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<PAGE> PAGE 2
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<PAGE> PAGE 3
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SIGNATURE MARK R. FETTING
TITLE CHAIRMAN
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
(CAPITAL GROWTH ACCOUNT)
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.
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
October 2, 1996
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-10
(CAPITAL GROWTH ACCOUNT)
----------------------
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 a
proxy has previously been executed. Prudential Retirement Services is a business
unit of the Prudential Insurance Company of America dedicated to providing
retirement services.
This solicitation is being made by use of the mails, but also may be made
by telephone, telegraph, telecopier, 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 October 4, 1996.
There are 433,092,402 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 $2,010,969 of its own funds invested in VCA-10 as of September 13, 1996,
which represents .005% 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 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.
<PAGE>
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.
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* ................. 35 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* ............... 52 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. ............ 63 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.................... 59 Member of the President, New Jersey Institute of
Committee Technology (education).
since 9/85
Joseph Weber ...................... 72 Member of the Vice President, Interclass (international
Committee corporate learning).
since 9/85
Thomas A. Early ................... 41 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 .................. 44 Assistant Assistant General Counsel of Prudential.
Secretary to
the Committee
since 6/88
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Principal Occupation for Last 5 Years
---- --- -------- -------------------------------------
<S> <C> <C> <C>
C. Christopher Sprague ............ 38 Assistant Since 12/94, Assistant General Counsel,
Secretary to Prudential; prior to 12/94, Staff
Attorney and Senior Counsel, U.S. Securities and
the Committee Exchange Commission.
since 2/95
Michael G. Williamson ............. 39 Assistant Since 11/93, Director and Assistant
Secretary to Comptroller, Prudential Retirement
the Committee Service; 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.
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 andWeber -- 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.
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
---- --------- -------- ---------- ---------
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)
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.
3
<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:
"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 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. If adopted, the proposed changes will be effective on the date of
the next revision of the Account prospectus, which is currently expected to be
May 1, 1997.
THE COMMITTEE RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
4
<PAGE>
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
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% 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."
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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.
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 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
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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.
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
when-issued 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
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
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techniques are not deemed to be borrowing, a pledge of assets, 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.
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 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
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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.
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 non-fundamental 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 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 restrictionbe 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 non-fundamental 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
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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:
"[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:
"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 if approved by a majority vote of persons
having VCA-10 voting rights, as that term is defined above in Proposal 2. If
adopted, the proposed changes will be effective on the date of the next revision
of the Account prospectus, which is currently expected to be May 1, 1997.
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 ("D&T") 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 D&T did not result due to any
dispute between Prudential and D&T or between the Committee and D&T. D&T's
reports for the last two years did not contain any adverse opinion or
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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 D&T
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.
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 D&T 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 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
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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. 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
October 2, 1996
12
For the fiscal year ended December 31, 1996
File number 811-3421
SUB-ITEM 77-0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Cincinnati Milacron
2. Date of First Offering
5/14/96
3. Dollar Amount of Purchase
$1,352,400
4. Price Per Unit
$24.50
5. Name(s) of Underwriter(s) or Dealer(s) From Whom Purchased
CS First Boston
6. Other Members of the Underwriting Syndicate
VCA-10
Cincinnati
CS First Boston Corporation
BT Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.P. Morgan Securities Inc.
Barrington Research Associates, Inc.
Alex. Brown & Sons Incorporated
Credit Lyonnais Securities (USA) Inc.
A.G. Edwards & Sons, Inc.
Lazard Freres & Co., LLC
McDonald & Company Securities, Inc.
Prudential Securities Incorporated
Schroder Wertheim & Co. Incorporated
Stifel, Nicolaus & Company, Incorporated
<PAGE>
For the fiscal year ended December 31, 1996
File number 811-3421
SUB-ITEM 77-0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Lucent
2. Date of First Offering
4/3/96
3. Dollar Amount of Purchase
$891,000
4. Price Per Unit
$27.00
5. Name(s) of Underwriter(s) or Dealer(s) From Whom Purchased
Morgan Stanley, Goldman Sachs and Merril Lynch
6. Other Members of the Underwriting Syndicate
VCA-10
Lucent
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc.
CS First Boston Corporation
J.P. Morgan Securities Inc.
PaineWebber Incorporated
Advest, Inc.
Arnhold & S. Bleichroeder, Inc.
Robert W. Baird & Co. Incorporated
M. R. Beal & Company
Sanford C. Bernstein & Co., Inc.
William Blair & Company, L.L.C.
J. C. Bradford & Co.
Alex. Brown & Sons Incorporated
Cowen & Company
Crowell, Weedon & Co.
Dain Bosworth Incorporated
Dean Witter Reynolds Inc.
Deutsche Morgan Grenfell/C.J. Lawrence Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
A. G. Edwards & Sons, Inc.
EVEREN Securities, Inc.
Fahnestock & Co. Inc.
First Manhattan Co.
First of Michigan Corporation
Furman Selz LLC
Gabelli & Company, Inc.
Gerard Klauer Mattison & Co., LLC
Gruntal & Co., Incorporated
Guzman & Company
Hambrecht & Quist LLC
Interstate/Johnson Lane Corporation
Janney Montgomery Scott Inc.
Edward D. Jones & Co., L.P.
WR Lazard, Laidlaw & Luther
Lazard Freres & Co. LLC
Legg Mason Wood Walker, Incorporated
Lehman Brothers Inc.
McDonald & Company Securities, Inc.
Montgomery Securities
Needham & Company, Inc.
Oppenheimer & Co., Inc.
Paribas Corporation
Parker/Hunter Incorporated
Piper Jaffray Inc.
Prudential Securities Incorporated
Pryor, McClendon, Counts & Co., Inc.
Ragen Mackenzie Incorporated
Rauscher Pierce Refsnes, Inc.
Raymond James & Associates, Inc.
Robertson, Stephens & Company LLC
The Robinson-Humphrey Company, Inc.
Salomon Brothers Inc.
SBC Capital Markets Inc.
Schroder Wertheim & Co. Incorporated
Scott & Stringfellow, Inc.
Muriel Siebert & Co., Inc.
Smith Barney Inc.
Stifel, Nicholas & Company Incorporated
Sutro & Co. Incorporated
UBS Securities Inc.
Wasserstein Perella Securities, Inc.
Wheat, First Securities, Inc.
Morgan Stanley & Co. International Limited
Goldman Sachs International
Merrill Lynch International Limited
Banque Paribas
Morgan Grenfell & Co. Limited
Swiss Bank Corporation
UBS Limited
Bear, Stearns International Limited
CS First Boston Limited
J.P. Morgan Securities Ltd.
PaineWebber International (U.K.) Ltd
ABN AMRO Bank N.V.
Argentaria Bolsa, S.V.B., S.A
Cazenove & Co.
CIBC Wood Gundy plc
Commerzbank Aktiengesellschaft
Credit Lyonnais Securities
Daiwa Europe Limited
Kleinwort Benson Limited
Robert Fleming & Co. Limited
HSBC Investment Bank Limited
ING Bank N.V.
Nikko Europe Plc
Nomura International plc
RBC Dominion Securities Inc.
J. Henry Schroder & Co. Limited
Societe Generale
<PAGE>
For the fiscal year ended December 31, 1996
File number 811-3421
SUB-ITEM 77-0
EXHIBITS
Transactions Effected Pursuant to Rule 10f-3
1. Name of Issuer
Associates First Capital
2. Date of First Offering
5/7/96
3. Dollar Amount of Purchase
$600,300
4. Price Per Unit
$29.00
5. Name(s) of Underwriter(s) or Dealer(s) From Whom Purchased
Goldman Sachs
6. Other Members of the Underwriting Syndicate
VCA-10
Associates First Capital
Goldman, Sachs & Co.
CS First Boston Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Salomon Brothers Inc.
Alex. Brown & Sons Incorporated
Chase Securities Inc.
Citicorp Securities, Inc.
Dean Witter Reynolds Inc.
Deutsche Morgan Grenfell/C.J. Lawrence Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
A.G. Edwards & Sons, Inc.
EVEREN Securities, Inc.
Montgomery Securities
Morgan Stanley & Co. Incorporated
Oppenheimer & Co., Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
Wasserstein Perella Securities, Inc.
Advest, Inc.
Sanford C. Bernstein & Co., Inc.
William Blair & Company, L.L.C.
J.C. Bradford & Co.
Dain Bosworth Incorporated
Furman Selz LLC
Edward D. Jones & Co.
Legg Mason Wood Walker Incorporated
McDonald & Company Securities, Inc.
Piper Jaffray Inc.
Rauscher Pierce Refsnes, Inc.
The Robinson-Humphrey Company, Inc.
Stephens Inc.
Sutro & Co. Incorporated
Wheat, First Securities, Inc.
First of Michigan Corporation
First Southwest Company
Gruntal & Co., Incorporated
Guzman & Company
NatCity Investments, Inc.
Samuel A. Ramirez & Co., Inc.
Roney & Co., LLC
Scott & Stringfellow, Inc.
Muriel Siebert & Co., Inc.
Stifel, Nicolaus & Company, Incorporated
Utendahl Capital Partners, L.P.
The Williams Capital Group, L.P.
February 14, 1997
To the Committee of
The Prudential Variable Contract Account - 10
of The Prudential Insurance Company of America
In planning and performing our audit of the financial statements of The
Prudential Variable Contract Account - 10 of The Prudential Insurance Company of
America (the "Account") for the year ended December 31, 1996, we considered its
internal control structure, including procedures for safeguarding securities, in
order to determine our auditing procedures for the purposes of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, and not to provide assurance on the internal control structure.
The management of the Account is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are appropriately
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and may not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it may
become inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
December 31, 1996.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
PRICE WATERHOUSE LLP
