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: | Deborah A. Docs | |
Gateway Center 3, | ||
100 Mulberry Street, | ||
Newark, New Jersey 07102 | ||
Registrant’s telephone number, including area code: | 973-367-7521 | |
Date of fiscal year end: | 12/31/2011 | |
Date of reporting period: | 12/31/2011 |
Item 1 – Reports to Stockholders
The Prudential Variable Contract Account-2
ANNUAL REPORT Ÿ DECEMBER 31, 2011
This report 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 is distributed by Prudential Investment Management Services LLC (PIMS), member SIPC, Three Gateway Center, 14th Floor, Newark, NJ 07102-4077. Both are Prudential Financial companies.
All are Prudential Financial companies and each is solely responsible for its financial condition and contractual obligations.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus for VCA-2. Investors should consider the contract and the Account’s investment objectives, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus that can be obtained from your financial professional. You should read the prospectus carefully before investing.
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. Contract guarantees are based on the claims-paying ability of the issuing company.
A description of the Account’s proxy voting policies and procedures is available, without charge, upon request. Owners of variable annuity contracts should call 800-458-6333 to obtain descriptions of the Account’s proxy voting policies and procedures. Information regarding how the Account voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the website of the Securities and Exchange Commission (Commission), at www.sec.gov.
The Account’s Statement of Additional Information contains additional information about the members of the Account’s Committee and is available without charge upon request by calling 800-458-6333.
The Account files with the Commission a complete listing of portfolio holdings as of its first and third quarter-end on Form N-Q. Form N-Q is available on the Commission’s website at www.sec.gov or by visiting the Commission’s Public Reference Room. For more information on the Commission’s Public Reference Room, please visit the Commission’s website or call 1-800-SEC-0330. Participants may obtain copies of Form N-Q filings by calling 800-458-6333.
The Prudential Long Term Growth Program Table of Contents | Annual Report | December 31, 2011 |
n | LETTER TO PARTICIPANTS |
n | MANAGEMENT REVIEW |
n | PRESENTATION OF PORTFOLIO HOLDINGS |
n | FINANCIAL REPORTS |
Section A | Statement of Net Assets and Financial Statements | |||
Section B | Financial Highlights | |||
Section C | Notes to Financial Statements | |||
Section D | Report of Independent Registered Public Accounting Firm | |||
Section E | Information about Trustees and Officers |
The Prudential Long-Term Growth Program Letter to Participants | December 31, 2011 |
n | DEAR PARTICIPANT, |
After an extraordinary career at Prudential, Judy Rice retired at the end of 2011 as President of Prudential Investments and President and Committee Member of The Prudential Variable Contract Account-2. While she will remain as Chairman of Prudential Investments until the end of 2012, I was named to succeed her as President and Committee Member of The Prudential Variable Contract Account-2 effective January 1, 2012. I previously served as Executive Vice President of Retail Mutual Fund Distribution for Prudential Investments for the past six years.
Since this is my first letter to shareholders, I would like to recognize Judy for the significant contributions she made in building the Prudential Investments fund family and her unflagging commitment to helping investors meet the challenges of a rapidly changing investment environment. My goal is to build on Judy’s accomplishments, with a particular focus on delivering the solutions you need to address your financial goals.
I hope you find this annual report for The Prudential Variable Contract Account-2 informative. We recognize that ongoing market volatility may make it a difficult time for investors. We continue to believe a prudent response to uncertainty is to maintain a diversified portfolio, including investment funds consistent with your tolerance for risk, time horizon, and financial goals. Keep in mind that diversification and asset allocation strategies do not assure a profit or protect against loss in declining markets. We encourage you to call your financial professional before making any investment decision.
Sincerely,
Stuart Parker
President,
The Prudential Variable Contract Account-2 | January 31, 2012 |
The Prudential Variable Contract Account-2 | December 31, 2011 |
Investment Manager’s Report - As of December 31, 2011
Average Annual Total Returns | 1-Year | 5-Year | 10-Year | ||||||||||||
Account (without sales charges) | -7.09 | % | -1.51 | % | 4.02 | % | |||||||||
S&P 500 Index | 2.09 | -0.25 | 2.92 |
Past performance does not guarantee future returns. The Account performance without sales charges is shown after the deduction of all expenses, including investment management and mortality and expense charges, but does not include the effect of any sales charge or annual account charge. The returns would be lower if they included the effects of sales charges and an annual account charge.
$10,000 INVESTED OVER 10 YEARS
For the year ended December 31, 2011, the Prudential Variable Contract Account-2 (the Account) returned -7.09%.
The Account’s investment objective is long-term growth of capital. It is subadvised by Jennison Associates LLC.
On the back of solid fourth quarter performance, U.S. equity markets eked out a positive return for 2011. The broad-market S&P 500 Index (the Index) rose 2.09% for the year, as seven out of the 10 major sectors in the index advanced. The exceptions were financials, materials, and industrials. There was however, significant disparity among sector performance, with utilities climbing nearly 20% and financials losing more than 16%. The Account posted a loss and underperformed the index. Stock selection proved detrimental in most sectors, but especially in energy, telecommunications services, materials, and information technology.
Some key detractors were in the financials sector. Concerns about potential litigation against Goldman Sachs related to allegations it misled clients by not disclosing its proprietary interest in certain collateralized debt transactions weighed on its share price. More recently an unexpectedly large loss in its Investing and Lending Segment and S&P’s downgrade of Goldman’s credit rating caused investor unease. Jennison continues to view Goldman as best in class and offers a compelling risk/reward opportunity amid a lackluster financial market landscape at its current valuation. Morgan Stanley was also a key detractor.
Other major detractors were in the materials sector. A strengthening dollar hurt gold mining stocks in general, especially toward the end of the period, and Freeport-McMoRan Copper & Gold and Kinross Gold declined in tandem. Jennison continues to like Freeport for its strong management team that has executed well operationally throughout the ups and downs of volatile commodity markets, as well as Kinross for its diverse production base.
Within telecommunications services, NII Holdings suffered outsized losses primarily due to fears of increasing competition in Brazil, one of its key markets, and also from ambiguity over its 3G rollout. Jennison is following recent competitive developments closely, and likes NII’s continued strong growth, and very capable management.
Notable contributors came from a variety of different sectors, led by information technology stock IAC/InterActive. The internet company has surpassed consensus expectations on a fairly regular basis and enjoyed faster growth than industry peers. Shares of consumer discretionary position H&R Block appreciated considerably earlier in the year, primarily on solid trends during tax season. Healthcare positions Pfizer and Shire, as well as Smithfield Foods from the consumer staples sector, rounded out the Account’s key contributors.
The Account no longer holds positions in IAC/Interactive and H&R Block.
Prudential Investments LLC (PI), an indirect, wholly owned subsidiary of Prudential Financial, Inc., serves as the investment manager for the Account.
The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. Investors cannot invest directly in an index. For a complete list of holdings, refer to the Statement of Net Assets section of this report.
Jennison Associates LLC is a registered investment advisor and a Prudential Financial company.
Prudential Variable Contract Account-2 (VCA-2) Presentation of Portfolio Holdings — (unaudited) | December 31, 2011 |
VCA-2 | ||||
Five Largest Holdings | (% of Net Assets | ) | ||
Wells Fargo & Co. | 2.3% | |||
Noble Energy, Inc. | 2.2% | |||
Smithfield Foods, Inc. | 2.2% | |||
Anadarko Petroleum Corp. | 2.2% | |||
Occidental Petroleum Corp. | 2.1% |
For a complete listing of holdings, refer to the Statement of Net Assets section of this report. Holdings reflect only long-term investments. Holdings/Issues/Industries/Sectors are subject to change.
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS |
December 31, 2011
LONG-TERM INVESTMENTS — 100.0% | ||||||||
COMMON STOCKS — 96.8% | Shares | Value (Note 2) | ||||||
Aerospace & Defense — 4.0% |
| |||||||
Boeing Co. (The) | 27,298 | $ | 2,002,308 | |||||
Northrop Grumman Corp. | 71,047 | 4,154,829 | ||||||
Precision Castparts Corp. | 19,657 | 3,239,277 | ||||||
9,396,414 | ||||||||
Airlines — 1.5% |
| |||||||
United Continental Holdings, Inc.(a) | 180,240 | 3,401,129 | ||||||
Auto Components — 1.9% |
| |||||||
Lear Corp. | 111,424 | 4,434,675 | ||||||
Automobiles — 1.1% |
| |||||||
General Motors Corp.(a) | 122,760 | 2,488,345 | ||||||
Biotechnology — 1.4% |
| |||||||
Celgene Corp.(a) | 48,160 | 3,255,616 | ||||||
Capital Markets — 4.8% |
| |||||||
Bank of New York Mellon Corp. (The) | 110,365 | 2,197,367 | ||||||
Goldman, Sachs Group, Inc. (The) | 36,300 | 3,282,609 | ||||||
Lazard Ltd. Cl. A | 76,763 | 2,004,282 | ||||||
Morgan Stanley | 249,165 | 3,769,866 | ||||||
11,254,124 | ||||||||
Chemicals — 4.4% |
| |||||||
El du Pont de Nemours & Co. | 31,698 | 1,451,134 | ||||||
Monsanto Co. | 65,195 | 4,568,214 | ||||||
Mosaic Co. (The) | 87,771 | 4,426,292 | ||||||
10,445,640 | ||||||||
Commercial Banks — 3.8% |
| |||||||
PNC Financial Services Group, Inc. | 62,638 | 3,612,333 | ||||||
Wells Fargo & Co. | 196,624 | 5,418,957 | ||||||
9,031,290 | ||||||||
Communications Equipment — 1.0% |
| |||||||
QUALCOMM, Inc. | 42,337 | 2,315,834 | ||||||
Computers & Peripherals — 2.1% |
| |||||||
Apple, Inc.(a) | 12,092 | 4,897,260 | ||||||
Diversified Financial Services — 3.3% |
| |||||||
Citigroup, Inc. | 113,452 | 2,984,922 | ||||||
JPMorgan Chase & Co. | 141,087 | 4,691,143 | ||||||
7,676,065 | ||||||||
Electronic Equipment & Instruments — 1.9% |
| |||||||
Flextronics International, Ltd.(a) | 784,824 | 4,442,104 | ||||||
Electronic Utilities — 1.4% |
| |||||||
Exelon Corp. | 77,324 | 3,353,542 | ||||||
Energy Equipment & Services — 3.0% |
| |||||||
Halliburton Co. | 96,335 | 3,324,521 | ||||||
National Oilwell Varco, Inc. | 55,758 | 3,790,986 | ||||||
7,115,507 | ||||||||
Food & Staples Retailing — 1.5% |
| |||||||
Wal-Mart Stores, Inc. | 59,939 | 3,581,955 | ||||||
Food Products — 7.7% |
| |||||||
Bunge, Ltd. | 86,368 | 4,940,250 | ||||||
Kraft Foods, Inc. | 104,839 | 3,916,785 |
COMMON STOCKS (continued) | Shares | Value (Note 2) | ||||||
Food Products (continued) |
| |||||||
Smithfield Foods, Inc.(a) | 215,389 | $ | 5,229,645 | |||||
Tyson Foods, Inc. Cl. A | 196,326 | 4,052,169 | ||||||
18,138,849 | ||||||||
Hotels, Restaurants & Leisure — 1.8% |
| |||||||
International Game Technology | 246,095 | 4,232,834 | ||||||
Independent Power Producers & Energy Traders — 2.0% |
| |||||||
Calpine Corp.(a) | 281,077 | 4,589,987 | ||||||
Insurance — 2.5% |
| |||||||
Arch Capital Group, Ltd.(a) | 53,632 | 1,996,719 | ||||||
MetLife, Inc. | 126,347 | 3,939,499 | ||||||
5,936,218 | ||||||||
Internet Software & Services — 3.0% |
| |||||||
Baidu, Inc.(a) ADR (China) | 28,803 | 3,354,685 | ||||||
Google, Inc. Cl. A(a) | 5,686 | 3,672,587 | ||||||
7,027,272 | ||||||||
IT Services — 1.4% |
| |||||||
Mastercard, Inc. | 9,069 | 3,381,105 | ||||||
Machinery — 1.3% |
| |||||||
Ingersoll-Rand PLC | 103,442 | 3,151,878 | ||||||
Media — 5.4% |
| |||||||
Comcast Corp. | 199,421 | 4,728,272 | ||||||
Liberty Global, Inc. Ser. C(a) | 91,957 | 3,634,141 | ||||||
Viacom, Inc. | 94,546 | 4,293,334 | ||||||
12,655,747 | ||||||||
Metals & Mining — 3.6% |
| |||||||
Freeport-McMoRan Copper & Gold, Inc. | 84,924 | 3,124,354 | ||||||
Goldcorp, Inc. | 57,612 | 2,549,331 | ||||||
Kinross Gold Corp. | 245,265 | 2,796,021 | ||||||
8,469,706 | ||||||||
Oil, Gas & Consumable Fuels — 13.6% |
| |||||||
Anadarko Petroleum Corp. | 66,963 | 5,111,286 | ||||||
Hess Corp. | 54,138 | 3,075,038 | ||||||
Marathon Oil Corp. | 136,683 | 4,000,711 | ||||||
Marathon Petroleum Corp. | 82,651 | 2,751,452 | ||||||
Noble Energy, Inc. | 55,805 | 5,267,434 | ||||||
Occidental Petroleum Corp. | 52,527 | 4,921,780 | ||||||
Suncor Energy, Inc. | 125,360 | 3,614,129 | ||||||
Trident Resources Corp. CVR, Private Placement | 6,553 | 3,229,071 | ||||||
31,970,901 | ||||||||
Pharmaceuticals — 6.3% |
| |||||||
Allergan, Inc. | 37,895 | 3,324,907 | ||||||
Pfizer, Inc. | 210,940 | 4,564,742 | ||||||
Sanofi ADR (France) | 73,877 | 2,699,466 | ||||||
Shire PLC ADR (Ireland) | 39,452 | 4,099,063 | ||||||
14,688,178 | ||||||||
Road & Rail — 0.2% |
| |||||||
Union Pacific Corp. | 5,192 | 550,040 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS.
A1
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS |
December 31, 2011
COMMON STOCKS (continued) | Shares | Value (Note 2) | ||||||
Semiconductors & Semiconductor Equipment — 1.1% |
| |||||||
Maxim Integrated Products, Inc. | 96,517 | $ | 2,513,303 | |||||
Software — 2.6% |
| |||||||
Oracle Corp. | 130,457 | 3,346,222 | ||||||
Salesforce.com, Inc.(a) | 28,160 | 2,857,114 | ||||||
6,203,336 | ||||||||
Specialty Retail — 1.5% |
| |||||||
Staples, Inc. | 244,398 | 3,394,688 | ||||||
Textiles, Apparel & Luxury Goods — 2.2% |
| |||||||
Lululemon Athletica Inc.(a) | 49,597 | 2,314,196 | ||||||
Ralph Lauren Corp. | 19,801 | 2,734,122 | ||||||
5,048,318 | ||||||||
Wireless Telecommunication Services — 3.5% |
| |||||||
MetroPCS Communications, Inc.(a) | 461,110 | 4,002,435 | ||||||
NII Holdings, Inc.(a) | 192,771 | 4,106,022 | ||||||
8,108,457 | ||||||||
TOTAL COMMON STOCKS |
| 227,150,317 | ||||||
RIGHT | ||||||||
Units | ||||||||
Oil, Gas & Consumable Fuels | ||||||||
Trident Resources Corp.CVR, Private Placement, expiring 6/30/2015(a)(b)(c) (Cost: $0; purchased 6/30/2010) | 2,436 | — | ||||||
TOTAL LONG-TERM INVESTMENTS |
| $ | 227,150,317 | |||||
TOTAL INVESTMENTS — 100.0% | $ | 227,150,317 | ||||
OTHER ASSETS, LESS LIABILITIES — 3.2% | ||||||
Receivable for Securities Sold | $ | 8,709,779 | ||||
Dividends Receivable | 175,944 | |||||
Payable to Custodian | (330,174 | ) | ||||
Payable for Pending Capital Transactions | (940,336 | ) | ||||
OTHER ASSETS IN EXCESS OF LIABILITIES | 7,615,213 | |||||
NET ASSETS — 100% | $ | 234,765,530 | ||||
NET ASSETS, representing: | ||||||
Equity of Participants — | ||||||
6,219,013 Accumulation Units at an Accumulation Unit Value of $36.5954 | $ | 227,587,524 | ||||
Equity of Annuitants | 6,292,232 | |||||
Equity of The Prudential Insurance Company of America | 885,774 | |||||
$ | 234,765,530 | |||||
(a) | Non-income producing security. |
(b) | Indicates an illiquid security. |
(c) | Indicates a security restricted to resale. The aggregate cost of such securities is $2,642,248. The aggregate value of $3,229,071 is approximately 1.4% of net assets. |
ADR | American Depository Receipt |
Various inputs are used in determining the value of the Account’s investments. These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices generally for securities actively traded on a regulated securities exchange and for open-end mutual funds which trade at daily net asset value.
Level 2—other significant observable inputs (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, foreign currency exchange rates and amortized cost) generally for debt securities, swaps, forward foreign currency contracts and for foreign stocks priced using vendor modeling tools.
Level 3—significant unobservable inputs for securities valued in accordance with Board approved fair valuation procedures.
SEE NOTES TO FINANCIAL STATEMENTS.
A2
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS |
December 31, 2011
The following is a summary of the inputs used as of December 31, 2011 in valuing such portfolio securities:
Level 1 | Level 2 | Level 3 | ||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 223,921,246 | $ | — | $ | 3,229,071 | ||||||
Right | — | — | — | |||||||||
Total | $ | 223,921,246 | $ | — | $ | 3,229,071 | ||||||
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
Common Stock | ||||
Balance as of 12/31/2010 | $ | 3,650,876 | ||
Realized gain(loss) | — | |||
Change in unrealized appreciation(depreciation) | (421,805 | ) | ||
Purchases | — | |||
Sales | — | |||
Accrued discount/premium | — | |||
Transfers into Level 3 | — | |||
Transfers out of Level 3 | — | |||
Balance as of 12/31/2011 | $ | 3,229,071 | ||
The industry classification of portfolio holdings and other assets in excess of liabilities shown as a percentage of net assets as of December 31, 2011 were as follows:
Oil, Gas & Consumable Fuels | 13.6 | % | ||
Food Products | 7.7 | |||
Pharmaceuticals | 6.3 | |||
Media | 5.4 | |||
Capital Markets | 4.8 | |||
Chemicals | 4.4 | |||
Aerospace and Defense | 4.0 | |||
Commercial Banks | 3.8 | |||
Metals & Mining | 3.6 | |||
Wireless Telecommunication Services | 3.5 | |||
Diversified Financial Services | 3.3 | |||
Internet Software & Services | 3.0 | |||
Energy Equipment & Services | 3.0 | |||
Software | 2.6 | |||
Insurance | 2.5 | |||
Textiles, Apparel & Luxury Goods | 2.2 | |||
Computers and Peripherals | 2.1 | |||
Independent Power Producers & Energy Traders | 2.0 | |||
Auto Components | 1.9 | |||
Electronic Equipment & Instruments | 1.9 | |||
Hotels, Restaurants & Leisure | 1.8 | |||
Airlines | 1.5 | |||
Food & Staples Retailing | 1.5 | |||
Specialty Retail | 1.5 | |||
IT Services | 1.4 | |||
Electronic Utilities | 1.4 | |||
Biotechnology | 1.4 | |||
Machinery | 1.3 | |||
Semiconductors & Semiconductor Equipment | 1.1 | |||
Automobiles | 1.1 | |||
Communications Equipment | 1.0 | |||
Road & Rail | 0.2 | |||
96.8 | ||||
Other Assets in Excess of Liabilities | 3.2 | |||
100.0 | % | |||
SEE NOTES TO FINANCIAL STATEMENTS.
A3
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF NET ASSETS |
December 31, 2011
The Account invested in derivative instruments during the reporting period. The primary types of risk associated with derivative instruments are commodity risk, credit risk, equity risk, foreign exchange risk and interest rate risk. The effect of such derivative instruments on the Account’s financial position and financial performance as reflected in the Statement of Net Assets and Statement of Operations is presented in the summary below.
Fair values of derivative instruments as of December 31, 2011 as presented in the Statement of Net Assets:
Derivatives not designated as hedging | Asset Derivatives | Liability Derivatives | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
Equity contracts | Unaffiliated investments | $ | — | * | — | $ | — |
* | Includes one security with a fair value of $0. |
For the year ended December 31, 2011, the Account did not have any realized gain or (loss) on derivatives recognized in income.
For the year ended December 31, 2011, the Account did not have any unrealized appreciation or (depreciation) on derivatives recognized in income.
SEE NOTES TO FINANCIAL STATEMENTS.
A4
FINANCIAL STATEMENTS OF VCA-2
STATEMENT OF OPERATIONS |
Year Ended December 31, 2011
INVESTMENT INCOME | ||||
Unaffiliated Dividend Income (net of $2,396 foreign withholding tax) | $ | 3,946,648 | ||
Affiliated Dividend Income | 3,788 | |||
Total Income | 3,950,436 | |||
EXPENSES | ||||
Fees Charged to Participants and Annuitants for Investment Management Services | (345,619 | ) | ||
Fees Charged to Participants (other than Annuitants) for Assuming Mortality and Expense Risks | (1,018,146 | ) | ||
Total Expenses | (1,363,765 | ) | ||
NET INVESTMENT INCOME | 2,586,671 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net Realized Gain on Investment Transactions | 20,792,598 | |||
Net Change in Unrealized Appreciation (Depreciation) on Investments | (42,328,933 | ) | ||
NET LOSS ON INVESTMENTS | (21,536,335 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (18,949,664 | ) |
STATEMENT OF CHANGES IN NET ASSETS |
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
OPERATIONS | ||||||||
Net Investment Income | $ | 2,586,671 | $ | 3,227,524 | ||||
Net Realized Gain on Investment Transactions | 20,792,598 | 14,836,157 | ||||||
Net Change In Unrealized Appreciation (Depreciation) on Investments | (42,328,933 | ) | 13,809,332 | |||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | (18,949,664 | ) | 31,873,013 | |||||
CAPITAL TRANSACTIONS | ||||||||
Purchase Payments and Transfers In | 9,659,566 | 7,416,365 | ||||||
Withdrawals and Transfers Out | (50,071,943 | ) | (35,873,518 | ) | ||||
Annual Administration Charges Deducted from Participants’ Accumulation Accounts | (6,247 | ) | (6,469 | ) | ||||
Mortality and Expense Risk Charges Deducted from Annuitants’ Accounts | (18,710 | ) | (24,668 | ) | ||||
Variable Annuity Payments | (1,072,359 | ) | (1,138,278 | ) | ||||
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS | (41,509,693 | ) | (29,626,568 | ) | ||||
NET INCREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS | 31,611 | 4,859 | ||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (60,427,746 | ) | 2,251,304 | |||||
NET ASSETS | ||||||||
Beginning of year | 295,193,276 | 292,941,972 | ||||||
End of year | $ | 234,765,530 | $ | 295,193,276 |
SEE NOTES TO FINANCIAL STATEMENTS.
A5
FINANCIAL HIGHLIGHTS FOR VCA-2
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT* |
(For an Accumulation Unit outstanding throughout the year)
Year Ended December 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Investment Income | $ | .5578 | $ | .5760 | $ | .4604 | $ | .6104 | $ | .6673 | ||||||||||
Expenses | ||||||||||||||||||||
Investment management fee | (.0488 | ) | (.0440 | ) | (.0360 | ) | (.0435 | ) | (.0526 | ) | ||||||||||
Assuming mortality and expense risks | (.1463 | ) | (.1320 | ) | (.1080 | ) | (.1305 | ) | (.1576 | ) | ||||||||||
Net Investment Income | .3627 | .4000 | .3164 | .4364 | .4571 | |||||||||||||||
Capital Changes | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (3.1568 | ) | 3.8198 | 11.1266 | (18.6595 | ) | 1.9976 | |||||||||||||
Net Increase (Decrease) in Accumulation Unit Value | (2.7941 | ) | 4.2198 | 11.4430 | (18.2231 | ) | 2.4547 | |||||||||||||
Accumulation Unit Value | ||||||||||||||||||||
Beginning of year | 39.3895 | 35.1697 | 23.7267 | 41.9498 | 39.4951 | |||||||||||||||
End of year | $ | 36.5954 | $ | 39.3895 | $ | 35.1697 | $ | 23.7267 | $ | 41.9498 | ||||||||||
Total Return** | (7.09 | )% | 12.00 | % | 48.23 | % | (43.44 | )% | 6.22 | % | ||||||||||
Ratio of Expenses To Average Net Assets*** | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||
Ratio of Net Investment Income To Average Net Assets*** | .92 | % | 1.14 | % | 1.10 | % | 1.24 | % | 1.09 | % | ||||||||||
Portfolio Turnover Rate | 56 | % | 70 | % | 63 | % | 81 | % | 63 | % | ||||||||||
Number of Accumulation Units Outstanding | 6,219 | 7,271 | 8,074 | 8,807 | 10,240 |
* | 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 a share on the first day and a sale on the last day of each year reported. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
*** | These calculations exclude PICA’s equity in VCA-2. |
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.
B1
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 (“PICA”) 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 (“1940 Act”), 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 PICA 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 NASDAQ official closing price (“NOCP”) on the day of valuation, or if there was no NOCP, at the last sale price. 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. Securities for which market quotations are not readily available, or whose values have been affected by events occurring after the close of the security’s foreign market and before the Account’s normal pricing time, are valued at fair value in accordance with the Accounts’ Committee members approved fair valuation procedures. When determining the fair valuation of securities some of the factors influencing the valuation include, the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuer’s financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a security’s most recent closing price and from the price used by other mutual funds to calculate their net asset value.
Investments in open end, non-exchange traded mutual funds are valued at their net asset value as of the close of the New York Stock Exchange on the date of valuation.
Short-term debt securities of sufficient credit quality, which mature in 60 days or less, are valued at amortized cost, which approximates fair value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter to assuming a constant amortization to maturity of the difference between the principal amount due at maturity and cost. Short-term debt securities, which mature in more than 60 days, are valued at fair value.
Rights: The Account may hold rights acquired either through a direct purchase, including as part of private placement, or pursuant to corporate actions. Rights entitle the holder to buy a proportionate amount of common stock at a specific price and time through the expiration dates. Such rights are held as long positions by the Account until exercised, sold or expired. Rights are valued at fair value in accordance with the Committee Members’ approved fair valuation procedures.
Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized and unrealized gains or 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 PICA on a daily basis in proportion to their respective ownership in VCA-2.
Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those amounts.
C1
Federal Income Taxes: The operations of VCA-2 are part of, and are taxed with, the operations of PICA. Under the current provisions of the Internal Revenue Code, PICA 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 PICA’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 PICA’s) equity in VCA-2. A one-time equivalent charge is deducted when the Annuity Units for Annuitants are determined.
PICA, PI and Jennison are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (“Prudential”).
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 year ended December 31, 2011, PICA has advised the Account it has not received any sales charges.
Note 4: | Purchases and Sales of Portfolio Securities |
For the year ended December 31, 2011, the aggregate cost of purchases and the proceeds from sales of securities, excluding short-term investments, were $154,527,883 and $181,403,395, respectively.
Investment in the Core Fund: The Account invests in the Prudential Core Taxable Money Market Fund (the “Core Fund”), a portfolio of the Prudential Investment Portfolios 2, registered under the 1940 Act, as amended, and managed by PI. Earnings from the Core Fund are disclosed on the Statement of Operations as affiliated dividend income.
Note 5: | Unit Transactions |
The number of Accumulation Units issued and redeemed for the years ended December 31, 2011 and December 31, 2010, respectively, are as follows:
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
Units issued | 249,893 | 211,888 | ||||||
Units redeemed | (1,301,768 | ) | (1,014,833 | ) | ||||
Net decrease | (1,051,875 | ) | (802,945 | ) |
C2
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) PICA’s investment Account. The increase (decrease) includes reserve adjustments for mortality and expense risks assumed by PICA.
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 years ended December 31, 2011 and December 31, 2010, $16,414 and $6,610 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.
Note 8: | New Accounting Pronouncements |
In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-03 “Reconsideration of Effective Control for Repurchase Agreements.” The objective of ASU No. 2011-03 is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. Under previous guidance, whether or not to account for a transaction as a sale was based on, in part, if the entity maintained effective control over the transferred financial assets. ASU No. 2011-03 removes the transferor’s ability criterion from the effective control assessment. This guidance is effective prospectively for interim and annual reporting periods beginning on or after December 15, 2011. At this time, management is evaluating the implications of ASU No. 2011-03 and its impact on the financial statements has not yet been determined.
In May 2011, the FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 includes common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU No. 2011-04 will require reporting entities to disclose quantitative information about the unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy. In addition, ASU No. 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is evaluating the implications of ASU No. 2011-04 and its impact on the financial statements has not yet been determined.
C3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Committee and Participants of
The Prudential Variable Contract Account-2:
We have audited the accompanying statement of net assets of The Prudential Variable Contract Account-2 (the “Account”) as of December 31, 2011, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Account’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits 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 and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2011, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Account as of December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the periods described in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
New York, New York
February 28, 2012
D1
THE VCA 2 COMMITTEE AND OFFICERS
MANAGEMENT OF VCA 2 (Unaudited)
VCA 2 is managed by The Prudential Variable Contract Account 2 Committee (the VCA 2 Committee). The members of the VCA 2 Committee are elected by the persons having voting rights in respect of the VCA 2 Account. The affairs of the VCA 2 Account are conducted in accordance with the Rules and Regulations of the Account.
Information pertaining to the Committee Members of VCA 2 (hereafter referred to as “Board Members”) is set forth below. Board Members who are not deemed to be “interested persons” of VCA 2 as defined in the 1940 Act, as amended (the Investment Company Act) are referred to as “Independent Board Members.” Board Members who are deemed to be “interested persons” of VCA 2 are referred to as “Interested Board Members.” “Fund Complex” consists of VCA 2 and any other investment companies managed by PI. Information pertaining to the Officers of VCA 2 is also set forth below. VCA 2 is also referred to as the “Fund.”
Independent Board Members(1) | ||||
Name, Address, Age Position(s) Portfolios Overseen | Principal Occupation(s) During Past Five Years | Other Directorships Held | ||
Kevin J. Bannon (59) Board Member Portfolios Overseen: 58 | Managing Director (since April 2008) and Chief Investment Officer (since October 2008) of Highmount Capital LLC (registered investment adviser); formerly Executive Vice President and Chief Investment Officer (April 1993-August 2007) of Bank of New York Company; President (May 2003-May 2007) of BNY Hamilton Family of Mutual Funds. | Director of Urstadt Biddle Properties (since September 2008). | ||
Linda W. Bynoe (59) Board Member Portfolios Overseen: 58 | President and Chief Executive Officer (since March 1995) and formerly Chief Operating Officer (December 1989-February 1995) of Telemat Ltd. (management consulting); formerly Vice President (January 1985-June 1989) at Morgan Stanley & Co (broker-dealer). | Director of Simon Property Group, Inc. (retail real estate) (since May 2003); Director of Anixter International, Inc. (communication products distributor) (since January 2006); Director of Northern Trust Corporation (financial services) (since April 2006); Trustee of Equity Residential (residential real estate) (since December 2009); formerly Director of Dynegy Inc. (power generation) (September 2002-May 2006). | ||
Michael S. Hyland, CFA (66) Board Member Portfolios Overseen: 58 | Independent Consultant (since February 2005); formerly Senior Managing Director (July 2001-February 2005) of Bear Stearns & Co, Inc.; Global Partner, INVESCO (1999-2001); Managing Director and President of Salomon Brothers Asset Management (1989-1999). | None. | ||
Douglas H. McCorkindale (72) Board Member Portfolios Overseen: 58 | Formerly Chairman (February 2001-June 2006), Chief Executive Officer (June 2000-July 2005), President (September 1997-July 2005) and Vice Chairman (March 1984-May 2000) of Gannett Co. Inc. (publishing and media). | Director of Lockheed Martin Corp. (aerospace and defense) (since May 2001). | ||
Stephen P. Munn (69) Board Member Portfolios Overseen: 58 | Lead Director (since 2007) and formerly Chairman (1993-2007) of Carlisle Companies Incorporated (manufacturer of industrial products). | Lead Director (since 2007) of Carlisle Companies Incorporated (manufacturer of industrial products). | ||
Richard A. Redeker (68) Board Member & Independent Chair Portfolios Overseen: 58 | Retired Mutual Fund Senior Executive (43 years); Management Consultant; Independent Directors Council (organization of 2,800 Independent Mutual Fund Directors)-Executive Committee, Chair of Policy Steering Committee, Governing Council. | None. | ||
Robin B. Smith (72) Board Member Portfolios Overseen: 58 | Chairman of the Board (since January 2003) of Publishers Clearing House (direct marketing); Member of the Board of Directors of ADLPartner (marketing) (since December 2010); formerly Chairman and Chief Executive Officer (August 1996-January 2003) of Publishers Clearing House. | Formerly Director of BellSouth Corporation (telecommunications) (1992-2006). | ||
Stephen G. Stoneburn (68) Board Member Portfolios Overseen: 58 | President and Chief Executive Officer (since June 1996) of Quadrant Media Corp. (publishing company); formerly President (June 1995-June 1996) of Argus Integrated Media, Inc.; Senior Vice President and Managing Director (January 1993-1995) of Cowles Business Media; Senior Vice President of Fairchild Publications, Inc (1975-1989). | None. |
E1
Interested Board Members(1) | ||||
Name, Address, Age Position(s) Portfolios Overseen | Principal Occupation(s) During Past Five Years | Other Directorships Held | ||
Stuart S. Parker (49) Board Member & President Portfolios Overseen: 58 | President of Prudential Investments LLC (since January 2012); Executive Vice President of Jennison Associates LLC and Head of Retail Distribution of Prudential Investments LLC (June 2005-December 2011). | None. | ||
Scott E. Benjamin (38) Board Member & Vice President Portfolios Overseen: 58 | Executive Vice President (since June 2009) of Prudential Investments LLC and Prudential Investment Management Services LLC; Executive Vice President (since September 2009) of AST Investment Services, Inc.; Senior Vice President of Product Development and Marketing, Prudential Investments (since February 2006); Vice President of Product Development and Product Management, Prudential Investments (2003-2006). | None. |
(1) The year that each Board Member joined the Board is as follows: Kevin J. Bannon, 2008; Linda W. Bynoe, 2008; Michael S. Hyland, 2008; Douglas H. McCorkindale, 2008; Stephen P. Munn, 2008; Richard A. Redeker, 2008; Robin B. Smith, 2008; Stephen G. Stoneburn, 2008; Stuart S. Parker, Board Member and President since 2012; Scott E. Benjamin, Board Member since 2010 and Vice President since 2009.
Fund Officers(a)(1) | ||
Name, Address and Age Position with Fund | Principal Occupation(s) During Past Five Years | |
Judy A. Rice (64) Vice President | Formerly President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (February 2003-December 2011) of Prudential Investments LLC; formerly President, Chief Executive Officer and Officer-In-Charge (April 2003-December 2011) of Prudential Mutual Fund Services LLC; formerly President, Chief Executive Officer (May 2011-December 2011) and Executive Vice President (December 2008-December 2011) of Prudential Investment Management Services LLC; formerly Member of the Board of Directors of Jennison Associates LLC (November 2010-December 2011); formerly Vice President (February 1999-April 2006) of Prudential Investment Management Services LLC; President, COO, CEO and Manager of PIFM Holdco, LLC (since April 2006); formerly President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (May 2003-June 2005) and Director (May 2003-March 2006) and Executive Vice President (June 2005-March 2006) of AST Investment Services, Inc.; Member of Board of Governors of the Investment Company Institute. | |
Kathryn L. Quirk (59) Chief Legal Officer | Vice President and Corporate Counsel (since September 2004) of Prudential; Executive Vice President, Chief Legal Officer and Secretary (since July 2005) of PI and Prudential Mutual Fund Services LLC; Vice President and Corporate Counsel (since June 2005) and Secretary (since February 2006) of AST Investment Services, Inc.; formerly Senior Vice President and Assistant Secretary (November 2004-August 2005) of PI; formerly Assistant Secretary (June 2005-February 2006) of AST Investment Services, Inc.; formerly Managing Director, General Counsel, Chief Compliance Officer, Chief Risk Officer and Corporate Secretary (1997-2002) of Zurich Scudder Investments, Inc. | |
Deborah A. Docs (54) Secretary | Vice President and Corporate Counsel (since January 2001) of Prudential; Vice President (since December 1996) and Assistant Secretary (since March 1999) of PI; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | |
Jonathan D. Shain (53) Assistant Secretary | Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2001) of PI; Vice President and Assistant Secretary (since February 2001) of PMFS; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | |
Claudia DiGiacomo (37) Assistant Secretary | Vice President and Corporate Counsel (since January 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005); Associate at Sidley Austin Brown & Wood LLP (1999-2004). | |
John P. Schwartz (40) Assistant Secretary | Vice President and Corporate Counsel (since April 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005); Associate at Sidley Austin Brown & Wood LLP (1997-2005). | |
Andrew R. French (49) Assistant Secretary | Vice President and Corporate Counsel (since February 2010) of Prudential; formerly Director and Corporate Counsel (2006-2010) of Prudential; Vice President and Assistant Secretary (since January 2007) of PI; Vice President and Assistant Secretary (since January 2007) of PMFS. | |
Timothy J. Knierim (53) Chief Compliance Officer | Chief Compliance Officer of Prudential Investment Management, Inc. (since July 2007); formerly Chief Risk Officer of PIM and PI (2002-2007) and formerly Chief Ethics Officer of PIM and PI (2006-2007). | |
Valerie M. Simpson (53) Deputy Chief Compliance Officer | Chief Compliance Officer (since April 2007) of PI and AST Investment Services, Inc.; formerly Vice President-Financial Reporting (June 1999-March 2006) for Prudential Life and Annuities Finance. | |
Theresa C. Thompson (49) Deputy Chief Compliance Officer | Vice President, Compliance, PI (since April 2004); and Director, Compliance, PI (2001-2004). | |
Richard W. Kinville (43) Anti-Money Laundering Compliance Officer | Vice President, Corporate Compliance, Anti-Money Laundering Unit (since January 2005) of Prudential; committee member of the American Council of Life Insurers Anti-Money Laundering and Critical Infrastructure Committee (since January 2007); formerly Investigator and Supervisor in the Special Investigations Unit for the New York Central Mutual Fire Insurance Company (August 1994-January 1999); Investigator in AXA Financial’s Internal Audit Department and Manager in AXA’s Anti-Money Laundering Office (January 1999-January 2005); first chair of the American Council of Life Insurers Anti-Money Laundering and Critical Infrastructure Committee (June 2007-December 2009). | |
Grace C. Torres (52) Treasurer and Principal Financial and Accounting Officer | Assistant Treasurer (since March 1999) and Senior Vice President (since September 1999) of PI; Assistant Treasurer (since May 2003) and Vice President (since June 2005) of AST Investment Services, Inc.; Senior Vice President and Assistant Treasurer (since May 2003) of Prudential Annuities Advisory Services, Inc.; formerly Senior Vice President (May 2003-June 2005) of AST Investment Services, Inc. |
E2
Fund Officers(a)(1) | ||
Name, Address and Age Position with Fund | Principal Occupation(s) During Past Five Years | |
M. Sadiq Peshimam (48) Assistant Treasurer | Vice President (since 2005) of Prudential Investments LLC. | |
Peter Parrella (53) Assistant Treasurer | Vice President (since 2007) and Director (2004-2007) within Prudential Mutual Fund Administration; formerly Tax Manager at SSB Citi Fund Management LLC (1997-2004). |
(a) Excludes Mr. Parker and Mr. Benjamin, interested Board Members who also serve as President and Vice President, respectively.
(1) The year in which each individual became an Officer of the Fund is as follows: Kathryn L. Quirk, 2005; Deborah A. Docs, 2005; Jonathan D. Shain, 2005; Claudia DiGiacomo, 2005; John P. Schwartz, 2006; Andrew R. French, 2006; Timothy J. Knierim, 2008; Valerie M. Simpson, 2008; Theresa C. Thompson, 2008; Richard W. Kinville, 2011; Grace C. Torres, 1997; Peter Parrella, 2007; M. Sadiq Peshimam, 2006.
Explanatory Notes to Tables:
Board Members are deemed to be “Interested,” as defined in the 1940 Act, by reason of their affiliation with Prudential Investments LLC and/or an affiliate of Prudential Investments LLC.
Unless otherwise noted, the address of all Board Members and Officers is c/o Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
There is no set term of office for Board Members or Officers. The Board Members have adopted a retirement policy, which calls for the retirement of Board Members on December 31 of the year in which they reach the age of 75.
“Other Directorships Held” includes only directorships of companies required to register or file reports with the SEC under the 1934 Act) (that is, “public companies”) or other investment companies registered under the 1940 Act.
“Portfolios Overseen” includes all investment companies managed by Prudential Investments LLC. The investment companies for which PI serves as manager include the Prudential Investments Mutual Funds, The Prudential Variable Contract Accounts, Target Mutual Funds, The Prudential Series Fund, Prudential’s Gibraltar Fund, Inc. and the Advanced Series Trust.
E3
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. Please be sure to have your contract number available when you call.
(800) 458-6333
The Prudential Insurance Company of America 751 Broad Street Newark, NJ 07102-3777
| Presorted Standard U.S. Postage PAID Prudential | |||
Prudential Retirement, Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
0172937-00004-00 LT.RS.001
Item 2 – Code of Ethics — See Exhibit (a)
As of the end of the period covered by this report, the registrant has adopted a code of ethics (the “Section 406 Standards for Investment Companies – Ethical Standards for Principal Executive and Financial Officers”) that applies to the registrant’s Principal Executive Officer and Principal Financial Officer; the registrant’s Principal Financial Officer also serves as the Principal Accounting Officer.
The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant 973-367-7521, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3 – Audit Committee Financial Expert –
The registrant’s Board has determined that Mr. Stephen P. Munn, member of the Board’s Audit Committee is an “audit committee financial expert,” and that he is “independent,” for purposes of this Item.
Item 4 – Principal Accountant Fees and Services –
(a) Audit Fees
For the fiscal years ended December 31, 2011 and December 31, 2010, KPMG LLP (“KPMG”), the Registrant’s principal accountant, billed the Registrant $19,000 and $18,500, respectively, for professional services rendered for the audit of the Registrant’s annual financial statements or services that are normally provided in connection with statutory and regulatory filings.
(b) Audit-Related Fees
None.
(c) Tax Fees
None.
(d) All Other Fees
None.
(e) (1) Audit Committee Pre-Approval Policies and Procedures
THE PRUDENTIAL MUTUAL FUNDS
AUDIT COMMITTEE POLICY
on
Pre-Approval of Services Provided by the Independent Accountants
The Audit Committee of each Prudential Mutual Fund is charged with the responsibility to monitor the independence of the Fund’s independent accountants. As part of this responsibility, the Audit Committee must pre-approve any independent accounting firm’s engagement to render audit and/or permissible non-audit services, as required by law. In evaluating a proposed engagement of the independent accountants, the Audit Committee will assess the effect that the engagement might reasonably be expected to have on the accountant’s independence. The Committee’s evaluation will be based on:
• | a review of the nature of the professional services expected to be provided, |
• | a review of the safeguards put into place by the accounting firm to safeguard independence, and |
• | periodic meetings with the accounting firm. |
Policy for Audit and Non-Audit Services Provided to the Funds
On an annual basis, the scope of audits for each Fund, audit fees and expenses, and audit-related and non-audit services (and fees proposed in respect thereof) proposed to be performed by the Fund’s independent accountants will be presented by the Treasurer and the independent accountants to the Audit Committee for review and, as appropriate, approval prior to the initiation of such services. Such presentation shall be accompanied by confirmation by both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants. Proposed services shall be described in sufficient detail to enable the Audit Committee to assess the appropriateness of such services and fees, and the compatibility of the provision of such services with the auditor’s independence. The Committee shall receive periodic reports on the progress of the audit and other services which are approved by the Committee or by the Committee Chair pursuant to authority delegated in this Policy.
The categories of services enumerated under “Audit Services”, “Audit-related Services”, and “Tax Services” are intended to provide guidance to the Treasurer and the independent accountants as to those categories of services which the Committee believes are generally consistent with the independence of the independent accountants and which the Committee (or the Committee Chair) would expect upon the presentation of specific proposals to pre-approve. The enumerated categories are not intended as an exclusive list of audit, audit-related or tax services, which the Committee (or the Committee Chair) would consider for pre-approval.
Audit Services
The following categories of audit services are considered to be consistent with the role of the Fund’s independent accountants:
• | Annual Fund financial statement audits |
• | Seed audits (related to new product filings, as required) |
• | SEC and regulatory filings and consents |
Audit-related Services
The following categories of audit-related services are considered to be consistent with the role of the Fund’s independent accountants:
• | Accounting consultations |
• | Fund merger support services |
• | Agreed Upon Procedure Reports |
• | Attestation Reports |
• | Other Internal Control Reports |
Individual audit-related services that fall within one of these categories and are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000.
Tax Services
The following categories of tax services are considered to be consistent with the role of the Fund’s independent accountants:
• | Tax compliance services related to the filing or amendment of the following: |
• | Federal, state and local income tax compliance; and, |
• | Sales and use tax compliance |
• | Timely RIC qualification reviews |
• | Tax distribution analysis and planning |
• | Tax authority examination services |
• | Tax appeals support services |
• | Accounting methods studies |
• | Fund merger support services |
• | Tax consulting services and related projects |
Individual tax services that fall within one of these categories and are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000.
Other Non-audit Services
Certain non-audit services that the independent accountants are legally permitted to render will be subject to pre-approval by the Committee or by one or more Committee members to whom the Committee has delegated this authority and who will report to the full Committee any pre-approval decisions made pursuant to this Policy. Non-audit services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Proscribed Services
The Fund’s independent accountants will not render services in the following categories of non-audit services:
• | Bookkeeping or other services related to the accounting records or financial statements of the Fund |
• | Financial information systems design and implementation |
• | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports |
• | Actuarial services |
• | Internal audit outsourcing services |
• | Management functions or human resources |
• | Broker or dealer, investment adviser, or investment banking services |
• | Legal services and expert services unrelated to the audit |
• | Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. |
Pre-approval of Non-Audit Services Provided to Other Entities Within the Prudential Fund Complex
Certain non-audit services provided to Prudential Investments LLC or any of its affiliates that also provide ongoing services to the Prudential Mutual Funds will be subject to pre-approval by the Audit Committee. The only non-audit services provided to these entities that will require pre-approval are those related directly to the operations and financial reporting of the Funds. Individual projects that are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $50,000. Services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Although the Audit Committee will not pre-approve all services provided to Prudential Investments LLC and its affiliates, the Committee will receive an annual report from the Fund’s independent accounting firm showing the aggregate fees for all services provided to Prudential Investments and its affiliates.
(e) | (2) Percentage of services referred to in 4(b) – 4(d) that were approved by the audit committee – |
Not applicable.
(f) Percentage of hours expended attributable to work performed by other than full time employees of principal accountant if greater than 50%.
The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.
(g) Non-Audit Fees
Not applicable to Registrant for the fiscal years 2011 and 2010. The aggregate non-audit fees billed by KPMG for services rendered to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant for the fiscal years 2011 and 2010 was $0 and $0, respectively.
(h) Principal Accountant’s Independence
Not applicable as KPMG has not provided non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
Item 5 – Audit Committee of Listed Registrants – Not applicable.
Item 6 – Schedule of Investments – The schedule is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not applicable.
Item 8 – Portfolio Managers of Closed-End Management Investment Companies – Not applicable.
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not applicable.
Item 10 – Submission of Matters to a Vote of Security Holders – Not applicable.
Item 11 – 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 has been no significant change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter of the period covered by this report that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12 – Exhibits
(a) | (1) Code of Ethics – Attached hereto as Exhibit EX-99.CODE-ETH | |||||
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.CERT. | ||||||
(3) Any written solicitation to purchase securities under Rule 23c-1. – Not applicable. | ||||||
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.906CERT. |
SIGNATURES
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.
Registrant: | The Prudential Variable Contract Account-2 |
By: | /s/ Deborah A. Docs | |
Deborah A. Docs | ||
Secretary | ||
Date: | February 21, 2012 |
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/ Stuart S. Parker | |
Stuart S. Parker | ||
President and Principal Executive Officer | ||
Date: | February 21, 2012 | |
By: | /s/ Grace C. Torres | |
Grace C. Torres | ||
Treasurer and Principal Financial Officer | ||
Date: | February 21, 2012 |