November 26, 1996
SUPPLEMENT TO
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996 FOR
THE MEDLEY PROGRAM
GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED THROUGH
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")
On November 22, 1996, persons having voting rights in respect of VCA-10
approved two proposals to revise VCA-10's fundamental investment policies and
restrictions. First, a proposal to revise VCA-10's fundamental investment
objective was approved. Second, a proposal was approved to revise VCA-10's
fundamental investment restrictions (1) to permit VCA-10 to make certain
investments and utilize certain investment techniques designed to meet VCA-10's
objective, and (2) to make the restrictions more consistent with other accounts
and funds managed by Prudential and its affiliates.
Also on November 22, 1996, persons having voting rights in respect of
VCA-11 approved a proposal to revise VCA-11's fundamental investment
restrictions (1) to make the restrictions more consistent with other accounts
and funds managed by Prudential and its affiliates; and (2) to make certain
restrictions non-fundamental so that they may be changed by the VCA-11
Committee.
These approved changes will be effective on the date of the next revision
of the MEDLEY prospectus and its associated statement of additional information
("SAI"), which is currently expected to be May 1, 1997. This supplement to the
SAI, along with the supplement dated November 26, 1996 to the prospectus ("the
prospectus supplement") is designed to advise current investors of changes that
will become effective as of that date.
1. VCA-10 -- Revised Fundamental Investment Restrictions
-----------------------------------------------------
Effective May 1, 1997, VCA-10's fundamental investment restrictions set
forth on pages 3-4 will be changed to the following:
In addition to the investment objective described in the prospectus
supplement, the following investment restrictions are fundamental
investment policies of VCA-10 and may not be
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changed without the approval of a majority vote of persons having voting
rights in respect of the Account.
Concentration in Particular Industries. VCA-10 will not purchase any
security (other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) with respect to 75% of VCA-10's
total assets, more than 5% of VCA-10's total assets (determined at the time
of investment) would then be invested in securities of a single issuer, or
(ii) 25% or more of VCA-10's total assets (determined at the time of the
investment) would be invested in a single industry.
Investments in Real Estate-Related Securities. No purchase of or investment
in real estate will be made for the account of VCA-10 except that VCA-10
may buy and sell securities that are secured by real estate or shares of
real estate investment trusts listed on stock exchanges or reported on the
National Association of Securities Dealers, Inc. automated quotation system
("NASDAQ").
Investments in Financial Futures. No commodities or commodity contracts
will be purchased or sold for the account of VCA-10 except that VCA-10 may
purchase and sell financial futures contracts and related options.
Loans. VCA-10 will not lend money, except that loans of up to 10% of the
value of VCA-10's total assets may be made through the purchase of
privately placed bonds, debentures, notes, and other evidences of
indebtedness of a character customarily acquired by institutional investors
that may or may not be convertible into stock or accompanied by warrants or
rights to acquire stock. Repurchase agreements and the purchase of publicly
traded debt obligations are not considered to be "loans" for this purpose
and may be entered into or purchased by VCA-10 in accordance with its
investment objectives and policies.
Borrowing. VCA-10 will not issue senior securities, borrow money or pledge
its assets, except that VCA-10 may borrow from banks up to 33-1/3 percent
of the value of its total assets (calculated when the loan is made) for
temporary, extraordinary or emergency purposes, for the clearance of
transactions or for investment purposes. VCA-10 may pledge up to 33-1/3
percent of the value of its total assets to secure such borrowing. For
purposes of this restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, forward foreign currency exchange
contracts and collateral arrangements relating thereto, and collateral
arrangements with resect to interest rate swap transactions, reverse
repurchase agreements, dollar roll transactions, options, futures
contracts, and options
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thereon are not deemed to be a pledge of assets or the issuance of a senior
security.
Margin. VCA-10 will not purchase securities on margin (but VCA-10 may
obtain such short-term credits as may be necessary for the clearance of
transactions); provided that the deposit or payment by VCA-10 of initial or
maintenance margin in connection with futures or options is not considered
the purchase of a security on margin.
Underwriting of Securities. VCA-10 will not underwrite the securities of
other issuers, except where VCA-10 may be deemed to be an underwriter for
purposes of certain federal securities laws in connection with the
disposition of portfolio securities and with loans that VCA-10 is permitted
to make.
Control or Management of Other Companies. No securities of any company will
be acquired for VCA-10 for the purpose of exercising control or management
thereof.
2. VCA-10 -- Non-Fundamental Investment Restrictions
-------------------------------------------------
Effective May 1, 1997, the following non-fundamental investment
restrictions, which the VCA-10 Committee can change without the approval of
those having voting rights in respect of VCA-10, will be applicable to VCA-10:
Investments in Other Investment Companies. Except as part of a merger,
consolidation, acquisition or reorganization, VCA-10 will not invest in the
securities of other investment companies in excess of the limits stipulated
by the Investment Company Act of 1940 as amended, and the rules and
regulations thereunder.
Short Sales. VCA-10 will not make short sales of securities or maintain a
short position, except that VCA-10 may make short sales against the box.
Collateral arrangements entered into with respect to options, futures
contracts and forward contracts are not deemed to be short sales.
Collateral arrangements entered into with respect to interest rate swap
agreements are not deemed to be short sales.
Restricted Securities. No more than 15% of the value of the net assets held
in VCA-10 will be invested in securities (including repurchase agreements
and non-negotiable time deposits maturing in more than seven days) that are
subject to legal or contractual restrictions on resale or for which no
readily available market exists, or in the securities of issuers (other
than U.S. Government agencies or instrumentalities) having a record,
together with
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predecessors, of less than three years' continuous operation.
3. VCA-11 -- Revised Fundamental Investment Restrictions
-----------------------------------------------------
Effective May 1, 1997, VCA-11's fundamental investment restrictions set
forth on pages 3-4 will be changed to the following:
In addition to the investment objective described in the prospectus
supplement, the following investment restrictions are fundamental
investment policies of VCA-11 and may not be changed without the approval
of a majority vote of persons having voting rights in respect of VCA-11.
Concentration in Particular Industries. VCA-11 will not purchase any
security (other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) with respect to 75% of VCA-11's
total assets, more than 5% of VCA-11's total assets (determined at the time
of investment) would then be invested in securities of a single issuer, or
(ii) 25% or more of VCA-11's total assets (determined at the time of the
investment) would be invested in a single industry. Notwithstanding this
restriction, there is no limitation with respect to money market
instruments of domestic banks, U.S. branches of foreign banks that are
subject to the same regulations as U.S. banks, and foreign branches of
domestic banks (provided that the domestic bank is unconditionally liable
in the event of the failure of the foreign branch to make payment on its
instruments for any reason).
Investments in Real Estate-Related Securities. No purchase of or investment
in real estate will be made for the account of VCA-11.
Investments in Financial Futures. No commodities or commodity contracts
will be purchased or sold for the account of VCA-11.
Loans. VCA-11 will not lend money, except that it may purchase debt
obligations in accordance with its investment objective and policies and
may engage in repurchase agreements.
Borrowing. VCA-11 will not issue senior securities, borrow money or pledge
its assets, except that VCA-11 may borrow from banks up to 33-1/3 percent
of the value of its total assets (calculated when the loan is made) for
temporary, extraordinary or emergency purposes, for the clearance of
transactions or for investment purposes. VCA-11 may pledge up to 33-1/3
percent of the value of its total assets to
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secure such borrowing. For purposes of this restriction, the purchase or
sale of securities on a when-issued or delayed delivery basis is not deemed
to be a pledge of assets or the issuance of a senior security.
Margin. VCA-11 will not purchase securities on margin (but VCA-11 may
obtain such short-term credits as may be necessary for the clearance of
transactions).
Underwriting of Securities. VCA-11 will not underwrite the securities of
other issuers, except where VCA-11 may be deemed to be an underwriter for
purposes of certain federal securities laws in connection with the
disposition of portfolio securities and with loans that VCA-11 is permitted
to make.
Control or Management of Other Companies. No securities of any company will
be acquired for VCA-11 for the purpose of exercising control or management
thereof.
4. VCA-11 -- Non-fundamental Investment Restrictions
-------------------------------------------------
Effective May 1, 1997, the following non-fundamental investment
restrictions, which the VCA-11 Committee can change without the approval of
those having voting rights in respect of VCA-11, will be applicable to VCA-11:
Investments in Other Investment Companies. Except as part of a merger,
consolidation, acquisition or reorganization, VCA-11 will not invest in the
securities of other investment companies in excess of the limits stipulated
by the Investment Company Act of 1940 as amended, and the rules and
regulations thereunder.
Short Sales. VCA-11 will not make short sales of securities or maintain a
short position.
Restricted Securities. No more than 10% of the value of the net assets held
in VCA-11 will be invested in illiquid securities (including repurchase
agreements and non-negotiable time deposits maturing in more than seven
days). Securities that have legal or contractual restrictions on resale but
have a readily available market are not deemed illiquid for purposes of
this limitation.
5. VCA-10 -- Descriptions of New Investment Instruments and Techniques
-------------------------------------------------------------------
Effective May 1, 1997, the revisions to VCA-10's investment policies and
restrictions will permit the Account to make certain investments and use certain
investment techniques designed to
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meet VCA-10's objective. The following describes these investments and
techniques.
Financial futures contracts. A financial futures contract generally
provides for the future sale by one party and purchase by the other party of a
specified amount of a particular financial instrument or currency at a specified
price on a designated date. As explained on page 13 of the prospectus and pages
8-9 of the SAI, VCA-10 may, to the extent permitted by applicable insurance law
and federal regulations, invest in stock index futures contracts. Effective May
1, 1997, the authority to invest in financial futures contracts will be expanded
also to include futures contracts on interest-bearing securities (such as U.S.
Treasury bonds and notes) or rate indices and futures contracts on foreign
currencies or groups of foreign currencies. Effective May 1, 1997, VCA-10 will
also be authorized to purchase and sell options on these types of futures
contracts. VCA-10 will continue to use futures contracts (and options thereon)
solely for the purpose of hedging VCA-10's positions with respect to securities,
interest rates and foreign securities. Investment in these types of financial
futures contracts are subject to the same risks described in the prospectus and
SAI. In addition, VCA-10's successful use of foreign currency futures contracts
will depend on the manager's ability to predict the direction of currency
exchange markets and political conditions, which require different skills and
techniques than predicting changes in securities markets generally.
Options. As explained on pages 12-13 of the prospectus and pages 7-9 of the
SAI, VCA-10 may purchase and write (i.e., sell) put and call options on equity
securities, stock indices, and stock index futures contracts. Effective May 1,
1997, this investment authority will be expanded also to include options on debt
securities, foreign currencies, and the additional types of financial futures
contracts described above. Investment in these types of options are subject to
the same risks described in the prospectus and SAI. In addition, VCA-10's
successful use of options on foreign currencies will depend upon the manager's
ability to predict the direction of the currency exchange markets and political
conditions. Also, the correlation between movements in the price of options and
the price of currencies being hedged is imperfect.
Forward foreign currency exchange contracts. A forward foreign currency
exchange contract is a contract obligating one party to purchase and the other
party to sell one currency for another currency at a future date and price.
Effective May 1, 1997, VCA-10 may enter into such contracts in anticipation of
or to protect itself against fluctuations in currency exchange rates. VCA-10
generally will not enter into a forward contract with a term of greater than 1
year. At the maturity of a forward contract, VCA-10 may either sell the security
and make delivery
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of the foreign currency or it may retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract with the same currency trader obligating it to purchase,
on the same maturity date, the same amount of the foreign currency. VCA-10's
successful use of forward contracts will depend upon the manager's ability to
predict the direction of currency exchange markets and political conditions.
Interest rate swap transactions. Effective May 1, 1997, VCA-10 may enter
into interest rate swap transactions. Interest rate swaps, in their most basic
form, involve the exchange by one party with another party of their respective
commitments to pay or receive interest. For example, VCA-10 might exchange its
right to receive certain floating rate payments in exchange for another party's
right to receive fixed rate payments. Interest rate swaps can take a variety of
other forms, such as agreements to pay the net differences between two different
indices or rates, even if the parties do not own the underlying instruments.
Despite their differences in form, the function of interest rate swaps is
generally the same -- to increase or decrease exposure to long- or short-term
interest rates. For example, VCA-10 may enter into a swap transaction to
preserve a return or spread on a particular investment or a portion of its
portfolio or to protect against any increase in the price of securities the
Account anticipates purchasing at a later date. VCA-10 will maintain appropriate
liquid assets in a segregated custodial account to cover its obligations under
swap agreements.
The use of swap agreements is subject to certain risks. As with options and
futures, if the investment adviser's prediction of interest rate movements is
incorrect, VCA-10's total return will be less than if the Account had not used
swaps. In addition, if the counterparty's creditworthiness declines, the value
of the swap would likely decline. Moreover, there is no guarantee that VCA-10
could eliminate its exposure under an outstanding swap agreement by entering
into an offsetting swap agreement with the same or another party.
Real estate-related securities. Effective May 1, 1997, VCA-10 may invest in
securities secured by real estate or shares of real estate investment trusts
that are listed on a stock exchange or reported on the National Association of
Securities Dealers, Inc. automated quotation system ("NASDAQ"). Such securities
may be sensitive to factors such as real estate values and property taxes,
interest rates, cash flow of underlying real estate assets, overbuilding, and
the management skill and creditworthiness of the issuer. They may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
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Reverse repurchase agreements and dollar roll transactions. Effective May
1, 1997, VCA-10 may enter into reverse repurchase agreements and dollar roll
transactions. Reverse repurchase agreements involve the sale of securities held
by VCA-10 with an agreement by the Account to repurchase the same securities at
an agreed upon price and date. During the reverse repurchase period, VCA-10
often will continue to receive principal and interest payments on the sold
securities. The terms of each agreement reflect a rate of interest for use of
the funds for the period, and thus these agreements have some of the
characteristics of borrowing by VCA-10.
Dollar rolls involve sales of securities for delivery in the current month
with a simultaneous contract to repurchase substantially similar securities
(same type and coupon) from the same party at an agreed upon price and date.
During the roll period, the seller forgoes principal and interest paid on the
securities. The seller is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
VCA-10 will establish a segregated account with its custodian in which it will
maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities retained by VCA-10 may decline below the price of
the securities the Account has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, VCA-10's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Account's
obligation to repurchase the securities.
6. Members of the VCA-10 Committee
-------------------------------
The following supplements the list of Members of the VCA-10 Committee on
page 12.
On November 22, 1996, those persons having voting rights in respect of
VCA-10 elected Mendel A. Melzer, Jonathan M. Greene, and W. Scott McDonald, Jr.,
to serve as Members of the VCA-10 Committee. Mark Fetting, who was Chairman and
a Member of the Committee, and James Scott and Mary C. Gencher, both of whom
were
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Members of the Committee, have resigned. The VCA-10 Committee has elected
Mr. Melzer as Chairman and appointed Mr. Greene as President.
Mr. Melzer served as Chief Financial Officer of Prudential's Money
Management Group since 1995, and currently is the Chief Investment Officer of
Prudential Mutual Funds. From 1993 to 1995, he served as Senior Vice President
and Chief Financial Officer of Prudential Preferred Financial Services. Prior to
1993, he served as Managing Director of Prudential Investment Corporation.
Mr. Greene has served as President of Investment Management of Prudential
Investments since March 1996. Prior thereto, he served as a Vice President and
Portfolio Manager for T. Rowe Price Associates, Inc.
Mr. McDonald has served as Principal in Scott McDonald & Associates since
April 1995. Prior thereto, he served as Executive Vice President of Fairleigh
Dickinson University.
Mr. Melzer and Mr. Greene are interested persons of Prudential, its
affiliates, or the Account, as defined in the 1940 Act and described on page 13
of the SAI.
7. Members of the VCA-11 Committee
-------------------------------
The following supplements the list of Members of the VCA-11 Committee on
pages 12-13.
On November 22, 1996, those persons with voting rights in respect of VCA-11
elected Mendel A. Melzer, Jonathan M. Greene, and Saul K. Fenster to serve as
Members of the Committee. Mark Fetting, who was Chairman and a Member of the
Committee, and James Scott and Mary C. Gencher, both of whom were Members of the
Committee, have resigned. The VCA-11 Committee has elected Mr. Melzer as
Chairman and appointed Mr. Greene as President.
Mr. Melzer served as Chief Financial Officer of Prudential's Money
Management Group since 1995, and currently is the Chief Investment Officer of
Prudential Mutual Funds. From 1993 to 1995, he served as Senior Vice President
and Chief Financial Officer of Prudential Preferred Financial Services. Prior to
1993, he served as Managing Director of Prudential Investment Corporation.
Mr. Greene has served as President of Investment Management of Prudential
Investments since March 1996. Prior thereto, he served as a Vice President and
Portfolio Manager for T. Rowe Price Associates, Inc.
Mr. Fenster serves as President of the New Jersey Institute of Technology.
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Mr. Melzer and Mr. Greene are interested persons of Prudential, its
affiliates, or the Account, as defined in the 1940 Act and described on page 13
of the SAI. As explained on page 13, Dr. Fenster is not an interested person of
Prudential, its affiliates, or the Account, but Prudential has issued a group
annuity contract to the New Jersey Institute of Technology, of which Mr. Fenster
is President, and provides group life and health insurance to its employees.
