SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] |
For the fiscal year ended December 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] |
For the transition period from to
Commission File Number 001-16707
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
PSI 401(k) PLAN
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
PRUDENTIAL FINANCIAL, INC.
751 Broad Street
Newark, New Jersey 07102
| a) | The following financial statements and reports, which have been prepared pursuant to the requirements of the Employee Retirement Income Security Act of 1974, are filed as part of this Annual Report on Form 11-K: |
Reports of Independent Registered Public Accounting Firms
Financial Statements:
Statements of Net Assets Available for Benefits, December 31, 2003 and 2002
Statement of Changes in Net Assets Available for Benefits, Year Ended December 31, 2003
Notes to Financial Statements
Supplemental Schedule:
Schedule H, line 4j-Schedule of Reportable Transactions, December 31, 2003
| (b) | The following Exhibits are filed as part of this Annual Report on Form 11-K: |
Consents of Independent Registered Public Accounting Firms
PSI 401(k) PLAN
Financial Statements
As of December 31, 2003 and 2002 and for the
year ended December 31, 2003
(With Reports of Independent Registered Public Accounting Firms Thereon)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Benefits Committee
Wachovia Corporation
We have audited the accompanying statement of net assets available for benefits of the PSI 401(k) Plan (the “Plan”) as of December 31, 2003, and the related statement of changes in net assets available for benefits for the year then ended and supplemental Schedule H, line 4j-Schedule of Reportable Transactions as of December 31, 2003. These financial statements and the supplemental schedule are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As further discussed in Note 6 to the financial statements, the Plan was terminated on December 31, 2003, and the Plan assets were transferred to the Wachovia Savings Plan and to the Wachovia Savings Plan Puerto Rico.
In our opinion, the 2003 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2003, and the changes in net assets available for benefits for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule H, line 4j-Schedule of Reportable Transactions as of December 31, 2003, is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP |
Charlotte, North Carolina |
June 14, 2004 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Benefits Committee
Wachovia Corporation
We have audited the accompanying statement of net assets available for benefits of the PSI 401(k) Plan (the “Plan”) as of December 31, 2002. This financial statement is the responsibility of the Plan’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
/s/ PRICEWATERHOUSECOOPERS LLP |
New York, NY |
June 25, 2003 |
PSI 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
| December 31, | |||||
| 2003 | 2002 | ||||
ASSETS | |||||
Investments | |||||
At contract value | |||||
Prudential Guaranteed Interest Account | $ | — | 142,616,551 | ||
At fair value | |||||
Mutual funds | — | 398,150,283 | |||
Prudential Financial, Inc. Common Stock Fund | — | 21,039,329 | |||
Participants’ loans receivable | — | 18,347,927 | |||
Total investments | — | 580,154,090 | |||
Net assets available for benefits | $ | — | 580,154,090 | ||
See accompanying notes to financial statements.
PSI 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
| Year Ended December 31, 2003 | ||||||||||
| Participant Directed | Non-Participant Prudential | Total | ||||||||
ADDITIONS TO PLAN ASSETS | ||||||||||
Investment income | ||||||||||
Dividends | $ | 4,986,447 | 169,358 | 5,155,805 | ||||||
Interest | 5,326,400 | — | 5,326,400 | |||||||
Interest on loans | 759,040 | 26,078 | 785,118 | |||||||
Net appreciation in fair value of investments | 106,381,255 | 3,692,188 | 110,073,443 | |||||||
Total investment income | 117,453,142 | 3,887,624 | 121,340,766 | |||||||
Employer cash contributions | 5,328,686 | — | 5,328,686 | |||||||
Employee contributions | 52,858,926 | 1,865,428 | 54,724,354 | |||||||
Transfer from other funds | 22,796,304 | — | 22,796,304 | |||||||
Total additions to Plan assets | 198,437,058 | 5,753,052 | 204,190,110 | |||||||
DEDUCTIONS FROM PLAN ASSETS | ||||||||||
Participant withdrawals | 10,130,045 | 197,895 | 10,327,940 | |||||||
Transfers to alternative plans | 148,505,880 | 3,798,182 | 152,304,062 | |||||||
Transfer to other funds | — | 22,796,304 | 22,796,304 | |||||||
Transfer to Wachovia Savings Plan | 598,209,651 | — | 598,209,651 | |||||||
Transfer to Wachovia Savings Plan Puerto Rico | 706,243 | — | 706,243 | |||||||
Total deductions from Plan assets | 757,551,819 | 26,792,381 | 784,344,200 | |||||||
Decrease in net assets available for benefits | (559,114,761 | ) | (21,039,329 | ) | (580,154,090 | ) | ||||
Net assets available for benefits | ||||||||||
Beginning of year | 559,114,761 | 21,039,329 | 580,154,090 | |||||||
End of year | $ | — | — | — | ||||||
See accompanying notes to financial statements.
PSI 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE 1: DESCRIPTION OF PLAN
The following description of the PSI 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
GENERAL
The Plan, which was established January 1, 1985, and amended from time to time, was a defined contribution plan covering eligible employees who were employed by Prudential Securities Incorporated (“PSI”) and its affiliates prior to and on July 1, 2003. PSI is an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”). On July 1, 2003, PSI contributed its retail brokerage-related assets, liabilities and employees to Wachovia Securities Financial Holdings, LLC (“WSFH”) in exchange for a 38% interest in WSFH. WSFH is a consolidated subsidiary of Wachovia Corporation, which owns the remaining 62% interest.
On July 1, 2003, Wachovia Corporation and its subsidiaries (the “Company”) became the sponsor of the Plan. The Company continued the Plan until December 31, 2003, at which time the Plan was terminated and the assets of the Plan were transferred primarily to the Wachovia Savings Plan. Balances related to employees residing in Puerto Rico were transferred to the Wachovia Savings Plan Puerto Rico. The Plan was subject to the provisions of the PSI 401(k) Plan document in 2003, and effective with the merger of the Plan into the Wachovia Savings Plan and into the Wachovia Savings Plan Puerto Rico, the provisions set forth in the plan documents of those plans apply to the participants. The Plan was subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Effective July 1, 2003, investments in the Prudential Financial, Inc. Common Stock Fund ceased, all PFI common stock was liquidated over the course of a two-week period and the proceeds were invested in American Funds Washington Mutual.
ELIGIBILITY
An employee was eligible to participate in the Plan on the first day of the month after completing one month of service as a full-time or part-time employee who worked at least 1,000 hours in a calendar year, provided the employee was at least 21 years old.
At the time of eligibility, employees were automatically enrolled into the Plan and 3% of gross salary was deducted and deposited into the Prudential Financial, Inc. Common Stock Fund.
Effective July 1, 2003, only employees of PSI or any affiliate of PSI whose employment transferred to WSFH or the Company either as of the closing date of the transaction or otherwise in connection with WSFH are eligible to participate in the Plan.
CONTRIBUTIONS
Basic Pre-Tax Contributions and Percentage Match
Basic pre-tax contributions by participating employees were limited to the first 3% of the employee’s gross salary up to $75,000. Based on firm wide financial performance, these contributions were matched at rates up to 75% based on PSI’s adjusted net income as defined in the Plan document. In 2003, the Plan was amended and the amount of percentage matching contribution was limited to 50% of each participant’s deferral of eligible compensation, such deferral considered to a maximum of the lesser of 3% of compensation or $2,250. In 2004, the contributed amount, including fixed-dollar matching, of $6,553,126 less participant forfeitures of $1,224,440 was $5,328,686 for Plan year 2003. Contributions are made during the first quarter following the end of the Plan year, and are invested consistent with participant elections in effect on the date of the employer’s contribution. The contribution in 2004 for the 2003 Plan year was made to the Wachovia Savings Plan and to the Wachovia Savings Plan Puerto Rico.
(Continued)
PSI 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Fixed-Dollar Matching Contribution
An additional matching contribution was made for participants who earned $50,000 or less and who were employed on December 31st of the year for which the contribution was made. The contribution varied based on PSI’s adjusted net income and the employee’s length of service and was in addition to the regular matching contribution. The amount of the contribution per participant ranged from $300 to $500. In 2003, the Plan was amended and the amount of the fixed-dollar matching contribution was $200 for eligible participants with 1 year to 3 years of service; $250 for eligible participants with 4 years to 6 years of service; and $300 for eligible participants with 7 years or more of service. The fixed-dollar matching contribution in 2003 was $763,834. The contribution in 2004 for the 2003 Plan year was made to the Wachovia Savings Plan and to the Wachovia Savings Plan Puerto Rico.
Additional Pre-Tax Contribution
All participants were able to contribute an additional 1% to 25% of their pre-tax earnings to the Plan, regardless of their pay. These contributions were not subject to matching. Total employee pre-tax contributions were subject to Internal Revenue Service (“IRS”) limits of $12,000 in 2003.
PARTICIPANT ACCOUNTS
Each participant’s account was credited with the participant’s contribution and an allocation of matching contributions. Investment performance for participants was based on the actual performance of the funds held in their respective accounts.
VESTING
Participants were immediately vested in their contributions and in fixed-dollar matching contributions. Participants became 100% vested in percentage matching contributions after 3 years of service, at age 65, or as a result of death or disability. The percentage matching contributions vested at the rate of 100% after the third year of service, with no amounts vested in the first two years.
The unvested benefits of a participant who terminated employment prior to July 1, 2003, were forfeited as of the termination date and were applied to reduce future employer contributions. Effective July 1, 2003, all participant balances and future employer contributions vested. In 2003, forfeitures amounted to $259,216 and were reflected in unallocated assets. Total unallocated forfeitures were $1,224,440 in 2003 and were used to reduce the 2003 contribution made in 2004.
BENEFIT PAYMENTS
Benefits from the Plan were paid in a lump sum following a participant’s normal retirement, disability retirement, termination of service or death. Participants who retired at age 55 or later were able to elect to receive their 401(k) benefit as a lifetime income by transferring some or all of their 401(k) Plan account balance to the PSI Cash Balance Pension Plan, which was a component of the Prudential Merged Retirement Plan. Effective July 1, 2003, the ability to transfer account balances to the Prudential Merged Retirement Plan was suspended.
OTHER PAYMENTS
Participants were able to withdraw post-tax contributions at any time. Vested pre-tax contributions were withdrawn, without penalties, when reaching age 59 1/2 or upon experiencing a “qualified financial hardship” as defined by the IRS. In some cases, withdrawals were subject to tax.
LOANS TO PARTICIPANTS
Loans were made to Plan participants from each of the investment funds based on their participation within each fund. The loans were subject to certain limitations as described in the Plan document. Applications for such loans were approved by the PSI benefits department. The minimum and maximum term for a loan was six months and sixty months, respectively. Loans not repaid within the sixty-month maximum were treated as a distribution from the Plan. On a semi-monthly basis, loan principal repayments and accrued interest paid on the loan were received and transferred to the fund elected by the participant. Loans were charged interest at the prevailing prime rate of interest on the day the loan application was received by the benefits department.
(Continued)
PSI 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments are carried at fair value which is the equivalent of the liquidation value. Shares of registered investment companies are valued at quoted market prices, which represent the net asset value of shares held by the Plan. Participant loans are recorded at face value plus accrued interest, which approximates fair value. In accordance with the American Institute of Certified Public Accountants Statement of Position 94-4, “Reporting of Investment Contracts Held by Health and Welfare Benefits Plans and Defined-Contribution Pension Plans”, the holding of investment contracts are generally stated at contract value plus accrued interest because they are considered to be benefit responsive, thus providing reasonable access to the funds by participants. If Plan management is aware that an event has occurred that may affect the ability to recover the full value of a contract, the contract is reported at its estimated realizable value. Otherwise the contract value of investment contracts, including any accrued interest approximates fair value.
Purchases and sales are recorded on trade date at purchase cost or sales proceeds. Dividend income is recorded on the ex-dividend date. Interest income is recognized on the accrual basis.
BASIS OF PRESENTATION
The accompanying financial statements are prepared on an accrual basis in accordance with accounting principles generally accepted in the United States of America.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect reported amounts of assets, liabilities and obligations and disclosure of contingent liabilities at the date of the financial statements, as well as additions to and deductions from these amounts during the reporting period. Actual results could differ from those estimates.
NOTE 3: INVESTMENTS
In 2003, the Plan’s investments (including gains and losses on investments bought and sold during the year) appreciated in value by $110,073,443. Net appreciation on the Prudential Financial, Inc. Common Stock Fund was $3,692,118 which occurred during the previously described liquidation.
The investment contracts held by the Prudential Guaranteed Interest Account had an average yield and crediting rate ranging from 3.6 percent to 3.9 percent at December 31, 2003.
The table on the next page presents the Plan’s investments at December 31, 2002. Investments that represent five percent or more of the Plan assets as of the beginning of the Plan year are separately identified. Under the terms of the Plan, Prudential Bank and Trust Company (the “Trustee”), a wholly-owned subsidiary of PFI held the assets of the Plan in bank-administered trust funds. The Company obtained certifications from the Trustee that such information was complete and accurate in accordance with section 29 CFR 2520.103-5 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA.
(Continued)
PSI 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
| December 31, 2002 | ||||
Prudential Guaranteed Interest Account * | $ | 142,616,551 | (a) | |
Mutual Funds | ||||
Prudential Small Company Value Fund * | 30,286,170 | (a) | ||
Prudential Equity Fund * | 42,155,515 | (a) | ||
Prudential High Yield Fund * | 18,718,724 | |||
Prudential Global Growth Fund * | 15,959,886 | |||
Prudential Utility Fund * | 19,587,334 | |||
Prudential Value Fund * | 11,783,063 | |||
Prudential Jennison Growth Fund * | 61,452,584 | (a) | ||
Prudential Stock Index Fund I * | 29,793,134 | (a) | ||
Prudential International Value Fund * | 12,313,470 | |||
Prudential 20/20 Focus * | 16,000,534 | |||
Prudential US Emerging Growth * | 5,175,142 | |||
Prudential Financial Services Fund * | 2,525,940 | |||
Prudential Health Sciences Fund * | 5,684,367 | |||
Prudential Jennison Equity Opportunity Fund * | 12,308,070 | |||
Prudential Total Return Bond Fund * | 16,041,895 | |||
Alliance Premier Growth Fund | 3,459,006 | |||
Alliance Technology Fund | 6,038,214 | |||
Alliance Growth & Income Fund | 6,894,068 | |||
American Balanced Fund | 4,506,185 | |||
American Century Emerging Markets | 1,326,540 | |||
American Century Equity Growth | 2,505,493 | |||
American Century International Growth | 2,609,375 | |||
American Century Small Cap Value | 8,592,392 | |||
Ariel Appreciation Fund | 1,026,249 | |||
Janus Balanced | 2,726,240 | |||
Janus Growth and Income | 4,629,823 | |||
Janus Mercury | 3,643,318 | |||
Janus Worldwide | 4,607,440 | |||
Fidelity Advisor Mid Cap | 4,770,810 | |||
MFS New Discovery | 3,601,739 | |||
Oakmark Select | 18,920,301 | |||
PIMCO Total Return Fund | 5,963,100 | |||
Strong Government Securities | 1,432,798 | |||
Target Small Cap Fund | 3,693,232 | |||
Washington Mutual Investors | 1,956,861 | |||
Credit Suisse Capital Appreciation | 1,869,928 | |||
Credit Suisse Global Technology | 1,393,475 | |||
Credit Suisse Small Company Growth | 2,197,868 | |||
Total mutual funds | 398,150,283 | |||
Prudential Financial, Inc. Common Stock Fund * | 21,039,329 | |||
Loans to participants, various maturities, rates from 4.0% to 9.5% | 18,347,927 | |||
Total investments | $ | 580,154,090 | ||
| (a) | Represents five percent or more of the Plan’s net assets at the beginning of the Plan year. |
| * | Party-in-Interest. |
(Continued)
PSI 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 4: INCOME TAX STATUS
The Plan is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986 (the “Code”) and is intended to be exempt from taxation under section 501(a) of the Code. The Plan received a favorable IRS determination letter dated April 22, 2004. The Plan Administrator believes the Plan is currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
NOTE 5: RELATED PARTY TRANSACTIONS
PSI affiliates receive fees from the funds for investment management and other services rendered to the funds. PSI does not receive any commissions on the purchase and sale of securities for the Plan. PSI, Prudential Investment Fund Management LLC, the investment advisor, Prudential Retirement Services LLC, the record keeper, Prudential Mutual Fund Services LLC, the transfer agent, and Prudential Bank and Trust Company, the Trustee, are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. The Company pays the Trustee’s fee and all other administrative expenses of the Plan.
NOTE 6: PLAN TERMINATION
The Company continued the Plan until December 31, 2003, at which time the Plan was terminated and the interest of all members in the Plan became fully vested. The Plan assets were transferred to the Wachovia Savings Plan and to the Wachovia Savings Plan Puerto Rico and the Plan participants became subject to the Wachovia Savings Plan and to the Wachovia Savings Plan Puerto Rico provisions.
SCHEDULE 1
PSI 401(k) PLAN
Schedule H, line 4j - Schedule of Reportable Transactions
| Year Ended December 31, 2003 | ||||||||||||||
Description | Purchase Price | Sales Price | Lease Rental | Transaction Expense | Original Cost | Net Gain (Loss) | ||||||||
Prudential Guaranteed Interest Account * | $ | 60,298,641 | 58,615,779 | — | — | 58,615,779 | — | |||||||
Mutual Funds | ||||||||||||||
Prudential Jennison Growth Fund * | 5,222,468 | 26,481,714 | — | — | 41,148,084 | (14,666,370 | ) | |||||||
Prudential Financial Stock (ESOP) * | 21,026,531 | 21,572,959 | — | — | 21,061,521 | 511,438 | ||||||||
Prudential Financial Stock * | 6,746,402 | 28,332,661 | — | — | 27,564,384 | 768,277 | ||||||||
Prudential Financial, Inc., Common Stock Fund * | $ | 17,288,308 | 20,054,774 | — | — | 17,288,427 | 2,766,347 | |||||||
| * | Party-in-Interest. |
NOTES
The transactions set forth herein are those that individually or in the aggregate, by security, involve an amount in excess of five percent ($29,007,705) of the current value of Plan assets ($580,154,090) at the beginning of the Plan year.
The above data is based on information which has been certified as complete and accurate by the Trustee.
See accompanying report of independent registered public accounting firm.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the plan administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
PSI 401(k) PLAN
/s/ BENJAMIN J. JOLLEY |
Benjamin J. Jolley |
Senior Vice President |
June 14, 2004 |
EXHIBIT INDEX
| Exhibit No. | Description | Location | ||
| (23)(a) | Consent of Independent Registered Public Accounting Firm | Filed herewith | ||
| (23)(b) | Consent of Independent Registered Public Accounting Firm | Filed herewith | ||