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PRUDENTIAL'S
GIBRALTAR FUND, INC.
[PHOTO]
ANNUAL REPORT
TO PLANHOLDERS
Prudential's Financial
Security Program
DECEMBER 31, 1998
[LOGO] PRUDENTIAL
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
IFS-19990209-A037249
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[LOGO]
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TABLE OF CONTENTS
I. LETTER TO PLANHOLDER 2
1. Market Commentary 4
2. Investment Outlook 8
3. Prudential's Gibraltar Fund, Inc. 10
II. PRUDENTIAL'S GIBRALTAR FUND, INC.
The Prudential's Financial Security Program is the only
account investing in Prudential's Gibraltar Fund, Inc.
1. Financial Statements A1
2. Schedule of Investments B1
3. Notes to Financial Statements C1
4. Report of Independent Accountants D1
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PERIOD ENDED DECEMBER 31, 1998
LETTER TO PLANHOLDER
[PHOTO]
MENDEL A. MELZER, CFA
CHAIRMAN
DEAR PLANHOLDER:
This Annual Report presents the investment performance of Prudential's Gibraltar
Fund, Inc.
Last year, the stock market registered double-digit returns for an unprecedented
fourth consecutive year. However, the global financial crisis drove many
investors to focus on only the largest and most-marketable securities. As a
result, companies with the most predictable earnings and largest market
capitalization generated the lion's share of the stock market gains while
small-company and value stocks lagged dramatically.
The turning point for the financial markets came in the fall when a round of
interest rate cuts by central banks around the world, including the U.S. Federal
Reserve, fueled investor confidence and prompted investors to move money back
into riskier investments with higher potential total returns. (Total return is
interest and dividends plus capital appreciation.) Forecasts that there would be
a huge rise in on-line business also helped the bull market regain its footing,
by sparking a fourth-quarter rally in technology stocks.
HOW DID THE GIBRALTAR FUND PERFORM?
Consistent with the market, Prudential's Gibraltar Fund, Inc.--a
large-capitalization growth fund--returned 25.89% for 1998, beating the Lipper
(VIP) Growth Fund Average of 24.56%.
KEEP THE MARKETS IN PERSPECTIVE.
As we begin the new year, the U.S. stock market is at historic highs in terms of
the price placed on companies' earning powers. We expect markets eventually to
bring prices in line with earnings performance. We have already begun to see
fixed-income investors shift money back into investment-grade and high-yield
corporate bonds, as well as into emerging market, mortgage-backed and
asset-backed securities. Furthermore, growth and value styles of investing tend
to alternate in superior performance, often making it unwise to chase last
year's market winners.
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"We continue to believe that diversification and a long-term perspective are the
keys to a successful investment strategy and can help you receive more
consistent returns over time."
2
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MAINTAIN BALANCE.
Since most people buy variable annuity products to finance long-term goals, our
objective for Prudential's Gibraltar Fund, Inc. is to achieve above-average
investment performance over time. This annuity, however, should be only one
component of a well-diversified investment portfolio.
We continue to believe that diversification and a long-term perspective are the
keys to a successful investment strategy and can help you receive more
consistent returns over time. It is also a good practice to rebalance your
holdings when necessary to keep your asset allocation consistent with your
objectives and risk tolerance.
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.
/s/ Mendel A. Melzer
Mendel A. Melzer, CFA
Chairman,
Prudential's Gibraltar Fund, Inc.
January 22, 1999
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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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1998 MARKET COMMENTARY
MARKET OVERVIEW
o The Asian economic and financial crises, which culminated in the Russian
default, drove down the price of stocks throughout that region and then
throughout the world in the third quarter.
o Despite this volatility, most stock markets around the world posted
double-digit gains for the year. Interest rate cuts by the U.S. Federal
Reserve in September, October and November restored investor-confidence in
the markets.
o However, the performance of the average stock was below historical levels.
In the U.S., most of the gains were driven by the largest stocks with the
strongest franchises. Substantial performance disparities developed
between large-capitalization companies and small-capitalization companies
and between value and growth stocks.
o The prospect that the Internet will transform society led to an almost
unbelievable speculation in Internet-related stocks.
o Investor uncertainty also manifested itself in the bond markets. Pursuit
of the safest government bonds resulted in a significant rise in the
yields of riskier bonds.
U.S. STOCKS
DIVERGING MARKETS
Normally, the way to make money is to buy low and sell high. But looking at last
year's performance of stocks and bonds, it appears that the strategy that worked
best in 1998 was "momentum investing"--buying more of the most popular, most
expensive securities. Companies with the most predictable earnings and largest
market capitalization, which already were expensive at the beginning of 1998,
generated most of the year's stock market gains while small-company and value
stocks lagged dramatically.
Why did investors decide to buy high? The trouble began when the government of
Thailand devalued the baht in 1997. The currencies of several neighboring
countries also weakened and investors grew increasingly concerned about the
impact of an Asian economic slowdown.
This prompted many investors to focus on a few large, well-known companies,
which were expected to have more predictable earnings and marketable stocks.
When the Russian turmoil erupted last August, the focus on security intensified.
Since investors were willing to pay a premium for these well-known companies,
they boosted the return of these few firms above all others. Conversely, small-
company stocks, which generally are more vulnerable to negative financial and
economic news than large-company stocks, had a sharp price-drop in 1998.
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HOW THE MARKETS COMPARED1
[GRAPHIC]
AVERAGE RETURN OVER
1998 PAST 20 YEARS (ANNUALIZED)
---- --------------------------
Money Markets 4.8% 7.6%
Bonds 9.5% 10.2%
Foreign Stocks 24.8% 15.3%
U.S. Stocks 28.6% 17.8%
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This chart compares the 12-month return as of 12/31/98 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 Analytical Services, Inc. For purposes of comparison only. U.S.
money markets as measured by Lipper Money Market Average. 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.
The views expressed are as of 1/22/99 and are subject to change based on market
and other conditions.
4
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In addition, value stocks--those that are inexpensive in terms of price-to-cash
flow, earnings and book value--also lagged large growth stocks dramatically.
This divergence in the market is reflected in the year-end returns of the major
equity indexes.
The Standard & Poor's 500 Composite Stock Price Index (the S&P 500 Index), which
represents the broad market to many investors, plunged in the third quarter but
ended 1998 with a total return of 28.6%. The stocks of companies with the
largest capitalization, measured by the Russell Top 200 Index (published by the
Frank Russell Company), gained a substantial 33.4% over the year.
However, the small-cap Russell 2000 Index actually fell by 2.6%. (Market
capitalization, frequently referred to as market cap or market value, is the
price that the stock market puts on an entire enterprise. It is calculated by
multiplying the current market price by the number of shares outstanding.)
As for the performances of growth and value stocks in the S&P 500, the S&P/Barra
Growth Index returned 42.1% for the year, versus the S&P/Barra Value Index, up
only 14.7%--an unusually wide 27-percentage-point difference.
In many cases, however, the earnings of the most popular companies did not rise
as much as their share prices. Investors paid more and more for each dollar of
these firms' profits in 1998. Many of the market leaders' stocks reached prices
60 to 70 times their annual earnings, compared with historical average
price-to-earnings (P/E) ratios of less than 20 times earnings.
1998 WINNERS AND LOSERS
TECHNOLOGY STOCKS BIG WINNERS IN 1998
The Technology sector, driven by new low-cost computers and the prospect that
Internet commerce will transform the way we do business, led the market in 1998
with a 67.4% growth. Dell Computer was a large contributor to the sector's
performance, up 249%. Software giants Microsoft and Apple were other major
contributors, rising 118% and 212%, respectively. The return of co-founder Steve
Jobs and the introduction of new low-priced iMac computers helped Apple come
back after languishing among the worst performers on the S&P 500 Index just one
year ago. It was the second-best performing stock in the Index. EMC Corp., the
world's largest maker of data-storage devices, claimed the #3 spot on the "S&P
500 Index Top 10" list, up 210% for the year. Inspired by expectations more than
by current earnings, the prices of companies of Internet-related stocks shot up
to unprecedented levels.
CONSUMER CYCLICALS FINISHED SECOND
The Consumer Cyclicals sector came in a distant second for the year, but still
averaged an impressive 45.0% gain. Gap Inc. was the best name in the sector by
far, up 138%. Gap was the 10th best-performing company in the S&P 500 Index in
1998 as its line of khaki pants and casual clothes rode the trend toward less
formal work attire. Lowes Corp., up 115%, Home Depot, up 108%, and Wal-Mart, up
108%, were the other companies in the sector that doubled their prices for the
year.
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TECHNOLOGY LED THE MARKET IN 1998
[GRAPHIC]
TECH. 67.4%
CONS. CYCL. 45.0%
UTILITIES 39.7%
CONS. GROWTH 27.4%
INDUST. 12.6%
FINANCE 11.4%
ENERGY 0.94%
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Source: Standard & Poor's as of 12/31/98. Past performance is not indicative of
future results.
5
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1998
MARKET COMMENTARY CONTINUED
INDUSTRIALS LAGGED
In our view, the Industrial sector of the U.S. economy suffered a brief
recession in mid 1998, due to the consequences of Asia's economic contraction.
The Far East is a major user of industrial products, such as machinery and
metals. Overbuilding and the declining cost of production in that region were
largely responsible for the sector's poor showing in the stock market. Within
the industrial sector of the S&P 500, machinery and nonferrous metals companies
were among the worst performers, losing 20% and 28%, respectively. Stronger
performances by office equipment and supplies companies and commercial services
helped the sector as a whole return just under 13%.
ENERGY DEMAND WAS LOW
The Energy sector, plagued by low demand throughout 1998 and a steep decline in
oil prices toward the end of the year, eked out a return of only 0.9%. Rowan,
down 68%, was among the worst performers in the sector. This oil service company
suffered as major oil producers reduced exploration and drilling operations and
crude oil prices plunged to 12-year lows. Baker Hughes, the fourth-largest U.S.
oil field services and equipment company, was down 59% for the year. It has
announced plans to eliminate 2,000 jobs.
THE WORLD
A TUMULTUOUS TWELVE MONTHS
In 1998, the European stock markets took investors on a tumultuous
roller-coaster ride. They staged an incredible rally in the first half of the
year, returning 27%, as measured by the Morgan Stanley Capital International
(MSCI) Europe Index in U.S. dollars. But investor anxiety hit Europe hard in
August. Double-digit declines were almost universal and many of the stock
markets gave up almost half of the gains made earlier in the year.
The decline was partly in reaction to the falling U.S. market, but it also
reflected fears of exposure to economic turmoil in Russia. Then in the last
quarter of the year, as central banks around the world lowered interest rates
and enthusiasm built in Europe for the year-end monetary union, the MSCI Europe
Index regained momentum and recouped what it had lost over the summer to end the
year up 29%.
Finland's stock market alone returned 123% in 1998, thanks in part to its strong
telecommunications and electronics industries. The worst market in Europe was
Norway. Hammered by sagging oil prices, the Oslo Stock Exchange fell 30%.
Asian returns were dominated by the contraction of the region's economy.
Japanese stocks had a positive return to U.S. investors only because the yen
appreciated against the dollar.
The weakening dollar, aided by signs of economic stabilization, also pushed
Thailand into positive territory. Only the Australian, Korean and Philippine
markets rose in their own currencies.
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GLOBAL STOCK MARKET PERFORMANCE1 (U.S. $) IN 1998
[GRAPHIC]
MSCI EUROPE INDEX 28.9%
MSCI WORLD FREE INDEX 24.8%
MSCI EAFE FREE INDEX 20.3%
MSCI JAPAN INDEX 5.3%
MSCI PACIFIC (EX-JAPAN) FREE INDEX -5.1%
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1 Source: Morgan Stanley Capital Inter-national as of 12/31/98.
The Morgan Stanley Capital International (MSCI) World Free Index is a weighted,
unmanaged index of the performance of 1,472 securities listed on the stock
exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Morgan Stanley country indexes [Europe, Asia, Far East (EAFE), Pacific and
Japan] are unmanaged indexes that include stocks making up the largest
two-thirds of each country's total stock market capitalization. This chart is
for illustrative purposes only and is not indicative of the past, present or
future performance of any specific investment. Investors cannot invest directly
in indexes.
6
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BONDS
FLIGHT-TO-QUALITY INVESTING BREEDS ILLIQUIDITY
What did fixed-income investors want most in 1998? In two words, Quality and
Liquidity. During the volatile market conditions that characterized much of the
year, they fled to the highest-quality government securities--U.S.
Treasuries--even if it meant paying more and receiving lower returns.
The U.S. Treasury is the world's largest issuer of debt. Moreover, that debt is
backed by the full faith and credit of the federal government. Treasuries were
therefore an ideal "safe haven" investment. Major European government bond
markets were another safe port amid last year's global financial storm.
As a result of this "flight to quality," bond markets in late summer and early
October were plagued by illiquidity, or difficulty buying and selling all but
the most sought-after Treasuries. Growing demand for Treasuries fueled such a
strong rally that the yield on the 30-year Treasury bond fell to 4.71% on
October 5, its lowest level since April 1967. (Bond yields move in the opposite
direction of prices.) Yields on Treasury notes and bills also sank as a huge
inflow of cash into money market funds prompted portfolio managers to buy
short-term government securities.
These sharp drops meant that the spread, or difference in yield, between
Treasuries and other debt securities, such as investment-grade corporate bonds,
widened significantly, indicating investors were less willing to take a chance
on the relatively more risky bonds.
An even more dramatic indication of illiquidity was investors' strong preference
for "on the run," or the most recently auctioned, Treasuries versus "off the
run," or older, less-frequently traded issues. Both offer the same credit
quality. Yet the spread between yields of "on the run" and "off the run"
Treasuries, which might normally be a few basis points, rose to as much as 40
basis points in some cases. (A basis point is 1/100th of a percentage point.)
This wide gap reflected investors' willingness to pay more and accept lower
returns for greater liquidity.
This stampede away from both risky and safe bonds was one of the major factors
that spurred the Federal Reserve to action. Had the trend been allowed to
continue, it might have threatened the U.S. economic expansion. The Federal
Reserve cut the Federal funds rate (what banks charge each other to borrow
overnight) by a quarter percentage point on September 29, October 15 and
November 17. The reductions left the key short-term rate at 4.75%. The
mid-October move did the most to restore liquidity to the bond markets, as this
marked the first time in four and a half years that monetary policy was changed
between the central bank's regularly scheduled meetings. The unusual timing of
this move encouraged investors and spurred lenders to provide businesses with
money and should help foster U.S. economic growth in the future.
By the end of the year, the battered bond markets had staged a respectable
recovery. Investors had begun to shift money out of Treasuries back into
investment-grade and high yield corporate bonds as well as emerging market,
mortgage-backed and asset-backed securities.
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GLOBAL BONDS DELIVER ATTRACTIVE RETURNS IN 1998
Global (U.S. dollar) 15.3%
U.S. Treasuries 10.0%
Aggregate Index 8.7%
Corporates 8.6%
Mortgages 7.0%
High Yield 1.6%
Emerging Markets -11.6%
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Source: Lehman Brothers, as of 12/31/98. Past performance is not indicative of
future results.
7
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1999 INVESTMENT OUTLOOK
ECONOMIC OUTLOOK
SLOW GROWTH AND TAME INFLATION
Our economists at Prudential expect the economy to slow to a 2% pace in the
first half of 1999, but they do not expect the deceleration to be sharp. First,
the U.S. economy has more momentum than expected. This growth has come from
solid sources such as consumer expenditures, not from short-term factors such as
fluctuations in inventories. Second, a sharp increase in bank lending, narrowing
credit spreads and a rebound in the stock market have for the most part silenced
talk of a severe credit crunch. Lastly, recent employment reports and vehicle
sales indicate that above-trend growth still continues. Our economists are also
calling for growth to increase to 3% in the second half of the year as
businesses stock up on inventories in anticipation of Year 2000 computer
problems.
We believe inflation will remain tame in 1999. Inflation, as measured by the
Consumer Price Index, is expected to level out at 2.25%. The Consumer Price
Index, which climbed 2% in the second half of 1998, is expected to rise by 2.4%
in the first half of 1999 and settle at 2.2% in the latter half. Oil prices
remain the biggest wild card in our inflation forecast. According to our
economists and most Wall Street firms, as Asia recovers and more seasonable
colder weather descends upon the United States and Japan, oil prices should
rise.
These projections imply that the Federal Reserve is not likely to tinker with
U.S. monetary policy in 1999 through further cuts in interest rates.
STOCK MARKET OUTLOOK
RECONSIDER EXPECTATIONS
Markets generally bring prices in line with earnings performance sooner or
later. Although the market may rise in 1999, the likelihood that it will match
the phenomenal gains of the last four years is not very high. Since the stock
market leaders have become very expensive relative to their earnings prospects,
investors may want to consider directing some assets to the underpriced sectors
of the market.
TIME TO REBALANCE
The disparity in returns (and valuations) among market sectors, investment
styles and capitalization groupings reminds us of the importance of
diversification and a long-term view. Rarely does the top-performing sector of
the market remain the same over time.
Investors interested in rebalancing should consider value stocks, which in
general are selling at significant discounts to the market, as well as small-
and mid-cap growth stocks. Many of these companies have strong pricing power. In
addition, given their strong performance in the fourth quarter of last year,
emerging markets and Asia may be starting their recovery at very inexpensive
levels. One place we believe investors should stay put is Europe, where the bull
market has yet to run its course. The advent of the new currency, the Euro, is
expected to lead to a large-scale restructuring of investment portfolios, which
may favor the larger, more familiar European companies.
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A REALITY CHECK
Since 1925, the U.S. stock market's average return has been 11.2% as measured by
the S&P 500 Index. Yet in recent years, returns have been much higher, as the
chart below shows.
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RETURNS OF THE U.S. STOCK MARKET
AVERAGE
ANNUAL
RETURN
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1925-1998 11.2%
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Source: Ibbotson Associates.
LAST FOUR YEARS
1995 37.5%
1996 23.0%
1997 33.4%
1998 28.6%
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Source: Lipper Analytical Services, Inc.
With the highest valuation levels in history at a time when corporate profits
are slowing, we believe it is prudent to remember that recent rates of return
are unlikely to continue.
8
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U.S. BOND MARKETS
GUARDED OPTIMISM
While last summer's wariness will not easily be forgotten, many investors are
once again embracing fixed-income markets with guarded optimism. Much will
depend on how the U.S. economy fares. The manufacturing arm is coming out of a
recession and service-sector growth could continue at a brisk, if somewhat
slower, pace than last year. Some Asian economies have begun to improve,
pointing toward stronger demand for American-made machinery and other industrial
goods.
These and other signs indicate that the U.S. economy is on course to make a soft
landing in 1999. In other words, the economy should grow at a slower pace but
avoid sliding into a recession. The three Federal funds rate cuts enacted late
last year could act as a safety net, encouraging economic growth through lower
borrowing costs. But it usually takes between nine months and a year for an
interest rate cut to work its way through the economy. This leaves plenty of
time for the economy to lose steam.
By some measures, the average spread, or difference in yield, between junk bonds
and Treasuries was just over 600 basis points at year-end (according to the
Chase High Yield Index). Although this spread is down from the more than 700
basis points of last summer, it is still much higher than the 400 to 500 basis
points that would be expected with the junk bond default rate currently at its
historical average of 3.0%. In short, we believe junk bonds are somewhat
undervalued right now considering the level of risk involved.
If the economy behaves as expected, the yield on the 30-year U.S. Treasury bond
should fluctuate in a fairly narrow range between 4.75% and 5.75% this year.
Investment-grade and high yield corporate bonds should perform better than
federal government securities as investors seek securities that provide
incremental yield over Treasuries. In fact, demand for junk bonds and
investment-grade corporate bonds has already increased in the new year because
they are viewed as beneficial additions to a portfolio in the low-rate
environment.
Prices of investment-grade corporate bonds have recovered roughly half of their
losses from last year, depending on which sector of the market is considered.
For example, financial services bonds bounced back solidly, but energy bonds
have gained only modestly amid continued concern about the impact of low oil
prices. Overall, corporate balance sheets are still in good shape as debt as a
percentage of equity is still at manageable levels.
Bargain hunters should also look to the municipal bond market, where the average
insured, triple-A-rated bond maturing in 30 years was yielding approximately 95%
as much as comparable Treasuries at year-end. Historically, these bonds have
yielded roughly 87% of what Treasuries yield, because their interest income is
exempt from federal income taxes and, in some cases, state and local taxes as
well.
9
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PRUDENTIAL'S GIBRALTAR FUND, INC.
PERFORMANCE SUMMARY.
Prudential's Gibraltar Fund, Inc. returned 25.89% for 1998, beating the Lipper
(VIP) Growth Average for the year. Jeff Rose assumed management of the Fund
toward the end of the first quarter and boosted its holdings of large growth
companies. Our solid performance was attributable to our strong focus on the
high-performing technology sector and to the superior returns of our financial
services companies.
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AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1998
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
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GIBRALTAR FUND/1/ 10.78% 25.89% 23.91% 17.47% 17.92%
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LIPPER (VIP) GROWTH AVG./2/ 6.72% 24.56% 23.66% 20.08% 17.74%
- --------------------------------------------------------------------------------
S&P 500/3/ 9.24% 28.60% 28.23% 24.05% 19.19%
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Gibraltar Fund inception date: 3/14/68.
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$10,000 INVESTED OVER TEN YEARS
[GRAPHIC]
$51,965 $52,463 LIPPER $54,864
GIBRALTAR FUND/1/ (VIP) GROWTH AVG/2/ S&P 500/3
----------------- ------------------- ----------
"88" 10,000 10,000 10,000
11,329 11,675.6 11,652.2
"89" 12,224.6 12,942.3 13,163.1
12,468.8 13,470 13,568.4
"90" 11,881.4 12,302.8 12,754
13,893.2 14,188.6 14,568.6
"91" 15,963.2 16,705.1 16,631.2
15,955.5 16,124.5 16,519.4
"92" 18,770.2 18,090.1 17,896.5
21,799.9 19,133.2 18,767.1
"93" 23,234.8 20,600.9 19,696.3
22,706.3 19,316.9 19,029.9
"94" 22,926.2 20,273 19,955.1
26,510 24,099.6 23,983.2
"95" 27,312.9 27,161.6 27,445
29,946.6 29,873.8 30,213.9
"96" 34,723.2 32,834.2 33,742.2
38,605.7 37,895.9 40,692.2
"97" 41,279.4 41,709.2 44,995.6
46,909.2 48,636.4 52,969.7
"98" 51,965.4 52,463.4 57,863.9
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1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges.
2 The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, 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.
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[GRAPHIC]
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.
WE WON IN TECHNOLOGY IN SEVERAL WAYS. Our Fund received significant boosts from
a networking company (Cisco Systems, up 150%), a software company (Microsoft,
more than doubling), an optical information technology component specialist
(Uniphase), a telecommunications company (MCI WorldCom), a semiconductor company
(Intel), and an Internet service provider (America Online, tripling since we
bought it). In almost every case, we owned the premier company in the industry.
IN FINANCIALS, WE FOCUSED AWAY FROM BANKS. We had a smaller and less diverse
portfolio of financial companies, but it also made a substantial contribution to
the Fund's performance. We benefited in the first quarter from the acquisition
of the Money Store by First Union. Larger contributions to our return came from
Providian Financial, the Federal National Mortgage Association, and American
International Group (insurance).
10
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STRATEGY SESSION.
Technology Drives Progress. We own a very diverse group of technology companies;
they include the computer companies that are at the heart of information
technology. EMC and Unisys are mainframe companies; Compaq serves the PC market.
We think there may be a slowdown in corporate spending on computers late in
1999, as companies become reluctant to tinker with their systems after getting
them ready for the year 2000 transition. We expect a wave of upgrading after the
hiatus. We hope to be positioned to benefit from it.
It is clear that the Internet will transform how business is done, but less
clear who will benefit from the change. The prices that some investors are
paying for companies doing business on the Internet looks well out of proportion
to the risks, even given the potential rewards. We believe it is likely that the
companies providing the Internet infrastructure and services will prosper. We
own Microsoft, Cisco Systems, and MCI WorldCom - selling software tools (and
other services), network hardware, and Internet connections, respectively.
CONSUMERS ARE BORROWING. Our strategy is to benefit from the increase in
consumer spending, while avoiding the broader exposures that large banks bring.
We own progressive credit card lenders, who are using technology to improve
their profitability: MBNA and Providian. Providian is using automation to
develop subtle sales strategies as well as back-office systems. We also have a
stake in the healthy state of home building with the Federal National Mortgage
Association.
OUTLOOK
PORTFOLIO MANAGER
JEFFREY T. ROSE, CFA
LET'S NOT TRIP.
"We have been concerned throughout the year about the prospect that corporate
earnings growth will slow, so we focused the Fund's holdings on companies with
earnings stability. Other investors also have been willing to pay for stable
earnings, so stocks with strong growth have become much more expensive than
average, in terms of how much an investor must pay to buy a dollar of corporate
earnings. We may reduce our holdings if the growth of these companies does not
justify their premium prices.
If world economic activity picks up in the second half of 1999, economically
sensitive stocks--such as those of capital goods and basic materials
companies--may become more attractive. Such cyclical stocks have become quite
inexpensive because events in Asia threatened a major global slowdown. We are
watching these bargain stocks for signs of growth."
[PHOTO]
PORTFOLIO MANAGER
JEFFREY T. ROSE
================================================================================
PORTFOLIO COMPOSITION
AS OF 12/31/98
--------------
Consumer Growth & Staples 35.7%
Technology 25.0%
Finance 17.4%
Industrial 10.4%
Utility 8.4%
Energy 1.9%
Cash & Equivalents 1.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
TOP TEN HOLDINGS
AS OF 12/31/98
--------------
Federal National
Mortgage Association 3.7%
Providian Financial Corp. 3.7%
MCI Worldcom, Inc. 3.5%
Compaq Computer Corp. 3.2%
MBNA Corp. 2.9%
American Intl Group, Inc. 2.9%
Cisco Systems, Inc. 2.8%
Merck & Co., Inc. 2.8%
Intel Corp. 2.8%
Bristol Myers Squibb Co. 2.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
11
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND, INC.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$271,821,175)............................ $ 358,629,922
Cash....................................... 1,230
Receivable for investments sold............ 5,362,658
Interest and dividends receivable.......... 180,564
--------------
Total Assets............................. 364,174,374
--------------
LIABILITIES
Payable for investments purchased.......... 1,513,909
Payable to investment adviser.............. 99,277
Accrued expenses........................... 54,474
--------------
Total Liabilities........................ 1,667,660
--------------
NET ASSETS................................... $ 362,506,714
--------------
--------------
Net assets were comprised of:
Common stock, at $1 par value.............. $ 29,156,060
Paid-in capital, in excess of par.......... 240,166,490
--------------
269,322,550
Undistributed net investment income.......... 81,093
Accumulated net realized gains on
investments................................ 6,294,324
Net unrealized appreciation on investments... 86,808,747
--------------
Net assets, December 31, 1998.............. $ 362,506,714
--------------
--------------
Net asset value and redemption price per
share, 29,156,060 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 12.43
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $12,089 foreign
withholding tax)......................... $ 2,871,893
Interest................................... 668,586
---------------
3,540,479
---------------
EXPENSES
Investment advisory fee.................... 404,800
Directors' fees............................ 8,500
Custodian expense.......................... 1,000
---------------
Total expenses........................... 414,300
Less custodian fee credit.................. (813)
---------------
Net expenses............................... 413,487
---------------
NET INVESTMENT INCOME........................ 3,126,992
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 33,966,363
Net change in unrealized appreciation on
investments.............................. 41,144,598
---------------
NET GAIN ON INVESTMENTS...................... 75,110,961
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 78,237,953
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 3,126,992 $ 4,863,953
Net realized gain on investments....................................................... 33,966,363 50,505,594
Net change in unrealized appreciation on investments................................... 41,144,598 547,282
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................................... 78,237,953 55,916,829
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (3,149,824) (5,623,695)
Distributions from net realized capital gains.......................................... (30,374,602) (59,469,378)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS........................................................ (33,524,426) (65,093,073)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [-0- and 232,480 shares, respectively].............................. -- 3,000,000
Capital stock issued in reinvestment of dividends and distributions [2,790,053 and
5,819,002 shares, respectively]....................................................... 32,290,798 63,060,874
Capital stock repurchased [(3,405,733) and (2,645,935) shares, respectively]........... (40,416,358) (32,262,504)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS................ (8,125,560) 33,798,370
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 36,587,967 24,622,126
NET ASSETS:
Beginning of year...................................................................... 325,918,747 301,296,621
------------------ -------------------
End of year (a)........................................................................ $ 362,506,714 $ 325,918,747
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 81,093 $ --
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE>
SCHEDULE OF INVESTMENTS
PRUDENTIAL'S GIBRALTAR FUND, INC.
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 98.6%
VALUE
COMMON STOCKS SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
ADVERTISING -- 3.5%
Interpublic Group of Companies, Inc............. 90,600 $ 7,225,350
Young & Rubicam, Inc. (a)....................... 169,300 5,481,087
--------------
12,706,437
--------------
BANKS AND SAVINGS & LOANS -- 3.0%
Chase Manhattan Corp............................ 107,500 7,316,719
Wells Fargo Co.................................. 85,000 3,394,687
--------------
10,711,406
--------------
CHEMICALS -- 0.7%
Du Pont (E.I.) de Nemours & Co.................. 46,300 2,456,794
--------------
COMPUTER SERVICES -- 13.5%
America Online, Inc. (a)........................ 23,300 3,728,000
BMC Software, Inc. (a).......................... 81,000 3,609,562
Cisco Systems, Inc. (a)......................... 110,250 10,232,578
EMC Corp. (a)................................... 87,300 7,420,500
HBO & Co........................................ 156,600 4,492,463
Microsoft Corp. (a)............................. 43,000 5,963,562
Oracle Corp. (a)................................ 95,100 4,101,187
Unisys Corp..................................... 273,400 9,415,212
--------------
48,963,064
--------------
COMPUTERS -- 3.2%
Compaq Computer Corp............................ 277,900 11,654,431
--------------
COSMETICS & SOAPS -- 8.2%
Avon Products, Inc.............................. 121,500 5,376,375
Colgate-Palmolive Co............................ 62,500 5,804,687
Dial Corp....................................... 183,300 5,292,787
Estee Lauder Companies (Class "A" Stock)........ 46,000 3,933,000
Gillette Co..................................... 69,400 3,352,887
Procter & Gamble Co............................. 66,200 6,044,888
--------------
29,804,624
--------------
DIVERSIFIED OPERATIONS -- 2.7%
General Electric Co............................. 96,800 9,879,650
--------------
DRUGS AND MEDICAL SUPPLIES -- 13.4%
Abbott Laboratories............................. 162,700 7,972,300
Bristol-Myers Squibb Co......................... 74,600 9,982,413
Cardinal Health, Inc............................ 106,750 8,099,656
IMS Health, Inc................................. 89,500 6,751,656
Merck & Co., Inc................................ 68,100 10,057,519
Pfizer, Inc..................................... 44,400 5,569,425
--------------
48,432,969
--------------
ELECTRONICS -- 8.3%
Altera Corp. (a)................................ 114,700 6,982,363
Applied Materials, Inc. (a)..................... 83,600 3,568,675
Intel Corp...................................... 84,500 10,018,531
Uniphase Corp. (a).............................. 137,500 9,539,063
--------------
30,108,632
--------------
FINANCIAL SERVICES -- 11.4%
Citigroup, Inc.................................. 77,899 3,856,001
Federal National Mortgage Association........... 182,800 13,527,200
MBNA Corp....................................... 428,100 10,675,744
Providian Financial Corp........................ 177,450 13,308,750
--------------
41,367,695
--------------
FOOD & BEVERAGES -- 2.0%
PepsiCo, Inc.................................... 176,600 7,229,563
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
GAS PIPELINES -- 1.2%
Williams Companies, Inc......................... 143,500 $ 4,475,406
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 1.6%
Healthsouth Corp. (a)........................... 378,100 5,836,919
--------------
INSURANCE -- 2.9%
American International Group, Inc............... 108,582 10,491,736
--------------
LEISURE -- 0.9%
Walt Disney Co.................................. 111,500 3,345,000
--------------
MANUFACTURING -- 3.5%
Illinois Tool Works, Inc........................ 76,300 4,425,400
Tyco International Ltd.......................... 107,200 8,086,900
--------------
12,512,300
--------------
MEDIA -- 4.4%
CBS Corp. (a)................................... 258,000 8,449,500
Fox Entertainment Group, Inc. (Class "A"
Stock) (a).................................... 104,900 2,642,169
Infinity Broadcasting Corp. (Class "A"
Stock) (a).................................... 182,400 4,993,200
--------------
16,084,869
--------------
OIL & GAS -- 1.9%
Exxon Corp...................................... 92,500 6,764,063
--------------
OIL & GAS SERVICES -- 2.4%
Enron Corp...................................... 155,600 8,878,925
--------------
RESTAURANTS -- 1.7%
McDonald's Corp................................. 80,600 6,175,975
--------------
RETAIL -- 3.5%
CVS Corp........................................ 127,500 7,012,500
Rite Aid Corp................................... 113,600 5,630,300
--------------
12,642,800
--------------
TELECOMMUNICATIONS -- 3.5%
MCI WorldCom, Inc. (a).......................... 178,900 12,836,075
--------------
UTILITY - ELECTRIC -- 1.2%
Duke Energy Corp................................ 67,200 4,305,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $270,855,586)............................................ 357,664,333
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 0.3% (000)
-------------
COMMERCIAL PAPER
Xerox Capital Corp.,
5.10%, 01/04/99
(cost $965,589)............................. $ 966 965,589
--------------
TOTAL INVESTMENTS -- 98.9%
(cost $271,821,175; Note 3).................................... 358,629,922
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.1%....................
3,876,792
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 362,506,714
--------------
--------------
</TABLE>
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND, INC.
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>
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts and reports for
distributions to shareholders in accordance with A.I.C.P.A. Statement of
Position 93.2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. The effect of applying this statement was to increase undistributed
net investment income by $103,925 and decrease net realized gains by $103,925
due to recharacterization of distributions. Such reclassification had no effect
on net assets, results of operations, or net asset value per share.
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 0.125% of the average net assets of the Fund, is
payable quarterly to The Prudential Insurance Company of America ("The
Prudential") as required under the investment advisory agreement. 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 including custodian fees.
During the year ended December 31, 1998, Prudential Securities Incorporated, an
affiliate of The Prudential, earned approximately $22,000 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 year ended December 31, 1998 aggregated $330,566,397 and $357,953,019,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1998 was
$272,052,674 and, accordingly, net unrealized appreciation for federal income
tax purposes was $86,577,248 (gross unrealized appreciation $92,605,740; gross
unrealized depreciation $6,028,492).
C2
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 10.95 $ 11.43 $ 10.14 $ 9.40 $ 11.29
-------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.12 0.22 0.16 0.18 0.21
Net realized and unrealized gains
(losses) on investments.............. 2.61 1.84 2.56 1.65 (0.40)
-------- -------- -------- -------- ---------
Total from investment operations... 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 year........... $ 12.43 $ 10.95 $ 11.43 $ 10.14 $ 9.40
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
TOTAL INVESTMENT RETURN(b)............. 25.89% 18.88% 27.13% 19.13% (1.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $362.5 $325.9 $301.3 $261.2 $242.5
Ratios to average net assets:
Expenses............................. 0.13% 0.15% 0.16% 0.14% 0.15%
Net investment income................ 0.96% 1.56% 1.38% 1.68% 1.98%
Portfolio turnover rate................ 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 year reported and includes reinvestment
of dividends and distributions.
SEE NOTES TO FINANCIAL STATEMENTS.
C3
<PAGE>
[Intentionally Left Blank]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Prudential's Gibraltar Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential's Gibraltar Fund, Inc.
(the "Fund") at December 31, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "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 of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The accompanying financial highlights for each of the two years in the
period ended December 31, 1995 were audited by other independent accountants,
whose opinion dated February 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 18, 1999
D1
<PAGE>
BOARD OF
DIRECTORS PRUDENTIAL'S GIBRALTAR FUND, INC.
<TABLE>
<S> <C>
MENDEL A. MELZER, CFA 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, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS (INTERNATIONAL CORPORATE LEARNING)
</TABLE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1998) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in 1998, the Fund paid dividends as follows:
ORDINARY LONG-TERM TOTAL
INCOME CAPITAL GAINS DIVIDENDS
----------- ------------- -----------
$ 0.12 $ 1.13 $ 1.25
<PAGE>
================================================================================
This report is authorized for use with prospective investors only when preceded
or accompanied by current prospectuses for Systematic Investment Plan Contracts,
Variable Annuity Contracts and Prudential's Gibraltar Fund, Inc. These
prospectuses contain more information concerning sales charges and other
material facts and should be read carefully before you invest or send money.
[GRAPHIC]
(215) 784-3543
<PAGE>
[LOGO]
================================================================================
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 --------------
Fort Washington, PA 19034-0645 BULK RATE
U.S. Postage
Address Service Requested PAID
Prudential
--------------
[RECYCLE LOGO]
FSP AR 12/98 Printed in the U.S.A.
on recycled paper.
