INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/x/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
- - ------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
- - ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or Rule
14a-6(i)(2).
/ / $500 per each party per Exchange Act Rule 14a-6(i)(3), or Rule
14a-6(i)(2).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
30 Scranton Office Park
Moosic, Pennsylvania 18507
Notice of Meeting -- November 22, 1996
To Persons Having Voting Rights in Respect of
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
------------------------
You are hereby notified that pursuant to the Rules and Regulations of
The Prudential Variable Contract Account-10 ("VCA-10"), a meeting of persons
having voting rights in respect of VCA-10 will be held at the offices of The
Prudential Insurance Company of America, 751 Broad Street, 4th Floor, Executive
Conference Room, Newark, New Jersey 07102, on November 22, 1996, at 9:30 A.M.
(New York time) for the following purposes:
1. To elect certain Members of The Prudential Variable Contract
Account-10 Committee (the "Committee"), each of whom shall
serve for an indefinite term;
2. To approve or disapprove certain changes to VCA-10's
fundamental investment objective;
3. To approve or disapprove certain changes to VCA-10's
fundamental investment restrictions;
4. To ratify or reject the selection of Price Waterhouse LLP as
the independent public accountant for VCA-10;
5. To approve or disapprove proposed amendments to the Rules
and Regulations of VCA-10 eliminating the need for certain
meetings of persons having voting rights; and
6. To consider and transact such other business as may properly
come before the meeting in accordance with the Rules and
Regulations of VCA-10.
In accordance with the Rules and Regulations of VCA-10, the number of
votes entitled to be cast was determined as of September 13, 1996. Only those
persons who had VCA-10 voting rights as of September 13, 1996 are entitled to
notice of, and to vote at, the meeting. If you plan to attend the meeting and
would like directions, you may obtain them by calling 1-800-458-6333.
<PAGE>
2
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
SPECIFY YOUR CHOICES AND SIGN, DATE AND RETURN THE ENCLOSED PROXY AS
SOON AS POSSIBLE IN THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH REQUIRES
NO POSTAGE. IF YOU DO ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND
VOTE IN PERSON.
By order of the Committee
THOMAS A. EARLY
Secretary to the Committee
September 23, 1996
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
MEETING -- NOVEMBER 22, 1996
PROXY STATEMENT
The accompanying Proxy is solicited on behalf of the Committee of The
Prudential Variable Contract Account-10 ("VCA-10" or the "Account") and will be
voted at the meeting of persons having voting rights in respect of VCA-10 to be
held November 22, 1996 and at any adjournment thereof. Each Proxy may be revoked
at any time before its exercise by written revocation addressed to the Secretary
of The Prudential Variable Contract Account-10 Committee, c/o Prudential
Retirement Services, 30 Scranton Office Park, Moosic, PA 18507, and any person
having voting rights who attends the meeting may vote in person whether or not
he or she has previously executed a Proxy.
This solicitation is being made by use of the mails, but also may be
made by telephone, telegraph or personal interview, and the cost will be borne
by The Prudential Insurance Company of America ("Prudential"), whose principal
business address is 751 Broad Street, Newark, NJ 07102. As explained below,
Prudential makes a charge for providing administrative services to VCA-10,
including this solicitation. The approximate date on which this Statement and
the accompanying Proxy will first be sent to each person having VCA-10 voting
rights is September 23, 1996.
There are [______] votes eligible to be cast by persons having VCA-10
voting rights. Each person who had such rights on September 13, 1996, is
entitled to vote, and is entitled to the number of votes and fractions thereof
equal to the number of dollars and fractions thereof as of September 13, 1996,
in his individual accumulation account in VCA-10 or in the accumulation accounts
under a contract issued in connection with deferred compensation plans
established under Section 457 of the Internal Revenue Code of 1986, as amended.
Prudential is entitled to vote the number of votes and fractions thereof equal
to $_______ of its own funds invested in VCA-10 as of September 13, 1996, which
represents __% of the Account. Prudential will cast its votes in the same
proportions as all other votes represented at the meeting in person or by proxy.
INVESTMENT MANAGEMENT AND ADMINISTRATION
Prudential is VCA-10's investment adviser. Prudential has entered into
a service agreement with its wholly-owned subsidiary, The Prudential Investment
Corporation ("PIC"), 751 Broad Street, Newark, NJ 07102, pursuant to which PIC
provides
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<PAGE>
substantially all investment management services for VCA-10, subject to
Prudential's supervision. Prudential continues to have responsibility for all
investment advisory services under its investment management agreement with the
Account. Pursuant to the service agreement between Prudential and PIC,
Prudential reimburses PIC for its costs and expenses.
Prudential Retirement Services, Inc. ("PRSI"), 30 Scranton Office Park,
Moosic, PA 18507, a wholly-owned indirect subsidiary of Prudential, is the
principal underwriter of the Account.
Prudential is also responsible for the administrative and recordkeeping
functions of VCA-10 and pays the expenses associated with them. Prudential has
entered into a service agreement with its indirect wholly-owned subsidiary, The
Prudential Asset Management Company, Inc. ("PAMCO"), 30 Scranton Office Park,
Moosic, PA 18507, which provides that PAMCO may furnish certain administrative
and recordkeeping services in connection with Prudential's obligations to
investment companies such as VCA-10 and provides that Prudential will reimburse
PAMCO for its costs and expenses. Prudential is reimbursed for these
administrative and recordkeeping expenses by the annual account charge and the
daily charge against the assets of the Account for administrative expenses.
UPON REQUEST, VCA-10 WILL FURNISH, WITHOUT CHARGE, A COPY OF VCA-10'S
MOST RECENT ANNUAL REPORT AND THE MOST RECENT SEMIANNUAL REPORT SUCCEEDING THE
ANNUAL REPORT, IF ANY, TO ANY PERSON WITH VCA-10 VOTING RIGHTS. IF YOU WISH TO
OBTAIN COPIES OF THESE REPORTS, MAIL A REQUEST TO PRUDENTIAL, C/O PRUDENTIAL
RETIREMENT SERVICES, 30 SCRANTON OFFICE PARK, MOOSIC, PENNSYLVANIA 18507, OR
CALL 1-800-458-6333.
MEETING PROPOSALS
Generally, a proposal intended to be presented at a meeting of persons
with VCA-10 voting rights must be received by the Account a reasonable time
before the solicitation of proxies is made, usually no less than 120 days before
the mailing. Since the Account no longer holds annual meetings, all proposals
received from persons with VCA-10 voting rights shall be retained by the
Account, to be eligible for distribution with the proxy materials for the next
called meeting of such persons.
2
<PAGE>
1. ELECTION OF MENDEL A. MELZER, JONATHAN M. GREENE, AND
W. SCOTT McDONALD, JR., TO THE PRUDENTIAL VARIABLE CONTRACT
ACCOUNT-10 COMMITTEE
VCA-10 is managed by The Prudential Variable Contract Account-10
Committee (the "VCA-10 Committee" or the "Committee"). The Members of the
Committee are elected by the persons having voting rights in respect of the
VCA-10 Account. Once approved by those persons having VCA-10 voting rights, each
Member of the Committee serves for an indefinite term. The Committee met three
times in 1995.
The Committee has nominated Mendel A. Melzer, Jonathan M. Greene, and
W. Scott McDonald, Jr., to serve as Members of the Committee. Mark Fetting,
currently Chairman and a Member of the Committee, and James Scott, currently a
Member of the Committee, will resign if the nominees are elected. Mary C.
Gencher has resigned as a Member of the Committee effective September 30, 1996.
If elected as Members, it is expected that the Committee will elect Mr. Melzer
as Chairman and appoint Mr. Greene as President. The table below sets forth
information about the Members of the Committee who will continue to serve, the
nominees to the Committee, and the officers of VCA-10, who like Committee
Members serve for an indefinite term.
<TABLE>
<CAPTION>
Name Age Position Principal Occupation for Last 5 Years
---- --- -------- -------------------------------------
<S> <C> <C> <C>
Mendel A. Melzer* ........... Nominee for Since 1995, Chief Financial Officer of
Member of the Prudential's Money Management Group;
Committee 1993 to 1995, Senior Vice President and
Chief Financial Officer of Prudential
Preferred Financial Services; prior to
1993, Managing Director, PIC.
Jonathan M. Greene* ......... Nominee for Since 3/96, President of Investment
Member of the Management of Prudential's Money
Committee Management Group; prior to 3/96, Vice
President and Portfolio Manager, T. Rowe
Price Associates, Inc. (investments).
W. Scott McDonald, Jr. ...... Nominee for Since 4/95, Principal, Scott McDonald &
Member of the Associates; prior to 4/95, Executive Vice
Committee President, Fairleigh Dickinson University.
Saul K. Fenster ............. Member of the President, New Jersey Institute of
Committee Technology (education).
since 9/85
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Principal Occupation for Last 5 Years
---- --- -------- -------------------------------------
<S> <C> <C> <C>
Joseph Weber ................ Member of the Vice President, Interclass (international
Committee corporate learning).
since 9/85
Thomas A. Early ............. Secretary to Since 4/94, Vice President and General
the Committee Counsel, Prudential Retirement Services;
since 2/95 prior to 1994, Associate General Counsel,
Frank Russell Company.
Rosanne J. Baruh ............ Assistant Assistant General Counsel of Prudential.
Secretary to
the Committee
since 6/88
C. Christopher Sprague ...... Assistant Since 12/94, Assistant General Counsel,
Secretary to Prudential; prior to 12/94, Staff Attorney and
the Committee Senior Counsel, U.S. Securities and
since 2/95 Exchange Commission.
Michael G. Williamson ....... Assistant Since 11/93, Director and Assistant
Secretary to Comptroller, Prudential Retirement
the Committee Services; prior to 11/93, Manager,
since 11/93 Prudential Retirement Services.
</TABLE>
- - ------------
* Messrs. Greene and Melzer, nominees to be Members of the Committee, are
interested persons of Prudential and VCA-10, as that term is defined in the
Investment Company Act of 1940, because they are officers of Prudential,
the investment adviser of VCA-10. Certain actions of the Committee,
including the annual continuance of the Agreement for Investment Management
Services between VCA-10 and Prudential, must be approved by a majority of
the Members of the Committee who are not interested persons of Prudential,
its affiliates or VCA-10. Messrs. Fenster, McDonald and Weber are not
interested persons of Prudential, its affiliates or VCA-10. However, Mr.
Fenster is President of the New Jersey Institute of Technology. Prudential
has issued a group annuity to the Institute and provides group life and
group health insurance to its employees.
4
<PAGE>
None of the Members of or nominees to the Committee have any beneficial
interest in the Account. Mr. Melzer also serves as a director on the board of
Cashway Furniture, Inc. of Minneapolis, Minnesota.
The Committee has no nominating or compensation committees. The
Committee does have an audit subcommittee, which is composed solely of the
outside Members, and which meets with the independent public accountants,
management, and internal auditors periodically to evaluate each party's
execution of their respective responsibilities. During 1995, the audit
subcommittee -- consisting of Ms. Gencher and Messrs. Fenster and Weber -- met
once.
Prudential, under an agreement with VCA-10, pays all compensation to
the Members of the Committee. Members of the Committee who are affiliated with
Prudential receive no additional compensation for services they perform for or
on behalf of VCA-10. In addition, the officers of VCA-10 are all officers or
employees of Prudential and receive no additional compensation for services they
perform for or on behalf of VCA-10. Compensation for the current outside Members
of the Committee appears on the table below.
5
<PAGE>
<TABLE>
<CAPTION>
Total 1995
Compensation
Pension or Related to
Retirement VCA-10 and
Aggregate Benefits Other
1995 Accrued as Estimated Prudential-
Compensation Part of Total Annual Related
Related to VCA-10 Benefits Upon Investment
Name VCA-10(1) Expenses Retirement Companies
---- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Saul K. Fenster .............. $2,800 None None $22,000(2)
Mary C. Gencher .............. $2,800 None None $ 5,600(3)
Joseph Weber ................. $2,800 None None $24,800(4)
</TABLE>
The nominees to the VCA-10 Committee will be elected if approved by
more than 50% of the votes of persons having VCA-10 voting rights who are
present or represented by proxy at the November 22, 1996 meeting.
- - --------
(1) Fees are paid by Prudential, not VCA-10.
(2) During 1995, Mr. Fenster served on the Board or Committee of four
Prudential-related investment companies. Of his 1995 compensation, $5,600
was paid by Prudential, and $16,400 was paid by Prudential-related
investment companies.
(3) During 1995, Ms. Gencher served on the Board or Committee of two
Prudential-related investment companies. All of her 1995 compensation was
paid by Prudential.
(4) During 1995, Mr. Weber served on the Board or Committee of five
Prudential-related investment companies. Of his 1995 compensation, $8,400
was paid by Prudential, and $16,400 was paid by Prudential-related
investment companies.
6
<PAGE>
2. APPROVAL OF CHANGES TO THE ACCOUNT'S FUNDAMENTAL
INVESTMENT OBJECTIVE
The Investment Company Act of 1940 (the "1940 Act") requires every
registered investment company to recite in its registration statement all
investment or other policies that may be changed only if authorized by a
shareholder vote. These policies are generally referred to as "fundamental
objectives and policies." In contrast, "non-fundamental policies" are those that
may be changed by vote of the Committee without shareholder approval. VCA-10 is
a registered investment company, and on page 12 of its prospectus dated May 1,
1996, it sets forth the following as a fundamental objective:
"The investment objective of VCA-10 is the long-term appreciation of
the assets held in the Account. Since no federal income tax will be
payable upon dividend income or realized capital gains, consideration
will be given to both potential income and capital gains opportunities
in selecting investments. Investments will be made primarily in
established corporations according to the standards of a prudent
investor concerned primarily with preserving the real value of his
capital by achieving a rate of growth in the value of his investments
commensurate with the rate of growth in the economy and the prevailing
rate of inflation."
The Statement of Additional Information dated May 1, 1996, sets forth on pages
3-4 a number of "investment restrictions" that are also fundamental. These
fundamental investment restrictions, changes to which are discussed in Proposal
3 below, would not be affected by this Proposal 2.
On August 14, 1996, at the request of the Account's investment adviser,
the Committee, including all Committee Members who are not interested persons of
Prudential, its affiliates, or the Account, considered and determined to propose
revisions to the Account's fundamental investment objective. The investment
adviser recommended adoption of the proposed revisions to make it consistent
with the stated objective of similar investment companies and accounts managed
by the investment adviser. This standardization is designed to increase
efficiency and facilitate compliance efforts, thereby reducing the upward
pressure on administrative costs. For these reasons the Committee believes that
approval of the proposed change is in the best interests of Contractholders and
participants.
Accordingly, the Committee recommends that the current fundamental
investment objective (set forth above) be stricken and that the following
fundamental investment objective be substituted in its place:
7
<PAGE>
"VCA-10's investment objective is long-term growth of
capital. VCA-10 will seek to achieve this objective by
investing primarily in equity securities of major,
established corporations. Current income, if any, is
incidental to this objective."
To implement the proposed fundamental investment objective, the
Committee has adopted the following non-fundamental operating policy:
"In attempting to achieve its objective, VCA-10 will invest in common
stocks, preferred stocks, warrants or convertible bonds issued by
companies which, in the opinion of VCA-10's investment adviser, are
believed to be in sound financial condition and have prospects for
price appreciation greater than broadly based stock indices. Under
normal market conditions, VCA-10 may also invest up to 20% of its
assets in investment grade short-term, intermediate-term, or long-term
debt instruments. At times when economic conditions or general levels
of common stock prices are such that the investment adviser deems it
prudent to adopt a defensive position by reducing or curtailing
investments in equities, a larger proportion than usual of VCA-10's
assets may be invested in such debt instruments."
While the proposed objective and new policy use somewhat different
language from the current objective, the Committee and Prudential do not intend
that there will be significant differences in the way in which the Account is
managed, other than the changes described in Proposal No. 3.
This proposal will be adopted effective with the next registration
statement amendment filed with respect to the Account if approved by a majority
vote of persons having VCA-10 voting rights. As defined in the 1940 Act, a
majority vote of persons having VCA-10 voting rights means the lesser of (a) 67%
or more of the votes of such persons present or represented by proxy at a
meeting if more than 50% of all votes entitled to be cast are held by persons
present in person or represented by proxy at such meeting, or (b) more than 50%
of all votes entitled to be cast.
THE COMMITTEE RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
3. APPROVAL OF CHANGES TO THE ACCOUNT'S FUNDAMENTAL INVESTMENT
RESTRICTIONS
On August 14, 1996, at the request of the Account's investment adviser,
the Committee, including all Committee Members who are not interested persons of
Prudential, its affiliates, or the Account, considered and determined to propose
8
<PAGE>
revisions to the Account's fundamental investment restrictions. The investment
adviser recommended adoption of the proposed revisions for several reasons.
First, the current restrictions are outdated in some respects and do not reflect
current mutual fund industry practice. The proposed restrictions would permit
the Account to make certain investments and utilize certain investment
techniques designed to meet the Account's objective. Second, the proposed
changes, along with proposed changes to several other accounts and funds that
Prudential manages, would make the investment restrictions more consistent among
the accounts and funds. This standardization is designed to increase efficiency
and facilitate compliance efforts, thereby reducing the upward pressure on
administrative costs. Based on these considerations, the Committee believes that
approval of the proposed changes is in the best interests of Contractholders and
participants.
The various proposed changes are set forth below.
(i) CONCENTRATION IN PARTICULAR INDUSTRIES. The Committee recommends
that the two following fundamental investment restrictions be stricken:
"Seventy-five percent of the assets held in [the] Account are subject
to the limitation that no purchase of a security, other than a security
of the U.S. Government or its agencies and instrumentalities, will be
made for [the] Account if as a result of such purchase more than 5% of
the total value of the Account's assets will be invested in the
securities of one issuer."
"[VCA-10 will not:] Purchase any securities (other than obligations of
the U.S. Government, its agencies and instrumentalities) if as a result
25% or more of the value of the Account's total assets (determined at
the time of investment) would be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that 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)."
In their place, the Committee recommends the substitution of the following
fundamental investment restriction:
"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%
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<PAGE>
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."
This proposed change merely restates the current restrictions in
simplified form. The current restriction states that all investments in bank
money market instruments will not be grouped together and considered an
investment in the banking industry subject to the 25% limitation. While the new
restriction does not expressly include this interpretation, it will not be
applied to bank money market instruments. The Committee does not
anticipate that this proposed change will have any impact on the Account's
investment practices.
(ii) INVESTMENTS IN REAL ESTATE-RELATED SECURITIES AND FINANCIAL
FUTURES. The Committee recommends that the following fundamental investment
restriction be stricken:
"[VCA-10 will not:] Buy or sell real estate, mortgages, commodities or
commodity contracts, except that (a) VCA-10 may buy and sell shares of
real estate investment trusts listed on stock exchanges or reported on
the National Association of Securities Dealers, Inc. automated
quotation system ("NASDAQ"); and (b) VCA-10 may purchase and sell stock
index futures contracts and related options."
In its place, the Committee recommends the substitution of the two following
fundamental investment restrictions:
"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')."
"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."
These proposed changes would have two substantive effects. First, in
addition to real estate investment trusts, the Account could also invest in
securities secured by real estate, so long as a ready market exists for such
securities through listing on a stock exchange or NASDAQ. Investing in such
securities presents similar risks to those posed by the existing authority to
invest in real estate investment trusts.
10
<PAGE>
Second, the proposed change expands the existing authority to invest in
stock index futures and related options to also include the authority, to the
extent permitted by applicable regulations, (a) to purchase and sell futures
contracts on interest-bearing securities (such as U.S. Treasury bonds and notes)
or rate indices; (b) to purchase and sell futures contracts on foreign
currencies or groups of foreign currencies; and (c) to enter into transactions
involving options related to either of these types of futures contracts. The
Account intends to use futures contracts (and options thereon) solely for the
purpose of hedging the Account's positions with respect to securities, interest
rates and foreign securities. These financial instruments are subject to risks
similar to those posed by stock index futures and options. The Account's
successful use of futures contracts and options thereon depends upon the
investment adviser's ability to predict the direction of the relevant market.
The correlation between movement in the price of the futures contract and the
price of the securities or currencies being hedged is imperfect. The ability of
a portfolio to close out a futures position depends on a liquid secondary
market. There is no assurance that liquid secondary markets will exist for any
particular futures contract at any particular time. Options on futures contracts
are subject to additional risks, including the risk of imperfect correlation
between the option and the underlying futures contract.
The investment adviser believes that these additional investment
techniques will give it the flexibility required in today's changing investment
market to reduce the risk of certain investments and protect the values of
portfolio assets. The investment adviser already has experience in using these
various techniques.
(iii) LOANS. The Committee recommends that the following fundamental
investment restriction be stricken:
"[VCA-10 will not:] Make cash loans except that VCA-10 may
make loans of up to 10% of the value of its portfolio
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 . . . ."
In its place, the Committee recommends the substitution of the following
fundamental investment restriction:
"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
11
<PAGE>
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."
This proposed change would clarify that the Account's loan restriction
does not apply to publicly traded debt obligations. Publicly traded debt
obligations are generally not considered loans and do not present all the same
risks as debt obligations for which a ready market does not exist.
The proposed change would also clarify that repurchase agreements are
not considered loans for purposes of the 10% limit. A repurchase agreement is an
agreement with the seller of a security in which the seller and the buyer agree
at the time of sale to a repurchase of the security at a mutually agreed upon
time and price. The period of maturity is usually quite short, possibly
overnight or a few days, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon
market rate effective for the period of time the Account's money is invested in
the security, and is not related to the coupon rate of the purchased security.
Outside the context of this restriction, under the proposed change, a repurchase
agreement may be considered loans of money to the seller of the underlying
security, which are collateralized by the securities underlying the repurchase
agreement. The Account will not enter into repurchase agreements unless the
agreement is "fully collateralized," i.e., the value of the securities is, and
during the entire term of the agreement remains, at least equal to the amount of
the repurchase price. The Account will take possession of the securities
underlying the agreement and will value them daily to assure that this condition
is met. Before the Account enters into any repurchase agreement, the Committee
will adopt standards for the parties with whom it will enter into repurchase
agreements that it believes are reasonably designed to assure that such a party
presents no serious risk of becoming involved in bankruptcy proceedings within
the time frame contemplated by the repurchase agreement. In the event that a
seller defaults on a repurchase agreement, the Account may incur a loss in the
market value of the collateral, as well as disposition cost; and, if a party
with whom the Account had entered into a repurchase agreement becomes insolvent,
the Account's ability to realize on the collateral may be limited or delayed and
a loss may be incurred if the collateral securing the repurchase agreement
declines in value during the insolvency proceedings.
12
<PAGE>
The Account will not enter into repurchase agreements with Prudential
or its affiliates, including Prudential Securities Incorporated. This will not
affect the Account's ability to maximize its opportunities to engage in
repurchase agreements.
(iv) BORROWING AND MARGINS. The Committee recommends that the two
following fundamental investment restrictions be stricken:
"[VCA-10 will not:] Purchase securities on margin, issue senior
securities or otherwise borrow money, except that [the] Account, in
accordance with its investment objective and policies, may purchase and
sell securities on a whenissued and delayed delivery basis. [The]
Account may obtain such short-term credit as it needs for the clearance
of securities transactions, and may also borrow from a bank as a
temporary measure, in amounts not exceeding 5% of the value of its
portfolio, to accommodate abnormally heavy redemption requests, if they
should occur, but not for leveraging or investment purposes. Investment
securities will not be purchased while borrowings are outstanding.
Interest paid on borrowings will not be available for investment by the
Accounts. Collateral arrangements entered into by VCA-10 with respect
to futures contracts and related options and the writing of options on
equity securities and stock indices are not deemed to be the issuance
of a senior security or the purchase of a security on margin."
"[VCA-10 will not:] Mortgage, pledge or hypothecate any assets except
that [the] Account may pledge assets in an amount up to 10% of the
value of its portfolio, but only to secure borrowings for extraordinary
or emergency purposes as described in paragraph 5 above. Collateral
arrangements entered into by VCA-10 with respect to futures contracts
and related options and the writing of options on equity securities and
stock indices are not deemed to be a pledge or hypothecation of
assets."
In their place, the Committee recommends the substitution of the two following
fundamental investment restrictions:
"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
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contracts and collateral arrangements relating thereto, and collateral
arrangements with respect to interest rate swap transactions, reverse
repurchase agreements, dollar roll transactions, options, futures
contracts, and options thereon are not deemed to be a pledge of assets
or the issuance of a senior security."
"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."
The current restrictions are stricter than required by the 1940 Act,
which would permit the Account to borrow from a bank, provided that immediately
after the borrowing there is an asset coverage of at least 300% for all
borrowings of the investment company. The proposed change authorizes the Account
to borrow to the limit imposed by the 1940 Act.
This increase in borrowing power would provide the Account with greater
flexibility to respond to sudden needs for cash that may arise. This change
would also permit the investment adviser to utilize borrowing for investment
purposes, but the investment adviser does not currently intend to utilize
borrowing for that purpose. There are certain risks associated with the use of
borrowed funds for investment purposes. Such use results in leveraging which may
exaggerate the effect of any increase or decrease in the value of portfolio
securities on the Account's net asset value. In addition, money borrowed will be
subject to interest and other costs, which may or may not exceed the income
received from the securities purchased with the borrowed funds.
In addition, the proposed change makes clear that the prohibition on
purchasing securities on margin does not affect the existing authority to enter
into transactions involving futures and options, and that certain investment
techniques are not deemed to be borrowing, a pledge of asset, or the issuance of
a senior security. Unless otherwise prohibited by other investment restrictions,
by regulations of the Securities and Exchange Commission ("SEC"), or by other
applicable law, the Account will have the flexibility under the proposed change
to use these investment techniques if deemed advantageous by the investment
adviser.
The Account already had the authority to use several of these
techniques, including when-issued and delayed delivery securities and some types
of options and futures contracts. Information on the new techniques is provided
below.
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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. The
Account will enter into such contracts in anticipation of or to protect itself
against fluctuations in currency exchange rates.
The Account generally will not enter into a forward contract with a
term of greater than 1 year. At the maturity of a forward contract, the Account
may either sell the security and make delivery 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.
The Account's successful use of forward contracts depends upon the
adviser's ability to predict the direction of currency exchange markets and
political conditions, which requires different skills and techniques than
predicting changes in markets generally.
Interest rate swap transactions. Interest rate swaps, in their most
basic form, involve the exchange by the Account with another party of their
respective commitments to pay or receive interest. For example, the Account
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 the
Account's exposure to long- or short-term interest rates. For example, the
Account 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.
The use of swap agreements is subject to certain risks. As with options
and futures, if the investment adviser's prediction
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of interest rate movements is incorrect, the Account'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 the Account could eliminate its exposure under an
outstanding swap agreement by entering into an offsetting swap agreement with
the same or another party.
The Account will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
Reverse repurchase agreements and dollar roll transactions. Reverse
repurchase agreements involve the sale of securities held by the Account with an
agreement by the Account to repurchase the same securities at an agreed upon
price and date. During the reverse repurchase period, the Account often
continues 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 the Account.
Dollar rolls involve sales by the Account 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 Account forgoes principal and
interest paid on the securities. The Account 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. The Account 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 the Account 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,
the Account'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.
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Options. If this proposal is approved, the Account may purchase and
sell (i.e., write) put and call options on debt securities and foreign
currencies. The Account already has the authority to purchase and sell put and
call options on equity securities and stock indices. An option gives the owner
the right to buy or sell securities at a predetermined exercise price for a
given period of time. Currently, the SEC requires that any options written by
investment companies, such as the Account, be "covered," which can be done in a
variety of ways, such as placing in a segregated account certain securities or
cash designed to "cover" the Account's obligation under the written option.
Options will be primarily used to reduce fluctuations in the value of
the Account's investments (i.e., hedge) or to generate additional premium
income. The risks of options on debt securities and foreign currencies are
similar to the risks of options on equity securities. The investment adviser's
may not correctly anticipate movements in the relevant markets, thus causing
losses on the Account's options positions. Options have other risks, primarily
related to liquidity. The Account's successful use of options on foreign
currencies depends upon the adviser's ability to predict the direction of the
currency exchange markets and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally. In addition, the correlation between movements in the price of a
foreign currency option and the price of currency being hedged is imperfect.
(v) INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Committee recommends
that the following fundamental investment restriction be stricken:
"[VCA-10 will not:] Buy or sell the securities of other
investment companies."
In its place, the Committee has adopted the following nonfundamental investment
restriction:
"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."
The proposed deletion, along with the Committee's adoption of the
indicated non-fundamental restriction, increases the Account's ability to invest
in other investment companies to correspond with the limits imposed by the 1940
Act. Although the investment adviser does not intend immediately to invest in
other investment companies, this change will provide it the flexibility
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it would need to do so in the future if circumstances warrant. One possible use
of this technique is to make investments the adviser otherwise would not be able
to make directly in an efficient manner.
By making the new restriction non-fundamental, the Committee increases
the Account's flexibility to change the restriction if circumstances warrant.
Such changes may be desirable, for example, to take advantage of new financial
instruments or to respond to regulatory changes. The Committee does not,
however, currently plan to change this investment restriction.
(vi) SHORT SALES. The Committee recommends that the following
fundamental investment restriction be stricken:
"[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 by VCA-10 with respect to futures
contracts and related options and the writing of options on equity
securities and stock indices are not deemed to be short sales."
In its place, the Committee has adopted the following nonfundamental investment
restriction:
"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."
The new restriction restates the old restriction and makes clear that
the restriction does not apply to interest rate swap agreements.
By making the new restriction non-fundamental, the Committee increases
the Account's flexibility to change the restriction if circumstances warrant. At
some future date, the Committee may find it appropriate to authorize short sales
in other situations. Such changes may be desirable, for example, to take
advantage of new financial instruments or to respond to regulatory changes. The
Committee does not, however, currently plan to change this investment
restriction.
(vii) UNDERWRITING OF SECURITIES. The Committee recommends that the
following fundamental investment restriction be stricken:
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"[VCA-10 will not:] Underwrite the securities of other issuers, except
where VCA-10 may be deemed to be an underwriter for purposes of the
Securities Act of 1933 in connection with the loans that it may make
[under these fundamental restrictions]."
In its place, the Committee recommends the substitution of the following
fundamental investment restriction:
"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."
This proposed change merely restates the existing restriction and
clarifies that the Account may dispose of any security (without regard to any
limitation regarding whether the Account may technically be deemed an
"underwriter" in such context) in which the Account is otherwise permitted to
invest. The Committee does not anticipate that this proposed change will have
any impact on the Account's investment practices.
(viii) LOANS OF PORTFOLIO SECURITIES. The Committee recommends that the
following fundamental investment restriction be stricken:
"[VCA-10 will not:] Lend portfolio securities unless the loans are
fully collateralized and subject to such other safeguards as the
Account's Committee determines are advisable and appropriate."
The restriction proposed to be deleted merely summarizes SEC standards
with regard to portfolio lending with which the Account already must comply. If
the SEC were to revise these standards at some later date, the Account would
have the flexibility to take advantage of that change if it were advantageous to
do so. The Committee does not anticipate that this proposed change will have any
current impact on the Account's investment practices.
(ix) CONTROL OR MANAGEMENT OF OTHER COMPANIES. The Committee recommends
that the following fundamental restriction be stricken:
"[VCA-10 will not:] Acquire securities for the purpose of
exercising control or management of any company."
In its place, the Committee recommends the substitution of the following
fundamental investment restriction:
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"No securities of any company will be acquired for VCA-10
for the purpose of exercising control or management
thereof."
This proposed change merely restates the restriction in order to make
the language more consistent with that used in similar restrictions of other
accounts and funds managed by Prudential. The Committee does not anticipate that
this proposed change will have any impact on the Account's investment practices.
This proposal will be adopted effective with the next registration
statement amendment filed with repect to the Account if approved by a majority
vote of persons having VCA-10 voting rights, as that term is defined above in
Proposal 2.
THE COMMITTEE RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
4. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANT
For 1995 and prior years Deloitte & Touche LLP served as independent
public accountant for Prudential and for VCA-10. For 1996, Prudential determined
to retain Price Waterhouse LLP ("PW") as the independent public accountant
for Prudential. The Committee found it to be in the best interests of
Contractholders and participants to select PW as the independent public
accountant for 1996 for VCA-10 as well, and did so in August 1996.
The Committee's selection of PW instead of Deloitte & Touche did not result
due to any dispute between Prudential and Deloitte & Touche or between the
Committee and Deloitte & Touche. Deloitte & Touche's reports for the last two
years did not contain any adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
No disagreement of a type that an independent public accountant would refer to
in its report occurred between Deloitte & Touche and the VCA-10 Committee or
Prudential.
As noted earlier, the VCA-10 Committee has an audit subcommittee, which
consists solely of the Members of the Committee who are not interested persons
of Prudential or VCA-10. Members of the subcommittee periodically will meet at
their discretion with representatives of PW to discuss the affairs of VCA-10. At
the audit subcommittee's discretion, no interested person of Prudential or
VCA-10 will be present at such meetings.
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It is anticipated that one or more representatives of PW will attend
the November 22, 1996 meeting that is the subject of this proxy statement, that
they will have an opportunity to make a statement if they desire to do so, and
that they will also be available to respond to appropriate questions. It is not
anticipated that representatives of Deloitte & Touche will attend the meeting.
This proposal will be adopted if approved by more than 50% of the votes
of persons having VCA-10 voting rights who are present or represented by proxy
at the November 22, 1996 meeting.
THE COMMITTEE RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
5. PROPOSED AMENDMENTS TO THE RULES AND REGULATIONS OF VCA-10
ELIMINATING THE NEED FOR CERTAIN MEETINGS OF PERSONS HAVING
VOTING RIGHTS
The Rules and Regulations of VCA-10 presently require that the
Committee call a meeting of persons having voting rights with respect to the
Account if the Committee changes the Account's independent public accountant. In
addition, the Rules and Regulations of VCA-10 are silent on the issue of whether
the Committee itself may amend the Rules and Regulations or whether a vote of
persons having voting rights with respect to the Account is required.
On August 14, 1996, the Members of the Committee, including all Members
who are not interested persons of Prudential, its affiliates or VCA-10,
considered and determined to propose that the Rules and Regulations of VCA-10 be
amended: (1) to eliminate the requirement of a meeting of persons with voting
rights when the Committee selects a different independent public accountant; and
(2) to provide that the Committee may amend the Rules and Regulations in any
respect without a vote of persons having voting rights. It was determined that
applicable law does not require meetings of persons having voting rights in
these circumstances, and that reducing the need for such meetings will result in
economic savings which will ease the upward pressure on administrative costs.
For these reasons, the Committee has determined that these amendments are in the
best interests of Contractholders and participants. The Committee thus
recommends approval of these amendments. Each amendment is discussed in more
detail below.
Ratification of Independent Public Accountant. At the September 1988
meeting of persons having VCA-10 voting rights, amendments to the Rules and
Regulations were adopted eliminating the need for annual meetings. The proposal
adopted at that
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meeting eliminated the requirement that the Committee annually seek ratification
or rejection of the same independent public accounting firm. Instead, the
revised Rules and Regulations included a requirement that the Committee call a
meeting of persons having voting rights with respect to the Account for the
purpose of submitting the selection of an independent public accountant for
ratification or rejection only if the Committee selects an accountant other than
the accountant whose selection was most recently ratified by persons having
voting rights. This requirement was included because it was understood at that
time to be required to ensure compliance with the 1940 Act. Since that time,
however, it has become clear that the 1940 Act does not require that a meeting
be called if the Committee selects a different accountant. Rather, the 1940 Act
currently requires only that the Committee submit for ratification or rejection
the selection of the accountant if an annual meeting is being held for other
reasons. The Committee determined that it was appropriate to amend the Rules and
Regulations to be consistent with the current interpretation of the 1940 Act.
Authority to Amend the Rules and Regulations. The Rules and Regulations
are silent on who has the authority to amend them. In the past, however, the
Committee has generally submitted proposed amendments to persons having voting
rights with respect to VCA-10. That approach did not generally result in any
additional costs when, as was the case prior to 1989, meetings with persons with
voting rights were held annually. New Jersey law, however, does not require a
vote of persons having voting rights to amend the Rules and Regulations of the
Account. In addition, the Rules and Regulations are analogous to a corporation's
by-laws, which generally can be amended by the board of directors without
shareholder vote. Accordingly, the Committee determined it was appropriate to
clarify that it has the authority to amend the Rules and Regulations in any
respect without a vote of persons having voting rights with respect to the
Account.
Wording of the Proposed Amendments. Set forth below are the
proposed amendments to the Rules and Regulations of VCA-10:
1. Amend Article II, Section 2 to delete the following provision:
"(b) The Committee shall call a meeting of the persons having voting
rights in respect of VCA-10 for the purpose of submitting the selection
of an independent accountant for ratification or rejection if the
Committee selects an accountant other than the accountant whose
selection was most recently ratified by persons having voting rights in
respect of VCA-10.
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2. Amend Article III, Section 2(d) to read as follows:
"The Committee shall have the following powers:
"(d) to select an independent public accountant for
VCA-10;
3. Amend Article III, Section 2 to add the following new subsection and
to redesignate subsections (e) and (f) as (f) and (g), respectively:
"The Committee shall have the following powers:
"(e) to amend these Rules and Regulations without the
approval of persons having voting rights in
respect of VCA-10;
This proposal will be adopted if approved by more than 50% of the votes
of persons having VCA-10 voting rights who are present or represented by proxy
at the November 22, 1996 meeting.
THE COMMITTEE RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 5.
6. OTHER BUSINESS
The Committee currently does not know of any other business that will
be considered at the meeting aside from that described in this Proxy Statement.
Should any matters other than those referred to above properly come before the
meeting, the holders of the Proxies will act with respect thereto in accordance
with their best judgment.
By order of the Committee
THOMAS A. EARLY
Secretary to the Committee
September 23, 1996
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THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
THIS PROXY SOLICITED ON BEHALF OF THE VCA-10 COMMITTEE
Meeting of Persons Having Voting Rights
NOVEMBER 22, 1996
John Doe IMPORTANT
123 Main Street Please read carefully, specify
New York, N.Y. 10001-1234 your choices, sign, date and mail
this proxy as soon as possible.
To all persons having voting rights in Prudential
Variable Contract Account-10 ("VCA-10"):
Members of the VCA-10 Committee solicit your voting instructions and
recommend votes FOR items 1 through 5. The VCA-10 Committee will vote the
appropriate number of shares pursuant to the instructions given.
IF NO CHOICE IS MADE AS TO ANY ITEM, THE VCA-10 COMMITTEE WILL VOTE
"FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING, THE MEMBERS OF THE VCA-10 COMMITTEE WILL VOTE IN ACCORDANCE WITH THEIR
BEST JUDGMENT.
The VCA-10 Committee -- for the purpose of voting on the items in the
agenda set forth in the Notice of Meeting To Persons Having Voting Rights in
Respect of the Prudential Variable Contract Account-10, at such special meeting
to be held on November 22, 1996, at 9:30 A.M. (New York time) at the offices of
The Prudential Insurance Company of America, 751 Broad Street, 4th Floor,
Executive Conference Room, Newark, New Jersey 07102 -- is hereby instructed to
vote the VCA-10 shares for the following purposes:
- - --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(1) To elect certain Members of The
Prudential Variable Contract Account-10
Committee (the "Committee"), each of
whom shall serve for an indefinite term.
Mendel A. Melzer _____ _____ _____
Jonathan M. Greene _____ _____ _____
W. Scott McDonald, Jr. _____ _____ _____
<PAGE>
FOR AGAINST ABSTAIN
(2) To approve or disapprove certain
changes to VCA-10's fundamental
investment objective. _____ _____ _____
(3) To approve or disapprove certain
changes to VCA-10's fundamental
investment restrictions. _____ _____ _____
(4) To ratify or reject the selection of
Price Waterhouse LLP as the independent
public accountant for VCA-10. _____ _____ _____
(5) To approve or disapprove proposed
amendments to the Rules and Regulations _____ _____ _____
of VCA-10 eliminating the need for
certain meetings of persons having
voting rights.
IF NO CONTRARY SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1
THROUGH 5. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE IN
PERSON.
- - --------------------------------------------------------------------------------
PLEASE MARK ALL
CHOICES LIKE THIS X
---
__________________________
ACCOUNT NUMBER
SIGNATURE ______________________________________ DATE __________________ 1996
SIGNATURE ______________________________________ DATE __________________ 1996
(Please sign exactly as your name appears above)
