Registration No. 2-52589
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
Post-Effective Amendment No. 35 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
----------------------
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
----------------------
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
----------------------
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, 1996 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
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<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
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<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
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<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, 1996
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 5-96 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
THE RISKS WHICH THE PRUDENTIAL ASSUMES............................. 15
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.................................. 17
INVESTMENT POLICIES................................................ 17
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
BROKERAGE.......................................................... 21
DETERMINATION OF NET ASSET VALUE................................... 23
REDEMPTION OF FUND SHARES.......................................... 23
DESCRIPTION OF FUND SHARES AND VOTING RIGHTS....................... 23
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT................ 24
SUPPLEMENTARY INFORMATION................................................... 24
STATE REGULATION................................................... 24
FEDERAL INCOME TAXES............................................... 24
WITHHOLDING........................................................ 25
ADDITIONAL INFORMATION............................................. 26
EXPERTS .......................................................... 26
LITIGATION......................................................... 26
DIRECTORS AND OFFICERS OF THE FUND.......................................... 27
DIRECTORS AND OFFICERS OF THE PRUDENTIAL.................................... 28
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.
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.
2
<PAGE>
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 10.
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.
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.
3
<PAGE>
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............................................. 0.12%
Other Expenses......................................................... 0.02%
-----
Total Prudential's Gibraltar Fund Annual Expenses...................... 0.14%
=====
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 $128 $179
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 $127 $178
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>
01/01/95 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 TO
12/31/95 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> <C>
Net Asset Value at
beginning of year...... $ 9.398 $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290 $ 9.190
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net investment income.... 0.177 0.214 0.180 0.184 0.220 0.340 0.360 0.310
Net realized and
unrealized gains
(losses) on
investments............ 1.649 (0.405) 2.426 1.771 2.900 (0.640) 1.920 2.000
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations........... 1.826 (0.191) 2.606 1.955 3.120 (0.300) 2.280 2.310
Distributions to
Shareholders:
Distributions from net
investment income...... (0.171) (0.216) (0.188) (0.193) (0.260) (0.370) (0.370) (0.370)
Distributions from
realized gains......... (0.916) (1.482) (2.264) (2.019) (0.870) (0.520) (1.610) (0.840)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
distributions........ (1.087) (1.698) (2.452) (2.212) (1.130) (0.890) (1.980) (1.210)
Net increase (decrease)
in Net Asset Value..... 0.739 (1.889) 0.154 (0.257) 1.990 (1.190) 0.300 1.100
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value at end of
year................... $ 10.137 $ 9.398 $ 11.287 $ 11.133 $ 11.390 $ 9.400 $ 10.590 $ 10.290
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Investment Rate of
Return:**.............. 19.13% (1.33%) 23.79 % 17.60 % 34.40 % (2.80 %) 22.30 % 25.60%
Ratios/Supplemental Data:
Net assets at end of year
(in millions).......... $261.2 $242.5 $264.3 $230.1 $214.2 $174.4 $197.0 $183.3
Ratio of expenses net of
reimbursement to
average net assets..... 0.14 % 0.15 % 0.16 % 0.19 % 0.19 % 0.21 % 0.16 % 0.16%
Ratio of net investment
income to average net
assets................. 1.68 % 1.98 % 1.45 % 1.58 % 1.98 % 3.38 % 3.19% 2.95%
Portfolio turnover
rate................... 104.82 % 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 25.8 23.4 20.7 18.8 18.6 18.6 17.8
<CAPTION>
01/01/87 01/01/86
TO TO
12/31/87 12/31/86
----------- -----------
<S> <C> <C>
Net Asset Value at
beginning of year...... $ 12.440 $ 14.660
----------- -----------
Income From Investment
Operations:
Net investment income.... 0.400 0.360
Net realized and
unrealized gains
(losses) on
investments............ 0.230 1.650
----------- -----------
Total from investment
operations........... 0.630 2.010
Distributions to
Shareholders:
Distributions from net
investment income...... (0.650) (0.450)
Distributions from
realized gains......... (3.230) (3.780)
----------- -----------
Total
distributions........ (3.880) (4.230)
Net increase (decrease)
in Net Asset Value..... (3.250) (2.220)
----------- -----------
Net Asset Value at end of
year................... $ 9.190 $ 12.440
----------- -----------
----------- -----------
Total Investment Rate of
Return:**.............. 2.53 % 15.73 %
Ratios/Supplemental Data:
Net assets at end of year
(in millions).......... $170.0 $186.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.15 % 0.16 %
Ratio of net investment
income to average net
assets................. 3.11 % 2.76 %
Portfolio turnover
rate................... 31.53 % 67.56 %
Number of shares
outstanding at end of
period (in millions)... 18.5 15.0
</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
applicable.
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 17. The Fund's Directors
and Officers are listed beginning on page 27.
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.
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
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
7
<PAGE>
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 1995 and 1994, The Prudential received $405 and $235, 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 1996 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.
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.
8
<PAGE>
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 $325,596 for these services in 1995 and
$318,934 in 1994. In addition, the Fund has expenses which may be considered to
be an indirect charge against assets; in 1995 these expenses amounted to
slightly less than 1/53 of 1% of average net assets of the Fund. In 1994 these
expenses were slightly less than 1/38 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, 1995 and 1994, the Fund's total
expenses were 0.14% and 0.15%, 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 the 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.
9
<PAGE>
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:
TOTAL PURCHASE PAYMENTS
RECEIVED DURING THE PERCENT OF ADJUSTED GROSS PERCENT OF NET AMOUNT
CONTRACT YEAR PURCHASE PAYMENT INVESTED*
------------------------ ------------------------ ---------------------
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).
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 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
10
<PAGE>
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 1995, The Prudential received $4,404 in sales charges and $933 in
transaction charges for purchases under these Contracts. The equivalent figures
for 1994 were $5,831 and $1,103.
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 1995 and 1994, The
Prudential received $183 and $130, 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 15.
During 1995 and 1994, The Prudential received $326,670 and $336,135,
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
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.
11
<PAGE>
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, 1995.
LAST BUSINESS LAST BUSINESS
DAY OF: DAY OF:
1986 $37.82 1991 $75.13
1987 38.56 1992 87.71
1988 48.11 1993 107.85
1989 58.36 1994 105.47
1990 56.33 1995 124.80
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 11. No
provision is currently made for federal income taxes in determining the change
factor. See FEDERAL INCOME TAXES, page 24.
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
24.
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.
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
12
<PAGE>
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 1986. Results are shown for the ten years ending December, 1995.
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
1986. Results are shown for the ten years ending December, 1995.
<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>
1986 $300 $ 300 $25.56 $6 $268.44 $268.44 $275.08
1987 300 600 25.56 6 268.44 536.88 509.30
1988 300 900 25.56 6 268.44 805.32 921.68
1989 300 1,200 25.56 6 268.44 1,073.76 1,405.94
1990 300 1,500 25.56 6 268.44 1,342.20 1,626.26
1991 300 1,800 25.56 6 268.44 1,610.64 2,475.70
1992 300 2,100 25.56 6 268.44 1,879.08 3,192.81
1993 300 2,400 25.56 6 268.44 2,147.52 4,217.52
1994 300 2,700 25.56 6 268.44 2,415.96 4,388.25
1995 300 3,000 25.56 6 268.44 2,684.40 5,476.89
</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.
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.
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<PAGE>
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 installments, 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 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.
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<PAGE>
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 1931 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 1996. They will be temporarily
credited with an additional number of monthly annuity shares on which annuity
payments in 1996 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 for 1996 did not change from 1995, remaining
at $7.24 and $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 24.
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, 1995.
LAST BUSINESS LAST BUSINESS
DAY OF: 3.5%* 5% DAY OF: 3.5%* 5%
----- ----- ----- ----
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
1990 2.89 2.13 1995 5.48 3.75
*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.
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
15
<PAGE>
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 installments if the
Planholder dies after the first but before the 120th monthly installment 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 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
16
<PAGE>
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.
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
17
<PAGE>
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 21. 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;
(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
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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, 1995, 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 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
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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.
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 March 1, 1996.
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 March 1, 1996.
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
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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 Mutual Fund Investment Management (PMFIM), a division of PIC,
supplies the services with respect to equity securities. PMFIM analyzes
industries and companies within these industries in order to recommend purchases
and sales of equity securities. The personnel of PMFIM, formerly Prudential
Investment Advisors, 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 $261 million at the end
of 1995. 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 $29.9 billion at the
end of 1995.
Gregory P. Goldberg, Managing Director, PFMIM, has been the portfolio manager
for the Gibraltar Fund since 1995. Mr. Goldberg also selects stocks for the
Prudential Multi-Sector Fund and is portfolio manager of the Prudential
Allocation Fund-Balanced Portfolio.
PMFIM'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.
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 1995 and 1994 the
portfolio turnover rates were 105% and 92% respectively.
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
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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 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 1995, $756,838 was paid to various brokers in
connection with securities transactions for the Fund. Of this amount,
approximately 77.52% was allocated to brokers who provided research and
statistical services to The Prudential. The equivalent figures for 1994 were
$774,338 and 74.6%.
During 1995 and 1994, no money was paid to Prudential Securities Incorporated,
an affiliated broker.
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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.
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, 1995, Prudential's Annuity Plan Account-2, the account discussed in this
prospectus, held approximately 19% 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
80% 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
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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.
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 23. 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
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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 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.
25
<PAGE>
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.
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.
26
<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 $7,200 in 1995 and $8,400 in 1994,
representing equal amounts paid to Messrs. Fenster, McDonald and Weber.
MENDEL A. MELZER*, Chairman of the Board--Chief Financial Officer of the Money
Management Group of The Prudential since 1995; 1993 to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services; 1991 to 1993: Managing Director, The Prudential Investment
Corporation.
E. MICHAEL CAULFIELD*, President and Director--Chief Executive Officer of the
Money Management Group of The Prudential since 1995; 1995: Chief Executive
Officer, Prudential Preferred Financial Services; 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--Principal, Scott McDonald & Associates since
1995; Prior to 1995: Executive Vice President of Fairleigh Dickinson University.
Address: 8 Zamrok Way, Morristown, New Jersey 07960.
JOSEPH WEBER, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.
I. EDWARD PRICE, Vice President. -- Senior Vice President and Actuary,
Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief Executive
Officer, Prudential International Insurance; 1993 to 1994: President, Prudential
International Insurance; Prior to 1993: Senior Vice President and Company
Actuary of The Prudential.
STEPHEN P. TOOLEY, Comptroller--Vice President and Comptroller of the Individual
Insurance Group of The Prudential since 1995; 1993 to 1995: Vice President and
Comptroller of Prudential Insurance and Financial Services; 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.
* 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. Melzer 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.
27
<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: One Seagate, Toledo, OH 43604.
LISLE C. CARTER, JR., Director.--Former Senior Vice President and General
Counsel, United Way of America. Address: 701 North Fairfax Avenue, Alexandria,
VA 22314.
JAMES G. CULLEN, Director.--Vice Chairman, Bell Atlantic Corporation since 1995;
1993 to 1995: President, Bell Atlantic Corporation; Prior to 1993: President,
New Jersey Bell. Address: 1310 North Court House Road, 11th floor, Alexandria,
VA 22201.
CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 5480
Cayuga Lake Road, Romulus, NY 14541.
ROGER A. ENRICO, Director.--Chairman and Chief Executive Officer, Pepsico
Worldwide Restaurants since 1994; 1993 to 1994: Vice Chairman, Pepsi Co. Inc.;
1991 to 1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods.
Address: 6303 Forest Park, Dallas, TX 75235.
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. Address: 8260 Willow Oaks Corporate Drive,
Fairfax, VA 22031.
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 1992 Assistant to the President and Director of Presidential
Personnel, U.S. Government. 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.--Professor, Princeton University. Address:
Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
JOHN R. OPEL, Director.--Prior to 1994, 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: Prudential Plaza, Newark, NJ 07102-3777.
CHARLES R. SITTER, Director.--Former President and 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.--Former Chairman, President and Chief Executive
Officer, Merck & Co., Inc. Address: One Crossroads Drive, Bedminster, NJ 07921.
28
<PAGE>
STANLEY C. VAN NESS, Director.--Attorney, Picco, Herbert, and Kennedy (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.--Director, 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
MARK B. GRIER, Chief Financial Officer.--Chief Financial Officer of The
Prudential since 1995; Prior to 1995: Executive Vice President and Head of
Global Markets, Chase Manhattan Corporation.
SUSAN L. BLOUNT, Vice President and Secretary.--Vice President and Secretary of
The Prudential since 1995; Prior to 1995: Assistant General Counsel for
Prudential Residential Services Company.
C. EDWARD CHAPLIN, Vice President and Treasurer.--Vice President and Treasurer
of The Prudential since 1995; 1993 to 1995: Managing Director and Assistant
Treasurer of The Prudential; 1992 to 1993: Vice President and Assistant
Treasurer, Banking and Cash Management for The Prudential; Prior to 1992:
Regional Vice President of Prudential Mortgage Capital Company.
29
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
<TABLE>
<S> <C>
STATEMENT OF NET ASSETS
December 31, 1995
Investment in 4,867,852 shares of
Prudential's Gibraltar Fund at
net
asset value of $10.1371 per share
(Cost: $44,217,610)............ $ 49,345,756
Accrued expenses................... (5,450)
-------------
NET ASSETS......................... $ 49,340,306
-------------
-------------
NET ASSETS, representing:
Equity of planholders [Notes 1 &
6]............................. $ 47,680,580
Equity of annuitants [Note 6].... 478,847
Equity of The Prudential
Insurance
Company of America............. 1,180,879
-------------
$ 49,340,306
-------------
-------------
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
INVESTMENT INCOME
Dividend distributions received... $ 768,509
EXPENSES
Charges to planholders and
annuitants
for assuming mortality and
expense
risks and for administration
[Note 2]........................ 337,316
------------
NET INVESTMENT INCOME............... 431,193
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received........................ 4,111,693
Realized loss on shares redeemed
[identified cost basis]......... (177,333)
Net unrealized gain on
investments..................... 4,141,643
------------
NET GAIN ON INVESTMENTS............. 8,076,003
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... $ 8,507,196
------------
------------
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
<CAPTION>
----------------------------------------
1995 1994
------------------ -----------------
OPERATIONS:
<S> <C> <C>
Net investment income......................... $ 431,193 $ 686,137
Capital gains distributions received.......... 4,111,693 6,938,526
Realized loss on shares redeemed.............. (177,333) (193,248)
Net unrealized gain (loss) on investments..... 4,141,643 (8,399,444)
------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................... 8,507,196 (968,029)
------------------ -----------------
ACCUMULATION AND ANNUITY TRANSACTIONS:
Purchase payments............................. 1,430,749 761,329
Accumulation Shares liquidated................ (9,866,473) (4,000,211)
Annuity benefit payments...................... (88,116) (80,619)
------------------ -----------------
NET DECREASE IN NET ASSETS RESULTING FROM
ACCUMULATION AND ANNUITY TRANSACTIONS......... (8,523,840) (3,319,501)
------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS.............. 533,030 (92,573)
------------------ -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 516,386 (4,380,103)
NET ASSETS:
Beginning of year............................. 48,823,920 53,204,023
------------------ -----------------
End of year................................... $ 49,340,306 $ 48,823,920
------------------ -----------------
------------------ -----------------
</TABLE>
SEE NOTES TO FINANCIAL STSTEMENTS ON A2 AND A3.
A1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
NOTE 1: EQUITY OF PLANHOLDERS
Equity of planholders at December 31, 1995 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 375,171 $ 124.8038 $ 46,822,731
Class of contracts introduced on September 16, 1977 8,160 $ 105.1260 857,849
-------------
$ 47,680,580
-------------
-------------
</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, 1995 and December 31, 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accumulation Shares purchased: 10,898 6,413
Accumulation Shares liquidated: 83,140 37,258
</TABLE>
A2
<PAGE>
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2 (CONTINUED)
NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase (decrease) in net assets resulting from surplus transfers
represents the net contributions of The Prudential to the Account.
NOTE 6: ACCUMULATION AND ANNUITY SHARE INFORMATION
A. Payments to annuitants are based on the value of an Annuity Share. The
investment results of the Account are reflected in changes in the value of
an Annuity Share to the extent that they are greater or less than the
assumed investment result in the annuitant's contract. The December 31
values are reflected in the annuity payments made for February of the next
year.
B. Columns (1) and (2) reflect share values applicable to the class of
contracts introduced prior to September 16, 1977 and the class of contracts
introduced on September 16, 1977, respectively.
<TABLE>
<CAPTION>
ANNUITY SHARE VALUE ANNUITY SHARE VALUE
AT DECEMBER 31 USING AT DECEMBER 31 USING
ACCUMULATION A A
SHARE VALUE 3 1/2% ASSUMED 5% ASSUMED
YEAR AT DECEMBER 31 INVESTMENT RESULT INVESTMENT RESULT
----- ------------------------ -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(1) (2) (1) (2) (1) (2)
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
1995 124.8038 105.1260 5.4810 5.5708 3.7536 4.2612
</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, 1995, 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, 1995. 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, 1995, 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 15, 1996
A4
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS
Investments, at value (cost:
$244,647,426)............................ $ 261,575,913
Cash....................................... 1,715
Dividends receivable....................... 329,105
Receivable for securities sold............. 1,508,421
--------------
Total Assets............................. 263,415,154
--------------
LIABILITIES
Accrued expenses........................... 30,130
Payable for securities purchased........... 2,078,261
Payable to investment adviser.............. 83,355
--------------
Total Liabilities........................ 2,191,746
--------------
NET ASSETS................................... $ 261,223,408
--------------
--------------
Net assets were comprised of:
Common stock, at $1 par value............ $ 25,769,128
Paid-in capital, in excess of par........ 210,664,792
--------------
236,433,920
Undistributed net investment income........ 59,851
Accumulated net realized gains............. 7,801,150
Net unrealized appreciation................ 16,928,487
--------------
Net assets, December 31, 1995.............. $ 261,223,408
--------------
--------------
Net asset value per share of 25,769,128
outstanding shares of common stock
(authorized 75,000,000 shares)........... $ 10.1371
--------------
--------------
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Dividends (net of $1,110 foreign
withholding tax)......................... $ 3,760,580
Interest................................... 995,154
---------------
4,755,734
---------------
EXPENSES
Investment management fee.................. 325,596
State franchise tax expense................ 39,033
Custodian expense -- net................... 4,987
Directors' expense......................... 4,985
---------------
374,601
---------------
NET INVESTMENT INCOME........................ 4,381,133
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 31,242,770
Net unrealized gain on investments......... 9,457,438
---------------
NET GAIN ON INVESTMENTS...................... 40,700,208
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 45,081,341
---------------
---------------
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1995 1994
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 4,381,133 $ 5,060,650
Net realized gain on investments....................................................... 31,242,770 16,126,282
Net unrealized gain(loss) on investments............................................... 9,457,438 (24,285,324)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ 45,081,341 (3,098,392)
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (4,026,639) (5,085,500)
Net realized gain from investment transactions......................................... (21,543,401) (34,178,638)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (25,570,040) (39,264,138)
------------------ -------------------
CAPITAL TRANSACTIONS:
Reinvestment of dividend distributions [2,396,099 and 4,008,764 shares,
respectively]......................................................................... 24,867,217 38,225,359
Capital stock repurchased [(2,430,032) and (1,619,845) shares, respectively]........... (25,659,420) (17,638,028)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (792,203) 20,587,331
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. 18,719,098 (21,775,199)
NET ASSETS:
Beginning of year...................................................................... 242,504,310 264,279,509
------------------ -------------------
End of year............................................................................ $ 261,223,408 $ 242,504,310
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B4 AND B5.
B1
<PAGE>
SCHEDULE OF INVESTMENTS
PRUDENTIAL'S GIBRALTAR FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 93.7% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 7.4%
Boeing Co....................................... 120,000 $ 9,405,000
+Coltec Industries, Inc......................... 225,000 2,615,625
Precision Castparts Corp........................ 175,700 6,984,075
--------------
19,004,700
--------------
AIRLINES -- 1.8%
Southwest Airlines Co........................... 200,000 4,650,000
--------------
AUTOS - CARS & TRUCKS -- 0.7%
Standard Products Co............................ 95,000 1,674,375
--------------
BANKS AND SAVINGS & LOANS -- 4.6%
Banc One Corp................................... 37,900 1,430,725
Citicorp........................................ 80,000 5,380,000
NationsBank Corp................................ 75,000 5,221,875
--------------
12,032,600
--------------
CHEMICALS -- 0.4%
A. Schulman, Inc................................ 44,875 998,469
--------------
CHEMICALS - SPECIALTY -- 0.1%
Witco Corp...................................... 11,900 348,075
--------------
COMMERCIAL SERVICES -- 1.6%
Measurex Corp................................... 75,900 2,144,175
+Primark Corp................................... 65,700 1,971,000
--------------
4,115,175
--------------
COMPUTER SERVICES -- 13.7%
+Bay Networks, Inc.............................. 160,000 6,560,000
+Cisco Systems, Inc............................. 69,500 5,186,437
+COMPAQ Computer Corp........................... 42,300 2,030,400
+Comverse Technology, Inc....................... 58,300 1,166,000
+EMC Corp....................................... 170,000 2,613,750
+Microsoft Corp................................. 45,000 3,948,750
+Pixar, Inc..................................... 14,700 422,625
+ROSS Technology, Inc........................... 43,200 421,200
+Silicon Graphics, Inc.......................... 212,200 5,835,500
+Softkey International, Inc..................... 124,000 2,836,500
+Western Digital Corp........................... 158,000 2,824,250
+Zilog, Inc..................................... 55,500 2,032,688
--------------
35,878,100
--------------
DIVERSIFIED GAS -- 1.0%
Mitchell Energy & Development Corp. (Class 'A'
Stock)........................................ 60,000 1,110,000
Mitchell Energy & Development Corp. (Class 'B'
Stock)........................................ 84,350 1,581,563
--------------
2,691,563
--------------
DRUGS AND HOSPITAL SUPPLIES -- 5.7%
+ALZA Corp...................................... 200,000 4,950,000
IVAX Corp....................................... 200,000 5,700,000
Johnson & Johnson............................... 48,500 4,152,813
--------------
14,802,813
--------------
ELECTRICAL EQUIPMENT -- 4.7%
+Applied Materials, Inc......................... 36,800 1,449,000
+Integrated Device Technology, Inc.............. 135,000 1,738,125
+UCAR International, Inc........................ 129,600 4,374,000
W.W. Grainger, Inc.............................. 70,000 4,637,500
--------------
12,198,625
--------------
ELECTRONICS -- 13.6%
+Arrow Electronics, Inc......................... 110,000 4,743,750
Intel Corp...................................... 85,000 4,823,750
</TABLE>
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
+KLA Instruments Corp........................... 45,000 $ 1,170,000
+Marshall Industries............................ 120,000 3,855,000
Methode Electronics, Inc. (Class 'A' Stock)..... 168,750 2,362,500
Motorola, Inc................................... 100,000 5,700,000
Sundstrand Corp................................. 70,000 4,926,250
Texas Instruments, Inc.......................... 95,000 4,916,250
+Ultratech Stepper, Inc......................... 123,100 3,154,438
--------------
35,651,938
--------------
FINANCIAL SERVICES -- 13.7%
Advanta Corp. (Class 'B' Stock)................. 61,200 2,218,500
Dean Witter Discover and Company................ 95,000 4,465,000
Federal National Mortgage Association........... 85,000 10,550,625
Republic New York Corp.......................... 51,400 3,193,225
Salomon, Inc.................................... 100,000 3,550,000
Student Loan Marketing Association.............. 51,100 3,366,212
Sunamerica, Inc................................. 127,000 6,032,500
The Money Store, Inc............................ 154,000 2,406,250
--------------
35,782,312
--------------
FOODS -- 4.1%
Dole Food Co., Inc.............................. 100,000 3,500,000
Philip Morris Companies, Inc.................... 80,000 7,240,000
--------------
10,740,000
--------------
FOREST PRODUCTS -- 3.1%
Weyerhaeuser Co................................. 60,000 2,595,000
Willamette Industries, Inc...................... 100,000 5,625,000
--------------
8,220,000
--------------
INSURANCE -- 6.1%
+Amerin Corp.................................... 34,900 924,850
Aon Corp........................................ 40,000 1,995,000
Chubb Corp...................................... 28,300 2,738,025
Equitable Companies, Inc........................ 85,100 2,042,400
Equitable of Iowa Companies..................... 23,600 758,150
Travelers Group, Inc............................ 120,000 7,545,000
--------------
16,003,425
--------------
MACHINERY -- 0.7%
Timken Co....................................... 47,100 1,801,575
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
Air Express International Corp.................. 105,400 2,371,500
--------------
OTHER TECHNOLOGY -- 1.2%
+Uniphase Corp.................................. 90,900 3,249,675
--------------
PETROLEUM -- 1.6%
Diamond Shamrock, Inc........................... 51,000 1,319,625
KN Energy, Inc.................................. 100,374 2,923,392
--------------
4,243,017
--------------
PETROLEUM SERVICES -- 2.0%
+B.J. Services Co............................... 115,300 3,343,700
+Smith International, Inc....................... 77,800 1,828,300
--------------
5,172,000
--------------
RAILROADS -- 0.9%
Kansas City Southern Industries, Inc............ 50,000 2,287,500
--------------
</TABLE>
B2
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 0.7%
Castle & Cooke, Inc............................. 33,333 $ 558,333
Equity Residential Properties Trust............. 40,000 1,225,000
--------------
1,783,333
--------------
RUBBER -- 1.0%
Bandag, Inc..................................... 50,000 2,706,250
--------------
TELECOMMUNICATIONS -- 1.3%
Frontier Corp................................... 116,500 3,495,000
--------------
TRUCKING/SHIPPING -- 1.1%
Interpool, Inc.................................. 155,000 2,770,625
--------------
TOTAL COMMON STOCKS
(Cost $227,767,676)............................................ 244,672,645
--------------
<CAPTION>
MARKET
PREFERRED STOCKS -- 1.2% SHARES VALUE
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES
Advanta Corp. (Class 'B' Stock)................. 80,450 3,087,268
--------------
(Cost $3,063,750)
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 5.3% AMOUNT VALUE
------------- --------------
<S> <C> <C>
COMMERCIAL PAPER
Pioneer Hi-Bred International, Inc.,
5.850%, 01/02/96.............................. $ 856,000 $ 856,000
Union Bank of Switzerland,
5.850%, 1/02/96............................... 12,960,000 12,960,000
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 13,816,000
--------------
LIABILITIES -- (0.2%)
(net of other assets).......................................... (352,505)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 261,223,408
--------------
--------------
+No dividend was paid on this security during the 12 months ending December 31,
1995.
</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, 1995 AND DECEMBER 31, 1994
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.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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, 1995, Prudential
Securities Incorporated, an indirect, wholly owned subsidiary of The Prudential,
earned $0 in brokerage commissions from transactions executed on behalf of the
Fund.
B4
<PAGE>
NOTE 4: DISTRIBUTIONS
Dividends from net investment income and net realized capital gains of the Fund
will normally be declared and reinvested in additional full and fractional
shares twice a year.
NOTE 5: PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and the proceeds from sales of securities
(excluding short-term investments) for the year ended December 31, 1995 was
$255,946,181 and $254,138,203, respectively.
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments were as follows:
<TABLE>
<S> <C>
Gross Unrealized Appreciation: $ 32,138,326
Gross Unrealized Depreciation: (15,209,839)
Net Unrealized Appreciation/Depreciation: 16,928,487
Tax Basis: 244,647,426
</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,
1995, the related statement 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 financial highlights contained in the prospectus for each of the
ten years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
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 financial
highlights 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, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 financial highlights present
fairly, in all material respects, the financial position of Prudential's
Gibraltar Fund as of December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the ten years in the
period then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
B6
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
December 31,
1995 1994
-------- --------
(In Millions)
ASSETS
Fixed maturities .............................. $ 85,585 $ 78,620
Equity securities ............................. 1,937 2,327
Mortgage loans ................................ 23,680 26,199
Investment real estate ........................ 1,568 1,600
Policy loans .................................. 6,800 6,631
Other invested assets ......................... 4,019 5,147
Short-term investments ........................ 7,874 10,630
Securities purchased under
agreements to resell ......................... 5,130 5,591
Trading account securities .................... 3,658 6,341
Cash .......................................... 1,633 1,109
Accrued investment income ..................... 1,915 1,932
Premiums due and deferred ..................... 2,402 2,712
Broker-dealer receivables ..................... 8,136 8,164
Other assets .................................. 6,608 6,266
Assets held in Separate Accounts .............. 58,435 48,633
-------- --------
TOTAL ASSETS ................................... $219,380 $211,902
======== ========
LIABILITIES, AVR AND SURPLUS
Liabilities:
Policy liabilities and insurance reserves:
Future policy benefits and claims ............ $ 94,973 $ 98,354
Unearned premiums ............................ 836 1,144
Other policy claims and
benefits payable ............................ 1,932 1,848
Policy dividends ............................. 1,894 1,822
Policyholder account balances ................ 12,540 12,195
Securities sold under agreements
to repurchase ................................ 7,993 8,919
Notes payable and other borrowings ............ 9,157 12,009
Broker-dealer payables ........................ 6,083 6,198
Other liabilities ............................. 14,976 11,983
Liabilities related to Separate Accounts ...... 57,586 47,946
-------- --------
Total Liabilities .............................. 207,970 202,418
-------- --------
Asset Valuation Reserve (AVR) .................. 2,742 2,035
-------- --------
Surplus:
Capital Notes ................................. 984 298
Special surplus fund .......................... 1,274 1,097
Unassigned surplus ............................ 6,410 6,054
-------- --------
Total Surplus .................................. 8,668 7,449
-------- --------
TOTAL LIABILITIES, AVR
AND SURPLUS ................................... $219,380 $211,902
======== ========
CONSOLIDATED STATEMENTS OF
OPERATIONS AND CHANGES IN SURPLUS AND ASSET VALUATION RESERVE (AVR)
Years Ended December 31,
1995 1994 1993
------- ------- -------
(In Millions)
REVENUE
Premiums and annuity
considerations ........................... $27,413 $29,698 $29,982
Net investment income ..................... 9,844 9,595 10,090
Broker-dealer revenue ..................... 3,800 3,677 4,025
Realized investment
gains/(losses) ........................... 882 (450) 953
Other income .............................. 972 1,037 924
------- ------- -------
Total Revenue .............................. 42,911 43,557 45,974
------- ------- -------
BENEFITS AND EXPENSES
Current and future benefits
and claims ............................... 27,854 30,788 30,573
Insurance and underwriting
expenses ................................. 4,577 4,830 4,982
Limited partnership matters ............... 0 1,422 390
General, administrative and
other expenses ........................... 6,034 5,794 5,575
------- ------- -------
Total Benefits and Expenses ................ 38,465 42,834 41,520
------- ------- -------
Income from operations
before dividends
and income taxes .......................... 4,446 723 4,454
Dividends to policyholders ................. 2,519 2,290 2,339
------- ------- -------
Income/(loss) before
income taxes .............................. 1,927 (1,567) 2,115
Income tax provision/(benefit) ............. 1,348 (392) 1,236
------- ------- -------
NET INCOME/(LOSS) .......................... 579 (1,175) 879
Surplus, beginning of year ................. 7,449 8,004 7,365
Issuance of Capital Notes
(after net charge-off of
non-admitted prepaid
postretirement benefit
cost of $113 in 1993) ..................... 686 0 185
Net unrealized investment
gains/(losses) and change
in AVR .................................... (46) 620 (425)
------- ------- -------
SURPLUS, END OF YEAR ....................... 8,668 7,449 8,004
------- ------- -------
AVR, beginning of year ..................... 2,035 2,687 2,457
Increase/(decrease) in AVR ................. 707 (652) 230
------- ------- -------
AVR, END OF YEAR ........................... 2,742 2,035 2,687
------- ------- -------
TOTAL SURPLUS AND AVR ...................... $11,410 $ 9,484 $10,691
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
-------- -------- --------
(In Millions)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income/(loss) ..................... $ 579 $(1,175) $ 879
Adjustments to reconcile net
income/(loss) to cash flows from
operating activities:
(Decrease)/increase in policy
liabilities and insurance
reserves ........................... (1,691) 1,289 2,747
Net increase in Separate
Accounts ........................... (162) (52) (59)
Realized investment
(gains)/losses ..................... (882) 450 (953)
Depreciation, amortization and
other non-cash items ............... 217 379 261
Gain on sale and results of
operations from reinsurance
segment ............................ (72) 0 0
Decrease/(increase) in
operating assets:
Mortgage loans ...................... (305) (226) (226)
Policy loans ........................ (169) (175) (174)
Securities purchased
under agreements to
resell ............................. 139 2,979 (2,049)
Trading account
securities ......................... 2,707 2,324 (2,087)
Broker-dealer
receivables ....................... 28 969 (1,803)
Other assets ........................ 205 3,254 (2,172)
(Decrease)/increase in
operating liabilities:
Securities sold under
agreements to repurchase ........... (475) (3,247) 1,134
Broker-dealer payables .............. (115) 788 1,280
Other liabilities ................... 501 (3,170) 1,794
-------- -------- --------
Cash Flows from Operating
Activities ........................... 505 4,387 (1,428)
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities ..................... 100,317 90,914 100,023
Equity securities .................... 2,302 1,426 1,725
Mortgage loans ....................... 5,567 4,154 4,789
Investment real estate ............... 291 407 336
Other invested assets ................ 1,943 1,022 1,352
Property and equipment ............... 3 637 6
Sale of reinsurance segment .......... 790 0 0
Payments for the purchase of:
Fixed maturities ..................... (107,192) (91,032) (101,217)
Equity securities .................... (1,450) (1,535) (1,085)
Mortgage loans ....................... (3,002) (3,446) (3,530)
Investment real estate ............... (387) (161) (196)
Other invested assets ................ (515) (1,687) (531)
Property and equipment ............... (238) (392) (640)
Short-term investments (net) .......... 2,756 (4,281) (2,150)
Net change in cash placed as
collateral for securities loaned ..... 1,379 2,011 (589)
-------- -------- --------
Cash Flows from Investing
Activities ........................... $ 2,564 $ (1,963) $ (1,707)
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net (payments)/proceeds of
short-term debt ...................... $ (2,489) $ (1,115) $ 1,106
Proceeds from the issuance of
long-term debt ....................... 763 345 1,228
Payments for the settlement of
long-term debt ....................... (1,376) (760) (721)
Proceeds/(payments) from
unmatched securities purchased
under agreements to resell ........... 322 1,086 (47)
(Payments)/proceeds for
unmatched securities sold under
agreements to repurchase ............. (451) (2,537) 1,707
Proceeds from the issuance of
Capital Notes ........................ 686 0 298
-------- -------- --------
Cash Flows from
Financing Activities ................. (2,545) (2,981) 3,571
-------- -------- --------
Net increase/(decrease)
in cash .............................. 524 (557) 436
Cash, beginning of year ............... 1,109 1,666 1,230
-------- -------- --------
CASH, END OF YEAR ..................... $ 1,633 $ 1,109 $ 1,666
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income tax payments, net of refunds, made during 1995, 1994 and 1993 were $430
million, $64 million and $933 million, respectively. Interest payments made
during 1995, 1994 and 1993 were $1,413 million, $1,429 million and $1,171
million, respectively.
The 1995 amounts are presented net of the cash flow activities of the
reinsurance segment.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
1. ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Prudential Insurance Company of America ("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 care insurance, property and casualty insurance,
securities brokerage, asset management, investment advisory services, 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 the National Association of
Insurance Commissioners ("NAIC") and their respective domiciliary state
insurance departments. Prescribed statutory accounting practices include
publications of the NAIC, state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company, with permission from the New Jersey Department of Insurance
("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.
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
Management has used estimates and assumptions in the preparation of the
financial statements that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
Life and General Insurance Operations--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. Expenses incurred in
connection with acquiring new insurance business, including such
acquisition costs as sales commissions, are charged to operations as
incurred.
Broker-Dealer Operations--The Company is engaged in the securities industry
in the United States, with operations in various foreign countries. Client
transactions are recorded on a settlement date basis. Securities and
commodities commission revenues and related expenses are accrued for client
transactions on a trade date basis. Investment banking revenue includes
advisory fees, selling concessions, management and underwriting fees, and
is recorded, net of related expenses, when the services are substantially
completed. Asset management and portfolio service fees are fees earned on
total assets under management and mutual funds sponsored by the Company and
third parties. Certain costs that are directly related to the sales of
mutual funds are deferred.
C. 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
fair value.
Mortgage loans are stated primarily at unpaid principal balances. Mortgage
loans for non-life subsidiaries are recorded net of valuation reserves.
Investment real estate, except for real estate acquired in satisfaction of
debt, is carried at cost less accumulated straight-line depreciation,
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.
Policy loans are stated at unpaid principal balances.
Other invested assets primarily represent the Company's investment in joint
ventures and other forms of partnerships. These investments are carried
primarily on the equity method where the Company has the ability to
exercise significant influence over the operating and financial policies of
the entity.
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
F-3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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, to value the
securities daily, and to require adjustment of the underlying collateral
when deemed necessary.
Trading account securities from broker-dealer operations are reported based
upon quoted market prices.
Securities lending is a program whereby securities are loaned to third
parties, primarily major brokerage firms. As of December 31, 1995 and 1994,
the estimated fair values of loaned securities were $7,982 million and
$8,506 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. The
offsetting collateral liability as of December 31, 1995 and 1994 is $5,690
million and $4,252 million, respectively. Non-cash collateral is recorded
in memorandum records and is not reflected in the consolidated financial
statements.
Derivative financial instruments--For the Company's non-insurance
subsidiaries, derivatives used for trading purposes are recorded at fair
value as of the reporting date. Realized and unrealized changes in fair
values are recognized in "Broker-dealer revenue" and "Other income" 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 asset/liability risk management activities, which
support life and health insurance and annuity contracts, are recorded at
fair value with unrealized gains and losses recorded in "Net unrealized
investment gains/(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 Interest
Maintenance Reserve (IMR).
D. SEPARATE ACCOUNTS
These assets and liabilities, reported at estimated market value, represent
segregated funds invested for pension and other clients. 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.
E. CAPITAL NOTES
Interest payments on the 1993 Capital Notes are preapproved by the
Department. This practice differs from that prescribed by the NAIC. The
NAIC practices provide for Insurance Commissioner approval of every
interest payment before the payment is made. The interest payments on the
Capital Notes issued in 1995 comply with prescribed NAIC practices.
Prudential has included all notes as a component of surplus (Note 7).
F. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued 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 not allowing 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. The Company is assessing the impact of Interpretation No. 40 on
its consolidated financial statements. Such effort has not been completed
and management currently believes surplus will increase significantly.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. FUTURE POLICY BENEFITS, RESERVE FOR LOSSES AND LOSS EXPENSES
A. For life insurance, general insurance and annuities, unpaid claims and
claim adjustment expenses include estimates of benefits and associated
settlement expenses on reported claims and those which are incurred but not
reported.
Activity in the liability for unpaid claims and claim adjustment expenses
is:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- -----------------------
Accident Property Accident Property Accident Property
and and and and and and
Health Casualty Health Casualty Health Casualty
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(In Millions)
Balance at January 1 ........................ $2,738 $5,116 $2,654 $4,869 $2,623 $4,712
Less reinsurance recoverables .............. 23 1,018 15 1,070 22 1,107
------ ------ ------ ------ ------ ------
Net balance at January 1 .................... 2,715 4,098 2,639 3,799 2,601 3,605
------ ------ ------ ------ ------ ------
Incurred related to:
Current year ............................... 8,062 2,387 7,398 2,541 7,146 2,364
Prior years ................................ (48) 95 (105) 158 (167) 109
------ ------ ------ ------ ------ ------
Total incurred .............................. 8,014 2,482 7,293 2,699 6,979 2,473
------ ------ ------ ------ ------ ------
Paid related to:
Current year ............................... 5,972 1,010 5,568 1,237 5,336 1,119
Prior years ................................ 1,807 959 1,649 1,163 1,605 1,160
------ ------ ------ ------ ------ ------
Total paid .................................. 7,779 1,969 7,217 2,400 6,941 2,279
------ ------ ------ ------ ------ ------
Less reinsurance
segment (Note 10) .......................... 0 2,326 0 0 0 0
------ ------ ------ ------ ------ ------
Net balance at December 31 .................. 2,950 2,285 2,715 4,098 2,639 3,799
Plus reinsurance recoverables .............. 15 819 23 1,018 15 1,070
------ ------ ------ ------ ------ ------
Balance at December 31 ...................... $2,965 $3,104 $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 $48 million, $105 million and $167 million in the provision for
claims and claim adjustment expenses for accident and health business in
1995, 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 $88 million, $47
million and $120 million in 1995, 1994 and 1993, respectively) increased by
$95 million, $158 million and $109 million in 1995, 1994 and 1993,
respectively, due to increased loss development and reserve strengthening
for asbestos and environmental claims.
B. 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 the net
level premium reserve or the policy cash value. About 54% of individual
life insurance reserves are calculated according to the Commissioner's
Reserve Valuation Method ("CRVM"), or methods which compare CRVM to policy
cash values. The remaining reserves include universal life reserves which
are equal to the greater of the policyholder account value less the
unamortized expense allowance and the policy cash value, or are for
supplementary benefits whose reserves are calculated using methods,
interest rates and tables appropriate for the benefit provided.
For group life insurance, about 56% of the reserves are associated with
extended death benefits. These reserves are primarily calculated using
modified group tables at various interest rates. The remainder 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 deferred individual annuity contracts are determined using the
Commissioner's Annuity Reserve Valuation Method. These account for 72% of
the individual annuity reserves. The remaining reserves are equal to the
present value of future payments with the annuity mortality table and
interest rates based on the date of issue or maturity as appropriate.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves. For money
purchase annuities issued in Canada, the reserve equals the present value
of each deposit accumulated to the end of its guarantee period at its
guaranteed interest rate, discounted at the valuation interest rate.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Accident and health reserves represent the present value of the future
potential payments, discounted for contingencies and interest. The
remaining material reserves for active life reserves and unearned premiums
are valued using the preliminary term method, gross premium valuation
method, or a pro-rata portion of gross premiums. Reserves are also held for
amounts not yet due on hospital benefits and other coverages.
The reserve for guaranteed interest contracts, deposit funds and other
liabilities without life contingencies equal either the present value of
future payments discounted at the guaranteed rate or the fund value.
3. INCOME TAXES
Under the Internal Revenue Code ("the Code"), 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.
Prudential files a consolidated federal income tax return with all of its
domestic 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. The provision reported in the consolidated financial
statements also includes tax liabilities for foreign subsidiaries.
The non-insurance subsidiaries of the Company recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in their financial statements. Included in "Income tax
provision/(benefit)" are deferred taxes of $109 million, $(477) million and
$21 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
At December 31, 1995, the Company had consolidated non-life tax loss
carryforwards of $595 million which will expire between 1998 and 2010, if not
utilized.
4. INVESTED ASSETS
A. FIXED MATURITIES
The Company invests in both investment grade and non-investment grade
public and private fixed maturities. The Securities Valuation Office of the
NAIC rates the fixed maturities held by insurers 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 primarily high-yield securities and are defined by the NAIC as
including any security with a public agency rating equivalent to B+ or B1
or less. These securities approximate 0.9% and 1.6% of the Company's
consolidated assets at December 31, 1995 and 1994, respectively.
The carrying value and estimated fair value of fixed maturities at December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995
-------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies ..................................................... $16,494 $1,409 $ 1 $17,902
Obligations of U.S. states and their
political subdivisions ....................................... 1,365 70 2 1,433
Fixed maturities issued by foreign governments
and their agencies and political subdivisions ................ 3,641 275 4 3,912
Corporate securities .......................................... 58,998 4,792 108 63,682
Mortgage-backed securities .................................... 5,048 276 10 5,314
Other fixed maturities ........................................ 39 0 0 39
------- ------ ---- -------
Total ......................................................... $85,585 $6,822 $125 $92,282
======= ====== ==== =======
</TABLE>
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1994
------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In Millions)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies .................. $13,576 $ 122 $ 646 $13,052
Obligations of U.S. states and their
political subdivisions ..................................... 2,776 32 165 2,643
Fixed maturities issued by foreign governments
and their agencies and political subdivisions .............. 3,093 37 153 2,977
Corporate securities ........................................ 54,076 1,191 1,772 53,495
Mortgage-backed securities .................................. 4,889 82 148 4,823
Other fixed maturities ...................................... 210 0 0 210
------- ------ ------ -------
Total ....................................................... $78,620 $1,464 $2,884 $77,200
======= ====== ====== ========
</TABLE>
The carrying value and estimated fair value of fixed maturities at December
31, 1995, categorized by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers may
prepay obligations with or without call or prepayment penalties.
Estimated
Carrying Fair
Value Value
-------- ---------
(In Millions)
Due in one year or less .................... $ 398 $ 402
Due after one year through five years ...... 26,936 27,748
Due after five years through ten years ..... 23,124 24,637
Due after ten years ........................ 30,079 34,181
------- -------
80,537 86,968
Mortgage-backed securities ................. 5,048 5,314
------- -------
Total ...................................... $85,585 $92,282
======= =======
Proceeds from the sale and maturity of fixed maturities during 1995, 1994
and 1993 were $100,317 million, $90,914 million and $100,023 million,
respectively. Gross gains of $2,083 million, $693 million and $2,473
million and gross losses of $943 million, $2,009 million and $698 million
were realized on such sales during 1995, 1994 and 1993, respectively.
B. MORTGAGE LOANS
Mortgage loans at December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
(In Millions)
Commercial and agricultural loans:
In good standing ...................................... $17,792 75.1% $19,752 75.4%
In good standing
with restructured terms .............................. 976 4.1% 1,412 5.4%
Past due 90 days or more .............................. 145 0.6% 339 1.3%
In process of foreclosure ............................. 158 0.7% 387 1.5%
Residential loans ...................................... 4,609 19.5% 4,309 16.4%
------- ----- ------- -----
Total mortgage loans ................................... $23,680 100.0% $26,199 100.0%
======= ===== ======= =====
</TABLE>
At December 31, 1995, the Company's mortgage loans were collateralized by
the following property types: office buildings (29%), retail stores (20%),
residential properties (19%), apartment complexes (13%), industrial
buildings (10%), agricultural properties (7%) and other commercial
properties (2%). The mortgage loans are geographically dispersed throughout
the United States and Canada with the largest concentrations in California
(23%) and New York (9%). Included in these balances
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
are mortgage loans with affiliated joint ventures of $653 million and $684
million at December 31, 1995 and 1994, respectively.
C. INVESTMENT REAL ESTATE
Accumulated depreciation on investment real estate was $643 million and
$748 million at December 31, 1995 and 1994, respectively.
D. OTHER INVESTED ASSETS
The Company's net equity in joint ventures and other forms of partnerships
amounted to $2,612 million and $3,357 million as of December 31, 1995 and
1994, respectively. The Company's share of net income from such entities
was $326 million, $354 million and $375 million for 1995, 1994 and 1993,
respectively.
E. NET UNREALIZED INVESTMENT GAINS/(LOSSES)
Net unrealized investment gains/(losses), which result principally from
changes in the carrying values of invested assets, were $661 million, $(32)
million and $(195) million for the years ended December 31, 1995, 1994 and
1993, respectively.
F. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
These reserves are required for life insurance companies under NAIC
regulations. 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. The IMR captures net realized capital gains and losses
resulting from changes in the general level of interest rates. These gains
and losses are amortized into investment income over the expected remaining
life of the investments sold. At December 31, 1995, the components of AVR
are 67% for fixed maturities, equity securities and short-term investments;
21% for mortgage loans; and 12% for investment real estate and other
invested assets. The IMR balance at December 31, 1995 and 1994 was $1,191
million and $502 million, respectively. During 1995, 1994 and 1993, $775
million, $(929) million and $1,082 million of net realized investment
gains/(losses) were deferred, respectively.
G. RESTRICTED ASSETS AND SPECIAL DEPOSITS
Assets in the amounts of $6,271 million and $5,901 million at December 31,
1995 and 1994, respectively, were on deposit with governmental authorities
or trustees as required by law. Assets valued at $3,558 million and $5,855
million at December 31, 1995 and 1994, respectively, were maintained as
compensating balances or pledged as collateral for bank loans and other
financing agreements. Restricted cash and securities of $1,137 million and
$897 million at December 31, 1995 and 1994, respectively, were included in
the consolidated financial statements. The restricted cash represents funds
deposited by clients and funds accruing to clients as a result of trades or
contracts.
5. EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The Company has several defined benefit pension plans, which cover
substantially all of its employees. Benefits are generally based on career
average earnings and credited length of service. The Company's funding
policy for U.S. plans is to contribute annually the amount necessary to
satisfy the Internal Revenue Service contribution guidelines.
Employee pension benefit plan status is as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994
------------------------ ------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(In Millions)
Actuarial present value of benefit obligation:
Vested benefit obligation ..................................... $(3,270) $(236) $(2,749) $(207)
======= ===== ====== =====
Accumulated benefit obligation ................................ (3,572) (261) (3,025) (230)
======= ===== ====== =====
Projected benefit obligation ................................... (4,330) (297) (3,975) (272)
Plan assets at fair value ...................................... 6,688 206 5,524 180
------- ----- ------ -----
Plan assets in excess of projected benefit obligation .......... 2,358 (91) 1,549 (92)
Unrecognized transition amount ................................. (904) (4) (976) (4)
Unrecognized prior service cost ................................ 199 16 211 17
Unrecognized net (gain)/loss ................................... (753) 15 (18) 27
Additional minimum liability ................................... 0 (8) 0 (8)
------- ----- ------ -----
Prepaid/(accrued) pension cost ................................. $ 900 $ (72) $ 766 $ (60)
======= ===== ====== =====
</TABLE>
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $4,974 million and $4,325 million are
included in Separate Account assets and liabilities at December 31, 1995
and 1994, respectively.
In compliance with statutory accounting principles, Prudential's prepaid
pension costs of $900 million and $766 million at December 31, 1995 and
1994, respectively, are considered non-admitted assets. These assets are
excluded from the consolidated assets and the changes in these non-admitted
assets were $134 million, $(19) million, and $142 million in 1995, 1994 and
1993, respectively.
The components of the net periodic pension (benefit)/expense for 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(In Millions)
Service cost--benefits earned during the year ............................. $ 133 $ 163 $ 133
Interest cost on projected benefit obligation ............................. 392 311 301
Actual return on assets ................................................... (1,288) 56 (854)
Net amortization and deferral ............................................. 629 (639) 301
Net curtailment gains and special termination benefits .................... 0 156 0
------- ----- -----
Net periodic pension (benefit)/expense .................................... $ (134) $ 47 $(119)
======= ===== =====
</TABLE>
The net reduction to surplus relating to the Company's pension plans is $0,
$28 million and $23 million in 1995, 1994 and 1993, respectively, which
considers the changes in Prudential's non-admitted prepaid pension asset of
$134 million, $(19) million and $142 million, respectively. The accounting
assumptions used by Prudential were:
As of September 30,
--------------------
1995 1994 1993
---- ---- ----
Discount rate ................................. 7.5% 8.5% 7.0%
Rate of increase in compensation levels ....... 4.5% 5.5% 5.0%
Expected long-term rate of return on assest ... 9.0% 9.0% 9.0%
The 1995 pension benefit for the Company's non-U.S. plans is $8 million.
B. POSTRETIREMENT 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.
Postretirement benefits, with respect to Prudential, are recognized in
accordance with prescribed NAIC policy. Prudential has elected to amortize
its transition obligation over 20 years. The Company's funding of its
postretirement benefit obligations totaled $48 million, $31 million and
$404 million in 1995, 1994 and 1993, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
The postretirement benefit plan status is as follows:
September 30,
------------------
1995 1994
-------- -------
(In Millions)
Accumulated postretirement benefit obligation (APBO):
Retirees ............................................... $(1,526) $(1,337)
Fully eligible active plan participants ................ (152) (188)
------- -------
Total APBO ............................................... (1,678) (1,525)
------- -------
Plan assets at fair value ................................ 1,309 1,232
------- -------
Funded status ............................................ (369) (293)
Unrecognized transition amount ........................... 423 448
Unrecognized net loss/(gain) ............................. 1 (41)
------- -------
Prepaid postretirement benefit cost ...................... $ 55 $ 114
======= =======
Plan assets consist of group and individual variable life insurance
policies, group life and health contracts and short-term investments, of
which $990 million and $996 million are included in the Consolidated
Statement of Financial Position at December 31, 1995 and 1994,
respectively. In compliance with statutory accounting principles,
Prudential's prepaid postretirement benefit costs of $99 million and $127
million at December 31, 1995 and 1994, respectively, are considered
non-admitted assets. These assets are excluded from the consolidated assets
and the changes in these non-admitted assets of $(28) million, $(90)
million and $217 million in 1995, 1994 and 1993, respectively, are reported
in "General, administrative and other expenses" in 1995 and 1994, and in
"Issuance of Capital Notes" in 1993.
Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes
the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
(In Millions)
Service cost .................................................. $ 56 $ 38 $ 41
Interest cost ................................................. 123 112 124
Actual return on plan assets .................................. (144) (98) (86)
Amortization of transition obligation ......................... 25 23 39
Other ......................................................... 47 (3) 77
Net curtailment and special termination benefits .............. 0 58 0
----- ---- ----
Net periodic postretirement benefit cost ...................... $ 107 $130 $195
===== ==== ====
</TABLE>
The net reduction to surplus relating to the Company's postretirement
benefit plans is $79 million, $40 million, and $412 million in 1995, 1994
and 1993, respectively, which considers the changes in the non-admitted
prepaid postretirement benefit cost of $(28) million, $(90) million and
$217 million in 1995, 1994 and 1993, respectively.
The accounting assumptions used by Prudential were:
<TABLE>
<CAPTION>
As of September 30,
------------------------------------------
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Discount rate ............................................... 7.5% 8.5% 7.0%
Expected long-term rate of return on plan assets ............ 8.0% 9.0% 9.0%
Rate of increase in compensation levels ..................... 4.5% 5.5% 5.0%
Health care cost trend rates ................................ 8.9-13.3% 9.1-13.9% 9.5-14.7%
Ultimate health care cost trend rate at 2006 ................ 5.0% 6.0% 5.0%
</TABLE>
The effect of a 1% increase in health care cost trend rates on the
September 30, 1995, accumulated postretirement benefit obligation and
service and interest costs would be $138 million and $16 million,
respectively.
C. POSTEMPLOYMENT BENEFITS
The Company accrues for postemployment benefits primarily for life and
health benefits provided to former or inactive employees who are not
retirees. The net accumulated liability for these benefits at December 31,
1995 and 1994 was $102 million and $151 million, respectively. The Company
funded $45 million of postemployment benefits during 1995.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------- -------------------------
Weighted Weighted
Average Average
Balance Cost of Funds Balance Cost of Funds
-------- ------------- ------- -------------
<S> <C> <C> <C> <C>
(In Millions)
Short-term debt:
Commercial paper ........................... $3,711 5.8% $ 4,108 5.6%
Medium-term notes payable .................. 9 7.4% 204 4.8%
Other ...................................... 2,007 6.4% 4,876 5.8%
------ -------
Total Short Term ............................ 5,727 6.0% 9,188 5.7%
------ -------
Long-term debt:
Notes payable .............................. 1,309 7.2% 1,684 7.3%
Medium-term notes payable .................. 377 5.6% 535 5.9%
Euro medium-term notes payable ............. 537 6.0% 584 4.7%
Other ...................................... 1,207 6.2% 18 10.3%
------ -------
Total Long Term ............................. 3,430 6.5% 2,821 6.5%
------ -------
Total ....................................... $9,157 6.2% $12,009 5.9%
====== =======
</TABLE>
Scheduled repayments of long-term debt as of December 31, 1995, are as
follows: $321 million in 1996, $448 million in 1997, $868 million in 1998,
$667 million in 1999, $620 million in 2000, and $593 million thereafter.
As of December 31, 1995, the Company had $6,770 million in lines of credit
from numerous financial institutions of which $4,263 million were unused.
7. SURPLUS
A. Capital Notes
A summary of the outstanding Capital Notes as of December 31, 1995 is as
follows:
Principal Interest Maturity
Issue Date (Par) Rate Date
---------- --------- -------- --------
(In Millions)
April 1993 ................ $ 300 6.875% April 2003
June 1995 ................. 250 7.650% July 2007
July 1995 ................. 100 8.100% July 2015
June 1995 ................. 350 8.300% July 2025
------
Total ..................... $1,000
======
The notes are subordinate in right of payment to policyholder claims and to
senior indebtedness, and principal repayments are subject to a risk-based
capital test.
The net proceeds from the April 1993 notes, approximately $298 million,
were contributed to a voluntary employee benefit association trust to
prefund certain obligations of 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 (Note 5B).
B. SPECIAL SURPLUS FUND
In accordance with the requirements of various states, a special surplus
fund has been established for contingency reserves of $1,274 million and
$1,097 million as of December 31, 1995 and 1994, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented on the next page have been determined using
available information and reasonable valuation methodologies. Considerable
judgment is applied in interpreting data to develop the estimates of fair
value. Accordingly, such estimates
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
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.)
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 credit
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.
Equity Securities--Fair value is based on quoted market prices, where
available, or prices 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, 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
(In Millions)
FINANCIAL ASSETS:
Fixed maturities ........................... $ 85,585 $ 92,282 $ 78,620 $77,200
Equity securities .......................... 1,937 1,937 2,327 2,327
Mortgage loans ............................. 23,680 24,268 26,199 24,955
Policy loans ............................... 6,800 7,052 6,631 6,018
Short-term investments ..................... 7,874 7,874 10,630 10,630
Securities purchased under
agreements to resell ...................... 5,130 5,130 5,591 5,591
Trading account securities ................. 3,658 3,658 6,341 6,341
Cash ....................................... 1,633 1,633 1,109 1,109
Broker-dealer receivables .................. 8,136 8,136 8,164 8,164
Assets held in Separate Accounts ........... 58,435 58,435 48,633 48,633
Derivative financial instruments ........... 1,473 1,640 1,219 1,268
FINANCIAL LIABILITIES:
Investment-type insurance contracts ........ 35,336 36,258 39,747 38,934
Securities sold under agreements to
repurchase ................................ 7,993 7,993 8,919 8,919
Notes payable and other borrowings ......... 9,157 9,231 12,009 11,828
Broker-dealer payables ..................... 6,083 6,083 6,198 6,198
Liabilities related to Separate
Accounts .................................. 57,586 57,586 47,946 47,946
Derivative financial instruments ........... 1,704 1,781 1,611 1,665
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
A. Derivative Financial Instruments
Derivatives, including swaps, forwards, futures, options, and loan
commitments subject to market risk, are used for trading and other
than trading activities (Note 1C). The following two tables summarize
the Company's outstanding positions on a gross basis before netting
pursuant to rights of offset, qualifying master netting agreements
with counterparties or collateral arrangements as of December 31, 1995
and 1994, respectively:
DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1995
(In Millions)
<TABLE>
<CAPTION>
Trading Other Than Trading Total
-------------------- -------------------- -------------------------------
Estimated Estimated Carrying Estimated
Notional Fair Value Notional Fair Value Notional Amount Fair Value
-------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets ................. $12,720 $1,131 $ 114 $ 10 $12,834 $1,132 $1,141
Liabilities ............ 11,488 1,317 4,476 62 15,964 1,371 1,379
Forwards:
Assets ................. 20,351 291 2,281 33 22,632 305 324
Liabilities ............ 22,068 278 6,675 48 28,743 291 326
Futures:
Assets ................. 1,387 14 2,590 34 3,977 20 48
Liabilities ............ 3,065 18 1,821 11 4,886 24 29
Options:
Assets ................. 1,961 20 4,345 97 6,306 20 117
Liabilities ............ 1,700 17 2,724 20 4,424 18 37
Loan Commitments:
Assets ................. 0 0 123 10 123 (4) 10
Liabilities ............ 0 0 1,412 10 1,412 0 10
------- ------ ------- ---- ------- ------ ------
Total:
Assets ................. $36,419 $1,456 $ 9,453 $184 $45,872 $1,473 $1,640
======= ====== ======= ==== ======= ====== ======
Liabilities ............ $38,321 $1,630 $17,108 $151 $55,429 $1,704 $1,781
======= ====== ======= ==== ======= ====== ======
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1994
(In Millions)
<TABLE>
<CAPTION>
Trading Other Than Trading Total
-------------------- -------------------- -------------------------------
Estimated Estimated Carrying Estimated
Notional Fair Value Notional Fair Value Notional Amount Fair Value
-------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps:
Assets ................. $13,852 $ 837 $ 184 $ 9 $14,036 $ 845 $ 846
Liabilities ............ 14,825 1,216 4,993 48 19,818 1,236 1,264
Forwards:
Assets ................. 21,988 300 2,720 24 24,708 312 324
Liabilities ............ 19,898 289 3,112 19 23,010 299 308
Futures:
Assets ................. 1,520 40 4,296 17 5,816 30 57
Liabilities ............ 1,878 35 505 3 2,383 35 38
Options:
Assets ................. 2,924 31 2,407 8 5,331 34 39
Liabilities ............ 3,028 38 2,217 2 5,245 40 40
Loan Commitments:
Assets ................. 0 0 212 2 212 (2) 2
Liabilities ............ 0 0 1,543 15 1,543 1 15
------- ------ ------- --- ------- ------ ------
Total:
Assets ................. $40,284 $1,208 $ 9,819 $60 $50,103 $1,219 $1,268
======= ====== ======= === ======= ====== ======
Liabilities ............ $39,629 $1,578 $12,370 $87 $51,999 $1,611 $1,665
======= ====== ======= === ======= ====== ======
</TABLE>
Derivatives Held for Trading Purposes--The Company uses derivatives
for trading purposes in securities broker-dealer activities and in a
limited-purpose swap subsidiary to meet the financial and hedging
needs of its customers. Net trading revenues for the years ended
December 31, 1995 and 1994, relating to forwards and futures and swaps
were $110 million, $42 million and $3 million, and $42 million, $33
million and $8 million, respectively. Net trading revenues for options
were not material. Average fair values for trading derivatives in an
asset position during the years ended December 31, 1995 and 1994 were
$1,394 million and $1,526 million, respectively, and for derivatives
in a liability position were $1,582 million and $1,671 million,
respectively. Of those derivatives held for trading purposes at
December 31, 1995, 55% of the notional amount consisted of interest
rate derivatives, 40% consisted of foreign currency derivatives, and
5% consisted of equity and commodity derivatives.
Derivatives Held for Purposes Other Than Trading--The Company uses
derivatives primarily for asset/liability risk management and to
reduce exposure to interest rate, currency and other market risks. Of
the total notional amount of derivatives held for purposes other than
trading at December 31, 1995, 16% were used by the Company to hedge
its investment portfolio to reduce interest rate, currency and other
market risks, and 84% were used to hedge interest rate risk related to
the Company's mortgage banking segment activities. Of those
derivatives held for purposes other than trading at December 31, 1995,
92% of notional consisted of interest rate derivatives and 8%
consisted of foreign currency derivatives.
B. Off-Balance Sheet Credit-Related Instruments
During the normal course of its business, the Company utilizes
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 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 $15,498 million and $17,389 million at December
31, 1995 and 1994, respectively. Because many of these amounts expire
without being advanced in whole or in part, the notional amounts do
not represent future cash
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
flows. The above notional amounts include $6,001 million and $4,150
million of unused available lines of credit under credit card and home
equity commitments as of December 31, 1995 and 1994, 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 $(67) million and $(91) million at
December 31, 1995 and 1994, respectively.
10. DIVESTITURES
In October 1995, the Company completed the sale of its reinsurance segment,
Prudential Reinsurance Holdings, Inc. ("Holdings"), through an initial
public offering of common stock. As a result of the sale, an after-tax gain
of $72 million was recorded in 1995.
In March 1995, the Company announced its intention to sell its mortgage
banking segment. On January 26, 1996, the Company entered into a definitive
agreement to sell substantially all the assets of Prudential Home Mortgage
Company, Inc. and it has also liquidated certain mortgage-backed securities
and extended warehouse loans. The Company recorded an after-tax loss of $98
million, which includes operating gains and losses, asset write downs, and
other costs directly related to the planned sale. The Company continues to
have discussions with prospective buyers for the sale of the remaining
assets.
A summary of the assets and liabilities of the mortgage banking segment at
December 31 follows:
ASSETS AND LIABILITIES OF MORTGAGE BANKING SEGMENT
1995 1994
------ ------
(In Millions)
Total assets ............................ $4,293 $4,357
Total liabilities ....................... 4,215 4,199
------ ------
Net assets .............................. $ 78 $ 158
====== ======
11. CONTINGENCIES
A. Aggregate Stop Loss Retrocession Agreement
As a result of the sale of Holdings, in 1995, Prudential Reinsurance
(a Holdings subsidiary) and Gibraltar Casualty Co. (a Prudential
subsidiary) entered into an Aggregate Stop Loss Agreement. The Stop
Loss Agreement is intended to mitigate the impact on Prudential
Reinsurance of adverse development of loss reserves as of June 30,
1995, of up to $375 million of the first $400 million of adverse
development. The Company has recorded a loss reserve of $230 million
as of December 31, 1995.
B. Environmental and Asbestos-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. 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.
C. 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.
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 Company intends to defend these cases
vigorously.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
For The Years Ended December 31, 1995, 1994 and 1993
In response to this litigation, several state insurance departments
have initiated market conduct examinations relating to Prudential's
sales practices. The Attorney General of one state has conducted an
investigation and made its report to the state insurance commissioner.
Another Attorney General has also made inquiries. The New Jersey
Insurance Commissioner is leading a multi-state task force of
insurance commissioners to examine life insurance industry sales and
marketing practices. There are now approximately thirty insurance
departments participating in this effort. The Company is cooperating
fully in this examination.
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
inquiries or their effect on 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 and the regulatory inquiries. It is possible
that the results of operations or the cash flows of the Company in
particular quarterly or annual periods could be materially affected by
an ultimate unfavorable outcome of certain pending litigation and
regulatory matters.
Management believes, however, that the ultimate outcome of all pending
litigation and regulatory matters referred to above should not have a
material adverse effect on the Company's financial position.
In 1993, Prudential Securities Incorporated (PSI), a subsidiary of
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. The agreement also required PSI to take
measures to enhance the adequacy of its sales practices compliance
controls.
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 for litigation, including
partnership settlement matters, will not have a material adverse
effect on the Company's financial position.
F-16
<PAGE>
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1996
F-17
<PAGE>
VARIABLE ANNUITY CONTRACTS
(for use in connection with pension, profit-sharing
and annuity purchase plans and Individual Retirement
Annuities qualifying for special federal income tax treatment)
PRUDENTIAL'S GIBRALTAR FUND
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE TO ANY PERSON TO WHOM
SUCH OFFER WOULD BE UNLAWFUL IN SUCH STATE.
NO ONE IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE SALES MATERIAL
AUTHORIZED BY THE PRUDENTIAL INSURANCE COMPANY OF AMERICA FOR USE IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Prudential Insurance Company of America
Prudential Plaza, Newark, New Jersey 07102-3777
---------------
Bulk Rate
U.S. Postage
PAID
Jersey City, NJ
Permit No. 60
---------------
<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, 1995;
Statement of Operations -- Year Ended December 31, 1995; and
Statements of Changes in Net Assets -- Years Ended December 31, 1995 and
1994.
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, 1995 and
1994;
Consolidated Statements of Operations and Changes in Surplus and Asset
Valuation Reserve (AVR)/Mandatory Securities Valuation Reserve (MSVR) --
Years Ended December 31, 1995, 1994, and 1993; and Consolidated Statements
of Cash Flows -- Years Ended December 31, 1995, 1994, and 1993.
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, 1995;
Statement of Operations -- Year Ended December 31, 1995;
Statements of Changes in Net Assets -- Years Ended December 31, 1995 and
1994; and
Financial Highlights -- Ten Years Ended December 31, 1995.
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
VARIABLE ANNUITY CONTRACTS
<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 Board A(1)
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>
LISTING OF VARIABLE ANNUITY EXHIBITS -- PAGE 2
<TABLE>
<CAPTION>
<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>
LISTING OF VARIABLE ANNUITY EXHIBITS -- PAGE 3
<TABLE>
<CAPTION>
<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 Form S-6
Prudential, as amended Registration Statement,
February 26, 1988. Registration No. 33-61079, filed
July 17, 1995 on behalf of The
Prudential Variable Appreciable
Account.
(6)(ii) Copy of the By-laws of The Exhibit 1.A.(6)(b) to Post-Effective
Prudential, as amended Amendment No. 1 to Form
August 8, 1995. S-6, Registration No. 33-61079,
filed April __, 1996, on behalf of
the Prudential Variable Appreciable
Account.
(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.
</TABLE>
C-4
<PAGE>
LISTING OF VARIABLE ANNUITY EXHIBITS -- PAGE 4
<TABLE>
<CAPTION>
<S> <C> <C>
(10)(iii) Form of Transfer Deposit A(10)(iii)
Schedule.
(10)(iv) Form of Request for A(10)(iv)
Annuity.
<CAPTION>
2. For specimen of securities, see Exhibits A(5) and A(5)(i)
through A(5)(xvii).
6. Powers of Attorney:
<S> <C>
a) F. Agnew, F. Becker, W. Boeschenstein, L. Carter, Jr., J. Cullen, Incorporated by reference to Post-
C. Davis, R. Enrico, A. Gilmour, W. Gray III, J. Hanson, C. Horner, Effective Amendment No. 15 to Form S-6,
A. Jacobson, G. Keith, B. Malkiel, J. Opel, A. Ryan, C. Sitter, D. Registration No. 33-20000 filed May 1,
Staheli, R. Thompson, P. Vagelos, S. Van Ness, P. Volcker, J. 1995.
Williams
b) M. Grier Incorporated by reference to Form
S-6 Registration Statement,
Registration No. 33-61079, filed
July 17, 1995.
27.1 Financial Data Schedule Filed Herewith
</TABLE>
C-5
<PAGE>
<TABLE>
ITEM 24(b) EXHIBITS
PRUDENTIAL'S GIBRALTAR FUND
<CAPTION>
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
Registrant and The Prudential. S-6, 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>
PRUDENTIAL'S GIBRALTAR FUND EXHIBITS -- PAGE 2
<TABLE>
<CAPTION>
<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 Incorporated by reference to
Post-Effective Amendment No.
25 to Form S-6, Registration No.
2-59232, filed April 26, 1996 on
behalf of the Prudential Variable
Annuity Plan Account-2.
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 25th day of April, 1996.
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 and Actuary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 35 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 25th, 1996
- -------------------------------------- )
Arthur C. Ryan )
Chairman of the Board, President and )
Chief Executive Officer )
)
)
/s/* )
- -------------------------------------- )
Garnett L. Keith, Jr. )
Vice Chairman and Director )
)
)
/s/* )
- -------------------------------------- )
Mark B. Grier ) *By: /s/ Thomas C. Castano
Chief Financial Officer ) ---------------------
) Thomas C. Castano
) (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
/s/* ) April 25th, 1996
- -------------------------------------- )
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 ) *By: /s/ Thomas C. Castano
Director ) ---------------------
) Thomas C. Castano
) (Attorney-in-Fact)
)
/s/* )
- -------------------------------------- )
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
/s/* ) April 25th, 1996
- -------------------------------------- )
Donald L. Staheli )
Director )
)
)
/s/* )
- -------------------------------------- )
P. Roy Vagelos, M.S. )
Director )
)
)
/s/* ) *By: /s/ Thomas C. Castano
- -------------------------------------- ) ---------------------
Stanley C. Van Ness ) Thomas C. Castano
Director ) (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 25th day of April, 1996.
PRUDENTIAL'S GIBRALTAR FUND
By: /s/ Mendel A. Melzer
------------------------
Mendel A. Melzer
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 35 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 25th, 1996
- -------------------------------------- )
Mendel A. Melzer )
Chairman of the Board of Directors, )
Principal Executive Officer and )
Principal Financial Officer )
)
)
/s/* )
- -------------------------------------- )
E. Michael Caulfield )
President and Director )
)
)
/s/* )
- -------------------------------------- ) *By: /s/
Stephen P. Tooley ) ---------------------
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>
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. 30 to the Registration
Statement of The Prudential Series Fund, Inc., Registration No. 2-80896,
the text of which is hereby incorporated by reference.
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, 1995, there were 25,769,128 shares of Common Stock
outstanding, distributed as follows:
TITLE OF CLASS HOLDER SHARES
Common Stock Prudential's Investment Plan Account 20,660,796
Prudential's Annuity Plan Account 240,480
Prudential's Annuity Plan Account-2 4,867,852
----------
25,769,128
Item 27. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Prudential Directors' and Officers' Liability and Corporation
Reimbursement Insurance Program, purchased by The Prudential from Aetna
Casualty & Surety Company, CNA Insurance Companies, 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
reimbursement for "Loss" (as defined in the policies) which the Company
pays as indemnification to its directors or officers resulting from any
claim for any actual or alleged act, error, misstatement, misleading
statement, omission, or breach of duty by persons in the discharge of their
duties 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,
C-13
<PAGE>
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 uninsurable 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 fraudulent acts or omissions or the willful violation
of any law by a director or officer, (2) claims based on or attributable to
directors or officers gaining personal profit or advantage to which they
were not legally entitled, and (3) 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 26, 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 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.
30 to Form N-3 to the Registration Statement of The Prudential Variable
Contract Account-10, Registration No. 2-76580, filed April ____, 1996, 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. 11 to Form N-4, Registration No. 34-25434, filed April ____, 1996
on behalf of The Prudential Individual Variable Contract Account.
(c) Not applicable.
C-14
<PAGE>
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
Consent of Deloitte & Touche LLP, independent auditors. Page C-12
27.1 Financial Data Schedule - Prudential's Annuity Plan Account-2 Page C-17
27.2 Financial Data Schedule - Prudential's Gibraltar Fund Page C-18
C-16
INDEPENDENT AUDITORS' CONSENT
We consent to the use of this Post-Effective Amendment No. 35 to Registration
Statement No. 2-52589 on Form S-6 of Prudential's Annuity Plan Account - 2 of
The Prudential Insurance Company of America (1) of our report dated February 15,
1996, relating to the financial statements of Prudential's Annuity Plan Account
- - 2, (2) of our report dated February 15, 1996, relating to the financial
statements of Prudential's Gibraltar Fund, and (3) of our report dated March 1,
1996, relating to the consolidated financial statements of The Prudential
Insurance Company of America and subsidiaries appearing in the Prospectus, which
is a part of such Registration Statement, and to the references to us under the
heading "Financial Highlights" and "Experts" in such Prospectus.
/S/ Deloitte & Touche LLP
Parsippany, New Jersey
April 25, 1996
C-12
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> PRUDENTIAL ANNUITY PLAN ACCOUNT-2
<CIK> 0000080945
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 44,218
<INVESTMENTS-AT-VALUE> 49,346
<RECEIVABLES> 0
<ASSETS-OTHER> (5)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,340
<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> 4,868
<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> 49,340
<DIVIDEND-INCOME> 769
<INTEREST-INCOME> 0
<OTHER-INCOME> 4,112
<EXPENSES-NET> 337
<NET-INVESTMENT-INCOME> 431
<REALIZED-GAINS-CURRENT> (177)
<APPREC-INCREASE-CURRENT> 4,142
<NET-CHANGE-FROM-OPS> 8,507
<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> 516
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> PRUDENTIAL GIBRALTAR FUND
<CIK> 0000080946
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 244,647,426
<INVESTMENTS-AT-VALUE> 261,575,913
<RECEIVABLES> 1,837,526
<ASSETS-OTHER> 1,715
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 263,415,154
<PAYABLE-FOR-SECURITIES> 2,078,261
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,485
<TOTAL-LIABILITIES> 2,191,746
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,664,792
<SHARES-COMMON-STOCK> 25,769,128
<SHARES-COMMON-PRIOR> 24,315,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (59,851)
<ACCUMULATED-NET-GAINS> 7,801,150
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,928,487
<NET-ASSETS> 261,223,408
<DIVIDEND-INCOME> 3,760,580
<INTEREST-INCOME> 995,154
<OTHER-INCOME> 0
<EXPENSES-NET> 374,601
<NET-INVESTMENT-INCOME> 4,381,133
<REALIZED-GAINS-CURRENT> 31,242,770
<APPREC-INCREASE-CURRENT> 9,457,438
<NET-CHANGE-FROM-OPS> 45,081,341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,026,639
<DISTRIBUTIONS-OF-GAINS> 21,543,401
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 2,430,032
<SHARES-REINVESTED> 2,396,099
<NET-CHANGE-IN-ASSETS> (792,203)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 294,643
<OVERDIST-NET-GAINS-PRIOR> 1,898,219
<GROSS-ADVISORY-FEES> 325,596
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 374,601
<AVERAGE-NET-ASSETS> 260,521,446
<PER-SHARE-NAV-BEGIN> 9.398
<PER-SHARE-NII> .177
<PER-SHARE-GAIN-APPREC> 1.649
<PER-SHARE-DIVIDEND> .171
<PER-SHARE-DISTRIBUTIONS> .916
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.137
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
