transfers, and withdrawals result in changes to the number of
accumulation units credited to the Planholder. Investment results and daily
charges affect the value of the accumulation unit.
ANNUITY UNIT -- The measure of the fixed number of benefit units purchased by
the accumulation units when annuitizing via a variable payout annuity.
AMERICAN DEPOSITORY RECEIPT (ADR) -- A certificate issued by an American bank to
evidence ownership of a block of foreign shares. The certificate can be traded
like a share of stock.
CERTIFICATE OF DEPOSIT (CD) -- A short-term, interest-bearing bond issued by a
bank or a savings and loan.
COMMERCIAL PAPER -- A short-term, unsecured promissory note issued by either a
corporation or bank.
COMMON STOCK -- The basic unit of ownership of a public corporation which
entitles stockholders to dividend payments, although amount and frequency of
dividends are not guaranteed. (see also Stock)
CONVERTIBLE BOND -- A bond that is exchangeable for another type of security
(usually common stock).
COUPON RATE -- The annual rate of interest the issuer of a bond will pay
bondholders.
LOAN PARTICIPATION -- A loan to a corporation which is sold by a bank in the
form of a short-term, unsecured promissory note.
NET ASSETS -- The term used to designate the total value of securities owned,
cash, receivables, and other assets less any liabilities.
MARKET VALUE -- The dollar value of a security on a given day, usually based on
the last sales price of that given day.
PREFERRED STOCK -- A high quality unit of ownership of a public corporation
which entitles the holder to preference over common stock holders in the payment
of dividends. (see also Stock)
PORTFOLIO TURNOVER -- A measure of portfolio trading activity.
REALIZED GAIN/LOSS -- The amount of profit or loss from the sale of securities.
Calculated as the sale price minus the purchase price.
REPURCHASE AGREEMENT -- An agreement where an investor loans cash to a bank in
exchange for a Treasury security held as collateral and interest on the loan.
The agreement indicates that the cash and collateral are exchanged back the
following day. These securities are used to invest idle cash.
RESTRICTED SECURITY -- A security which is sold privately because it is not
registered with the SEC.
RIGHT -- Privilege granted to stockholders of a company to buy shares of a new
issue of common stock (at a price below the public offering price) before it is
offered to the public.
STOCK -- Unit of ownership in a public corporation. The value of a share of
stock varies, according to how buyers and sellers of the stock view the
corporation's future success. Shareholders generally receive dividend payments,
which are their part of the corporation's earnings. (see also Common Stock;
Preferred Stock)
TIME DEPOSIT (TD) -- A non-negotiable short-term, interest bearing bond issued
by a bank or savings & loan. The maturity period can be from 1 day to 6 months.
UNREALIZED GAIN/LOSS -- The increase or decrease in the value of a security,
based on its daily market price and its original purchase price. A gain or loss
is "unrealized" until the sale of the security.
WARRANT -- A security which entitles the holder to buy additional shares of
common stock at a specified price (usually higher than the market price at the
time of issuance), over a period of years.
II
<PAGE>
BOARD OF
DIRECTORS PRUDENTIAL'S GIBRALTAR FUND
ROBERT P. HILL W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN AND CEO, PhD. PRESIDENT,
PRUDENTIAL DIRECT; EXECUTIVE VICE PRUDENTIAL PREFERRED
CHAIRMAN OF THE BOARD PRESIDENT, FINANCIAL SERVICES;
OF THE FUND FAIRLEIGH DICKINSON PRESIDENT OF THE FUND
UNIVERSITY
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
- --------------------------------------------------------------------------------
BOARD OF
DIRECTORS THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
JAMES G. AFFLECK ROGER A. ENRICO DONALD E. PROCKNOW
FORMER CHAIRMAN, CHAIRMAN AND CEO, FORMER VICE CHAIRMAN
AMERICAN CYANAMID PEPSICO WORLDWIDE AND
COMPANY RESTAURANTS CHIEF OPERATING
FRANKLIN E. AGNEW WILLIAM H. GRAY III OFFICER,
BUSINESS CONSULTANT PRESIDENT AND CEO, AT&T TECHNOLOGIES, INC.
ROBERT A. BECK UNITED NEGRO COLLEGE ARTHUR F. RYAN
CHAIRMAN-EMERITUS, FUND, INC. CHAIRMAN, CEO,
THE PRUDENTIAL JON F. HANSON AND PRESIDENT,
FREDERIC K. BECKER CHAIRMAN, HAMPSHIRE THE PRUDENTIAL
PRESIDENT, MANAGEMENT COMPANY RICHARD M. THOMSON
WILENTZ, GOLDMAN, & CONSTANCE J. HORNER CHAIRMAN AND CEO,
SPITZER GUEST SCHOLAR, THE TORONTO-DOMINION
WILLIAM W. BOESCHENSTEIN THE BROOKINGS BANK
FORMER CHAIRMAN, INSTITUTION P. ROY VAGELOS, M.D.
OWENS-CORNING ALLEN F. JACOBSON FORMERLY CHAIRMAN AND
FIBERGLAS CORPORATION FORMER CHAIRMAN AND CEO,
LISLE C. CARTER, JR. CEO, MERCK & CO., INC.
FORMER SENIOR VICE MINNESOTA MINING AND STANLEY C. VAN NESS
PRESIDENT MANUFACTURING (3M) COUNSELOR AT LAW,
AND GENERAL COUNSEL, GARNETT L. KEITH, JR. PICCO MACK HERBERT
UNITED WAY OF AMERICA VICE CHAIRMAN, KENNEDY
JAMES G. CULLEN THE PRUDENTIAL JAFFE PERRELLA & YOSKIN
PRESIDENT, BURTON G. MALKIEL PAUL A. VOLCKER
BELL ATLANTIC PROFESSOR, CHAIRMAN,
CORPORATION PRINCETON UNIVERSITY JAMES D. WOLFENSOHN,
CAROLYNE K. DAVIS, PhD. JOHN R. OPEL INC.
NATIONAL AND RETIRED CHAIRMAN, JOSEPH H. WILLIAMS
INTERNATIONAL IBM CORPORATION DIRECTOR,
HEALTH CARE ADVISOR, THE WILLIAMS COMPANIES,
ERNST & YOUNG INC.
III
<PAGE>
"NOTICE OF ELECTION"
The Prudential Insurance Company of America is a mutual life insurance company.
Our principal office is in Newark, New Jersey, and we are incorporated in that
state. By law, we have 24 directors. This includes 16 elected by our
policyholders (four each year for four-year terms), two of our officers, and six
public directors named by New Jersey's Chief Justice. The election is held on
the first Tuesday in April from 10:00 A.M. to 2:00 P.M. in our office at the
Secretary's address shown here. After your plan has been in force for one year,
you may vote either in person or by mail. We will send you a ballot if you ask
for one. Just write to our Secretary at Prudential Plaza, Newark, New Jersey
07102-3777, at least 60 days before the election date. By law, your request must
show your name, address, plan number and date of birth. If you are an
individual, you must be at least 18 years old to vote. (The election covered by
this notice is not to be confused with the election of the directors of
Prudential's Gibraltar Fund, for which planholders receive a voting instruction
statement and form each year.)
IV
<PAGE>
This report is authorized for use with prospective investors only when preceded
or accompanied by current prospectuses for Systematic Investment Plan Contracts,
Variable Annuity Contracts and Prudential's Gibraltar Fund. These prospectuses
contain more information concerning sales charges and other material facts and
should be read carefully before you invest or send money.
In the past, contract owners who held several contracts of the same type, at the
same address, received multiple copies of Annual Reports and Semi-Annual
Reports. In an effort to lessen waste and to reduce your Fund's expense of
postage and printing, we will now mail only one copy of each contract owner
report for your related contracts at the same address. No action on your part is
necessary. Upon request, we will furnish you with additional reports. The
following telephone numbers should be used to request any additional copies.
Proxy material and tax information will continue to be sent to each account of
record.
(612) 553-6929
(612) 553-6913
<PAGE>
PEACE OF MIND. IT COMES WITH EVERY PIECE OF THE
ROCK.
Since 1875, The Prudential has been helping
individuals and families meet their financial
needs. Changing times mean changing needs. Whether
providing superior insurance protection for home,
family, and business, providing for future
education and retirement expenses, or offering
innovations like our Living Needs
Benefit-Registered Trademark- and Critical Care
Access, Prudential people have always been able to
deliver something more: personal service, quality,
attention to detail, and the financial strength of
The Rock.
If you have questions regarding your contract(s),
please contact your Prudential/Pruco Securities
representative or your local office.
BULK RATE
U.S. Postage
PAID
Jersey City, N.J.
Permit No. 60
[Logo]
Printed in the U.S.A. on recycled
paper using soybean ink
FSP AR 12/94
<PAGE>
FSP
PRUDENTIAL'S GIBRALTAR FUND
GRAPH #1
How U.S. Stocks Fared Compared With Other Asset Classes.
1994 Investment Total Returns: U.S. Bonds - 3.5%; U.S. Stocks 1.3%;
Global Stocks 5.6%.
GRAPH #2
Graph represents the growth of $10,000 invested in Prudential's Gibraltar
Fund compared with the S & P 500 Index and Lipper VIP Growth Average. In
the ten years ended December 31, 1994, an investment of $10,000 would have
a value of $45,359, $38,269, and $34,760, respectively.
