<PAGE>
THE PRUDENTIAL [Logo]
Annual
Report to
Planholders
December 31, 1995
PRUDENTIAL'S
FINANCIAL SECURITY
PROGRAM
Prudential's Gibraltar Fund
and
Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
The Prudential Insurance Company of America
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
<PAGE>
<PAGE>
TABLE OF CONTENTS
NOTE: **The back inside cover provides important
telephone numbers for customer service.
PAGE
I. LETTER TO PLANHOLDERS
Summarizes the results of Prudential's Financial Security Program
and provides an economic overview................................. 1
II. PRUDENTIAL'S GIBRALTAR FUND
The Prudential's Financial Security Program is the only account
investing in Prudential's Gibraltar Fund.
1. FINANCIAL STATEMENTS............................................ A1
2. SCHEDULE OF INVESTMENTS
Lists the holdings in the Prudential's Gibraltar Fund........... A2
3. NOTES TO THE FINANCIAL STATEMENTS............................... A4
4. INDEPENDENT AUDITORS' REPORT.................................... A6
III. PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
1. FINANCIAL STATEMENTS
Provides financial data at the product level including
investment results net of certain product related charges....... B1
2. NOTES TO FINANCIAL STATEMENTS................................... B4
3. INDEPENDENT AUDITORS' REPORT.................................... B8
IV. APPENDIX
1. REPORT OF MANAGEMENT............................................ i
2. GLOSSARY........................................................ ii
3. BOARDS OF DIRECTORS............................................. iii
4. NOTICE OF ELECTION.............................................. iv
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
DEAR PLANHOLDER:
IN 1995, U.S. STOCKS AND BONDS PRODUCED THE KINDS OF TOTAL RETURNS INVESTORS
USUALLY ONLY DREAM ABOUT. STOCKS RETURNED A STARTLING 37% FOR THE YEAR, AS
MEASURED BY THE STANDARD & POOR'S 500 STOCK INDEX, A BROAD MEASURE OF THE U.S.
STOCK MARKET. IT WAS FAR FROM A NORMAL YEAR: SINCE 1926, STOCKS HAVE HAD ONLY
SIX BETTER YEARS. THESE KINDS OF SUPERB MARKET GAINS WILL BE HARD TO BEAT IN OUR
LIFETIMES--CONGRATULATIONS ON BEING PART OF THIS HISTORIC BULL MARKET.
AND WHAT A DIFFERENCE FROM A YEAR EARLIER. IN 1994, WE REPORTED FLAT RETURNS FOR
STOCKS AND THE LARGEST LOSSES FOR LONG-TERM BONDS IN 75 YEARS. 1995'S RESULTS
REMIND US, ONCE AGAIN, THAT STAYING THE COURSE IS THE KEY TO LONG-TERM
INVESTING.
FURTHER INTO THE REPORT, WE'LL DISCUSS OUR OUTLOOK FOR 1996'S MARKETS. IN SHORT:
WE THINK U.S. STOCKS WILL BE VOLATILE THIS YEAR (ALTHOUGH WE FEEL THEY'RE THE
ONLY PLACE TO BE FOR THE LONG HAUL). BUT WE WOULDN'T BE SURPRISED IF IT'S A
BUMPY RIDE IN 1996. IT'S MORE IMPORTANT THAN EVER TO UNDERSTAND THE RISKS AND
REWARDS OF THE MARKET, DETERMINE YOUR TOLERANCE FOR VOLATILITY, AND SET
REALISTIC EXPECTATIONS REGARDING THE INVESTMENTS IN YOUR GIBRALTAR FUND.
CAN WE HELP?
AFTER THE TERRIFIC YEAR THE STOCK AND BOND MARKETS HAD IN 1995, IT'S IMPORTANT
TO REMEMBER HOW UNUSUALLY HIGH RETURNS WERE COMPARED TO THE HISTORICAL AVERAGES.
OVER THE LONG TERM, STOCKS HAVE AVERAGED RETURNS OF ABOUT 10.5% PER YEAR, WHILE
LONG TERM BONDS HAVE AVERAGED JUST UNDER 6%. RECOGNIZING JUST HOW HIGH THE
MARKETS WERE IN 1995 CAN HELP YOU BETTER MANAGE YOUR EXPECTATIONS FOR FUTURE
PERFORMANCE, WHICH WILL PROBABLY BE LOWER.
YOUR PRUDENTIAL/PRUCO SECURITIES REPRESENTATIVE STANDS READY TO DISCUSS YOUR
CHANGING FINANCIAL SECURITY NEEDS, AND TO ASSIST YOU IN ANY WAY HE OR SHE CAN.
YOUR REPRESENTATIVE IS A VALUABLE RESOURCE IN TODAY'S OFTEN VOLATILE FINANCIAL
MARKETS.
ALL OF US AT THE PRUDENTIAL THANK YOU FOR YOUR BUSINESS AND LOOK FORWARD TO
HELPING YOU PROVIDE FOR YOUR FUTURE FINANCIAL SECURITY..
/S/ E. Michael Caulfield
E. MICHAEL CAULFIELD
PRESIDENT
PRUDENTIAL'S GIBRALTAR FUND
/s/ Mendel Melzer
MENDEL A. MELZER
CHAIRMAN
PRUDENTIAL GIBRALTAR FUND
IMPORTANT NOTE:
THE RATES OF RETURN QUOTED ON THE FOLLOWING PAGES REFLECT DEDUCTION OF
INVESTMENT MANAGEMENT FEES AND INVESTMENT-RELATED EXPENSES BUT NOT PRODUCT
CHARGES. THEY REFLECT THE REINVESTMENT OF DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. THEY ARE NOT AN ESTIMATE OR A GUARANTEE OF FUTURE PERFORMANCE.
CONTRACT UNIT VALUES INCREASE OR DECREASE BASED ON THE PERFORMANCE OF THE FUND.
CHANGES IN CONTRACT VALUES DEPEND NOT ONLY ON THE INVESTMENT PERFORMANCE OF THE
FUND, BUT ALSO ON THE INSURANCE AND ADMINISTRATIVE CHARGES, APPLICABLE SALES
CHARGES, AND THE MORTALITY AND EXPENSE RISK CHARGE APPLICABLE UNDER A CONTRACT.
THESE CONTRACT CHARGES EFFECTIVELY REDUCE THE DOLLAR AMOUNT OF ANY NET GAINS AND
INCREASE THE DOLLAR AMOUNT OF ANY NET LOSSES.
1
<PAGE>
INVESTMENT ADVISOR'S OUTLOOK:
THIS TIME OF YEAR WE USUALLY ANALYZE THE FINANCIAL INDICATORS, REVIEW LAST
YEAR'S MARKET ACTIVITY AND TRY TO FORECAST NEXT YEAR'S INVESTMENT MARKETS--THE
BEST SECTORS TO CHOOSE AND WHERE WE THINK THERE'S MONEY TO BE MADE.
THIS YEAR, THERE'S STILL A LOT OF GOOD NEWS. INTEREST RATES ARE FALLING,
INFLATION IS LOW AND ECONOMIC GROWTH REMAINS POSITIVE--A COMBINATION THAT
CREATES A VERY HEALTHY ENVIRONMENT FOR STOCKS. BUT LOOKING BACK AT 1995, THE
STOCK MARKET HAS ALREADY PRODUCED RECORD-BREAKING TOTAL RETURNS. HISTORY TELLS
US THESE RETURNS ARE UNLIKELY TO BE REPEATED ANY TIME SOON. OVERALL, THOUGH, WE
ARE POSITIVE, BUT WE WANT TO MAKE SURE WE'RE NOT TAKING TOO MUCH RISK.
(1)SOURCE: THE PRUDENTIAL. FOR PURPOSES OF COMPARISON ONLY. U.S. STOCKS AS
MEASURED BY THE S&P 500 INDEX. BONDS AS MEASURED BY THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE AGGREGATE. GLOBAL STOCKS AS MEASURED BY THE MORGAN STANLEY
CAPITAL INTERNATIONAL-WORLD INDEX. U.S. MONEY MARKETS AS MEASURED BY LIPPER
MONEY MARKET AVERAGE.
FINANCIAL MARKETS
REVIEW
HOW HIGH IS HIGH?
The environment for America's companies could hardly have been better in 1995.
The result of this healthy economy: The Dow Jones Industrial Average, a narrow
but frequently cited market average, set new records of 4000 in February, 4500
in June, and 5000 in November. Those gains were driven largely by corporate
earnings, which grew at a healthy pace last year.
Productivity enhancements of the late 1980s and early 1990s, including staff
reductions and technology use, are finally beginning to bear fruit at many
companies, particularly at banks, airlines and automakers. And the weak dollar
made U.S. exports very competitive in the global marketplace. When the
U.S.dollar is weak, foreign consumers literally get more for their money--after
conversion to their local currency.
- TECHNOLOGY stocks, including computer hardware, software and
telecommunications companies, were the hands-down winners for much of the
year, although they experienced some setbacks in the fourth quarter.
Computers--and other forms of technology--are behind many of the efficiency
gains that are keeping wages low. And the rest of the world hasn't even
begun to use technology as much as we already do in the United States. As
global economies continue to grow and advance, companies and individuals
are likely to start looking to technology to make their lives easier (and
sometimes more fun, as well).
- BANK, financial services and insurance stocks were also good performers,
gaining on the strength of falling interest rates. Many of these companies
invest heavily in bonds, and they made money when bond prices rose in 1995.
Mergers were also a big part of this sector's success. The merger craze led
to higher prices, particularly for bank stocks, as investors sought to
anticipate which companies would combine.
WHAT DIDN'T FARE AS WELL?
- COMPANIES like automakers and retailers had a difficult year. When the
economy slowed in the spring, consumers stopped splurging and started
bargain-hunting. The all-important holiday spending season was
disappointing, as well.
U.S. STOCKS OUTLOOK
The U.S. stock market is the toughest for us to call. Falling interest rates are
positive for the market; but we're concerned about slowing earnings growth. Our
best guess: modest positive returns by year end 1996, but expect a sell-off
sometime during the year.
One last word: judge your risk tolerance carefully this year. There could be
many ups--and some big downs--in 1996. We think long-term investors should be
prepared to weather some turmoil on their way to positive total returns. And
remember to review your financial security objectives with your Registered
Representative in case your needs have changed.
HOW THE MARKETS COMPARED(1)
Total Returns By Asset Class
1995'S RETURN OVER PAST
20 YEARS
------------- ---------
MONEY MARKET 5.4% 7.7%
BONDS 18.5% 10.1%
FOREIGN STOCKS 21.3% 14.2%
U.S. STOCKS 37.6% 14.6%
AS YOU CAN SEE, STOCK AND BOND MARKET RETURNS CAN VARY CONSIDERABLY FROM YEAR TO
YEAR. AN INVESTMENT'S PAST PERFORMANCE SHOULD NEVER BE USED TO PREDICT FUTURE
RESULTS. THIS CHART COMPARES 1995'S TOTAL RETURN AND THE AVERAGE ANNUAL TOTAL
RETURN OVER 20 YEARS FOR VARIOUS CATEGORIES OF INVESTMENTS. THERE ARE DIFFERENT
RISKS ASSOCIATED WITH EACH INVESTMENT SECTOR, WHICH SHOULD BE CONSIDERED BEFORE
INVESTING.
2
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
Falling interest rates, rising corporate profits and moderate economic growth
propelled stocks higher in 1995. Although your Gibraltar Fund gained 19.1% over
the twelve months ended December 31, 1995, it returned much less than both the
S&P 500 index and the Lipper VIP Growth Average. The Fund's weightings in the
technology sector were the primary reason for the underperformance. Gibraltar's
long term average annual returns remain above both the Lipper VIP Average and
the S&P 500 index.
The Fund's new portfolio manager, Greg Goldberg, took over management at
mid-year. Greg began to restructure the portfolio, placing a greater emphasis on
growth companies. Unfortunately, this transition period took place after a
strong rally in growth stocks began. Technology stocks led the pack in return
during the first half of 1995 but the Fund missed out on some of those gains
because it still held a relatively low percentage in technology. By the time
Greg's changes were completed, a sell-off in semiconductor stocks eliminated
some of our biggest gains in that sector. Two holdings in particular, Motorola
and Integrated Device Technology, Inc. (IDTI), were among the hardest hit during
the period as concerns of a potential supply glut and lower prices rattled
investors.
One area we were successful with was our finance holdings, our second largest
industry at 24% of assets as of December 31, 1995. Financial service companies
benefited from lower interest rates, which made the cost of their raw
material--money--cheaper. One of our best performing stocks over the past six
months is now our largest holding, Fannie Mae (FNMA), a government-sponsored
buyer of mortgages. The stock gained more than 31% in value between June 30,
1995, and December 31, 1995, and amounted to 4% of assets at the end of the
period.
Now that the portfolio transition is complete, we expect Greg's investment
approach to benefit the Fund over the long run.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE GIBRALTAR FUND VS. S&P 500 AND LIPPER VIP
GROWTH AVERAGE SINCE INCEPTION(1)
[Line Graph]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1995
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
Gibraltar Fund 19.1% 13.3% 18.1% 15.1%
Lipper VIP Growth Avg(1) 32.5 13.3 17.1 14.1
S&P 500(2) 37.6 15.3 16.6 14.9
INCEPTION DATE: 3/14/68
(1)Past performance is not predictive of future results. Fund Performance does
not reflect Separate Account expenses or other product charges.
(2)Lipper provides data on a monthly basis, so for comparative purposes, the
Lipper Average and Index inception returns reflect the fund's first full
calendar month of performance.
The S&P 500 is a capital weighted index, representing the aggregate market value
of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The S&P 500 is an unmanaged index and includes the reinvestment of all
dividends, but does not reflect the payment of transaction costs and advisory
fees associated with an investment in the Fund. The securities that comprise the
S&P 500 may differ substantially from the securities in the Fund. The S&P 500 is
not the only index that may be used to characterize performance of this Fund and
other indexes may portray different comparative performance.
The Lipper Variable Insurance Products (VIP) Average is calculated by Lipper
Analytical Services, Inc. and reflects the investment return of portfolios
underlying variable life and insurance products. These returns are net of
investment fees and fund expenses but not product charges.
[Photo] DATA
BANK
PORTFOLIO MANAGER
GREG GOLDBERG
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER GREG GOLDBERG took over the Fund's management responsibilities
last June. Greg follows a growth style of investing, selecting stocks based on
their potential to deliver above-average growth in revenues and earnings. He
manages several mutual funds for The Prudential: Prudential Allocation
Fund--Balanced and Strategy Portfolios and Prudential Multi-Sector Fund.
- --------------------------------------------------------------------------------
SECTOR ALLOCATION.
AS OF 12/3195
Technology . . . . . . . . . . . . . . . . . 33.7%
Finance. . . . . . . . . . . . . . . . . . . 24.0
Industrial . . . . . . . . . . . . . . . . . 19.4
Consumer Growth. . . . . . . . . . . . . . . 10.0
Energy . . . . . . . . . . . . . . . . . . . 3.5
Utility. . . . . . . . . . . . . . . . . . . 2.5
Consumer Cyclical. . . . . . . . . . . . . . 1.7
Cash . . . . . . . . . . . . . . . . . . . . 5.2
- --------------------------------------------------------------------------------
TOP FIVE HOLDINGS.
AS OF 12/3195
FNMA . . . . . . . . . . . . . . . . . . . . 4.0%
Boeing . . . . . . . . . . . . . . . . . . . 3.6
Travelers Group. . . . . . . . . . . . . . . 2.9
Philip Morris. . . . . . . . . . . . . . . . 2.8
Precision Castparts. . . . . . . . . . . . . 2.7
3
<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
--------------
--------------
</TABLE>
<TABLE>
<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
---------------
---------------
</TABLE>
<TABLE>
<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 A4 AND A5.
A1
<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>
A2
<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 A4 AND A5.
A3
<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.
A4
<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>
NOTE 6: FINANCIAL HIGHLIGHTS
The following average per share data, ratios and supplemental information have
been derived from information provided in the financial statements.
<TABLE>
<CAPTION>
PRUDENTIAL'S GIBRALTAR FUND
------------------------------------------------------------------------------------------------------
01/01/95 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.
A5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of Prudential's Gibraltar Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Prudential's Gibraltar Fund as of December 31,
1995, the related statement of operations for the year then ended and the
statements of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 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 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 and the changes
in its net assets for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A6
<PAGE>
(This page intentionally left blank.)
A7
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1995
<S> <C>
Investment in 20,660,796 shares of
Prudential's Gibraltar Fund at
net
asset value of $10.1371 per share
(Cost: $206,291,404)........... $ 209,439,889
Accrued expenses................... (46,686)
-------------
NET ASSETS......................... $ 209,393,203
-------------
-------------
Net assets were comprised of:
Paid-in capital.................... $ 206,255,944
Distributions in excess of net
investment income................ (14,652)
Accumulated net realized gains..... 3,427
Net unrealized appreciation........ 3,148,484
-------------
Net assets, December 31, 1995...... $ 209,393,203
-------------
-------------
Net asset value per share of
20,944,486 outstanding
Securities Shares................ $ 9.9975
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Dividend distributions received... $ 3,219,566
EXPENSES
Administration charge [Note 1].... 1,547,862
------------
NET INVESTMENT INCOME............... 1,671,704
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received........................ 17,225,385
Realized loss on shares redeemed
[identified cost basis]......... (296,003)
Net unrealized gain on
investments..................... 15,635,256
------------
NET GAIN ON INVESTMENTS............. 32,564,638
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... $ 34,236,342
------------
------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
----------------------------------------
1995 1994
------------------ -----------------
<S> <C> <C>
OPERATIONS:
Net investment income......................... $ 1,671,704 $ 2,504,877
Capital gains distributions received.......... 17,225,385 26,877,899
Realized loss on shares redeemed.............. (296,003) (111,234)
Net unrealized gain (loss) on investments..... 15,635,256 (33,217,396)
------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................... 34,236,342 (3,945,854)
------------------ -----------------
DIVIDENDS TO PLANHOLDERS FROM [NOTE 5]:
Net investment income......................... (1,657,617) (2,494,652)
Net realized gain from investment
transactions................................. (17,225,586) (26,878,099)
------------------ -----------------
TOTAL DIVIDENDS TO PLANHOLDERS.................. (18,883,203) (29,372,751)
------------------ -----------------
SECURITIES SHARES TRANSACTIONS:
Purchase payments............................. 18,426,882 30,028,358
Security Shares liquidated.................... (15,591,735) (13,361,790)
------------------ -----------------
NET INCREASE IN NET ASSETS RESULTING
FROM SECURITIES SHARES TRANSACTIONS:.......... 2,835,147 16,666,568
------------------ -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......... 18,188,286 (16,652,037)
NET ASSETS:
Beginning of year............................. 191,204,917 207,856,954
------------------ -----------------
End of year................................... $ 209,393,203 $ 191,204,917
------------------ -----------------
------------------ -----------------
</TABLE>
B1
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1995
<S> <C>
Investment in 240,480 shares of
Prudential's Gibraltar Fund at
net
asset value of $10.1371 per share
(Cost: $2,278,782)............. $ 2,437,764
Accrued expenses................... (102)
-------------
NET ASSETS......................... $ 2,437,662
-------------
-------------
NET ASSETS, representing:
Equity of annuitants [Note 4].... 2,274,289
Equity of The Prudential
Insurance Company
of America..................... 163,373
-------------
$ 2,437,662
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Dividend distributions received... $ 38,563
EXPENSES
Charges to annuitants for assuming
mortality
and expense risks and for
administration [Note 1]......... 8,817
------------
NET INVESTMENT INCOME............... 29,746
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Capital gains distributions
received........................ 206,323
Realized gain on shares redeemed
[identified cost basis]......... 7,202
Net unrealized gain on
investments..................... 200,450
------------
NET GAIN ON INVESTMENTS............. 413,975
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... $ 443,721
------------
------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
----------------------------------------
1995 1994
------------------ -----------------
<S> <C> <C>
OPERATIONS:
Net investment income......................... $ 29,746 $ 43,010
Capital gains distributions received.......... 206,323 362,212
Realized gain on shares redeemed.............. 7,202 5,575
Net unrealized gain (loss) on investments..... 200,450 (446,695)
------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................... 443,721 (35,898)
------------------ -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM ACCUMULATION TRANSACTIONS...... 18,027 0
------------------ -----------------
ANNUITY BENEFIT PAYMENTS........................ (333,758) (521,684)
------------------ -----------------
NET DECREASE IN NET ASSETS RESULTING
FROM SURPLUS TRANSFERS........................ (134,720) (178,479)
------------------ -----------------
TOTAL DECREASE IN NET ASSETS.................... (6,730) (736,061)
NET ASSETS:
Beginning of year............................. 2,444,392 3,180,453
------------------ -----------------
End of year................................... $ 2,437,662 $ 2,444,392
------------------ -----------------
------------------ -----------------
</TABLE>
B2
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S ANNUITY PLAN ACCOUNT-2
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1995
<S> <C>
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>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<S> <C>
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>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
----------------------------------------
1995 1994
------------------ -----------------
<S> <C> <C>
OPERATIONS:
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>
B3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
PRUDENTIAL'S INVESTMENT PLAN ACCOUNT
NOTE 1: ADMINISTRATION CHARGE
The administration charge is applied daily at an effective annual rate of 0.750%
against the net assets of the Account. This charge is paid to The Prudential
Insurance Company of America (The Prudential).
NOTE 2: TAXES
For federal income tax purposes, Prudential's Investment Plan Account is a
separate entity taxable as a corporation, and as such has elected to be taxed as
a regulated investment company under Subchapter M of the Internal Revenue Code.
As a result, by distributing substantially all of its net investment income and
net realized capital gains, the Account will not be subject to federal income
tax on the investment income and capital gains so distributed.
NOTE 3: SECURITIES SHARE TRANSACTIONS
The number of Securities Shares purchased and liquidated for the years ended
December 31, 1995 and December 31, 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Securities Shares purchased: 76,417 120,448
Securities Shares liquidated: 1,548,936 1,161,767
Reinvestment of dividend distributions: 1,775,407 3,228,222
</TABLE>
NOTE 4: SECURITIES SHARE INFORMATION
<TABLE>
<CAPTION>
NET ASSET VALUE DIVIDENDS FROM NET CAPITAL GAINS
YEAR AT DECEMBER 31 INVESTMENT INCOME DISTRIBUTION
- --------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
1991 11.3754 .1785 .8650
1992 11.1042 .1045 2.0436
1993 11.2631 .0898 2.2692
1994 9.2631 .1427 1.5380
1995 9.9975 .0863 .8968
</TABLE>
NOTE 5: DISTRIBUTIONS
The date of distribution ordinarily occurs at the end of the calendar year.
$57,279 and $61,085 of the gross distributions of $18,883,203 and $29,372,751
were applied to pay custodial charges for the years ended December 31, 1995 and
December 31, 1994. The annual charges were not in excess of $3.80 per
planholder.
NOTE 6: RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements to
conform to the 1995 presentation.
B4
<PAGE>
PRUDENTIAL'S ANNUITY PLAN ACCOUNT
NOTE 1: MORTALITY RISK, EXPENSE RISK, AND ADMINISTRATION CHARGES
The mortality risk charge, the expense risk charge, and the administration
charge, at effective annual rates of 0.075%, 0.150%, and 0.150%, respectively
(for a total of 0.375% per year), are applied daily against the net assets of
the Account. These charges are paid to The Prudential.
NOTE 2: TAXES
The operations of Prudential's Annuity Plan Account form a part of, and are
taxed with, the operations of The Prudential. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the annuitants are not taxed
to The Prudential. As a result, the Annuity Share Value is not affected by
federal income taxes on such distributions received by the Account.
NOTE 3: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents the net
contributions of The Prudential to the Account.
NOTE 4: ANNUITY SHARE INFORMATION
Payments to annuitants are based on the value of an Annuity Share. The
investment results of the Account are reflected in changes in the value of an
Annuity Share to the extent that they are greater or less than the assumed
investment result in the annuitant's contract. The December 31 values are
reflected in the annuity payments made for February of the next year.
<TABLE>
<CAPTION>
ANNUITY SHARE VALUE AT DECEMBER 31 ANNUITY SHARE VALUE AT DECEMBER 31
YEAR USING A 3 1/2% ASSUMED INVESTMENT RESULT USING A 5% ASSUMED INVESTMENT RESULT
- --------- ----------------------------------------- ---------------------------------------
<S> <C> <C>
1991 3.3758 2.5146
1992 3.8225 2.8064
1993 4.5546 3.2961
1994 4.3166 3.0794
1995 4.9507 3.4814
</TABLE>
B5
<PAGE>
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>
B6
<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>
B7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Planholders of Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
and the Board of Directors of The Prudential Insurance
Company of America:
We have audited the accompanying statements of net assets of:
Prudential's Investment Plan Account
Prudential's Annuity Plan Account
Prudential's Annuity Plan Account-2
of The Prudential Insurance Company of America as of December 31, 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 Investment Plan
Account, Prudential's Annuity Plan Account and 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
B8
<PAGE>
REPORT OF MANAGEMENT
The accompanying financial statements and all information in the annual
report are the responsibility of management. They have been prepared in
conformity with generally accepted accounting principles. The statements
necessarily include amounts based on management's best estimates and judgments.
Information presented in one section of the annual report is consistent with
information dealing with the same or substantially similar subject matter
presented elsewhere in the annual report.
The systems of internal controls for Prudential's Gibraltar Fund,
Prudential's Investment Plan Account, Prudential's Annuity Plan Account and
Prudential's Annuity Plan Account-2 (Program) are integral parts of those for
The Prudential Insurance Company of America (The Prudential). As such,
management depends upon The Prudential's systems of internal controls in meeting
its responsibilities for reliable financial statements. These systems are
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
authorization. The concept of reasonable assurance is based on the premise that
the cost of internal controls should not exceed the benefits derived. The
control environment is enhanced by the selection and training of competent
management, a business ethics policy demanding the highest standards of conduct
by employees in carrying out the Program's affairs, organizational arrangements
that provide for segregation of duties and delegation of authority, and the
communication of accounting and operating policies and procedures throughout the
organization. In addition, The Prudential maintains a professional staff of
internal auditors who monitor the Program's control structure through periodic
reviews and tests of the control aspects of accounting, financial and operating
activities. The internal auditors coordinate their program with that of the
independent certified public accountants.
The financial statements have been audited by Deloitte & Touche, Certified
Public Accountants. The independent auditor's reports, which appear in this
annual report, each express an independent professional opinion on the fairness
of presentation of management's financial statements. The auditors review the
Program's financial and accounting controls and conduct such tests and
procedures as they deem necessary under generally accepted auditing standards.
The Prudential's Board of Directors, through its Auditing Committee, and
Prudential's Gibraltar Fund's Board of Directors monitor management's
fulfillment of its responsibilities for accurate accounting, statement
preparation and protection of assets. The Prudential's Auditing Committee is
composed solely of outside directors and Prudential's Gibraltar Fund's Board of
Directors has a majority of outside directors. Both The Prudential's Auditing
Committee and the outside directors of Prudential's Gibraltar Fund meet with the
independent certified public accountants, management and internal auditors
periodically to evaluate the discharge by each of their respective
responsibilities. Each has free and separate access to the Auditing Committee
and Prudential's Gibraltar Fund's Board of Directors to discuss accounting,
financial reporting, internal control and auditing matters.
<TABLE>
<S> <C>
Mendel A. Melzer Mark B. Grier
Chairman Chief Financial Officer
The Prudential Series Fund, Inc. The Prudential Insurance Company of America
</TABLE>
I
<PAGE>
GLOSSARY OF TERMS FOR THE REPORT TO PLANHOLDERS
(NOTE: ADDITIONAL EXPLANATIONS WILL BE FOUND IN NOTES TO FINANCIAL STATEMENTS)
ACCUMULATION UNIT -- The measure for determining the Planholder's share in the
separate account of a deferred variable annuity during the accumulation period
before annuity benefits begin to be paid. Planholder transactions such as
purchase payments, transfers, and withdrawals result in changes to the number of
accumulation units credited to the Planholder. Investment results and daily
charges affect the value of the accumulation unit.
ANNUITY UNIT -- The measure of the fixed number of benefit units purchased by
the accumulation units when annuitizing via a variable payout annuity.
AMERICAN DEPOSITORY RECEIPT (ADR) -- A certificate issued by an American bank to
evidence ownership of a block of foreign shares. The certificate can be traded
like a share of stock.
CERTIFICATE OF DEPOSIT (CD) -- A short-term, interest-bearing bond issued by a
bank or a savings and loan.
COMMERCIAL PAPER -- A short-term, unsecured promissory note issued by either a
corporation or bank.
COMMON STOCK -- The basic unit of ownership of a public corporation which
entitles stockholders to dividend payments, although amount and frequency of
dividends are not guaranteed. (see also Stock)
CONVERTIBLE BOND -- A bond that is exchangeable for another type of security
(usually common stock).
COUPON RATE -- The annual rate of interest the issuer of a bond will pay
bondholders.
LOAN PARTICIPATION -- A loan to a corporation which is sold by a bank in the
form of a short-term, unsecured promissory note.
NET ASSETS -- The term used to designate the total value of securities owned,
cash, receivables, and other assets less any liabilities.
MARKET VALUE -- The dollar value of a security on a given day, usually based on
the last sales price of that given day.
PREFERRED STOCK -- A high quality unit of ownership of a public corporation
which entitles the holder to preference over common stock holders in the payment
of dividends. (see also Stock)
PORTFOLIO TURNOVER -- A measure of portfolio trading activity.
REALIZED GAIN/LOSS -- The amount of profit or loss from the sale of securities.
Calculated as the sale price minus the purchase price.
REPURCHASE AGREEMENT -- An agreement where an investor loans cash to a bank in
exchange for a Treasury security held as collateral and interest on the loan.
The agreement indicates that the cash and collateral are exchanged back the
following day. These securities are used to invest idle cash.
RESTRICTED SECURITY -- A security which is sold privately because it is not
registered with the SEC.
RIGHT -- Privilege granted to stockholders of a company to buy shares of a new
issue of common stock (at a price below the public offering price) before it is
offered to the public.
STOCK -- Unit of ownership in a public corporation. The value of a share of
stock varies, according to how buyers and sellers of the stock view the
corporation's future success. Shareholders generally receive dividend payments,
which are their part of the corporation's earnings. (see also Common Stock;
Preferred Stock)
TIME DEPOSIT (TD) -- A non-negotiable short-term, interest bearing bond issued
by a bank or savings & loan. The maturity period can be from 1 day to 6 months.
UNREALIZED GAIN/LOSS -- The increase or decrease in the value of a security,
based on its daily market price and its original purchase price. A gain or loss
is "unrealized" until the sale of the security.
WARRANT -- A security which entitles the holder to buy additional shares of
common stock at a specified price (usually higher than the market price at the
time of issuance), over a period of years.
II
<PAGE>
BOARD OF
DIRECTORS PRUDENTIAL'S GIBRALTAR FUND
MENDEL A. MELZER W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN, PhD. CEO,
THE PRUDENTIAL SERIES EXECUTIVE VICE PRUDENTIAL PREFERRED
FUND, INC. PRESIDENT, FINANCIAL SERVICES;
FAIRLEIGH DICKINSON PRESIDENT OF THE FUND
UNIVERSITY
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
- --------------------------------------------------------------------------------
BOARD OF
DIRECTORS THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
FRANKLIN E. AGNEW ROGER A. ENRICO ARTHUR F. RYAN
BUSINESS CONSULTANT CHAIRMAN AND CEO, CHAIRMAN, CEO,
FREDERIC K. BECKER PEPSICO WORLDWIDE AND PRESIDENT,
PRESIDENT, RESTAURANTS THE PRUDENTIAL
WILENTZ, GOLDMAN, & ALLAN D. GILMOUR CHARLES R. SITTER
SPITZER FORMER VICE CHAIRMAN, PRESIDENT,
WILLIAM W. BOESCHENSTEIN FORD MOTOR COMPANY EXXON CORPORATION
FORMER CHAIRMAN, WILLIAM H. GRAY III DONALD L. STAHELI
OWENS-CORNING PRESIDENT AND CEO, CHAIRMAN AND CEO,
FIBERGLAS CORPORATION UNITED NEGRO COLLEGE CONTINENTAL GRAIN
LISLE C. CARTER, JR. FUND, INC. COMPANY
FORMER SENIOR VICE JON F. HANSON RICHARD M. THOMSON
PRESIDENT CHAIRMAN, HAMPSHIRE CHAIRMAN AND CEO,
AND GENERAL COUNSEL, MANAGEMENT COMPANY THE TORONTO-DOMINION
UNITED WAY OF AMERICA CONSTANCE J. HORNER BANK
JAMES G. CULLEN GUEST SCHOLAR, P. ROY VAGELOS, M.D.
VICE CHAIRMAN, THE BROOKINGS FORMER CHAIRMAN AND
BELL ATLANTIC INSTITUTION CEO,
CORPORATION ALLEN F. JACOBSON MERCK & CO., INC.
CAROLYNE K. DAVIS, PhD. FORMER CHAIRMAN AND STANLEY C. VAN NESS
NATIONAL AND CEO, COUNSELOR AT LAW,
INTERNATIONAL MINNESOTA MINING AND PICCO HERBERT KENNEDY
HEALTH CARE ADVISOR, MANUFACTURING (3M) PAUL A. VOLCKER
ERNST & YOUNG GARNETT L. KEITH, JR. CHAIRMAN AND CEO,
VICE CHAIRMAN, JAMES D. WOLFENSOHN,
THE PRUDENTIAL INC.
BURTON G. MALKIEL JOSEPH H. WILLIAMS
PROFESSOR, DIRECTOR,
PRINCETON UNIVERSITY THE WILLIAMS COMPANIES,
JOHN R. OPEL INC.
RETIRED CHAIRMAN,
IBM CORPORATION
III
<PAGE>
"NOTICE OF ELECTION"
The Prudential Insurance Company of America is a mutual life insurance company.
Our principal office is in Newark, New Jersey, and we are incorporated in that
state. By law, we have 24 directors. This includes 16 elected by our
policyholders (four each year for four-year terms), two of our officers, and six
public directors named by New Jersey's Chief Justice. The election is held on
the first Tuesday in April from 10:00 A.M. to 2:00 P.M. in our office at the
Secretary's address shown here. After your plan has been in force for one year,
you may vote either in person or by mail. We will send you a ballot if you ask
for one. Just write to our Secretary at Prudential Plaza, Newark, New Jersey
07102-3777, at least 60 days before the election date. By law, your request must
show your name, address, plan number and date of birth. If you are an
individual, you must be at least 18 years old to vote. (The election covered by
this notice is not to be confused with the election of the directors of
Prudential's Gibraltar Fund, for which planholders receive a voting instruction
statement and form each year.)
IV
<PAGE>
Graph 1: (Prudential's Gibraltar Fund)
How the Markets Compare - Total Returns by Asset Class
Graph represents comparison of markets for 1-year total return and 20-year
average annual return for year ending 12/31/95. Investment Total Returns for
the one year ending 12/31/95: U.S. Bonds - 18.5%; U.S. Stocks - 37.6%, Global
Stocks - 21.3%; U.S. Money Markets - 5.4%. Investment Total Returns for the
twenty-year period ending 12/31/95: U.S. Bonds - 10.1%; U.S. Stocks - 14.6%;
Global Stocks - 14.2%; U.S. Money Markets - 7.7%.
Graph 2: (Prudential's Gibraltar Fund)
Graph represents the growth of $10,000 invested in Prudential's Gibraltar
Fund compared with the S&P 500 and Lipper VIP Growth Average. In the ten
years ended 12/31/95, an investment of $10,000 would have a value of $40,725,
$40,031, and $37,999 respectively.
