<PAGE>
Prudential's
Gibraltar Fund, Inc.
[PHOTO OF PRUDENTIAL'S GIBRALTAR FUND, INC APPEARS HERE]
Semiannual Report
to Planholders
Prudential's Financial Security Program
June 30, 1999
[LOGO OF PRUDENTIAL APPEARS HERE]
The Prudential Insurance
Company of America
751 Broad Street
IFS-19990722-A044642 Newark, NJ 07102-3777
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[LOGO OF PRUDENTIAL "ROCK" APPEARS HERE]
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Prudential's Financial Security Program is the only account investing in
Prudential's Gibraltar Fund, Inc.
Table of Contents
Letter to Planholder...........................................................2
Market Commentary..............................................................4
Investment Outlook.............................................................6
Prudential's Gibraltar Fund, Inc. .............................................8
Financial Reports
Financial Statements......................................................A1
Schedule of Investments...................................................B1
Notes to Financial Statements.............................................C1
<PAGE>
Period Ended June 30, 1999
Letter
To Planholder
[PHOTO OF JOHN R. STRANGFELD APPEARS HERE]
John R. Strangfeld
Chairman
Dear Planholder:
This Semiannual Report presents the investment performance of Prudential's
Gibraltar Fund, Inc.
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they thought to be safe. In the
equity market, they focused on the stocks of a handful of very large companies
that were perceived to be well-buffeted from an economic slowdown. These stocks
became very expensive--out of proportion to their earnings expectations. As a
result, there was a substantial disparity in value between large and small
companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid news
of strong U.S. economic growth and faster-than-expected global stability. While
the long-term prospects of U.S. growth stocks are still very good, many of the
stocks of smaller and economically sensitive companies favored by our value
managers are now posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds were
the major beneficiaries of the flight to quality that occurred last year. When
this trend reversed itself toward the end of 1998, other sectors of the bond
market rebounded. However, with a strong U.S. economy comes the threat of higher
inflation, which erodes the value of bonds' fixed interest payments. The recent
inflation concerns jolted the bond market toward the end of the reporting period
and helped send long-term interest rates to a 19-month high. Fortunately, the
Federal Reserve appears committed to keeping inflation from threatening the
economy's growth.
How did the Gibraltar Fund perform?
Prudential's Gibraltar Fund returned 14.53% for the first half of 1999--
outperforming the Lipper (VIP) Growth Fund Average of 12.60% and the unmanaged
S&P 500 Index of 12.30%.
2
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Diversification: Protection against market turbulence
Since most people buy variable annuity products for long-term financial
planning, our objective for Prudential's Gibraltar Fund is to achieve above
average investment performance over time. This variable annuity, however, should
be only one component of a well-diversified financial strategy.
The winds of change in the equity market and the recent turbulence in the bond
market illustrate why investors should have a well-diversified asset allocation
strategy. It is also a good practice to revisit your strategy regularly and,
when necessary, rebalance your holdings to keep your asset allocation consistent
with your long-term objectives and risk tolerance.
As always, remember that past performance is not indicative of future results.
Please consult your prospectus for complete details with regard to this fund.
Your Prudential professional will be happy to help you review and structure a
program to meet your long-term financial needs. All of us at Prudential thank
you for your business and look forward to helping you plan for your future
financial security.
Sincerely,
/s/ John R. Strangfeld,
John R. Strangfeld,
Chairman,
The Prudential Series Fund, Inc.
July 30, 1999
Important Note
The rates of return quoted on the following pages reflect the deduction of
investment management fees and investment- related expenses, but not product
charges. They reflect the reinvestment of dividend and capital gains
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
and, when redeemed, may be worth more or less than original cost. 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 the contract. These
contract charges effectively reduce the dollar amount of any net gains and
increase the dollar amount of any net losses.
3
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1999
Market Commentary
How the Markets Compared/1/
[BAR CHART APPEARS HERE]
Return Over Average Return Over
Past 12 Months Past 20 Years (Annualized)
Money Markets 4.8% 6.4%
Bonds 2.7% 9.7%
Foreign Stocks 15.7% 14.5%
U.S. Stocks 22.8% 17.9%
This chart compares the 12-month return as of 6/30/99 for various categories of
investments with the average annual total return over 20 years for the same
investment. As you can see, stock and bond market returns can vary considerably
from year to year. Unlike stocks, bonds generally offer a fixed rate of return
and principal if held to maturity. An investment's past performance should never
be used to predict future results. There are different risks associated with
each investment sector, which should be carefully considered before investing.
/1/Source: Lipper, Inc. For purposes of comparison only. U.S. money markets as
measured by Lipper Money Market Average (VA). Bonds as measured by the Lehman
Brothers Gov't. Corp. Index. Foreign stocks as measured by the Morgan Stanley
Capital International World Index. U.S. stocks as measured by the S&P 500
Composite Stock Price Index.
Market Overview
Investors move out into a safer world
It started in the first quarter of the year, but investors were too risk averse
to believe it. By April, however, it could no longer be denied: the world was
becoming a safer place to invest. Japan was showing signs that its economy had
bottomed and was poised to start growing again; Germany was also hinting at
improved economic conditions, and cheaper currencies and lower interest rates
were helping to fuel several emerging market economies.
This encouraging economic news prompted many equity investors to look beyond the
domestic large-capitalization growth stocks that have played such a big part in
driving the market's returns over the past several years. What they found in the
United States was stocks of small-cap companies that were ignored for so long
they had become bargain priced. Investors also found relatively inexpensive
value stocks among the large-cap companies. These stocks included many
cyclicals--stocks that typically do well when the economy thrives. Outside the
United States, investors found stocks in Asia and emerging markets that were
also bargain priced.
Many bond investors responded to a safer global economic environment by
pulling out of U.S. Treasury securities and taking advantage of attractive
opportunities in higher-yielding markets. Treasuries also fell out of favor
because investors expected the Federal Reserve to raise rates in an effort to
cool U.S. economic growth before it led to higher inflation. (Higher inflation
erodes the fixed value of bond interest payments.) The Federal Reserve finally
moved on June 30, when it raised its key short-term interest rate by a quarter
of a percentage point to 5%.
The World
What's causing the global rebound?
Asia--the region that sparked a global financial crisis two years ago--could
actually be credited with helping the world economies get back on course.
Corporate restructuring in many parts of Asia, including Japan and Korea, has
accelerated sharply in the last several months. This has helped companies with
inexpensive valuations greatly improve their prospects for strong earnings
growth. The Asian recovery, in turn, has increased the global demand for
commodities, which has helped the commodity exporters in Russia and Latin
America. The corporate environment in many parts of Europe is also showing signs
of improvement after a disappointing first half of 1999. Company fundamentals
remain strong in Europe, and the weaker euro is helping the export sector.
The views expressed are as of July 30, 1999 and are subject to change based on
market and other conditions.
4
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S&P 500 Index--Total Return
by Sector
YTD 1999
--------
Technology 24.8%
Basic Materials 22.2
Energy 19.4
Capital Goods 18.5
Communication Services 17.1
Financials 12.8
Consumer Cyclicals 12.3
Transportation 11.4
Utilities 1.2
Health Care -0.4
Consumer Staples -2.2
S&P 500 Index 12.4
- --------------------------------------------------------------------------------
Source: Standard & Poor's as of 6/30/99. The S&P 500 Composite Stock Price Index
is an unmanaged index of stocks that provide an indication of stock price
movements. Past performance is not indicative of future results. Investors
cannot invest directly in an index.
Stock Market
No longer narrowly focused
When the first half of 1999 drew to a close, it had become obvious that a
broader group of stocks was now benefiting from this accelerated global growth.
The Russell 2000 Index of small-company stocks outperformed the other major
stock indexes. The stock market had placed exceptionally high capitalizations
(the total price of a corporation's outstanding stock) on a few popular
companies.
These "mega-caps" had absorbed a lot of investors' funds, while smaller
companies were much lower priced. So, when investors sold some of their shares
of the mega-caps, enough money was released to have a very large impact on the
prices of small-company stocks. They surged. In many cases, merger and
acquisition activity was a catalyst for a bargain-priced company's gains.
Bond Market
Caught off-guard by strong global economic growth
Treasury prices fell early in the second quarter as investors sold these
government securities to participate in both the wealth of corporate debt
offerings and in the strong stock market. Occasional economic reports that
hinted at inflation also caused temporary "hiccups" in the debt market that
started to become almost routine until mid-May. That's when April's
much-higher-than-expected Consumer Price Index report was released, which was
soon followed by the Federal Reserve's announcement that it was more inclined to
raise interest rates.
These events prompted a major sell-off in the bond market. The yield on the
benchmark 30-year Treasury bond--which moves in the opposite direction of its
price--rose from 5.63% on March 31 to a high of 6.19% on June 24, a level not
seen since November 1997. As it turned out, this sharp sell-off was unwarranted
in light of the fact that the Federal Reserve increased short-term interest
rates by only a quarter of a percentage point.
In anticipation of an increase in short-term interest rates, investors drove
prices lower in almost all sectors of the U.S. fixed-income market during the
second half of the quarter and spreads (the difference in yield between
corporate bonds and Treasuries) also widened in both the high-grade and
high-yield (junk) bond markets.
Surprisingly, the spread between yields of Treasuries and some better-quality
corporates (A-rated and AA-rated) widened more than the spread between
Treasuries and lower-rated corporates. This is due, in part, to the large supply
of new investment-grade corporate issues, which came to market during this
period.
5
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1999
Investment Outlook
Economic Outlook
Fed to tread slowly
Investors are expected to pay very close attention to world economies during
the second half of the year, and the United States economy will probably be the
most closely scrutinized of all. We expect to see strong U.S. growth coupled
with a moderate increase in inflation.
As we enter the second half of the year, we still think that Y2K preparations
(particularly inventory building), combined with the underlying healthy pace of
growth, will push overall economic readings back up to around the 4% level. With
oil and commodity prices now no longer declining and substantially smaller
declines being registered for other non-oil import prices, the Consumer Price
Index inflation rate should move slightly higher. When Alan Greenspan and the
Federal Reserve meet in August, these trends could prompt them to announce that
they are more inclined to raise interest rates. It usually takes six months for
interest rate moves to be felt in the economy. We think the Federal Reserve will
probably be reluctant to actually raise rates in August, because the move would
be felt early next year when the economy quite possibly may slow down anyway in
response to Y2K factors.
Just what those factors might be remains to be seen. Since Y2K is a unique event
the impact of which cannot be gauged by previous experience, all forecasts are
subject to greater risk than usual over the next three quarters.
Outlook
Stock Market
Rally to continue to broaden
As the U.S. economy continues to grow and it becomes more apparent that the
world is a safer place for investing, we expect investors to still be attracted
to U.S. small-company stocks and value stocks, both of which remain relatively
inexpensive compared to large-cap growth stocks.
However, the recent move out of growth stocks and into small-company and value
stocks happened so quickly it will not be surprising if this new trend pauses
from time to time to digest the value gains.
International markets are expected to become more attractive to investors as
well. Since stocks in Europe are not as expensive as those in the S&P 500--
international markets could perform better than the S&P 500 over the next 12 to
18 months. In Japan, corporate restructurings are helping to improve earnings
and should eventually bring about economic growth.
A word of caution, however: Asian and Latin American countries have rebounded so
quickly from such depressed levels that it wouldn't be unusual to see those
markets pause as some investors take their profits.
6
<PAGE>
Safer world helps commodities stage a comeback
With global growth accelerating, the economies of many developing nations may
have the wind at their backs for the first time in a while. This could prove
beneficial to most of the world's commodity producers, since global inventories
of resources such as aluminum and nickel are low and there is little excess
production capacity.
The Asian economic and financial crisis caused large inventory liquidations of
many commodities from Far Eastern consumers. With the world beginning to
recover, not only will demand increase but depleted inventories will have to be
rebuilt.
While prices of commodity company stocks are up significantly in 1999, they have
considerable room to go higher. Long-term supply and demand trends are turning
very positive. Soon the strengths we see in oil will spill over into other
commodity markets.
Bond Market Outlook
Looking for good value
Given expectations for strong U.S. economic growth, we have increased our range
for the yield on the 30-year Treasury bond from 5.25% to 6.25%. In the current
environment, high-yield corporate bonds represent good value.
High expectations for high-yield sector
Because of their low correlation to other financial products, high-yield
corporate bonds (also known as "junk bonds") are an attractive way for suitable
investors to diversify a portfolio. While Treasuries performed poorly during the
first half of the year, high-yield corporates generated a positive return
despite a couple of rough months.
The Federal Reserve's decision to increase short-term rates only slightly and
remove its tightening bias is particularly encouraging to the high-yield sector.
Treasury yields have risen since the beginning of the year; therefore, spreads
(the difference in yield between high-yield bonds and Treasuries) are not as
wide as they were in January. However, they are still wide based on historical
levels.
Default rates, which rose during the first half of the year, shouldn't increase
dramatically from current levels, because economic growth continues to be
strong. Since interest rates are not expected to move significantly between now
and the end of the year, high-yield bonds should earn their coupons and even
realize a little capital appreciation.
7
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Prudential's Gibraltar Fund, Inc.
Performance Summary.
The Prudential Gibraltar Fund returned 14.53% over the past half year, almost
two percentage points ahead of both the Lipper (VIP) Growth Fund Average and the
unmanaged S&P 500 Index. This excellent six-month return, by historical
standards, was primarily due to our selection of technology and financial
stocks.
Average Annual Returns Through June 30, 1999
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Gibraltar Fund/1/ 14.53% 26.88% 25.73% 21.26% 18.04%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg./2/ 12.60% 20.28% 24.02% 24.04% 17.48%
- --------------------------------------------------------------------------------
S&P 500/3/ 12.30% 22.76% 29.11% 27.86% 18.76%
- --------------------------------------------------------------------------------
Gibraltar Fund inception date: 3/14/68.
$10,000 Invested Over Ten Years
[LINE GRAPH APPEARS HERE]
S&P 500 GIBRALTER FUND/1/ LIPPER (VIP) GROWTH AVG./2/
1989 $10,000 $10,000 $10,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999 $55,086 $52,536 $51,348
- --------------------------------------------------------------------------------
/1/Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential, Six-month returns not annualized.
/2/The Lipper Variable Insurance Products (VIP) Growth Average is calculated by
Lipper, Inc., and reflects the investment return of certain portfolios
underlying variable life and annuity products. These returns are net of
investment fees and fund expenses but not product charges.
/3/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 Portfolio. The
securities that comprise the S&P 500 may differ substantially from the
securities in the Portfolio.
- -----------------------
Fixed Income Low Risk
- -----------------------
Balanced
- -----------------------
High Yield Bond
- -----------------------
Diversified Stock
- -----------------------
Specialized High Risk
- -----------------------
Investment Goal
Growth of Capital
Types of Investments
Primarily stocks of a diversified group of companies in a variety of industries.
Investment Style
The Fund uses a "growth" investment style to select stocks based on their
potential to deliver above-average growth in revenue and earnings.
Performance Review.
Uniphase, a fiber optic company, has been one of our largest and most profitable
holdings for some time. However, after the company announced plans to merge with
JDS Fitel, its shares leaped ahead. Our return on our holdings was about 139%
for the six months. The merger was completed in July; the combined entity is
called JDS Uniphase Corp. The remainder of our performance came from diverse
sources, including other technology holdings such as Applied Materials and EMC.
Smaller contributions were made by America Online, Microsoft and Oracle.
Our financials
were led by Providian and MBNA, while energy companies, Enron and Williams, also
were among our highest performers.
On the negative side, our health-related stocks all had a poor half year. Prior
gains by drug companies and uncertainty about government regulation in the
future both created a poor environment for these stocks.
8
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Strategy Session.
Gas pipelines plus. Natural gas has environmental and cost advantages over oil
as an energy source, but the low price of oil kept down the price of gas-related
companies. When OPEC promised production cuts, this cap was lifted and the price
of pipeline capacity and natural gas supplies began to rise.
Both Enron and the Williams Companies already were substantial contributors to
our six-month return. But how do you classify the Williams Companies? Williams
owns the largest gas pipeline system in the U.S. (by volume), and most of its
revenues and earnings come from energy; but it constructed a modern fiber-optic
network and much of the excitement about its stock now comes from the value of
its telecommunications network. It belongs to two growth industries.
And even more diversity. Tyco International, our largest holding at mid-year, is
a very well-managed industrial conglomerate. Its largest unit is Fire and
Security Services, the world leader in security and fire-protection systems; but
other units make electrical and electronic supplies, medical supplies and
equipment, pipe and flow equipment, and other steel equipment for commercial and
industrial applications.
As investors regain confidence in U.S. economic growth, we expect the stocks of
such industrial businesses to become priced more like those of large-growth
companies that are less exposed to economic conditions.
Outlook
Portfolio Manager
Jeffrey T. Rose, CFA
Squeezing a year into six months.
"The first six months of 1999 provided a return above the historical averages
for an entire year. After that surge, we would not be surprised to see a period
of consolidation. Moreover, renewed concern about computer problems related to
the turn of the millennium may slow technology investments in the short-term. We
are in a moderately conservative posture, broadly diversified with some
industrials, utilities, and energy companies to balance the growth-stock leaders
in the technology, health, and finance sectors."
[PHOTO OF JEFFREY T. ROSE APPEARS HERE]
Portfolio Manager
Jeffrey T. Rose
Portfolio Composition
as of 6/30/99
-------------
Consumer Growth & Staples 33.2%
Technology 23.2%
Financials 14.6%
Industrial 12.2%
Utilities 9.9%
Energy 6.3%
Cash & Equivalents 0.6%
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Source: Prudential. Holdings are subject to change.
Top Ten Holdings
as of 6/30/99
- ---------------------------------------------------
Tyco Intl. Ltd. 3.8%
MCI Worldcom, Inc. 3.3%
JDS Uniphase Corp. 3.3%
Cisco Systems, Inc. 3.2%
General Electric Co. 3.1%
MBNA Corp. 3.1%
Providian Financial Corp. 2.9%
Enron Corp. 2.9%
American Intl Group, Inc. 2.8%
Bristol Myers Squibb Co. 2.6%
- ---------------------------------------------------
Source: Prudential. Holdings are subject to change.
9
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FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1999
ASSETS
Investments, at value (cost:
$278,270,546)............................ $ 385,806,249
Cash....................................... 8,431
Receivable for investments sold............ 4,927,068
Dividends receivable....................... 198,731
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Total Assets............................. 390,940,479
--------------
LIABILITIES
Payable for investments purchased.......... 3,925,655
Payable to investment adviser.............. 117,832
Accrued expenses........................... 59,030
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Total Liabilities........................ 4,102,517
--------------
NET ASSETS................................... $ 386,837,962
--------------
--------------
Net assets were comprised of:
Common stock, at $1 par value............ $ 27,193,076
Paid-in capital, in excess of par........ 216,012,819
--------------
243,205,895
Undistributed net investment income........ 1,292,438
Accumulated net realized gains on
investments.............................. 34,803,926
Net unrealized appreciation on
investments.............................. 107,535,703
--------------
Net assets, June 30, 1999.................. $ 386,837,962
--------------
--------------
Net asset value and redemption price per
share, 27,193,076 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 14.23
--------------
--------------
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
INVESTMENT INCOME
Dividends (net of $1,274 foreign
withholding tax)......................... $ 1,223,970
Interest................................... 225,997
---------------
1,449,967
---------------
EXPENSES
Investment advisory fee.................... 234,065
Directors' fees............................ 4,000
Custodian expense.......................... 496
Miscellaneous expenses..................... 214
---------------
Total expenses........................... 238,775
---------------
Less Custodian fee credit.................. (153)
Net expenses............................... 238,622
---------------
NET INVESTMENT INCOME........................ 1,211,345
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 28,509,602
Net change in unrealized appreciation on
investments.............................. 20,726,956
---------------
NET GAIN ON INVESTMENTS...................... 49,236,558
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 50,447,903
---------------
---------------
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,211,345 $ 3,126,992
Net realized gain on investments....................................................... 28,509,602 33,966,363
Net change in unrealized appreciation on investments................................... 20,726,956 41,144,598
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 50,447,903 78,237,953
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... -- (3,149,824)
Distributions from net realized capital gains.......................................... -- (30,374,602)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... -- (33,524,426)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock issued in reinvestment of dividends and distributions [0 and 2,790,053
shares, respectively]................................................................. -- 32,290,798
Capital stock repurchased [(1,962,984) and (3,405,733) shares, respectively]........... (26,116,655) (40,416,358)
------------------ -------------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... (26,116,655) (8,125,560)
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 24,331,248 36,587,967
NET ASSETS:
Beginning of period.................................................................... 362,506,714 325,918,747
------------------ -------------------
End of period.......................................................................... $ 386,837,962 $ 362,506,714
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE>
PRUDENTIAL'S GIBRALTAR FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
LONG-TERM INVESTMENTS -- 99.4%
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
ADVERTISING -- 1.8%
Young & Rubicam, Inc. (a)....................... 153,400 $ 6,970,112
--------------
BANKS AND SAVINGS & LOANS -- 7.1%
Banc One Corp................................... 61,500 3,663,094
Chase Manhattan Corp............................ 100,800 8,731,800
Providian Financial Corp........................ 122,050 11,411,675
Wells Fargo Co.................................. 82,800 3,539,700
--------------
27,346,269
--------------
BROADCASTING SERVICES -- 1.4%
Infinity Broadcasting Corp. (a)................. 177,700 5,286,575
--------------
COMPUTER SERVICES -- 11.8%
America Online, Inc. (a)........................ 38,100 4,210,050
BMC Software, Inc. (a).......................... 74,500 4,023,000
Cisco Systems, Inc. (a)......................... 190,300 12,274,350
EMC Corp. (a)................................... 143,000 7,865,000
Juniper Networks, Inc........................... 1,400 208,600
Microsoft Corp. (a)............................. 100,400 9,054,825
Oracle Corp. (a)................................ 214,350 7,957,744
--------------
45,593,569
--------------
COSMETICS & SOAPS -- 5.4%
Avon Products, Inc.............................. 137,700 7,642,350
Colgate-Palmolive Co............................ 39,000 3,851,250
Gillette Co..................................... 67,600 2,771,600
Procter & Gamble Co............................. 73,400 6,550,950
--------------
20,816,150
--------------
DIVERSIFIED OPERATIONS -- 3.1%
General Electric Co............................. 105,100 11,876,300
--------------
DRUGS AND MEDICAL SUPPLIES -- 9.5%
Abbott Laboratories............................. 179,500 8,167,250
Bristol-Myers Squibb Co......................... 145,300 10,234,569
Cardinal Health, Inc............................ 103,950 6,665,794
Merck & Co., Inc................................ 108,900 8,058,600
Pfizer, Inc..................................... 34,400 3,775,400
--------------
36,901,613
--------------
ELECTRONICS -- 11.4%
Altera Corp. (a)................................ 154,600 5,691,212
Applied Materials, Inc. (a)..................... 71,200 5,259,900
Broadcom Corp. (Class "A" Stock)................ 24,800 3,585,150
Intel Corp...................................... 164,600 9,793,700
Motorola, Inc................................... 76,100 7,210,475
JDS Uniphase Corp. (a).......................... 75,900 12,599,400
--------------
44,139,837
--------------
FINANCIAL SERVICES -- 4.7%
Federal National Mortgage Association........... 95,500 6,529,812
MBNA Corp....................................... 387,100 11,854,937
--------------
18,384,749
--------------
FOOD & BEVERAGES -- 4.3%
Coca Cola Enterprises, Inc...................... 93,300 2,775,675
Pepsi Bottling Group, Inc....................... 191,100 4,407,244
PepsiCo, Inc.................................... 249,800 9,664,137
--------------
16,847,056
--------------
</TABLE>
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
GAS PIPELINES -- 1.9%
Williams Companies, Inc......................... 169,300 $ 7,205,831
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 2.4%
Healthsouth Corp. (a)........................... 257,500 3,846,406
IMS Health, Inc................................. 174,300 5,446,875
--------------
9,293,281
--------------
INSURANCE -- 2.8%
American International Group, Inc............... 93,382 10,931,530
--------------
MANUFACTURING -- 5.3%
Illinois Tool Works, Inc........................ 74,300 6,092,600
Tyco International Ltd.......................... 154,200 14,610,450
--------------
20,703,050
--------------
MEDIA -- 6.5%
CBS Corp. (a)................................... 204,100 8,865,594
Clear Channel Communications, Inc. (a).......... 81,700 5,632,194
Interpublic Group of Companies, Inc............. 88,200 7,640,325
New York Times Co. (Class "A" Stock)............ 82,300 3,029,669
--------------
25,167,782
--------------
MINERAL RESOURCES -- 1.2%
Burlington Resources, Inc....................... 104,700 4,528,275
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.8%
AES Corp........................................ 119,100 6,922,688
--------------
OIL & GAS -- 4.2%
Anadarko Petroleum Corp......................... 185,300 6,821,356
Exxon Corp...................................... 72,500 5,591,563
Noble Affiliates, Inc........................... 138,000 3,889,875
--------------
16,302,794
--------------
OIL & GAS SERVICES -- 3.8%
Baker Hughes, Inc............................... 106,600 3,571,100
Enron Corp...................................... 137,100 11,207,925
--------------
14,779,025
--------------
RESTAURANTS -- 2.0%
McDonald's Corp................................. 184,300 7,613,894
--------------
RETAIL -- 1.4%
CVS Corp........................................ 107,500 5,455,625
--------------
TELECOMMUNICATIONS -- 3.3%
MCI Worldcom, Inc. (a).......................... 150,000 12,937,500
--------------
TOYS -- 2.3%
Mattel, Inc..................................... 331,300 8,758,744
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $277,226,546)............................................ 384,762,249
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 0.3% (000) (NOTE 1)
------------- --------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT-YANKEE -- 0.3%
Abbey National Treasury Services, PLC,
5.85%, 07/01/99
(cost $1,044,000)............................. $ 1,044 $ 1,044,000
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $278,270,546; Note 3).................................... 385,806,249
--------------
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.3%............................................ 1,031,713
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 386,837,962
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
PLC -- Public Limited Company (British Corporation)
(a) Non-income producing security
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND
GENERAL
Prudential's Gibraltar Fund, Inc. (the "Fund") was originally incorporated in
the State of Delaware on March 14, 1968 and was reincorporated in the State of
Maryland effective May 1, 1997. It is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended. The Fund was organized by The Prudential Insurance Company of America
(The Prudential) to serve as the investment medium for the variable contract
accounts of The Prudential Financial Security Program. The Fund does not sell
its shares to the public. The accounts will redeem shares of the Fund to the
extent necessary to provide benefits under the contracts or for such other
purposes as may be consistent with the contracts.
NOTE 1: ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
fund in the preparation of its financial statements.
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.
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 bid price on the date of
valuation provided by a pricing service which utilizes NASDAQ quotations.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Fund's policy that its custodian or
designated subcustodians, as the case may be under triparty repurchase
agreements, take possession of the underlying collateral securities, the value
of which exceeds the principal amount of the repurchase transaction, including
accrued interest. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect to the seller
of the security, realization of the collateral by the Fund may be delayed or
limited.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute at least annually net capital
gains in excess of capital loss carryforwards, if any. Dividends and
distributions are recorded on the ex-dividend date. 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.
Some dividends are paid in cash.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
TAXES: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required. State franchise taxes were paid for
the period that the Fund was incorporated in Delaware. No such commitments exist
following reincorporation in Maryland.
Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
C1
<PAGE>
NOTE 2: INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE: The investment advisory fee, which is computed daily
at an effective annual rate of .0125% of the net assets of the Fund, is payable
quarterly to The Prudential Insurance Company of America ("The Prudential") as
required under the investment advisory agreement. 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,
including custodian fees.
During the six months ended June 30, 1999, Prudential Securities Incorporated,
an affiliate of The Prudential, earned approximately $7,500 in brokerage
commissions as a result of executing transactions in portfolio securities on
behalf of the Fund.
NOTE 3: PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the six-months ended June 30, 1999 aggregated $96,324,303 and $118,461,644,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1999 was
$278,270,546 and, accordingly, net unrealized appreciation for federal income
tax purposes was $107,535,703 (gross unrealized appreciation -- $111,730,154;
gross unrealized depreciation -- $4,194,451).
C2
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 12.43 $ 10.95 $ 11.43 $ 10.14 $ 9.40 $ 11.29
---------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.04 0.12 0.22 0.16 0.18 0.21
Net realized and unrealized gains
(losses) on investments.............. 1.76 2.61 1.84 2.56 1.65 (0.40)
---------- --------- --------- --------- --------- ---------
Total from investment operations... 1.80 2.73 2.06 2.72 1.83 (0.19)
---------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.12) (0.21) (0.15) (0.17) (0.22)
Distributions from net realized
gains................................ -- (1.13) (2.33) (1.28) (0.92) (1.48)
---------- --------- --------- --------- --------- ---------
Total distributions................ -- (1.25) (2.54) (1.43) (1.09) (1.70)
---------- --------- --------- --------- --------- ---------
Net Asset Value, end of period......... $ 14.23 $ 12.43 $ 10.95 $ 11.43 $ 10.14 $ 9.40
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN(b)............. 14.53% 25.89% 18.88% 27.13% 19.13% (1.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $386.8 $362.5 $325.9 $301.3 $261.2 $242.5
Ratios to average net assets:
Expenses............................. 0.13%(c) 0.13% 0.15% 0.16% 0.14% 0.15%
Net investment income................ 0.65%(c) 0.96% 1.56% 1.38% 1.68% 1.98%
Portfolio turnover rate................ 26% 105% 101% 97% 105% 93%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for less than a full year are
not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
Prudential's Gibraltar Fund, Inc.
Board of Directors
JOHN R. STRANGFELD W. SCOTT McDONALD, JR., Ph.D.
Chairman, Vice President,
Prudential's Gibraltar Fund, Inc. Kaludis Consulting Group
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
President, Vice President,
New Jersey Institute of Technology Interclass (international
corporate learning)
Additional information is contained in the prospectuses for Systematic
Investment Plan Contracts, Variable Annuity Contracts and Prudential's Gibraltar
Fund, Inc. These prospectuses contain specific information concerning sales
charges and other material facts and should be read carefully before you invest
or send money.
For service related questions, please contact the Financial Security Program
service area at:
[GRAPHIC APPEARS HERE]
(215) 784-3805
<PAGE>
Whether providing insurance protection for home, family and business, or
arranging to cover future education and retirement expenses, Prudential people
have always been able to deliver something more: personal service, quality,
attention to detail and the financial strength of The Rock(R). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
P.O. Box 645 Bulk Rate
Fort Washington, PA 19034-0645 U.S. Postage
PAID
Address Service Requested Prudential
[LOGO OF RECYCLING APPEARS HERE]
FSP SAR 6/99 Printed in the U.S.A.
on recycled paper.
