UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: | 811-(01612) | |
Exact name of registrant as specified in charter: | The Prudential Variable Contract Account—2 | |
Address of principal executive offices: | Gateway Center 3 100 Mulberry Street Newark, New Jersey 07102 | |
Name and address of agent for service: | Jonathan Shain Gateway Center 3 100 Mulberry Street Newark, New Jersey 07102 | |
Registrant’s telephone number, including area code: | 973-802-6469 | |
Date of fiscal year end: | December 31, 2003 | |
Date of reporting period: | June 30, 2003 |
Item 1 — Reports to Stockholders
[SHAREHOLDER REPORT TO BE INSERTED HERE IN THE EDGAR VERSION]
Prudential Long-Term
Growth Account
Semiannual Report to Participants
June 30, 2003
The Prudential Insurance Company of America 751 Broad Street Newark, NJ 07102-3777 A Prudential Financial company | ![]() |
Prudential Variable Contract Account-2
Average Annual Total Returns
(For the period ended June 30, 2003)
Variable Contract Account-21
Average Annual Total Returns (%) | 6-Month | 1-Year | 3-Year | 5-Year | 10-Year | |||||
Long-Term Growth Account2 | 12.85 | 0.50 | –4.96 | –5.02 | 6.98 | |||||
Long-Term Growth Account (with sales charges)3 | 9.15 | –2.89 | –6.64 | –6.38 | 5.83 | |||||
S&P 500 Index4 | 11.75 | 0.25 | –11.19 | –1.61 | 10.04 | |||||
Lipper (VIP) Multi-Cap Value Funds Average5 | 12.33 | –0.50 | 0.42 | 1.64 | 9.72 |
Portfolio’s inception date: 07/1/1968.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus for VCA-2.
It is for the information of persons participating in The Prudential Variable Contract Account-2 (VCA-2, Long-Term Growth Account, or the Account). VCA-2 is a group annuity insurance product issued by The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102-3777, and distributed by Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ 07102-4077. PIMS is a Prudential Financial company. Each company is solely responsible for its own respective financial conditions and contractual obligations. Prudential Financial is a service mark of The Prudential Insurance Company of America, Newark, NJ, and its affiliates.
The accompanying financial statements as of June 30, 2003, were not audited and accordingly, no opinion is expressed on them.
Annuity contracts contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your plan sponsor or licensed financial professional can provide you with costs and complete details.
1 | Past performance is not indicative of future results. Investment return and principal value of the Long-Term Growth Account will fluctuate resulting in a value which may at any time, including the time of withdrawal of the cash value, be more or less than the total principal investment made. Investment in the Long-Term Growth Account involves various risks that are more fully described in the prospectus. For more complete information about the Account, including charges and expenses, please see the prospectus. Please read it carefully before investing. Six-month returns are not annualized. |
2 | The results are shown after the deduction of all expenses including investment management and mortality and expense charges but do not include the effect of any sales charge. |
3 | The results are shown after the deduction of all expenses including investment management, mortality and expense charges, and in addition reflect the deduction of a front-end 2.5% sales charge and the impact of an annual account charge. |
4 | S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. |
5 | Lipper (VIP) Funds Averages are calculated by Lipper Analytical Services, Inc., and reflect 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. |
Investors cannot invest directly in a market index or average.
Source: Prudential Investments LLC and Lipper Inc.
The Prudential Long–Term Growth Account | Semiannual Report | June 30, 2003 |
Letter to Participants |
n DEAR PARTICIPANT, A more optimistic tone characterized the financial markets in the second quarter of 2003. In fact, it was the best quarter in 4 1/2 years for both the U.S. stock market and markets outside the United States, even as the long-standing bond market rally persisted.
The market rallies were very welcome after the long bear market. In general, investors should expect both good and bad markets within any extended time span. Good financial planning takes this into account by diversifying your portfolio with an asset allocation that is appropriate to your stage in life and your tolerance for the possibility of loss.
A financial professional can help you create a complete picture of the potential demands on your resources. Moreover, financial professionals are familiar with the long-term returns and historical volatility of various asset classes. Together, you and your financial professional can plan an investment program that takes into account your reasons for investing, the time you have to reach your goals, and the amount of risk you feel comfortable assuming.
On behalf of Prudential Financial, I would like to thank you for your confidence in our products. We look forward to continuing to serve your investment needs.
Sincerely,
David R. Odenath, Jr. Chairman, |
CHAIRMAN DAVID R. ODENATH, JR. | |||
The Prudential Variable Contract Account-2 July 31, 2003 |
FINANCIAL STATEMENTS OF
VCA-2
STATEMENT OF NET ASSETS (Unaudited) | ||||
June 30, 2003 |
LONG-TERM INVESTMENTS — 98.7% | Value (Note 2) | ||||
COMMON STOCKS | Shares | ||||
Aerospace/Defense — 3.0% | |||||
Lockheed Martin Corp. | 93,000 | $ | 4,424,010 | ||
Northrop Grumman Corp. | 61,700 | 5,324,093 | |||
9,748,103 | |||||
Automobiles — 0.3% | |||||
Harley-Davidson, Inc. | 20,400 | 813,144 | |||
Biotechnology — 4.1% | |||||
Amgen, Inc.(a) | 88,900 | 5,954,522 | |||
Gilead Sciences, Inc.(a) | 68,400 | 3,801,672 | |||
MedImmune, Inc.(a) | 90,800 | 3,302,396 | |||
13,058,590 | |||||
Capital Markets — 2.2% | |||||
Goldman Sachs Group, Inc. (The) | 40,500 | 3,391,875 | |||
Merrill Lynch & Co., Inc. | 78,000 | 3,641,040 | |||
7,032,915 | |||||
Chemicals — 1.0% | |||||
Agrium, Inc. | 296,900 | 3,254,024 | |||
Commercial Banks — 1.1% | |||||
Bank One Corp. | 99,200 | 3,688,256 | |||
Communications Equipment — 2.2% | |||||
Cisco Systems, Inc.(a) | 189,200 | 3,138,828 | |||
Nokia Oyi ADR (Finland) | 237,900 | 3,908,697 | |||
7,047,525 | |||||
Computers & Peripherals — 3.7% | |||||
Hewlett-Packard Co. | 411,507 | 8,765,099 | |||
International Business Machines Corp. | 36,500 | 3,011,250 | |||
11,776,349 | |||||
Consumer Finance — 2.5% | |||||
American Express Co. | 161,700 | 6,760,677 | |||
SLM Corp. | 35,700 | 1,398,369 | |||
8,159,046 | |||||
Containers & Packaging — 1.2% | |||||
Temple-Inland, Inc. | 92,400 | 3,964,884 | |||
Diversified Financial Services — 1.2% | |||||
Citigroup, Inc. | 88,764 | 3,799,099 | |||
Diversified Telecommunication Services — 2.9% | |||||
BellSouth Corp. | 235,400 | 6,268,702 | |||
SBC Communications, Inc. | 120,700 | 3,083,885 | |||
9,352,587 | |||||
Electric Utilities — 4.7% | |||||
Constellation Energy Group, Inc. | 103,800 | 3,560,340 | |||
Dominion Resources, Inc. | 65,100 | 4,183,977 | |||
FirstEnergy Corp. | 94,100 | 3,618,145 | |||
TXU Corp. | 170,500 | 3,827,725 | |||
15,190,187 | |||||
Electrical Equipment | |||||
Carbide/Graphite Group, Inc. (The)(a) | 427,700 | 43 | |||
Electronic Equipment & Instruments — 0.6% | |||||
Agilent Technologies, Inc.(a) | 95,100 | 1,859,205 | |||
Energy Equipment & Services — 6.5% | ||||
BJ Services Co.(a) | 132,800 | 4,961,408 | ||
ENSCO International, Inc. | 133,500 | 3,591,150 | ||
Schlumberger Ltd. | 66,200 | 3,149,134 | ||
Transocean Sedco Forex, Inc.(a) | 153,000 | 3,361,410 | ||
Weatherford International Ltd. ADR (Bermuda)(a) | 137,700 | 5,769,630 | ||
20,832,732 | ||||
Food & Staples Retailing — 2.0% | ||||
Wal-Mart Stores, Inc. | 119,100 | 6,392,097 | ||
Health Care Equipment & Supplies — 0.5% | ||||
Medtronic, Inc. | 30,800 | 1,477,476 | ||
Hotels Restaurants & Leisure — 1.6% | ||||
Marriott International, Inc.—Cl. A | 50,800 | 1,951,736 | ||
Wendy’s International, Inc. | 106,900 | 3,096,893 | ||
5,048,629 | ||||
Household Products — 1.0% | ||||
Kimberly-Clark Corp. | 62,300 | 3,248,322 | ||
Industrial Conglomerates — 4.2% | ||||
3M Co. | 32,200 | 4,153,156 | ||
Companhia Vale do Rio Doce ADR (Brazil)(a) | 191,100 | 5,666,115 | ||
Tyco International Ltd. (Bermuda) | 184,600 | 3,503,708 | ||
13,322,979 | ||||
Insurance — 6.5% | ||||
American International Group, Inc. | 68,900 | 3,801,902 | ||
Hartford Financial Services Group, Inc. (The) | 81,100 | 4,084,196 | ||
Loews Corp. | 143,100 | 6,767,199 | ||
XL Capital Ltd.—Cl. A (Bermuda) | 74,884 | 6,215,372 | ||
20,868,669 | ||||
Internet & Catalog Retail — 0.7% | ||||
InterActiveCorp.(a) | 59,000 | 2,334,630 | ||
IT Services — 0.5% | ||||
Paychex, Inc. | 55,100 | 1,614,981 | ||
Media — 4.8% | ||||
Clear Channel Communications, Inc. | 62,100 | 2,632,419 | ||
New York Times Co. (The)—Cl. A | 37,100 | 1,688,050 | ||
Omnicom Group, Inc. | 49,300 | 3,534,810 | ||
Univision Communications, Inc.—Cl. A(a) | 53,800 | 1,635,520 | ||
Viacom, Inc.—Cl. B | 132,200 | 5,771,852 | ||
15,262,651 | ||||
Metals & Mining — 6.7% | ||||
Alcoa, Inc. | 187,100 | 4,771,050 | ||
Freeport-McMoRan Cooper & Gold, Inc.—Cl. B | 409,600 | 10,035,200 | ||
Newmont Mining Corp. | 211,800 | 6,875,028 | ||
21,681,278 | ||||
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS OF
VCA-2
STATEMENT OF NET ASSETS (Unaudited) | ||||
June 30, 2003 |
COMMON STOCKS | Value (Note 2) | ||||
(Continued) | Shares | ||||
Office Electronics — 1.6% | |||||
Xerox Corp.(a) | 479,400 | $ | 5,076,846 | ||
Oil & Gas — 5.9% | |||||
Apache Corp. | 47,985 | 3,121,904 | |||
Kerr-McGee Corp. | 72,799 | 3,261,395 | |||
Suncor Energy, Inc. (Canada) | 289,800 | 5,425,056 | |||
TotalFinaElf S.A. ADR (France) | 93,600 | 7,094,880 | |||
18,903,235 | |||||
Paper & Forest Products — 0.9% | |||||
International Paper Co. | 80,700 | 2,883,411 | |||
Personal Products — 1.0% | |||||
Avon Products, Inc. | 52,600 | 3,271,720 | |||
Pharmaceuticals — 9.3% | |||||
Abbott Laboratories | 147,800 | 6,467,728 | |||
Allergan, Inc. | 55,600 | 4,286,760 | |||
AstraZeneca PLC ADR (United Kingdom) | 72,800 | 2,968,056 | |||
Johnson & Johnson | 68,200 | 3,525,940 | |||
Pfizer, Inc. | 135,700 | 4,634,155 | |||
Sepracor, Inc.(a) | 160,100 | 2,886,603 | |||
Teva Pharmaceutical Industries Ltd. ADR (Israel) | 89,700 | 5,106,621 | |||
29,875,863 | |||||
Semiconductors & Semiconductor Equipment — 6.7% | |||||
Altera Corp.(a) | 192,800 | 3,161,920 | |||
Applied Materials, Inc.(a) | 59,600 | 945,256 | |||
Intel Corp. | 281,100 | 5,842,383 | |||
Novellus Systems, Inc. (Canada)(a) | 96,400 | 3,530,264 | |||
STMicroelectronics N.V. ADR (Switzerland) | 176,600 | 3,671,514 | |||
Texas Instruments, Inc. | 250,800 | 4,414,080 | |||
21,565,417 | |||||
Software — 3.8% | |||||
Microsoft Corp. | 347,600 | 8,902,036 | |||
SAP AG ADR (Germany) | 110,500 | 3,228,810 | |||
12,130,846 | |||||
Specialty Retail — 1.4% | |||||
CarMax, Inc.(a) | 151,645 | 4,572,097 | |||
Tobacco — 1.1% | |||||
Altria Group, Inc. | 78,200 | 3,553,408 | |||
Wireless Telecommunication Services — 1.3% | |||||
Vodafone Group PLC ADR (United Kingdom) | 208,000 | 4,087,200 | |||
TOTAL LONG-TERM INVESTMENTS — 98.7% (cost: $293,138,319) | $ | 316,748,444 | |||
SHORT-TERM INVESTMENTS — 2.3% | |||||
MUTUAL FUND — 2.3% | |||||
Prudential Core Investment Fund-Taxable Money Market Series | 7,533,625 | 7,533,625 | |||
OUTSTANDING OPTIONS PURCHASED(a) | Contracts | |||||
Call Option | ||||||
AstraZeneca, expiring 7/03/03 @$10.00 | 192 | (173 | ) | |||
Put Option | ||||||
AstraZeneca, expiring 7/03/03 @$45.00 | 192 | 18,010 | ||||
17,837 | ||||||
TOTAL SHORT-TERM INVESTMENTS — 2.3% | 7,551,462 | |||||
TOTAL INVESTMENTS — 101.0% | $ | 324,299,906 | ||||
OTHER ASSETS, LESS LIABILITIES — (1.0)% | ||||||
Cash | 281 | |||||
Dividends and Interest Receivable | 351,543 | |||||
Receivable for Investments Sold | 1,006,310 | |||||
Payable for Pending Capital Transactions | (1,339,605 | ) | ||||
Payable for Investments Purchased | (3,256,322 | ) | ||||
LIABILITIES IN EXCESS OF OTHER ASSETS | (3,237,793 | ) | ||||
NET ASSETS — 100% | $ | 321,062,113 | ||||
NET ASSETS, representing: | ||||||
Equity of Participants (other than Annuitants)—14,141,680 Accumulation Units at an Accumulation Unit Value of $21.6208 | 305,735,787 | |||||
Equity of Annuitants | 14,284,319 | |||||
Equity of The Prudential Insurance Company of America | 1,042,007 | |||||
$ | 321,062,113 | |||||
The following abbreviations are used in portfolio descriptions:
ADR | American Depository Receipt |
(a) | Non-income producing security. |
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS OF
VCA-2
STATEMENT OF OPERATIONS (Unaudited) | ||||
Six Month Ended June 30, 2003
INVESTMENT INCOME | ||||
Dividends (net of $41,334 foreign withholding tax) | $ | 2,405,008 | ||
EXPENSES | ||||
Fees Charged to Participants and Annuitants for Investment Management Services | 182,913 | |||
Fees Charged to Participants (other than Annuitants) for Assuming Mortality and Expense Risks | 548,738 | |||
Total Expenses | 731,651 | |||
NET INVESTMENT INCOME | 1,673,357 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Realized Loss on Investments | (15,363,176 | ) | ||
Change in Unrealized Appreciation/Depreciation on Investments | 50,647,399 | |||
NET GAIN ON INVESTMENTS | 35,284,223 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 36,957,580 | ||
STATEMENT OF CHANGES IN NET ASSETS (Unaudited) | ||||
Six Months Ended June 30, 2003 | Year Ended December 31, 2002 | |||||||
OPERATIONS | ||||||||
Net Investment Income | $ | 1,673,357 | $ | 2,940,505 | ||||
Net Realized Loss on Investments | (15,363,176 | ) | (40,390,526 | ) | ||||
Increase In Unrealized Appreciation/Depreciation on Investments | 50,647,399 | (54,309,308 | ) | |||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | 36,957,580 | (91,759,329 | ) | |||||
CAPITAL TRANSACTIONS | ||||||||
Purchase Payments and Transfers In | 10,631,351 | 34,155,856 | ||||||
Withdrawals and Transfers Out | (20,484,676 | ) | (43,243,220 | ) | ||||
Annual Administration Charges Deducted from Participants’ Accumulation Accounts | (440 | ) | (12,438 | ) | ||||
Mortality and Expense Risk Charges Deducted from Annuitants’ Accounts | (21,069 | ) | (48,984 | ) | ||||
Variable Annuity Payments | (984,463 | ) | (2,661,656 | ) | ||||
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS | (10,859,297 | ) | (11,810,442 | ) | ||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS | (148,837 | ) | 181,124 | |||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | 25,949,446 | (103,388,647 | ) | |||||
NET ASSETS | ||||||||
Beginning of period | 295,112,667 | 398,501,314 | ||||||
End of period | $ | 321,062,113 | $ | 295,112,667 | ||||
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS FOR
VCA-2
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT* | ||||
(For an Accumulation Unit outstanding throughout the period)
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | 1998 | |||||||||||||||||||
Investment Income | $ | .1591 | $ | .2859 | $ | .3621 | $ | .4152 | $ | .4596 | $ | .3414 | ||||||||||||
Expenses | ||||||||||||||||||||||||
Investment management fee | (.0122 | ) | (.0268 | ) | (.0320 | ) | (.0321 | ) | (.0316 | ) | (.0325 | ) | ||||||||||||
Assuming mortality and expense risks | (.0365 | ) | (.0803 | ) | (.0960 | ) | (.0961 | ) | (.0948 | ) | (.0974 | ) | ||||||||||||
Net Investment Income | .1104 | .1788 | .2341 | .2870 | .3332 | .2115 | ||||||||||||||||||
Capital Changes | ||||||||||||||||||||||||
Net realized gain (loss) on investments | (1.0012 | ) | (2.4591 | ) | (2.1868 | ) | 1.8450 | 1.3723 | 3.1604 | |||||||||||||||
Net change in unrealized appreciation (depreciation) of investments | 3.3533 | (3.2340 | ) | (.7809 | ) | .0344 | (1.4043 | ) | (4.3161 | ) | ||||||||||||||
Net Increase (Decrease) in Accumulation Unit Value | 2.4625 | (5.5143 | ) | (2.7336 | ) | 2.1664 | .3012 | (.9442 | ) | |||||||||||||||
Accumulation Unit Value | ||||||||||||||||||||||||
Beginning of period | 19.1583 | 24.6726 | 27.4062 | 25.2398 | 24.9386 | 25.8828 | ||||||||||||||||||
End of period | $ | 21.6208 | $ | 19.1583 | $ | 24.6726 | $ | 27.4062 | $ | 25.2398 | $ | 24.9386 | ||||||||||||
Total Return** | 12.85 | % | (22.35 | )% | (9.97 | )% | 8.58 | % | 1.21 | % | (3.65 | )% | ||||||||||||
Ratio Of Expenses To Average Net Assets*** | .50 | %† | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||||
Ratio Of Net Investment Income To Average Net Assets*** | 1.14 | %† | .83 | % | .92 | % | 1.12 | % | 1.33 | % | .81 | % | ||||||||||||
Portfolio Turnover Rate | 28 | % | 71 | % | 80 | % | 84 | % | 81 | % | 43 | % | ||||||||||||
Number of Accumulation Units Outstanding | ||||||||||||||||||||||||
For Participants at end of period (000 omitted) | 14,142 | 14,636 | 15,271 | 16,372 | 20,424 | 26,278 | ||||||||||||||||||
* | Calculated by accumulating the actual per unit amounts daily. |
** | Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported. Total returns for periods less than one year are not annualized. |
*** | These calculations exclude Prudential’s equity in VCA-2. |
† | Annualized. |
†† | Not Annualized. |
The above table does not reflect the annual administration charge, which does not affect the Accumulation Unit Value. This charge is made by reducing Participants’ Accumulation Accounts by a number of Accumulation Units equal in value to the charge.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO THE FINANCIAL STATEMENTS OF
VCA-2
Note 1: | General |
The Prudential Variable Contract Account-2 (VCA-2 or the Account) was established on January 9, 1968 by The Prudential Insurance Company of America (“Prudential”) under the laws of the State of New Jersey and is registered as an open-end, diversified management investment company under the Investment Company Act of 1940, as amended. VCA-2 has been designed for use by public school systems and certain tax-exempt organizations to provide for the purchase and payment of tax-deferred variable annuities. The investment objective of the Account is long-term growth of capital. Its investments are composed primarily of common stocks. Although variable annuity payments differ according to the investment performance of the Account, they are not affected by mortality or expense experience because Prudential assumes the expense risk and the mortality risk under the contracts.
Note 2: | Summary of Significant Accounting Policies |
Securities Valuation: Securities listed on a securities exchange are valued at the last sale price on such exchange on the day of valuation or, if there was no sale on such day, at the mean between the last reported bid and ask prices, or at the last bid price on such day in the absence of an asked price. Securities traded via Nasdaq are valued at the official closing price provided by Nasdaq. Securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by Prudential Investments LLC (“PI” or “Manager”), in consultation with the subadviser(s); to be over-the-counter, are valued by an independent pricing agent or principal market maker. Options on securities and indices traded on an exchange are valued at the mean between the most recently quoted bid and asked prices on such exchange. Futures contracts and options thereon traded on a commodities exchange or board of trade are valued at the last sale price at the close of trading on such exchange or board of trade or, if there was no sale on the applicable commodities exchange or board of trade on such day, at the mean between the most recently quoted bid and asked prices on such exchange or board of trade or at the last bid price in the absence of an asked price. Any security for which a reliable market quotation is unavailable is valued at fair value by a Valuation Committee appointed by the Account’s Committee Members.
Investments in mutual funds are valued at their net asset value as of the close of the New York Stock Exchange on the date of the valuation.
Short-term investments which mature in more than 60 days are valued based on current market quotations. Short-term investments having maturities of 60 days or less are valued at amortized cost which approximates market value. Amortized cost is computed using the cost on the date of purchase, adjusted for constant accretion of discount or amortization of premium to maturity.
Securities Transactions and Investment Income: Securities transactions are recorded on the trade date. Realized gains (losses) on sales of securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income, including amortization of premiums and accretion of discount on debt securities, as required is recorded on the accrual basis. Income and realized and unrealized gains and losses are allocated to the Participants and Prudential on a daily basis in proportion to their respective ownership in VCA-2. Expenses are recorded on the accrual basis which may require the use of certain estimates by management.
Options: The Account may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates with respect to securities which the Fund currently owns or intends to purchase. The Account’s principal reason for writing options is to realize, through receipt of premiums, a greater current return than would be realized on the underlying security alone. When the Account purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Account writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option.
If an option expires unexercised, the Account realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost of the purchase in determining whether the Account has realized a gain or loss. The difference
between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain or loss on investment transactions. Gain or loss on written options is presented separately as net realized gain or loss on written options.
The Account, as writer of an option, may have no control over whether the underlying securities may be sold (called) or purchased (put). As a result, the Account bears the market risk of an unfavorable change in the price of the security underlying the written option. The Account, as purchaser of an option, bears the risk of the potential inability of the counterparties to meet the terms of their contracts.
Written options involve elements of both market and credit risk in excess of the amounts reflected in the Statements of Assets and Liabilities.
Federal Income Taxes: The operations of VCA-2 are part of, and are taxed with, the operations of Prudential. Under the current provisions of the Internal Revenue Code, Prudential does not expect to incur federal income taxes on earnings of VCA-2 to the extent the earnings are credited under the Contracts. As a result, the Unit Value of VCA-2 has not been reduced by federal income taxes.
Annuity Reserves: Reserves are computed for purchased annuities using the Prudential 1950 Group Annuity Valuation (GAV) Table, adjusted, and a valuation interest rate related to the Assumed Investment Result (AIR). The valuation interest rate is equal to the AIR less .5% in contract charges defined in Note 3. The AIRs are selected by each Contract-holder and are described in the prospectus.
Note 3: | Investment Management Agreement and Charges |
The Account has a management agreement with PI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadviser’s performance of such services. PI has entered into a subadvisory agreement with Jennison Associates LLC (“Jennison”). The subadvisory agreement provides that Jennison will furnish investment advisory services in connection with management of the Account. PI pays for the services of Jennison.
A daily charge, at an effective annual rate of 0.125% of the current value of the Participant’s (other than Annuitants’ and Prudential’s) equity in VCA-2, is charged to the Account and paid to PI for investment management services. An equivalent charge is deducted monthly in determining the amount of Annuitants’ payments.
A daily charge, paid to PI for assuming mortality and expense risks, is calculated at an effective annual rate of 0.375% of the current value of the Participant’s (other than Annuitants’ and Prudential’s) equity in VCA-2. A one-time equivalent charge is deducted when the Annuity Units for Annuitants are determined.
Prudential, PI and Jennison are indirect, wholly-owned subsidiaries of Prudential Financial, Inc.
An annual administration charge of not more than $30 annually is deducted from the accumulation account of certain Participants either at the time of withdrawal of the value of the entire Participant’s account or at the end of the fiscal year by canceling Accumulation Units. This deduction may be made from a fixed-dollar annuity contract if the Participant is enrolled under such a contract.
A charge of 2.5% for sales and other marketing expenses is deducted from certain Participant’s purchase payments. For the six months ended June 30, 2003, Prudential has advised the Account it has received $440 for such charges.
Note 4: | Purchases and Sales of Portfolio Securities |
For the six months ended June 30, 2003, the aggregate cost of purchases and the proceeds from sales of securities, excluding short-term investments, were $81,399,585 and $90,269,960, respectively.
Investment in the Core Funds: The Account invests in the Taxable Money Market Series (the “Series”), a portfolio of Prudential Core Investment Fund, pursuant to an exemptive order received from the Securities and Exchange Commission. The Series is a money market mutual fund registered under the Investment Company Act of 1940, as amended, and managed by PI. During the six months ended June 30, 2003, the Account earned $75,273, from the Series by investing its excess cash in the Series.
Note 5: | Unit Transactions |
The number of Accumulation Units issued and redeemed for the six months ended June 30, 2003 and the year ended December 31, 2002, respectively are as follows:
Six Months Ended June 30, 2003 | Year Ended December 31, 2002 | |||||
Units issued | 542,886 | 1,462,923 | ||||
Units redeemed | (1,037,435 | ) | (2,097,407 | ) | ||
Net decrease | (494,549 | ) | (634,484 | ) | ||
Note 6: | Net Increase (Decrease) in Net Assets Resulting from Surplus Transfers |
The increase (decrease) in net assets resulting from surplus transfers represents the net increases to/(reductions from) Prudential’s investment Account. The increase (decrease) includes reserve adjustments for mortality and expense risks assumed by Prudential.
Note 7: | Participant Loans |
Participant loan initiations are not permitted in VCA-2. However, participants who initiated loans in other accounts are permitted to direct loan repayments into VCA-2.
For the six months ended June 30, 2003 and the year ended December 31, 2002, $5,691 and $11,777 of participant loan principal and interest has been paid to VCA-2, respectively. The participant loan principal and interest repayments are included in purchase payments and transfers in within the Statement of Changes in Net Assets.
The Prudential Variable Contract Account – 2
Board of Directors
DAVID R. ODENATH, JR. | W. SCOTT MCDONALD, JR., PH.D. | |||||
Chairman, | Vice President, | |||||
The Prudential Variable | Kaludis Consulting Group | |||||
Contract Account – 2 | ||||||
SAUL K. FENSTER, PH.D. | JOSEPH WEBER, PH.D. | |||||
President, | Vice President, | |||||
New Jersey Institute of Technology | Interclass (international corporate learning) |
The toll-free number shown below can be used to make transfers and reallocations, review how your premiums are being allocated, and receive current investment option values in your contract. Unit values for each investment option are available to all participants from the toll-free number. The phone lines are open each business day during the hours shown. Please be sure to have your contract number available when you call.
(
(800) 458-6333
8 a.m. – 8 p.m. Eastern time
In the past, participants who held several variable contracts at the same address received multiple copies of annual and semi-annual reports. In an effort to lessen waste and reduce expenses of postage and printing, we will attempt to mail only one copy of this report based on our current records for participants with the same last name and same address. No action on your part is necessary. Upon request, we will furnish you with additional reports. The toll-free number listed on the inside back cover should be used to request additional copies. Proxy material and tax information will continue to be sent for each account of record.
30 Scranton Office Park Scranton, PA 18507-1789 | Presorted Standard U.S. Postage PAID Prudential | |||||
(recycle graphic) | ||||
IFS-A077792 LT.RS.001 Ed 08/31/2003 | Printed in the U.S.A. on recycled paper. |
Item 2 — Code of Ethics — Not required in this filing
Item 3 — Audit Committee Financial Expert — Not required in this filing
Item 4 — Principal Accountant Fees and Services — Not required in this filing
Item 5 — Reserved
Item 6 — Reserved
Item 7 — | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies — Not required in this filing |
Item 8 — Reserved
Item 9 — Controls and Procedures
(a) | It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure. |
(b) | There have been no significant changes in the registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Item 10 — Exhibits
(a) | Code of Ethics—Not required in this filing |
(b) | Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act — Attached hereto |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Prudential Variable Contract Account—2
By: | /s/ Jonathan D. Shain | |
Jonathan D. Shain Secretary |
Date: August 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Judy A. Rice | |
Judy A. Rice President and Principal Executive Officer |
Date: August 26, 2003
By: | /s/ Grace Torres | |
Grace C. Torres Treasurer and Principal Financial Officer |
Date: August 26, 2003