<PAGE>
Prudential's
Gibraltar Fund, Inc.
Annual Report
to Planholders
Prudential's Financial Security Program
December 31, 1999
[LOGO]
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
<PAGE>
Table of Contents
- --------------------------------------------------------------------------
Letter to Planholder ..................................................1
Market Commentary and Outlook .......................................2-5
Prudential's Gibraltar Fund, Inc ......................................6
Financial Reports
Financial Statements ..............................................A1
Schedule of Investments ...........................................B1
Notes to Financial Statements .....................................C1
Financial Highlights ..............................................D1
Report of Independent Accountants .................................E1
Prudential's Financial Security Program is the only account investing in
Prudential's Gibraltar Fund, Inc.
Standard & Poor's 500 Composite Stock Price Index (S&P 500) comprises 500 large,
established, publicly traded stocks. Morgan Stanley Capital International Europe
Index comprises approximately 620 European companies. Salomon Brothers Extended
Market Index defines the small capitalization stock universe or remaining 20% of
the available capital of each country and includes the remaining 75% of the BMI
issues. The BMI measures the performance of the entire universe of
institutionally investable securities. Morgan Stanley Capital International
Europe, Australia, Far East Index is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P 500/Barra Value Index contains companies within the S&P 500 with lower
price-to-book ratios. S&P 500/Barra Growth Index contains companies within the
S&P 500 with higher price-to-book ratios. Russell 2000 Value Index measures the
performance of Russell 2000 companies with lower price-to-book ratios. Russell
2000 Growth Index measures the performance of Russell 2000 companies with higher
price-to-book ratios. Morgan Stanley Capital International World Free Index
contains companies in the MSCI World Index that reflect actual buyable
opportunities for the nondomestic investor by taking into account local market
restrictions on share ownership by foreigners. These indexes are calculated in
U.S. dollars, without dividends reinvested. Morgan Stanley Capital International
Japan Index measures the performance of Japan's stock market.
<PAGE>
Letter To Planholder
Year Ended December 31, 1999
[PHOTO]
CHAIRMAN
JOHN R. STRANGFELD
"People differ in their level of comfort when the value of their investments
fluctuate. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable annuity contract in the
context of your entire portfolio of investments."
Dear Planholder:
This Annual Report reviews the investment strategies and performance of
Prudential's Gibraltar Fund, Inc.
A look back at 1999
Last year, technology growth stocks far outperformed most other investments.
Around the world, the spread of computers, the Internet, and wireless
telecommunications is transforming the way people live. This resulted in
increases in the valuation of many companies in that sector. Emerging market
securities also had particularly strong returns, as the economic recovery of
Asia restored investor confidence in these countries. Meanwhile, most bond
investments did not perform well, nor did small-cap value stocks.
2000: A first glance
The new year began with a wave of profit taking, offset by good news on
inflation, only to be driven lower by renewed concerns about inflation. The
result has been significant daily market moves, both positive and negative.
These daily, monthly, and even yearly developments in the market are important,
and can be very interesting. It's equally important, however, to keep in mind
the fundamentals of investing: asset allocation, diversification, and a
systematic plan to reach long-term goals.
Know your own comfort level
People differ in their level of comfort when the value of their investments
fluctuate. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable annuity contract in
the context of your entire portfolio of investments.
Rebalancing your portfolio
After a divergent market such as the past year's, when returns were concentrated
in a narrow group of securities, you may find that the balance among your
holdings has changed. You may have a larger proportion in stocks than you are
comfortable with, or a larger proportion in growth stocks. It may be a good idea
to rebalance your holdings to restore the allocation that you had chosen to meet
your needs.
The value of professional guidance
Your financial professional can help you determine if adjustments should be
made, whether in light of today's dynamic marketplace, or if your needs have
changed. The important point is for you to be comfortable with a plan to help
reach your personal goals, rather than allowing your assets to drift with market
activity.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman
Prudential's Gibraltar Fund, Inc. January 26, 2000
1
<PAGE>
Equity Commentary
December 31, 1999
Global economic recovery and tech take off
- --------------------------------------------------------------------------------
Economies around the world began to recover in 1999 as a global financial crisis
that had roiled financial markets in 1997 and 1998 subsided. A flight of capital
away from emerging market countries had resulted in economic recessions and
weakened currencies in many of these nations. But in 1999 the weaker currencies
helped boost their exports and revive their economies. Because the world economy
was more stable, investors poured money into stocks and bonds of developing
markets and stocks in Latin America, eastern Europe and Asia rose dramatically.
Japanese stocks also rallied as that nation attacked its structural, financial
and business problems.
The pickup in global economic demand boosted commodity prices. The United States
saw strong advances for industrial cyclical stocks such as basic materials and
capital goods. Booming economies, however, often lead to higher interest rates,
so investors were cautious about rising rates throughout the year.
Performance of Key Stock Market Indexes
Through December 31, 1999
[GRAPH]
Six Months 1999
S&P 500 7.7% 21.0%
S&P 500 BARRAValue -1.1% 12.7%
S&P 500 BARRAGrowth 15.6% 28.3%
Russell 2000 Value -6.4% -1.5%
Russell 2000 Growth 26.8% 43.1%
MSCI World Index Free* 15.1% 24.8%
MSCI Europe Index* 18.8% 15.9%
MSCI Japan Index* 33.8% 61.5%
*In U.S. currency.
Sources: Morgan Stanley Capital International (MSCI), Standard & Poor's, Frank
Russell Company and Prudential as of December 31, 1999. S&P 500 Composite,
Russell 2000, and Morgan Stanley Capital International indexes are unmanaged
indexes 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. Please refer to inside front cover for benchmark
definitions.
The views expressed are as of January 26, 2000, and are subject to change based
on market and other conditions.
Growth stocks are normally interest sensitive, because rising rates reduce the
value of future earnings. In addition, growth companies looking to expand may
borrow from banks or issue bonds. This year, however, a surging tech sector
provided an environment in which companies could raise funds relatively easily
by issuing stock. The tech-heavy Nasdaq Composite closed at a record 4,069--an
86% gain for the year. Small and mid-cap U.S. growth stocks also had strong
performances. The Russell Midcap Growth Index gained 51%; the Russell 2000
smallcap Growth Index rose 43%.
In contrast, both small-cap value and mid-cap value stocks declined during 1999.
At the beginning of 1999, value stocks were already much cheaper than growth
stocks, and the sharp difference in performance over the course of the year
increased these disparities in relative value.
Geographically broad-based stock gains
- --------------------------------------------------------------------------------
The improved commodities markets and lower production costs due to currency
devaluations made an excellent environment for the stocks of many developing
countries. In Latin America, Mexico benefited from the increased linkage of its
economy to the developed countries to its north; its stocks soared 82% (in U.S.
dollars). Brazil also had a strong year. Both were rebounding from severe
declines in 1998.
Among developed markets, the telecommunications sector saw considerable
jockeying for position, with merger and takeover offers common. Telecom giant
Nokia led the Nordic region to an 88% return. Developed Europe, as a whole,
trailed the global markets but picked up toward the end of the year. The
Japanese stock market rose 62% (U.S. dollars) in part from the rise of the yen
with respect to the U.S. dollar.
Within the United States, gains were narrow
- --------------------------------------------------------------------------------
Increases in prices of U.S. stocks were concentrated. Many technology stocks had
extraordinary returns, whether they were giant companies like Cisco Systems and
Intel or initial public offerings (IPOs) of Internet companies with no earnings.
Although some inexpensive sectors of the U.S. stock market--capital goods,
basic materials, consumer cyclicals and energy--had good returns in 1999, value
stocks overall trailed growth by a very broad margin. In the Russell 3000, which
reflects all market capitalization sectors, growth stocks returned 34% while
value stocks gained 7%.
2
<PAGE>
Equity Outlook 2000
December 31, 1999
How long can it continue?
- --------------------------------------------------------------------------------
The key uncertainty is whether the intense speculation in technology, Internet
and communications stocks that accelerated late in 1999 will continue this year,
or will investors turn to inexpensive industrial cyclical stocks such as capital
goods and basic materials?
Although commodity prices and basic materials shares rose about 15% to 30% in
1999, they started from a very low base and are still relatively cheap.
Commodity inventories are low, so accelerating global economic activity could
push up prices and attract more investors to basic materials stocks. Because
rising commodity prices also typically drive interest rates higher, this could
trigger a market rotation away from the techs to industrials. Many industrial
stocks have become quite inexpensive, while consolidation and restraint in
investing in new capacity have prepared them to leverage the benefits of
improving demand.
We expect continued earnings growth from many technology leaders as Internet use
and wireless telecommunications spread to relatively undeveloped markets.
Business-to-business Internet services are also growing rapidly. Despite the
tremendous average gain of technology stocks in 1999, stock selection was and
will continue to be important: When investors lost confidence in companies'
prospects, the stocks fell, whether it was Amazon.com or a start-up.
U.S. stocks are generally expensive
- --------------------------------------------------------------------------------
Our valuation models suggest the U.S. stock market (as represented by the S&P
500) is 15% to 20% overvalued. Market valuations are at a historic extreme--the
dividend yield on the S&P 500 dropped to 1.16% and the price/earnings ratio
reached 32.0. However, earnings estimates and revisions of estimates are still
positive, which could provide the market with continued momentum.
Investors are paying more attention to earnings and trends than to valuations.
When companies have missed estimates, even by small amounts, their shares have
been punished. A broad decline in profit growth would be a danger signal.
Normally, rising interest rates pose a threat to highly valued growth companies.
In this earnings-focused market, however, it is not clear how investors will
react should both interest rates and earnings continue to rise.
Given the uncertainty, the prudent course is to be exposed to the current trend
and to alternatives--that is, to technology-intensive funds and to funds with a
heavy exposure to commodity cyclicals. Although U.S. stocks are generally
overvalued, there are still companies in many sectors that have good
fundamentals, and whose shares are relatively inexpensive.
Performance of U.S. Market Sectors Through December 31, 1999
[GRAPH]
Six Months 1999
Technology 40.4% 75.1%
Energy -0.3% 19.0%
Capital Goods 8.7% 28.9%
Utilities -9.9% -8.9%
Communication Services 1.7% 19.1%
Basic Materials 3.4% 26.4%
Consumer Cyclicals 8.9% 22.3%
Healthcare -7.9% -8.2%
Consumer Staples -4.2% -6.3%
Financials -7.9% 4.0%
Transportation -18.9% -9.7%
Source: Standard & Poor's as of December 31, 1999. The S&P 500 Index is an
unmanaged index of stocks that provides an indication of stock price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
3
<PAGE>
Bond Commentary
December 31, 1999
A challenging year for U.S. bonds.
- --------------------------------------------------------------------------------
This year proved to be the worst in the history of the 30-year U.S. Treasury
bond. An investor who purchased this Treasury bond at a 5.10% yield at the
beginning of 1999 lost more than 14% by the end of the year. Many investors sold
Treasuries, believing they no longer needed these conservative securities
because the global financial crisis had begun to fade in the first quarter of
1999. Later in the year, Treasuries sold off amid fear that inflation was
building in the domestic and global economies. Rising inflation hurts bonds by
eroding the value of their fixed interest payments.
Concerns about mounting inflation were well founded. Crude oil prices more than
doubled in 1999, albeit from their lowest level in more than a decade.
Furthermore, the lowest U.S. unemployment rate in 30 years fueled fears of
growing wage pressures. Consumers and businesses spent vigorously, threatening
to boost the prices of goods and services. With the U.S. economy growing
rapidly, the Federal Reserve was bound to increase short-term interest rates to
slow economic growth and prevent spiraling inflation. To compensate for the risk
of rising short-term rates, investors drove prices of Treasuries lower, which
caused their yields to climb. The Treasury market was down 2.56% in 1999, as
measured by the Lehman Brothers U.S. Treasury Index.
The first short-term rate hike occurred in June 1999, when the Fed raised the
federal funds rate (the rate U.S. banks charge each other for overnight loans)
by a quarter of a percentage point to 5.00%. Two more of the same magnitude
followed in August and November 1999, which left the federal funds rate at
5.50%.
In this rising interest-rate environment, other fixed-income markets in the
United States also sold off. Their prices, however, did not decline as much as
the prices of Treasuries because, investors worried less about credit risks in
1999 than during the global financial crisis of 1997 and 1998. As a result,
spreads--or the differences between the yields of other U.S. bond markets and
Treasuries--generally declined in 1999, albeit with a fair amount of volatility.
Among the U.S. bond market sectors that performed better than Treasuries in 1999
were investment-grade corporate bonds, federal government agency securities,
high-yield (junk) bonds, asset-backed securities and mortgage-backed securities.
...but global growth aided emerging market bonds
- --------------------------------------------------------------------------------
Although stronger-than-expected economic growth hurt bond markets in the United
States, emerging market bonds benefited from the resurgence in the global
economy.
They returned 23.07% for the year, beating all other fixed-income markets, as
measured by the Lehman Brothers Emerging Market Index. As Asian and Latin
American economies rebounded in 1999 from the global financial crisis, investors
sought the bonds of nations such as South Korea and Brazil for their higher
yields. Investors felt more confident about owning these riskier debt
securities. Indeed, Moody's Investors Service upgraded the credit ratings of
certain South Korean and Brazilian bonds.
Performance of Fixed-Income Market Indexes Through December 31, 1999
[GRAPH]
Six Months 1999
Global (U.S. dollar) Index 2.3% -5.2%
U.S. Mortgage-Backed Securities 1.3% 1.9%
Emerging Markets 11.7% 23.1%
U.S. Treasuries -0.1% -2.6%
U.S. Aggregate Index 0.6% -0.8%
U.S. Corp. Invest. Grade 0.3% -2.0%
U.S. Municipals -1.2% -2.1%
U.S. Corporate High Yield 0.2% 2.4%
Source: Lehman Brothers as of December 31, 1999. The Lehman Brothers indexes are
unmanaged indexes of bonds that provide an indication of bond price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
4
<PAGE>
Bond Outlook 2000
December 31, 1999
U.S. bonds still haunted by rate-hike fears
- --------------------------------------------------------------------------------
Uncertainty about whether the Federal Reserve will leave short-term interest
rates unchanged or increase them by a quarter or half percentage point should
heighten volatility in U.S. bond markets early in 2000.
After their most recent meeting in late December 1999, the Fed voted to hold
monetary policy steady. But the central bank issued a statement which warned
that if strong demand for goods and services continues to outstrip the potential
supply, inflation could build in the U.S. economy, despite the growth in
productivity. In other words, the Fed might need to hike short-term rates again
to cool off the economy and keep inflation in check. The U.S. central bank's
next meeting is scheduled for February 2000.
Prudential economists expect U.S. economic growth to slow substantially in the
first half of 2000. But if signs of moderating economic growth do not emerge
quickly enough, the belief that another increase in the federal funds rate is
necessary should prompt investors to push bond yields higher (and their prices
lower) early in the year. We expect the yield on the 30-year U.S. Treasury bond
to climb early in 2000 toward the upper end of our expected trading range, which
is 6.00% to 7.00%. The benchmark yield could then drift lower as it becomes
clear that the U.S. economy is losing steam. Indeed, we expect the 30-year
Treasury bond yield to end the year closer to 6.00%. Despite the uncertainty
facing the bond market early in 2000, we expect returns on U.S. investment-grade
bonds to exceed their rather dismal performance of 1999.
There is also upward pressure on European bond yields, because many economists
expect the European Central Bank (ECB) eventually to increase its 3.00%
refinancing rate (what it charges commercial banks for short-term loans) in the
first half of 2000. European economic growth has accelerated amid growing demand
for European exports, which became very competitive because of the euro's 14%
decline against the U.S. dollar in 1999.
U.S. corporate bonds expected to outperform Treasuries
- --------------------------------------------------------------------------------
We expect both U.S. investment-grade and high-yield (junk) corporate bonds to
continue to perform better than comparable Treasuries, albeit to a lesser extent
than in 1999. We believe many investors will remain comfortable owning the debt
securities of corporations if economic growth in the United States stabilizes at
a 3.5% annualized pace this year, as expected by Prudential economists. Junk
bonds appear to be attractive in light of their higher-than-normal yields. The
average yield of the Lehman Brothers High Yield Index stood at 11.50% at the end
of 1999--its highest level in more than seven years.
Rally in emerging market bonds seen on track
- --------------------------------------------------------------------------------
This growing appetite for higher-yielding assets should also continue to benefit
emerging market bonds. We expect crossover buyers--such as those that normally
purchase investment-grade bonds--to turn to emerging market bonds in Asia, Latin
America and eastern Europe to enhance yields on their portfolios. For example,
such investors might be attracted to Brazilian bonds because of that nation's
improving economic fundamentals, consolidating fiscal reform, increasing levels
of foreign direct investment, and better climate for Brazilian exports created
by the global economic recovery. All things considered, we anticipate further
improvement in emerging market bonds, even though we do not expect them to
replicate the hefty returns of 1999.
5
<PAGE>
Prudential's
Gibraltar Fund,Inc.
December 31, 1999
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.
$10,000 Invested Over Ten Years
[GRAPH]
Gibraltar Lipper Large-Cap
Portfolio1 S&P 500 Index3 Core Funds Avg.2
89 10,000 10,000 10,000
10,200 10,425 10,308
90 9,719 9,675 9,689
11,365 11,051 11,068
91 13,058 12,834 12,635
13,052 12,584 12,550
92 15,354 13,739 13,596
17,833 14,518 14,257
93 19,007 15,418 14,963
18,574 14,753 14,457
94 18,754 15,200 15,160
21,686 17,905 18,220
95 22,347 20,142 20,850
24,501 21,936 22,953
96 28,409 24,222 25,634
31,586 28,455 30,914
97 33,774 30,987 34,183
38,380 36,393 40,241
98 42,518 39,434 43,959
48,696 43,512 49,400
99 59,066 47,315 53,205
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) Large-Cap Core Funds 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 Fund. The securities that comprise the S&P 500 may differ substantially
from the securities in the Fund.
Performance Summary
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Gibraltar Fund1 21.29% 38.92% 27.63% 25.79% 19.44%
- --------------------------------------------------------------------------------
Lipper (VIP) Large-Cap Core Funds Avg.2 9.99% 22.40% 24.79% 25.53% 16.72%
- --------------------------------------------------------------------------------
S&P 5003 7.70% 21.03% 27.56% 28.54% 18.19%
- --------------------------------------------------------------------------------
Gibraltar Fund inception date: 3/14/68.
Prudential's Gibraltar Fund returned 38.92%, more than 16 percentage points
above both the 22.40% Lipper (VIP) Large-Cap Core Funds Average and the
unmanaged S&P 500 Index. This strong performance is primarily the result of our
selection among technology stocks and our strong focus on this sector in a year
when technology stocks far outperformed all other sectors. In particular, JDS
Uniphase, a longtime holding and large position, rose more than 800% in 1999.
The Fund also benefited from its media and advertising holdings.
Performance Review
- --------------------------------------------------------------------------------
Uniphase, a fiber optic company, was one of our largest and most profitable
holdings for some time. It merged with JDS Fitel in July to form JDS Uniphase.
It has been among the market's top performers, and made by far the greatest
contribution to our return of all our holdings.
In 1999, the average return of the technology sector was about three times that
of the second-highest performing sector. Our technology focus accounted for most
of our superior performance. In addition to JDS Uniphase, we particularly
benefited from the software company Oracle, the networking company Cisco
Systems, and EMC, which makes software to improve the efficiency and reliability
of computer information storage devices. Motorola, Applied Materials
(semiconductor capital equipment) and Broadcom also made substantial
contributions.
The Fund has an excellent record over longer periods as well, having
outperformed the Lipper Large-Cap Core Fund Average by more than two and a half
percentage points a year, on average, over the past three- and ten-year periods.
On the negative side, health-related stocks did poorly, including our drug
retailers (Rite Aid) and drug distributors and manufacturers (Cardinal Health,
Abbott Labs). Prior gains by drug companies and uncertainty about government
regulation in the future both created a poor environment for these stocks.
Business fundamentals of some of our holdings (Mattel, Rite Aid, Avon Products,
and Pepsi Bottling Group) deteriorated, and we no longer own these stocks.
6
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
The year of technology. The technology sector, despite its extraordinary lead
over other market sectors in 1999, was and continues to be, volatile. Although
investors appear willing to pay large prices for companies that have had no
earnings, they have punished the stocks of technology companies whose earnings
disappoint or that have significant changes in their prospects.
We have focused on companies with earnings stability. However, these companies
are still expensive compared to the overall market. We may reduce or eliminate
these holdings if we believe their business fundamentals do not support their
premium prices. We have slightly reduced our focus on technology.
Cyclicals. Whereas technology companies are on a long-term growth path, some
other sectors of the market have earnings that vary more with the economic
cycle. Because of concerns about the Asian recession, these stocks have been
comparatively very inexpensive. But with the outlook now for accelerating
economic growth in Asia and Europe, the prospects for cyclicals have improved.
We are likely to maintain our energy holdings at about the same percentage of
our portfolio as they are of the overall market. Rising oil and gas prices are
likely to help their performance. However, some of our energy holdings (Baker
Hughes and Noble Affiliates) hurt performance toward the end of 1999.
Outlook
- --------------------------------------------------------------------------------
Portfolio Manager Jeffrey T. Rose, CFA
[PHOTO]
A return to historical patterns.
"The past year was very unusual in the sustained intense focus on technology
stocks. Like most other investors, we believe the contributions the tech sector
is making to productivity and quality of life will lead to long-term growth.
However, we think further gains will be more in line with historical patterns.
That includes a return to some seasonal fluctuations in technology buying, to
reflect seasonal product cycles. We have trimmed our position somewhat, and will
likely add to these positions if the sector has meaningful pullback."
Portfolio Composition
as of 12/31/99
--------------
Technology 38.1%
Consumer Growth & Staples 23.9%
Industrials 12.8%
Financials 9.6%
Utilities 8.8%
Energy 3.7%
Cash & Equivalents 3.1%
Source: Prudential. Holdings are subject to change.
Top Ten Holdings
as of 12/31/99
--------------
JDS Uniphase Corp. 5.1%
Cisco Systems, Inc. 4.2%
Oracle Corp. 4.0%
Motorola, Inc. 3.8%
CBS Corp. 3.3%
EMC Corp. 3.2%
General Electric Co. 3.0%
Intel Corp. 3.0%
Microsoft Corp. 3.0%
American Intl Group, Inc. 2.8%
Source: Prudential. Holdings are subject to change.
7
<PAGE>
FINANCIAL STATEMENTS OF
PRUDENTIAL'S GIBRALTAR FUND, INC.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$284,957,735)............................ $ 451,283,532
Receivable for investments sold............ 569,981
Interest and dividends receivable.......... 193,622
--------------
Total Assets............................. 452,047,135
--------------
LIABILITIES
Payable to Bank............................ 569,773
Payable to investment adviser.............. 125,507
Accrued expenses........................... 62,404
--------------
Total Liabilities........................ 757,684
--------------
NET ASSETS................................... $ 451,289,451
==============
Net assets were comprised of:
Common stock, at $1 par value.............. $ 28,806,311
Paid-in capital, in excess of par.......... 237,266,916
--------------
266,073,227
Accumulated net realized gains on
investments................................ 18,890,427
Net unrealized appreciation on investments... 166,325,797
--------------
Net assets, December 31, 1999................ $ 451,289,451
==============
Net asset value and redemption price per
share, 28,806,311 outstanding shares of
common stock (authorized 75,000,000
shares).................................... $ 15.67
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends.................................. $ 2,325,435
Interest................................... 573,151
---------------
2,898,586
---------------
EXPENSES
Investment advisory fee.................... 480,403
Directors' fees............................ 8,500
Custodian expense.......................... 1,000
---------------
Total Expenses........................... 489,903
Less: custodian fee credit................. (1,567)
---------------
Net expenses............................. 488,336
---------------
NET INVESTMENT INCOME........................ 2,410,250
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 48,396,443
Net change in unrealized appreciation on
investments.............................. 79,517,050
---------------
NET GAIN ON INVESTMENTS...................... 127,913,493
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 130,323,743
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 2,410,250 $ 3,126,992
Net realized gain on investments........................ 48,396,443 33,966,363
Net change in unrealized appreciation on investments.... 79,517,050 41,144,598
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 130,323,743 78,237,953
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (2,491,343) (3,149,824)
Distributions from net realized capital gains........... (35,800,340) (30,374,602)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (38,291,683) (33,524,426)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock issued in reinvestment of dividends and
distributions [2,578,010 and 2,790,053 shares,
respectively].......................................... 36,911,543 32,290,798
Capital stock repurchased [(2,927,759) and (3,405,733)
shares, respectively].................................. (40,160,866) (40,416,358)
--------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS............................................ (3,249,323) (8,125,560)
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 88,782,737 36,587,967
NET ASSETS:
Beginning of year....................................... 362,506,714 325,918,747
--------------- ---------------
End of year (a)......................................... $ 451,289,451 $ 362,506,714
=============== ===============
(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, 1999
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.9%
VALUE
COMMON STOCKS SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
ADVERTISING -- 2.4%
Young & Rubicam, Inc. (a)....................... 153,400 $ 10,853,050
--------------
AEROSPACE -- 1.4%
Honeywell International, Inc. .................. 111,300 6,420,619
--------------
BANKS AND SAVINGS & LOANS -- 4.5%
Chase Manhattan Corp. .......................... 71,100 5,523,581
Providian Financial Corp. ...................... 123,650 11,259,878
Wells Fargo Co. ................................ 82,800 3,348,225
--------------
20,131,684
--------------
BROADCASTING SERVICES -- 1.7%
Infinity Broadcasting Corp. (a)................. 207,600 7,512,525
--------------
COMPUTER SERVICES -- 19.2%
America Online, Inc. (a)........................ 120,700 9,105,306
BMC Software, Inc. (a).......................... 103,700 8,289,519
Cisco Systems, Inc. (a)......................... 175,600 18,811,150
Comverse Technology, Inc. (a)................... 32,000 4,632,000
EMC Corp. (a)................................... 131,800 14,399,150
Microsoft Corp. (a)............................. 114,900 13,414,575
Oracle Corp. (a)................................ 162,250 18,182,141
--------------
86,833,841
--------------
COSMETICS & SOAPS -- 3.5%
Colgate-Palmolive Co. .......................... 78,000 5,070,000
Gillette Co. ................................... 67,600 2,784,275
Procter & Gamble Co. ........................... 73,400 8,041,887
--------------
15,896,162
--------------
DIVERSIFIED OPERATIONS -- 3.0%
General Electric Co. ........................... 87,600 13,556,100
--------------
DRUGS AND MEDICAL SUPPLIES -- 6.4%
Abbott Laboratories ............................ 179,500 6,518,094
Bristol-Myers Squibb Co. ....................... 133,400 8,562,612
Cardinal Health, Inc. .......................... 69,750 3,339,281
Merck & Co., Inc. .............................. 108,900 7,303,106
Pfizer, Inc. ................................... 103,200 3,347,550
--------------
29,070,643
--------------
ELECTRONICS -- 17.9%
Altera Corp. (a)................................ 117,500 5,823,594
Applied Materials, Inc. (a)..................... 54,300 6,879,131
Broadcom Corp. (Class "A" Stock) ............... 26,600 7,245,175
Intel Corp. .................................... 164,600 13,548,637
JDS Uniphase Corp. (a).......................... 142,600 23,003,162
LSI Logic Corp. (a)............................. 104,600 7,060,500
Motorola, Inc. ................................. 115,800 17,051,550
--------------
80,611,749
--------------
FINANCIAL SERVICES -- 2.3%
MBNA Corp. ..................................... 387,100 10,548,475
--------------
FOOD & BEVERAGE -- 2.4%
Coca Cola Enterprises, Inc. .................... 93,300 1,877,662
PepsiCo, Inc. .................................. 260,000 9,165,000
--------------
11,042,662
--------------
GAS PIPELINES -- 1.2%
Williams Companies, Inc. ....................... 169,300 5,174,231
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.1%
IMS Health, Inc. ............................... 174,300 4,738,781
--------------
INSURANCE -- 2.8%
American International Group, Inc. ............. 116,727 12,621,107
--------------
MANUFACTURING -- 4.3%
Illinois Tool Works, Inc. ...................... 107,000 7,229,187
Tyco International Ltd. ........................ 308,400 11,989,050
--------------
19,218,237
--------------
</TABLE>
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 1)
------------- --------------
<S> <C> <C>
MEDIA -- 7.6%
CBS Corp. (a)................................... 234,100 $ 14,967,769
Clear Channel Communications,
Inc. (a)...................................... 81,700 7,291,725
Interpublic Group of Companies, Inc. ........... 136,600 7,880,113
New York Times Co. (Class "A" Stock) ........... 82,300 4,042,988
--------------
34,182,595
--------------
MINERAL RESOURCES -- 0.9%
Burlington Resources, Inc. ..................... 121,200 4,007,175
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 2.3%
AES Corp. ...................................... 139,900 10,457,525
--------------
OIL & GAS -- 2.1%
Anadarko Petroleum Corp. ....................... 185,300 6,323,363
Noble Affiliates, Inc. ......................... 138,000 2,958,375
--------------
9,281,738
--------------
OIL & GAS SERVICES -- 3.4%
Baker Hughes, Inc. ............................. 156,400 3,294,175
Enron Corp. .................................... 274,200 12,167,625
--------------
15,461,800
--------------
RESTAURANTS -- 1.6%
McDonald's Corp. ............................... 184,300 7,429,594
--------------
RETAIL -- 1.3%
CVS Corp. ...................................... 145,000 5,790,938
--------------
TELECOMMUNICATIONS -- 3.6%
Lucent Technologies, Inc. ...................... 57,400 4,294,238
MCI Worldcom, Inc. (a).......................... 225,000 11,939,063
--------------
16,233,301
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $270,748,735)............................................ 437,074,532
--------------
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 3.1% (000)
-------------
<S> <C> <C>
TIME DEPOSIT
Bank of Montreal,
5.00%, 01/03/00 .............................. $ 14,209 14,209,000
--------------
(cost $14,209,000)
TOTAL INVESTMENTS -- 100.0%
(cost $284,957,735; Note 3).................................... 451,283,532
OTHER ASSETS IN EXCESS OF LIABILITIES............................ 5,919
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 451,289,451
==============
</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 investment objective of the fund is growth of capital to the extent
compatible with a concern for preservation of principal by investing in common
stocks and other securities convertible into common stock. 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: NASDAQ National Market System equity securities and
securities for which the primary market is an exchange are generally valued at
the last sale price on such system or exchange on that day or, in the absence of
recorded sales, at the mean between the most recently quoted bid and asked
prices on that day or the bid price on such day in the absence of an asked
price. Other over-the-counter equity securities are valued by an independent
pricing agent or principal market maker. Debt obligations with maturities of
less than 60 days are valued at amortized cost. Portfolio securities or assets
for which market quotations are not readily available will be valued at fair
value as determined in good faith by or under authority of the Fund's Board of
Directors.
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. Some dividends
may be 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.
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.
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
C1
<PAGE>
effect of applying this statement was to decrease accumulated realized gain on
investments and increase net investment income by $27,780. 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, 1999, Prudential Securities Incorporated, an
affiliate of The Prudential, earned approximately $9,000 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, 1999 aggregated $140,131,026 and $188,633,018,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1999 was
$284,998,822 and, accordingly, net unrealized appreciation for federal income
tax purposes was $166,284,710 (gross unrealized appreciation $176,669,423; gross
unrealized depreciation $10,384,713).
C2
<PAGE>
FINANCIAL HIGHLIGHTS
PRUDENTIAL'S GIBRALTAR FUND, INC.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995(A)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 12.43 $ 10.95 $ 11.43 $ 10.14 $ 9.40
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.10 0.12 0.22 0.16 0.18
Net realized and unrealized gains
(losses) on investments.............. 4.57 2.61 1.84 2.56 1.65
------- ------- ------- ------- -------
Total from investment operations... 4.67 2.73 2.06 2.72 1.83
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.09) (0.12) (0.21) (0.15) (0.17)
Distributions from net realized
gains................................ (1.34) (1.13) (2.33) (1.28) (0.92)
------- ------- ------- ------- -------
Total distributions................ (1.43) (1.25) (2.54) (1.43) (1.09)
------- ------- ------- ------- -------
Net Asset Value, end of year........... $ 15.67 $ 12.43 $ 10.95 $ 11.43 $ 10.14
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN(b)............. 38.92% 25.89% 18.88% 27.13% 19.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $451.3 $362.5 $325.9 $301.3 $261.2
Ratios to average net assets:
Expenses............................. 0.13% 0.13% 0.15% 0.16% 0.14%
Net investment income................ 0.63% 0.96% 1.56% 1.38% 1.68%
Portfolio turnover rate................ 39% 105% 101% 97% 105%
</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>
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, 1999, 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 four years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States 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, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The accompanying financial highlights for the year 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 23, 2000
D1
<PAGE>
BOARD OF
DIRECTORS PRUDENTIAL'S GIBRALTAR FUND, INC.
<TABLE>
<S> <C>
John R. Strangfeld W. SCOTT McDONALD, JR., Ph.D.
CHAIRMAN, VICE PRESIDENT,
PRUDENTIAL'S GIBRALTAR FUND, INC. KALUDIS CONSULTING GROUP
</TABLE>
<TABLE>
<S> <C>
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, VICE PRESIDENT,
NEW JERSEY 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, 1999) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in 1999, the Fund paid dividends as follows:
<TABLE>
<CAPTION>
ORDINARY LONG-TERM TOTAL
INCOME CAPITAL GAINS DIVIDENDS
- --------- ------------- ---------
<S> <C> <C>
$0.09 $ 1.34 $ 1.43
</TABLE>
<PAGE>
================================================================================
Prudential's Gibraltar Fund, Inc.
Board of Directors
JOHN R. STRANGFELD
Chairman,
Prudential's Gibraltar Fund, Inc.
SAUL K. FENSTER, Ph.D.
President,
New Jersey Institute of Technology
W. SCOTT McDONALD, JR., Ph.D.
Vice President,
Kaludis Consulting Group
JOSEPH WEBER, Ph.D.
Vice President,
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]
(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
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