THE
PRUDENTIAL
MEDLEY PROGRAM
[GRAPHIC OMITTED]
SEMI-ANNUAL REPORT TO
PARTICIPANTS
JUNE 30, 2000
[LOGO] PRUDENTIAL
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NJ 07102-3777
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NJ 07102-2992
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<TABLE>
<CAPTION>
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THE PRUDENTIAL MEDLEY PROGRAM
Average Annual Total Return as of June 30, 2000
Six One Five Ten Inception
Months(6) Year year year Date
--------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
VCA-10 CAPITAL GROWTH ACCOUNT
Without Sales Charge(1) -0.41% -9.43% 12.48% 12.89% 8/82
With Maximum Sales Charge(2) -7.65% -15.67% 12.07% 12.80% 8/82
VCA-11 MONEY MARKET ACCOUNT(3)
Without Sales Charge(1) 2.64% 4.98% 4.79% 4.50% 8/82
With Maximum Sales Charge(2) -4.48% -1.13% 4.36% 4.43% 8/82
The current seven-day yield on
June 30, 2000 was 5.78%
VCA-24(4)
WITHOUT SALES CHARGE(1)
Diversified Bond Account 2.45% 3.01% 5.16% 6.97% 5/83
Government Income Account 4.04% 3.56% 5.01% 6.61% 5/89
Conservative Balanced Account 0.96% 3.14% 9.66% 9.23% 5/83
Flexible Managed Account 0.23% 0.99% 11.3% 10.79% 5/83
Stock Index Account(5) -0.91% 6.16% 22.48% 16.49% 10/87
Equity Account -5.85% -8.65% 13.23% 13.54% 5/83
Global Account -1.35% 32.78% 18.90% 12.63% 9/88
WITH MAXIMUM SALES CHARGE(2)
Diversified Bond Account -4.56% -3.01% 4.82% 6.96% 5/83
Government Income Account -2.96% -2.45% 4.68% 6.61% 5/89
Conservative Balanced Account -6.09% -2.90% 9.35% 9.21% 5/83
Flexible Managed Account -6.82% -5.06% 11.00% 10.77% 5/83
Stock Index Account(5) -7.97% 0.11% 22.27% 16.47% 10/87
Equity Account -13.01% -14.81% 12.89% 13.49% 5/83
Global Account -8.35% 26.77% 18.70% 12.63% 9/88
</TABLE>
These returns represent past performance. Investment return and principal value
will fluctuate so that units, upon redemption, may be worth more or less than
their original cost.
(1) The results shown are after the deduction of all expenses and contract
charges including investment management and administrative fees, but do not
include the effect of any deferred sales charges. All total returns are for
the periods indicated and are calculated based on changes in unit values.
Past performance cannot guarantee comparable future results. Source:
Prudential
(2) The results shown are calculated in the same manner as those shown above
and in addition reflect the deduction of the following maximum deferred
sales charges: "1 Year", 6%; "5 Year", 2%; and "10 Year or Since
Inception", 0%. The performance results also reflect the impact of the $30
annual contract fee under The MEDLEY Program. Past performance cannot
guarantee comparable future results.
(3) For current yields on the Money Market Account, please call 1-800-458-6333.
An investment in the Account is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. There can be
no assurance that the Account will be able to maintain a stable unit value.
It is possible to lose money by investing in the Account.
(4) The Prudential Variable Contract Account-24 (VCA-24) was first offered on
May 1, 1987 (Stock Index Account on May 2, 1988, Government Income and
Global Accounts on May 1, 1991). However, the underlying investment
portfolios existed under other Prudential programs before they became part
of The MEDLEY Program. For purposes of comparison, the returns have been
recalculated to reflect a hypothetical return as if they were part of The
MEDLEY Program from each portfolio's inception, using charges applicable to
The MEDLEY Program.
(5) Standard & Poor's, S&P, Standard & Poor's 500, and 500 are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential
Insurance Company of America and its affiliates and subsidiaries. The
Account is not sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in the Account.
(6) Six month returns are not annualized.
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TABLE OF CONTENTS
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I Letter to Medley Participants ....................................... 3
Market Commentary ................................................... 4
II VCA-10 Capital Growth Account ....................................... 8
Financial Statements ................................................ 10
III VCA-11 Money Market Account ......................................... 17
Financial Statements ................................................ 19
IV The Prudential Series Fund, Inc. VCA-24 ............................. 26
Diversified Bond Portfolio .......................................... 27
Government Income Portfolio ......................................... 29
Conservative Balanced Portfolio ..................................... 31
Flexible Managed Portfolio........................................... 33
Stock Index Portfolio ............................................... 35
Equity Portfolio .................................................... 37
Global Portfolio..................................................... 39
V The Prudential Series Fund, Inc.
Financial Statements ................................................ A1
Schedule of Investments.............................................. B1
Notes to Financial Statements........................................ C1
Financial Highlights ................................................ D1
Report of Independent Accountants.................................... E1
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for The MEDLEY Program.
The report is for the information of persons participating in The Prudential
Variable Contract Account-10 (VCA-10), The Prudential Variable Contract
Account-11 (VCA-11), and The Prudential Variable Contract Account-24 (VCA-24),
The MEDLEY Program. VCA-10, VCA-11 and VCA-24 are distributed by Prudential
Investment Management Services LLC, a subsidiary of The Prudential Insurance
Company of America. VCA-10, VCA-11 and VCA-24 are group annuity insurance
products issued by The Prudential Insurance Company of America, Newark, NJ.
This report includes the financial statements of the VCA-10, Capital Growth
Account; VCA-11, Money Market Account; and The Prudential Series Fund, Inc.
This report does not include separate account financials for the VCA-24
Subaccounts. If you would like separate account financial statements as of
December 31, 1999, please call the telephone number on the back of this report.
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LETTER TO CONTRACT OWNERS
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Six Months Ended June 30, 2000
CHAIRMAN
JOHN R. STRANGFELD
"The first six months of the new century were among the most tumultuous in
recent market history."
DEAR CONTRACT OWNER:
This Semiannual Report reviews the investment strategies and performance of the
portfolios in your variable life insurance or variable annuity contract
available through Prudential.
LOOKING BACK
The first six months of the new century were among the most tumultuous in recent
market history. The seemingly endless upward trajectory of new economy
stocks--those in the technology, media and telecommunications industries--came
to an abrupt halt in late March. Signs that inflation might be rising in the
U.S., continued interest rate hikes, and high stock valuations caused investors
to flee the technology-laden Nasdaq market in droves. A long-anticipated U.S.
market correction was underway, and its impact was felt across the global
marketplace.
MAINTAIN A LONG-TERM OUTLOOK
In summary, it was an eventful period in the financial markets--one that we
believe magnifies the value of several time-tested investment fundamentals.
First, maintaining a long-term outlook for your investments is vital. Market
fluctuations will occur, and reacting to short-term events is often ill-advised.
As a case in point, we've already seen a rebound in several sectors that
performed poorly during the second quarter of the year.
DIVERSIFICATION IS KEY
Second, the financial markets are a moving target. As such, many investors find
themselves buying at market highs when they gravitate to the
strongest-performing sectors. A more sound approach is to diversify your
portfolio across a wide variety of investments. And take special care to
rebalance your portfolio should your asset allocation strategy veer from its
original course.
RELY ON YOUR FINANCIAL PROFESSIONAL
Third, if you find yourself tempted to react to the latest market gyrations,
turn to your financial professional for guidance. He or she can review your
overall goals and determine if changes to your portfolio are necessary. This is
particularly important during periods of extreme market volatility.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman,
The Prudential Series Fund, Inc. July 17, 2000
3
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EQUITY COMMENTARY
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June 30, 2000
Turbulence and change in equity market
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Not only did the first half of 2000 include some of the most turbulent days in
U.S. stock market history, there were dramatic reversals of fortune at other
time scales as well--by quarter and by month. Many of these reversals canceled
each other out, so that by the end of June the S&P 500 had only a small net loss
and the Russell 2000 Index of small-cap stocks only a modest gain.
The main market stories over this period were the net correction (downward) of
extended telecommunications stocks and the see saw like rise of health care,
power utilities and energy stocks. The technology sector skyrocketed up,
corrected, then moved ahead again in a sharp June advance. Cyclical
stocks--basic materials (such as paper and forest products and metals), consumer
cyclicals (such as retail, autos and hotels), and capital goods (such as
engineering and construction)--had steep declines. These trends were global in
scope (except for capital goods, which had a moderately good local currency
return in Europe that translated into a marginally positive return for
dollar-based investors).
The result was a net advantage over the six months for growth over value
investing except among small caps, where the most speculative technology stocks
fell so much in March through May that they couldn't catch up in their June
surge. Small-cap (the Russell 2000 sectors) energy (excluding integrated oil
companies) and healthcare stocks had excellent catch-up returns of 52% and 36%,
respectively. Overall, midcap stocks had the best performance of any market
capitalization class, with midcap growth stocks the only equity market
capitalization range with strong returns.
Performance of Key Stock Market Indexes
Through June 30, 2000
[GRAPH]
S&P/ S&P/ Russel Russell MSCI MSCI MSCI
S&P BARRA BARRA 2000 2000 World Free Europe Japan
500 Value Growth Value Growth Index* Index* Index*
-0.43% -4.07% 2.63% 5.85% 1.23% -2.56% -3.08% -5.37%
Strong economic growth creates fears and opportunities
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This pattern was driven by rapid U.S. economic growth, which led the Federal
Reserve to continue to raise interest rates. Rising interest rates hurt the
stocks of rapidly growing companies whose value lies in their future earnings:
The present value of such future earnings is reduced in a rising interest rate
environment. Moreover, the fear that rising interest rates would cut off
economic growth hurt both growth and cyclical stocks. Moreover, a growing global
imbalance of supply and demand for oil created a turnaround in energy. Oil
service companies performed quite well. A shortage of electricity generating
capacity in the United States, as well as low inventories of the natural gas
that is burned by many new generation plants, strengthened the domestic utility
sector stocks overall, although some companies remained vulnerable to rising
fuel prices.
A global downturn
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Only the Nordic region provided moderately good returns, led by Sweden. Other
than that, the picture was generally bleak except for a few scattered individual
countries with good returns: Canada, France, Malaysia, Israel, Venezuela and the
Czech Republic.
*In U.S. currency.
Sources: Morgan Stanley Capital International, Standard & Poor's, Frank Russell
Company, and Prudential as of June 30, 2000. All indexes are unmanaged and
provide an indication of stock price movements. Past performance is not
indicative of future results. Investors cannot invest directly in an index.
Standard & Poor's 500 Index comprises 500 large, established, publicly traded
stocks. Morgan Stanley Capital International Europe Index comprises
approximately 620 European companies. Morgan Stanley Capital International
Europe, Australia, Far East Index is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P/Barra Value Index contains companies within the S&P 500 with lower
price-to-book ratios. S&P/Barra Growth Index contains companies within the S&P
500 with higher price-to-book ratios. Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios.
Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios. Morgan Stanley Capital International
World Free Index contains those companies in the MSCI World Index that reflect
actual buyable opportunities for the nondomestic investor by taking into account
local market restrictions on share ownership by foreigners. These indexes are
calculated in U.S. dollars, without dividends reinvested. Morgan Stanley Capital
International Japan Index measures the performance of Japan's stock market.
The views expressed are as of July 17, 2000, and are subject to change based on
market and other conditions.
IFS-200001-A050472
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EQUITY OUTLOOK
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June 30, 2000
Stocks are at a fair value
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Our models show that overall stock prices are at about fair value on the basis
of today's earnings growth and interest rates. That means the markets should be
able to sustain ordinary rates of equity return (not the historically abnormal
returns of recent years) as long as earnings continue to grow and if interest
rates stabilize. One good sign is that downward revisions of earnings estimates
are less common this year than usual. Value investors are benefiting from the
recent trends toward stocks that are more defensive than most, but that also
have good growth prospects--such as drugs and utilities. Growth investors are
focused on long-term structural changes in the economy: wireless and broadband
telecommunications and the growth of the Internet companies. They tend to avoid
companies whose earnings are tied to the business cycle.
Internationally, the European economic recovery is also creating opportunities.
Moreover, the signs that China is serious about opening its economy bode well
for the industrialized countries in northern Asia that can export there: Korea,
Japan, Hong Kong, and Taiwan.
Stock selection key
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The discrepancies in pricing between value and growth stocks are smaller than
previously, and stock selection is likely to become more important than sector
differences. Technology companies will find investment capital more expensive.
Companies with strong balance sheets, positive cash flows, or access to cash
should still be able to grow. In sectors dependent upon commodity prices, there
may be substantial differences between firms exposed to rising prices and those
whose supplies are locked in. Investment opportunities generally are likely to
be more scattered than in the sector-focused markets we have had recently.
NOTE: Past performance is not a guarantee of future results. There is no
assurance that any of the forecasts discussed will be attained.
Performance of U.S. Market Sectors Through June 30, 2000
Year to Date
<TABLE>
<CAPTION>
[GRAPH]
Capital Communication Basic Consumer Consumer
Technology Energy Goods Utilities Services Materials Cyclicals Healthcare Staples Financials Transportation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.0% 4.7% -1.2% 15.3% -15.1% -24.8% -18.9% 23.7% -2.4% -0.5% 5.0%
</TABLE>
S&P 500 Index Sector Weightings
[GRAPH]
Technology 32.8%
Financials 12.7%
Healthcare 11.6%
Consumer Staples 10.3%
Consumer Cyclicals 7.4%
Capital Goods 8.0%
Communication Services 6.8%
Energy 5.4%
Basic Materials 1.9%
Utilities 2.5%
Transportation 0.6%
Source: Standard & Poor's as of June 30, 2000. The S&P 500 Index is an unmanaged
index of stocks that provides an indication of stock price movements. Past
performance is not indicative of future results. Investors cannot invest
directly in an index.
IFS-200001-A050472
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BOND COMMENTARY
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June 30, 2000
A good first half for U.S. Treasuries
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Prices of most U.S. Treasury securities climbed during the first half of 2000,
leaving prices of other U.S. fixed-income securities far behind. Favorable
technical factors and moderating economic growth sparked a rally primarily in
longer-term Treasuries.
Initially, though, Treasuries began 2000 on a weak note. The U.S. economy had
expanded rapidly in late 1999. Investors therefore feared the Federal Reserve
might repeatedly increase short-term interest rates to prevent the economy from
exceeding what the central bank believes to be its speed limit. In anticipation,
investors required higher bond yields, which forced bond prices lower.
However, the sell-off soon turned into a rally, at least for longer-term
Treasuries. The U.S. Treasury Department cut back issuance of its securities
because a growing federal budget surplus has reduced its borrowing needs. It
also commenced a program to buy back up to $30 billion of older, mostly
longer-term Treasuries by the end of 2000. Taken together, these two
developments set off a stampede to buy longer-term Treasuries.
The enthusiasm for longer-term Treasuries faded as it became clear the Fed's
quarter-point rate hikes in February and March would be followed by a half-point
increase in mid May. Some investors worried the Fed might prove too heavy handed
and trigger an economic downturn that would sap corporate earnings. Not
surprisingly, prices of investment-grade and high-yield U.S. corporate bonds got
hit even harder than Treasuries during this time. High-yield (junk) bonds also
suffered, because a growing number of companies failed to make interest and
principal payments on their junk bonds in May.
Not until reports began to show that the economy was gradually losing steam did
prices of U.S. fixed-income securities once again turn higher. Signs of
moderating economic growth might mean the Fed would soon be finished increasing
rates. Amid this change in market sentiment, prices in U.S. debt securities
markets gained in June. Nevertheless, among U.S. bond markets, the Treasury
market finished in first place for the six-month period, helped by the strong
performance of its longer-term securities earlier in the year.
But an even better first half for emerging market bonds
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Although Treasuries performed impressively, the top fixed-income market for the
first half of 2000 was emerging market bonds, based on Lehman Brothers indexes.
They returned a solid 7.59% as economic fundamentals in several developing
countries proved stronger than expected. Rising prices of oil, gas, and other
natural resources strengthened the economies of some developing nations that
export these commodities. Improving economic conditions in turn boosted their
foreign currency reserves. Moreover, some countries cut their financing costs by
swapping new bonds for older debt securities. These positive developments and
others attracted investors to emerging market bonds.
Among nations with developed economies, the government bond markets of
Australia, Canada and the United Kingdom posted attractive returns on a local
currency basis but lower returns when expressed in U.S. dollars. Their central
banks, which have repeatedly increased short-term rates to keep their respective
economies from overheating, are widely believed to be near the end of their
current tightening cycles.
Performance of Fixed-Income Market Indexes Through June 30, 2000
<TABLE>
<CAPTION>
Global U.S. Mortgage- Emerging U.S. Aggregate U.S. Corp. U.S. Corporate
(U.S. dollar) Index Backed Securities Markets U.S. Treasuries Index Invest. Grade U.S. Municipals High Yield
<S> <C> <C> <C> <C> <C> <C> <C>
-0.08% 3.67% 7.59% 5.37% 3.99% 2.68% 4.48% -1.21%
</TABLE>
Source: Lehman Brothers as of June 30, 2000. The Lehman Brothers indexes are
unmanaged indexes of bonds that provide an indication of bond price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
IFS-200001-A050472
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BOND OUTLOOK 2000
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June 30, 2000
Current cycle of Fed rate hikes may be nearly over
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The commonly accepted wisdom holds that increases in short-term interest rates
hurt bonds. However, the Federal Reserve's unusually large half-point rate hike
in May 2000 might benefit U.S. fixed-income markets--at least in the long run.
This could prove true if the Fed's largest rate increase in more than five years
proves to be a signal that it has nearly completed its current round of
tightening monetary policy.
Since June 1999, the U.S. central bank has raised rates six times. The first
five were quarter-point rate hikes and the sixth was for half of a percentage
point. Taken together, these moves lifted the federal funds rate (the rate U.S.
banks charge each other for overnight loans) to 6.50%, its highest level since
January 1991.
While rates remained unchanged after its latest meeting in June 2000, the U.S.
central bank warned more rate hikes could follow, because it is not convinced
that recent indications of an economic slowdown will last. The implied yield on
federal funds futures contracts indicates the Fed is expected to raise
short-term rates by another quarter of a percentage point later this year.
We too believe the central bank's current series of rate hikes is just about
over. We expect inflation to taper off as U.S. economic activity continues to
moderate in coming months, lessening the need for further moves by the Fed.
We see good value in the U.S. high-yield bond market
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Historically, bond returns have been strong in the 12-month period following the
completion of a Fed tightening cycle. An examination of 12-month returns as
measured by the Lehman Aggregate Index shows U.S. bonds posted double-digit
returns after the end of each of the last six Fed tightening cycles. Although we
do not expect U.S. bond markets to perform as strongly this time around, we
nonetheless see room for improvement, particularly in the market for high-yield
(junk) corporate bonds.
Compared with the yield on 10-year U.S. Treasuries, junk bond yields earlier in
the year rose to their highest levels in nearly a decade. The huge difference in
yields partly reflects the scarcity value of Treasuries. The supply of
Treasuries is shrinking because growing federal budget surpluses have reduced
the government's need to borrow.
But the large gap in yields also occurred because volatile stock prices and an
increase in the junk bond default rate hurt demand for high-yield bonds.
Bond investors were more cautious about lending money to companies whose market
values were fluctuating wildly. Like stock investors, they were concerned about
the impact of a slowdown on corporate earnings. However, the economy is not
expected to slip into a recession, and investor cash flows into junk bond mutual
funds turned positive in the last two weeks of June. This may herald a change in
trend.
The trend had been downhill as net flows into bond mutual funds turned strongly
negative early in the year. Looking back, retail investors left bond funds in
droves in 1987 and 1994 before substantial bull markets began, according to data
by International Strategy and Investment (ISI) and Lehman Brothers. In the same
vein, an ISI survey showed institutional investors have not been this bearish on
bonds since the end of the 1994 and 1996 bear markets.
Investors that return to the junk bond market will find yields at very
attractive levels. Both the nominal yield and the real yield (yield minus the
inflation rate) have been at such high levels only once or twice in the past ten
years, based on data from Lehman Brothers.
Municipal bond yields are also attractive. Thirty-year insured munis rated AAA
are yielding roughly 97% as much as 30-year Treasury bonds. Although prices of
municipal bonds have already gained this year, we believe they will rise further
if a continued light supply of tax-exempt securities meets with strong demand
from investors.
Note: Past performance is not a guarantee of future results. There is no
assurance that any of the forecasts discussed will be attained.
IFS-200001-A050472
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VCA-11 MONEY MARKET ACCOUNT
JUNE 30, 2000
INVESTMENT GOAL
Current income consistent with preservation of capital and liquidity.
TYPES OF INVESTMENTS
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of Certificates of Deposit (CDs); Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
[CHART]
1 The Account performance results are after the deduction of all expenses and
contract charges including investment management and administrative fees,
but do not include the effect of any sales charges. All total returns are
for the periods indicated and are calculated based on changes in unit
values. Past performance cannot guarantee comparable future results.
Source: Prudential.
Investment return and principal value of the Account will fluctuate
resulting in a value that may at any time, including the time of the
withdrawal of the cash value, be more or less than the total principal
investment made.
For current yields on the Money Market Account, please call 1-800-458-6333.
An investment in the Account is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. It is
possible to lose money by investing in the Account.
2 The Salomon Brothers 3-month Treasury Bill Index is an index whereby equal
dollar amounts of three-month Treasury bills are purchased at the beginning
of each of three consecutive months. As each bill matures, all proceeds are
rolled over or reinvested in a new three-month bill. The income used to
calculate the monthly return is derived by subtracting the original amount
invested from the maturity value.
3 Six month returns are not annualized.
PERFORMANCE SUMMARY
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AVERAGE ANNUAL RETURNS
THROUGH JUNE 30, 2000(3) SIX MONTHS 1-YEAR 3-YEAR 5-YEAR 10-YEAR
-------------------------- ---------- ------ ------ ------ -------
MONEY MARKET ACCOUNT(1) 2.64% 4.98% 4.76% 4.79% 4.50%
--------------------------------------------------------------------------------
SALOMON BROTHERS T-BILLS(2) 2.79% 5.31% 5.09% 5.19% 4.95%
--------------------------------------------------------------------------------
Money Market Account inception date: 8/82:
The six months that ended on June 30, 2000 were ripe with attractive
opportunities to invest in money market securities. The Federal Reserve
repeatedly increased short-term interest rates, which pushed money market yields
sharply higher. Our investment strategy enabled the Account to benefit from this
trend.
The Account returned 2.64% for the six months, compared with 2.79% on the
Salomon Brothers Three-Month Treasury Bill Index. On June 30, 2000, the
Account's seven-day current yield was 5.78%.
PERFORMANCE REVIEW
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The Fed's short-term rate hikes have led to higher yields on money market funds,
but yields on long-term U.S. Treasuries have fallen amid a shrinking supply of
these securities. Therefore, net yields on money market funds have generally
reached levels that are comparable with yields on long-term Treasuries.
STRATEGY SESSION
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ADJUSTABLE-RATE SECURITIES ENHANCED OUR PERFORMANCE. As we discussed in our
previous letter, the Account has sizeable holdings of adjustable-rate
securities, most of which carry coupon rates that adjust periodically based on
London Interbank Offered Rates (LIBORs). The difference between the coupon rate
and LIBOR is called the "yield spread."
Banks and corporations had issued adjustable-rate securities in 1999 with
unusually high "yield spreads" to attract investors. Normally, these securities
would have been issued toward the end of the year. In 1999, however, they were
issued well before year-end. This was done because banks and corporations wanted
to avoid any complications that might have occurred if computers malfunctioned
when switching their internal dates from 1999 to 2000.
After the change of year proceeded smoothly, yield spreads on adjustable-rate
securities began to decline toward historical norms. This trend enhanced the
Account's relative performance.
17
<PAGE>
WAITING FOR MONEY MARKET YIELDS TO RISE. In January 2000, investors anticipated
further moves by the Federal Reserve, which had already engineered three
short-term rate hikes in 1999 to keep the U.S. economy from growing too fast and
boosting inflationary pressures. However, the central bank was expected to
tighten monetary policy further because the economy continued to expand rapidly
as 2000 progressed.
We positioned the Account to have the flexibility to avoid purchasing
longer-term money market securities until after short-term rates rose to levels
commensurate with our expectations for tighter monetary policy. The Account's
weighted average maturity (WAM), which was longer than that of its competitive
average early in the year, was gradually allowed to shorten. (WAM is a
measurement tool that determines a portfolio's sensitivity to changes in the
level of interest rates.) Shortening the WAM enabled the Account to have greater
flexibility to buy money market securities when sharply higher yields became
available.
FED'S BOLD INFLATION-FIGHTING TACTICS. Money market yields climbed as the Fed
increased short-term rates by a quarter of a percentage point in February and
March 2000. They continued to climb in April and May on expectations that the
Fed would tighten monetary policy again when it met on May 16. Indeed on that
date, the central bank raised short-term rates half of a percentage point--its
largest increase in more than five years. A statement issued by the Fed after
this meeting seemed to indicate that it might continue to hike rates.
We believed the central bank would take a respite from raising rates until
August 2000, when it would probably resume its efforts to curb economic growth.
Therefore in May, we purchased securities maturing in one to three months so
that we would have plenty of cash on hand to buy higher yielding securities that
might be available in August.
It's always difficult to predict when interest rates will peak. In hindsight, we
should have bought longer-term money market securities in the last week of May
and early June because yields seemed to have crested at that time as one-year
bank and corporate securities yielded nearly 7.50%.
In fact, money market yields began to edge lower as June progressed and data
indicated that the U.S. economy seemed to be losing steam. Because of mounting
evidence pointing to moderating economic growth, few market participants were
surprised when the Fed voted to leave short-term rates unchanged on June 28.
----------
| |
| |
| PHOTO | Outlook
| |----------------------------------------------------------------------
| | Portfolio Manager Robert Browne
| |
----------
"We now believe the Fed's unusually large half-point rate hike in mid-May could
be a signal that it has nearly completed its current round of tightening. In
fact, the federal funds futures market, where investors hedge against changes in
the overnight bank lending rate, indicates that many believe the likelihood for
further rate increases this year has diminished. We expect U.S. economic
activity to continue to moderate in coming months, decreasing the amount of
additional Fed rate hikes, if any, that might be necessary."
PORTFOLIO COMPOSTION
Commercial Paper 44.65%
Other Corp. Oblg. 30.29%
Bank Notes 10.75%
Deposit Notes - Yankee 8.94%
Certificates of Deposit - Euro Dollar 3.58%
Government/Agencies 1.19%
Certificates of Deposit 0.60%
Source: Prudential. Holdings are subject to change.
18
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS FOR VCA-11
INCOME AND CAPITAL CHANGES ACCUMULATION PER UNIT*
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME .................... $ .0835 $ .1378 $ .1411 $ .1353 $ .1281 $ .1313
EXPENSES
For investment management fee ...... (.0034) (.0065) (.0062) (.0059) (.0056) (.0054)
For administrative expenses
not covered by the annual
account charge ................... (.0100) (.0194) (.0186) (.0178) (.0170) (.0160)
---------------------------------------------------------------------------------------------------
NET INCREASE IN UNIT VALUE ........... .0701 .1119 .1163 .1116 .1055 .1099
UNIT VALUE
Beginning of period ................ 2.6608 2.5489 2.4326 2.3210 2.2155 2.1056
---------------------------------------------------------------------------------------------------
End of period ...................... $2.7309 $2.6608 $2.5489 $2.4326 $2.3210 $2.2155
---------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO AVERAGE
NET ASSETS** ....................... 1.00%+ .99% .99% .98% .98% .99%
---------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** ............... 5.27%+ 4.29% 4.78% 4.73% 4.57% 5.08%
---------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING
For Participants at end of period
(000s omitted) ................... 30,502 34,100 34,882 35,757 38,315 34,136
---------------------------------------------------------------------------------------------------
</TABLE>
* Calculated by accumulating the actual per unit amounts daily.
** These calculations exclude Prudential's equity in VCA-11.
+ Annualized.
The above table does not reflect the annual account charge, which does not
affect the Unit Value of VCA-11. This charge is made by reducing Participants'
accounts by a number of Units equal in value to the charge.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS AS OF JUNE 30, 2000
(UNAUDITED)
SHORT-TERM PRINCIPAL SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE INVESTMENTS [NOTE 2] AMOUNT VALUE
--------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C.
COMMERCIAL PAPER - 36.2% Citicorp, 6.68375%#
Alltel Corp., 7.25% Medium Term Note
7/3/2000 $ 500,000 $ 499,698 8/2/2000 $ 1,000,000 $ 999,998
Aon Corp., 6.60% Citicorp, 6.51%#
7/6/2000 2,867,000 2,851,757 Medium Term Note
Aon Corp., 6.61% 8/10/2000 1,235,000 1,234,874
7/12/2000 1,000,000 994,492 Conseco Finance Vehicle Trust,
Barton Capital Corp., 6.63% 1999-B, Cl. A, 6.81125%# Note
7/19/2000 1,027,000 1,018,110 1/5/2001 817,753 817,753
Barton Capital Corp., 6.62% Ford Motor Credit Co., 6.72875%#
7/26/2000 1,300,000 1,292,111 Medium Term Note
Black Forest Funding Corp., 6.56% 8/18/2000 2,000,000 1,999,787
7/10/2000 1,981,000 1,970,893 General Motors Acceptance Corp.,
Clipper Receivables Corp., 6.57% 7.00%# Medium Term Note
7/13/2000 1,000,000 995,073 11/9/2000 500,000 500,569
Coca-Cola Enterprises, Inc., 6.60% Goldman Sachs Group L.P.,
7/5/2000 250,000 248,075 6.8275%# Private Medium Term Note
Countrywide Home Loans, 6.69% 5/17/2001 3,800,000 3,800,000
8/25/2000 3,528,000 3,489,318 International Lease Finance, 6.625%
Dover Corp., 6.8475%# Corporate Bond
2/28/2001 2,000,000 2,000,000 8/15/2000 500,000 500,451
Equitable Resources, Inc., 6.62% J.P. Morgan & Co., Inc.,
7/21/2000 1,500,000 1,493,656 6.64125%# Medium Term Note
Forrestal Funding Master Trust, 6.15% 3/16/2001 1,000,000 1,000,000
7/7/2000 2,883,000 2,841,136 Paccar Financial Corp., 6.08%
GTE Corp., 6.62% Medium Term Note
7/14/2000 881,000 877,112 7/12/2000 1,000,000 1,000,096
GTE Corp., 6.62% Restructured Asset Security
8/2/2000 1,000,000 993,196 Enhanced Return, 1999-25, Cl. MM,
Sweetwater Capital Corp., 6.63% 6.73625%# Note
7/24/2000 1,836,000 1,825,180 9/6/2000 1,000,000 1,000,000
Sweetwater Capital Corp., 6.60% Short Term Repackaged
8/21/2000 2,000,000 1,976,900 Asset Trust, 1998-E, 6.74875%# Note
Target Corp., 6.64% 8/18/2000 1,000,000 1,000,000
8/7/2000 3,667,000 3,636,564 Student Loan Marketing Assoc.,
Thunder Bay Funding Corp., 6.56% 6.494%# Medium Term Note
7/6/2000 1,401,000 1,393,341 8/3/2000 1,000,000 1,000,348
---------- U.S. Bancorp, 6.7175%#
30,396,612 Medium Term Note
--------------------------------------------------------------- 9/20/2000 4,000,000 3,999,564
OTHER CORPORATE DEBT - 27.2% ----------
(MEDIUM TERM NOTES, CORPORATE BONDS, CORPORATE 22,852,204
NOTES) ---------------------------------------------------------------
Bank One Corp., 6.85875%# OTHER BANK RELATED INSTRUMENTS - YANKEE - 12.4%
Medium Term Note (CERTIFICATES OF DEPOSIT, TIME
8/21/2000 1,000,000 1,000,000 DEPOSITS, DEPOSIT NOTES)
Bank One Corp., 6.82125%# Abbey National Treasury Services
Medium Term Note PLC, 5.67% Certificate of Deposit
11/17/2000 2,000,000 2,000,205 7/13/2000 3,000,000 2,998,704
CIT Group, Inc., 6.67625%#
Medium Term Note
7/16/2001 1,000,000 998,559
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS AS OF JUNE 30, 2000
(UNAUDITED)
SHORT-TERM PRINCIPAL SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE INVESTMENTS [NOTE 2] AMOUNT VALUE
--------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C.
OTHER BANK RELATED INSTRUMENTS - YANKEES (CONT'D) OTHER CORPORATE DEBT - YANKEE - 4.2%
Dexia Bank, 7.125% Time Deposit (MEDIUM TERM NOTES)
7/3/2000 $3,280,000 $3,280,000 DaimlerChrysler North America
Westpac Banking Corp., 6.54% Holdings Corp., 6.53%#
Deposit Note Medium Term Note
1/18/2001 2,000,000 1,999,477 7/6/2000 $2,000,000 $1,999,964
Westpac Banking Corp., 6.52% Diageo Capital PLC, 6.815%#
Deposit Note Medium Term Note
1/29/2001 2,200,000 2,199,393 8/24/2000 1,500,000 1,499,988
---------- ----------
10,477,574 3,499,952
--------------------------------------------------------------- ---------------------------------------------------------------
OTHER BANK RELATED INSTRUMENTS - U.S. - 11.3% TOTAL SHORT-TERM INVESTMENTS - 99.3%
(CERTIFICATES OF DEPOSIT, BANK NOTES) (Cost: $83,414,313) 83,414,313
Bank One, N.A., 5.70% Bank Note ---------------------------------------------------------------
7/12/2000 1,000,000 999,601 OTHER ASSETS, LESS LIABILITIES
Comerica Bank, N.A., Receivable for Investments Sold 2,200,000
6.5725%# Bank Note Interest Receivable 798,879
6/7/2001 1,000,000 999,720 Payable to Custodian (2,199,075)
Comerica Bank, N.A., Payable for Pending Capital Transaction (227,442)
6.65625%# Bank Note ---------------------------------------------------------------
7/6/2001 1,000,000 1,000,057 TOTAL OTHER ASSETS, LESS LIABILITIES - 0.7% 572,362
First Union National Bank, ---------------------------------------------------------------
6.96%# Bank Note NET ASSETS - 100% $83,986,675
11/13/2000 2,800,000 2,801,431 ---------------------------------------------------------------
Morgan Guaranty Trust Co., NET ASSETS, REPRESENTING:
5.70% Certificate of Deposit Equity of Participants
7/19/2000 500,000 499,848 30,501,660 Accumulation Units at an
National City Bank of Cleveland, Accumulation Unit Value of
6.55%# Bank Note $2.7309 83,298,682
1/31/2001 1,700,000 1,699,526 Equity of Prudential Insurance Company
National City Bank of Cleveland, of America 687,993
6.73% Bank Note -----------
2/9/2001 1,500,000 1,499,565 $83,986,675
--------- ---------------------------------------------------------------
9,499,748 # Indicates a Variable Rate Security. Rate shown is rate in
--------------------------------------------------------------- effect at June 30, 2000.
COMMERCIAL PAPER - YANKEE - 8.0% AG - Aktiengesellschaft (German Stock Co.)
BASF AG, 6.60% N.A. - National Association
8/28/2000 1,000,000 989,000 PLC - Public Limited Company
Bradford & Bingley L.P. - Limited Partnership
Building Society, 6.65%
9/8/2000 2,751,000 2,714,920
Brahms Funding Corp., 6.705%
7/28/2000 1,000,000 992,736
Northern Rock PLC, 6.60%
7/14/2000 2,000,000 1,991,567
---------
6,688,223
---------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2]
Interest $2,660,516
Realized Gain on Investment Transactions 1,110
--------------------------------------------------------------------------------
TOTAL INCOME 2,661,626
--------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment
Management Services 106,021
Fees Charged to Participants for Administrative
Expenses 318,064
--------------------------------------------------------------------------------
TOTAL EXPENSES 424,085
--------------------------------------------------------------------------------
NET INVESTMENT INCOME AND NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $2,237,541
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,237,541 $3,917,917
---------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In
[Note 6 and 7] 73,395,122 109,601,188
Withdrawals and Transfers Out
[Note 6 and 7] (83,043,351) (111,670,643)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (5,547) (47,735)
---------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (9,653,776) (2,117,190)
---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM SURPLUS
TRANSFERS [NOTE 8] 18,203 68,215
---------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (7,398,032) 1,868,942
NET ASSETS
Beginning of Period 91,384,707 89,515,765
End of Period $83,986,675 $91,384,707
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-11 (VCA-11 or the Account) was
established on March 1, 1982 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-11 has been
designed for use by employers (Contract-holders) in making retirement
arrangements on behalf of their employees (Participants). The investment
objective of the Account is to realize a high level of current income as
is consisent with the preservation of capital and liquidity. Its
investments are primarily composed of short-term securities. The ability
of the issuers of the securities held by the Account to meet their
obligations may be affected by economic developments in a specific
state, industry or region. 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
A. VALUATION OF SHORT-TERM INVESTMENTS
Pursuant to an exemptive order from the Securities and Exchange
Commission, securities having a remaining maturity of one year 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.
The rate displayed is the effective yield from the date of purchase to
the date of maturity.
B. INCOME RECOGNITION
Security transactions are recorded on trade date. Interest income is
accrued daily. Income on investments is allocated to the Participants
and Prudential on a daily basis in proportion to their respective
ownership or investment in VCA-11. Expenses are recorded on the accrual
basis which may require the use of certain estimates by management.
C. TAXES
The operations of VCA-11 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-11 to the extent the earnings are credited under the
contracts. As a result, the Unit Value of VCA-11 has not been reduced by
federal income taxes.
NOTE 3: EXPENSES
Prudential acts as investment manager for VCA-11 under an agreement for
Investment Management Services. A daily charge, at an effective annual
rate of 1.00% of the current value of the Participants' equity in
VCA-11, is paid to Prudential. Three quarters of this charge (0.75%) is
for administrative expenses not provided by the annual account charge,
and one quarter (0.25%) is for investment management services.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 4: ANNUAL ACCOUNT CHARGE
An annual account charge of not more than $30 annually is deducted from
the account of each Participant, if applicable, at the time of
withdrawal of the value of all of the Participant's accounts or at the
end of the fiscal year by canceling Units. The charge will first be made
against a Participant's account under a fixed dollar annuity companion
contract or fixed rate option of the nonqualified combination contract.
If the Participant has no account under a companion contract or the
fixed rate option, or if the amount under the companion contract or the
fixed rate option is too small to pay the charge, the charge will be
made against the Participant's account in VCA-11. If the Participant has
no VCA-11 account, or if the amount under that account is too small to
pay the charge, the charge will then be made against the Participant's
VCA-10 account. If the Participant has no VCA-10 account, or if it is
too small to pay the charge, the charge will then be made against any
one or more of the Participant's accounts in VCA-24.
NOTE 5: DEFERRED SALES CHARGE
A deferred sales charge is imposed upon that portion of certain
withdrawals which represents a return of contributions. The charge is
designed to compensate Prudential for sales and other marketing
expenses. The maximum deferred sales charge is 7% on contributions
withdrawn from an account during the first year of participation. After
the first year of participation, the maximum deferred sales charge
declines by 1% in each subsequent year until it reaches 0% after seven
years. No deferred sales charge is imposed upon contributions withdrawn
for any reason after seven years of participation in the Program. In
addition, no deferred sales charge is imposed upon contributions
withdrawn to purchase an annuity under a Contract, to provide a death
benefit, pursuant to a systematic withdrawal plan, to provide a minimum
distribution payment, or in cases of financial hardship or disability
retirement as determined pursuant to provisions of the employer's
retirement arrangement. Further, for all plans other than IRAs, no
deferred sales charge is imposed upon contributions withdrawn due to
resignation or retirement by the Participant or termination of the
Participant by the Contract-holder. Contributions transferred among
VCA-10, VCA-11, the Subaccounts of VCA-24, a companion contract, and the
fixed rate option of the nonqualified combination contract are
considered to be withdrawals from the Account or Subaccount from which
the transfer is made, but no deferred sales charge is imposed upon them.
They will, however, be considered as contributions to the receiving
Account or Subaccount for purposes of calculating any deferred sales
charge imposed upon their subsequent withdrawal from it. For the six
months ended June 30, 2000 and the year ended December 31, 1999,
Prudential has advised the Account that they received deferred sales
charges of $2,877 and $ 2,716, respectively.
NOTE 6: UNIT TRANSACTIONS
The number of Units issued and redeemed for the six months ended June
30, 2000 and the year ended December 31, 1999 is as follows:
2000 1999
----------------------------------------------------
Units issued 27,238,953 42,139,173
----------------------------------------------------
Units redeemed 30,836,835 42,927,959
----------------------------------------------------
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 7: PARTICIPANT LOANS
Loans are considered to be withdrawals from the Account from which the
loan amount was deducted, though they are not considered a withdrawal
from the MEDLEY Program. Therefore, no deferred sales charge is imposed
upon them. The principal portion of any loan repayment, however, will be
treated as a contribution to the receiving Account for purposes of
calculating any deferred sales charge imposed upon any subsequent
withdrawal. If the Participant defaults on the loan, for example, by
failing to make required payments, the outstanding balance of the loan
will be treated as a withdrawal for purposes of the deferred sales
charge. The deferred sales charge will be withdrawn from the same
Accumulation Accounts, and in the same proportions, as the loan amount
was withdrawn. If sufficient funds do not remain in those Accumulation
Accounts, the deferred sales charge will be withdrawn from the
Participant's other Accumulation Accounts as well.
Withdrawals, transfers and loans from VCA-11 are considered to be
withdrawals of contributions until all of the Participant's
contributions to the Account have been withdrawn, transferred or
borrowed. No deferred sales charge is imposed upon withdrawals of any
amount in excess of contributions.
For the six months ended June 30, 2000, $391,317 in participant loans
were withdrawn from VCA-11 and $190,861 of principal and interest was
repaid to VCA-11. For the year ended December 31, 1999, $727,717 in
participant loans were withdrawn from VCA-11 and $295,519 of principal
and interest was repaid. Loan repayments are invested in Participant's
account(s) as chosen by the Participant, which may not necessarily be
VCA-11. The initial loan proceeds which are being repaid may not
necessarily have originated solely from VCA-11. During the six months
ended June 30, 2000, Prudential has advised the Account that it received
$3,792 in loan origination fees.
NOTE 8: NET INCREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase in net assets from surplus for the six months ended June
30, 2000 represents the net payments and transfers from the Equity of
Prudential into VCA-11.
25
<PAGE>
================================================================================
THE PRUDENTIAL MEDLEY PROGRAM
BOARD OF DIRECTORS
JOHN R.STRANGFELD W.SCOTT MCDONALD, JR., PH.D.
Chairman, Vice President,
The Prudential Series Fund, Inc. Kaludis Consulting Group
The Prudential Variable Contract
Accounts 10;11
SAUL K. FENSTER, PH.D. JOSEPH WEBER,PH.D.
President, Vice President,
New Jersey Institute of Technology Interclass (international
corporate learning)
================================================================================
The toll-free numbers 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 Contract Owners from the toll-free numbers. The
phone lines are open each business day during the hours shown. Please be sure to
have your contract number available when you call.
If you own a VARIABLE LIFE INSURANCE CONTRACT, please call the following
telephone number:
[phone]
(800)778-2255
8 A.M.- MIDNIGHT EASTERN TIME
If you own a VARIABLE ANNUITY CONTRACT, please call the following telephone
number:
[phone]
(800)458-6333
8 A.M.- 8 P.M.EASTERN TIME
================================================================================
STANDARD & POOR'S 500 INDEX comprises 500 large, established, publicly traded
stocks. MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX comprises
approximately 620 European companies. SALOMON BROTHERS EXTENDED MARKET INDEX
defines the small capitalization stock universe or remaining 20% of the
available capital of each country and includes the remaining 75% of the BMI
issues. The BMI measures the performance of the entire universe of
institutionally investable securities. MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALIA, FAR EAST INDEX is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P/BARRA VALUE INDEX contains companies within the S&P 500 with lower
price-to-book ratios. S&P/BARRA GROWTH INDEX contains companies within the S&P
500 with higher price-to-book ratios. Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios.
RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies with higher price-to-book ratios. MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD FREE INDEX contains those companies in the MCSI WORLD INDEX that reflect
actual buyable opportunities for the non-domestic investor by taking into
account local market restrictions on share ownership by foreigners. These
indexes are calculated in U.S.dollars, without dividends reinvested. MORGAN
STANLEY CAPITAL INTERNATIONAL JAPAN INDEX measures the performance of Japan's
stock market.
<PAGE>
================================================================================
Whether providing insurance protection for home, family and business or
arranging to cover future education and retirement expenses, Prudential people
have always been able to deliver something more: personal service, quality,
attention to detail and the financial strength of The Rock(R). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
================================================================================
In the past, Contract Owners 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 your fund's expenses of postage and printing, we will
attempt to mail only one copy of this report for the contracts listed on the
cover, based on our current records for Contract Owners 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 numbers listed on the inside
back cover of this report should be used to request any additional copies. Proxy
material and tax information will continue to be sent to each account of record.
The Prudential Insurance Company of America ------------
30 Scranton Office Park PRSRT.STD.
Scranton, PA 18507-1789 U.S. POSTAGE
(800) 458-6333 PAID
SUMMIT NJ
Permit # 657
------------
UNION BUG Printed in the U.S.A. MD.RS.007.0700
M1095 on recycled paper. INST-20000915-A004795
