Registration No. 2-52589
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Post-Effective Amendment No. 34 to Form S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
FOR
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PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
(Exact name of trust)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza, Newark, New Jersey 07102-3777
(Name of depositor and complete address of principal executive offices)
----------
And Also to Form N-1A for Registration Under the
Securities Act of 1933 and Registration Statement
Under the Investment Company Act of 1940
FOR
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PRUDENTIAL'S GIBRALTAR FUND
Prudential Plaza
Newark, N.J. 07102-3777
(Exact name of co-registrant
and address of principal executive offices)
----------
Thomas C. Castano
The Prudential Insurance Company of America
Prudential Plaza
Newark, N.J. 07102-3777
(Name and complete address of agent for service)
----------
Copies to:
Thomas C. Castano
The Prudential Insurance Company of America
Prudential Plaza
Newark, N.J. 07102-3777
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It is proposed that this filing will become effective (check appropriate space):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1995 pursuant to paragraph (b) of Rule 485
(date)
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on ____________ pursuant to paragraph (a) of Rule 485
<PAGE>
VARIABLE ANNUITY CONTRACTS
Cross Reference Sheet to Prospectus
<TABLE>
<CAPTION>
Information Required by
Item of Form N-8B-2 Location in Prospectus
<S> <C>
1........................................................ Prudential's Annuity Plan Account-2
2........................................................ Eligibility for Purchase
The Prudential's Administrative Role
3........................................................ Not Applicable
4........................................................ Eligibility for Purchase
The Prudential's Administrative Role
5-6...................................................... Prudential's Annuity Plan Account-2
9........................................................ Not Applicable
10 (a).................................................... The Variable Annuity Contract
(b).................................................... Prudential's Annuity Plan Account-2
(c).................................................... Liquidation (Redemption) and Transfer of Accumulation
Shares
Right to Cancel
Payment Upon the Death of the Planholder
(d).................................................... Liquidation (Redemption) and Transfer of Accumulation
Shares
Exercising Rights Under the Contracts
(e).................................................... Not Applicable
(f).................................................... Description of Fund Shares and Voting Rights
(g)(h)(1)(4)........................................... Not Applicable
(g)(h)(2)(3)........................................... Exercising Rights Under the Contracts
(i).................................................... Eligibility for Purchase
Types of Annuity Available
How Variable Annuity Payments are Determined
Payment Upon the Death of the Planholder
Exercising Rights Under the Contracts
11........................................................ Prudential's Annuity Plan Account-2
Prudential's Gibraltar Fund
12........................................................ Prudential's Annuity Plan Account-2
Custodian, Transfer Agent and Dividend-Paying Agent
The Prudential's Administrative Role
13........................................................ Summary
The Role of the Transfer Account
Prudential's Gibraltar Fund
The Prudential's Administrative Role
Sales and Related Charges
Other Charges
14........................................................ Eligibility for Purchase
The Role of the Transfer Account
</TABLE>
<PAGE>
Cross Reference Sheet (Variable Annuity) -- Page 2
<TABLE>
<CAPTION>
Information Required by
Item of Form N-8B-2 Location in Prospectus
<S> <C>
15........................................................ The Variable Annuity Contract
The Role of the Transfer Account
The Prudential's Administrative Role
16........................................................ Prudential's Annuity Plan Account-2
17........................................................ Liquidation (Redemption) and Transfer of Accumulation
Shares
Right to Cancel Supplement
Payment Upon the Death of the Planholder
18........................................................ Prudential's Annuity Plan Account-2
How Variable Annuity Payments are Determined
19........................................................ The Prudential's Administrative Role
20........................................................ Exercising Rights Under the Contracts
21-22..................................................... Not Applicable
23........................................................ Directors and Officers of The Prudential
24........................................................ Not Applicable
25........................................................ Eligibility for Purchase
26........................................................ Sales and Related Charges
Other Charges
27........................................................ Eligibility for Purchase
The Prudential as Manager of the Fund's Investments
28........................................................ Directors and Officers of The Prudential
29-34..................................................... Not Applicable
35........................................................ Eligibility for Purchase
37........................................................ Not Applicable
38-39..................................................... Eligibility for Purchase
40........................................................ Sales and Related Charges
Other Charges
41(a)..................................................... Eligibility for Purchase
The Prudential as Manager of the Fund's Investments
42........................................................ Directors and Officers of The Prudential
43........................................................ Not Applicable
44........................................................ Prudential's Annuity Plan Account-2
How Accumulation Shares are Credited
How Variable Annuity Payments are Determined
</TABLE>
<PAGE>
Cross Reference Sheet (Variable Annuity) -- Page 3
<TABLE>
<CAPTION>
Information Required by
Item of Form N-8B-2 Location in Prospectus
<S> <C>
45........................................................ Liquidation (Redemption) and Transfer of Accumulation
Shares
The Risks Which The Prudential Assumes
46........................................................ Liquidation (Redemption) and Transfer of Accumulation
Shares
Other Charges
Payment Upon the Death of the Planholder
47........................................................ Not Applicable
48........................................................ Eligibility for Purchase
State Regulation
49........................................................ Not Applicable
50........................................................ Prudential's Annuity Plan Account-2
51........................................................ The Risks Which The Prudential Assumes
52........................................................ Prudential's Annuity Plan Account-2
53........................................................ Federal Income Taxes
54........................................................ Not Applicable
55........................................................ Results Under a Hypothetical Purchase Program
56-58..................................................... Not Applicable
59........................................................ Financial Statements of Prudential's Annuity Plan
Account-2
Consolidated Financial Statements of The Prudential
Insurance Company of America and Subsidiaries
(date)
</TABLE>
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
Cross Reference Sheet to Prospectus
<TABLE>
<CAPTION>
Information Required by
Item of Form N-1A Location in Prospectus
<S> <C>
1. Cover Page Cover Page
2. Synopsis Summary
Fee Table
3. Condensed Financial Prudential's Gibraltar Fund -- Financial Highlights
Information
4. General Description of Prudential's Gibraltar Fund
Registrant Investment Policies
Restrictions on Investment
Description of Fund Shares and Voting Rights
5. Management of the Fund Directors and Officers of the Fund
Prudential's Gibraltar Fund
The Prudential's Administrative Role
Custodian, Transfer Agent and Dividend-Paying Agent
Summary of Investment Advisory Contract
The Prudential as Manager of the Fund's Investments
Brokerage
6. Capital Stock and Other Description of Fund Shares and Voting Rights
Securities Redemption of Fund Shares
Federal Income Taxes
7. Purchase of Securities Prudential's Gibraltar Fund
Being Offered Determination of Net Asset Value
8. Redemption or Repurchase Redemption of Fund Shares
9. Pending Legal Proceedings Not Applicable
10. Cover Page Not Applicable
11. Table of Contents Prospectus Contents
12. General Information Not Applicable
13. Investment Objective and Prudential's Gibraltar Fund
Policies Investment Policies
Restrictions on Investment
New Jersey Investment Laws
The Prudential as Manager of the Fund's Investments
14. Management of the Fund Directors and Officers of the Fund
15. Control Persons and Prudential's Gibraltar Fund
Principal Holders of Description of Fund Shares and Voting Rights
Securities Directors and Officers of the Fund
16. Investment Advisory and Prudential's Gibraltar Fund
Other Services Summary of Investment Advisory Contract
The Prudential as Manager of the Fund's Investments
17. Brokerage Allocation Brokerage
</TABLE>
<PAGE>
Cross Reference Sheet (Prudential's Gibraltar Fund) -- Page 2
<TABLE>
<CAPTION>
Information Required by
Item of Form N-1A Location in Prospectus
<S> <C>
18. Capital Stock and Other Description of Fund Shares and Voting Rights
Securities
19. Purchase, Redemption and Prudential's Gibraltar Fund
Pricing of Securities Determination of Net Asset Value
Being Offered Redemption of Fund Shares
Description of Fund Shares and Voting Rights
20. Tax Status Federal Income Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Not Applicable
Data
23. Financial Statements Financial Statements of Prudential's Gibraltar Fund
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
(PROSPECTUS INCLUDES INFORMATION REQUIRED IN PART B)
<PAGE>
Prospectus
May 1, 1995
Variable Annuity
Contracts of
Prudential's
Annuity Plan
Account-2
(for use in connection with certain
plans qualifying for special Federal
income tax treatment, including: (1)
non-allocated corporate pension and
profit-sharing plans and (2) those
allocated pension, profit-sharing and
annuity purchase plans which have
Prudential Transfer Accounts that were
established before 1978)
Prudential's Gibraltar Fund
The net proceeds derived from the sale of these Variable Annuity Contracts are
allocated to Prudential's Annuity Plan Account-2, which is a variable contract
account of The Prudential Insurance Company of America. The assets of this
account are invested solely in shares of a mutual fund concerned primarily with
growth of capital to an extent compatible with a concern for its preservation.
Current income is a secondary consideration. The Fund's investment objectives
are pursued primarily through the purchase of common stocks.
These securities have not been approved or disapproved by The Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
Mailing Address:
The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey, 07102-3777
Telephone: (800) 445-4571
FSPQ 101 Ed 5-95
YOU ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
Printed in U.S.A.
<PAGE>
PROSPECTUS CONTENTS
GLOSSARY OF TERMS USED IN THIS
PROSPECTUS.......................................................... 1
SUMMARY.................................................................. 2
FEE TABLE................................................................ 5
PRUDENTIAL'S GIBRALTAR FUND -- FINANCIAL
HIGHLIGHTS.......................................................... 6
GENERAL PROGRAM INFORMATION.............................................. 7
Eligibility for Purchase............................................ 7
The Variable Annuity Contract....................................... 7
The Role of the Transfer Account.................................... 8
Prudential's Annuity Plan Account-2................................. 8
Prudential's Gibraltar Fund......................................... 9
The Prudential's Administrative Role................................ 9
DESCRIPTION OF THE CONTRACTS............................................. 10
Sales and Related Charges........................................... 10
Other Charges....................................................... 11
Right to Cancel..................................................... 11
How Accumulation Shares are Credited................................ 12
Liquidation (Redemption) and Transfer of
Accumulation Shares............................................. 12
Results Under A Hypothetical Purchase
Program........................................................ 13
Effecting a Variable Annuity........................................ 13
Types of Annuity Available.......................................... 14
How Variable Annuity Payments
are Determined................................................. 14
Schedules of Annuity Rates.......................................... 15
The Risks Which The Prudential Assumes.............................. 16
Payment Upon the Death of the Planholder............................ 16
Exercising Rights Under the Contracts............................... 17
The Prudential-Sponsored Pension Plans.............................. 17
DESCRIPTION OF PRUDENTIAL'S GIBRALTAR
FUND..................................................................... 18
Investment Policies................................................. 18
Restrictions on Investment.......................................... 18
New Jersey Investment Laws.......................................... 19
Summary of Investment Advisory Contract............................. 20
The Prudential as Manager of the Fund's
Investments.................................................... 21
Portfolio Turnover.................................................. 22
Brokerage........................................................... 22
Determination of Net Asset Value.................................... 23
Redemption of Fund Shares........................................... 23
Description of Fund Shares and
Voting Rights.................................................... 24
Custodian, Transfer Agent and
Dividend-Paying Agent............................................ 24
SUPPLEMENTARY INFORMATION................................................ 24
State Regulation.................................................... 24
Federal Income Taxes................................................ 25
Withholding......................................................... 25
Additional Information.............................................. 27
Experts............................................................. 27
Litigation.......................................................... 27
DIRECTORS AND OFFICERS OF THE FUND....................................... 28
DIRECTORS AND OFFICERS OF THE
PRUDENTIAL............................................................... 29
FINANCIAL STATEMENTS OF PRUDENTIAL'S
ANNUITY PLAN ACCOUNT-2................................................... A1
FINANCIAL STATEMENTS OF PRUDENTIAL'S
GIBRALTAR FUND........................................................... B1
SCHEDULE OF INVESTMENTS.................................................. B2
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA AND SUBSIDIARIES................................................. C1
Effective January 1, 1984, sales of the contracts described in this prospectus
to new customers were discontinued. This decision does not affect inforce
planholders who may continue to make subsequent purchases on either a scheduled
or non-scheduled basis.
<PAGE>
GLOSSARY OF TERMS USED IN THIS PROSPECTUS
Accumulation Period: The period prior to retirement when funds are being
accumulated for a participant's benefit.
Accumulation Share: A measure used to determine the value of a Planholder's
contract during the accumulation period.
Accumulation Share Value: The dollar value of one accumulation share.
Allocated Plan: A retirement plan under which Contracts are held in the names of
the individual participants.
Annuity: A series of payments made each month as long as a person, called an
annuitant, is living. In some forms of annuity, payments may continue after the
annuitant's death.
Annuity Share: A measure used to determine the value of a variable annuity
payment.
Annuity Share Value: The monthly dollar value of one Annuity Share.
Business Day: Day on which the New York Stock Exchange is open for business.
Contract: The Variable Annuity Contract described in this prospectus which is a
written agreement between The Prudential and the contract owner which sets forth
the rights, duties and privileges of all parties.
Mortality and Expense Risks: The risks The Prudential assumes because the amount
of variable annuity payments will not be affected by losses The Prudential may
incur if annuitants live longer than expected or if actual expenses are higher
than expected.
Non-Allocated Plan: A retirement plan under which contracts are held in the name
of the employer or plan trustee.
Planholder: Person in whose name a Contract is issued.
Prudential Financial Security Program (Program): A number of contracts issued by
The Prudential, including the Contract described in this prospectus.
Prudential's Annuity Plan Account-2 (APA-2 or Account): The separate account in
which the Contracts described in this prospectus participate.
Prudential's Gibraltar Fund (Fund): The mutual fund in whose shares APA-2
invests.
Purchase Payment: Money paid under a Contract on behalf of a participant in a
retirement plan.
Retirement Plans: Corporate, qualified plans for self-employed individuals, IRA,
and public school and Section 501(c)(3) plans.
Separate Account: A separate portfolio of assets held by an insurance company
and whose investment experience is kept separate from that of the other
investment accounts of the company.
Transfer Account: Account used, by agreement between The Prudential and an
Accountholder, to facilitate the accumulation and allocation of funds for
purchase under a retirement plan.
Variable Annuity: An annuity whose payments vary with the investment results of
APA-2.
1
<PAGE>
SUMMARY
THESE PAGES CONTAIN A BRIEF SUMMARY OF SOME OF THE IMPORTANT
FEATURES OF THE VARIABLE ANNUITY CONTRACT DESCRIBED IN THIS
PROSPECTUS, PARTICULARLY THOSE RELATED TO THE CHARGES MADE
BY THE PRUDENTIAL. THIS SUMMARY DOES NOT PROVIDE A FULL
DESCRIPTION OF THE CONTRACT. THE ENTIRE PROSPECTUS SHOULD BE
READ FOR THAT PURPOSE. YOU MAY FIND IT HELPFUL TO RE-READ
THIS SUMMARY AFTER HAVING READ THE PROSPECTUS.
These Variable Annuity Contracts are issued for use only in connection with the
following types of allocated and non-allocated tax-qualified retirement plans.
(A plan is considered to be allocated if assets of the plan represented by these
variable annuity contracts are held in the names of the individual participants.
It is non-allocated if the contract is issued in the name of the employer or
plan trustee.)
Non-Allocated Plans. The Contracts are issued for use in connection with
non-allocated corporate pension and profit-sharing plans qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (Code)
(non-allocated corporate plan).
Allocated Plans. The Contracts are issued for use in connection with
allocated plans only to add a participant under a Prudential Transfer
Account which has already been established for the plan in the name of the
employer or trustee, where the plan is one of the following types: (1) a
corporate pension or profit-sharing plan qualified under Section 401(a) of
the Code (corporate plan); or (2) an annuity purchase plan adopted by a
public school system or tax-exempt Section 501(c)(3) organization pursuant
to Section 403(b) of the Code (Section 403(b) annuities). Transfer
Accounts are described on the following page and on page 8.
Many of these Contracts were also previously sold, and are currently in force,
in connection with Individual Retirement Annuities established under the
provisions of the Employee Retirement Income Security Act of 1974 (IRA plans)
and 403(b) annuities where the Transfer Account is in the name of the employee.
The Prudential Insurance Company of America (The Prudential) will accept
purchase payments in any amount if made under a Contract issued in connection
with a Prudential-sponsored corporate plan or qualified plan for a self-employed
individual. For all other Contracts, purchases of at least $300 per year must be
scheduled.
The net purchase payments made under the Contracts, after the deductions
described below, are allocated to Prudential's Annuity Plan Account-2 (Account),
a variable contract account of The Prudential. The assets of the Account are
invested at net asset value in shares of Prudential's Gibraltar Fund (Fund). The
value of the Contracts before annuity payments begin and the amount of monthly
annuity benefits payable under them thereafter will increase or decrease
depending on increases or decreases in the market value of the portfolio
securities owned by the Fund.
Subject to any limitations contained in the applicable pension plan, the
Contracts may be liquidated at their net asset value at any time during the
period before annuity payments begin, although such a liquidation may have tax
consequences that should be considered carefully. In addition, federal tax law
imposes restrictions on withdrawals from annuity purchase plans subject to
Section 403(b) of the Code. The net asset value of a Contract is the value of
accumulation shares credited to it minus any transfer taxes and transaction
charge. Currently no transfer taxes are imposed. The maximum transaction charge
is $1. See Liquidation (Redemption) and Transfer of Accumulation Shares, page
12. After annuity payments begin the Contracts may no longer be liquidated, in
whole or in part.
The Fund was organized by The Prudential to serve as the investment medium for
the variable contract accounts of the Prudential Financial Security Program
(Program), including this Account. The Fund does not sell its shares to the
public. It is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management investment company whose investment
objective is concerned primarily with growth of capital to an extent compatible
with a concern for its preservation. Current income is a secondary
consideration. The portfolio of the Fund consists primarily of common stock of a
diversified group of companies in a variety of industries. The Contracts are
subject to the risks associated with common stock investment, so there can be no
assurance that the investment objectives will be achieved. Investment policies
of the Fund permit, but limit, investments in two categories that could entail
special risks: up to 10% of the value of the Fund's assets may be invested in
securities which are not readily marketable; and up to 3% may be invested in
warrants or rights to acquire stock. See Special Risks on page 19.
2
<PAGE>
The Prudential, a mutual insurance company, was founded in 1875 under the laws
of New Jersey. The Prudential is subject to regulation by the Department of
Insurance of the State of New Jersey and by the insurance departments of all the
other states and jurisdictions in which it does business. The Prudential is the
investment advisor of the Fund. See The Prudential as Manager of the Fund's
Investments, page 21. The Prudential's consolidated financial statements begin
on page C1 and should be considered only as bearing upon The Prudential's
ability to meet its obligations under the Contracts.
Pruco Securities Corporation (Prusec), an indirect wholly-owned subsidiary of
The Prudential, acts as the principal underwriter of the Fund and the Account.
Prusec's principal business address is 1111 Durham Avenue, South Plainfield, New
Jersey 07080.
A transfer account is established with The Prudential for the retirement plan to
facilitate the accumulation and allocation of funds for purchases under the
plan. The person establishing the transfer account is known as the
Accountholder. For newly established non-allocated corporate plan transfer
accounts this will be the employer (employer Accountholder) or a trustee or
custodian (trustee Accountholder). This is also true of most previously
established transfer accounts for corporate plans and qualified plans for
self-employed individuals. Under previously established transfer accounts for
IRA and most Section 403(b) annuities, the employee is the Accountholder
(employee Accountholder). Funds may be deposited in the transfer account at any
time by or for the Accountholder, who authorizes their transfer to Prudential's
Annuity Plan Account-2 as purchase payments under these Contracts. The minimum
deposit is $25. A person for whom purchase payments are made is called a
Planholder. Most Planholders will be employees under the retirement plan. In
some instances the employer, trustee or custodian under a corporate plan or
qualified plan for self-employed individuals will also be a Planholder.
At the time the transfer account is established, the Accountholder pays an
enrollment fee to cover the non-recurring expenses of processing the Planholder
enrollment and creating the initial Program records. The fee is $40 for an
employer or trustee Accountholder. See The Role of the Transfer Account, page 8.
Sales and Related Charges. A sales charge is deducted from purchase payments
during a Contract's accumulation period, which is the period prior to the
retirement of a Planholder when funds are being accumulated for the Planholder's
benefit. The charge ranges from 8.5% on the first $5,000 to 0.6% on any excess
over $500,000. In determining what percentage is used, all purchase payments
made on the date of purchase through the same transfer account for Planholders
in the accumulation period are combined and added to the current value of all
accumulation shares, if any, then credited to all Planholders under that
transfer account. There is also a transaction charge for each purchase payment
of $1, or 2% of the amount transferred if less.
The sales charge as a percentage of the net amount invested (purchase payment
minus sales charge and transaction charge) is greatest when purchase payments
are smallest and being made at the first $5,000 rate. For a $25 purchase
payment, the maximum sales charge and the maximum deduction from purchase
payment (including sales charge and transaction charge) are 9.5% and 11.8%,
respectively, of the net amount invested.
A sales charge is also deducted from purchase payments made to provide immediate
annuities with no accumulation period. The same scale of sales charges applies,
except that in determining the percentage to be used, all purchase payments made
through the same transfer account to provide annuities without accumulation
periods, including payments under related Fixed-Dollar Annuity Contracts, are
combined and added to all purchase payments previously made to provide such
annuities for Planholders using that transfer account.
No sales charge is deducted from any purchase payment to the extent that it is
made with the proceeds of another contract issued by The Prudential in
connection with a tax-qualified retirement plan, including any dividend
accumulations or paid-up additions resulting from that contract. Nor is any
sales charge deducted at the time accumulation shares are used to provide an
annuity under the Program.
Currently a few states impose a premium tax on some tax-qualified variable
annuity purchases. The sales and transaction charges and state premium taxes are
discussed in greater detail under Sales and Related Charges on page .
Other Charges. The above charges are made in connection with purchase payments.
In addition, other charges are made daily against the assets of the Account and
of the Fund. During the accumulation period, there are charges made at an
aggregate rate of 0.675% per year for administrative services and for the
assumption by The Prudential of mortality and expense risks. These charges are
applied against Account assets attributable to these variable annuity contracts
in the accumulation period.
3
<PAGE>
During the annuity payout period, there are charges made at an aggregate rate of
0.375% per year, for administrative charges and for the assumption by The
Prudential of mortality and expense risks. These charges are applied against
Account assets attributable to these Contracts in the annuity payout period.
An investment advisory charge is applied against the Fund assets underlying the
Account, at a rate of 0.125% (1/8 of 1%) per year. In addition, the Fund has
expenses which may be considered to be an indirect charge against assets.
See Summary of Investment Advisory Contract, page 20.
In total, these other charges, exclusive of enrollment fees, sales charges,
transaction charges and premium taxes, represent on a yearly basis approximately
0.8% (8/10 of 1%) of net assets attributable to the accumulation period, and
0.5% (1/2 of 1%) of net assets attributable to the annuity payout period under
these variable annuity contracts. See Other Charges, page 11.
Use of a Prudential-sponsored corporate plan or qualified plan for self-employed
individuals, or use of any other corporate plan or qualified plan for
self-employed individuals pursuant to which a Transfer Account Agreement was
issued after April 30, 1974, will involve an annual charge of $5, payable by the
employer, for each variable annuity contract provided under the Program for a
Planholder during the accumulation period.
Illustration. To illustrate how the sales and other charges may operate, assume
that an employer begins a non-allocated corporate plan. After paying the
one-time enrollment fee of $40 and the first annual $5 charge, the employer
makes a single investment of $1,000. An 8.5% sales charge ($85) and $1
transaction charge are deducted from the purchase payment, leaving $914 as the
net amount invested. If the accumulation share value for that business day is
$10, this will result in 91.4 shares being credited under the Contract. If there
should be no daily change in the accumulation share value during the ensuing
year the total charges against assets for the year would be approximately $7.31.
If the employer makes a $1,000 purchase payment each year thereafter, the net
amount invested from each payment will be determined as described under Sales
and Related Charges on page 10. Whether the employer makes only a single
purchase payment or periodic purchases, the total value available when employees
retire is dependent upon the investment results of the Fund and cannot be
guaranteed or projected.
Future Changes in Charges. Except as described under Exercising Rights Under the
Contracts, page 17, The Prudential reserves the right to change all charges,
including the sales charge, upon 90 days notice to Accountholders and
Planholders.
4
<PAGE>
FEE TABLE
Planholder Transaction Expenses
Sales Load Imposed on Purchases
(as a percentage of purchase payments)
First $ 5,000 8.50%
Next $ 5,000 7.00%
Next $ 10,000 5.00%
Next $ 30,000 3.00%
Next $ 50,000 2.00%
Next $ 400,000 1.00%
Excess over $ 500,000 0.60%
Transaction Charges
Purchase Payments................ $1.00 from each purchase payment, or 2% of
the purchase payment (whichever is less).
Liquidations..................... $1.00 for any liquidation, or 1% of the
net amount liquidated (whichever is less).
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees.......................................... 0.30%
Account Fees and Expenses (Administrative Charge)........................ 0.38%
----
Total Separate Account Annual Expenses................................... 0.68%
====
Prudential's Gibraltar Fund Annual Expenses
(as a percentage of the Fund's average net assets)
Investment Management Fees............................................... 0.13%
Other Expenses........................................................... 0.02%
----
Total Prudential's Gibraltar Fund Annual Expenses........................ 0.15%
====
Examples
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
If you surrender your contract
at the end of the applicable
time period:
You would pay the following
expenses on a $1,000 investment,
assuming 5% annual return on assets: $95 $111 $129 $180
If you annuitize at the end of the applicable
time period or do not
surrender your contract:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets: $94 $110 $128 $179
The purpose of the foregoing table is to assist the Planholder in understanding
the expenses of the Account and the Fund that he/she will bear, directly or
indirectly. Upon effecting an annuity, the Annuitant will be subject to
different expenses. See the sections on Prudential's Gibraltar Fund, Sales and
Related Charges and Other Charges for more complete descriptions of the various
costs and expenses. The above table does not include any state premium taxes.
The Examples should not be considered to be a representation of past or future
expenses; actual expenses may be greater or lesser than those shown.
5
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND--FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
(COVERED BY THE INDEPENDENT AUDITORS' REPORT ON PAGE B6)
The following average per share data, ratios and supplemental information have
been derived from information provided in the financial statements.
<TABLE>
<CAPTION>
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88
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
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net investment income........... 0.214 0.180 0.184 0.220 0.340 0.360 0.310
Net realized and unrealized
gains (losses) on
investments................... (0.405) 2.426 1.771 2.900 (0.640) 1.920 2.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations.................. (0.191) 2.606 1.955 3.120 (0.300) 2.280 2.310
Distributions to Shareholders:
Distributions from net
investment income............. (0.216) (0.188) (0.193) (0.260) (0.370) (0.370) (0.370)
Distributions from net realized
gains......................... (1.482) (2.264) (2.019) (0.870) (0.520) (1.610) (0.840)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions......... (1.698) (2.452) (2.212) (1.130) (0.890) (1.980) (1.210)
Net increase (decrease) in Net
Asset Value................... (1.889) 0.154 (0.257) 1.990 (1.190) 0.300 1.100
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value at end of
period........................ $ 9.398 $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Investment Rate of
Return:**..................... (1.33%) 23.79% 17.60% 34.40% (2.80%) 22.30% 25.60%
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
Ratio of expenses net of
reimbursement to average net
assets........................ 0.15 % 0.16 % 0.19 % 0.19 % 0.21 % 0.16 % 0.16%
Ratio of net investment income
to average net assets......... 1.98 % 1.45 % 1.58 % 1.98 % 3.38 % 3.19 % 2.95%
Portfolio turnover rate......... 92.49 % 91.83 % 72.82 % 76.35 % 108.08 % 66.79 % 31.69%
Number of shares outstanding at
end of period (in millions)... 25.8 23.4 20.7 18.8 18.6 18.6 17.8
<CAPTION>
01/01/87 01/01/86 01/01/85
TO TO TO
12/31/87 12/31/86 12/31/85
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value at beginning of
period........................ $ 12.440 $ 14.660 $ 12.600
----------- ----------- -----------
Income From Investment
Operations:
Net investment income........... 0.400 0.360 0.470
Net realized and unrealized
gains (losses) on
investments................... 0.230 1.650 3.310
----------- ----------- -----------
Total from investment
operations.................. 0.630 2.010 3.780
Distributions to Shareholders:
Distributions from net
investment income............. (0.650) (0.450) (0.510)
Distributions from net realized
gains......................... (3.230) (3.780) (1.210)
----------- ----------- -----------
Total distributions......... (3.880) (4.230) (1.720)
Net increase (decrease) in Net
Asset Value................... (3.250) (2.220) 2.060
----------- ----------- -----------
Net Asset Value at end of
period........................ $ 9.190 $ 12.440 $ 14.660
----------- ----------- -----------
----------- ----------- -----------
Total Investment Rate of
Return:**..................... 2.53% 15.73% 32.68%
Ratios/Supplemental Data:
Net assets at end of period (in
millions)..................... $170.0 $186.5 $181.1
Ratio of expenses net of
reimbursement to average net
assets........................ 0.15 % 0.16 % 0.17 %
Ratio of net investment income
to average net assets......... 3.11 % 2.76 % 3.28 %
Portfolio turnover rate......... 31.53 % 67.56 % 108.28 %
Number of shares outstanding at
end of period (in millions)... 18.5 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.
Further information concerning the Fund, its investment policies and
restrictions upon its investments and The Prudential's role as an investment
advisor to the Fund, may be found beginning on page 19. The Fund's Directors
and Officers are listed beginning on page 30.
The above table does not reflect charges against Account assets. Those charges
are described under Other Charges on page 11.
6
<PAGE>
GENERAL PROGRAM INFORMATION
Eligibility for Purchase. The Variable Annuity Contract (Contract) described in
this prospectus has been offered by The Prudential Insurance Company of America
(The Prudential) since the beginning of 1970 only for the benefit of persons who
are entitled to favorable federal income tax treatment under the Internal
Revenue Code (Code) in connection with retirement plans established for or by
such persons.
Until a new series of tax-qualified variable annuity contracts (not described in
this prospectus) was introduced by The Prudential in September, 1977, this
contract was available to persons in the following categories:
(1) employees of corporations under qualified plans described in Section 401(a)
of the Code (corporate plans);
(2) employees under annuity purchase plans adopted by public school systems and
tax-exempt Section 501(c)(3) organizations, pursuant to Section 403(b) of
the Code (public school and Section 501(c)(3) plans); and
(3) employees (including former employees at the time of separation from
employment before retirement), and non-employed spouses of participating
employees, under Individual Retirement Annuities (IRAs) established
pursuant to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
After the introduction of the new series of contracts, this Contract was
available for issue only (1) in connection with corporate plans that are
non-allocated (that is, where the Contract is issued in the name of the employer
or plan trustee, rather than the individual participant), and (2) to add
individual participants under existing programs established for corporate,
qualified plans for self-employed individuals, and some 501(c)(3) plans where
the transfer account is in the name of the employer or plan trustee. See The
Role of the Transfer Account, page 8.
The Contract is offered by The Prudential Insurance Company of America, a mutual
life insurance company organized in 1875 under the laws of the State of New
Jersey. Its corporate office is located at Prudential Plaza, Newark, New Jersey
07102-3777.
The Contract is one of several that together make up the Prudential Financial
Security Program. The mailing address of the office which services the
tax-qualified contracts of the Program (which include a Fixed-Dollar Annuity
Contract that is not described in this prospectus) is: The Prudential Insurance
Company of America, Prudential Plaza, Newark, New Jersey 07102-3777. The
Prudential is registered as a broker-dealer with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and is a
member of the National Association of Securities Dealers, Inc. The Contracts are
sold by registered representatives of Pruco Securities Corporation ("Prusec"),
an indirect wholly-owned subsidiary of The Prudential. Prusec acts as principal
underwriter of the Contract. It was organized in 1971 under New Jersey law, is
also registered as a broker and dealer under the Securities Exchange Act of 1934
and is also a member of the National Association of Securities Dealers, Inc.
Prusec's principal business address is 1111 Durham Avenue, South Plainfield, New
Jersey 07080-2398.
Requests for the enrollment of employees under the Program in connection with an
employer's corporate plan are usually made through the employer or through a
trustee or custodian for the employer's plan. For the employer who does not have
a corporate plan in effect and is interested in the establishment of such a
plan, The Prudential has prepared several examples of plans which may meet
his/her requirements, and which will be supplied upon request. The employer may
prefer to modify one of these forms or arrange for the drafting of his/her own
plan, subject to The Prudential's willingness to issue contracts under it. See
The Prudential-Sponsored Pension Plans, page 17.
Upon completion of a request for enrollment satisfactory to The Prudential, the
Contracts will be issued in the name of an employer, trustee or custodian, as
required by the plan, under a newly established corporate plan, and in the names
of individual employees where they are being added as participants to existing
plans. Those in whose names Contracts are issued are known as Planholders.
The Prudential assumes no responsibility for determining whether a particular
retirement plan meets the requirements for favorable federal income tax
treatment. If, however, The Prudential determines that a plan, intended to
qualify for such treatment, has not received favorable determination of its
qualifications by the Internal Revenue Service and does not so qualify, The
Prudential may, with some exceptions, terminate any Contract issued in
connection with that plan.
The Variable Annuity Contract. The Contract provides for accumulation until
retirement and for monthly payments thereafter for life. The value of the
accumulated funds and the amount of each annuity payment will vary, reflecting
the investment results of a designated portfolio consisting primarily of common
stocks. Investment during the
7
<PAGE>
accumulation period does not, of course, assure that you will realize any profit
from your investment or that you will be protected against loss in a declining
market. Similarly, the amount of each annuity payment is subject to market
fluctuations of the portfolio, and in declining markets is likely to be lower
than earlier payments. As an alternative to variable annuity payments, the value
of the Contract at the end of the accumulation period may be used to provide
fixed-dollar annuity payments, or may be taken in one sum.
A Contract may also be bought with a single purchase payment to provide for
variable annuity payments which begin immediately. In this event, the provisions
of the Contract pertaining to the accumulation period will not apply.
The Contract provides that net purchase payments shall be allocated to
Prudential's Annuity Plan Account-2 (Account). During the accumulation period,
the current value of a Contract is measured in terms of accumulation shares. See
How Accumulation Shares are Credited, page 12. During the payout period, the
amount of the monthly retirement benefit is measured in terms of annuity shares.
See How Variable Annuity Payments are Determined, page 14.
The Role of the Transfer Account. A transfer account is established with The
Prudential through a Transfer Account Agreement between The Prudential and the
Accountholder. The transfer account is used to facilitate the accumulation and
allocation of funds for purchases under the retirement plan. Purchase payments
for these Variable Annuity Contracts are made only by the transfer of funds from
a transfer account, and, in certain situations, amounts may be deposited in the
transfer account to pay premiums or purchase payments due under other policies
of The Prudential, or contracts which are a part of the retirement plan. Funds
to be transferred for such purposes may be deposited in the transfer account at
any time by or for the Accountholder. The minimum deposit is $25.
At the time a transfer account is established, the Accountholder pays a one-time
enrollment fee to cover the non-recurring expenses of processing the Planholder
enrollments and creating the initial Program records. The fee is $40 for an
employer or trustee Accountholder under a corporate plan.
Use of a Prudential-sponsored corporate plan or qualified plan for self-employed
individuals, or use of any other corporate plan or qualified plan for
self-employed individuals pursuant to which a Transfer Account Agreement was
issued after April 30, 1974, involves an annual charge of $5, payable by the
employer, for each Variable Annuity Contract issued to a Planholder during the
accumulation period. This charge is for the additional expenses involved in
servicing the corporate plan or qualified plan for self-employed individuals.
During 1994 and 1993, The Prudential received $235 and $680, respectively, in
such annual charges.
The Accountholder and The Prudential may establish a schedule which will set
forth the use and dates of the payments to be made under these and other
contracts of The Prudential through the transfer account.
The Prudential will permit any purchase payment regardless of size under a
Prudential-sponsored plan; scheduled purchases for all other plans are subject
to a $300 annual minimum per Planholder.
If permissible under a corporate plan or qualified plan for self-employed
individuals, a trustee or employer Accountholder may withdraw funds from the
transfer account upon written request to The Prudential. The minimum withdrawal
is $25, or the balance in the transfer account if less.
The Prudential will credit interest as of the end of each calendar quarter in
which the average balance in the transfer account during the quarter is $50 or
more. Deposits will earn interest from the date of deposit to the date of
transfer or withdrawal. The interest rate will be determined by The Prudential's
Board of Directors each year. The rate of interest for 1995 is 4%.
The Prudential reserves the right to limit the amount maintained as a balance in
a transfer account, the period during which it may be maintained and the amount
of any single deposit.
Prudential's Annuity Plan Account-2. The Account was established on August 13,
1968, by resolutions of The Prudential's Board of Directors as a variable
contract account of The Prudential under the laws of the State of New Jersey. It
is administered by The Prudential under the general direction of The
Prudential's officers and managerial staff. The Account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (1940 Act), as a unit investment trust. Registration does not imply
supervision by the Securities and Exchange Commission of the management or
investment policies and practices of the Account or The Prudential.
8
<PAGE>
The Account is used only in connection with individual Variable Annuity
Contracts issued by The Prudential in connection with tax-qualified retirement
plans including the Contracts described in this prospectus. The assets held in
the Account are legally segregated from all other assets of The Prudential and
will always be equal to or greater in value than The Prudential's liabilities
under the Contracts, calculated in accordance with sound actuarial principles.
The assets of the Account are invested in shares of Prudential's Gibraltar Fund
(Fund) at net asset value without sales load. See Prudential's Gibraltar Fund
below. Any dividend or capital gain distributions received from the Fund are
credited in the form of additional Fund shares at net asset value. Fund shares
will be redeemed without redemption fee to the extent necessary to make payments
under the Contracts. The Contracts do not provide for a change in the underlying
investment of the Account. If, with any required approval of the Securities and
Exchange Commission, a change were ever to take place, the substituted shares
would be of comparable quality to Fund shares and would be registered under the
Securities Act of 1933, as amended.
Prudential's Gibraltar Fund. The Fund was incorporated in the State of Delaware
on March 14, 1968. It is registered under the 1940 Act as a diversified open-end
management investment company. Registration does not imply supervision by the
Securities and Exchange Commission of the management or investment policies and
practices of the Fund or The Prudential. The Board of Directors of the Fund is
responsible for the management of the Fund and, in addition to reviewing the
actions of the Fund's investment advisor, decides upon matters of general
policy. The Fund's officers conduct and supervise the daily business operations
of the Fund.
The Fund's portfolio, which is set forth on pages B2 and B3, is composed
primarily of common stocks of a diversified group of companies in a variety of
industries. The investment objective of the Fund is concerned primarily with
growth of capital to an extent compatible with a concern for its preservation.
Current income is a secondary consideration.
The investments of the Fund are subject to the risks of changing economic
conditions and the ability of management and the investment advisor of the Fund
to anticipate such changes. There can be no assurance that the Fund's investment
aims will be achieved.
Fund shares are sold only to separate accounts of The Prudential including
Prudential's Annuity Plan Account-2. The investment performance of the Fund
determines the dollar value of interests in these accounts.
The Prudential is the investment advisor to the Fund. The Prudential has entered
into a service agreement with its wholly-owned subsidiary, The Prudential
Investment Corporation (PIC), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with The
Prudential's performance of its obligations under advisory agreements with
clients which are registered investment companies. For its investment advisory
services, The Prudential is paid 1/8 of 1% (0.125%) per year of the average
daily market value of the Fund's net assets ($1.25 per year for each $1,000 of
assets). The Fund paid The Prudential $318,934 for these services in 1994 and
$316,383 in 1993. In addition, the Fund has expenses which may be considered to
be an indirect charge against assets; in 1994 these expenses amounted to
slightly less than 1/38 of 1% of average net assets of the Fund. In 1993 these
expenses were slightly less than 1/25 of 1% of average net assets of the Fund.
See Summary of Investment Advisory Contract on page 20, The Prudential as
Manager of the Fund's Investments on page 21, and Financial Statements of
Prudential's Gibraltar Fund and Notes to Financial Statements on pages B1
through B5. For the years ended December 31, 1994 and 1993, the Fund's total
expenses were 0.15% and 0.16%, respectively, of the Fund's average net assets.
Investment Results. The table on page 6 shows the per share computation of net
asset value together with operating expense and net investment income ratios for
the years indicated.
The Prudential's Administrative Role. The Prudential acts as transfer agent and
dividend-paying agent and performs all administrative services relative to the
Contracts and necessary to the operation of the Account. The Account itself has
no officers or employees. The Prudential pays all expenses relating to its
operation.
The services performed by The Prudential include safekeeping of and accounting
for the assets in the Account, applying the purchase payments after making any
deductions authorized by the Contracts, recording all other transactions with
respect to the Contracts, furnishing confirmation notices, reports of the value
of the Contracts during their accumulation period and records of the details
relating to annuities effected, making the annuity payments, and maintaining the
pertinent records. As part of its services The Prudential also arranges to
furnish periodic financial reports of the Account and of the Fund, prospectuses,
tax notices, other notices and voting material. The Prudential has periodic
audits made of the books of the Account and prepares and renders for thet
9
<PAGE>
Account tax reports and other periodic statements required by law. The charges
discussed under the first two headings in the next section of this prospectus
compensate The Prudential for its services.
DESCRIPTION OF THE CONTRACTS
Sales and Related Charges. A sales charge and any applicable premium taxes are
deducted from each gross purchase payment transferred from the transfer account.
The sales charge is expressed as a percentage of the adjusted gross purchase
payment, which is the gross purchase payment reduced by any applicable premium
taxes. These Contracts do not provide for use of a Letter of Intent by the
purchaser.
The applicable sales charges are as follows:
<TABLE>
<CAPTION>
Total Purchase Payments
Received During the Percent of Adjusted Gross Percent of Net Amount
Contract Year Purchase Payment Invested*
--------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
First $ 5,000 8.50% 9.29%
Next $ 5,000 7.00 7.53
Next $ 10,000 5.00 5.26
Next $ 30,000 3.00 3.09
Next $ 50,000 2.00 2.04
Next $ 400,000 1.00 1.01
Excess over $ 500,000 0.60 0.60
* Without taking into account deduction for any premium tax (or transaction charges during the accumulation period).
</TABLE>
Purchase Payments During the Accumulation Period. In determining the sales
charge rate, all purchase payments made on the date of purchase through the same
transfer account for Planholders in the accumulation period are combined and
added to the current value of all accumulation shares, if any, then credited to
all Planholders under the transfer account. For example, an employer submits a
purchase payment of $5,000. As of the current purchase date, Planholders under
the employer's transfer account are already credited with accumulation shares
with a total value of $10,000. When the $5,000 is added to the $10,000, it can
be seen from the above table that the sales charge rate applicable to the $5,000
purchase is 5%. The amount of the sales charge on the current purchase would,
therefore, be $250.
A transaction charge is also deducted from each purchase payment made for each
Planholder during the accumulation period, to cover the administrative services
connected with receipt of money and crediting of the accumulation shares. The
transaction charge for each purchase payment is $1, or 2% of the purchase
payment if less, with a maximum of $1 for all purchases made for a Planholder
under any one Contract on a single day.
For initial purchase payments of $25 and $300, for example, the sales charge
will be 9.5% and 9.3%, respectively, of the net amount that will be invested in
the Account. These figures do not include any initial enrollment fee, any state
premium tax that may be applicable, or the transaction charge. If the
transaction charge is considered with the sales charge, the amount deducted will
be 11.8% and 9.7%, respectively, of the net amount invested.
Purchase Payments to Provide a Variable Annuity with No Accumulation Period. The
sales charge is computed separately and somewhat differently than the sales
charge for purchase payments made during the accumulation period. Although the
table above is applicable, in this case it is the amount of prior purchase of
annuities with no accumulation period that is combined with the current purchase
amount to determine the sales charge rate, and not the current value of shares,
as in the case of purchases during the accumulation period. All such prior
annuity purchases through the same transfer account are combined, including
purchases of related fixed-dollar annuities under the Program. To illustrate
this, assume that a current purchase payment of $10,000 is made to provide a
variable annuity for a Planholder. Prior annuity purchases through the same
transfer account totaled $20,000. By combining the two amounts it can be seen
from the above table that the sales charge rate for the current $10,000 purchase
is 3%. Therefore, the sales charge for that purchase is $300.
For payments of $2,000 and $100,000, for example, the sales charge will be 9.3%
and 3.3%, respectively, of the net amount that will be invested in the Account.
These do not consider any enrollment fee or any applicable premium tax.
Purchase Payments Derived from the Proceeds of Other Prudential Tax-Qualified
Contracts. No sales charge is deducted from a purchase payment, either during
the accumulation period or when made to effect an annuity with
10
<PAGE>
no accumulation period, to the extent that such payment is derived from the
proceeds of any other contract issued by The Prudential in connection with a
tax-qualified retirement plan, including any dividend accumulations or paid-up
additions resulting from that contract, but excluding cash dividends. Nor is any
sales charge deducted at the time accumulation shares are used to provide an
annuity under the Program.
During 1994, The Prudential received $5,831 in sales charges and $1,103 in
transaction charges for purchases under these Contracts. The equivalent figures
for 1993 were $6,786 and $1,051.
The sales and transaction charges may be changed by The Prudential subject to
certain conditions. See Exercising Rights Under the Contracts, page 17.
The amount of any applicable premium tax varies depending on the jurisdiction,
and is subject to change by the legislature or other authority. In many
jurisdictions there is no tax at all. The tax rates currently in effect in those
states that impose a tax range from 0.5% to 5%. On any Contract subject to
premium tax, the tax will be deducted at the rate and incidence provided under
applicable law, either from the purchase payments when received or from amounts
applied to provide an annuity under the Program.
Other Charges. Transaction charges are made to cover expenses involved in the
processing of liquidations of accumulation shares. The transaction charge is $1
for any partial or total liquidation, or 1% of the net amount being liquidated
(after any transfer taxes) if less. There is no transaction charge or any other
charge at the time the value of accumulation shares is used to effect a variable
or a fixed-dollar annuity under the Program, but such value is adjusted by
deducting any applicable premium tax not previously deducted. During 1994 and
1993, The Prudential received $130 and $110, respectively, in transaction
charges for liquidations.
An administration charge is applied daily on the value of the portion of the net
assets in Prudential's Annuity Plan Account-2 attributable to accumulation
shares under these Contracts. This charge is to cover services that are rendered
in connection with Contracts during their accumulation period but that are not
identified with individual Contracts. On the first $250 million of assets, the
charge is made at an effective annual rate of 3/8 of 1% (0.375%); on the next
$250 million, the rate is 13/40 of 1% (0.325%); on the next $500 million, the
rate is 11/40 of 1% (0.275%); and on the excess over $1 billion, the rate is
9/40 of 1% (0.225%). The administration charge is designed only to reimburse The
Prudential for the development, administration and modification costs of the
Program allocable to the Contracts. The Prudential expects to maintain this
charge at a level not in excess of the amount required to achieve this purpose.
During the accumulation period, a mortality risk charge and an expense risk
charge, at effective annual rates of 0.1% and 0.2%, respectively, (for a total
of 0.3%, or 3/10 of 1%, per year) are applied daily against Account assets
attributable to these Contracts in the accumulation period. During the annuity
payout period, a mortality risk charge, an expense risk charge and an
administrative charge, at effective annual rates of 0.075%, 0.150%, and 0.150%,
respectively, (for a total of 0.375%, or 3/8 of 1%, per year) are applied daily
against Account assets attributable to these Contracts in the annuity payout
period. These charges are to cover The Prudential's general administrative
expenses in operating the Account and to provide a surplus for use, if
necessary, to help The Prudential to fulfill its contractual obligations,
discussed under the heading The Risks Which The Prudential Assumes on page 16.
During 1994 and 1993, The Prudential received $336,135 and $333,537,
respectively, under these Contracts from the charges described in the preceding
two paragraphs.
In addition, an investment advisory fee, determined daily at the rate of 0.125%
(1/8 of 1%) per year of the average net assets of the Fund, is paid by the Fund
to The Prudential. Thus, at present, a total charge against assets at a yearly
rate of about 0.8% (8/10 of 1%) is made during the accumulation period and 0.5%
(1/2 of 1%) during the annuity payout period for these Contracts. See
Prudential's Gibraltar Fund, page 9.
The charges described above may all be changed by The Prudential, subject to
certain conditions. See Exercising Rights Under the Contracts, page 17.
Right to Cancel. You have the right, within ten days after you receive your
Contract, to surrender the Contract by delivering or mailing it, with written
notice that you wish to surrender it, to an office of The Prudential or to the
agent through whom the Contract was purchased. Upon such surrender The
Prudential will cancel the Contract and pay the owner an amount equal to the sum
of (1) the difference between any purchase payments paid and the amounts
allocated to any separate accounts under the Contract and (2) the net asset
value of the Contract on the
11
<PAGE>
date of surrender attributable to the amounts so allocated. However, if
applicable state law so requires, the amount of the purchase payment will be
returned instead.
How Accumulation Shares are Credited. Each net purchase payment made during the
accumulation period increases the value of the Planholder's current interest
under the Contract. That value will vary, up and down, to reflect the investment
results of Prudential's Gibraltar Fund. To provide a convenient means of
measuring the value of the Planholder's interest, that interest is described and
recorded in terms of full or fractional accumulation shares. Each net purchase
payment made for a Planholder results in the crediting of a number of
accumulation shares, determined by dividing the net amount invested by the
current accumulation share value. Crediting of accumulation shares is effected
at the close of the day on which the purchase payment is transferred from the
transfer account, if that is a business day (a day on which the New York Stock
Exchange is open for business); otherwise on the first business day thereafter.
For these Contracts the accumulation share value for July 18, 1969 was set at
$10. On each subsequent business day, the accumulation share value is determined
by multiplying the accumulation share change factor for that day by the
accumulation share value for the last preceding business day. Sales of these
Contracts to the public commenced January 2, 1970. Shown below are the
accumulation share values for these Contracts as of the last business day of
each year of the 10 year period ending December 31, 1994.
Last Business Last Business
Day of: Day of:
1985 32.89 1990 $56.33
1986 37.82 1991 75.13
1987 38.56 1992 87.71
1988 48.11 1993 107.85
1989 58.36 1994 105.47
The accumulation share change factor for any business day is obtained by (1)
adding to 1.00 the rate of net investment income earned and the rate of asset
value changes in the Account, after provision for any taxes, from the end of the
last preceding business day to the end of the current business day, and (2)
deducting therefrom the rates of the administration charge and the mortality and
expense risk charges described under the heading Other Charges on page . No
provision is currently made for federal income taxes in determining the change
factor. See Federal Income Taxes, page 25.
Liquidation (Redemption) and Transfer of Accumulation Shares. The Contracts
provide that accumulation shares credited under them may be liquidated, either
totally or in part, at any time. For the possible tax consequences of a
liquidation, including any effect a liquidation may have on the qualification of
the retirement plan for special tax treatment, The Prudential recommends that
the parties involved seek competent tax advice before requesting liquidation of
accumulation shares. See Federal Income Taxes, page 25.
In addition there are certain restrictions on the withdrawal of salary reduction
contributions and earnings invested in annuity contracts subject to Section
403(b) of the Internal Revenue Code. Under such contracts, withdrawals may be
made prior to attaining age 59 1/2 in the event of severance of employment,
death, total and permanent disability and, in limited circumstances, hardship.
The value of your Contract as of December 31, 1988 is exempt from these
restrictions. In addition, the withdrawal restrictions do not apply to the
direct transfer of all or a part of your interest in the Contract to a Section
403(b) tax-deferred annuity contract of another insurance company or to a mutual
fund custodial account under Section 403(b)(7). See Section 403(b) Annuities,
page 26.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 provides that, in the case of a married participant, a withdrawal request
must include the consent of the participant's spouse. Generally, this consent,
which must contain the notarized or properly witnessed signature of the
participant's spouse, is required except for withdrawals in the form of a joint
and 50% spouse survivor annuity. See Types of Annuity Available, page 14. These
spousal consent requirements are effective beginning January 1, 1985 and apply
to married participants in most qualified pension plans and those Section 403(b)
annuities which are considered employee pension benefit plans under the Employee
Retirement Income Security Act of 1974 (ERISA).
A liquidation of accumulation shares is effected as of the end of the business
day on which the written request for liquidation is received by The Prudential.
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<PAGE>
In the case of total liquidation The Prudential will pay the total value of the
accumulation shares credited under the Contract, determined as of the end of the
business day on which liquidation is effected, less any applicable transfer
taxes and transaction charge. In the case of partial liquidation the minimum
payment permitted is $100, and accumulation shares of a value of at least $200
must remain credited under the Contract after the transaction. Sufficient shares
and fractions of shares will be liquidated to pay the amount requested, any
applicable transfer taxes and the transaction charge. Currently no transfer
taxes are being imposed. (The method of determining the value of an accumulation
share is described in the section just preceding this one.)
Any liquidation payment is made within 7 days after the request for liquidation
is received, except as The Prudential may be permitted under any valid and
applicable law to suspend the payment. Circumstances under which suspension may
be permissible are described under Redemption of Fund Shares on page 23.
Accumulation shares may be transferred only to other Planholders to fulfill the
purposes of the retirement plan involved.
Results Under A Hypothetical Purchase Program. The following table illustrates
results under a hypothetical purchase program for a Planholder, calling for a
$25 purchase payment on the first business day of each month prior to
retirement. The results shown are those which would have been achieved had the
hypothetical program commenced on the first business day of 1985. Results are
shown for the ten years ending December, 1994.
The results shown are based upon the present charge structure. They do not take
into account any reduction in sales charges that might have been obtained
through the combined purchase payment procedure described in the first paragraph
after the table of sales charges on page 10. The initial purchase payment does
not reflect any initial enrollment charge that may then have been paid by the
Accountholder for enrolling Planholders and establishing program records for the
retirement plan.
The results shown are representative of those which might have been obtained,
assuming a minimum purchase schedule and assuming no deductions for state
premium taxes or tax upon liquidation. They do not reflect the $5 annual charge
per Planholder required from the employer under certain corporate plans and
qualified plans for self-employed individuals. The results are for a
hypothetical program established in the past and are not to be considered as
predictive of future results. The results shown are those which would have been
achieved had the hypothetical program commenced on the first business day of
1985. Results are shown for the ten years ending December, 1994 .
<TABLE>
<CAPTION>
Gross Purchase Yearly Net Amount
Payments Deductions Invested
----------------------------- ------------------------ ----------------------------
Sales Transaction Liquidation
Year Current Year Cumulative Charges Charges Current Year Cumulative Value*
- ---- ------------ ---------- ------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1985 $300 $300 $25.56 $6 $268.44 $268.44 $309.86
1986 300 600 25.56 6 268.44 536.88 631.34
1987 300 900 25.56 6 268.44 805.32 872.55
1988 300 1,200 25.56 6 268.44 1,073.76 1,374.95
1989 300 1,500 25.56 6 268.44 1,342.20 1,955.80
1990 300 1,800 25.56 6 268.44 1,610.64 2,156.92
1991 300 2,100 25.56 6 268.44 1,879.08 3,183.47
1992 300 2,400 25.56 6 268.44 2,147.52 4,019.17
1993 300 2,700 25.56 6 268.44 2,415.96 5,233.56
1994 300 3,000 25.56 6 268.44 2,684.40 5,381.86
</TABLE>
*At end of calendar year, after deduction of transaction charge upon
liquidation. The liquidation value is calculated upon the basis of the actual
investment results realized by the Account that are net of the actual separate
account and Prudential's Gibraltar Fund annual expenses that were incurred.
Effecting a Variable Annuity. For any variable annuity to be effected, The
Prudential must receive written instructions in a form satisfactory to The
Prudential as to the type of annuity desired and proof satisfactory to The
Prudential of the date of birth of the Planholder and, if a last survivor life
annuity is provided, of the contingent annuitant.
The net amount applied to provide the annuity, adjusted by deducting any sales
charge (for an annuity with no accumulation period) and any applicable tax on
annuity considerations, is converted to annuity shares, which measure the value
of the monthly retirement benefit.
13
<PAGE>
The purchase of the variable annuity is made on the first business day on which
The Prudential's Phoenix Office has all of the above. That day is called the
effective date. The Prudential will send the Planholder his/her first monthly
annuity payment on the first day of the first calendar month that is at least
one month after the effective date. This is called the initial payment date.
In the absence of prior instructions to effect an annuity or liquidate the
accumulation shares credited to a Planholder, the value of any shares remaining
outstanding will be used to provide an annuity when the individual Planholder
attains age 75 or at such earlier time as may be required by law or the
applicable pension plan.
The effecting of a variable annuity is subject to The Prudential's rules then in
effect in respect to age and amount, and to any requirements imposed by federal
or state laws or regulations. Currently there is no minimum amount that must be
applied to effect an annuity under a Prudential-sponsored corporate plan or
qualified plan for a self-employed individual, but for other retirement plans
the current minimum amount requirement is $2,000 for the initial annuity
effected and $1,000 for any subsequent annuity effected for the same Planholder.
Annuities effected under these Contracts and under the qualified Fixed-Dollar
Annuity Contracts included in the Prudential Financial Security Program are
considered together for the purpose of meeting the minimum requirements.
Whenever an annuity is to be effected by the use of the value of accumulation
shares under the terms of the Contract or the applicable retirement plan, and
such value does not meet the minimum amount requirement, The Prudential will pay
the value of the accumulation shares in one sum as a total liquidation.
Types of Annuity Available. The following types of variable annuity are
described in the Contract.
Type A -- Life Annuity. Annuity payments are payable only during the lifetime of
the Planholder. This type provides a larger monthly payment than do Types B and
C, described below, because payments cease when the Planholder dies. For
example, it would be possible under this type for the annuitant to receive only
one annuity payment if death were to occur within the first month after the
first monthly annuity payment. Accordingly, this type is primarily appropriate
where larger income during the Planholder's lifetime is of greater importance
than preservation of a remainder for dependents.
Type B -- Life Annuity -- 10 Years Certain. Annuity payments are payable during
the lifetime of the Planholder. If the Planholder dies before the 120th monthly
payment is due, monthly annuity payments do not continue to the beneficiary.
Instead, the discounted value of the remaining unpaid instalments, to and
including the 120th monthly payment, is payable to the beneficiary in one sum.
Type C -- Last Survivor Life Annuity. Annuity payments are payable as long as
either the Planholder or the designated contingent annuitant is living. Under
plans other than corporate plans, only the spouse of the Planholder can be named
as contingent annuitant. As with the Type A -- Life Annuity above, it would be
possible under this type of annuity for only one monthly annuity payment to be
made, if both the Planholder and the contingent annuitant died within the first
month after annuity payments begin.
Where the Planholder is not married, and under IRA, or Section 403(b) annuities,
in the absence of specific instructions at the time an annuity is to be effected
and subject to the terms of the retirement plan, a Type B -- Life Annuity -- 10
Years Certain will be provided.
How Variable Annuity Payments are Determined. The amount of the monthly variable
annuity payment depends on (1) the net purchase payment for the annuity, (2) the
type of annuity selected, (3) the date of birth of the Planholder, and of the
contingent annuitant under a Type C Annuity, (4) the annuity rate table selected
by The Prudential for these Contracts (see Schedules of Annuity Rates on page
15), and (5) the investment results of Prudential's Annuity Plan Account-2,
which, in turn, reflect the investment results of the Fund.
The first four items together provide the basis for determining the dollar
amount of monthly annuity that would be paid if there were no change in the
monthly value of an annuity share. This dollar amount is called the tabular
monthly annuity. It is converted to a monthly number of annuity shares by
dividing that amount by the annuity share value on the effective date. The
monthly number of annuity shares thus established remains the same through the
duration of the annuity except for the possibility of temporary additional
annuity shares as described in the third paragraph under Schedules of Annuity
Rates, below.
The investment results of the Account, item (5), are reflected in changes in the
monthly value of the annuity share (the annuity share value) to the extent that
the rate of net investment return (after deducting the administrative and risk
charges described under Other Charges on page 11) is greater or less than the
effective annual interest rate assumed in the applicable schedule of annuity
rates. The amount payable on the first day of each month
14
<PAGE>
beginning with the initial payment date is the product of (a) the monthly number
of annuity shares and (b) the annuity share value calculated as of one month and
one business day prior to the due date of the payment.
Schedules of Annuity Rates. The schedules currently contained in the Variable
Annuity Contract are based on the Annuity Table for 1949 with adjustments
described in the Contract to reflect improving mortality trends, and with
assumed effective annual interest rates of 3.5% and 5%. The 5% schedule is
applicable in all but a few states in which it is currently not available under
the state law or regulations. In these few states (Florida, New Mexico, Texas
and West Virginia) the 3.5% schedule applies.
The 5% schedule, because it is based upon a higher assumed effective annual
interest rate, results in a greater initial monthly annuity payment than is
provided under the 3.5% schedule. For example, under a Type B Annuity, the
initial monthly annuity payment per $1,000 of net purchase payment for a person
born in 1930 and age 65 on the initial payment date would be $6.70 under the 5%
schedule and $5.84 under the 3.5% schedule. However, in reflecting the
investment results of the Fund, the annuity share value for an annuity using the
5% schedule will increase more slowly and decrease more quickly than will the
annuity share value for an annuity using the 3.5% schedule. As a rough rule of
thumb, the 3.5% schedule should turn out to be more advantageous for Planholders
who live longer than the average, while the 5% schedule should be better for
Planholders for whom the larger early payments are especially important.
The Contracts are entitled to participate in the divisible surplus of The
Prudential, as may be determined annually at the sole discretion of The
Prudential's Board of Directors. The board has determined that Planholders
receiving annuity payments will so participate in 1995. They will be temporarily
credited with an additional number of monthly annuity shares on which annuity
payments in 1995 are based. There is no assurance that such participation in the
divisible surplus of The Prudential or temporary crediting of annuity shares
will occur for any future year. In the example given in the previous paragraph,
the initial payments are increased for 1995 from $6.70 to $7.24 and from $5.84
to $6.41 for the 5% and 3.5% schedules, respectively.
Annuity Share Value. For these Contracts, the annuity share value for July 18,
1969 was set at $1. The annuity share value for any subsequent business day is
determined by multiplying the annuity share change factor for that day (see
below) by the annuity share value for the immediately preceding business day.
The annuity share change factor for any business day is obtained by (1) adding
to 1.00 the rate, after provision for any taxes, of net investment income earned
and of asset value changes in Prudential's Annuity Plan Account-2 from the end
of the last preceding business day to the end of the current business day, and
(2) deducting from such sum the applicable administrative and risk charges. See
the section headed Other Charges on page 11. The remainder is then divided by
the sum of 1.00 and the rate of interest on a daily basis at the effective
annual rate assumed in the applicable schedule of annuity rates. No provision is
currently made for federal income taxes in determining the change factor. See
Federal Income Taxes, page 25.
Each share value listed was used to determine annuity payments for the second
succeeding month. For example, the share value as of the last business day in
December is used to compute the February annuity payment. Shown below are the
annuity share values as of the last business day of each year of the 10 year
period ending December 31, 1994.
Last Business Last Business
Day of: 3.5%* 5% Day of: 3.5%* 5%
----- ----- ----- ----
1985 $1.97 $1.56 1990 $2.89 $2.13
1986 2.19 1.71 1991 3.74 2.71
1987 2.17 1.66 1992 4.23 3.03
1988 2.62 1.98 1993 5.04 3.55
1989 3.08 2.30 1994 4.78 3.32
*3.5% schedule currently applies only in a few states.
The Prudential provides an alternative arrangement under which a person who
purchases a variable annuity with no accumulation period may do so by starting
out with a fixed-dollar annuity and converting it gradually over a 36-month
period, a 1/36th portion in each month, to a variable annuity. This gradual
conversion arrangement permits the purchaser to reduce the chance of making the
purchase at a time when the value of common stock may be relatively high, by
making in effect 36 separate investments in the Account. Of course, this also
reduces the chance of investing in annuity shares at a time when the value of
common stocks may be relatively low. The 5% rate schedule is not available with
gradual conversion.
15
<PAGE>
The Risks Which The Prudential Assumes. The Prudential assumes the risk (1) that
annuitants as a class may live longer than estimated, with the result that
payments will continue for longer than expected, and (2) that charges under the
Contracts may not be enough to cover the actual expenses incurred. In either
event, the loss will fall on The Prudential. These risks assumed by The
Prudential must be evaluated in the light of The Prudential's right, upon 90
days notice to Planholders and Accountholders, to make certain changes in the
Contracts, including the charges and the schedule of annuity rates, thereby
reducing exposure to loss as a result of the guarantee. However, such changes
would apply only to new purchases after the effective date of the change and not
to any annuities or accumulation shares already in effect. Moreover, any
increase in charges must be preceded by an order of exemption from the
Securities and Exchange Commission. See The Prudential's Right to Change the
Contract on page 17.
Even though the assets of Prudential's Annuity Plan Account-2 are separately
accounted for, the entire general account assets of The Prudential are available
to meet the expenses and fulfill The Prudential's obligations under the Variable
Annuity Contracts. The charges The Prudential makes for assuming these risks are
described in the section headed Other Charges, page 11.
On the other hand, the charges may exceed the expenses that The Prudential
ultimately incurs under these Contracts. As the actual experience is realized,
the amount by which any such excess is greater than the amount which must
prudently be retained to fulfill The Prudential's obligations will become a part
of the divisible surplus of The Prudential.
In the event the Fund suspends the redemption of its shares because of the
closing of the New York Stock Exchange or other emergency reason, The Prudential
will make annuity payments during the period of suspension out of its general
account assets. The amount of such payments will be determined in a fair and
equitable manner satisfactory to the Department of Insurance of the State of New
Jersey.
Payment Upon the Death of the Planholder. Subject to The Prudential's approval
and the terms of the applicable retirement plan, a beneficiary may be designated
(1) for the accumulation shares credited to a Planholder if the Planholder dies
during the accumulation period, (2) for the termination value of an annuity if
the Planholder dies on or after its effective date but before its initial
payment date, and (3) if a Type B Annuity is effected, for the discounted value
of the unpaid instalments if the Planholder dies after the first but before the
120th monthly instalment is payable.
The Prudential reserves the right, prior to making payment in accordance with a
beneficiary designation, to require due proof of the Planholder's death and such
completed claim forms and other evidence as may be required to properly
establish the claim.
Subject to the above, at the death of the individual Planholder during the
accumulation period, the designated beneficiary will be credited with that
number of the Planholder's accumulation shares which represent the beneficiary's
interest. If such beneficiary is not already a Planholder, The Prudential will
establish a Plan for the beneficiary, but only to the extent of the accumulation
shares so credited, and transfer those accumulation shares to that Plan, in both
cases without charge.
If an annuity is effected and the Planholder dies before the initial payment
date, The Prudential will cancel the annuity on the first business day not
earlier than the day on which The Prudential receives due proof of death and
claim forms satisfactory to it, and will pay the termination value to the
beneficiary entitled to settlement.
The termination value is approximately equal to the net amount which was
required to provide the annuity as of the effective date (after deduction of any
applicable premium tax and sales charge), increased at the assumed effective
annual interest rate and increased or decreased in accordance with the rate of
change in the annuity share value between the annuity effective date and the
cancellation date. There will also be an adjustment for any annuity payments
that may have been made before notice of death is received. Payment of this
termination value is in full settlement of all liability of The Prudential for
the cancelled annuity.
Certain minimum distribution rules apply to the case where the Planholder dies
before annuity payments begin. Federal tax law requires that if the Planholder
dies before the initial payment date of an annuity, the entire value of his/her
Contract must generally be distributed within 5 years of the date of death.
Special rules may apply to the spouse of a deceased Planholder.
No amount is payable upon the death of a Planholder after the initial payment
date of an annuity, except for any amount which may be payable under a Type B
Annuity, as described in this section and under Types of Annuity
16
<PAGE>
Available on page 14. Of course, upon the death of either the Planholder or the
designated contingent annuitant under a Type C Annuity (described on page 14)
monthly payments will continue in accordance with the provisions of the annuity
for the remaining lifetime of the survivor.
If the death benefit is payable as a result of the Annuitant's coverage under a
qualified plan for self-employed individuals, other qualified plan, IRA or
Section 403(b) Annuity, the Annuitant's death benefit must be distributed within
5 years after the date of his/her death. However, if payments begin within one
year of the Annuitant's death, the death benefits may be distributed over the
Beneficiary's life or over a period not extending beyond the Beneficiary's life
expectancy. For example, if the Beneficiary's life expectancy is 12 years,
he/she may only elect to receive monthly installments for a fixed period of up
to 12 years. If the Annuitant's spouse is the Beneficiary, payments need only
begin on or before April 1 of the calendar year following the calendar year in
which the Annuitant would have attained age 70 1/2 or, in some instances, the
remaining interest in the Contract may be rolled over to an IRA.
Exercising Rights Under the Contracts
The Rights of the Planholder and Accountholder. Under many retirement plans an
employer or trustee Accountholder, rather than the Planholder in whose name a
Contract is issued, may be legally entitled, during the accumulation period, to
many or all of the benefits, rights and privileges under the Contract. In each
case the Contract, which includes any endorsements attached thereto as to
ownership and limitations of rights, will set forth explicitly which rights and
privileges may be exercised by the Accountholder. The terms of the retirement
plan itself may also affect the respective rights and privileges of the parties.
Neither the Contracts nor any values or payments thereunder are assignable
except to The Prudential.
The Continuing Right to Effect an Annuity. While The Prudential expects to
continue to provide variable annuities under the Program, it reserves the right
to discontinue doing so upon 90 days notice to Accountholders and Planholders.
Even after such discontinuance, Planholders with accumulation shares credited
will have a continuing right to effect an annuity under the Program. In
addition, Planholders with interests in other qualified contracts of The
Prudential on the date notice of discontinuance is given will have a continuing
right to exchange those interests for accumulation shares or variable annuities
without sales charge, but only to the extent of the Planholder's interest in
such other contracts on the date of the notice.
The Prudential's Right to Change the Contract. The Prudential may not change the
Contract with respect to any annuity after its effective date. Neither may The
Prudential change the schedules of annuity rates, the administration charge or
the mortality risk and expense risk charges applicable to accumulation shares
already credited. Otherwise, upon 90 days notice to Planholders and
Accountholders, The Prudential may change the terms and provisions concerning
the schedules of annuity rates, the charges by The Prudential and the applicable
minimum requirements. However, it may not increase any charge unless it first
obtains an order of exemption from the Securities and Exchange Commission. The
Prudential may also add or substitute contracts under the Program, provided,
however, that unless the change is required by law or regulation, it will not
affect purchases already made unless the Planholder or Accountholder accepts the
substituted contracts as applying to any such purchases.
Except as provided above, or as required by federal or state law or regulation,
no changes which would adversely affect rights acquired by Planholders and
Accountholders under Contracts of the Program will be made without consent.
The Prudential-Sponsored Pension Plans. The Prudential has prepared several
examples of pension and profit-sharing plans for corporations, designed to
qualify under Section 401(a) of the Code. Each of these plans provides that The
Prudential will provide the insurance and annuity contracts called for under the
plan.
The form of The Prudential-sponsored master and prototype plans has been
approved by the Internal Revenue Service (IRS). Approval by the IRS of a plan as
a master or prototype plan is limited to the form of a plan, and does not
constitute approval of any particular plan using the master or prototype. IRS
approval of a particular plan may have to be requested by the employer.
17
<PAGE>
DESCRIPTION OF PRUDENTIAL'S GIBRALTAR FUND
Investment Policies. The Fund invests primarily in common stocks and other
securities convertible into common stocks. Notwithstanding its growth objective,
the Fund may invest a relatively small percentage of assets, which Fund
management interprets to be not more than 15%, in preferred stocks, bonds,
debentures, notes and other evidences of indebtedness, of a character
customarily acquired by institutional investors, whether or not publicly
distributed. These may or may not be convertible into stock or accompanied by
warrants or rights to acquire stock.
At times, when economic conditions or general levels of common stock prices are
such that it may be deemed temporarily advisable to curtail investments in
common stocks, a larger than usual proportion of the Fund's assets may be
invested in such preferred stocks and evidences of indebtedness, or may be held
in cash or its equivalents, as a defensive measure. Nevertheless, not more than
10% of the assets of the Fund may be invested in loans made through the purchase
of privately placed evidences of indebtedness of a character customarily
acquired by institutional investors. See the subheading Special Risks, page 19.
In addition, the Fund may hold at times a moderate amount of cash and
high-grade, short-term debt securities to facilitate the orderly and flexible
programming of investments. Such debt securities may include securities acquired
through short-term repurchase transactions which will be "fully collateralized",
i.e., the value of the securities held by the Fund will be at least equal to the
repurchase price, including accrued interest.
Normally the Fund will hold securities purchased for one year or more, although
it will sell individual securities when their current price seems clearly
excessive in relation to estimated present or future value or when the situation
of the issuer appears to be deteriorating. The Fund's portfolio turnover is
discussed under the heading The Prudential as Manager of the Fund's Investments
on page . The Fund does not plan to trade for short-term profits, but may take
advantage of occasional opportunities for such profits if circumstances make
this advisable. To the extent that the Fund makes short-term investments, it
would incur greater brokerage charges than would otherwise be the case, and any
short-term capital gains would constitute ordinary income.
Restrictions on Investment. The Fund operates under a number of investment
restrictions. Some arise out of state laws and are summarized under New Jersey
Investment Laws on page 19. Those which follow, as well as the investment
policies described above, are self-imposed, fundamental policies of the Fund.
They may not be changed without the vote of a majority of the Fund's outstanding
voting securities.
The Fund does not:
(1) underwrite the securities of other issuers, except where it may be deemed
to be an "underwriter" for purposes of the Securities Act of 1933 as
indicated below;
(2) buy or sell commodities or commodity contracts;
(3) sell short or buy on margin, or buy, sell or write put or call options
or combinations of such options;
(4) invest for the purpose of exercising control or management;
(5) buy or hold the securities of any issuer if those officers and directors
of the Fund or officers of its investment advisor who own individually
more than one-half of 1% of the securities of such issuer or together own
more than 5% of the securities of such issuer;
(6) with respect to 75% of the value of its assets, buy the securities of an
issuer if the purchase would cause more than 5% of the value of the
Fund's total assets to be invested in the securities of any one issuer
(except for obligations of the United States government and its
instrumentalities) or result in the Fund owning more than 10% of the
voting securities of such issuer;
(7) concentrate its investments in any one industry (no more than 25% of
the value of the Fund's assets will be invested in any one industry);
(8) borrow money;
(9) buy or sell real estate, although the Fund may purchase shares of a
real estate investment trust;
18
<PAGE>
(10) invest in the securities of other investment companies; or
(11) issue senior securities.
Securities Lending. The Fund may from time to time lend its portfolio securities
to broker-dealers and/or banks, provided that such loans are made pursuant to
written agreements and are continuously secured by collateral in the form of
cash, U.S. government securities or irrevocable standby letters of credit in an
amount equal to at least the market value at all times of the loaned securities.
During the time portfolio securities are on loan, the lender continues to
receive the interest and dividends, or amounts equivalent thereto, on the loaned
securities while receiving a fee from the borrower or earned interest on the
investment of the cash collateral. The right to terminate the loan is given to
either party subject to appropriate notice. Upon termination of the loan, the
borrower returns to the lender securities identical to the loaned securities.
The Prudential has advised the Fund's Directors that the lender does not have
the right to vote securities on loan, but The Prudential would terminate the
loan and cause the loaned securities to be returned to the Fund in order to
exercise the voting rights if that were considered important with respect to the
investment. The primary risk in lending securities is that the borrower may
become insolvent on a day on which the loaned security is rapidly advancing in
price. In such event, if the borrower fails to return the loaned securities, the
existing collateral might be insufficient to purchase back the full amount of
stock loaned, and the borrower would be unable to furnish additional collateral.
The borrower would be liable for any shortage; but the Fund would be an
unsecured creditor to such shortage and might not be able to recover all or any
of it. However, this risk may be minimized by a careful selection of borrowers
and securities to be lent.
The Fund will not lend its portfolio securities to broker-dealers affiliated
with The Prudential, including Prudential Securities Incorporated. This will not
affect the Fund's ability to maximize its securities lending opportunities.
Special Risks. In addition to the previously mentioned restrictions, the Fund
may invest no more than 10% of the value of its assets in securities which,
because of legal or contractual restrictions upon resale or for other reasons,
are not readily marketable. Such securities include the privately placed
evidences of indebtedness referred to above. As of December 31, 1994, the Fund
did not hold any such restricted securities.
Any investment in such securities may entail special risks because of
difficulties in selling them. If the securities were to be sold publicly, the
Fund may be deemed an "underwriter" for purposes of the Securities Act of 1933
and may be required to register the securities under that Act. In that case, the
Fund might have to bear the expense of such registration, and the delays in the
sale pending the registration could result in a lower selling price. If the
securities were to be sold privately, the price obtainable might be lower than
would be obtained if the securities could be publicly marketed.
The value of any such securities will be determined in good faith by or under
the authority of the Fund's Board of Directors. A determination that the value
of particular securities is less than would have been the case had the
securities been freely marketable will make the net asset value of Fund shares
correspondingly lower.
Investment by the Fund in warrants or rights to acquire stock may also entail
risks. The Fund will not purchase any such warrants or rights if after giving
effect to such purchase the total cost to the Fund of all warrants and rights
then held by it will exceed 3% of the value of its assets. Warrants are
basically options to purchase securities at a specified price within a given
time. They are highly speculative, have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation that issues them.
The price of warrants does not necessarily move parallel with the price of the
underlying securities.
New Jersey Investment Laws. As long as The Prudential, or a subsidiary or
affiliate thereof, continues to be the investment advisor of the Fund, the
Fund's investments must meet requirements set forth in the Revised Statutes of
New Jersey. The Fund has, accordingly, adopted such requirements as part of its
investment policy while The Prudential, or a subsidiary or affiliate, continues
as the investment advisor.
The following is a summary of provisions of New Jersey law which impose
additional limitations on the investment policies of the Fund described in the
preceding two sections.
1. Evidences of indebtedness of a corporation, joint stock association,
business trust, business joint venture or business partnership may not be
purchased if in default as to interest.
2. The stock of a corporation may not be purchased unless (i) the corporation
has paid a cash dividend on the class of stock during each of the past five
years preceding the time of purchase, or (ii) during the five-year period
the corporation had aggregate earnings available for dividends on such class
of stock sufficient to pay
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average dividends of 4% per annum computed upon the par value of such
stock, or upon stated value if the stock has no par value. This
limitation does not apply to any class of stock which is preferred as
to dividends over a class of stock whose purchase is not prohibited.
3. Any common stock purchased must be (i) listed or admitted to trading on a
securities exchange in the United States or Canada; or (ii) included in the
National Association of Securities Dealers' national price listings of
"over-the-counter" securities; or (iii) determined by the Commissioner of
Insurance of New Jersey to be publicly held and traded and as to which
market quotations are available. As of the date of this prospectus no such
determination has been made.
4. Additional securities of a corporation may not be purchased if after the
purchase more than 10% of the market value of the assets of the Fund would
be invested in the securities of such corporation.
These currently applicable requirements of New Jersey law impose substantial
limitations on the ability of the Fund to invest in the stock of companies whose
securities are not publicly traded or who have not recorded a five-year history
of dividend payments or earnings sufficient to support such payments. This means
that the Fund will not generally invest in the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under items 1
and 2 of this section may be made if, after giving effect to the investment, the
total cost of all such non-eligible investments does not exceed 5% of the
aggregate market value of the assets of the Fund.
Investment limitations may also arise under the insurance laws and regulations
of other states where Contracts of the Program are sold. Although compliance
with the requirements of New Jersey law set forth above will ordinarily result
in compliance with any applicable laws of other states, under some circumstances
the limitations of other states could impose additional restrictions on the
portfolio of the Fund.
Summary of Investment Advisory Contract. Under an Investment Advisory Contract,
The Prudential has agreed to furnish investment management to the Fund. Such
investment management entails the selection of securities for purchase or sale
by the Fund and the resulting placement of orders. Periodic reports of such
purchases and sales are submitted to the Fund for review by the Board of
Directors.
Subject to The Prudential's supervision, substantially all of the investment
management services provided by The Prudential are furnished by its wholly-owned
subsidiary, PIC, pursuant to the Service Agreement between The Prudential and
PIC which provides that The Prudential will reimburse PIC for its costs and
expenses. PIC is registered as an investment advisor under the Investment
Advisers Act of 1940.
The Prudential bears the expenses for investment advisory services incurred in
connection with the purchase and sale of securities (but not the brokers'
commissions and transfer taxes and other charges and fees attributable to
investment transactions), the salaries and expenses of all officers and
employees reasonably necessary for the Fund's operations (excluding members of
the Fund's Board of Directors who are not officers or employees of The
Prudential), and the office facilities of the Fund. The amount paid to The
Prudential for its investment advisory services to the Fund is shown under the
heading Prudential's Gibraltar Fund on page 9.
The Investment Advisory Contract and the Service Agreement will continue in
effect from year to year provided renewal is approved at least annually by the
Fund's Board of Directors, including approval by a majority of those directors
who are not interested persons of either party to the Contract or Agreement.
The Investment Advisory Contract also grants the Fund a royalty-free,
non-exclusive license to use the words "Prudential's Gibraltar" and the
registered service mark of a rock representing the Rock of Gibraltar which
appears on the cover of this prospectus. However, The Prudential may terminate
this license if The Prudential or a company controlled by it ceases to be the
Fund's investment advisor. The Prudential may also terminate the license for any
other reason upon 60 days written notice; but, in this event, the Contract shall
also terminate 120 days following receipt by the Fund of such notice, unless a
majority of the outstanding voting securities of the Fund vote to continue the
Contract notwithstanding termination of the license.
The Investment Advisory Contract may be terminated by the Board of Directors or
by the vote of a majority of the Fund's outstanding voting securities on 60 days
notice to The Prudential. The Prudential may terminate the Contract on 90 days
notice to the Fund. The Contract will also terminate automatically in the event
of its assignment.
The Prudential will continue to have responsibility for all investment advisory
services under its advisory or subadvisory agreements with respect to its
clients.
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The Investment Advisory Contract with The Prudential was approved at the annual
meeting of stockholders held on May 21, 1970. The Board of Directors has
unanimously approved continuance of the Contract in each year since then, most
recently at a meeting held on February 28, 1995 .
The Service Agreement between The Prudential and PIC will continue in effect as
to the Fund for a period of more than two years from its execution, only so long
as such continuance is specifically approved at least annually in the same
manner as the Investment Advisory Contract between The Prudential and the Fund.
The Agreement may be terminated by either party upon not less than 30 days prior
written notice to the other party, will terminate automatically in the event of
its assignment and will terminate automatically as to the Fund in the event of
the assignment or termination of the Investment Advisory Contract between The
Prudential and the Fund. The Prudential is not relieved of its responsibility
for all investment advisory services under the Investment Advisory Contract
between The Prudential and the Fund. The Agreement provides for The Prudential
to reimburse PIC for its costs and expenses incurred in furnishing investment
advisory services.
The Service Agreement between The Prudential and PIC was ratified by
stockholders at their annual meeting held on September 27, 1985. The Board of
Directors has unanimously approved continuance of the Agreement in each year
since then, most recently at a meeting held on February 28, 1995 .
A separate contract between The Prudential and the Fund provides that, as long
as the Fund sells its shares only to The Prudential, its separate accounts or
organizations approved by it, The Prudential will pay all expenses of the Fund
not covered by the Investment Advisory Contract (except for the fees and
expenses of members of the Fund's Board of Directors who are not officers or
employees of The Prudential, brokers' commissions, transfer taxes and other
charges and fees attributable to investment transactions, and any other local,
state or federal taxes). The Prudential has accordingly paid the organizational
expenses of the Fund and such other expenses as those incurred in connection
with the registration of the Fund and Fund shares with the Securities and
Exchange Commission, the cost of preparing and printing Fund prospectuses, and
fees for auditors and lawyers. Under the present contractual arrangements, it
will continue to pay any such expenses incurred in the future.
The Prudential as Manager of the Fund's Investments. Prudential Investment
Advisors (PIA), a division of PIC, supplies the services with respect to equity
securities. PIA analyzes industries and companies within these industries in
order to recommend purchases and sales of equity securities. The personnel of
PIA comprised the Asset Management Department of The Prudential until
transferred to PIC on December 31, 1984, which Department had been responsible
since 1950 for recommending and supervising the investments that comprise the
substantial portfolio of common stocks held as part of The Prudential's general
assets. This portfolio approximated $243 million at the end of 1994. That
Department had also been responsible for a significant percentage of the common
stock investments of The Prudential's mutual funds, pension accounts and other
accounts. Those investments approximated $22.6 billion at the end of 1994.
Robert P. Fetch, Managing Director of PIA, a unit of PIC, is the portfolio
manager for the Gibraltar Fund. Mr. Fetch also manages The Prudential's Growth
Opportunity Fund, Prudential's Variable Contract-6, and Midco, a commingled
account.
PIA's investment staff selects companies and diversifies investments over many
firms and industries. It provides continuous supervision and management over the
performance of the investments. This is to reduce the risk of developments which
may adversely affect the market value of the securities of one company or
industry. But the emphasis is on the careful choice of investments believed to
have potential for growth, rather than upon diversification alone.
In implementing the Fund's investment objectives, each securities analyst is
assigned the responsibility of keeping abreast of developments in specific
industries and companies within those industries. On the basis of periodic
contacts with company managements, consultants and research staffs of investment
banking and brokerage firms, as well as analyses of company reports, business
periodicals and standard statistical services, each analyst makes projections of
earnings and dividends, and determines the relative attraction of the companies
he/she follows based on these projections in the light of current conditions and
market price. Securities will be purchased for the Fund's portfolio and sold
from it on the basis of these analyses.
These methods of selection and supervision, like diversification, while they do
not guarantee successful investment or eliminate the risks involved therein, are
ones which the average individual may not have the time, facilities, training or
funds to employ on his/her own.
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<PAGE>
Portfolio Turnover. The Fund's portfolio turnover rates for the last ten years
are shown in the table on page 6. (This rate is used to measure the activity of
a fund's portfolio securities. It is calculated by dividing purchases or sales,
whichever is less, by the average monthly value of the portfolio securities, in
each case excluding securities with maturities of one year or less.)
As noted elsewhere in this prospectus, the Fund seeks long-term growth of
capital rather than short-term trading profits. However, during any period when
changing economic or market conditions are anticipated, successful management
requires an aggressive response to such changes, which may increase the rate of
portfolio turnover. The rate of portfolio activity will usually affect the
brokerage costs of the Fund. It is anticipated that under normal circumstances
the portfolio turnover rate would not exceed 100%. During 1994 and 1993 the
portfolio turnover rates were each 92%.
The Prudential manages several other securities portfolios, including the
portfolios of The Prudential Series Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10 and The Prudential
Variable Contract Account-11, registered under the 1940 Act as open-end
management investment companies. Some of these portfolios invest in common
stock. Investment opportunities may become available from time to time that are
suitable both for the Fund and for these other common stock portfolios. On these
occasions, an allocation of the securities available will be made, taking into
account the suitability of the security in the light of the investment
objectives of each portfolio, the size and composition of the respective
portfolios and the availability of cash.
Brokerage. The Prudential is responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Transactions
on a stock exchange in equity securities will be executed primarily through
brokers that will receive a commission paid by the Fund. Fixed income
securities, on the other hand, as well as equity securities traded in the
over-the-counter market, will not normally incur any brokerage commissions.
These securities are generally traded on a "net" basis with dealers acting as
principals for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. Certain of these securities may also be purchased
directly from an issuer, in which case neither commissions nor discounts are
paid.
In placing orders for securities transactions, primary consideration is given to
obtaining the most favorable price and efficient execution. An attempt is made
to effect each transaction at a price and commission, if any, that provides the
most favorable total cost of proceeds reasonably attainable in the
circumstances. However, a higher commission than would otherwise be necessary
for a particular transaction may be paid if to do so appears to further the goal
of obtaining the best available execution.
In connection with any securities transaction that involves a commission
payment, the commission is negotiated with the broker on the basis of the
quality and quantity of execution services that the broker provides, in light of
generally prevailing commission rates. Periodically, The Prudential and PIC
review the allocation among brokers of orders for equity securities and the
commissions that were paid.
When selecting a broker or dealer in connection with a transaction for any
portfolio, consideration is given to whether the broker or dealer has furnished
The Prudential or PIC with certain services, provided this does not jeopardize
the objective of obtaining the best price and execution. These services, which
include statistical and economic data and research reports on particular
companies and industries, are services that brokerage houses customarily provide
to institutional investors. The Prudential or PIC use these services in
connection with all investment activities, and some of the data or services
obtained in connection with the execution of transactions for the Fund may be
used in connection with the execution of transactions for other investment
accounts.
Conversely, brokers and dealers furnishing such services may be selected for the
execution of transactions of such other accounts, while the data or service may
be used in providing investment management for the Fund. Although The
Prudential's present policy is not to permit higher commissions to be paid on
transactions in order to secure research and statistical services from brokers,
The Prudential might in the future authorize the payment of higher commissions,
but only with the prior concurrence of the Board of Directors of the Fund, if it
is determined that the higher commissions are necessary in order to secure
desired research and are reasonable in relation to all of the services that the
broker provides.
When investment opportunities arise that may be appropriate for more than one
entity for which The Prudential serves as investment manager or advisor, one
entity will not be favored over another and allocation of investments
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<PAGE>
among them will be made in an impartial manner believed to be equitable to each
entity involved. The allocations will be based on each entity's investment
objectives and its current cash and investment positions. Because the various
entities for which The Prudential acts as investment manager or advisor have
different investment objectives and positions, from time to time a particular
security may be purchased for one or more such entities while at the same time
such securities may be sold for another.
Prudential Securities Incorporated (Prudential Securities) may act as a
securities broker for the Fund. In order for Prudential Securities to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow
Prudential Securities to receive no more than the remuneration that would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. The Fund may not engage in any transactions in which The Prudential
or its affiliates, including Prudential Securities, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal.
The Prudential or its affiliates, including PIC may enter into business
transactions with brokers or dealers for purposes other than the execution of
portfolio securities transactions for accounts The Prudential manages. These
other transactions will not affect the selection of brokers or dealers in
connection with portfolio transactions for the Fund.
During the calendar year 1994, $774,338 was paid to various brokers in
connection with securities transactions for the Fund. Of this amount,
approximately 74.6% was allocated to brokers who provided research and
statistical services to The Prudential. The equivalent figures for 1993 were
$666,818 and 87.6%.
Of the total brokerage fees paid by the Fund during 1994, no money or percentage
was paid to Prudential Securities Incorporated (formerly Prudential-Bache
Securities, Inc.), an affiliated broker. The equivalent figures for 1993 were
$1,200 and 0.18%.
Determination of Net Asset Value. Shares of the Fund are sold to Prudential's
Investment Plan Account, Prudential's Annuity Plan Account and Prudential's
Annuity Plan Account-2, which invest the money paid for purchases under the
tax-qualified and non-tax-qualified contracts of the Program. Sales of Fund
shares are made at the net asset value next determined after such purchases are
made.
The Prudential determines the net asset value of Fund shares on each business
day (a day on which the New York Stock Exchange is open for business). The net
asset value is computed by dividing the net assets by the number of outstanding
shares of the Fund. Net assets are the total of cash and other assets, including
investment securities taken at value, minus liabilities.
Each security traded on a national securities exchange will be valued at the
price which, on the date of valuation, is 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 security is traded. For any security not traded on a national securities
exchange but traded in the over-the-counter market, the value will be the last
bid price available at the time of close of the New York Stock Exchange, except
that the securities for which quotations are furnished through a nationwide
automated quotation system approved by the National Association of Securities
Dealers, Inc. (NASDAQ) will be valued at the closing best bid price on the date
of valuation provided by a pricing service which utilizes NASDAQ quotations.
Debt obligations with maturities of less than 60 days are valued at amortized
cost. Portfolio securities or assets for which market quotations are not readily
available will be valued at fair value as determined in good faith by or under
authority of the Fund's Board of Directors.
Redemption of Fund Shares. Redemptions of Fund shares result from liquidations
of interests under the contracts of the Program, and are made at the net asset
value next determined after such liquidations are made. Payment for shares
redeemed will ordinarily be made within 7 days after the redemption request is
received from The Prudential.
This right of redemption may, however, be suspended for any period during which
the New York Stock Exchange is closed on other than a regular holiday or
weekend, or trading thereon is restricted, or for any period during which an
emergency exists as a result of which it is not reasonably practicable for the
Fund either to dispose of securities owned by it or to determine the value of
its assets fairly. Redemption may also be suspended in the event the Securities
and Exchange Commission has provided for such suspension for the protection of
security holders. See withdrawal restrictions applicable to Section 403(b)
annuities discussed in Section 403(b) Annuities, page 26.
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<PAGE>
Description of Fund Shares and Voting Rights. The Fund's authorized capital is
75,000,000 shares of common stock, $1 par value. Common stock is purchased with
amounts arising from payments made by participants in the separate accounts of
the Prudential Financial Security Program. All shares of Fund stock are entitled
to participate equally in dividends and distributions of the Fund and in its net
assets remaining upon liquidation after satisfaction of outstanding liabilities.
Fund shares are fully paid and nonassessable when issued and have no preemptive,
conversion or exchange rights. Such shares are redeemable upon request, except
under the circumstances described in the preceding section, Redemption of Fund
Shares.
After a distribution of investment income and realized net capital gains in
December of each year, the balance of the Fund's investment income and realized
net capital gains for the calendar year then ending are normally distributed
during the first calendar quarter after the end of that calendar year. Any such
distributions to the accounts will ordinarily be credited in the form of
additional Fund shares at net asset value. However, partial distributions may be
made in cash to meet expenses of the accounts. See Federal Income Taxes, below.
Each share of common stock outstanding is entitled to one vote. A vote is taken
annually for the election of directors and with respect to the selection of the
independent public accountants of the Fund. Other matters of a nonrecurring
nature, such as any proposed change in the fundamental investment policies
described on page 18, would also be submitted to a vote of the common stock.
These shares have non-cumulative rights when voting on the election of
directors.
Fund shares are held only by separate accounts of The Prudential. At December
31, 1994, Prudential's Annuity Plan Account-2, the account discussed in this
prospectus, held approximately 20% of all Fund shares outstanding. Prudential's
Investment Plan Account and Prudential's Annuity Plan Account, separate accounts
of The Prudential which are not discussed in this prospectus, held approximately
79% and 1%, respectively. Fund shares are voted by The Prudential in accordance
with voting instructions received from participants in those accounts.
Instruction forms for this purpose will be furnished by The Prudential. If there
are Fund shares held in the Account for which voting instructions are not
received, The Prudential will vote those shares on each matter in the same
proportion as it votes the Fund shares held in the Account for which it received
instructions.
Custodian, Transfer Agent and Dividend-Paying Agent. Chemical Bank, New York
Plaza, New York, New York 10004, is custodian of the Fund's assets and transfer
agent and dividend-paying agent of the Fund. As custodian, Chemical Bank
maintains certain financial and accounting books and records on behalf of the
Fund pursuant to an agreement with the Fund.
SUPPLEMENTARY INFORMATION
State Regulation. The Prudential is subject to regulation by the Department of
Insurance of the State of New Jersey as well as by the insurance departments of
all the other states and jurisdictions in which it does business. The Prudential
must file an annual statement in a form promulgated by the National Association
of Insurance Commissioners. This annual statement is reviewed and analyzed by
the New Jersey Department, which makes an independent computation of The
Prudential's reserve liabilities under all outstanding life insurance and
annuity contracts.
New Jersey law requires a quinquennial examination of The Prudential to be made.
Examination involves extensive audit, including but not limited to an inventory
check of assets, sampling techniques to check the performance by The Prudential
of its contracts, and an examination of the manner in which divisible surplus
has been apportioned and distributed to policyholders and contractholders.
The laws of New Jersey also contain special provisions, which are codified as
Sections 17B:28-1 through 17B:28-14 of the New Jersey Statutes, which relate to
the issuance and regulation of contracts on a variable basis. These statutes set
forth a number of mandatory provisions which must be included in contracts on a
variable basis and prohibit such contracts from containing other specified
provisions.
In addition to the annual statement referred to above, The Prudential is
required to file with New Jersey and other states a separate annual statement
with respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
Regulation by the New Jersey Department does not involve any supervision or
control over the investment policy of the Fund or over the selection of
investments therefor, except for verification that certain investment
requirements of New Jersey law are met.
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Federal Income Taxes
Prudential's Gibraltar Fund. Under the provisions of the Internal Revenue Code
applicable to regulated investment companies, the Fund, by distributing
substantially all of its net investment income and realized capital gains, will
be relieved of federal income tax on the income and gains so distributed. The
Fund has qualified for such tax treatment and intends to continue to so qualify.
Qualification of the Fund as a regulated investment company does not involve
government supervision of management or of investment practices or policies. See
Description of Fund Shares and Voting Rights on page 24. There is a 4% excise
tax on a portion of the undistributed income of a regulated investment company
if that company fails to distribute required percentages of its ordinary income
and capital gain net income. The Fund intends to employ practices that will
eliminate or minimize the imposition of this excise tax.
Prudential's Annuity Plan Account-2. The operations of Prudential's Annuity Plan
Account-2 form a part of, and are taxed with, the operations of The Prudential.
No federal income tax is currently payable on distributions of income received
on the Fund shares held in the Account for the benefit of Planholders, on
capital gains realized by The Prudential on redemptions of Fund shares, or on
capital gains dividends received by the Account from the Fund.
Retirement Plans under the Program. The provisions of the Internal Revenue Code
that apply to retirement plans are complex, and Planholders would be well
advised to consult a qualified tax advisor, particularly if liquidation under a
contract is contemplated. Withdrawals may be subject to income tax consequences,
including tax penalties. In general, assuming that the requirements and
limitations of the applicable provisions of the Code are adhered to by
Accountholders, Planholders and employers, contributions made to a qualified
retirement plan (other than after-tax employee contributions) are deductible by
the employer and not currently taxable to Planholders.
The principal tax advantages to Planholders under these plans derive from the
facts that within certain limits the amounts set aside each year are in pre-tax
rather than after-tax dollars, and that no federal income tax is currently
imposed upon investment income or realized gains earned by the Account in which
the accumulated purchase payments are held. When an annuity becomes payable
under these plans all or a portion of the monthly payments are taxable as
ordinary income under Section 72 of the Code. Lump sum distributions are
generally treated as ordinary income, but may in certain circumstances be
treated part as long-term capital gains and part as ordinary income. The amount
of tax may also be limited in some cases by a special income averaging rule.
Taxable payments under the Contract will generally be subject to withholding by
the payer. In some circumstances, recipients of pensions and annuities may elect
for withholding not to apply.
Recipients, including those who have elected out of withholding, must supply
their Taxpayer Identification Number (Social Security Number) to payers of
distributions for tax reporting purposes. Failure to furnish this number when
required may result in the imposition of a tax penalty and subject the
distribution to the back up withholding requirements of the law.
Withholding. Certain distributions from qualified retirement plans and 403(b)
annuities will be subject to mandatory 20% withholding unless the distribution
is an eligible rollover distribution that is "directly" rolled over into another
qualified plan, 403(b) annuity or IRA. Unless the Contract owner elects to the
contrary, the portion of any taxable amounts received under the Contract (except
for Contracts issued in connection with plans that are subject to Section 457 of
the Code) will be subject to withholding to meet federal income tax obligations.
The rate of withholding on annuity payments where mandatory withholding is not
required will be determined on the basis of the withholding certificate filed by
the Contract owner with The Prudential. For payments not subject to mandatory
withholding, if no such certificate is filed, the Contract owner will be
treated, for purposes of determining the withholding rate, as a married person
with three exemptions; the rate of withholding on all other payments made under
the Contract, such as amounts received upon withdrawals, will be 10%. Thus, if
the Contract owner fails to elect that there be no withholding, The Prudential
will withhold from every withdrawal or annuity payment the appropriate
percentage of the amount of the payment that is taxable. The Prudential will
provide the Contract owner with forms and instructions concerning the right to
elect that no amount be withheld from payments. Generally, there will be no
withholding for taxes until payments are actually received under the Contract.
Distributions to Contract owners under an eligible deferred compensation plan
subject to Section 457 of the Code are treated as the payment of wages for
federal income tax purposes and thus are subject the general withholding
requirements.
The few additional comments which follow concerning possible tax consequences
under qualified plans for self-employed individuals, IRA, and Section 403(b)
annuities are intended merely to call attention to certain features
25
<PAGE>
of those plans. They do not purport to be a complete discussion, and are not
intended as tax advice. As suggested above, a qualified tax advisor should be
consulted for advice and answers to any questions.
Qualified Plans for Self-Employed Individuals. For self-employed individuals who
establish such plans, contributions are deductible within the limits prescribed
by the Code. Annual deductible contributions cannot exceed the lesser of $30,000
or 25% of "earned income". "Earned income" is computed after the deduction for
contributions to the plan is considered.
Under these plans, payments must begin by April 1 of the year following the year
in which age 70 1/2 is attained and are subject to certain minimum distribution
requirements. Any distribution before age 59 1/2 may result in certain tax
penalties.
IRA Plans. For persons who establish such plans, the annual contribution limit
is the lesser of $2,000 or 100% of earned income. (For an IRA program which
includes a non-working spouse, total contributions may not exceed the lesser of
$2,250 or 100% of earned income. In this situation, separate contracts are
needed for the husband and wife. Also, the contribution for either the husband's
or wife's IRA may not exceed $2,000.) As with qualified plans for self-employed
individuals, payments to the Planholder must begin by April 1 of the year
following the taxable year in which age 70 1/2
is attained and are subject to certain minimum distribution requirements. Any
distributions before age 59 1/2 generally may result in certain penalty taxes.
Certain penalties may result if the contribution or age limitations are
exceeded.
Deductions for IRA contributions in those cases where an individual or an
individual's spouse is an active participant in an employer sponsored pension
plan, Simplified Employee Pension Program (SEPP) or Section 403(b) annuity are
limited to individuals whose adjusted gross income is less than certain
specified amounts.
For married individuals who file a joint tax return, a full deduction will be
available if adjusted gross income is $40,000 or less. For a single individual,
the limit is $25,000. Partial deduction for IRA contributions will be available
for married, joint filers who have adjusted gross income of more than $40,000
and less than $50,000 and single individuals whose adjusted gross income is less
than $35,000. Married individuals filing separately will be permitted to take a
partial deduction if their adjusted gross income is less than $10,000.
Section 403(b) Annuities. The amounts contributed under these plans and
increments thereon are not taxable as income until distributed as annuity income
or otherwise. In general, the maximum amount that can be contributed by salary
reduction is $9,500. However under certain special rules, the limit could be
increased as much as $3,000. In addition, the Code permits certain total
distributions from a Section 403(b) Annuity to be "rolled over" to another
Section 403(b) Annuity or IRA. Certain partial distributions from a Section
403(b) Annuity may be "rolled over" to an IRA.
An annuity contract will not qualify as a Section 403(b) Annuity unless under
such contract distributions from salary reduction contributions and earnings
thereon (other than distributions attributable to assets held as of December 31,
1988) may be paid only on account of death, disability, separation from service,
attainment of age 59 1/2 or hardship. (Such hardship withdrawals are permitted,
however, only to the extent of salary reduction contributions and not earnings
thereon.) The Section 403(b)(11) withdrawal restrictions do not apply to the
transfer of all or part of a participant's interest in his/her Contract among
the available investment options offered by The Prudential and do not apply to
the direct transfer of all or part of the Participant's interest in the Contract
to a Section 403(b) tax-deferred annuity contract of another insurance company
or to a mutual fund custodial account under Section 403(b)(7).
In imposing the restrictions on withdrawals as described above, The Prudential
is relying upon a no-action letter dated November 28, 1988 from the Chief of the
Office of Insurance Products and Legal Compliance of the Securities and Exchange
Commission to the American Council of Life Insurance.
Employer contributions are subject generally to the same coverage, minimum
participation and nondiscrimination rules applicable to qualified plans for
self-employed individuals.
Distributions from a Section 403(b) Annuity attributable to benefits accruing
after December 31, 1986 must commence by April 1 of the calendar year following
the year in which an employee attains age 70 1/2. However, for governmental and
church plans, distributions may be delayed until April 1 of the calendar year
following the calendar year the employee retires, if that is later.
Distributions must satisfy minimum distribution requirements similar to those
that apply to qualified plans generally.
26
<PAGE>
Penalty For Early Withdrawals. A 10% penalty tax will generally apply to the
taxable part of distributions received from an IRA, SEPP, Section 403(b)
annuity, qualified plans for self-employed individuals, and other qualified
plans before age 59 1/2. Limited exceptions are provided, such as where amounts
are paid in the form of a qualified life annuity, upon death of the employee, or
disability, or upon separation from service on or after attainment of age 55.
The terms of your retirement arrangement will control application of the limited
exceptions.
Additional Information. This prospectus does not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The information so omitted may be obtained from the Commission's principal
office in Washington, D.C., upon payment of the fees prescribed by the
Commission.
Experts. The financial statements included in this prospectus and the financial
statements from which the FINANCIAL HIGHLIGHTS included in this prospectus have
been derived, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein. Such financial statements and
FINANCIAL HIGHLIGHTS have been included herein in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
Deloitte & Touche LLP's principal business address is Two Hilton Court,
Parsippany, New Jersey 07054-0319.
Litigation. No litigation is pending that would have a material effect on
Prudential's Annuity Plan Account-2.
27
<PAGE>
DIRECTORS AND OFFICERS OF THE FUND
The directors and executive officers of the Fund are listed below, together with
their addresses and information as to their principal occupations during the
past five years. Collectively, they own, on record or beneficially, less than a
1% interest in separate accounts of The Prudential which hold Fund shares.
Directors' meeting fees and expenses are paid by the Fund only in respect to
those directors or former directors who are not officers or employees of The
Prudential. Such payments totaled $8,400 in 1994 and $8,400 in 1993,
representing equal amounts paid to Messrs. Fenster, McDonald and Weber.
DIRECTORS
ROBERT P. HILL*, Chairman of the Board--Executive Vice President of The
Prudential.
E. MICHAEL CAULFIELD, Director. -- Chief Executive Officer, Prudential Preferred
Financial Services since 1995; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company*; Prior to 1992: President of Investment Services of The
Prudential.
SAUL K. FENSTER, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.
W. SCOTT McDONALD, JR., Director--Executive Vice President of Fairleigh
Dickinson University since 1991: Prior to 1991: Executive Vice President of Drew
University. Address: 23 Forest Road, Madison, New Jersey 07940.
JOSEPH WEBER, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.
* These members of the Board are interested persons of The Prudential, its
affiliates or the Fund as defined in the 1940 Act. Certain actions of the
Board, including the annual continuance of the Investment Advisory Contract
between the Fund and The Prudential, must be approved by a majority of the
members of the Board who are not interested persons of The Prudential, its
affiliates or the Fund. Mr. Hill and Mr. Caulfield, two of the five members
of the Board, are interested persons of The Prudential and the Fund, as
that term is defined in the 1940 Act, because they are officers and/or
affiliated persons of The Prudential, the investment advisor to the Fund.
Messrs. Fenster, McDonald and Weber are not interested persons of The
Prudential, its affiliates or the Fund. However, Mr. Fenster is President
of the New Jersey Institute of Technology. The Prudential has issued a
group annuity contract to the Institute and provides group life and group
health insurance to its employees.
OFFICERS
MENDEL A. MELZER, Vice President--Senior Vice President and Chief Financial
Officer of Prudential Preferred Financial Services since 1993; 1991 to 1993:
Managing Director, The Prudential Investment Corporation; Prior to 1991: Senior
Vice President, Prudential Capital Corporation.
STEPHEN P. TOOLEY, Comptroller--Vice President and Comptroller of Prudential
Insurance and Financial Services since 1993; Prior to 1993: Director, Financial
Analysis of The Prudential.
THOMAS C. CASTANO, Secretary and Treasurer--Assistant General Counsel of The
Prudential since 1993; Prior to 1993: Assistant General Counsel of Pruco Life
Insurance Company.
28
<PAGE>
DIRECTORS AND OFFICERS OF THE PRUDENTIAL
The directors and certain officers of The Prudential, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF THE PRUDENTIAL
FRANKLIN E. AGNEW, Director. -- Business Consultant and former Senior Vice
President of H.J. Heinz. Address: One Mellon Bank Center, Suite 2120,
Pittsburgh, PA 15219.
FREDERIC K. BECKER, Director. -- President of Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
WILLIAM W. BOESCHENSTEIN, Director.--Director, Owens-Corning Fiberglas
Corporation. Address: Fiberglas Tower, Toledo, OH 43659.
LISLE C. CARTER, JR., Director.--Former Senior Vice President and General
Counsel, United Way of America. Address: 1307 Fourth Street, S.W., Washington,
DC 20024.
JAMES G. CULLEN, Director.--President, Bell Atlantic Corporation since 1993;
Prior to 1993: President, New Jersey Bell. Address: 1301 North Court House Road,
11th floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 1200
Nineteenth Street, N.W., 4th floor, Washington, DC 20024.
ROGER A. ENRICO, Director.--Vice Chairman, Pepsi Co. Inc. since 1993; 1991 to
1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods; Prior to
1991: President and Chief Executive Officer, Pepsi Co. Worldwide Beverages.
Address: 7701 Legacy Drive, Plano, TX 75024.
ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address:
Prudential Plaza, Newark, NJ 07102-3777.
WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, United
Negro College Fund, Inc. since 1991; Prior to 1991: United States Representative
for Pennsylvania's 2nd District. Address: 500 East 62nd Street, New York, NY
10021.
JON F. HANSON, Director.--Chairman, Hampshire Management Co. Address: 235 Moore
Street, Suite 200, Hackensack, NJ 07601.
CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; 1991 to 1993: Assistant to the President and Director of Presidential
Personnel, U.S. Government; Prior to 1991: Deputy Secretary, Department of
Health and Human Services. Address: 1775 Massachusetts Avenue, N.W., Washington,
DC 20036-2188.
ALLEN F. JACOBSON, Director.--Former Chairman and Chief Executive Officer,
Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul,
MN 55101-4901.
GARNETT L. KEITH, JR., Director and Vice Chairman.--Vice Chairman of The
Prudential. Address: Prudential Plaza, Newark, NJ 07102-3777.
BURTON G. MALKIEL, Director.--Chemical Bank Chairman's Professor of Economics,
Princeton University. Address: Princeton University, Department of Economics,
110 Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021.
JOHN R. OPEL, Director.--Chairman of the Executive Committee, International
Business Machines Corporation. Address: 590 Madison Avenue, New York, NY 10022.
ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.
- -- Chairman of the Board, President, and Chief Executive Officer, The Prudential
since 1994; Prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.
CHARLES R. SITTER, Director.--President and Director, Exxon Corporation since
1993; Prior to 1993; Director, Exxon Corporation. Address: 225 John W. Carpenter
Freeway, Irving, TX 75062.
DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental
Grain Company since 1994; Prior to 1994; Chairman, Continental Grain Company.
Address: 277 Park Avenue, New York, NY 10172.
RICHARD M. THOMSON, Director.--Chairman of the Board and Chief Executive
Officer, The Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion
Centre, Toronto, Ontario, M5K 1A2, Canada.
P. ROY VAGELOS, M.D., Director.--Chairman, Regeneron Pharmaceuticals since 1995;
Prior to 1995, Chairman, President and Chief Executive Officer, Merck & Co.,
Inc. Address: 126 East Lincoln Avenue, Rahway, NJ 07065.
29
<PAGE>
STANLEY C. VAN NESS, Director.--Attorney, Picco Mack Herbert Kennedy Jaffe
Perrella and Yoskin (law firm). Address: One State Street Square, Suite 1000,
Trenton, NJ 08607-1388.
PAUL A. VOLCKER, Director.--Chairman, James D. Wolfensohn, Inc. Address: 599
Lexington Avenue, New York, NY 10022.
JOSEPH H. WILLIAMS, Director.--Chairman of the Board, The Williams Companies
since 1994; Prior to 1994: Chairman and Chief Executive Officer, The Williams
Companies. Address: P.O. Box 2400, Tulsa, OK 74102.
OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
DOROTHY K. LIGHT, Vice President and Secretary.--Vice President and Secretary of
The Prudential.
EUGENE M. O'HARA, Senior Vice President and Comptroller.--Senior Vice President
and Comptroller of The Prudential.
MARTIN PFINSGRAFF, Vice President and Treasurer.--Vice President and Treasurer
of The Prudential since 1991; Prior to 1991: Senior Vice President, Mellon Bank.
30
<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>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A2 AND A3.
A1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
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>
A2
<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
ACCUMULATION AT DECEMBER 31 USING AT DECEMBER 31 USING
SHARE VALUE A 3 1/2% ASSUMED A 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>
A3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Planholders of 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
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 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
A4
<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 B4 AND B5.
B1
<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
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>
B2
<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
==============
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 B4 AND B5.
B3
<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.
B4
<PAGE>
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.
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>
B5
<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
B6
<PAGE>
<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities....................... $ 78,743 $ 79,061
Equity securities...................... 2,327 2,216
Mortgage loans......................... 26,199 27,509
Investment real estate................. 1,600 1,903
Policy loans........................... 6,631 6,456
Other long-term investments............ 5,147 4,739
Short-term investments................. 10,630 6,304
Securities purchased under
agreements to resell................. 5,591 9,656
Trading account securities............. 6,218 8,586
Cash................................... 1,109 1,666
Accrued investment income.............. 1,932 1,826
Premiums due and deferred.............. 2,712 2,549
Broker-dealer receivables.............. 7,311 9,133
Other assets........................... 7,119 9,997
Assets held in Separate Accounts....... 48,633 48,110
-------- --------
TOTAL ASSETS............................... $211,902 $219,711
======== ========
LIABILITIES, AVR AND SURPLUS
Liabilities:
Policy liabilities and insurance
reserves:
Future policy benefits and claims...... $101,589 $100,030
Unearned premiums...................... 1,144 1,146
Other policy claims and benefits
payable.............................. 1,848 1,935
Policy dividends....................... 1,686 2,018
Other policyholders' funds............. 9,097 9,874
Securities sold under agreements
to repurchase........................ 8,919 14,703
Notes payable and other borrowings..... 12,009 13,354
Broker-dealer payables................. 5,144 5,410
Other liabilities...................... 13,036 13,075
Liabilities related to
Separate Accounts...................... 47,946 47,475
-------- --------
TOTAL LIABILITIES.......................... 202,418 209,020
-------- --------
Asset valuation reserve (AVR).............. 2,035 2,687
-------- --------
Surplus:
Capital notes.......................... 298 298
Special surplus fund................... 1,097 1,091
Unassigned surplus..................... 6,054 6,615
-------- --------
TOTAL SURPLUS.............................. 7,449 8,004
-------- --------
TOTAL LIABILITIES, AVR
AND SURPLUS............................ $211,902 $219,711
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF
OPERATIONS AND CHANGES IN SURPLUS AND ASSET
VALUATION RESERVE (AVR)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE
Premiums and annuity
considerations............. $29,698 $29,982 $29,858
Net investment income........ 9,595 10,090 10,318
Broker-dealer revenue........ 3,677 4,025 3,592
Realized investment
(losses)/gains............. (450) 953 720
Other income................. 1,037 924 833
------- ------- -------
TOTAL REVENUE.................... 43,557 45,974 45,321
------- ------- -------
BENEFITS AND EXPENSES
Current and future benefits
and claims................. 30,788 30,573 32,031
Insurance and underwriting
expenses................... 4,830 4,982 4,563
Limited partnership
matters.................... 1,422 390 129
General, administrative
and other expenses......... 5,794 5,575 5,394
------- ------- -------
TOTAL BENEFITS AND
EXPENSES..................... 42,834 41,520 42,117
------- ------- -------
Income from operations
before dividends
and income taxes............. 723 4,454 3,204
Dividends to
policyholders................ 2,290 2,339 2,389
------- ------- -------
Income/(loss) before
income taxes................. (1,567) 2,115 815
Income tax
(benefit)/provision.......... (392) 1,236 468
------- ------- -------
NET INCOME/(LOSS)................ (1,175) 879 347
SURPLUS, BEGINNING
OF YEAR...................... 8,004 7,365 6,527
Issuance of capital notes
(after net charge-off
of non-admitted prepaid
postretirement benefit
cost of $113 in 1993)........ 0 185 0
Net unrealized
investment (losses)
and change in AVR............ 620 (425) 491
------- ------- -------
SURPLUS, END OF
YEAR......................... 7,449 8,004 7,365
------- ------- -------
AVR, BEGINNING OF YEAR........... 2,687 2,457 3,216
(Decrease)/increase in AVR (652) 230 (759)
------- ------- -------
AVR, END OF YEAR................. 2,035 2,687 2,457
------- ------- -------
TOTAL SURPLUS AND
AVR.......................... $ 9,484 $10,691 $ 9,822
======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 2
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income/(loss)................ $(1,175) $ 879 $ 347
Adjustments to reconcile
net income/(loss) to cash flows
from operating activities:
Increase in policy liabilities
and insurance reserves..... 1,289 2,747 3,428
Net increase in
Separate Accounts.......... (52) (59) (69)
Realized investment
losses/(gains)............. 450 (953) (720)
Depreciation, amortization
and other non-cash
items...................... 379 261 380
Decrease/(increase)
in operating assets:
Mortgage loans........... (226) (226) (1,952)
Policy loans............. (175) (174) (216)
Securities purchased
under agreements
to resell.............. 2,979 (2,049) (1,420)
Trading account
securities............. 2,447 (2,087) 351
Broker-dealer
receivables............ 1,822 (1,803) (161)
Other assets............. 1,873 (2,277) (1,041)
(Decrease)/increase in
operating liabilities:
Securities sold under
agreements to
repurchase........... (3,247) 1,134 1,967
Broker-dealer
payables............. (266) 1,067 (653)
Other liabilities...... (2,116) 2,007 841
------ ------ ------
CASH FLOWS FROM
OPERATING ACTIVITIES............ 3,982 (1,533) 1,082
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from the
sale/maturity of:
Fixed maturities.............. 82,834 87,840 73,326
Equity securities............. 1,426 1,725 957
Mortgage loans................ 4,154 4,789 3,230
Investment real estate........ 935 441 243
Other long-term
investments................. 1,022 1,352 2,046
Property and equipment........ 637 6 5
Payments for the purchase of:
Fixed maturities.............. (83,075) (89,034) (72,397)
Equity securities............. (1,535) (1,085) (977)
Mortgage loans................ (3,446) (3,530) (3,087)
Investment real estate........ (161) (196) (240)
Other long-term
investments................. (1,687) (531) (2,039)
Property and equipment........ (392) (640) (733)
Short-term investments (net)...... (4,281) (2,150) (1,160)
Net change in cash placed as
collateral for securities
loaned........................ 2,011 (589) (1,032)
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES.......... (1,558) (1,602) (1,858)
------ ------ ------
</TABLE>
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Net (payments)/proceeds
of short-term borrowings.... $ (1,115) $ 1,106 $ 70
Proceeds from the issuance of
long-term debt.............. 345 1,228 217
Payments for the settlement
of long-term debt........... (760) (721) (204)
Proceeds/(payments) of
unmatched securities
purchased under
agreements to resell........ 1,086 (47) (170)
(Payments)/proceeds of
unmatched securities sold
under agreements to
repurchase.................. (2,537) 1,707 1,201
Proceeds from the issuance of
capital notes............... 0 298 0
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES.......... (2,981) 3,571 1,114
------- ------- -------
Net (decrease)/increase
in cash..................... (557) 436 338
Cash, beginning of year........ 1,666 1,230 892
------- ------- -------
CASH, END OF YEAR.............. $ 1,109 $ 1,666 $ 1,230
======== ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income tax payments made, net of refunds, during 1994, 1993 and 1992 were $64
million, $933 million and $555 million, respectively. Interest payments made
during 1994, 1993 and 1992 were $1,429 million, $1,171 million and $1,272
million, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Prudential Insurance Company of America ("The Prudential"), a mutual
life insurance company, and its subsidiaries (collectively, "the
Company"). The activities of the Company cover a broad range of financial
services, including life and health insurance, property and casualty
insurance, reinsurance, group health care, securities brokerage, asset
management, investment advisory services, mortgage banking and servicing,
and real estate development and brokerage. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by regulatory authorities in
the domiciliary states. Certain reclassifications have been made to the
1993 and 1992 financial statements to conform to the 1994 presentation.
In 1994, The American Institute of Certified Public Accountants issued
Statement of Position 94-5, "Disclosures of Certain Matters in the
Financial Statements of Insurance Enterprises" ("SOP 94-5"), which
requires insurance enterprises to disclose in their financial statements
the accounting methods used in their statutory financial statements that
are permitted by the state insurance departments rather than prescribed
statutory accounting practices.
The Prudential, domiciled in the State of New Jersey, prepares its
statutory financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Insurance ("the
Department"). Its insurance subsidiaries prepare statutory financial
statements in accordance with accounting practices prescribed or permitted
by their respective domiciliary home state insurance departments.
Prescribed statutory accounting practices include publications of the
National Association of Insurance Commissioners ("NAIC"), state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
In 1993, The Prudential issued Fixed Rate Capital Notes ("the notes").
Interest payments on the notes are pre-approved by the Department, and
principal repayment is subject to a Risk-Based Capital test. This
permitted accounting practice differs from that prescribed by the NAIC.
The NAIC practices provide for Insurance Commissioner approval of every
interest and principal payment before the payment is made. The Prudential
has included the notes as part of surplus (see Note 7).
The Prudential has established guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities were
established net of estimated premium tax credits and federal income tax.
Prescribed statutory accounting practices do not address the establishment
of liabilities for guaranty fund assessments.
The Company, with permission from the Department, prepares an Annual
Report that differs from the Annual Statement filed with the Department in
that subsidiaries are consolidated and certain financial statement
captions are presented differently.
C. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued Financial
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which, as
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of mutual life
insurance companies with respect to utilizing statutory basis financial
statements for general purposes in that it would not allow such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgment as to determining GAAP for mutual
insurance companies' insurance operations. The Company is currently
assessing the impact of Interpretation No. 40 on its consolidated
financial statements.
D. INVESTED ASSETS
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Equity securities, which
consist primarily of common stocks, are carried at market value, which is
based on quoted market prices, where available, or prices provided by
state regulatory authorities.
F-3
<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
As of January 1, 1994, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Under SFAS No. 115, debt and marketable equity securities are classified
in three categories: held-to-maturity, available-for-sale and trading. The
effect of adopting SFAS No. 115 for the non-insurance subsidiaries was not
material.
Mortgage loans are stated primarily at unpaid principal balances. In
establishing reserves for losses on mortgage loans, management considers
expected losses on loans which they believe may not be collectible in full
and expected losses on foreclosures and the sale of mortgage loans.
Reserves established for potential or estimated mortgage loan losses are
included in the "Asset valuation reserve."
Policy loans are stated primarily at unpaid principal balances.
Investment real estate, except for real estate acquired in satisfaction of
debt, is carried at cost less accumulated straight-line depreciation ($748
million in 1994 and $859 million in 1993), encumbrances and permanent
impairments in value. Real estate acquired in satisfaction of debt,
included in "Other assets," is carried at the lower of cost or fair value
less disposition costs. Fair value is considered to be the amount that
could reasonably be expected in a current transaction between willing
parties, other than in forced or liquidation sale.
Included in "Other long-term investments" is the Company's net equity in
joint ventures and other forms of partnerships, which amounted to $3,357
million and $3,745 million as of December 31, 1994 and 1993, respectively.
The Company's share of net income from such entities was $354 million,
$375 million and $185 million for 1994, 1993 and 1992, respectively.
Short-term investments are stated at amortized cost, which approximates
fair value.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are collateralized financing transactions and are
carried at their contract amounts plus accrued interest. These agreements
are generally collateralized by cash or securities with market values in
excess of the obligations under the contract. It is the Company's policy
to take possession of securities purchased under resale agreements and to
value the securities daily. The Company monitors the value of the
underlying collateral and collateral is adjusted when necessary.
Trading account securities from broker-dealer operations are reported
based upon quoted market prices with unrealized gains and losses reported
in "Broker-dealer revenue."
The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
As of December 31, 1994 and 1993, the estimated fair values of loaned
securities were $6,765 million and $6,520 million, respectively. Company
and NAIC policies require a minimum of 102% and 105% of the fair value of
the domestic and foreign loaned securities, respectively, to be separately
maintained as collateral for the loans. Cash collateral received is
invested in "Short-term investments," which are reflected as assets in the
Consolidated Statements of Financial Position. The offsetting collateral
liability is included in the Consolidated Statements of Financial Position
in "Other liabilities" in the amounts of $2,385 million and $374 million
at December 31, 1994 and 1993, respectively. Non-cash collateral is
recorded in memorandum records and not reflected in the consolidated
financial statements.
Net unrealized investment gains and losses result principally from changes
in the carrying values of invested assets. Net unrealized investment
losses were $(32) million, $(195) million and $(268) million for the years
ended December 31, 1994, 1993 and 1992, respectively.
The asset valuation reserve (AVR) and the interest maintenance reserve
(IMR) are required reserves for life insurance companies. The AVR is
calculated based on a statutory formula and is designed to mitigate the
effect of valuation and credit-related losses on unassigned surplus.
F-4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The components of AVR at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----- -----
(IN MILLIONS)
<S> <C> <C>
Fixed maturities, equity securities
and short-term investments............. $ 930 $1,591
Mortgage loans.......................... 674 722
Real estate and other invested assets... 431 374
------ ------
Total AVR............................... $2,035 $2,687
====== ======
</TABLE>
In 1993, the Company made a voluntary contribution to the mortgage loan
component of the AVR in the amount of $305 million.
The IMR is designed to reduce the fluctuations of surplus resulting from
market interest rate movements. Interest rate-related realized capital
gains and losses are generally deferred and amortized into investment
income over the remaining life of the investment sold. The IMR balance,
included in "Other policyholders' funds," was $502 million and $1,539
million at December 31, 1994 and 1993, respectively. Net realized
investment (losses)/gains of $(929) million, $1,082 million and $626
million were deferred during the years ended December 31, 1994, 1993 and
1992, respectively. IMR amounts amortized into investment income were $107
million, $118 million and $51 million for the years ended December 31,
1994, 1993 and 1992, respectively.
E. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS
Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables, which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 39% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of a net level
premium reserve or the policy cash value. About 56% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM") or methods which compare CRVM reserves to policy
cash values.
For group life insurance, 24% of reserves are determined using net level
premium methods and various mortality tables and interest rates. About 53%
of group life reserves are associated with extended death benefits. For
the most part, these are calculated using modified group tables at various
interest rates. The remainder of group life reserves are unearned premium
reserves (calculated using the 1960 Commissioner's Standard Group Table),
reserves for group life fund accumulations and other miscellaneous
reserves. Reserves for group and individual annuity contracts are
determined using the Commissioner's Annuity Reserve Valuation Method.
For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported. Unpaid claims and claim adjustment expenses for other than life
insurance and annuities include estimates of benefits and associated
settlement expenses for reported losses and a provision for losses
incurred but not reported.
F-5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Activity in the liability for unpaid claims and claim adjustment
expenses is:
<TABLE>
<CAPTION>
1994 1993
----------------------- ------------------------
ACCIDENT PROPERTY ACCIDENT PROPERTY
AND AND AND AND
HEALTH CASUALTY HEALTH CASUALTY
--------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at January 1 ......... $ 2,654 $ 4,869 $ 2,623 $ 4,712
Less reinsurance recoverables 15 1,070 22 1,107
-------- -------- -------- --------
Net balance at January 1 ..... 2,639 3,799 2,601 3,605
-------- -------- -------- --------
Incurred related to:
Current year ................ 7,398 2,541 7,146 2,364
Prior years ................. (105) 158 (167) 109
-------- -------- -------- --------
Total incurred ............... 7,293 2,699 6,979 2,473
-------- -------- -------- --------
Paid related to:
Current year ................ 5,568 1,237 5,336 1,119
Prior years ................. 1,649 1,163 1,605 1,160
-------- -------- -------- --------
Total paid ................... 7,217 2,400 6,941 2,279
-------- -------- -------- --------
Net balance at December 31 ... 2,715 4,098 2,639 3,799
Plus reinsurance recoverables 23 1,018 15 1,070
-------- -------- -------- --------
Balance at December 31 ....... $ 2,738 $ 5,116 $ 2,654 $ 4,869
======== ======== ======== ========
</TABLE>
As a result of changes in estimates of insured events in prior years, the
declines of $105 million and $167 million in the provision for claims and
claim adjustment expenses for accident and health business in 1994 and
1993, respectively, were due to lower-than-expected trends in claim costs
and an accelerated decline in indemnity health business.
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses for property and
casualty business (net of reinsurance recoveries of $47 million and $120
million in 1994 and 1993, respectively) increased by $158 million and $109
million in 1994 and 1993, respectively, due to increased loss development
and reserve strengthening for asbestos and environmental claims.
F. REVENUE RECOGNITION AND RELATED EXPENSES
Life premiums are recognized as income over the premium paying period of
the related policies. Annuity considerations are recognized as revenue
when received.
Health and property and casualty premiums are earned ratably over the
terms of the related insurance and reinsurance contracts or policies.
Unearned premium reserves are established to cover the unexpired portion
of premiums written. Such reserves are computed by pro rata methods for
direct business and are computed either by pro rata methods or using
reports received from ceding companies for reinsurance. Premiums which
have not yet been reported are estimated and accrued.
Expenses incurred in connection with acquiring new insurance business,
including such acquisition costs as sales commissions, are charged to
operations as incurred in "Insurance and underwriting expenses."
Commission revenues in "Broker-dealer revenue" and related broker-dealer
expenses in "General, administrative and other expenses" are accrued when
transactions are executed.
F-6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
G. INCOME TAXES
Under the Internal Revenue Code ("the Code"), The Prudential and its life
insurance subsidiaries are taxed on their gain from operations after
dividends to policyholders. In calculating this tax, the Code requires the
capitalization and amortization of policy acquisition expenses.
The Code also imposes an "equity tax" on mutual life insurance companies
based on an imputed surplus which, in effect, reduces the deduction for
policyholder dividends. The amount of the equity tax is estimated in the
current year based on the anticipated equity tax rate, and is adjusted in
subsequent years as the rate is finalized.
The Prudential files a consolidated federal income tax return with all of
its domestic subsidiaries. The provision for taxes reported in these
financial statements also includes tax liabilities for the foreign
subsidiaries. Net operating losses of the non-life subsidiaries may be
used in this consolidated return, but are limited each year to the lesser
of 35% of cumulative eligible non-life subsidiary losses or 35% of life
company taxable income.
As of January 1, 1993, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, such subsidiaries
recognize deferred tax liabilities or assets for the expected future tax
consequences of events that have been recognized in their financial
statements. Included in "Income tax (benefit)/provision" are deferred
taxes of $(477) million, $21 million and $(8) million for the years ended
December 31, 1994, 1993 and 1992, respectively. The cumulative effect of
adopting SFAS No. 109 was not material.
At December 31, 1994, the Company had consolidated non-life tax loss
carryforwards of $598 million which will expire between 1998 and 2009, if
not utilized.
H. SEPARATE ACCOUNTS
Separate Account assets and liabilities, reported in the Consolidated
Statements of Financial Position at estimated market value, represent
segregated funds which are administered for pension and other clients. The
assets consist of common stocks, long-term bonds, real estate, mortgages
and short-term investments. The liabilities consist of reserves
established to meet withdrawal and future benefit payment contractual
provisions. Investment risks associated with market value changes are
generally borne by the clients, except to the extent of minimum guarantees
made by the Company with respect to certain accounts. Separate Account net
investment income, realized and unrealized capital gains and losses,
benefit payments and change in reserves are included in "Current and
future benefits and claims."
I. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives used for trading purposes are recorded in the Consolidated
Statements of Financial Position at fair value at the reporting date.
Realized and unrealized changes in fair values are recognized in
"Broker-dealer revenue" and "Other income" in the Consolidated Statements
of Operations in the period in which the changes occur. Gains and losses
on hedges of existing assets or liabilities are included in the carrying
amount of those assets or liabilities and are deferred and recognized in
earnings in the same period as the underlying hedged item. For interest
rate swaps that qualify for settlement accounting, the interest
differential to be paid or received under the swap agreements is accrued
over the life of the agreements as a yield adjustment. Gains and losses on
early termination of derivatives that modify the characteristics of
designated assets and liabilities are deferred and are amortized as an
adjustment to the yield of the related assets or liabilities over their
remaining lives.
Derivatives used in activities that support life and health insurance and
annuity contracts are recorded at fair value with unrealized gains and
losses recorded in "Net unrealized investment (losses) and change in AVR."
Upon termination of derivatives supporting life and health insurance and
annuity contracts, the interest-related gains and losses are amortized
through the IMR.
2. RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets in the amounts of $5,901 million and $5,164 million at December 31,
1994 and 1993, respectively, were on deposit with governmental authorities or
trustees as required by law.
Assets valued at $5,855 million and $4,430 million at December 31, 1994 and
1993, respectively, were maintained as compensating balances or pledged as
collateral for bank loans and other financing agreements.
F-7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Restricted cash of $455 million and $444 million at December 31, 1994 and
1993, respectively, was included in "Cash" in the Consolidated Statements of
Financial Position and Cash Flows.
3. FIXED MATURITIES
The carrying value and estimated fair value of fixed maturities at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------- -----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies .......... $13,624 $ 123 $ 647 $13,100 $14,979 $ 754 $ 94 $15,639
Obligations of U.S. .....
states and their
political subdivisions 2,776 32 165 2,643 3,212 187 3 3,396
Fixed maturities issued
by foreign governments
and their agencies and
political subdivisions 3,101 37 153 2,985 2,716 188 3 2,901
Corporate securities .... 54,144 1,191 1,772 53,563 51,548 4,390 300 55,638
Mortgage-backed
securities ............ 4,889 82 148 4,823 6,478 257 220 6,515
Other fixed maturities .. 209 0 0 209 128 0 0 128
------- ------- ------- ------- ------- ------- ------- -------
Total ................... $78,743 $ 1,465 $ 2,885 $77,323 $79,061 $ 5,776 $ 620 $84,217
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The carrying value and estimated fair value of fixed maturities at December
31, 1994 categorized by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less .............. $ 2,746 $ 2,760
Due after one year through five years 24,405 24,000
Due after five years through ten years 18,972 18,536
Due after ten years .................. 27,731 27,204
------- -------
73,854 72,500
Mortgage-backed securities ........... 4,889 4,823
------- -------
Totals ............................... $78,743 $77,323
======= =======
</TABLE>
Proceeds from the sale and maturity of fixed maturities during 1994, 1993 and
1992 were $82,834 million, $87,840 million and $73,326 million, respectively.
Gross gains of $693 million, $2,473 million and $2,034 million, and gross
losses of $2,009 million, $698 million and $530 million were realized on such
sales during 1994, 1993 and 1992, respectively (see Note 1D).
The Company invests in both investment grade and non-investment grade
securities. The Securities Valuation Office of the NAIC rates the fixed
maturities held by insurers (which account for approximately 98% of the
Company's total fixed maturities balance at December 31, 1994 and 1993) for
regulatory purposes and groups investments into six categories ranging from
highest quality bonds to those in or near default. The lowest three NAIC
categories represent, for the most part, high-yield securities and are
defined by the NAIC as including any security with a public agency rating of
B+ or B1 or less.
F-8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Included in "Fixed maturities" are securities that are classified by the NAIC
as being in the lowest three rating categories. These approximate 1.6% and
2.0% of the Company's assets at December 31, 1994 and 1993, respectively. At
December 31, 1994 and 1993, their estimated fair value varied from the
carrying value by $(78) million and $42 million, respectively.
4. MORTGAGE LOANS
Mortgage loans at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- -------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial and agricultural loans:
In good standing ......... $ 19,752 75.4% $ 20,916 76.0%
In good standing
with restructured terms 1,412 5.4% 1,177 4.3%
Past due 90 days or more . 339 1.3% 590 2.2%
In process of foreclosure 387 1.5% 415 1.5%
Residential loans .......... 4,309 16.4% 4,411 16.0%
-------- ------ -------- ------
Total mortgage loans ....... $ 26,199 100.0% $ 27,509 100.0%
======== ====== ======== ======
</TABLE>
At December 31, 1994, the Company's mortgage loans were collateralized by the
following property types: office buildings (30%), retail stores (20%),
residential properties (17%), apartment complexes (12%), industrial buildings
(11%), agricultural properties (7%) and other commercial properties (3%). The
mortgage loans are geographically dispersed throughout the United States and
Canada with the largest concentrations in California (25%) and New York (8%).
Included in these balances are mortgage loans with affiliated joint ventures
of $684 million and $689 million at December 31, 1994 and 1993, respectively.
5. EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The Company has several defined benefit pension plans which cover
substantially all of its employees. The benefits are generally based on
career average earnings and credited length of service.
The Company's funding policy is to contribute annually the amount necessary
to satisfy the Internal Revenue Service contribution guidelines. The
pension plans are accounted for in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS
No. 87").
Employee pension benefit plan status at September 30, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$2,956 in 1994 and $3,053 in 1993 ........................ $(3,255) $(3,401)
======= =======
Projected benefit obligation ............................... (4,247) (4,409)
Plan assets at fair value .................................... 5,704 5,950
------- -------
Plan assets in excess of projected benefit obligation ........ 1,457 1,541
Unrecognized net asset existing at the date of the initial
application of SFAS No. 87 ................................. (980) (1,086)
Unrecognized prior service cost since initial application of
SFAS No. 87 ................................................ 228 253
Unrecognized net loss from actuarial experience since initial
application of SFAS No. 87 ................................. 9 25
Additional minimum liability ................................. (8) 0
------- -------
Prepaid pension cost ......................................... $ 706 $ 733
======= =======
</TABLE>
F-9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $4,155 million are included in the
Consolidated Statement of Financial Position at December 31, 1994.
In compliance with statutory accounting principles, The Prudential's
prepaid pension costs of $765 million and $784 million at December 31,
1994 and 1993, respectively, were considered non-admitted assets. These
assets are excluded from the consolidated assets and the changes in these
non-admitted assets of ($19) million and $142 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses"
in the Consolidated Statements of Operations.
The components of the net periodic pension expense/(benefit) for 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 163 $ 133 $ 133
Interest cost on projected benefit obligation 311 301 296
Actual return on assets ...................... 56 (854) (367)
Net amortization and deferral ................ (639) 301 (150)
Net charge for special termination benefits .. 156 0 0
----- ----- -----
Net periodic pension expense/(benefit) ...... $ 47 $(119) $ (88)
===== ===== =====
</TABLE>
The net expense relating to the Company's pension plans is $28 million, $23
million and $29 million in 1994, 1993 and 1992, respectively, which considers
the changes in The Prudential's non-admitted prepaid pension asset of $(19)
million, $142 million and $117 million, respectively.
As a result of a special early retirement program, net curtailment gains and
special termination benefits of approximately $156 million are included in
the net periodic pension expense for the year ended December 31, 1994.
The assumptions used in 1994 and 1993 to develop the accumulated pension
benefit obligation were:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate ................................ 8.25-8.5% 7.0%
Expected long-term rate of return on assets... 8.5-9.0% 8.5-9.0%
Rate of increase in compensation levels ...... 5.0-5.5% 4.5-5.0%
</TABLE>
B. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides certain life insurance and health care benefits for
its retired employees. Substantially all of the Company's employees may
become eligible to receive a benefit if they retire after age 55 with at
least 10 years of service.
Effective in 1993, the costs of postretirement benefits, with respect to
The Prudential, are recognized in accordance with the accounting policy
issued by the NAIC. The NAIC's policy is similar to Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," except that the NAIC policy excludes
non-vested employees. The Prudential has elected to amortize its
transition obligation over 20 years.
Prior to 1993, the Company's policy was to fund the cost of providing
these benefits in the years that the employees were providing services to
the Company. The Company defined this service period as originating at an
assumed entry age and terminating at an average retirement age. Annual
deposits to the fund were determined using the entry age normal actuarial
cost method, including amortization of prior service costs for employees'
services rendered prior to the initial funding of the plan. The provision
for the year ended December 31, 1992 was $143 million.
The Prudential's net periodic postretirement benefit cost required to be
recognized for 1994 and 1993, under the NAIC policy is $110 million and
$125 million, respectively. In 1994 and 1993, The Prudential voluntarily
accrued an additional $10 million and $62 million, respectively, which
represents a portion of the obligation for active non-vested employees
(the total of this obligation is $520 million and $594 million as of
December 31, 1994 and 1993, respectively).
Company funding of its postretirement benefit obligations totaled $31
million and $404 million in 1994 and 1993, respectively. The Company
contributes amounts to the plan in excess of covered expenses being paid.
F-10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The postretirement benefit plan status as of September 30, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ........................................... $(1,337) $(1,211)
Fully eligible active plan participants ............ (188) (445)
------- -------
Total APBO ...................................... (1,525) (1,656)
Plan assets at fair value ............................ 1,304 1,335
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets .............................. (221) (321)
Unrecognized transition obligation ................... 448 525
Unrecognized net (gain)/loss from actuarial experience (41) 69
------- -------
Prepaid postretirement benefit cost in accordance
with the NAIC accounting policy .................... 186 273
Additional amount accrued ............................ (72) (62)
------- -------
Prepaid postretirement benefit cost .................. $ 114 $ 211
======= =======
</TABLE>
Plan assets consist of group and individual variable life insurance policies,
group life and health contracts and short-term investments, of which $996
million are included in the Consolidated Statement of Financial Position at
December 31, 1994.
In compliance with statutory accounting principles, The Prudential's prepaid
postretirement benefit costs of $127 million and $217 million at December 31,
1994 and 1993, respectively, are considered non-admitted assets. These assets
are excluded from the consolidated assets and the changes in these
non-admitted assets of $(90) million and $217 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses" in
1994 and in "Issuance of capital notes" in 1993.
Net periodic postretirement benefit cost for 1994 and 1993 includes the
following components:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cost of newly eligible or vested employees... $ 38 $ 41
Interest cost ................................ 112 124
Actual return on plan assets ................. (98) (86)
Net amortization and deferral ................ (13) 15
Amortization of transition obligation ........ 23 39
Net charge for special termination benefits... 58 0
Additional contribution expense .............. 10 62
----- -----
Net periodic postretirement benefit cost ..... $ 130 $ 195
===== =====
</TABLE>
The net reduction to surplus relating to the Company's postretirement benefit
plans is $40 million and $412 million in 1994 and 1993, respectively, which
considers the changes in the non-admitted prepaid postretirement benefit cost
of $(90) million and $217 million in 1994 and 1993, respectively.
As a result of a special early retirement program, curtailment expenses and
special termination benefits of approximately $58 million are included in the
net periodic postretirement benefit cost for the year ended December 31,
1994.
The assumptions used in 1994 and 1993 to measure the accumulated
postretirement benefits obligation were:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate ...................................... 8.25-8.5% 7.0-7.5%
Expected long-term rate of return on plan assets.... 9.0% 9.0%
Salary scale ....................................... 5.5% 5.0%
</TABLE>
F-11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The health care cost trend rates used varied from 9.1% to 13.9%, depending
on the plan, with one plan being graded to 6.5% by the year 2012 and all
others being graded to 6.0% by 2006. Increasing the health care cost trend
rate by one percentage point in each year would increase the
postretirement benefit obligation as of September 30, 1994, by $243
million and the total of the cost of newly eligible or vested employees
and interest cost for 1994 by $21 million.
In 1994, the Company changed its method of accounting for the recognition
of costs and obligations relating to severance, disability and related
benefits to former or inactive employees after employment, but before
retirement, to an accrual method. Previously, these benefits were expensed
when paid. The effect of this change was to decrease surplus by
approximately $160 million in 1994.
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE COST OF FUNDS BALANCE COST OF FUNDS
-------- ---------------- -------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Short-term debt..... $ 9,188 5.7% $ 9,435 3.7%
Long-term debt...... 2,821 6.5% 3,919 5.3%
------- -------
$12,009 $13,354
======= =======
</TABLE>
Scheduled repayments of long-term debt as of December 31, 1994, are as
follows: $594 million in 1995, $269 million in 1996, $362 million in 1997,
$268 million in 1998, $666 million in 1999, and $662 million thereafter. As
of December 31, 1994, the Company had $8,120 million in lines of credit from
numerous financial institutions of which $3,925 million were unused.
7. CAPITAL NOTES
In 1993, The Prudential issued 6.875% Fixed Rate Capital Notes ("the notes")
in the aggregate principal amount of $300 million. The notes mature on April
15, 2003, and may not be redeemed prior to maturity and will not be entitled
to any sinking fund. The notes are subordinated in right of payment to all
claims of policyholders and to senior indebtedness. Payment of the principal
amount of the notes at maturity is subject to the following conditions: (i)
The Prudential shall not be in payment default with respect to any senior
indebtedness or class of policyholders, (ii) no state or federal agency shall
have instituted proceedings seeking reorganization, rehabilitation or
liquidation of The Prudential, and (iii) immediately after making such
payment, Total Adjusted Capital would exceed 200% of its Authorized Control
Level Risk-Based Capital. The terms "Total Adjusted Capital" and "Authorized
Control Level" are defined by the Risk-Based Capital for Life and/or Health
Insurers Model Act. The payment of interest on the notes is subject to
satisfaction of conditions (i) and (ii) above. Unpaid accrued interest
amounted to $25 million at December 31, 1994 and 1993. The net proceeds from
the notes, approximately $298 million, were contributed to a voluntary
employee benefit association trust to prefund certain obligations of The
Prudential to provide postretirement medical and other benefits. This
resulted in a prepaid asset, which is non-admitted for statutory purposes.
The net increase to surplus from the issuance of the notes, including a tax
benefit of $104 million less the charge-off of the non-admitted asset of $217
million, was $185 million (see Note 5B).
8. SPECIAL SURPLUS FUND
The special surplus fund includes required contingency reserves of $1,097
million and $1,091 million as of December 31, 1994 and 1993, respectively.
9. FAIR VALUE INFORMATION
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for those accounts for
which fair value disclosures are required. Considerable judgment is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values. The
following methods and assumptions were used in calculating the fair values.
(For all other financial instruments presented in the table, the carrying
value is a reasonable estimate of fair value.)
F-12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
FIXED MATURITIES. Fair values for fixed maturities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the current
market spreads between the U.S. Treasury yield curve and corporate bond yield
curve, adjusted for the type of issue, its current quality and its remaining
average life. The fair value of certain non-performing private placement
securities is based on amounts provided by state regulatory authorities.
MORTGAGE LOANS. The fair value of residential mortgages is based on recent
market trades or quotes, adjusted where necessary for differences in risk
characteristics. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for the
current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
POLICY LOANS. The estimated fair value of policy loans is calculated using a
discounted cash flow model based upon current U.S. Treasury rates and
historical loan repayments.
DERIVATIVE FINANCIAL INSTRUMENTS. The fair value of swap agreements is
estimated based on the present value of future cash flows under the
agreements discounted at the applicable zero coupon U.S. Treasury rate and
swap spread. The fair value of forwards and futures is estimated based on
market quotes for a transaction with similar terms, while the fair value of
options is based principally on market quotes. The fair value of loan
commitments is estimated based on fees actually charged or those currently
charged for similar arrangements, adjusted for changes in interest rates and
credit quality subsequent to origination.
INVESTMENT-TYPE INSURANCE CONTRACT LIABILITIES. Fair values for the Company's
investment-type insurance contract liabilities are estimated using a
discounted cash flow model, based on interest rates currently being offered
for similar contracts.
NOTES PAYABLE AND OTHER BORROWINGS. The estimated fair value of notes payable
and other borrowings is based on the borrowing rates currently available to
the Company for debt with similar terms and maturities.
The following table discloses the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities ..................... $78,743 $77,323 $79,061 $84,217
Equity securities .................... 2,327 2,327 2,216 2,216
Mortgage loans ....................... 26,199 24,955 27,509 28,004
Policy loans ......................... 6,631 6,018 6,456 6,568
Short-term investments ............... 10,630 10,630 6,304 6,304
Securities purchased under
agreements to resell ............... 5,591 5,591 9,656 9,656
Trading account securities ........... 6,218 6,218 8,586 8,586
Cash ................................. 1,109 1,109 1,666 1,666
Broker-dealer receivables ............ 7,311 7,311 9,133 9,133
Assets held in Separate Accounts ..... 48,633 48,633 48,110 48,110
Financial liabilities:
Investment-type insurance contracts .. 39,747 38,934 41,149 42,668
Securities sold under agreements
to repurchase ...................... 8,919 8,919 14,703 14,703
Notes payable and other borrowings ... 12,009 11,828 13,354 13,625
Broker-dealer payables ............... 5,144 5,144 5,410 5,410
Liabilities related to Separate
Accounts ............................. 47,946 47,946 47,475 47,475
Derivative financial instruments - net
(see Note 10) ...................... 392 397 253 303
</TABLE>
F-13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
10. DERIVATIVE AND OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS
A. DERIVATIVE FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial
Instruments," effective for 1994, requires certain disclosures about
derivative financial instruments and other financial instruments with
similar characteristics ("derivatives"). Derivatives include swaps,
forwards, futures, options and loan commitments subject to market risk,
all of which are used by the Company in the normal course of business in
both trading and other than trading activities.
The Company uses derivatives in trading activities primarily to meet the
financing and hedging needs of its customers and to trade for its own
account. The Company also uses derivatives for purposes other than
trading to reduce exposure to interest rate, currency and other forms of
market risk.
The table below summarizes the Company's outstanding positions by
derivative instrument as of December 31,1994. The amounts presented are
classified as either trading or other than trading, based on
management's intent at the time of contract inception and throughout the
life of the contract. The table includes the estimated fair values of
outstanding derivative positions only and does not include the fair
values of associated financial and non-financial assets and liabilities,
which generally offset derivative fair values. The fair value amounts
presented do not reflect the netting of amounts pursuant to rights of
setoff, qualifying master netting agreements with counterparties or
collateral arrangements. The table shows that less than 5% of derivative
fair values were not reflected in the Company's Consolidated Statement
of Financial Position.
DERIVATIVE FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
TRADING OTHER THAN TRADING
-------------------- ----------------------
ESTIMATED ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Swaps Assets $13,852 $ 837 $ 184 $ 9
Liabilities 14,825 1,216 4,993 48
Forwards Assets 21,988 300 2,720 24
Liabilities 19,898 289 3,112 19
Futures Assets 1,520 40 4,296 17
Liabilities 1,878 35 505 3
Options Assets 2,924 31 2,407 8
Liabilities 3,028 38 2,217 2
Loan commitments Assets 0 0 212 2
Liabilities 0 0 1,543 15
------- ------- ------- -------
Total Assets $40,284 $ 1,208 $ 9,819 $ 60
======= ======= ======= =======
Liabilities $39,629 $ 1,578 $12,370 $ 87
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
TOTAL
----------------------------------------------
CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C> <C>
Swaps Assets $14,036 $ 845 $ 846
Liabilities 19,818 1,236 1,264
Forwards Assets 24,708 312 324
Liabilities 23,010 299 308
Futures Assets 5,816 30 57
Liabilities 2,383 35 38
Options Assets 5,331 34 39
Liabilities 5,245 40 40
Loan commitments Assets 212 (2) 2
Liabilities 1,543 1 15
------- ------- -------
Total Assets $50,103 $ 1,219 $ 1,268*
======= ======= =======
Liabilities $51,999 $ 1,611 $ 1,665*
======= ======= =======
</TABLE>
* $1,233 of Assets and $1,596 of Liabilities are reflected in the Consolidated
Statement of Financial Position
F-14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
DERIVATIVES HELD FOR TRADING PURPOSES. The Company uses derivatives for
trading purposes in securities broker-dealer activities and in a
limited-purpose swap subsidiary. Net trading revenues for the year ended
December 31, 1994, relating to forwards, futures and swaps were $107 million,
$33 million and $8 million, respectively. Net trading revenues for options
were not material. Average fair value for trading derivatives in an asset
position during the year ended December 31, 1994, was $1,526 million and for
derivatives in a liability position was $1,671 million. Of those derivatives
held for trading purposes at December 31, 1994, 60.0% of notional consisted
of interest rate derivatives, 33.7% consisted of foreign exchange
derivatives, and 6.3% consisted of equity and commodity derivatives.
DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING. Of the total notional of
derivatives held for purposes other than trading at December 31, 1994, 23.0%
were used by the Company to hedge its investment portfolio to reduce interest
rate, currency and other market risks, 75.8% were used to hedge interest rate
risk related to the Company's mortgage banking subsidiary activities, and
1.2% were used to hedge interest and currency risks associated with the
Company's debt issuances. Of those derivatives held for purposes other than
trading at December 31, 1994, 85.0% of notional consisted of interest rate
derivatives, 13.9% consisted of foreign exchange derivatives, and 1.1%
consisted of equity and commodity derivatives.
Derivatives used to hedge the Company's investment portfolio, including
futures, options and forwards, are typically short-term in nature and are
intended to minimize exposure to market fluctuations or to change the
characteristics of the Company's asset/liability mix, consistent with the
Company's risk management activities. At December 31, 1994, net gains of $0.7
million relating to futures used as hedges of anticipated bond investments
were deferred and included in "Other liabilities." The investments being
hedged are expected to be made in the first quarter of 1995. The Company's
mortgage banking subsidiary hedges the interest rate risk associated with
mortgage loans and mortgage-backed securities held for sale and with unfunded
loans for which a rate of interest has been guaranteed. At December 31, 1994,
net gains of $0.8 million relating to forwards, futures and options used as
hedges of unfunded loan commitments were deferred as "Other liabilities." The
deferred gains were included in the carrying amounts of the loans when
funded, which is generally within sixty days from the commitment date. The
Company's mortgage banking subsidiary also hedges its exposure to future
changes in interest rates on interest-sensitive liabilities and hedges the
prepayment risk associated with its mortgage servicing portfolio. At December
31, 1994, net gains of $6.5 million relating to futures used as hedges of
anticipated borrowings were deferred and included in "Other liabilities." The
borrowings being hedged are expected to be issued by early 1996. The Company
also uses derivatives, particularly swaps and forwards, to manage the
interest rate and foreign exchange risks associated with its notes payable
and other borrowings.
B. OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS
During the normal course of its business, the Company is party to financial
instruments with off-balance-sheet credit risk such as commitments, financial
guarantees, loans sold with recourse and letters of credit. Commitments
include commitments to purchase and sell mortgage loans, the unfunded portion
of commitments to fund investments in private placement securities, and
unused credit card and home equity lines. The Company also provides financial
guarantees incidental to other transactions and letters of credit that
guarantee the performance of customers to third parties. These credit-related
financial instruments have off-balance-sheet credit risk because only their
origination fees, if any, and accruals for probable losses, if any, are
recognized in the Consolidated Statements of Financial Position until the
obligation under the instrument is fulfilled or expires. These instruments
can extend for several years and expirations are not concentrated in any
period. The Company seeks to control credit risk associated with these
instruments by limiting credit, maintaining collateral where customary and
appropriate, and performing other monitoring procedures.
The notional amount of these instruments, which represents the Company's
maximum exposure to credit loss from other parties' non-performance, was
$17,389 million and $18,666 million at December 31, 1994 and 1993,
respectively. Because many of these amounts expire without being advanced in
whole or in part, the amounts do not represent future cash flows. The above
notional amounts include $4,150 million and $3,066 million of unused
available lines of credit under credit card and home equity commitments as of
December 31, 1994 and 1993, respectively. The Company has not experienced,
and does not anticipate experiencing, all of its customers exercising their
entire available lines of credit at any given point in time.
The estimated fair value of off-balance-sheet credit related instruments was
$(91.3) million and $13.0 million at December 31, 1994 and 1993,
respectively. The total fair value at December 31, 1994, includes $(13.3)
million for fixed-rate loan commitments, which are subject to market risk.
The estimated fair value was determined based on fees currently charged for
similar arrangements, adjusted for changes in interest rate and credit
quality that occurred subsequent to origination.
F-15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
11. CONTINGENCIES
A. ENVIRONMENTAL-RELATED CLAIMS
The Company receives claims under expired contracts which assert alleged
injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances. The liabilities for such claims
cannot be estimated by traditional reserving techniques. As a result of
judicial decisions and legislative actions, the coverage afforded under
these contracts may be expanded beyond their original terms. Extensive
litigation between insurers and insureds over these issues continues and
the outcome is not predictable, nor is there any clear emerging trend.
In establishing the unpaid claim reserves for these losses, management
considered the available information. However, given the expansion of
coverage and liability by the courts and legislatures in the past, and
potential for other unfavorable trends in the future, the ultimate cost
of these claims could increase from the levels currently established.
B. LAWSUITS
Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or
indeterminate amounts are sought.
In 1993, Prudential Securities Incorporated (PSI), a subsidiary of The
Prudential, entered into an agreement with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
state securities commissions whereby PSI agreed to pay $330 million into
a settlement fund to pay eligible claims on certain limited partnership
matters. Under this agreement, if partnership matter claims exceed the
established settlement fund, PSI is obligated to pay such additional
claims.
In October 1994, the United States Attorney for the Southern District of
New York (the "U.S. Attorney") filed a complaint against PSI in
connection with its sale of certain limited partnerships.
Simultaneously, PSI entered into an agreement to comply with certain
conditions for a period of three years, and to pay an additional $330
million into the settlement fund. At the end of the three-year period,
assuming PSI has fully complied with the terms of the agreement, the
U.S. Attorney will institute no further action.
In the opinion of management, PSI is in compliance with all provisions
of the aforementioned agreements and, after consideration of applicable
accruals, the ultimate liability of such litigation, including
partnership settlement matters, will not have a material adverse effect
on the Company's financial position.
12. SUBSEQUENT EVENTS
Several purported class actions and individual actions have been
brought against the Company on behalf of those persons who purchased life
insurance policies allegedly because of deceptive sales practices engaged
in by the Company and its insurance agents in violation of state and
federal laws. The sales practices alleged to have occurred are contrary to
Company policy. Some of these cases seek very substantial damages while
others seek unspecified compensatory, punitive and treble damages. The
majority of these cases were filed after March 1, 1995. The Company intends
to defend these cases vigorously.
In response to this litigaton, several state insurance departments have
initiated investigations or market conduct examinations relating to
Prudential's sales practices. The Attorney General of two states have also
made inquires.
Litigation is subject to many uncertainties, and given the complexity
and scope of these suits, their outcome cannot be predicted. It is also not
possible to predict the likely results of any regulatory inquires or their
effect on this litigation or other litigation which might be initiated in
response to widespread media coverage of these matters.
Accordingly, management is unable to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome of
all pending litigation. It is possible that the results of operations or
cash flows of the Company in particular quarterly or annual periods could
be materially affected by an ultimate unfavorable outcome of certain
pending litigation matters.
Management believes, however, that the ultimate outcome of all pending
litigation should not have a material adverse effect on the Company's
financial position.
F-16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of The Prudential Insurance Company of America
Newark, New Jersey
We have audited the accompanying consolidated statements of financial
position of The Prudential Insurance Company of America and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
operations and changes in surplus and asset valuation reserve and of cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company'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.
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 consolidated financial statements present fairly, in all
material respects, the financial position of The Prudential Insurance Company
of America and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1995, except for Note 12,
as to which the date is April 25, 1995
F-17
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 59 pages.
The signatures for:
(1) Prudential's Annuity Plan Account-2 and The Prudential Insurance
Company of America and Subsidiaries; and
(2) Prudential's Gibraltar Fund.
Consent of Deloitte & Touche LLP, independent auditors, regarding reports on:
(1) Prudential's Annuity Plan Account-2 and The Prudential Insurance
Company of America and Subsidiaries; and
(2) Prudential's Gibraltar Fund.
Responses of Prudential's Gibraltar Fund to Items of Part C of Form N-1A:
Item 24. Financial Statements and Exhibits;
Item 25. Persons Controlled by or under Common Control with
Prudential's Gibraltar Fund;
Item 26. Number of Holders of Securities;
Item 27. Indemnification;
Item 28. Business and other Connections of Investment Advisor;
Item 29. Principal Underwriter;
Item 30. Location of Accounts and Records;
Item 31. Management Services; and
Item 32. Undertakings.
The Exhibits listed on the following pages pertaining to:
(1) Variable Annuity Contracts; and
(2) Prudential's Gibraltar Fund.
Item 24(a) List of Financial Statements of Prudential's Annuity
Plan Account-2 and The Prudential Insurance Company of
America and Subsidiaries Filed as Part of this Registration
Statement.
Prudential's Annuity Plan Account-2 -- Statements Filed as Part of Part A:
Statement of Net Assets as of December 31, 1994;
Statement of Operations -- Year Ended December 31, 1994; and
Statements of Changes in Net Assets -- Years Ended
December 31, 1994 and 1993.
Consolidated Financial Statements of The Prudential Insurance Company of America
and Subsidiaries -- Statements Filed as Part of Part A:
Consolidated Statements of Financial Position as of December 31,
1994 and 1993;
Consolidated Statements of Operations and Changes in Surplus and
Asset Valuation Reserve (AVR)/Mandatory Securities Valuation
Reserve (MSVR) -- Years Ended December 31, 1994, 1993 and 1992; and
Consolidated Statements of Cash Flows -- Years Ended December 31, 1994,
1993 and 1992.
List of Financial Statements of Prudential's Gibraltar Fund Filed as Part of
this Registration Statement -- Statements Filed as Part of Part A:
Statement of Assets and Liabilities including Schedule of Investments as
of December 31, 1994;
Statement of Operations -- Year Ended December 31, 1994;
Statements of Changes in Net Assets -- Years Ended December 31, 1994
and 1993; and
Financial Highlights -- Ten Years Ended December 31, 1994.
C-1
<PAGE>
EXHIBITS
VARIABLE ANNUITY CONTRACTS
<TABLE>
<S> <C> <C>
1. Copies of exhibits required by Incorporated by Incorporated by reference
Paragraph A of instructions as reference to the to the following:
to exhibits in Form N-8B-2 following Exhibits
(other Paragraph A exhibits to Form N-8B-2,
are not applicable): file No. 811-1849.
(1) The resolutions of the A(1)
Board of Directors of
The Prudential, adopted
on August 13, 1968,
establishing Prudential's
Annuity Plan Account-2.
(3)(a) Distribution Agreement Exhibit A(3)(a) to Post-
between Prudential's Effective Amendment No. 30 to
Investment Plan Account, Form S-6, Registration No.
Prudential's Annuity Plan 2-52715.
Account, Prudential's
Annuity Plan Account-2 and
Pruco Securities Corporation.
(3)(c) Schedule of Sales Commissions Exhibit A(3)(c) to Post-
referred to in Item 38(c). Effective Amendment No. 12,
Registration No. 2-32684.
(5) Copy of the Variable Annuity Exhibit A(5) to Post-Effective
Contract between The Amendment No. 12, Registration
Prudential and the Contract- No. 2-32684.
holder.
(5)(i) Copy of Texas Variable Exhibit A(5)(i) to Post-
Annuity Endorsement to Effective Amendment No. 1,
the Variable Annuity Registration No. 2-32684.
Contract.
(5)(ii) Copy of Rights Endorsement Exhibit A(5)(ii) to Post-
FSPQ 1060 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for trustee-owned
Contracts under allocated
corporate pension and
profit-sharing plans.
(5)(iii) Copy of Rights Endorsement Exhibit A(5)(iii) to Post-
FSPQ 1061 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under corporate
pension and profit sharing
plans.
(5)(iv) Copy of Rights Endorsement Exhibit A(5)(iv) to Post-
FSPQ 1062 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under H.R. 10
pension plans.
</TABLE>
C-2
<PAGE>
<TABLE>
Listing of Variable Annuity Exhibits -- Page 2
<S> <C> <C>
(5)(v) Copy of Rights Endorsement Exhibit A(5)(v) to Post-
FSPQ 1063 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for trustee-owned
contracts under H.R. 10
pension plans.
(5)(vi) Copy of Rights Endorsement Exhibit A(5)(vi) to Post-
FSPQ 1064 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under custodian
H.R. 10 pension plans.
(5)(vii) Copy of Rights Endorsement Exhibit A(5)(vii) to Post-
FSPQ 1065 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under 403(b)
annuity purchase plans.
(5)(viii) Copy of Rights Endorsement Exhibit A(5)(viii) to Post-
FSPQ 1066 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employer-owned
contracts under 403(b)
annuity purchase plans, and
for trustee-owned contracts
under allocated corporate
pension and profit-sharing
plans involving a Prudential-
sponsored master plan.
(5)(ix) Copy of Rights Endorsement Exhibit A(5)(ix) to Post-
FSPQ 1067 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under corporate
pension and profit-sharing
plans involving a Prudential-
sponsored master plan.
(5)(x) Copy of Rights Endorsement Exhibit A(5)(x) to Post-
FSPQ 1068 to the Variable Effective Amendment No. 1,
Annuity Contract, currently Registration No. 2-32684.
used for employee-owned
contracts under H.R. 10
pension plans involving a
Prudential sponsored
prototype plan.
(5)(xi) Copy of Iowa Endorsement Exhibit A(5)(xii) to Post-
FSPQ 520 to the Variable Effective Amendment No. 3,
Annuity Contract. Registration No. 2-32684.
</TABLE>
C-3
<PAGE>
<TABLE>
Listing of Variable Annuity Exhibits -- Page 3
<S> <C> <C>
(5)(xii) Copy of Rights Endorsement Exhibit A(5)(xiv) to Post-
FSPQ 1070 to the Variable Effective Amendment No. 4,
Annuity Contract, currently Registration No. 2-32684.
used for employer-owned
contracts under 403(b)
annuity purchase plans
(University of Texas only).
(5)(xiii) Copy of Maryland Endorsement Exhibit A(5)(xiii) to Post-
FSPQ 526 to the Variable Effective Amendment No. 6,
Annuity Contract. Registration No. 2-32684.
(5)(xiv) Copy of New York Endorsement Exhibit A(5)(xiv) to Post-
FSPQ 528 to the Variable Effective Amendment No. 6,
Annuity Contract. Registration No. 2-32684.
(5)(xv) Copy of New Hampshire Exhibit A(5)(xv) to Amendment
Endorsement FSPQ 530 to the No. 1, Registration No.
Variable Annuity Contract. 2-52589.
(5)(xvi) Copy of Rights Endorsement Exhibit A(5)(xvi) to Amendment
FSPQ 1071 to the Variable No. 1, Registration No.
Annuity Contract, currently 2-52589.
used for Individual
Retirement Accounts.
(5)(xvii) Copy of Rights Endorsement Exhibit A(5)(xvii) to Post-
FSP 555, for inclusion in Effective Amendment No. 8,
Variable Annuity Contracts Registration No. 2-52584.
sold under the Texas
Optional Retirement Program.
(6)(i) Copy of the Charter of The Exhibit 1.A.(6)(a) to Post-
Prudential, as amended Effective Amendment No. 2 to
February 26, 1988. Form S-6, Registration No.
33-20000.
(6)(ii) Copy of the By-laws of The Exhibit (8)(ii) to Post- Effective
Prudential, as amended Amendment No. 26 to Form
January 10, 1995. N-3, Registration No. 2-76580,
filed April __, 1995 on behalf of
the Prudential Variable Contract
Account-10.
(9) Copy of the Transfer Exhibit A(9) to Post-Effective
Account Agreement between Amendment No. 12, Registration
The Prudential and the No. 2-32684.
Accountholder.
(10)(i) Form of Request for a A(10)(i)
Transfer Account.
(10)(ii) Form of Request for A(10)(ii)
Enrollment.
(10)(iii) Form of Transfer Deposit A(10)(iii)
Schedule.
</TABLE>
C-4
<PAGE>
<TABLE>
Listing of Variable Annuity Exhibits -- Page 4
<S> <C> <C>
(10)(iv) Form of Request for A(10)(iv)
Annuity.
2. For specimen of securities, see Exhibits A(5) and A(5)(i)
through A(5)(xvii).
6. Powers of Attorney: Incorporated by reference to Post-
Effective Amendment No. 15 to
Form S-6, Registration No. 33-
20000, filed April __, 1995 on
behalf of the Prudential Variable
Appreciable Account.
27.1 Financial Data Schedule Filed Herewith
</TABLE>
C-5
<PAGE>
<TABLE>
Item 24(b) EXHIBITS
PRUDENTIAL'S GIBRALTAR FUND
Incorporated by
Reference to Exhibits Incorporated by
Exhibits Required by to Form N-8B-1 Reference to the following
Item of Form N-1A File No. 811-1660 (except as otherwise noted):
<S> <C> <C>
(i) Certificate of Incorporation. 1(a)
Amendment to Certificate 1(b)
of Incorporation dated April 11, 1968.
Amendment to Certificate Exhibit 1(c) to Post-
of Incorporation dated May 27, 1975. Effective Amendment No. 19
to Form S-6, Registration
No. 2-52715.
Amendment to Certificate Exhibit 24(b)(i) to Post-Effective
of Incorporation dated April 23, 1991. Amendment No. 32 to Form S-6,
Registration No. 2-52715.
(ii) By-laws. Exhibit 2(b) to Post-
Effective Amendment No. 19
to Form S-6, Registration
No. 2-52715.
(iii) None.
(iv) Stock Certificate. Exhibit 4(a) to Post-
Effective Amendment No. 17
to Form S-6, Registration
No. 2-52715.
(v) Investment Advisory Contract 5
between Registrant and The
Prudential.
Amendment No. 1 to Investment Exhibit 5(b) to Post-
Advisory Contract between Effective Amendment No. 9
Registrant and The Prudential. to Form S-5, Registration
No. 2-32685.
Amendment No. 2 to Investment Exhibit 24(b)(v) to Post-Effective
Advisory Contract between Amendment No. 32 to Form S-6,
Registrant and The Prudential. Registration No. 2-52715.
Service Agreement between The Exhibit 24(b)(v)(3) to
Prudential and The Prudential Post-Effective Amendment
Investment Corporation. No. 23 to Form S-6,
Registration No. 2-52715.
(vi) Distribution Agreement between Exhibit 24(b)(vi) to Post-
Prudential's Gibraltar Fund and Effective Amendment No. 30
Pruco Securities Corporation. to Form S-6, Registration
No. 2-52715.
(vii) None.
</TABLE>
C-6
<PAGE>
<TABLE>
Prudential's Gibraltar Fund Exhibits -- Page 2
<S> <C> <C>
(viii) Custody Agreement between Exhibit 8(a) to Post-
Registrant and Chemical Bank Effective Amendment No. 17
to Form S-6, Registration
No. 2-52715.
(ix) Administrative Services 9(a)
Agreement between Registrant
and The Prudential.
Contract of Custodianship Exhibit A(2) to Post-
with respect to Prudential's Effective Amendment No. 17
Investment Plan Account to Form S-6, Registration
(endorsed by Registrant). No. 2-52715.
(x)-(xiv) None.
(xv) None.
(xvi) Powers of Attorney:
(a) S. Fenster, R. Hill, W. McDonald, J. Weber. Effective Amendment No. 32 to
Exhibit 24(b)(xvi) to Post-
Effective Amendment No. 32 to
. Form S-6, Registration No. 2-
52715
(b) E. Michael Caulfield, Stephen P. Tooley. Exhibit (xvi)(b) to Post-Effective
Amendment No. 23 to Form
S-6, Registration No. 2-59232.
27.2 Financial Data Schedule Filed Herewith
</TABLE>
C-7
<PAGE>
SIGNATURES
PRUDENTIAL'S ANNUITY PLAN ACCOUNT - 2
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Post-Effective Amendment to the Registration Statement which included a
prospectus, and has caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, and its seal hereunto
affixed and attested, all in the City of Newark and the State of New Jersey, on
this 27th day of April, 1995.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Attest: /s/Thomas C. Castano By: /s/Esther H. Milnes
--------------------- -----------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 34 to the Registration Statement has been signed below by the
following directors and officers of The Prudential Insurance Company of America
in their capacities and on the date appearing below.
Signature and Title Date
/s/* ) April 27, 1995
- -------------------------------------------- )
Arthur C. Ryan )
Chairman of the Board, President and Chief )
Executive Officer )
)
)
/s/* )
- -------------------------------------------- )
Garnett L. Keith, Jr. )
Vice Chairman and Director )
)
)
/s/* )
Eugene M. O'Hara ) *By: /s/ Thomas C. Castano
- -------------------------------------------- ) ---------------------
Senior Vice President, Comptroller and ) Thomas C. Castano
Chief Financial Officer ) (Attorney-in-Fact)
)
)
/s/* )
- -------------------------------------------- )
Franklin E. Agnew )
Director )
)
/s/* )
- -------------------------------------------- )
Frederic K. Becker )
Director )
)
/s/* )
- -------------------------------------------- )
William W. Boeschenstein )
Director )
C-8
<PAGE>
Signature and Title Date
April 27, 1995
/s/* )
- -------------------------------------------- )
Lisle C. Carter, Jr. )
Director )
)
)
/s/* )
- -------------------------------------------- )
James G. Cullen )
Director )
)
)
/s*/ )
- -------------------------------------------- )
Carolyne K. Davis )
Director )
)
)
/s*/ )
- -------------------------------------------- )
Roger A. Enrico )
Director )
)
)
/s/* )
- -------------------------------------------- )
Allan D. Gilmour )
Director )
)
)
/s/* )
- -------------------------------------------- )
William H. Gray, III )
Director )
)
)
/s/* )
- -------------------------------------------- )
Jon F. Hanson )
Director )
) *By: /s/Thomas C. Castano
) Thomas C. Castano
) ---------------------
/s/* ) (Attorney in Fact)
- -------------------------------------------- )
Constance J. Horner )
Director )
)
)
/s*/ )
- -------------------------------------------- )
Allen F. Jacobson )
Director )
)
)
/s/* )
- -------------------------------------------- )
Burton G. Malkiel )
Director )
)
)
/s/* )
- -------------------------------------------- )
John R. Opel )
Director )
)
)
/s/* )
- -------------------------------------------- )
Charles R. Sitter )
Director )
C-9
<PAGE>
Signature and Title Date
April 27, 1995
/s/* )
- -------------------------------------------- )
Donald L. Staheli )
Director )
)
)
/s/* )
- -------------------------------------------- )
P. Roy Vagelos, M.S. )
Director )
)
)
/s/* )
Stanley C. Van Ness ) *By /s/ Thomas C. Castano
- -------------------------------------------- ) ---------------------
Director ) Thomas C. Castano
) (Attorney in Fact)
)
/s/* )
- -------------------------------------------- )
Paul A. Volcker )
Director )
)
)
/s/* )
- -------------------------------------------- )
Joseph H. Williams )
Director )
C-10
<PAGE>
SIGNATURES
PRUDENTIAL'S GIBRALTAR FUND
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Post-Effective Amendment to the Registration Statement which included a
prospectus, and has caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, and its seal hereunto
affixed and attested, all in the City of Newark and the State of New Jersey, on
this 27th day of April, 1995.
PRUDENTIAL'S GIBRALTAR FUND
By: /s/Robert P. Hill
-----------------
Robert P. Hill
Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 34 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature and Title Date
/s/* ) April 27, 1995
- ------------------------------- )
Robert P. Hill )
Chairman of the Board of Directors, )
Principal Executive Officer and )
Principal Financial Officer )
)
)
/s/* )
- ------------------------------- )
E. Michael Caulfield )
President and Director )
)
)
/s/* )
- ------------------------------- )
Stephen P. Tooley ) *By: /s/
Comptroller ) --------------------
) Thomas C. Castano
) (Attorney-in-Fact)
)
/s/* )
- ------------------------------- )
Saul K. Fenster )
Director )
)
)
/s/* )
- ------------------------------- )
W. Scott McDonald, Jr. )
Director )
)
)
/s/* )
- ------------------------------- )
Joseph Weber )
Director )
C-11
<PAGE>
Exhibit 19
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 34 to Registration
Statement No. 2-52589 on Form S-6 of Prudential's Annuity Plan Account-2 of The
Prudential Life Insurance Company of America (1) of our report dated February
10, 1995, relating to the financial statements of Prudential's Annuity Plan
Account-2, (2) of our report dated February 10, 1995, relating to the financial
statements of Prudential's Gibraltar Fund, and (3) of our report dated March 1,
1995, except for Note 12, as to which the date is April 25, 1995, relating to
the consolidated financial statements of The Prudential Life Insurance Company
of America and subsidiaries appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the headings "Financial
Highlights" and "Experts" in such Prospectus.
/S/ Deloitte and Touche LLP
Parsippany, New Jersey
April 27, 1995
C-12
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
The Prudential is a mutual life insurance company incorporated
under the laws of the State of New Jersey. The subsidiaries of The
Prudential are set forth on the Organization Chart on the following
pages.
All of the shares of Prudential's Gibraltar Fund are held by three
separate accounts of The Prudential Insurance Company of America:
Prudential's Investment Plan Account, Prudential's Annuity Plan
Account and Prudential's Annuity Plan Account-2. The Prudential
also holds directly and in four of its other separate accounts
shares of The Prudential Series Fund, Inc., a Maryland corporation.
The balance of the shares of The Prudential Series Fund, Inc. are
held in separate accounts of Pruco Life Insurance Company, a direct
wholly-owned subsidiary of The Prudential, and Pruco Life Insurance
Company of New Jersey, an indirect wholly-owned subsidiary of The
Prudential. All of the separate accounts referred to above are unit
investment trusts registered under the Investment Company Act of
1940. Prudential's Gibraltar Fund and The Prudential Series Fund,
Inc. are registered as open-end, diversified management investment
companies under the Investment Company Act of 1940. The shares of
the investment companies are voted in accordance with the
instructions of persons having an interest in the unit investment
trusts, and The Prudential, Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey will vote the shares they hold
directly in the same manner that they vote the shares that they
hold in their separate accounts.
Registrant may also be deemed to be under common control with The
Prudential Variable Contract Account-2, The Prudential Variable
Contract Account-10 and The Prudential Variable Contract
Account-11, separate accounts of The Prudential registered as
open-end, diversified management investment companies under the
Investment Company Act of 1940.
The Prudential is a mutual insurance company. Its financial
statements are prepared in accordance with statutory requirements.
The financial statements of The Prudential and its subsidiaries are
presented on a consolidated basis.
The subsidiaries of The Prudential and short descriptions of each
are listed under Item 25 in Post- Effective Amendment No. 28 to the
Registration Statement of The Prudential Series Fund, Inc.,
Registration No. 2-80896, the text of which is hereby incorporated
by reference.
C-13
<PAGE>
Item 26. Number of Holders of Securities
The registrant was organized to serve as the investment medium for
separate accounts of The Prudential which issue certain variable
annuity contracts to the public. The public offering commenced on
January 2, 1970. As of December 31, 1994, there were 25,803,061
shares of Common Stock outstanding, distributed as follows:
<TABLE>
<CAPTION>
Title of Class Holder Shares
<S> <C> <C>
Common Stock Prudential's Investment Plan Account 20,347,560
Prudential's Annuity Plan Account 260,097
Prudential's Annuity Plan Account-2 5,195,404
----------
25,803,061
</TABLE>
Item 27. Indemnification of Directors and Officers
The Prudential Directors' and Officers' Liability and Corporation
Reimbursement Program, purchased by The Prudential from Aetna
Casualty & Surety Company, CNA Insurance Company, Lloyds of London,
Great American Insurance Company, Reliance Insurance Company,
Corporate Officers & Directors Assurance Ltd., A.C.E. Insurance
Company, Ltd., XL Insurance Company, Ltd., and Zurich- American
Insurance Company, provides coverage for "Loss" (as defined in the
policies) arising from any claim or claims by reason of any actual
or alleged act, error, misstatement, misleading statement,
omission, or breach of duty by persons in the discharge of their
duties solely in their capacities as directors or officers of The
Prudential, any of its subsidiaries, or certain investment
companies affiliated with The Prudential. Coverage is also provided
to the individual directors or officers for such Loss, for which
they shall not be indemnified. Loss essentially is the legal
liability on claims against a director or officer, including
adjudicated damages, settlements and reasonable and necessary legal
fees and expenses incurred in defense of adjudicatory proceedings
and appeals therefrom. Loss does not include punitive or exemplary
damages or the multiplied portion of any multiplied damage award,
criminal or civil fines or penalties imposed by law, taxes or
wages, or matters which are insurable under the law pursuant to
which the policies are construed.
There are a number of exclusions from coverage. Among the matters
excluded are Losses arising as the result of (1) claims brought
about or contributed to by the criminal or deliberate fraudulent
acts of a director or officer, and (2) claims arising from actual
or alleged performance of, or failure to perform, services as, or
in any capacity similar to, an investment adviser, investment
banker, underwriter, broker or dealer, as those terms are defined
in the Securities Act of 1933, the Securities Exchange Act of 1934,
the Investment Advisers Act of 1940, the Investment Company Act of
1940, any rules or regulations thereunder, or any similar federal,
state or local statute, rule or regulation.
The limit of coverage under the Program for both individual and
corporate reimbursement coverage is $150,000,000. The retention for
corporate reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The
Prudential, can be found in Section A:3-5 of the New Jersey
Statutes Annotated. The text of The Prudential's by-law 27, which
relates to indemnification of officers and directors, is
incorporated by reference to Exhibit (6)(ii) to this Registration
Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person
C-14
<PAGE>
Item 27. Continued
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
The business and other connections of The Prudential's Officers are
listed in Schedules A and D of Form ADV as currently on file with
the Commission, the text of which is hereby incorporated by
reference.
The business and other connections of The Prudential's Directors
are listed in the statement of additional information in
Post-Effective Amendment No. 26 to Form N-3 to the Registration
Statement of The Prudential Variable Contract Account-10,
Registration No. 2-76580, filed April __, 1995, the text of which
is hereby incorporated by reference.
Item 29. Principal Underwriters
(a) Pruco Securities Corporation also acts as principal
underwriter of The Prudential Series Fund, Inc.
(b) Incorporated by Reference to Item 29(b) of Post-Effective
Amendment No. 10 to Form N-4, Registration No. 34-25434,
filed April , 1995 on behalf of The Prudential Individual
Variable Contract Account.
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the Registrant, Prudential
Plaza, Newark, New Jersey 07102-3777; the Registrant's Investment
Advisor, The Prudential Insurance Company of America, Prudential
Plaza, Newark, New Jersey 07102-3777; or the Registrant's
Custodian, Chemical Bank, New York Plaza, New York, NY 10004.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Restrictions on withdrawal under Section 403(b) Contracts are
imposed in reliance upon, and in compliance with, a no-action
letter issued by the Chief of the Office of Insurance Products and
Legal Compliance of the Securities and Exchange Commission to the
American Council of Life Insurance on November 28, 1988.
C-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
19 Consent of Deloitte & Touche LLP, independent auditors. Page C-12
27 Financial Data Schedule Page C-17
</TABLE>
C-16
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 47,481
<INVESTMENTS-AT-VALUE> 48,828
<RECEIVABLES> 0
<ASSETS-OTHER> (4)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,824
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,195
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 48,824
<DIVIDEND-INCOME> 1,033
<INTEREST-INCOME> 0
<OTHER-INCOME> 6,939
<EXPENSES-NET> 347
<NET-INVESTMENT-INCOME> 686
<REALIZED-GAINS-CURRENT> (193)
<APPREC-INCREASE-CURRENT> (8,399)
<NET-CHANGE-FROM-OPS> (968)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,380)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
