PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2, 497, 1998-05-08

PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2
497, 1998-05-08

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PROSPECTUS

MAY 15, 1998

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2

GROUP VARIABLE UNIVERSAL LIFE
INSURANCE CONTRACTS

This prospectus describes a Group Variable Universal Life insurance contract
offered by The Prudential Insurance Company of America ("Prudential") for group
insurance issued to Bankers Trust Company, as Trustee of the American Institute
of Certified Public Accountants ("AICPA") Insurance Trust (the
"Contractholder").

Each Eligible Group Member who obtains coverage under the Group Contract and
each eligible Applicant Owner who obtains coverage on an Eligible Group Member
(each, a "Participant") will receive a Certificate describing the coverage.

The Group Contract and Certificates provide life insurance protection with
flexible premium payments and a choice of underlying investment options. The
Death Benefit and Cash Surrender Value of a Certificate will vary daily with the
performance of the investment options selected, but the Death Benefit will
generally not be less than the Face Amount of the Certificate. Subject to
certain requirements and limitations, surrenders, partial withdrawals and loans
are available.

The Prudential Variable Contract Account GI-2 (the "Separate Account") is
composed of a number of variable investment options (each, a "Subaccount"), ten
of which are currently available to Participants. The assets of each Subaccount
will be invested in a corresponding portfolio of The Prudential Series Fund,
Inc. (the "Series Fund") or certain other mutual fund portfolios (collectively,
the "Funds") available to insurance company separate accounts and qualified
plans. Participants may direct premium payments only to the Subaccounts
corresponding to each of the ten Funds selected by the Contractholder or to the
Fixed Account, an investment option under which Prudential guarantees an
effective annual interest rate of at least 4%. In addition to the ten Funds
currently available to Participants, The Contractholder may in the future
designate up to ten additional Funds that would then also be available.

The ten Funds chosen by the Contractholder are briefly described under THE
FUNDS, beginning on page 6. The investment objectives and policies of each Fund,
and the risks of investing in the Fund, are described in each Fund's prospectus
and statement of additional information. This prospectus will be followed by
current prospectuses for each of the Funds that the Contractholder has chosen on
behalf of Participants.

THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
POLICY SHOULD BE REQUESTED, THEREBY PROTECTING THE BENEFITS OF THE ORIGINAL
POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY WITH THE BENEFITS AND
COSTS OF PURCHASING THE CERTIFICATE DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.

PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT WILL BE
FOLLOWED BY CURRENT PROSPECTUSES FOR EACH OF THE FUNDS AVAILABLE TO YOU. EACH OF
THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
TELEPHONE (800) 562-9874

GVUL-1a Ed. 5-98

<PAGE>

TABLE OF CONTENTS

PAGE

BRIEF DESCRIPTION OF THE GROUP CONTRACT AND CERTIFICATES..................... 1

HYPOTHETICAL ILLUSTRATIONS OF DEATH BENEFITS AND CASH SURRENDER VALUES....... 4

GENERAL INFORMATION ABOUT PRUDENTIAL, THE PRUDENTIAL VARIABLE
CONTRACT ACCOUNT GI-2, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CERTIFICATES....................................... 6
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA............................ 6
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2.......................... 6

THE FUNDS.................................................................... 6
FUND NAMES AND OBJECTIVES.............................................. 7
FUND FEES AND EXPENSES................................................. 8
FUND ADVISERS.......................................................... 9
THE FIXED ACCOUNT...................................................... 9

DETAILED INFORMATION ABOUT THE CERTIFICATES.................................. 10
ISSUANCE OF A CERTIFICATE.............................................. 10
APPLICANT OWNER PROVISION.............................................. 10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"........................... 10
PROCEDURES............................................................. 11
PREMIUMS............................................................... 11
EFFECTIVE DATE OF INSURANCE............................................ 11
ALLOCATION OF PREMIUMS................................................. 11
TRANSFERS.............................................................. 12
DOLLAR COST AVERAGING.................................................. 12
DEATH BENEFITS......................................................... 13
DEATH BENEFIT PAYMENT OPTIONS.......................................... 14
CHANGES IN FACE AMOUNT................................................. 15
CHARGES AND EXPENSES................................................... 16
DIVIDENDS/EXPERIENCE CREDITS........................................... 17
CASH SURRENDER VALUE................................................... 17
FULL SURRENDERS........................................................ 18
ELECTION OF PAID-UP INSURANCE.......................................... 18
PARTIAL WITHDRAWALS.................................................... 18
LOANS.................................................................. 19
LAPSE.................................................................. 19
TERMINATION OF A CONTRACTHOLDER'S PARTICIPATION IN THE GROUP CONTRACT.. 20
PARTICIPANTS WHO ARE NO LONGER ELIGIBLE GROUP MEMBERS.................. 20
OPTIONS ON TERMINATION OF COVERAGE..................................... 20
REINSTATEMENT.......................................................... 21
TAX TREATMENT OF CERTIFICATE BENEFITS.................................. 21
WHEN PROCEEDS ARE PAID................................................. 23
BENEFICIARY............................................................ 24
INCONTESTABILITY....................................................... 24
MISSTATEMENT OF AGE.................................................... 24
SUICIDE EXCLUSION...................................................... 24
ASSIGNMENT............................................................. 24
VOTING RIGHTS.......................................................... 24
SUBSTITUTION OF FUND SHARES............................................ 25
ADDITIONAL INSURANCE BENEFITS.......................................... 25
REPORTS................................................................ 26
SALE OF THE CONTRACT................................................... 26
RATINGS AND ADVERTISEMENTS............................................. 26
STATE REGULATION....................................................... 27
EXPERTS................................................................ 27
LITIGATION............................................................. 27
YEAR 2000 COMPLIANCE................................................... 28
ADDITIONAL INFORMATION................................................. 28

DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS......................... 29

DIRECTORS AND OFFICERS OF PRUDENTIAL......................................... 31

<PAGE>

FINANCIAL STATEMENTS......................................................... 35

CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA AND SUBSIDIARIES............................................A-1

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR
EACH OF THE FUNDS.

iii

<PAGE>

BRIEF DESCRIPTION OF THE GROUP CONTRACT
AND CERTIFICATES

The following section provides brief answers to some common questions about the
more significant features of the Group Variable Universal Life Insurance
Contracts and Certificates issued under the AICPA Insurance Trust. More detailed
information is provided in the subsequent sections of this prospectus and in the
Certificate itself.

WHAT IS THE GROUP VARIABLE UNIVERSAL LIFE INSURANCE CONTRACT?

It is the insurance contract issued by Prudential to Bankers Trust Company, as
Trustee of the American Institute of Certified Public Accountants Insurance
Trust, that sets forth the terms under which eligible members of the group can
obtain life insurance protection for themselves and certain dependents. Eligible
Group Members (or eligible Applicant Owners who obtain coverage on Eligible
Group Members) who obtain such insurance (each, a "Participant") receive a
Certificate describing their coverage. Certificates will provide for a Death
Benefit and a Cash Surrender Value. Both the Death Benefit and the Cash
Surrender Value of a Certificate will vary daily with the performance of the
investment options chosen by the Participant. Prudential will determine the
share, if any, of its divisible surplus allocable to the Group Contract as of
each Contract Anniversary, if the Group Contract stays in force by the payment
of all required premiums to that date. The divisible surplus, if any, will pass
through to Participants in the form of an annual refund, which will be applied
toward premium payments, unless Aon Securities Corporation is notified in
writing that refunds, if any, are to be paid in cash.

HOW IS THE DEATH BENEFIT UNDER A CERTIFICATE COMPUTED?

A Participant will choose a Face Amount of insurance for his or her Certificate,
within certain limits. The Death Benefit will generally be that Face Amount plus
the value of the Participant's Certificate Fund as of the date of death. The
Certificate Fund initially consists of the Net Premiums invested in the
investment options chosen by the Participant. The value of the Certificate Fund
will vary daily to reflect the investment performance of the selected option(s)
and the deduction of charges by Prudential. Under certain circumstances, the
Death Benefit will be increased above the value of the Face Amount plus the
Certificate Fund to assure that the Certificate continues to meet the definition
of "life insurance" under the Internal Revenue Code. Any Death Benefit otherwise
payable will be reduced by any Certificate Debt and outstanding charges. See
DEATH BENEFITS, page 13.

HOW IS THE CASH SURRENDER VALUE OF A CERTIFICATE COMPUTED?

The Cash Surrender Value of a Certificate as of any date is equal to the value
of the Certificate Fund as of that date, reduced by any Certificate Debt and
outstanding charges. See CASH SURRENDER VALUE, page 17.

WHAT PREMIUMS MUST BE PAID?

A Participant generally has flexibility to select the frequency and amount of
premium payments, and the insurance will remain in force so long as the balance
in the Certificate Fund is sufficient to pay the monthly charges under the
Certificate. An initial minimum premium equaling the cost of coverage for the
first two months will be required to enroll as a Participant. If the balance in
the Certificate Fund is not sufficient to pay any month's charges, and the
Participant fails to make premium payments sufficient to bring the balance above
this minimum amount during the grace period, the Participant's insurance will
lapse. See PREMIUMS, page 11.

WHAT INVESTMENT OPTIONS ARE AVAILABLE?

The Separate Account has ten subaccounts that are currently available to
Participants. Each of these subaccounts invests in a single corresponding Fund.
The Contractholder cannot substitute other Funds for any Funds that it has
already selected. However, the Contractholder may in the future select
additional Funds up to a total of twenty. Participants in the Contractholder's
insurance program will be allowed to allocate their premium payments only to the
Subaccounts that correspond to the Funds chosen by the Contractholder or to the
Fixed Account, an option under which interest is credited at rates declared
periodically by Prudential. See THE FIXED ACCOUNT, page 9. For more information
about the Funds and the different investment objectives of each Fund available
to Participants, see THE FUNDS, page 6. Additional information about each Fund
is contained in its respective prospectus.

<PAGE>

DO CERTIFICATES PROVIDE PARTICIPANTS WITH CHOICE AND FLEXIBILITY IN
ADDRESSING A RANGE OF DIFFERENT INSURANCE PROTECTION AND INVESTMENT
OBJECTIVES?

Yes. Because the Cash Surrender Value of a Participant's insurance will vary
with the investment experience of the investment options, a Certificate under
the Group Contract offers an opportunity for the Cash Surrender Value to
appreciate more than it would under comparable insurance without variable
investment options. It is also possible, however, for the Cash Surrender Value
to decrease in value if the investment experience of the selected investment
option(s) is unfavorable. The variable investment options vary in their risks,
and Participants can choose to direct the amounts in their Certificate Fund to
more aggressive or more conservative variable investment options as their
personal circumstances and investment objectives may dictate over time.

Participants who prefer to avoid or reduce the risks involved in any of the
variable options may elect to allocate all or a portion of Net Premiums to the
Fixed Account. Prudential guarantees that the part of the Certificate Fund
allocated to this option will accrue interest daily at a rate that Prudential
declares periodically. Although this rate will change from time to time, it will
not be less than an effective annual rate of 4%. See THE FIXED ACCOUNT, page 9.

In short, the Certificate's investment options and premium flexibility can be
used to meet the changing needs of Participants over time.

WHAT CHARGES ARE MADE?

Prudential deducts certain charges from each premium payment and from the
amounts held in the designated investment option(s). All of these charges, which
are designed to compensate Prudential for insurance costs and risks, as well as
cover Prudential's expenses, are fully described under CHARGES AND EXPENSES,
page 16. The following diagram briefly outlines the charges that may be made.

<PAGE>

---------------------------------------------------------------------
PREMIUM PAYMENT
---------------------------------------------------------------------
|
|
----------------------------------------------------------
o less a charge (currently 2.5%) for taxes attributable
to premium payments. In some jurisdictions, an
administrative expense charge (also currently 2.5%) is
deducted instead of a charge for taxes attributable to
premium payments.
----------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
NET PREMIUM AMOUNT

o To be invested in one or a combination of the investment options available
to the Participant.
- --------------------------------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
DAILY CHARGES

o A daily charge is deducted from the assets of the Subaccounts of the
Separate Account for mortality and expense risks. The current daily charge
is equivalent to an effective annual rate of 0.45%. The charge is
guaranteed not to exceed an effective annual rate of 0.90%. The daily
charge does not apply to the Fixed Account.

o Investment management fees and expenses are deducted from the assets of
the Funds. In 1997, the total expenses (after expense reimbursement) of
the Funds ranged from 0.37% to 1.83% of their average net assets. See
page 8.
- --------------------------------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
MONTHLY CHARGES

o A charge for the cost of insurance is deducted from the Certificate Fund.

o Currently, no monthly administrative expense charge is deducted. However,
Prudential reserves the right to deduct such a charge, which will not
exceed $4 per month.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES

o Prudential will assess a charge equal to the lesser of $10 or 2% of the
amount withdrawn for every partial withdrawal. Prudential may increase
this charge in the future, but it will not exceed $20.

o Prudential will assess a transaction charge of $10 for each request for an
additional statement. Prudential may increase this charge in the future,
but it will not exceed $20.

o Prudential will assess a charge of $10 for each transfer after the twelfth
transfer in a Certificate Year. Prudential may increase this charge in the
future, but it will not exceed $20.

o Prudential does not assess a charge for any other taxes imposed upon the
operations of the Separate Account, but reserves the right to assess such
a charge.
- --------------------------------------------------------------------------------

WHAT WITHDRAWAL OR LOAN RIGHTS DO PARTICIPANTS HAVE?

At any time while a Certificate is in effect, a Participant may elect to
surrender his or her insurance and receive its Cash Surrender Value. A
Participant may also request a partial withdrawal from the Certificate Fund. See
FULL SURRENDERS, page 18, and PARTIAL WITHDRAWALS, page 18.

A Participant may borrow a total amount up to the Loan Value of his or her
Certificate. The Loan Value of a Certificate at any time is determined by
multiplying the Certificate Fund by 90% (or higher where required by state law)
and then subtracting any existing loan with accrued interest, outstanding
charges, and the amount of the next month's charges. When a loan is taken, an
amount equal to the loan is transferred from the investment options to a Loan
Account that remains part of the Certificate Fund. Prudential will generally
credit interest to the amount in the Loan Account at an annual rate equal to the
Fixed Account crediting rate, which will in no event be less than 4%. The
interest rate of the loan is currently 1% greater than (and generally will range
between 1 and 2% greater than) the crediting rate of the Loan Account. Any
outstanding Certificate Debt will be deducted from proceeds payable at the
Covered Person's death or upon surrender. See LOANS, page 19.

<PAGE>

HOW IS A PARTICIPANT'S INSURANCE AFFECTED IF HE OR SHE IS NO LONGER A
MEMBER OF THE GROUP?

A Participant may surrender the Certificate for its Cash Surrender Value, elect
to use the Cash Surrender Value of the Certificate to purchase paid-up
insurance, or convert the Certificate to an individual life insurance policy.
See OPTIONS ON TERMINATION OF COVERAGE, page 20.

WHAT IS THE FEDERAL INCOME TAX STATUS OF AMOUNTS RECEIVED UNDER A
CERTIFICATE?

Variable life insurance contracts, such as those offered by this Prospectus,
receive the same federal income taxation treatment as conventional fixed benefit
life insurance. This means, first, that any Death Benefit paid would generally
be excluded from the gross income of the beneficiary. Second, any annual
increases in the value of the Certificate Fund, whether from income or capital
appreciation, would not be included in the taxable income of a Participant.
Third, assuming that premiums are not paid above levels that would make a
Certificate a "Modified Endowment Contract" as defined in the Internal Revenue
Code, pre-death distributions, whether in the form of surrenders or partial
withdrawals, would be treated first as a return of the Participant's investment
in the Certificate and then as a distribution of taxable income, and loans would
not be treated as distributions at the time the loan was made. See TAX TREATMENT
OF CERTIFICATE BENEFITS, page 21.

HYPOTHETICAL ILLUSTRATIONS OF
DEATH BENEFITS AND CASH SURRENDER VALUES

The illustrations that follow show how the Death Benefit and Cash Surrender
Value change with the investment experience of the Separate Account. They are
not projections of values; they are intended to show how a Certificate works.
They are "hypothetical" because they are based upon several assumptions, as
described below.

Two sets of three illustrations appear below. The first set of three
illustrations assumes that a 35-year old Covered Person has purchased the
Certificate, while the second set of three illustrations assumes that a 50- year
old Covered Person has purchased the Certificate.

The first illustration of each set assumes that the maximum administrative,
mortality and expense risk, and cost of insurance charges permitted under the
Contract are charged. Specifically, the first illustration assumes (1) a monthly
administrative charge of $4; (2) daily charges for mortality and expense risks
equivalent to an effective annual charge of 0.90%; and (3) the maximum
guaranteed monthly cost of insurance charges (based on the 1980 Commissioner's
Standard Ordinary Mortality Table, Male, Age Last Birthday).

The second illustration of each set assumes that the current administrative and
mortality and expense risk charges under the Contract are assessed for the
indefinite future. Specifically, the second illustration assumes (1) no monthly
administrative charge and (2) daily charges for mortality and expense risks
equivalent to an effective annual charge of 0.45%. The second illustration also
assumes that the current monthly cost of insurance charges for a Covered Person
in the standard risk charge are assessed for the indefinite future.

The third illustration of each set assumes the same charges as the second
illustration, except that the third illustration assumes that the current
monthly cost of insurance charges for a Covered Person in the select status risk
class, rather than the standard risk class, are charged for the indefinite
future.

All of the illustrations assume: (1) that a Certificate is purchased with a face
amount of $100,000; (2) that a premium of $1,200 is paid at issuance and
annually on each Certificate Anniversary; (3) that a 2.5% charge is deducted for
taxes attributable to premiums; (4) that no processing charges are assessed; and
(5) that the Certificate Fund has been invested in equal amounts in each of the
ten available Funds.

Finally, there are four assumptions, shown separately in each illustration,
about the average investment performance of the portfolios. The first is that
there will be a uniform zero percent gross rate of return, that is, that the
average value of the Certificate Fund will uniformly be adversely affected by
very unfavorable investment performance. The other three assumptions are that
investment performance will be at a uniform gross annual rate of 4%, 8%, and
12%. These, of course, are merely assumptions, and actual returns will fluctuate
from year to year. Nevertheless, these illustrations show how the Cash Surrender
Value and the Death Benefit change with investment experience.

<PAGE>

The first column in each illustration shows the Certificate Year. The second
column, to provide context, shows what the aggregate amount would be if the
assumed premiums had been invested in a savings account crediting interest at a
4% effective annual rate. Of course, if that were done, there would be no life
insurance protection. The next four columns show the Death Benefit payable in
each of the years shown for the four different assumed investment returns. Note
that a gross return (as well as the net return) is shown at the top of each
column. The gross return represents the combined effect of income and capital
appreciation of the portfolios before any reduction is made for investment
management fees or other Fund expenses. The net return reflects an average total
annual expense ratio of the ten Funds of 0.79% and the daily mortality and
expense risks charge described above. Thus, assuming gross returns of 0%, 4%,
8%, and 12%, the equivalent net returns for the first illustration of each set
are -1.69%, 2.31%, 6.31%, and 10.31%, respectively; and the net returns for the
second and third illustration of each set are -1.24%, 2.76%, 6.76%, and 10.76%,
respectively. The Death Benefits and Cash Surrender Values shown reflect the
deduction of all expenses and charges both for the Subaccounts and under the
Certificate.

The amounts shown assume that there is no loan or partial withdrawal.

Although Prudential may pay Dividends or Experience Credits to the
Contractholder, which may distribute those Dividends/Experience Credits to
Participants as annual refunds, none of the illustrations reflect any annual
refund. See DIVIDENDS/EXPERIENCE CREDITS, page 17.

Upon request, Prudential will provide comparable hypothetical illustrations for
a Certificate reflecting the proposed Covered Person's age, risk class, proposed
Face Amount of insurance, and proposed premium payments.

<PAGE>

ILLUSTRATIONS

GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
SPECIFIED FACE AMOUNT: $100,000
ISSUE AGE 35
ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES

Death Benefit (1) Cash Surrender Value (1)
--------------------------------------------------- -------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums --------------------------------------------------- -------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.69% Net) (2.31% Net) (6.31% Net) (10.31% Net) (-1.69% Net) (2.31% Net) (6.31% Net) (10.31% Net)
---- -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $100,887 $100,929 $100,970 $101,011 $ 887 $ 929 $ 970 $ 1,011
2 2,546 101,746 101,864 101,986 102,111 1,746 1,864 1,986 2,111
3 3,896 102,573 102,804 103,048 103,306 2,573 2,804 3,048 3,306
4 5,300 103,366 103,745 104,157 104,604 3,366 3,745 4,157 4,604
5 6,760 104,124 104,686 105,313 106,012 4,124 4,686 5,313 6,012
6 8,278 104,844 105,623 106,516 107,539 4,844 5,623 6,516 7,539
7 9,857 105,526 106,555 107,768 109,195 5,526 6,555 7,768 9,195
8 11,499 106,167 107,478 109,068 110,991 6,167 7,478 9,068 10,991
9 13,207 106,765 108,391 110,417 112,938 6,765 8,391 10,417 12,938
10 14,984 107,321 109,291 111,817 115,051 7,321 9,291 11,817 15,051
15 24,989 109,380 113,488 119,588 128,648 9,380 13,488 19,588 28,648
20 37,163 109,898 116,687 128,487 149,046 9,898 16,687 28,487 49,046
25 51,974 108,121 117,793 137,845 179,367 8,121 17,793 37,845 79,367
30 69,994 103,022 115,228 146,378 224,312 3,022 15,228 46,378 124,312
35 91,918 0(2) 106,187 151,186 290,274 0(2) 6,187 51,186 190,274
40 118,592 0 0(2) 146,921 390,937 0 0(2) 46,921 286,076(3)
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

(3) As illustrated, the certificate's Death Benefit has been increased in order
to satisfy the Definition of Life Insurance.

THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, FEDERAL AND
STATE INCOME TAXES, AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER
VALUE FOR A CERTIFICATE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATE
OF RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS. NO
REPRESENTATIONS CAN BE MADE BY PRUDENTIAL OR THE FUNDS THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR OVER ANY PERIOD OF TIME.

T-1

<PAGE>

ILLUSTRATIONS

GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
SPECIFIED FACE AMOUNT: $100,000
ISSUE AGE 35
ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES AND STANDARD COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
------------------------------------------------- --------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums ------------------------------------------------- --------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net) (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net)
---- -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $101,039 $101,084 $101,128 $101,172 $1,039 $ 1,084 $ 1,128 $ 1,172
2 2,546 102,066 102,197 102,332 102,470 2,066 2,197 2,332 2,470
3 3,896 103,079 103,341 103,617 103,908 3,079 3,341 3,617 3,908
4 5,300 104,080 104,517 104,990 105,501 4,080 4,517 4,990 5,501
5 6,760 105,069 105,725 106,455 107,265 5,069 5,725 6,455 7,265
6 8,278 105,987 106,907 107,959 109,157 5,987 6,907 7,959 9,157
7 9,857 106,894 108,122 109,564 111,253 6,894 8,122 9,564 11,253
8 11,499 107,790 109,370 111,277 113,574 7,790 9,370 11,277 13,574
9 13,207 108,674 110,653 113,107 116,145 8,674 10,653 13,107 16,145
10 14,984 109,548 111,971 115,060 118,992 9,548 11,971 15,060 18,992
15 24,989 113,359 118,689 126,509 138,004 13,359 18,689 26,509 38,004
20 37,163 116,203 125,571 141,485 168,697 16,203 25,571 41,485 68,697
25 51,974 117,174 131,574 160,173 223,148 17,174 31,574 60,173 117,550(3)
30 69,994 116,103 136,257 183,664 327,566 16,103 36,257 83,664 195,219
35 91,918 110,845 136,918 211,038 473,224 10,845 36,918 111,038 314,723
40 118,592 0(2) 126,695 236,861 668,515 0(2) 26,695 136,861 489,199
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

(3) As illustrated, the certificate's Death Benefit has been increased in order
to satisfy the Definition of Life Insurance.

T-2

<PAGE>

ILLUSTRATIONS

Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------------- -------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums --------------------------------------------------- -------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net) (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net)
---- -------------- ------------ ----------- ----------- ------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $101,039 $101,084 $101,128 $101,172 $1,039 $ 1,084 $ 1,128 $ 1,172
2 2,546 102,066 102,197 102,332 102,470 2,066 2,197 2,332 2,470
3 3,896 103,079 103,341 103,617 103,908 3,079 3,341 3,617 3,908
4 5,300 104,080 104,517 104,990 105,501 4,080 4,517 4,990 5,501
5 6,760 105,069 105,725 106,455 107,265 5,069 5,725 6,455 7,265
6 8,278 105,987 106,907 107,959 109,157 5,987 6,907 7,959 9,157
7 9,857 106,894 108,122 109,564 111,253 6,894 8,122 9,564 11,253
8 11,499 107,790 109,370 111,277 113,574 7,790 9,370 11,277 13,574
9 13,207 108,674 110,653 113,107 116,145 8,674 10,653 13,107 16,145
10 14,984 109,548 111,971 115,060 118,992 9,548 11,971 15,060 18,992
15 24,989 113,359 118,689 126,509 138,004 13,359 18,689 26,509 38,004
20 37,163 116,798 126,230 142,214 169,503 16,798 26,230 42,214 69,503
25 51,974 118,839 133,553 162,537 228,522 18,839 33,553 62,537 120,381(3)
30 69,994 119,368 140,406 189,024 339,580 19,368 40,406 89,024 202,380
35 91,918 116,888 144,966 222,115 498,725 16,888 44,966 122,115 331,682
40 118,592 107,615 142,504 259,508 722,175 7,615 42,504 159,508 528,466
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

(3) As illustrated, the certificate's Death Benefit has been increased in order
to satisfy the Definition of Life Insurance.

T-3

<PAGE>

ILLUSTRATIONS

GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
SPECIFIED FACE AMOUNT: $100,000
ISSUE AGE 50
ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES

Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------------- --------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums -------------------------------------------------- --------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.69% Net) (2.31% Net) (6.31% Net) (10.31% Net) (-1.69% Net) (2.31% Net) (6.31% Net) (10.31% Net)
---- -------------- ------------ ----------- ----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $100,408 $100,439 $100,470 $100,501 $ 408 $ 439 $ 470 $ 501
2 2,546 100,748 100,825 100,904 100,987 748 825 904 987
3 3,896 101,013 101,149 101,295 101,450 1,013 1,149 1,295 1,450
4 5,300 101,193 101,399 101,627 101,876 1,193 1,399 1,627 1,876
5 6,760 101,284 101,567 101,889 102,254 1,284 1,567 1,889 2,254
6 8,278 101,279 101,641 102,068 102,569 1,279 1,641 2,068 2,569
7 9,857 101,173 101,615 102,155 102,810 1,173 1,615 2,155 2,810
8 11,499 100,965 101,481 102,137 102,965 965 1,481 2,137 2,965
9 13,207 100,647 101,229 102,001 103,016 647 1,229 2,001 3,016
10 14,984 100,211 100,844 101,728 102,940 211 844 1,728 2,940
15 24,989 0(2) 0(2) 0(2) 0(2) 0(2) 0(2) 0(2) 0(2)
20 37,163 0 0 0 0 0 0 0 0
25 51,974 0 0 0 0 0 0 0 0
30 69,994 0 0 0 0 0 0 0 0
35 91,918 0 0 0 0 0 0 0 0
40 118,592 0 0 0 0 0 0 0 0
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

T-4

<PAGE>

ILLUSTRATIONS

GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
SPECIFIED FACE AMOUNT: $100,000
ISSUE AGE 50
ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES AND STANDARD COST OF INSURANCE CHARGES

Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------------- -------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums -------------------------------------------------- -------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net) (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net)
---- -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $100,749 $100,787 $100,825 $100,863 $ 749 $ 787 $ 825 $ 863
2 2,546 101,488 101,595 101,705 101,819 1,488 1,595 1,705 1,819
3 3,896 102,218 102,426 102,645 102,877 2,218 2,426 2,645 2,877
4 5,300 102,940 103,279 103,649 104,049 2,940 3,279 3,649 4,049
5 6,760 103,652 104,156 104,720 105,348 3,652 4,156 4,720 5,348
6 8,278 104,007 104,701 105,500 106,415 4,007 4,701 5,500 6,415
7 9,857 104,357 105,262 106,333 107,597 4,357 5,262 6,333 7,597
8 11,499 104,703 105,837 107,222 108,906 4,703 5,837 7,222 8,906
9 13,207 105,045 106,429 108,171 110,356 5,045 6,429 8,171 10,356
10 14,984 105,382 107,037 109,184 111,962 5,382 7,037 9,184 11,962
15 24,989 105,024 108,141 112,947 120,304 5,024 8,141 12,947 20,304
20 37,163 100,437 104,701 112,962 128,459 437 4,701 12,962 28,459
25 51,974 0(2) 0(2) 100,839 128,633 0(2) 0(2) 839 28,633
30 69,994 0 0 0(2) 114,674 0 0 0(2) 14,674
35 91,918 0 0 0 0(2) 0 0 0 0(2)
40 118,592 0 0 0 0 0 0 0 0
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

T-5

<PAGE>

ILLUSTRATIONS

Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of Premiums -------------------------------------------------- ---------------------------------------------------
Certificate Accumulated 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year at 4% per year (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net) (-1.24% Net) (2.76% Net) (6.76% Net) (10.76% Net)
---- -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,248 $100,871 $100,911 $100,952 $100,993 $ 871 $ 911 $ 952 $ 993
2 2,546 101,731 101,848 101,968 102,092 1,731 1,848 1,968 2,092
3 3,896 102,580 102,810 103,053 103,310 2,580 2,810 3,053 3,310
4 5,300 103,419 103,799 104,212 104,659 3,419 3,799 4,212 4,659
5 6,760 104,247 104,815 105,449 106,153 4,247 4,815 5,449 6,153
6 8,278 104,821 105,610 106,514 107,548 4,821 5,610 6,514 7,548
7 9,857 105,388 106,427 107,652 109,093 5,388 6,427 7,652 9,093
8 11,499 105,948 107,266 108,867 110,805 5,948 7,266 8,867 10,805
9 13,207 106,501 108,129 110,163 112,700 6,501 8,129 10,163 12,700
10 14,984 107,047 109,015 111,548 114,800 7,047 9,015 11,548 14,800
15 24,989 108,289 112,290 118,307 127,334 8,289 12,290 18,307 21,334
20 37,163 106,479 112,749 124,039 144,203 6,479 12,749 24,039 44,203
25 51,974 0(2) 105,590 123,487 162,929 0(2) 5,590 23,487 62,929
30 69,994 0 0(2) 102,542 171,842 0 0(2) 2,542 71,842
35 91,918 0 0 0(2) 165,786 0 0 0(2) 65,786
40 118,592 0 0 0 124,018 0 0 0 24,018
</TABLE>

(1) Assumes no loan or partial withdrawal has been made.

(2) Zero value in cash value and death benefit indicates lapse of insurance
coverage in the absence of a sufficient additional premium payment.

T-6

<PAGE>

GENERAL INFORMATION ABOUT PRUDENTIAL, THE
PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2, AND
THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER
THE CERTIFICATES

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
or more years to complete. No plan of demutualization has been adopted yet by
Prudential's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Prudential policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by the
Board of Directors and management of Prudential as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.

Prudential is licensed to sell life insurance and annuities in all states, in
the District of Columbia, and in all United States territories and possessions.
Prudential's consolidated financial statements begin on page A-1 (following page
35) and should be considered only as bearing upon Prudential's ability to meet
its obligations under the Group Contract and the insurance provided thereunder.
Prudential and its affiliates act in a variety of capacities with respect to
registered investment companies including as depositor, adviser, and principal
underwriter.

THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2

The Prudential Variable Contract Account GI-2 (the "Separate Account") was
established on June 14, 1988 under New Jersey law as a separate investment
account. The Separate Account meets the definition of a "separate account" under
the federal securities laws. The Separate Account holds assets that are
segregated from all of Prudential's other assets.

The obligations arising under the Group Contracts and the Certificates are
general corporate obligations of Prudential. Prudential is also the legal owner
of the assets in the Separate Account. Prudential will maintain assets in the
Separate Account with a total market value at least equal to the liabilities
relating to the benefits attributable to the Separate Account. These assets may
not be charged with liabilities which arise from any other business Prudential
conducts. In addition to these assets, the Separate Account's assets may include
funds contributed by Prudential to commence operation of the Separate Account
and may include accumulations of the charges Prudential makes against the
Separate Account. From time to time, these additional assets will be transferred
to Prudential's general account. Before making any such transfer, Prudential
will consider any possible adverse impact the transfer might have on the
Separate Account.

The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust, which is a type of investment company. This does not involve
any supervision by the SEC of the management or investment policies or practices
of the Separate Account. For state law purposes, the Separate Account is treated
as a part or division of Prudential. There are currently 136 Subaccounts within
the Separate Account, 10 of which are available to Participants, and each of
which invests in a single corresponding portfolio of the Funds. Prudential
reserves the right to take all actions in connection with the operation of the
Separate Account that are permitted by applicable law (including those permitted
upon regulatory approval).

THE FUNDS

Set out below is a list of each Fund currently available to Participants, that
Fund's investment objective, and for some of the Funds, additional investment
policy information. The chart following this list provides investment management
fees and other expenses for each Fund. Information about the investment adviser
or investment manager follows the chart. As shown in the fees and expenses
chart, two of the Funds have adopted distribution plans pursuant to Rule 12b-1
of the 1940 Act; under these plans, the two Funds may make payments to
Prudential and/or its affiliates for certain marketing efforts.

<PAGE>

FUND NAMES AND OBJECTIVES

THE PRUDENTIAL SERIES FUND, INC.

MONEY MARKET PORTFOLIO: The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations.

FLEXIBLE MANAGED PORTFOLIO: Achievement of a high total return consistent with a
portfolio having an aggressively managed mix of money market instruments, fixed
income securities, and common stocks, in proportions believed by the investment
manager to be appropriate for an investor desiring diversification of investment
who is willing to accept a relatively high level of loss in an effort to achieve
greater appreciation.

STOCK INDEX PORTFOLIO: Achievement of investment results that correspond to the
price and yield performance of publicly traded common stocks in the aggregate by
following a policy of attempting to duplicate the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.

EQUITY PORTFOLIO: Capital appreciation through investment primarily in common
stocks of companies, including major established corporations as well as smaller
capitalization companies, that appear to offer attractive prospects of price
appreciation that are superior to broadly-based stock indices. Current income,
if any, is incidental.

DREYFUS CORPORATION FUNDS

DREYFUS VARIABLE INVESTMENT FUND - SMALL CAP PORTFOLIO: Seeks to maximize
capital appreciation. This portfolio invests primarily in common stocks of
domestic and foreign issuers. This portfolio will be particularly alert to
companies that The Dreyfus Corporation considers to be emerging smaller-sized
companies which are believed to be characterized by new or innovative products,
services, or processes which should enhance prospects for growth in future
earnings.

FRANKLIN TEMPLETON

TEMPLETON VARIABLE PRODUCTS SERIES FUND - DEVELOPING MARKETS FUND: The
investment objective of the Developing Markets Fund is long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily in
equity securities of issuers in countries having developing markets.

TEMPLETON VARIABLE PRODUCTS SERIES FUND - INTERNATIONAL FUND: The International
Fund's investment objective is long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
outside the United States. In pursuit of its investment objective, the Fund will
normally invest at least 65% of its assets in securities of issuers in at least
three countries outside the United States.

INVESTORS FUND -- KEMPER SERIES

INVESTORS FUND SERIES - HIGH YIELD PORTFOLIO: Seeks to provide a high level of
current income by investing in fixed-income securities.

MFS VARIABLE INSURANCE TRUST

MFS RESEARCH SERIES: Seeks to provide long-term growth of capital and future
income.

NEUBERGER&BERMAN MANAGEMENT INC. ("NBMI")

NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST ("N&B AMT") - LIMITED MATURITY BOND
PORTFOLIO: Seeks the highest current income consistent with low risk to
principal and liquidity; and secondarily, total return. Investments are made in
a diversified portfolio primarily consisting of U.S. Government and Agency
securities and investment grade debt securities issued by financial
institutions, corporations, and others.

<PAGE>

FUND FEES AND EXPENSES

================================================================================
| INVESTMENT | | | TOTAL FUND
FUNDS | MANAGEMENT | 12B-1 | OTHER | ANNUAL
| FEE | FEES | EXPENSES | EXPENSES
- ----------------------------------|-------------|--------|----------|-----------
THE PRUDENTIAL SERIES FUND | | | |
Money Market Portfolio (1) | 0.40% | | 0.03% | 0.43%
Flexible Managed Portfolio (1) | 0.60% | | 0.02% | 0.62%
Stock Index Portfolio (1) | 0.35% | | 0.02% | 0.37%
Equity Portfolio (1) | 0.45% | | 0.01% | 0.46%
- ----------------------------------|-------------|--------|----------|-----------
DREYFUS VARIABLE INVESTMENT FUND | | | |
Small Cap Portfolio | 0.75% | | 0.03% | 0.78%
- ----------------------------------|-------------|--------|----------|-----------
TEMPLETON VARIABLE PRODUCT SERIES | | | |
FUND CLASS 2 SHARES | | | |
Developing Markets Fund (2) | 1.25% | 0.25% | 0.33% | 1.83%
International Fund (3) | 0.69% | 0.25% | 0.19% | 1.13%
- ----------------------------------|-------------|--------|----------|-----------
INVESTORS FUND-KEMPER SERIES | | | |
High-Yield Portfolio | 0.60% | | 0.05% | 0.65%
- ----------------------------------|-------------|--------|----------|-----------
MFS VARIABLE INSURANCE TRUST | | | |
MFS Research Series (4) | 0.75% | | 0.13% | 0.88%
- ----------------------------------|-------------|--------|----------|-----------
NEUBERGER&BERMAN ADVISERS | | | |
MANAGEMENT | | | |
N&B AMT Limited Maturity Bond | 0.65% | | 0.12% | 0.77%
Portfolio (5) | | | |
================================================================================

(1) THE PRUDENTIAL SERIES FUND. With respect to the Series Fund portfolios,
Prudential reimburses a portfolio when its ordinary operating expenses,
excluding taxes, interest, and brokerage commissions, exceed 0.75% of the
portfolio's average daily net assets. The amounts listed for the portfolios
under Other Expenses are based on amounts incurred in the last fiscal year.

(2) FRANKLIN TEMPLETON VARIABLE PRODUCTS SERIES FUND CLASS 2 SHARES. Class 2 of
the Developing Markets Fund has a distribution plan or "Rule 12b-1 plan"
which is described in the Fund's prospectus. Because Class 2 shares were
not offered until May 1, 1997, figures (other than "12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1997.

(3) FRANKLIN TEMPLETON VARIABLE PRODUCTS SERIES FUND CLASS 2 SHARES. Class 2 of
the International Fund has a distribution plan or "Rule 12b-1 Plan" which
is described in the Fund's prospectus. Because Class 2 shares were not
offered until May 1, 1997, figures (other than "Rule 12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1997, except that Management
Fees and Total Fund Operating Expenses have also been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. Actual Management Fees and Total Fund Operating Expenses during 1997
were lower. See fund prospectus for details.

(4) MFS VARIABLE INSURANCE TRUST. The Series has an expense offset arrangement
which reduces the Series' custodian fees based upon the amount of cash
maintained by the Series with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed brokerage
arrangements (which also have the effect of reducing the Series' expenses).
Any such fee reductions are not reflected under "Other Expenses."

(5) NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST. Shares of the separate
Portfolios of Neuberger&Berman Advisers Management Trust are sold only
through the currently effective prospectus and are not available to the
general public. Shares of the AMT Portfolios may be purchased only by life
insurance companies to be used with their separate accounts which fund
variable annuity and variable life insurance policies.

Neuberger&Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust ("Managers
Trust"), an open-ended management investment company. The figures reported
under "Investment Management/Administrative Fees" include the aggregate of
the administration fees paid by the Portfolio and the management fees paid
by its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.

<PAGE>

FUND ADVISERS

Prudential is the investment adviser of each of the portfolios of the Prudential
Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a service agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. Further
detail is provided in the prospectus and statement of additional information for
the Series Fund. Prudential and PIC are registered as investment advisers under
the Investment Advisers Act of 1940.

The Dreyfus Corporation ("Dreyfus") is the investment adviser to the Dreyfus
Variable Investment Small Cap Portfolio. Dreyfus' principal business address is
200 Park Avenue, New York, New York 10166. The principal underwriter of the
Small Cap Portfolio is Premier Mutual Fund Services, Inc., located at 60 State
Street, Boston, Massachusetts 02109.

Templeton Investment Counsel, Inc. ("TICI") serves as the investment manager for
the Templeton Variable Products International Fund. TICI is a Florida
corporation with offices at Broward Financial Centre, Fort Lauderdale, Florida
33394-3091. The Investment Manager for the Developing Markets Fund is Templeton
Asset Management Ltd., a Singapore corporation with offices at 7 Temasek Blvd.,
#38-03, Suntec Tower One, Singapore 038987. The principal underwriter of the
Funds is Franklin Templeton Distributors, Inc., 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205.

The asset manager of the Investors Fund Series High-Yield Portfolio is Scudder
Kemper Investments, Inc. ("Scudder Kemper"). Scudder Kemper's principal business
address is Two International Place, Boston, Massachusetts 02110-4103.

The investment adviser for the MFS Research Series is Massachusetts Financial
Services Company ("MFS"). MFS' principal business address is 500 Boylston
Street, Boston, Massachusetts 02116. The principal underwriter of the series is
MFS Fund Distributors, Inc. located at 500 Boylston Street, Boston,
Massachusetts 02116.

Neuberger&Berman Management Inc. ("NBMI") serves as the investment manager of
the N&B AMT Limited Maturity Bond Portfolio and is also the principal
underwriter of the portfolio. NBMI's principal business address is 605 Third
Avenue, New York, New York 10158-0180.

A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, THEIR EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, AND ALL OTHER ASPECTS OF THEIR OPERATIONS IS CONTAINED IN THE
PROSPECTUSES FOR EACH AVAILABLE FUND AND IN THE RELATED STATEMENTS OF ADDITIONAL
INFORMATION, WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS
NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE MET. SUBJECT TO COMPLIANCE
WITH APPLICABLE LAW, PRUDENTIAL MAY CEASE OFFERING ANY FUND AND MAY SUBSTITUTE
ANOTHER MUTUAL FUND FOR ANY FUND.

THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUDENTIAL BY THE FUNDS, AND HAVE NOT BEEN INDEPENDENTLY
VERIFIED BY PRUDENTIAL.

THE FIXED ACCOUNT

A Participant may elect to allocate all or part of the amount in his or her
Certificate Fund to the Fixed Account. The amount so allocated or transferred
becomes part of Prudential's general assets, commonly referred to as the general
account. Subject to applicable law, Prudential has sole discretion over the
investment of the assets of the general account, and Participants do not share
in the investment experience of those assets. Instead, Prudential guarantees
that the part of the Certificate Fund allocated to the Fixed Account will accrue
interest daily at a rate that Prudential declares periodically. This rate may
not be less than an effective annual rate of 4%, but Prudential may in its sole
discretion periodically declare a higher rate. At least annually and on request,
a Participant will be advised of the interest rate that currently applies to his
or her Certificate.

By allocating premium payments to the Fixed Account in amounts sufficient to
cover the monthly Certificate Fund charges, a Participant can use the
Certificate as a way to obtain life insurance coverage, with little or no
accumulation of Cash Surrender Value. Even such a Participant retains, of
course, the option to build a Cash Surrender Value by paying larger premiums and
applying the excess amount to any of the investment options available under the
Certificate.

<PAGE>

Transfers from the Fixed Account are subject to strict limits. See TRANSFERS,
page 12. The payment of any Cash Surrender Value attributable to the Fixed
Account may be delayed for up to 6 months. See WHEN PROCEEDS ARE PAID, page 23.

Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 and the general
account has not been registered as an investment company under the 1940 Act.
Accordingly, interests in the Fixed Account are not subject to the provisions of
these Acts, and Prudential has been advised that the staff of the SEC has not
reviewed the disclosure in this Prospectus relating to the Fixed Account.
Disclosures concerning the Fixed Account may, however, be subject to certain
provisions of the federal securities laws relating to the accuracy of statements
made in a prospectus.

DETAILED INFORMATION ABOUT THE CERTIFICATES

ISSUANCE OF A CERTIFICATE

Eligible Group Members wishing to obtain insurance coverage through the Group
Contract must complete and submit the appropriate enrollment form and undergo
any required medical underwriting, including in some cases a medical
examination. If the enrollment form is approved, Prudential will issue a
Certificate to that individual (the "Participant") which will describe the
rights, benefits, coverage, and obligations with respect to the coverage. The
minimum Face Amount for a Certificate is $10,000. The maximum age at which a
Certificate may initially be issued is 74. The maximum age beyond which a person
may no longer be covered under a Certificate is generally 100. At that time, the
Participant may: (1) elect to receive the Cash Surrender Value of the
Certificate; or (2) continue to hold the certificate. If the Participant chooses
the second option, monthly charges attributable to the cost of insurance will no
longer be required and the Death Benefit will equal the Certificate Fund reduced
by any Certificate Debt and any outstanding charges. In addition, the
Participant may not make premium contributions, although loan repayments will be
permitted. Prudential believes a cash distribution upon termination of coverage
will be subject to the same tax treatment as other cash surrenders. See TAX
TREATMENT OF CERTIFICATE BENEFITS, page 21. The Face Amount of life insurance
coverage may be reduced at ages 75 and 80. See CHANGES IN FACE AMOUNT, page 15.
Separate termination provisions apply to additional insurance coverage such as
Accidental Death and Dismemberment. See ADDITIONAL INSURANCE BENEFITS, page 25.
Participants should refer to their Certificate for the details of when coverage
will terminate.

APPLICANT OWNER PROVISION

Under the "applicant owner provision" of the Group Contract, an eligible
Applicant Owner may apply for insurance coverage on the life of an Eligible
Group Member. An eligible Applicant Owner is a person other than the Eligible
Group Member who may be, but is not limited to, the Eligible Group Member's
spouse, child, parent, grandparent, grandchild, sister, brother, or the trustee
of any trust of which the Eligible Group Member is the grantor. However, a
person who has not attained the age of majority will not be considered an
eligible Applicant Owner. At any one time, only one person may be an Applicant
Owner with respect to a Certificate.

The eligible Applicant Owner must complete the appropriate enrollment form,
which may require the Eligible Group Member to undergo any required medical
underwriting, including in some cases a medical examination. The enrollment form
must also be signed by the Eligible Group Member. If the enrollment form is
accepted, Prudential will issue a Certificate to the eligible Applicant Owner
which will describe the rights, benefits, coverage, and obligations with respect
to the coverage. This prospectus uses the term "Participant" to refer to both
(1) an Eligible Group Member who has obtained insurance coverage on his or her
own life and (2) an Applicant Owner who has obtained insurance coverage on the
life of an Eligible Group Member.

SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"

Generally, a Certificate may be returned for a refund within 30 days after it is
received by the Participant, provided the Certificate is not a replacement for
one previously issued under the Group Contract. Some states allow a longer
period of time during which a Certificate may be returned for a refund. A refund
can be requested by mailing or delivering the Certificate to Aon Securities
Corporation. The Participant who exercises his or her short-term cancellation
right will receive a refund of all premium payments made, with no adjustment for
investment experience. However, if applicable state law so requires, the
Participant will then receive a refund of all premium payments made, plus or
minus any change due to investment experience in the value of the invested
portion of the premiums, calculated as if no charges had been made against the
Separate Account or the Funds. During the first 30 days following the initial
Group Variable Universal Life Insurance

<PAGE>

Certificate Date, premium payments will be invested in the Fixed Account.
Prudential also reserves the right to limit contributions and transactions
during the Free Look period. If a change in your Group Variable Universal Life
Insurance Coverage results in a new Certificate Date, the "Free Look" provision
will not apply.

PROCEDURES

Enrollment forms, premium payments, transfer orders, reallocations, loan or
withdrawal requests or other communications relating to the Participant's
insurance should be submitted to Aon Securities Corporation, which will then
pass the communications on to Prudential. A Participant should consult the
applicable form, which will set forth the applicable procedures to submit a
payment or document, make transfers, request loans and withdrawals, or
reallocate premium payments. In all cases, enrollment forms and other documents,
payments, orders and all other communications will be deemed received by
Prudential when received in good order at the address specified on the form.

PREMIUMS

Participants will generally have flexibility in determining the amount and
timing of premium payments, although a Participant will be required to pay an
appropriate specified initial premium to become a Participant. The minimum
initial premium will equal the cost of coverage for the first two months. A
Certificate will remain in force so long as the Certificate Fund is sufficient
to cover monthly charges. In general, if the Certificate Fund minus Certificate
Debt and outstanding charges on any Monthiversary is insufficient to cover the
charges for that month, then the coverage will be in default and a grace period
will begin. See LAPSE, page 19.

In addition to any premium paid on a routine basis, for example through
automatic debit, a Participant may make additional premium payments called "lump
sums" at any time, subject to the charge deducted from premium payments. There
is no minimum amount for premiums paid on a routine basis, but a lump sum
premium payment must be at least $100. Prudential reserves the right to limit
the amount of such additional premiums.

Participants will remit payments to Aon Securities Corporation, which will then
forward them to Prudential as premium payments. Prudential will then allocate
net premium payments it receives, net of the charge deducted from premium
payments, to the Participant's investment options according to the instructions
received.

Due to the payment of premiums, or to investment growth, the death benefit may
have to be increased for the insurance to continue to qualify as life insurance
for federal tax purposes. In addition, if a Participant makes premium payments
in excess of certain limits, the tax status of the insurance may change to that
of a "Modified Endowment Contract" under Section 7702A of the Internal Revenue
Code, which could be significantly disadvantageous from a tax standpoint. See
TAX TREATMENT OF CERTIFICATE BENEFITS, page 21. Prudential reserves the right
not to accept or to return any lump sum premium payment which would cause a
Participant's insurance to fail to qualify as life insurance under applicable
tax laws, or which would increase the Death Benefit by more than it increases
the Certificate Fund.

EFFECTIVE DATE OF INSURANCE

When a Participant's insurance goes into effect depends upon what day of the
month Prudential approves the completed enrollment form. If Prudential approves
the completed enrollment form prior to the 20th day of the month, the
Participant's insurance will begin on the first day of the month that next
follows the date on which the Participant meets all requirements. If Prudential
approves the completed enrollment form on or after the 20th day of the month,
the Participant's insurance generally will begin on the first day of the month
after the month that follows the date on which the Participant meets all
requirements. That effective date is the Certificate Date.

ALLOCATION OF PREMIUMS

BEFORE OR ON CERTIFICATE DATE. All premium payments received before the
Certificate Date will be temporarily held in Prudential's general account.
During the period prior to the Certificate Date, Prudential will not pay
interest on these amounts. The premium payments received before the Certificate
Date, as well as any payments received on the Certificate Date, will transfer to
the Fixed Account as of the Certificate Date, after the deduction of the charge
imposed on premium payments. These Net Premiums will remain in the Fixed Account
for 30 days and will thereafter be allocated to the investment options selected
by the Participant. However, if the Participant has failed to furnish an
enrollment form containing complete investment allocation

<PAGE>

information, then the Participant's Net Premiums will remain invested in the
Fixed Account until complete information is furnished.

AFTER CERTIFICATE DATE. Premium payments made after the Certificate Date will be
reduced by the charge deducted from premium payments. Assuming the Certificate
has been effective for 30 days, such Net Premiums will be allocated to the
investment options selected by the Participant as of the end of the Valuation
Period in which Aon Securities Corporation receives such premium payments. Net
premiums received within the first 30 days after the Certificate Date will be
invested in the Fixed Account. If the Participant has failed to furnish an
enrollment form containing complete investment allocation information, then such
Participant's Net Premium payments submitted after the Certificate Date will be
invested in the Fixed Account until such complete information is furnished.

CHANGING PREMIUM ALLOCATIONS. If his or her insurance is not in default, a
Participant may change the way in which premiums are allocated among the
available investment options. Such a change will be effective as of the end of
the Valuation Period during which Aon Securities Corporation receives the
Participant's request on a form approved by Prudential. The minimum percentage
that a Participant may allocate to any available Subaccount or to the Fixed
Account is 5%, and all allocations must be in whole percentages. There is no
transaction charge for reallocating future premiums.

TRANSFERS

If his or her insurance is not in default, a Participant may transfer amounts
from one available Subaccount to another available Subaccount, or to the Fixed
Account. There is no limit on the number of transfers among available
Subaccounts or to the Fixed Account. Prudential will impose a transaction charge
of $10 for each transfer in excess of twelve in a Certificate Year and reserves
the right to charge up to $20 for each such transfer in excess of twelve.

Transfers will take effect as of the end of the Valuation Period in which a
proper transfer request is received by Aon Securities Corporation on a form
approved by Prudential. The request may be in terms of dollars, such as a
request to transfer $10,000 from one available Subaccount to another available
Subaccount, or may be in terms of a percentage reallocation among available
Subaccounts. The minimum amount that may be transferred from any one investment
option is $100 or the entire balance in that investment option, whichever is
less. For transfer requests in percentage terms, as with premium reallocations,
the percentages must be in whole numbers and no allocation may be less than 5%.

Transfers from the Fixed Account to the available Subaccounts are currently
permitted once each Certificate Year. The amount of that transfer cannot exceed
$5,000 or 25% of the balance in the Fixed Account, whichever is greater. Such
transfer requests will take effect as of the end of the Valuation Period in
which a proper transfer request is received by Aon Securities Corporation on a
form approved by Prudential. These limits are subject to change in the future.
The transfer from the Fixed Account to the subaccounts following the period
during which the Free Look provision applies is not subject to these
limitations.

The Group Contracts and Certificates were not designed for professional market
timing organizations or other organizations or individuals using programmed,
large, or frequent transfers. A pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to the Separate Account and the Funds
and will be discouraged. If such a pattern were to be found, Prudential may be
required to modify the transfer procedures, including but not limited to not
accepting transfer requests of an agent acting under a power of attorney on
behalf of more than one Certificate owner.

DOLLAR COST AVERAGING

A Participant may elect Dollar Cost Averaging ("DCA"). DCA enables a Participant
to systematically transfer specified dollar amounts from the Series Fund Money
Market Subaccount to the other available Subaccounts at monthly intervals. The
Participant may elect that a certain number of transfers be made under the DCA
feature.

To initiate DCA, a Participant must make a premium payment of at least $1,000 to
the Series Fund Money Market Subaccount. The minimum transfer amount is $100.
All DCA transfers will be made effective as of the end of the first Valuation
Period following the first of the month. Election of this arrangement may occur
at any time after the Certificate Date by properly completing the DCA election
form and returning it to the address specified on the form. If the DCA election
form is received by the tenth day of the month, then DCA processing will
commence during the next month. If the DCA election form is received after the
tenth day of

<PAGE>

a month, then DCA processing will commence during the month immediately
following the next succeeding month. Any transfers made pursuant to DCA are not
counted in determining the number of transfers subject to the transfer charge.

DCA will terminate when any of the following occurs: (1) the number of
designated transfers has been completed; (2) the Series Fund Money Market
Subaccount value is insufficient to complete the next transfer; (3) Aon
Securities Corporation receives a written request for termination by the tenth
of the month in order to cancel the transfer scheduled to take effect the
following month (written requests received after the tenth day of the month will
take effect during the month immediately following the next succeeding month);
or (4) the Certificate is lapsed, surrendered or otherwise terminated.

There is no charge for DCA.

The main objective of DCA is to shield investments from short-term price
fluctuations. Since the same dollar amount is transferred to an available
Subaccount with each transfer, more Subaccount units are purchased if the
Subaccount unit value is low, and fewer Subaccount units are purchased if the
unit value is high. Therefore, a lower than average cost per unit may be
achieved over the long term. This plan of investing does not assure a profit or
protect against a loss in declining markets.

DEATH BENEFITS

A Death Benefit is payable upon the death of the Covered Person. The Death
Benefit is generally the Face Amount of the Certificate, plus the value of the
Certificate Fund as of the date of death. The Death Benefit otherwise payable
will be reduced by any Certificate Debt and any past due monthly charges. If the
insurance is kept in force for several years and/or substantial premium payments
are made, the Certificate Fund may grow to a point where it is necessary to
increase the Death Benefit in order to ensure that the insurance will satisfy
the Internal Revenue Code's definition of life insurance using the "Cash Value
Accumulation Test." In that case, the Death Benefit (before the subtraction of
Certificate Debt and outstanding charges) will equal the Certificate Fund,
divided by the Net Single Premium per $1, based on the insured person's Attained
Age on the 1980 Commissioners Standard Ordinary Mortality Table, Male, Age Last
Birthday, at 4.0% interest.

The following table shows Net Single Premiums by attained age.

<PAGE>

TABLE OF NET SINGLE PREMIUMS
(Per $1.00 of Insurance Amount)

PERSON'S PERSON'S PERSON'S
ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR
- ------------ ------ ------------ ------ ------------ ------

0 0.08507 34 0.24280 68 0.63861
1 0.08607 35 0.25097 69 0.65210
2 0.08857 36 0.25940 70 0.66554
3 0.09122 37 0.26808 71 0.67888
4 0.09399 38 0.27700 72 0.69204
5 0.09692 39 0.28616 73 0.70495
6 0.10000 40 0.29556 74 0.71751
7 0.10326 41 0.30519 75 0.72970
8 0.10669 42 0.31505 76 0.74150
9 0.11029 43 0.32515 77 0.75295
10 0.11405 44 0.33548 78 0.76411
11 0.11796 45 0.34604 79 0.77503
12 0.12196 46 0.35684 80 0.78573
13 0.12604 47 0.36787 81 0.79617
14 0.13015 48 0.37916 82 0.80631
15 0.13428 49 0.39068 83 0.81605
16 0.13843 50 0.40245 84 0.82531
17 0.14260 51 0.41445 85 0.83407
18 0.14683 52 0.42665 86 0.84238
19 0.15116 53 0.43904 87 0.85029
20 0.15562 54 0.45159 88 0.85791
21 0.16025 55 0.46429 89 0.86536
22 0.16507 56 0.47713 90 0.87279
23 0.17012 57 0.49011 91 0.88038
24 0.17540 58 0.50324 92 0.88834
25 0.18095 59 0.51652 93 0.89693
26 0.18676 60 0.52993 94 0.90640
27 0.19285 61 0.54346 95 0.91689
28 0.19920 62 0.55706 96 0.92836
29 0.20581 63 0.57071 97 0.94040
30 0.21269 64 0.58436 98 0.95211
31 0.21983 65 0.59798 99 0.96154
32 0.22722 66 0.61156
33 0.23488 67 0.62510

DEATH BENEFIT PAYMENT OPTIONS

The Death Benefit, reduced by any Certificate Debt and any past due monthly
charges, will ordinarily be deposited into Prudential's Alliance Account. The
Alliance Account is an interest-bearing account that holds the Death Benefit
while the beneficiary takes time to consider other options. The beneficiary has
complete ownership of funds held in the Alliance Account, and may draw on all or
part of the funds by writing a draft. Interest earnings in the Alliance Account
are compounded daily and credited monthly. Proceeds placed in the Alliance
Account can be transferred to other modes of settlement at any time. The
proceeds contained in the Alliance Account are part of Prudential's general
account.

The beneficiary may specify that the Death Benefit be issued in the form of a
check rather than being deposited into the Alliance Account. If the Death
Benefit is $1,000 or more, the beneficiary may also select one or more of the
following settlement options.

<PAGE>

OPTION 1: PAYMENTS FOR A FIXED PERIOD

The Death Benefit plus interest is paid over a fixed number of years (1 -
25). The payment may be received monthly, quarterly, semi-annually or
annually. The payment amount will be higher or lower depending on the
period selected.

The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that a beneficiary will receive.
The beneficiary may withdraw the total present value of payments not yet
made at any time.

OPTION 2: PAYMENTS IN INSTALLMENTS FOR LIFE

The Death Benefit provides monthly payments in installments for as long as
the beneficiary lives. The beneficiary may choose a guaranteed minimum
payment period (5, 10 or 20 years) or an installment refund, which will
guarantee that the sum of the payments equals the amount of the Death
Benefit payable under this option. If the beneficiary dies before
Prudential has made all guaranteed payments, Prudential will pay the
present value of the remaining guaranteed payments to a payee the
beneficiary designated.

OPTION 3: INTEREST INCOME

The Death Benefit remains with Prudential and earns interest. This option
allows the beneficiary to leave the Death Benefit with Prudential and
choose another settlement option at a later time. Withdrawals of $100 or
more (including the entire unpaid Death Benefit) can be made at any time.
The interest income payment may be received monthly, quarterly,
semi-annually or annually.

The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that a beneficiary will receive.

OPTION 4: PAYMENTS OF A FIXED AMOUNT

The beneficiary receives a guaranteed specified sum for a limited number of
years. This guaranteed specified sum represents a return of the principal
(Death Benefit) and interest paid. The payment may be received monthly,
quarterly, semi-annually or annually, as determined by the beneficiary.

The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that a beneficiary will receive.
Any interest credited will be used to extend the payment period.

OPTION 5: CERTIFICATE OF DEPOSIT

The Death Benefit is used to purchase a certificate of deposit that is
issued by The Prudential Bank. Certificates of Deposit (CDs) are
investments that allow a beneficiary to choose a variety of short- and
long-term deposit options. They are designed to accrue interest monthly,
quarterly, semi-annually, annually or at maturity. Interest rates are
guaranteed for the term of the CD. There is generally a $10,000 minimum
amount for this option.

Under each of the above options, each payment must generally be at least $20.

A beneficiary life claim guide is available upon request. This guide explains in
more detail the modes of payment and settlement options that are available.

CHANGES IN FACE AMOUNT

The Group Contract allows Participants to elect to increase the Face Amount of
their insurance at certain times. Your eligibility for an increased Face Amount
will depend on several factors at the time you request an increase, including:
your current Face Amount, your age, your AICPA and/or State Society of CPA
memberships, and the schedules of coverage available. You also must satisfy
medical underwriting to increase your Face Amount. An increase in the Face
Amount will result in higher insurance charges because the net amount at risk
for Prudential will increase.

The Group Contract may also permit Participants to decrease the Face Amount of
their insurance at certain times. The reduced Face Amount must be a scheduled
amount available to the Participant. In no event, however, may the Face Amount
be decreased below $10,000 or below the minimum amount required to maintain
status as life insurance under the federal tax laws.

<PAGE>

The Face Amount may decrease when you attain age 75 and 80. If the Face Amount
is already less than or equal to two times the Certificate Fund when you attain
these ages, no reduction will occur. Otherwise, the reduced Face Amount will
equal two times the Certificate Fund at the time of the reduction, but not less
than 75% and 25% (at ages 75 and 80, respectively) of the Face Amount
immediately prior to the attainment of age 75. The age adjustment to the
Participant's Face Amount will be determined as of the end of the Valuation
Period in which the triggering event occurs but the actual adjustment to the
Participant's Face Amount will be effective on the Contract Anniversary (October
1) following this determination.

An increase or decrease in Face Amount, or the addition or removal of certain
additional insurance benefits, may cause the insurance to be treated as a
Modified Endowment Contract under the Internal Revenue Code. This is
particularly true of decreases in Face Amount at any time that insurance is in
force. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21. In addition, a
decrease in coverage may limit the amount of premiums that a Participant may
contribute in the future.

CHARGES AND EXPENSES

The maximum deductions and charges described below will not be increased by
Prudential with respect to any Certificate in effect regardless of any changes
in mortality and expense experience. Where current charges are lower than
maximum charges, Prudential reserves the right to increase the current charges,
although it has no present intention to do so. Participants should refer to
their Certificate for further information on applicable charges.

CHARGES DEDUCTED FROM PREMIUMS. The following charge is deducted from premium
payments before they are invested in the Separate Account or the Fixed Account.

Charge for Taxes Attributable to Premiums. A charge for taxes attributable
to premiums is deducted from each premium payment. For these purposes,
"taxes attributable to premiums" shall include any federal, state or local
income, premium, excise, business or any other type of tax (or component
thereof) measured by or based on the amount of premium received by
Prudential. That charge is currently made up of two parts. The first part
is for state and local premium taxes and is currently equal to 2.15% of the
premium received by Prudential. The second part is for federal income taxes
measured by premiums and is currently equal to 0.35% of premiums received.
Prudential believes that this second charge is a reasonable estimate of the
increased cost for premium-based federal income taxes resulting from a 1990
change in the Internal Revenue Code. These charges may be increased if the
cost of Prudential's taxes related to premium payments are increased. In
some jurisdictions, a 2.5% administrative expense charge is deducted from
premium payments instead of deducting a charge for premium taxes.

MONTHLY CERTIFICATE FUND CHARGES. The following charges are deducted monthly
from the Certificate Fund, pro-rata from each Subaccount and the Fixed Account.
Monthly Certificate Fund charges will generally be processed on the
Monthiversary.

1. Cost of Insurance. On each contract Monthiversary, Prudential will deduct a
charge for the cost of the Participant's insurance. When a Covered Person
dies, the amount paid to the beneficiary is generally larger than the
Certificate Fund. The cost of insurance charges are designed to enable
Prudential to pay this larger Death Benefit. The charge is determined by
multiplying the "net amount at risk" under a Certificate by the cost of
insurance rate applicable to the Covered Person. The cost of insurance
rates are based on the age and rate class of the Covered Person and the
mortality characteristics of Eligible Group Members. Since the cost of
insurance rate applicable under a Certificate increases as the Covered
Person ages, the monthly cost of insurance charge deducted from the
Certificate Fund will increase as the Covered Person ages, and this
increased charge will be reflected in the Cash Surrender Value and Death
Benefit under a Certificate.

The cost of any additional insurance benefits provided will be included in
the cost of insurance rates.

The actual cost of insurance rates will be set by Prudential based on its
expectations as to future experience in mortality and total expenses
(including, in some instances, those for additional insurance benefits) and
may be adjusted periodically, based on a number of factors including the
number of Certificates in force, the number of Certificates surrendered and
the actual and anticipated mortality and expense experience of the group.
Any change in the cost of insurance rates will apply to all Eligible Group
Members of the same age and rate class. The cost of insurance rate
applicable to a Participant may not, however, be greater than the
guaranteed cost of insurance rate set forth in his or her Certificate. That
guaranteed rate will be no higher than a rate based upon 100% of the 1980
CSO,

<PAGE>

Male, Age Last Birthday Table. The current cost of insurance charges are
lower than 100% of the 1980 CSO, Male, Age Last Birthday Table.

2. Administrative Charge. An administrative charge may be deducted on each
contract Monthiversary. It is intended to pay for maintaining records, and
communicating with the Contractholder and Participants. Currently, no such
charge is deducted. If in the future such a charge is imposed, it will not
exceed $4 per month.

3. Other Taxes. Prudential reserves the right to deduct a charge to cover
federal, state or local taxes (other than "taxes attributable to premiums"
described above) that are imposed upon the operations of the Separate
Account. Currently, Prudential does not impose such a charge.

DAILY DEDUCTION FROM THE SUBACCOUNTS OF THE SEPARATE ACCOUNT. Each day a charge
is deducted from the assets of each of the Subaccounts in an amount currently
equal to an effective annual rate of 0.45%. The charge is guaranteed not to
exceed an effective annual rate of 0.90%. This charge is intended to compensate
Prudential for assuming the mortality and expense risks of the insurance
provided through the Group Contract. The mortality risk assumed is that Covered
Persons may live for shorter periods of time than Prudential estimated when it
determined the mortality charge. The expense risk assumed is that expenses
incurred in issuing and administering the insurance will be greater than
Prudential estimated in fixing its administrative charges. Prudential will
realize a profit from this risk charge to the extent it is not needed to provide
benefits and pay expenses under the Certificates. This charge is not assessed on
amounts allocated to the Fixed Account.

TRANSACTION CHARGES. A Participant will incur charges for partial withdrawals,
transfers and additional statement requests. These charges are described in the
prospectus section dealing with the respective transaction.

EXPENSES INCURRED BY THE FUNDS. The charges and expenses of the Funds are
indirectly borne by the Participants. Details about investment management fees
and other underlying fund expenses are provided in FUND FEES AND EXPENSES on
page 8, and in the prospectuses for the available Funds and the related
statements of additional information.

DIVIDENDS/EXPERIENCE CREDITS

Because the Group Contract is issued by Prudential, a mutual life insurance
company, it is a participating contract. This means it is eligible to be
credited with part of Prudential's divisible surplus allocable to the Group
Contract ("Dividends"), or a refund based on the experience of the case
("Experience Credits"), as determined annually by Prudential's Board of
Directors. Under the Group Variable Universal Life Insurance Contracts,
Dividends or Experience Credits may be declared, but such Dividends or
Experience Credits are not guaranteed.

The Contractholder may pass any Dividends or Experience Credits on to
Participants as annual refunds. Unless a Participant specifies otherwise, any
annual refund will be reinvested as premiums subject to the charges made for
premium payments. A Participant may elect, however, to receive annual refunds,
if any, in cash by notifying Aon Securities Corporation in writing.

CASH SURRENDER VALUE

The Cash Surrender Value of the Certificate is equal to the Participant's
Certificate Fund, reduced by any Certificate Debt and outstanding charges. The
Certificate Fund on any day equals the sum of the amounts in the Subaccounts,
the amount invested in the Fixed Account, and the Loan Account. See LOANS, page
19. The Cash Surrender Value will change daily, reflecting the Net Premiums
paid, withdrawals made, the increases or decreases in the value of the Fund
shares in which the assets of the Subaccounts have been invested, interest
credited on any amounts allocated to the Fixed Account and on the Loan Account,
interest accrued on any loan, and by the daily asset charge for mortality and
expense risks assessed against the variable investment options. The Cash
Surrender Value will also reflect monthly charges. Upon request, Aon Securities
Corporation will inform a Participant as to the Cash Surrender Value of his or
her Certificate. There is no guaranteed minimum Cash Surrender Value and it is
possible for the Cash Surrender Value of a Certificate to decline to zero.

<PAGE>

The tables on pages T-1 through T-6 (following page 5) of this prospectus
illustrate approximately what the Cash Surrender Values would be for selected
Certificates with the specified premium payments (assuming uniform hypothetical
investment results in the selected Subaccount portfolios).

FULL SURRENDERS

A Participant may surrender his or her Certificate for its Cash Surrender Value
at any time. All insurance will end at that time. Prudential will pay the Cash
Surrender Value calculated as of the end of the Valuation Period during which
Aon Securities Corporation receives the Participant's request on a form approved
by Prudential, and the proceeds will be paid as described in WHEN PROCEEDS ARE
PAID, page 23. A surrender may have tax consequences. See TAX TREATMENT OF
CERTIFICATE BENEFITS, page 21.

ELECTION OF PAID-UP INSURANCE

At any time, a Participant may elect to exchange his/her existing Group Variable
Universal Life insurance coverage for fixed paid-up insurance on the life of the
Covered Person with all or part of the Cash Surrender Value. The minimum amount
of Cash Surrender Value that a Participant can transfer in such an exchange is
$1,000.

The paid-up insurance amount cannot be more than can be exchanged using the
Certificate's Cash Surrender Value nor more than the Death Benefit under the
Certificate at the time the exchange is made. Once the exchange is made,
Prudential may reduce any future amount of coverage for which the Participant is
eligible under the Group Contract.

An exchange is effective as of the end of the Valuation Period during which Aon
Securities Corporation receives the Participant's request on a form approved by
Prudential. Once an exchange occurs, all coverages provided by the Certificate
will end, including Additional Insurance Benefits, if any.

An exchange may result in the paid-up insurance becoming a Modified Endowment
Contract. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21.

Any amounts not used in an exchange will be paid in cash from the Certificate
Fund as of the end of the Valuation Period when the exchange was effective, and
the proceeds will be paid as described in WHEN PROCEEDS ARE PAID, page 23. A
withdrawal of a portion of the Cash Surrender Value of a Certificate may have
tax consequences. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21.

PARTIAL WITHDRAWALS

A Participant may withdraw a portion of the Cash Surrender Value of his or her
Certificate during the insured's lifetime and while the Certificate is not in
default. When a partial withdrawal is made, an amount equal to the withdrawal
will be taken out of each of the Participant's investment options on a pro-rata
basis unless the Participant selects specific investment options. Such partial
withdrawals will be effected as of the end of the Valuation Period during which
Aon Securities Corporation receives the Participant's request on a form approved
by Prudential, and the proceeds will be paid as described in WHEN PROCEEDS ARE
PAID, page 23. There is no limit on the number of partial withdrawals a
Participant may take each year. Currently, Prudential imposes a transaction
charge equal to the lesser of $10 or 2% of the amount of each withdrawal.
Prudential reserves the right to charge up to the lesser of $20 or 2% of the
amount of the withdrawal. This transaction charge will be deducted from the
amount withdrawn from the Certificate Fund. A withdrawal of a portion of the
Cash Surrender Value of a Certificate may have tax consequences. See TAX
TREATMENT OF CERTIFICATE BENEFITS, page 21.

The minimum amount of any partial withdrawal is $200. The maximum amount of any
partial withdrawal is the amount that would reduce the Certificate Fund (less
any Certificate Debt and outstanding charges) to an amount equal to the next
month's charges. Any partial withdrawal greater than that amount will not be
permitted because it would cause the Certificate to default. Upon request, Aon
Securities Corporation will inform a Certificate owner how much Cash Surrender
Value may be withdrawn.

An amount withdrawn may not be repaid except as a premium payment subject to the
charge ordinarily deducted from premium payments.

<PAGE>

LOANS

A Participant may borrow up to the Loan Value of the Certificate from
Prudential. The maximum Loan Value of a Certificate (before any applicable
transaction charge) at any time is determined by multiplying the Certificate
Fund by 90% (or higher where required by state law) and then subtracting any
existing loan with accrued interest, any outstanding charges, and the amount of
the next month's charges. The minimum amount that may be borrowed at any one
time is $200. A loan will not be permitted if Certificate Debt exceeds the Loan
Value or if the Loan Value is less than the $200 minimum. Loan proceeds will be
paid as described in WHEN PROCEEDS ARE PAID, page 23.

Interest charged on any loan will accrue daily at an annual rate of between 5%
and 8%. Interest payments on any loan are due at the end of each contract year.
If interest is not paid when due, it will be added to the principal amount of
the loan. Prudential will notify a Participant 31 days before the interest on
the loan becomes due.

When a loan is made, an amount equal to the loan will be taken out of each of
the Participant's investment options on a pro-rata basis unless the Participant
selects specific investment options. At the same time, a Loan Account will be
started for the Participant and will be credited with an amount equal to the
loan. Prudential will credit interest to the amount in the Loan Account at an
annual rate that is currently 1% less (and generally will range between 1 and 2%
less) than the interest rate of the loan. The crediting rate will generally be
equal to the Fixed Account crediting rate, which in no event will be less than
4%.

A Participant's Loan Account plus accrued interest ("Certificate Debt") may not
exceed the value of the Certificate Fund. If the Certificate Debt equals this
amount, the Certificate will go into default. See LAPSE, below.

A Participant may repay a part or all of the loan at any time. Any such
repayment will first be applied against any unpaid loan interest, with any
remaining amount used to reduce the principal amount of the loan. The
Participant may make the repayment in one of two ways. First, the Participant
may repay all or part of a loan by sending a payment to Prudential. Unless the
Participant designates otherwise, if there is any outstanding Certificate Debt,
any payments sent to Prudential will first be applied to repay the loan; once
the Certificate Debt has been repaid, then any payment will be treated as a
premium payment. Second, a Participant may repay all or part of a loan by
withdrawing amounts from the Certificate Fund, which Prudential will treat as a
partial withdrawal. See PARTIAL WITHDRAWALS, page 18. A partial withdrawal from
the Certificate Fund may have tax consequences. See TAX TREATMENT OF CERTIFICATE
BENEFITS, page 21.

If Certificate Debt is still outstanding when the Certificate is surrendered or
allowed to lapse, the borrowed amount may become taxable. In addition, loans
from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21.

Should a Death Benefit become payable while a loan is outstanding, or should the
Certificate be surrendered while a loan is outstanding, any proceeds otherwise
payable will be reduced to reflect Certificate Debt.

A loan will have a permanent effect on a Certificate's Cash Surrender Value and
may have a permanent effect on the Death Benefit. This is because the investment
results of the selected investment options will apply only to the amount
remaining in those investment options after the loan amount is transferred to
the Loan Account. The longer the loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If investment
results are greater than the rate being credited upon the amount of the loan
while the loan is outstanding, Cash Surrender Values will not be as high as they
would have been if no loan had been made.

LAPSE

In general, a Certificate will remain in force so long as the balance in the
Certificate Fund less Certificate Debt and outstanding charges is sufficient to
pay the monthly charges when due. If it is not, the Participant's insurance is
in default and will lapse if a grace period expires without a sufficient payment
being made. A Certificate that lapses with Certificate Debt may result in tax
consequences. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21.

Prudential will send a notice to a Participant in default at the last known
address on file with Aon Securities Corporation specifying the amount of premium
required to keep the Certificate in force and the date the payment is due. The
grace period expires on the later of 61 days from the date of default or 30 days
from

<PAGE>

the date notice was mailed. If Aon Securities Corporation does not receive the
required premium payment within the grace period, the Participant's insurance
will lapse and have no remaining value.

If the Covered Person dies during the grace period, the Death Benefit will be
reduced by any past due monthly charges and any Certificate Debt.

TERMINATION OF A CONTRACTHOLDER'S PARTICIPATION IN THE GROUP CONTRACT

The Contractholder may decide to terminate the Group Contract with Prudential.
In addition, Prudential may terminate the Group Contract if the aggregate Face
Amount of all Certificates and/or the number of Certificates issued under the
Group Contract falls below the minimum permissible levels established by
Prudential. The party terminating participation in the Group Contract must
provide ninety days written notice to the other party, as well as to all
Participants, before terminating participation in the Group Contract.

Prudential may terminate the Group Contract for any reason effective on the date
of any Contract Anniversary provided it has notified the Contractholder at least
31 days in advance.

Termination of participation in the Group Contract means that the Contractholder
or its agent will no longer remit premiums to Prudential under the Group
Contract and that no new Certificates will be issued under the Group Contract.
The effects on Participants of termination of the Contractholder's participation
in the Group Contract are described in OPTIONS ON TERMINATION OF COVERAGE,
below. The options available to Participants from Prudential may depend on what
other insurance options are available to them. The Participant should refer to
the Certificate for further details on termination of coverage.

PARTICIPANTS WHO ARE NO LONGER ELIGIBLE GROUP MEMBERS

If you are no longer eligible for coverage because you are no longer a member of
either the AICPA or any Qualified State Society of CPAs, your Group Variable
Universal Life Insurance coverage will terminate.

Upon termination, you will have the options described in the next section of
this prospectus. Also, if you are a member of both AICPA and a Qualified State
Society of CPAs and terminate one of these memberships, a reduction in your
coverage may result. If such a reduction occurs, you will have a Conversion
Privilege to the extent of the reduction.

OPTIONS ON TERMINATION OF COVERAGE

Insurance coverage obtained through the Group Contract will terminate when the
Group Contract itself terminates or when you are no longer an Eligible Group
Member.

When the Contractholder's participation in the Group Contract terminates, the
effect on individual Participants depends on whether the Contractholder replaces
the Group Contract with another life insurance contract(s) that provides for
accumulation of cash value. In general, if the Contractholder does enter into
such a contract, Certificates will be terminated and the Cash Surrender Value of
each such Certificate will be directly transferred to the new contract unless
the Participant elects to receive the Cash Surrender Value of the Certificate.
Certain conditions and limitations may apply and are specified in the Group
Contract.

If the Contractholder does not enter into a new life insurance contract(s) that
provides for accumulation of cash value, Participants will have the following
options:

CONVERSION. A Participant may elect to convert the Certificate to an individual
life insurance policy without showing evidence of insurability. If a Participant
elects this option, he or she must apply for the individual contract and pay the
first premium within 45 days after the coverage under the Group Contract ends if
the Participant has been given written notice of the conversion privilege more
than 15 days, but less than 90 days, after coverage under the Group Contract
ends, or within 90 days if no such written notice is provided. The Participant
may select any form of individual life insurance (other than term insurance)
that Prudential normally makes available to insureds who are the same age and
requesting the same amount of insurance. Premiums will be based on the form and
amount of insurance elected by the Participant, as well as the Covered Person's
risk class and age.

If the insurance is ending because the Participant is no longer eligible to
participate in the Group Contract, the amount of insurance under the individual
policy cannot be more than the Face Amount of the Certificate under the Group
Contract. If the insurance is ending because the Group Contract is terminating,
the amount of

<PAGE>

individual insurance may be limited to the Face Amount of the Certificate under
the Group Contract less the amount of any group insurance for which the
Participant becomes eligible in the next 45 days.

If a Covered Person dies within 90 days after the insurance ends under the Group
Contract, and the Participant had the right to convert to an individual policy,
a Death Benefit equal to the amount of individual insurance on the Covered
Person the Participant could have purchased upon conversion will be payable by
Prudential.

PAID-UP INSURANCE. The Participant may elect to purchase fixed paid-up insurance
on the Covered Person with the Cash Surrender Value of the Certificate. The
Participant must have at least $1,000 of Cash Surrender Value for this option to
be available. The insurance amount will depend on the Cash Surrender Value on
the date of termination and the age of the Covered Person but cannot exceed the
Death Benefit immediately before the paid-up purchase. The Participant must
elect this option within 91 days of the date on which the Certificate coverage
would end. The election is effective as of the end of the Valuation Period
during which Aon Securities Corporation receives the Participant's request on a
form approved by Prudential. Acquisition of reduced paid-up insurance may result
in that insurance becoming a Modified Endowment Contract. See TAX TREATMENT OF
CERTIFICATE BENEFITS, page 21.

PAYMENT OF CASH SURRENDER VALUE. The Participant may receive the Cash Surrender
Value by surrendering the Certificate and making a proper request on a form
approved by Prudential.

A Participant who does not choose any of the above options within 91 days of the
date on which Certificate coverage would end will be provided with Paid-Up
Insurance, if his or her Certificate has at least $1,000 of Cash Surrender Value
and, if not, will be paid the Cash Surrender Value.

REINSTATEMENT

Except as indicated in the next sentence, a lapsed Certificate may be reinstated
at any time within 3 years after the end of the grace period and before the
Participant reaches the maximum age at which a Certificate may be held. A lapsed
Certificate may not be reinstated if the Group Contract is terminated or if the
Participant (or if the Participant is an Applicant Owner, the Participant's
insured) is no longer an Eligible Group Member. To reinstate coverage, a
Participant must submit the following items to Aon Securities Corporation: (1) a
written request for reinstatement; (2) evidence of insurability satisfactory to
Prudential; and (3) a premium payment (less any applicable charges) that is at
least equal to the monthly Certificate Fund charges for the grace period plus
the monthly Certificate Fund charges for two months. See CHARGES AND EXPENSES,
page 16. To the extent that any Certificate Debt was not repaid at Lapse, this
debt must be repaid upon reinstatement. Such repayment would not be subject to
any charges deducted from premium payments.

The reinstatement is effective on the Monthiversary following the date
Prudential approves the request for reinstatement. The terms of the original
Certificate will apply to the reinstated Certificate. A reinstated Certificate
is subject to a new two year incontestability period and a new suicide exclusion
period. See INCONTESTABILITY, page 24 and SUICIDE EXCLUSION, page 24.

No transaction charge is currently imposed in connection with a reinstatement,
although Prudential reserves the right to impose such a transaction charge in
the future.

TAX TREATMENT OF CERTIFICATE BENEFITS

Each prospective Participant is urged to consult a qualified tax adviser. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Prudential believes the
federal income tax laws apply in the most commonly occurring circumstances.
There is no guarantee, however, that the current federal income tax laws and
regulations or interpretations will not change.

TREATMENT AS LIFE INSURANCE AND INVESTOR CONTROL. The Certificate will be
treated as "life insurance," as long as it satisfies certain definitional tests
set forth in section 7702 of the Internal Revenue Code (the "Code") and as long
as the underlying investments for the Certificate satisfy diversification
requirements under section 817(h) of the Code. For further detail on
diversification requirements, see the applicable Fund prospectuses.

Prudential believes that it has taken adequate steps under the Code and existing
regulations under it to cause the Certificates to be treated as life insurance
for tax purposes. This means that: (1) except as noted below, the Participant
should not be taxed on any part of the Certificate Fund, including additions
attributable to interest, dividends, or appreciation; and (2) the Death Benefit
should be excludable from the gross income of the beneficiary under section
101(a) of the Code.

<PAGE>

Although Prudential believes the Certificate should qualify as "life insurance"
for federal tax purposes, there are uncertainties. Section 7702 of the Code,
which defines life insurance for tax purposes, gives the Secretary of the
Treasury authority to prescribe regulations to carry out the purposes of the
Section. In this regard, proposed regulations governing mortality charges were
issued in 1991 and proposed regulations under Sections 101, 7702 and 7702A
governing the treatment of life insurance policies that provide accelerated
death benefits were issued in 1992. None of these proposed regulations have yet
been finalized. Additional regulations under Section 7702 may also be
promulgated in the future.

Moreover, IRS regulations issued to date do not provide guidance concerning the
extent to which Participants may direct their investments to the particular
available Subaccounts of a Separate Account without causing the Participants
instead of Prudential to be considered the owners of the underlying assets. Such
guidance will be included in regulations or revenue rulings under Section 817(d)
relating to the definition of a variable contract. The ownership rights under
the Certificate are similar to, but different in certain respects from, those
addressed by the IRS in Rulings in which it was determined that contract owners
were not owners of separate account assets. For example, the Contractholder has
selected the Funds available to Participants and may select additional Funds,
Participants have the choice of more Funds, including Funds with similar broad
investment strategies and different investment managers, and Participants may be
able to reallocate amounts between available Subaccounts more frequently than in
such Rulings. While Prudential believes it will be considered the owner of the
Separate Account assets, these differences could result in the Participant being
considered the owner of the assets.

Prudential intends to comply with final regulations issued under Sections 7702
and 817. Therefore, because of this uncertainty, it reserves the right to make
such changes as it deems necessary to assure that the Group Contract continues
to qualify as variable life insurance for tax purposes. Any such changes will
apply uniformly to affected Participants and will be made only after advance
written notice to the Contractholder.

PRE-DEATH DISTRIBUTIONS. The taxation of pre-death distributions depends on
whether the Certificate is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Certificates not so
classified, and then with Modified Endowment Contracts.

1. A surrender or lapse of the Certificate may have tax consequences.
Under surrender, the Participant will not be taxed on the Cash
Surrender Value except for the amount, if any, that exceeds the
Participant's Cost Basis (i.e., the gross premium paid, less refunds
to the extent they reduce the cost of pure life insurance protection,
and less the untaxed portion of any prior withdrawals). The amount of
any unpaid Certificate Debt will, upon surrender or lapse, be added to
the Cash Surrender Value and treated, for this purpose, as if it had
been received. Any loss incurred upon surrender is generally not
deductible.

A withdrawal generally is not taxable unless it exceeds the
Participant's Cost Basis. However, under certain limited
circumstances, in the first 15 Certificate Years all or a portion of a
withdrawal may be taxable if the Certificate Fund exceeds the
Participant's Cost Basis even if the amount withdrawn does not exceed
the Cost Basis.

Extra premiums for additional insurance benefits generally do not
count in computing gross premiums paid, which in turn determines the
extent to which a withdrawal might be taxed. For this purpose, extra
premium for additional insurance benefits includes the reduction to a
Participant's refund which results if that Participant has elected
optional coverages. See ADDITIONAL INSURANCE BENEFITS, page 25.

Loans received under the Certificate will ordinarily be treated as
indebtedness of the Participant and will not be considered to be
distributions subject to tax. However, if a loan is still outstanding
when the Certificate is surrendered or allowed to lapse, the
outstanding Certificate Debt will be taxable at that time to the
extent the Participant's Certificate Fund exceeds the Participant's
Cost Basis.

2. Some of the above rules are changed if the Certificate is classified
as a Modified Endowment Contract under Section 7702A of the Code. It
is possible for the Certificate to be classified as a Modified
Endowment Contract under certain circumstances, including: premiums in
excess of the seven pay premiums allowed under Section 7702A are paid
or a decrease in the Death Benefit or a removal of certain additional
insurance benefits. Moreover, the addition of certain additional
insurance benefits (or an increase in the Death Benefit) after the
Certificate Date may have an impact on the Certificate's status as a
Modified Endowment Contract. Participants contemplating any of these
steps should first consult a qualified tax adviser.

If the Certificate is classified as a Modified Endowment Contract,
then pre-death distributions, including loans, assignments and pledges
are includable in income to the extent that the Certificate Fund
exceeds

<PAGE>

the gross premiums paid for the Certificate increased by the amount of
any loans previously includible in income and reduced by any untaxed
amounts previously received other than the amount of any loans excludible
from income. These rules may also apply to pre-death distributions,
including loans, made during the two year period prior to the Certificate
becoming a Modified Endowment Contract.

In addition, pre-death distributions from such Certificates (including
full surrenders) will be subject to a penalty of 10 percent of the amount
includible in income unless the amount is distributed on or after age 59
1/2, on account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to contracts owned
by non-natural persons such as trusts.

Under certain circumstances, multiple Modified Endowment Contracts issued
to the same Participant during any calendar year will be treated as a
single contract for purposes of applying the above rules.

WITHHOLDING. The taxable portion of any amounts received under the Certificate
will be subject to withholding to meet federal income tax obligations, if the
Participant fails to elect that no taxes be withheld. Aon Securities Corporation
will provide the Participant with forms and instructions concerning the right to
elect that no taxes be withheld from the taxable portion of any payment. All
recipients may be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient. Participants who do
not provide a social security number or other taxpayer identification number
will not be permitted to elect out of withholding. Special withholding rules
apply to payments to non-resident aliens.

OTHER TAX CONSIDERATIONS. Transfer of the Certificate to a new owner or
assignment of the Certificate may have gift, estate, and income tax consequences
depending on the circumstances. In the case of a transfer of the Certificate for
valuable consideration, the Death Benefit may be subject to federal income taxes
under Section 101(a)(2) of the Code. In addition, a transfer of the Certificate
to, or the designation of, a beneficiary who is either 37 1/2 years younger than
the Participant or a grandchild of the Participant may have Generation Skipping
Transfer tax consequences under Section 2601 of the Code.

In certain circumstances, deductions for interest paid or accrued on Certificate
Debt or on other loans that are incurred or continued to purchase or carry the
Certificate may be denied under Sections 163 of the Code as personal interest or
under Section 264 of the Code. Participants should consult a qualified tax
adviser regarding the application of these provisions to their circumstances.

The individual situation of each Participant or beneficiary will determine the
federal estate taxes and the state and local estate, inheritance and other taxes
due if the Participant or insured dies.

The earnings of the Separate Account are taxed as part of the operations of
Prudential. Accordingly, the Separate Account does not intend to qualify as a
regulated investment company under the Code.

WHEN PROCEEDS ARE PAID

Prudential will generally pay any Death Benefit, Cash Surrender Value, partial
withdrawal or loan proceeds supported by the Separate Account within 7 days
after receipt by Aon Securities Corporation of all the documents required for
such a payment. Other than the Death Benefit, which is determined as of the date
of death, the amount will be determined as of the end of the Valuation Period in
which the necessary documents are received in good order. However, Prudential
may delay payment of proceeds from the Subaccount(s) and the variable portion of
the Death Benefit due under a Participant's insurance if the disposal or
valuation of the Separate Account's assets is not reasonably practicable because
the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading is restricted by the SEC, or the SEC declares that an emergency
exists.

With respect to the amount of any Cash Surrender Value allocated to the Fixed
Account, and with respect to a Certificate in force as paid-up insurance,
Prudential expects to pay the Cash Surrender Value promptly upon request.
However, Prudential has the right to delay payment of such Cash Surrender Value
for up to six months (or a shorter period if required by applicable law).
Prudential will pay interest at the current rate for settlement options left
with Prudential to accumulate with interest under the Group Contract if it
delays such a payment for more than 10 days.

<PAGE>

BENEFICIARY

The Participant has the right to designate and name a beneficiary to receive
Death Benefits under the Certificate. The Participant must designate a
beneficiary on a form approved by Prudential. A Participant may change the
beneficiary at any time without the consent of the present beneficiary in
accordance with the terms of the Group Contract. If there is more than one
beneficiary at the death of the Covered Person, each will receive equal payments
unless otherwise specified by the Participant.

INCONTESTABILITY

After a Participant's Certificate has been in force during a Covered Person's
lifetime for two years or, with respect to any change in the Certificate that
requires Prudential's approval and could increase its liability, after the
change has been in effect during the insured's lifetime for two years from the
effective date of the change, Prudential will not contest its liability under
the Certificate in accordance with its terms.

MISSTATEMENT OF AGE

If a Covered Person's stated age is incorrect in the Certificate, Prudential
will adjust the monthly cost of insurance deduction to the proper amount based
on the correct age. If such an adjustment results in an increased cost of
insurance deduction amount, Prudential will bill for the difference. If such an
adjustment results in a decreased cost of insurance amount, Prudential will
refund the difference. If the change in age affects the amount of the person's
insurance, such amount will be changed on the basis of the correct age. Any cost
of insurance will take this into account.

SUICIDE EXCLUSION

Generally, if a Covered Person, whether sane or insane, dies by suicide within
one year from the effective date of the Certificate or reinstatement, Prudential
will pay no more under the Certificate than the sum of the contributions paid
less any Certificate Debt, outstanding charges, and less any partial withdrawals
since the effective date of the Certificate or reinstatement, respectively.

If a Covered Person, whether sane or insane, dies by suicide within one year
from the effective date of an increase in the Face Amount of insurance that was
requested after issue and required approval, Prudential will pay, with respect
to the amount of the increase, no more than the sum of the monthly charges
attributable to the increase.

ASSIGNMENT

A Participant may assign the insurance coverage and all rights, benefits or
privileges that he or she has under a Certificate. Prudential will be bound by
an assignment of insurance or the rights, benefits or privileges under the
insurance only if: (1) it is in writing; (2) it is signed by the Participant;
and (3) Prudential receives a copy of the assignment at the Prudential office
specified in the Certificate or at the address of Aon Securities Corporation.
Prudential is not responsible for determining the validity or legality of any
assignment. References in this prospectus to rights that a Participant may
exercise shall include exercise of such rights by any person to whom the
Participant has validly assigned such rights. Assignment of a Certificate that
is a Modified Endowment Contract could have adverse federal income tax
consequences. See TAX TREATMENT OF CERTIFICATE BENEFITS, page 21.

VOTING RIGHTS

As stated above, all of the assets held in the Subaccounts of the Separate
Account will be invested in shares of the corresponding portfolios of the Funds.
Prudential is the legal owner of those shares and as such has the right to vote
on any matter voted on at any shareholders meetings of the Funds. However,
Prudential will, as required by law, vote the shares of the Funds at any regular
and special shareholders meetings the Funds hold in accordance with voting
instructions received from Participants. A Fund may not hold annual shareholders
meetings when not required to do so under the laws of the state of its
incorporation or the 1940 Act. Fund shares for which no timely instructions from
Participants are received, and any shares attributable to general account
investments of Prudential, will be voted in the same proportion as shares in the
respective portfolios for which instructions are received. Should the applicable
federal securities laws or regulations, or their current interpretation, change
so as to permit Prudential to vote shares of the Funds in its own right, it may
elect to do so.

<PAGE>

Generally, a Participant may give voting instructions on matters that would be
changes in fundamental investment policies and any matter requiring a vote of
the shareholders of the Funds. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Participants participating in such portfolios will vote separately by portfolio
on the matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.

The number of Fund shares for which instructions may be given by a Participant
is determined by dividing the portion of the value of the Certificate Fund
derived from participation in a Subaccount, by the value of one share in the
corresponding portfolio of the applicable Fund. The number of votes for which
each Participant may give Prudential instructions will be determined as of the
record date chosen by the Board of the applicable Fund. Prudential will furnish
Participants with proper forms and proxies to enable them to give these
instructions. Prudential reserves the right to modify the manner in which the
weight to be given voting instructions is calculated where such a change is
necessary to comply with current federal regulations or interpretations of those
regulations.

Prudential may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Funds' portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
adviser of one or more of the Funds' portfolios, provided that Prudential
reasonably disapproves such changes in accordance with applicable federal
regulations. If Prudential does disregard voting instructions, it will advise
Participants of that action and its reasons for such action in the next annual
or semi-annual report to Participants.

SUBSTITUTION OF FUND SHARES

Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the available portfolios of the Funds
may become unsuitable for investment by Participants. This may occur because of
investment policy changes, tax law changes or considerations, the unavailability
of shares for investment or at the discretion of Prudential.

In that event, Prudential may seek to substitute the shares of another portfolio
or of an entirely different mutual fund. Before this can be done, the approval
of the SEC, and possibly one or more state insurance departments, will be
required. Participants and the Contractholder will be notified of such
substitution. Any such substitution will not be considered a transfer and
therefore will not be subject to any limitations on or charges for transfers.

ADDITIONAL INSURANCE BENEFITS

Coverage for the following Additional Insurance Benefits will be available to
eligible Participants either automatically or as options. If a Participant
elects Extension of Coverage and Waiver of Cost of Insurance Charges During
Total Disability, the annual refund, if any, that the Participant otherwise
would receive as the pass-through of any divisible surplus under the Group
Contract will generally be reduced. See DIVIDENDS/EXPERIENCE CREDITS, page 17.

ACCELERATED DEATH BENEFIT. Participants may chose an accelerated death benefit
that allows the Participant to elect to receive an accelerated payment of part
of the Certificate's Death Benefit, adjusted to reflect current value, at a time
when certain special needs exist. The adjusted Death Benefit will always be less
than the Death Benefit, but may be greater than the Certificate's Cash Surrender
Value. The option is available if the Covered Person is diagnosed as terminally
ill with a life expectancy of 6 months or less. When satisfactory evidence is
provided, Prudential will provide to the Participant an accelerated payment,
which may be received in a lump sum, of the portion of the Death Benefit
selected by the Participant as an accelerated death benefit.

No benefit will be payable if the coverage was assigned or if the Participant is
required to elect it in order to meet the claims of creditors (whether in
bankruptcy or otherwise) or to obtain or keep a government benefit or
entitlement. Prudential can furnish details about the amount of accelerated
death benefit that is available to an eligible Participant. Unless required by
law, a Participant who has elected to receive an accelerated death benefit can
no longer request an increase in the Face Amount of his or her Certificate, and
the amount of future premium payments he or she can make will be limited.

Adding the accelerated death benefit to the Certificate has no adverse
consequences; however, electing to use it could. The Health Insurance
Portability and Accountability Act of 1996 excludes from income, effective

<PAGE>

January 1, 1997, the accelerated death benefit if the insured is (1) terminally
ill or (2) chronically ill (although the exclusion in the latter case may be
limited). Receipt of an accelerated death benefit payment may also affect a
Participant's eligibility for certain government benefits or entitlements.

ACCIDENTAL DEATH AND DISMEMBERMENT BENEFIT. Participants less than age 75 are
automatically covered for accidental death and dismemberment benefit up to the
Face Amount that provides insurance for accidental loss of life, sight, hand, or
foot. This benefit will exclude, for example, losses due to suicide or attempted
suicide, diseases and infirmities, or war or acts of war. It may be subject to
other exclusions from coverage, age limitations, and benefit limitations set
forth in the Certificate. This coverage ends at age 75.

EXTENSION OF COVERAGE AND WAIVER OF COST OF INSURANCE DURING TOTAL DISABILITY.
Participants have an option to elect coverage that provides extended death
protection during their total disability. Under this provision, Monthly Charges
(see page 3) will be waived if the Participant becomes totally disabled prior to
age 60 for at least 9 months. The extended death protection will continue for
successive one-year periods, until age 75, so long as the Participant provides
satisfactory proof of continued total disability. At age 75, Monthly Charges
will again be deducted and coverage may lapse if the Certificate Fund is
insufficient. See LAPSE, page 19. Election of this optional benefit will reduce
the amount of the annual refund, if any, that would otherwise be payable by the
Contractholder to the Participant.

REPORTS

Twice each Certificate Year, Participants will be sent statements that provide
certain information pertinent to their own insurance. These statements detail
values and transactions made and specific insurance data that apply only to each
Participant. On request, a Participant will be sent a current statement in a
form similar to that of the semi-annual statement described above, but will be
charged $10. Prudential may limit the number of such requests and may raise the
transaction charge up to a maximum of $20.

The Contractholder and each Participant will also be sent an annual and
semi-annual report listing the securities held in each available portfolio of
the Funds, as required by the 1940 Act. Records with respect to the Separate
Account are kept in accordance with the 1940 Act.

If a Participant invests in the Series Fund through more than one variable
insurance contract, then he or she ordinarily will receive only one copy of each
annual and semi-annual report issued by the Series Fund. The Participant may
obtain additional copies by calling the telephone number listed on the inside
cover page of this prospectus.

SALE OF THE CONTRACT

Prudential Investment Management Services LLC ("PIMS"), a direct wholly-owned
subsidiary of Prudential, acts as the principal underwriter of the Group
Contracts and Certificates. PIMS, organized in 1996 under Delaware law, is
registered as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. PIMS's principal
business address is 751 Broad Street, Newark, New Jersey 07102. PIMS also acts
as principal underwriter with respect to the securities of other Prudential
investment companies. The Group Contracts and Certificates are sold by
registered representatives of PIMS who are also authorized by state insurance
departments to do so. The Group Contracts and Certificates may also be sold
through other broker-dealers authorized by PIMS and applicable law to do so.

The distribution agreement between PIMS and Prudential will terminate
automatically upon its assignment within the meaning of such term in the 1940
Act. The agreement, however, may be transferred by PIMS without the prior
written consent of Prudential under the circumstances set forth in Rule 2a-6
under the 1940 Act. The agreement may be terminated at any time by either party
upon 60 days written notice to the other party.

RATINGS AND ADVERTISEMENTS

Prudential is rated by independent financial rating services, including Moody's,
Standard & Poors, Duff & Phelps and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength of claims-paying ability of
Prudential. They are not intended to rate the investment experience or financial
strength of the Separate Account. Prudential may advertise these ratings from
time to time. Furthermore, Prudential may include in advertisements comparisons
of currently taxable and tax-deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles and general economic
conditions.

<PAGE>

STATE REGULATION

Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Prudential reserves the right to change the Group Contract and Certificate to
comply with applicable state insurance laws and interpretations thereof.

Prudential is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.

In addition to the annual statements referred to above, Prudential is required
to file with New Jersey and other jurisdictions a separate statement with
respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.

EXPERTS

The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent accountants, as stated in their report appearing herein, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing. Price Waterhouse LLP's principal business
address is 1177 Avenue of the Americas, New York, New York 10036.

The financial statements included in this prospectus for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.

On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountants of Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.

Actuarial matters included in this prospectus have been examined by Stuart L.
Liebeskind, FSA, MAAA, Vice President and Actuary of Prudential, whose opinion
is filed as an exhibit to the registration statement.

LITIGATION

On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate, and later issued a Final Order and Judgement in the
consolidated class actions before the court, 962 F. Supp. 450 (March 17, 1997,
as amended April 14, 1997). The Court's Final Order and Judgement approving the
class Settlement has been appealed to the United States Court of Appeals for the
Third Circuit, which held a hearing on January 26, 1998. The Court has not yet
issued a ruling on the appeal.

Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance policies. Management now has information which allows for computation
of a reasonable estimate of losses associated with ADR claims. Based on this
information, management estimated the cost of remedying policyholder claims in
the ADR process before taxes to be approximately $2.05 billion. While management
believes these to be reasonable estimates based on information currently
available, the ultimate amount of the total cost of remedied policyholder claims
is dependent on complex and varying factors, including actual claims by eligible
policyholders, the relief options chosen and the dollar value of those options.
There are also additional elements of the ADR process which cannot be fully
evaluated at this time (e.g., claims which may be successfully appealed) which
could increase this estimate.

In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.

<PAGE>

Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.

Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.

YEAR 2000 COMPLIANCE

The benefits and services provided to the Contractholders by Prudential and PIMS
depend on the smooth functioning of their respective computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer programs cannot distinguish the year 2000 from
the year 1900 because of the way in which dates are encoded. Left uncorrected,
the year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.

Prudential, PIMS's ultimate corporate parent, identified this issue as a
critical priority in 1995 and has established quality assurance procedures
including a certification process to monitor and evaluate enterprise- wide
conversion and upgrading of systems for "Year 2000" compliance. Prudential has
also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.

The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contractholders. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Prudential's
abilities to meet its contractual commitments to Contractholders.

Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Separate Account. Moreover, there can be no assurance that
the measures taken by Prudential's external service providers will be sufficient
to avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.

ADDITIONAL INFORMATION

A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.

Further information may also be obtained from Prudential's office. The address
and telephone number are set forth on the inside cover page (page i) of this
prospectus.

<PAGE>

DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS

AON SECURITIES CORPORATION -- A direct DEATH BENEFIT -- The amount payable
wholly-owned subsidiary of Aon upon the death of the Covered Person
Corporation and an affiliate of Aon (before the deduction of any
Insurance Services, Inc., the Plan Certificate Debt or any outstanding
Agent for the Contract. charges).

APPLICANT OWNER -- A person other than DIVIDEND -- A portion of Prudential's
the Eligible Group Member who obtains divisible surplus allocable to the
new insurance coverage on the life of Group Contract that may be credited to
an Eligible Group Member. An Applicant the Group Contract as determined
Owner may be, but is not limited to, annually by Prudential's Board of
the Eligible Group Member's spouse, Directors.
child, parent, grandparent,
grandchild, sister, brother, or the ELIGIBLE GROUP MEMBERS -- Members of
trustee of any trust of which the the AICPA and/or a Qualified State
Eligible Group Member is the grantor. Society of CPAs who are less than age
75 and not disabled under the terms of
ATTAINED AGE -- A person's age on his the CPA Flexible Life Insurance Plan.
or her last birthday on or prior to You may only be covered under either
October 1 of each year. the CPA Flexible Life Insurance Plan
(Contract GO-14273) or the Group
CASH SURRENDER VALUE -- The amount Variable Universal Life Coverage, but
payable to the Participant upon not both.
surrender of the Certificate. The Cash
Surrender Value is equal to the EXPERIENCE CREDIT -- A refund that may
Participant's Certificate Fund on the be paid based on favorable mortality
date of surrender, less any experience under the Plan.
Certificate Debt and outstanding
charges. FACE AMOUNT -- The amount of life
insurance in a Participant's
CERTIFICATE -- A document issued to a Certificate. The Face Amount will be
Participant under a Group Contract, the minimum Death Benefit as long as
setting forth or summarizing the the Participant's Certificate remains
Participant's rights and benefits. in force.

CERTIFICATE ANNIVERSARY -- The same FIXED ACCOUNT -- An investment option
date each year as the Certificate under which Prudential guarantees that
Date. interest will be added to the amount
deposited at a rate declared
CERTIFICATE DATE -- The effective date periodically in advance of the
of coverage under a Certificate. effective date of the new rate.

CERTIFICATE DEBT -- The principal FUNDS -- The Series Fund portfolios
amount of any outstanding loans to the and other mutual fund portfolios in
Participant under his or her which the Separate Account invests.
Certificate plus any interest accrued
thereon. GROUP CONTRACT -- A Group Variable
Universal Life insurance contract
CERTIFICATE FUND -- The total amount issued to the Contractholder by
credited to a Participant under his or Prudential.
her Certificate. On any date it is
equal to the sum of the amounts under ISSUE AGE -- The Covered Person's
that Certificate allocated to: (1) the Attained Age on the date that the
Subaccounts, (2) the Fixed Account, insurance on that Covered Person goes
and (3) the Loan Account. into effect as defined by the Group
Contract.
CERTIFICATE YEAR -- The year from the
Certificate Date to the first LOAN ACCOUNT -- An account within
Certificate Anniversary or from one Prudential's general account to which
Certificate Anniversary to the next. is transferred from the Separate
Account and/or the Fixed Account an
CONTRACT ANNIVERSARY -- October 1 of amount equal to the amount of any
each year. loan.

CONTRACT DATE -- The date as of which LOAN VALUE -- The amount (before any
the Group Contract is issued. applicable transaction charge) that a
Participant may borrow at any given
CONTRACTHOLDER -- Bankers Trust time under his or her Certificate. The
Company, as Trustee of the American Loan Value at any time is determined
Institute of Certified Public by multiplying the Certificate Fund by
Accountants Insurance Trust. 90% (or higher where required by state
law) and then subtracting any existing
COVERED PERSON -- The person whose loan with accrued interest, any
life is insured under the Group outstanding charges, and the amount of
Contract. the next month's charges.

<PAGE>

MONTHIVERSARY -- The Contract Date and SERIES FUND -- The Prudential Series
the first day of each succeeding Fund, Inc., a mutual fund with
month, except that whenever the separate portfolios, one or more of
contract Monthiversary falls on a date which may be used as an underlying
other than a Valuation Date, the investment for the Group Contract.
Monthiversary will be the next
Valuation Date. SUBACCOUNT -- A division of the
Separate Account, the assets of which
NET PREMIUM -- A Participant's premium are invested in the shares of the
payment minus any charges for taxes corresponding Fund.
attributable to premiums or any other
charges deducted from premium VALUATION DATE -- Each day on which
payments. Net Premiums are the amounts the value of the amount invested in a
available for allocation to the Subaccount is determined, which is
Separate Account and/or the Fixed generally each day that the New York
Account. Stock Exchange is open for trading.

PARTICIPANT -- An Eligible Group VALUATION PERIOD -- The period of time
Member or "eligible Applicant Owner" from one determination of the value of
under the Group Contract who obtains the amount invested in a Subaccount to
insurance under the Group Contract and the next. Such determinations are made
is eligible to exercise the rights as of the end of each Valuation
described in the Certificate. Period, which occurs at 4:15 p.m.
References to rights that a Eastern time on each Valuation Date.
Participant may exercise under a
Certificate shall include exercise of
such rights by any person to whom the
Participant has validly assigned such
rights.

SEPARATE ACCOUNT -- Prudential
Variable Contract Account GI-2, a
separate investment account registered
as a unit investment trust under the
Investment Company Act of 1940 and
established by Prudential to receive
and invest the Net Premiums paid under
the Certificates.

<PAGE>

DIRECTORS AND OFFICERS OF PRUDENTIAL

DIRECTORS OF PRUDENTIAL

FRANKLIN E. AGNEW - Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address: 600
Grant Street, Suite 660, Pittsburgh, PA 15219.

FREDERICK K. BECKER - Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.

JAMES G. CULLEN - Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.

CAROLYNE K. DAVIS - Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.

ROGER A. ENRICO - Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.

ALLAN D. GILMOUR - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.

WILLIAM H. GRAY, III - Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr.
Gray is also a director of Chase Manhattan Corporation, The Chase Manhattan
Bank, Lotus Development Corporation, Municipal Bond Investors Assurance
Corporation, Rockwell International Corporation, Union-Pacific Corporation,
Warner-Lambert Company, Westinghouse Electric Corporation, and Electronic Data
Systems. Age 56. Address: 8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.

JON F. HANSON - Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.

GLEN H. HINER, JR. - Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.

CONSTANCE J. HORNER - Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.

<PAGE>

GAYNOR N. KELLEY - Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.

BURTON G. MALKIEL - Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.

ARTHUR F. RYAN - Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.

IDA F.S. SCHMERTZ - Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.

CHARLES R. SITTER - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.

DONALD L. STAHELI - Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.

RICHARD M. THOMSON - Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.

JAMES A. UNRUH - Director since 1996 (current term expires April, 2000). Member,
Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.

P. ROY VAGELOS, M.D. - Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.

STANLEY C. VAN NESS - Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.

PAUL A. VOLCKER - Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.

JOSEPH H. WILLIAMS - Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint

<PAGE>

Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74172.

PRINCIPAL OFFICERS OF PRUDENTIAL

ARTHUR F. RYAN - Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.

E. MICHAEL CAULFIELD - Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.

MICHELE S. DARLING - Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.

ROBERT C. GOLDEN - Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.

MARK B. GRIER - Executive Vice President, Financial Management since 1997; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 44.

RODGER A. LAWSON - Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.

JOHN V. SCICUTELLA - Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.

JOHN R. STRANGFELD - Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.

R. BROCK ARMSTRONG - Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.

JAMES J. AVERY, JR. - Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.

MARTIN A. BERKOWITZ - Senior Vice President and Comptroller since 1995; prior to
1995, Senior Vice President and CFO, Prudential Investment Corporation. Age 48.

WILLIAM M. BETHKE - Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.

RICHARD J. CARBONE - Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.

LEO J. CORBETT - Senior Vice President, Individual Insurance Marketing since
1997; prior to 1997, Managing Director, Lehman Brothers, New York, NY. Age 49.

MARK R. FETTING - President, Prudential Retirement Services since 1996; prior to
1996, President, Prudential Defined Contribution Services. Age 43.

WILLIAM D. FRIEL - Senior Vice President and Chief Information Officer since
1993. Age 59.

JONATHAN M. GREENE - President, Investment Management since 1996; prior to 1996,
Vice President, T. Rowe Price, Baltimore, MD. Age 54.

JEAN D. HAMILTON - President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.

RONALD P. JOELSON - Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.

IRA J. KLEINMAN - Executive Vice President, International Insurance Group, since
1997; prior to 1997, Senior Vice President. Age 51.

<PAGE>

NEIL A. MCGUINNESS - Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.

PRISCILLA A. MYERS - Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.

RICHARD O. PAINTER - President, Prudential Insurance & Financial Services since
1995; prior to 1995, Senior Vice President, New York Life, New York, NY. Age 50.

I. EDWARD PRICE - Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.

KIYOFUMI SAKAGUCHI - President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.

BRIAN M. STORMS - President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.

ROBERT J. SULLIVAN - Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.

SUSAN J. BLOUNT - Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.

C. EDWARD CHAPLIN - Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.

Prudential officers are elected annually.

<PAGE>

FINANCIAL STATEMENTS

The consolidated financial statements of Prudential and subsidiaries included
herein should be distinguished from financial statements of the Separate
Account, and should be considered only as bearing upon the ability of Prudential
to meet its obligations under the Certificates.

Financial statements of the Separate Account are not included in this Prospectus
because the Separate Account had not yet commenced operations as of the date of
this Prospectus.

<PAGE>

PRUDENTIAL
COMPANY FINANCIALS MODULE

REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------

March 5, 1998

To the Board of Directors and Policyholders of
The Prudential Insurance Company of America

In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in equity and
of cash flows present fairly, in all material respects, the financial position
of The Prudential Insurance Company of America and its subsidiaries at December
31, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey

We have audited the accompanying consolidated statements of operations, changes
in equity, and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated statements of operations, changes in equity,
and cash flows present fairly, in all material respects, the results of
operations and cash flows of The Prudential Insurance Company of America and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
June 4, 1997

<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN MILLIONS)

1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost, 1997: $71,496; 1996: $64,545) .......... $ 75,270 $ 66,553
Held to maturity, at amortized cost (fair value, 1997: $19,894; 1996: $21,362) ............ 18,700 20,403
Trading account assets, at fair value........................................................ 6,044 4,219
Equity securities, available for sale, at fair value (cost, 1997: $2,376; 1996: $2,103) ..... 2,810 2,622
Mortgage loans on real estate ............................................................... 16,004 17,097
Investment real estate ...................................................................... 1,519 2,586
Policy loans ................................................................................ 6,827 6,692
Securities purchased under agreements to resell ............................................. 8,661 5,347
Cash collateral for borrowed securities ..................................................... 5,047 2,416
Short-term investments ...................................................................... 12,106 9,294
Other long-term investments ................................................................. 3,360 2,995
----------- -----------
Total investments ......................................................................... 156,348 140,224

Cash ........................................................................................ 3,636 2,091
Deferred policy acquisition costs ........................................................... 5,994 6,291
Accrued investment income ................................................................... 1,909 1,828
Receivables from broker-dealer clients ...................................................... 6,273 5,281
Other assets ................................................................................ 11,276 9,990
Separate Account assets ..................................................................... 74,046 63,358
----------- -----------
TOTAL ASSETS .................................................................................. $ 259,482 $ 229,063
=========== ===========

LIABILITIES AND EQUITY

LIABILITIES
Future policy benefits ...................................................................... $ 65,581 $ 63,955
Policyholders' account balances ............................................................. 32,941 36,009
Other policyholders' liabilities ............................................................ 6,659 6,043
Policyholders' dividends .................................................................... 1,269 714
Securities sold under agreements to repurchase .............................................. 12,347 7,503
Cash collateral for loaned securities ....................................................... 14,117 8,449
Short-term debt ............................................................................. 6,774 6,562
Long-term debt .............................................................................. 4,273 3,760
Income taxes payable ........................................................................ 500 1,544
Payables to broker-dealer clients ........................................................... 3,338 3,018
Securities sold but not yet purchased ....................................................... 3,533 1,900
Other liabilities ........................................................................... 14,774 8,238
Separate Account liabilities ................................................................ 73,658 62,845
----------- -----------
TOTAL LIABILITIES ......................................................................... 239,764 210,540
=========== ===========

COMMITMENTS AND CONTINGENCIES (SEE NOTES 12, 13 AND 14)

EQUITY
Retained earnings ........................................................................... 18,051 17,443
Net unrealized investment gains ............................................................. 1,752 1,136
Foreign currency translation adjustments .................................................... (85) (56)
----------- -----------
TOTAL EQUITY .............................................................................. 19,718 18,523
----------- -----------
TOTAL LIABILITIES AND EQUITY .................................................................. $ 259,482 $ 229,063
=========== ===========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)

1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Premiums .................................................................... $ 18,534 $ 18,962 $ 19,783
Policy charges and fee income ............................................... 1,828 1,912 1,824
Net investment income ....................................................... 9,863 9,742 10,178
Realized investment gains, net .............................................. 2,187 1,138 1,503
Commissions and other income ................................................ 4,661 4,521 3,952
------------ ----------- -----------
Total revenues ............................................................ 37,073 36,275 37,240
------------ ----------- -----------

BENEFITS AND EXPENSES
Policyholders' benefits ..................................................... 18,208 19,306 19,470
Interest credited to policyholders' account balances ........................ 2,043 2,251 2,739
Dividends to policyholders .................................................. 2,429 2,339 2,317
General and administrative expenses ......................................... 11,926 10,875 10,345
Sales practice remediation costs ............................................ 1,640 410 --
------------ ----------- -----------
Total benefits and expenses ............................................... 36,246 35,181 34,871
------------ ----------- -----------

INCOME FROM OPERATIONS BEFORE INCOME TAXES .................................... 827 1,094 2,369
------------ ----------- -----------
Income taxes
Current ................................................................... (46) 406 1,293
Deferred .................................................................. 263 (390) (167)
------------ ----------- -----------
217 16 1,126
------------ ----------- -----------

NET INCOME .................................................................... $ 610 $ 1,078 $ 1,243
============ =========== ===========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)

FOREIGN NET
CURRENCY UNREALIZED
RETAINED TRANSLATION INVESTMENT TOTAL
EARNINGS ADJUSTMENTS GAINS EQUITY
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 ........................ $ 15,126 $ (42) $ 16 $ 15,100
Net income .................................... 1,243 -- -- 1,243
Change in foreign currency translation
adjustments ................................. -- 18 -- 18
Change in net unrealized investment gains ..... -- -- 2,381 2,381
--------- --------- --------- ---------

BALANCE, DECEMBER 31, 1995 ...................... 16,369 (24) 2,397 18,742
Net income .................................... 1,078 -- -- 1,078
Change in foreign currency translation
adjustments ................................. -- (32) -- (32)
Change in net unrealized investment gains ..... -- -- (1,261) (1,261)
Additional pension liability adjustment ....... (4) -- -- (4)
--------- --------- --------- ---------

BALANCE, DECEMBER 31, 1996 ...................... 17,443 (56) 1,136 18,523
Net income .................................... 610 -- -- 610
Change in foreign currency translation
adjustments ................................. -- (29) -- (29)
Change in net unrealized investment gains ..... -- -- 616 616
Additional pension liability adjustment ....... (2) -- -- (2)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 ...................... $ 18,051 $ (85) $ 1,752 $ 19,718
========= ========= ========= =========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)

1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 610 $ 1,078 $ 1,243
Adjustments to reconcile net income to
net cash provided by operating activities:
Realized investment gains, net ............................... (2,187) (1,138) (1,503)
Policy charges and fee income ................................ (258) (208) (201)
Interest credited to policyholders' account balances ......... 2,043 2,128 2,616
Depreciation and amortization ................................ 258 266 398
Other, net ................................................... 4,681 (1,180) (2,628)
Loss (gain) on divestitures .................................. -- (116) 297
Change in:
Deferred policy acquisition costs .......................... 143 (122) (214)
Policy liabilities and insurance reserves .................. 2,477 2,471 2,382
Securities purchased under agreements to resell ............ (3,314) (217) 461
Trading account assets ..................................... (1,825) (433) 2,579
Income taxes receivable/payable ............................ (1,391) (937) 194
Cash collateral for borrowed securities .................... (2,631) (332) 25
Broker-dealer client receivables/payables .................. (672) (607) (420)
Securities sold but not yet purchased ...................... 1,633 251 (225)
Securities sold under agreements to repurchase ............. 4,844 (490) (712)
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES ...................... $ 4,411 $ 414 $ 4,292
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities, available for sale .......................... $ 123,550 $ 123,368 $ 97,084
Fixed maturities, held to maturity ............................ 4,042 4,268 3,767
Equity securities, available for sale ......................... 2,572 2,162 2,370
Mortgage loans on real estate ................................. 4,299 5,731 5,553
Investment real estate ........................................ 1,842 615 435
Other long-term investments ................................... 5,081 3,203 3,385
Divestitures .................................................. -- 52 790
Payments for the purchase of:
Fixed maturities, available for sale .......................... (129,854) (125,093) (101,197)
Fixed maturities, held to maturity ............................ (2,317) (2,844) (6,803)
Equity securities, available for sale ......................... (2,461) (2,384) (1,391)
Mortgage loans on real estate ................................. (3,363) (1,906) (3,015)
Investment real estate ........................................ (241) (142) (387)
Other long-term investments ................................... (4,148) (2,060) (1,849)
Cash collateral for securities loaned (net) .................... 5,668 2,891 3,471
Short-term investments (net) ................................... (2,848) (1,915) 2,793
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES ...................... $ 1,822 $ 5,946 $ 5,006
--------- --------- ---------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)

1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits ................................ $ 5,020 $ 2,799 $ 2,724
Policyholders' account withdrawals ............................. (9,873) (8,099) (9,164)
Net increase(decrease) in short-term debt ...................... 305 583 (3,077)
Proceeds from the issuance of long-term debt ................... 324 93 763
Repayments of long-term debt ................................... (464) (1,306) (30)
--------- --------- ---------

CASH FLOWS USED IN FINANCING ACTIVITIES ................... (4,688) (5,930) (8,784)
--------- --------- ---------

NET INCREASE IN CASH ............................................. 1,545 430 514

CASH, BEGINNING OF YEAR .......................................... 2,091 1,661 1,147
--------- --------- ---------

CASH, END OF YEAR ................................................ $ 3,636 $ 2,091 $ 1,661
========= ========= =========

SUPPLEMENTAL CASH FLOW INFORMATION:

Income taxes paid ................................................ $ 968 $ 793 $ 430
--------- --------- ---------

Interest paid .................................................... $ 1,243 $ 1,404 $ 1,413
--------- --------- ---------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

The Prudential Insurance Company of America and its subsidiaries
(collectively, "the Company") provide insurance and financial services
throughout the United States and many locations worldwide. Principal
products and services provided include life and health insurance, annuities,
pension and retirement related investments and administration, managed
healthcare, property and casualty insurance, securities brokerage, asset
management, investment advisory services and real estate brokerage.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Prudential
Insurance Company of America, a mutual life insurance company, and its
subsidiaries, and those partnerships and joint ventures in which the Company
has a controlling interest. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP"). All significant intercompany balances and transactions have been
eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.

INVESTMENTS

FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent
and ability to hold to maturity are stated at amortized cost and classified
as "held to maturity." The amortized cost of fixed maturities are written
down to estimated fair value when considered impaired and the decline in
value is considered to be other than temporary. Unrealized gains and losses
on fixed maturities "available for sale," net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."

TRADING ACCOUNT ASSETS are carried at estimated fair value.

EQUITY SECURITIES, available for sale, comprised of common and
non-redeemable preferred stock, are carried at estimated fair value. The
associated unrealized gains and losses, net of income tax, the effect on
deferred policy acquisition costs and participating annuity contracts that
would result from the realization of unrealized gains and losses, are
included in a separate component of equity, "Net unrealized investment
gains."

MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal
balances, net of unamortized discounts and allowance for losses on impaired
loans. Impaired loans are identified by management as loans in which a
probability exists that all amounts due according to the contractual terms
of the loan agreement will not be collected. Impaired loans are measured
based on the present value of expected future cash flows, discounted at the
loan's effective interest rate or the fair value of the collateral, if the
loan is collateral dependent. The Company's periodic evaluation of the
adequacy of the allowance for losses is based on a number of factors,
including past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of the underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires estimating the
amounts and timing of future cash flows expected to be received on impaired
loans.

Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to
the collectibility of principal. Management discontinues the accrual of
interest on impaired loans after the loans are 90 days delinquent as to
principal or interest or earlier when management has serious doubts about
collectibility. When a loan is recognized as

8
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

impaired, any accrued but unpaid interest previously recorded on such loan
is reversed against interest income of the current period. Generally, a loan
is restored to accrual status only after all delinquent interest and
principal are brought current and, in the case of loans where interest has
been interrupted for a substantial period, a regular payment performance has
been established.

INVESTMENT REAL ESTATE, which the Company has the intent to hold for the
production of income, is carried at depreciated cost less any write-downs to
fair value for impairment losses. Depreciation on real estate is computed
using the straight-line method over the estimated lives of the properties.
Real estate to be disposed of is carried at the lower of depreciated cost or
fair value less selling costs and is not depreciated once classified as
such.

POLICY LOANS are carried at unpaid principal balances.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE are carried at the amounts at which the securities
will be subsequently resold or reacquired, including accrued interest, as
specified in the respective agreements. The Company's policy is to take
possession of securities purchased under agreements to resell. The market
value of securities to be repurchased is monitored, and additional
collateral is requested, where appropriate, to protect against credit
exposure.

SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of cash
advanced or received. With respect to securities loaned, the Company obtains
collateral in an amount equal to 102% and 105% of the fair value of the
domestic and foreign securities, respectively. The Company monitors the
market value of securities borrowed and loaned on a daily basis with
additional collateral obtained as necessary. Non-cash collateral received is
not reflected in the Consolidated Statements of Financial Position.
Substantially, all the Company's securities borrowed contracts are with
other brokers and dealers, commercial banks and institutional clients.
Substantially, all of the Company's securities loaned are with large
brokerage firms.

These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30
days or less) and are collateralized principally by U.S. Government and
mortgage-backed securities. The carrying amounts of these instruments
approximate fair value because of the relatively short period of time
between the origination of the instruments and their expected realization.

SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased
with an original maturity of twelve months or less, are carried at amortized
cost, which approximates fair value.

OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments
in joint ventures and partnerships in which the Company does not have
control and derivatives held for purposes other than trading. Joint venture
and partnership investments are recorded using the equity method of
accounting, reduced for other than temporary declines in value.

REALIZED INVESTMENT GAINS, NET are computed using the specific
identification method. Costs of fixed maturities and equity securities are
adjusted for impairments considered to be other than temporary. Allowances
for losses on mortgage loans on real estate are netted against asset
categories to which they apply and provisions for losses on investments are
included in "Realized investment gains, net." Unrealized gains and losses on
trading account assets are included in "Commissions and other income."

CASH

Cash includes cash on hand, amounts due from banks, and money market
instruments.

DEFERRED POLICY ACQUISITION COSTS

The costs which vary with and that are related primarily to the production
of new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions,
costs of policy issuance and underwriting, and certain variable field office
expenses. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end
of each accounting period. Deferred policy acquisition costs are adjusted
for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.

9
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For life insurance, deferred policy acquisition costs are amortized over the
expected life of the contracts (up to 45 years) in proportion to estimated
gross margins based on historical and anticipated future experience, which
is updated periodically. The effect of changes in estimated gross margins is
reflected in earnings in the period they are revised. Policy acquisition
costs related to interest-sensitive products and certain investment-type
products are deferred and amortized over the expected life of the contracts
(periods ranging from 15 to 30 years) in proportion to estimated gross
profits arising principally from investment results, mortality and expense
margins and surrender charges based on historical and anticipated future
experience, updated periodically. The effect of revisions to estimated gross
profits on unamortized deferred acquisition costs is reflected in earnings
in the period such estimated gross profits are revised.

For property and casualty contracts, deferred policy acquisition costs are
amortized over the period in which related premiums are earned. Future
investment income is considered in determining the recoverability of
deferred policy acquisition costs.

For disability insurance, health insurance, group life insurance and most
group annuities, acquisition costs are expensed as incurred.

POLICYHOLDERS' DIVIDENDS

The amount of the dividends to be paid to policyholders is determined
annually by the Company's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity, persistency and expense experience for the year and judgment as
to the appropriate level of statutory surplus to be retained by the Company.

SEPARATE ACCOUNT ASSETS AND LIABILITIES

Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders,
pension fund and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, real estate mortgage loans and
short-term investments. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. Investment risks associated with market value
changes are generally borne by the customers, except to the extent of
minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue
to the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."

INSURANCE REVENUE AND EXPENSE RECOGNITION

Premiums from participating insurance policies are generally recognized when
due. Benefits are recorded as an expense when they are incurred. A liability
for future policy benefits is recorded using the net level premium method.

Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities and
structured settlements, premiums are recognized when due with any excess
profit deferred and recognized in a constant relationship to insurance
in-force or, for annuities, the amount of expected future benefit payments.

Amounts received as payment for interest sensitive investment contracts,
deferred annuities and participating group annuities are reported as
deposits to "Policyholders' account balances." Revenues from these contracts
are reflected in "Policy charges and fee income" and consist primarily of
fees assessed during the period against the policyholders' account balances
for mortality charges, policy administration charges, surrender charges and
interest earned from the investment of these account balances. Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.

For disability insurance, group life insurance, health insurance and
property and casualty insurance, premiums are recognized over the period to
which the premiums relate in proportion to the amount of insurance
protection provided. Claim and claim adjustment expenses are recognized when
incurred.

10
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

Assets and liabilities of foreign operations and subsidiaries reported in
other than U.S. dollars are translated at the exchange rate in effect at the
end of the period. Revenues, benefits and other expenses are translated at
the average rate prevailing during the period. Translation adjustments
arising from the use of differing exchange rates from period to period are
charged or credited directly to equity. The cumulative effect of changes in
foreign exchange rates are included in "Foreign currency translation
adjustments."

COMMISSIONS AND OTHER INCOME

Commissions and other income principally includes securities and
commodities, commission revenues, asset management fees, investment banking
revenue and realized and unrealized gains on trading account assets of the
Company's broker-dealer subsidiary.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives include swaps, forwards, futures, options and loan commitments
subject to market risk, all of which are used by the Company in both trading
and other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis as an adjustment
to the carrying amount or to the yield of the related assets or liabilities
over the periods covered by the derivative contracts. Gains and losses
relating to early terminations of interest rate swaps used to hedge are
deferred and amortized over the remaining period originally covered by the
swap. Gains and losses relating to derivatives used to hedge the risks
associated with anticipated transactions are deferred and utilized to adjust
the basis of the transaction once it has closed. If it is determined that
the transaction will not close, such gains and losses are included in
"Realized investment gains, net."

DERIVATIVES HELD FOR TRADING PURPOSES are used in the Company's securities
broker-dealer business and in a limited-purpose swap subsidiary to meet the
risk management needs of its customers by structuring transactions that
allow customers to manage their exposure to interest rates, foreign exchange
rates, indices or prices of securities and commodities and when possible,
matched trading positions are established to minimize risk to the Company.
Derivatives used for trading purposes are recorded at fair value as of the
reporting date. Realized and unrealized changes in fair values are included
in "Commissions and other income" in the period in which the changes occur.

DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING are primarily used to hedge
or reduce exposure to interest rate and foreign currency risks associated
with assets held or expected to be purchased or sold, and liabilities
incurred or expected to be incurred. Additionally, other than trading
derivatives are used to change the characteristics of the Company's
asset/liability mix consistent with the Company's risk management
activities.

INCOME TAXES

The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") limits the amount of
non-life insurance losses that may offset life insurance company taxable
income. The Code also imposes an "equity tax" on mutual life insurance
companies which, in effect, imputes an additional tax to the Company based
on a formula that calculates the difference between stock and mutual
insurance companies' earnings. Income taxes include an estimate for changes
in the total equity tax to be paid for current and prior years. Subsidiaries
operating outside the United States are taxed under applicable foreign
statutes.

Deferred income taxes are generally recognized, based on enacted rates, when
assets and liabilities have different values for financial statement and tax
reporting purposes. A valuation allowance is recorded to reduce a deferred
tax asset to that portion which management believes is more likely than not
to be realized.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS

11
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities and provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 became effective January 1, 1997 and is to be applied
prospectively. Subsequent to June 1996, FASB issued SFAS No. 127 "Deferral
of the Effective Date of Certain Provisions of SFAS 125" ("SFAS 127"). SFAS
127 delays the implementation of SFAS 125 for one year for certain
provisions, including repurchase agreements, dollar rolls, securities
lending and similar transactions. The Company will delay implementation
with respect to those affected provisions. Adoption of SFAS 125 has not and
will not have a material impact on the Company's results of operations,
financial condition and liquidity.

In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This
statement defines comprehensive income as "the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources, excluding investments by owners and
distributions to owners" and establishes standards for reporting and
displaying comprehensive income and its components in financial statements.
The statement requires that the Company classify items of other
comprehensive income by their nature and display the accumulated balance of
other comprehensive income separately from retained earnings in the equity
section of the Statement of Financial Position. In addition,
reclassification of financial statements for earlier periods must be
provided for comparative purposes.

RECLASSIFICATIONS

Certain amounts in the prior years have been reclassified to conform to
current year presentation.

12
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS

FIXED MATURITIES AND EQUITY SECURITIES

The following tables provide additional information relating to fixed
maturities and equity securities (excluding trading account assets) as of
December 31:

1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 9,755 $ 783 $ -- $ 10,538

Obligations of U.S. states and
their political subdivisions..................... 1,375 93 -- 1,468

Foreign government bonds............................ 3,177 218 17 3,378

Corporate securities................................ 49,997 2,601 144 52,454

Mortgage-backed securities.......................... 6,828 210 5 7,033

Other fixed maturities.............................. 364 35 -- 399
-------------- -------------- -------------- ------------
Total fixed maturities available for sale........... $ 71,496 $ 3,940 $ 166 $ 75,270
============== ============== ============== ============
EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,376 $ 680 $ 246 $ 2,810
============== ============== ============== ============

1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 88 $ - $ - $ 88

Obligations of U.S. states and
their political subdivisions...................... 152 4 1 155

Foreign government bonds............................ 33 5 - 38

Corporate securities................................ 18,282 1,212 34 19,460

Mortgage-backed securities.......................... 1 - - 1

Other fixed maturities.............................. 144 8 - 152
-------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 18,700 $ 1,229 $ 35 $ 19,894
============== ============== ============== ============
</TABLE>

13
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES AVAILABLE FOR SALE (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 10,618 $ 361 $ 77 $ 10,902

Obligations of U.S. states and
their political subdivisions...................... 1,104 29 2 1,131

Foreign government bonds............................ 2,814 137 12 2,939

Corporate securities................................ 43,593 1,737 284 45,046

Mortgage-backed securities.......................... 6,377 140 21 6,496

Other fixed maturities.............................. 39 1 1 39
--------------- -------------- -------------- ------------

Total fixed maturities available for sale........... $ 64,545 $ 2,405 $ 397 $ 66,553
=============== ============== ============== ============

EQUITY SECURITIES AVAILABLE FOR SALE................ $ 2,103 $ 659 $ 140 $ 2,622
=============== ============== ============== ============

<CAPTION>
1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- ------------
FIXED MATURITIES HELD TO MATURITY (IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies......... $ 309 $ 3 $ 6 $ 306

Obligations of U.S. states and
their political subdivisions...................... 7 -- -- 7

Foreign government bonds............................ 162 11 -- 173

Corporate securities................................ 19,886 1,033 82 20,837

Mortgage-backed securities.......................... 26 -- -- 26

Other fixed maturities.............................. 13 -- -- 13
--------------- -------------- -------------- ------------
Total fixed maturities held to maturity............. $ 20,403 $ 1,047 $ 88 $ 21,362
=============== ============== ============== ============
</TABLE>

14
<PAGE>

INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

The amortized cost and estimated fair value of fixed maturities by
contractual maturities at December 31, 1997, is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------- -------------- -------------- ------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 1,991 $ 2,011 $ 686 $ 695
Due after one year through five years......... 18,916 19,226 4,496 4,659
Due after five years through ten years........ 16,776 17,494 7,161 7,551
Due after ten years........................... 26,985 29,506 6,356 6,988

Mortgage-backed securities.................... 6,828 7,033 1 1
-------------- -------------- -------------- ------------
Total......................................... $ 71,496 $ 75,270 $ 18,700 $ 19,894
============== ============== ============== ============
</TABLE>

Actual maturities may differ from contractual maturities because issuers have
the right to call or prepay obligations

Proceeds from the repayment of held to maturity fixed maturities during 1997,
1996 and 1995 were $4,042 million, $4,268 million, and $3,767 million,
respectively. Gross gains of $62 million, $78 million, and $27 million, and
gross losses of $1 million, $7 million, and $0.2 million were realized on
prepayment of held to maturity fixed maturities during 1997, 1996 and 1995,
respectively.

Proceeds from the sale of available for sale fixed maturities during 1997,
1996 and 1995 were $120,604 million, $121,910 million and $96,134 million,
respectively. Proceeds from the maturity of available for sale fixed
maturities during 1997, 1996 and 1995 were $2,946 million, $1,458 million,
and $950 million, respectively. Gross gains of $1,310 million, $1,562
million, and $2,052 million and gross losses of $639 million, $1,026 million,
and $941 million were realized on sales and prepayments of available for sale
fixed maturities during 1997, 1996 and 1995, respectively.

Write downs for impairments of fixed maturities which were deemed to be other
than temporary were $13 million, $54 million and $100 million for the years
1997, 1996 and 1995, respectively.

During the year ended December 31, 1997, there were no securities classified
as held to maturity that were sold and two securities so classified were
transferred to the available for sale portfolio. These actions were taken as
a result of a significant deterioration in credit worthiness. The aggregate
amortized cost of the securities transferred was $26 million with gross
unrealized investment gains of $0.5 million charged to "Net unrealized
investment gains."

During the year ended December 31, 1996, one security classified as held to
maturity was sold and two securities so classified were transferred to the
available for sale portfolio. These actions were taken as a result of a
significant deterioration in credit worthiness. The amortized cost of the
security sold was $35 million with a related realized investment loss of $0.7
million; the aggregate amortized cost of the securities transferred was $26
million with gross unrealized investment losses of $6 million charged to "Net
unrealized investment gains."

15
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

MORTGAGE LOANS ON REAL ESTATE

The Company's mortgage loans were collateralized by the following property
types at December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Office buildings............................... $ 4,692 28.5% $ 6,056 34.4%
Retail stores.................................. 3,078 18.7% 3,676 20.9%
Residential properties......................... 891 5.4% 961 5.4%
Apartment complexes............................ 3,551 21.6% 2,954 16.8%
Industrial buildings........................... 1,958 11.9% 1,807 10.3%
Agricultural properties........................ 1,666 10.1% 1,550 8.8%
Other.......................................... 618 3.8% 608 3.4%
--------------- --------- -------------- ------
Subtotal 16,454 100.0% 17,612 100.0%
========= ======
Allowance for losses........................... (450) (515)
--------------- --------------
Net carrying value............................. $ 16,004 $ 17,097
=============== ==============
</TABLE>

The mortgage loans are geographically dispersed throughout the United
States and Canada with the largest concentrations in California (25.3%) and
New York (8.3%) at December 31, 1997. Included in the above balances are
mortgage loans receivable from affiliated joint ventures of $225 million
and $461 million at December 31, 1997 and 1996, respectively.

Activity in the allowance for losses for all mortgage loans, for the years
ended December 31, is summarized as follows:
<TABLE>
<CAPTION>

1997 1996 1995
---------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Allowance for losses, beginning of year.............. $ 515 $ 862 $ 1,004
Additions charged to operations...................... 19 9 6
Release of allowance for losses...................... (60) (256) (32)
Charge-offs, net of recoveries....................... (24) (100) (116)
--------------- ---------------- ---------------
Allowance for losses, end of year.................... $ 450 $ 515 $ 862
================ ================ ===============
</TABLE>

The $60 million, $256 million and $32 million reduction of the mortgage
loan allowance for losses in 1997, 1996 and 1995, respectively, is
primarily attributable to the improved economic climate, changes in the
nature and mix of borrowers and underlying collateral and a significant
decrease in impaired loans consistent with a general decrease in the
mortgage loan portfolio due to prepayments, sales and foreclosures.

16
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

Impaired mortgage loans and related allowance for losses at December 31,
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with allowance for losses ............. $ 330 $ 941
Impaired mortgage loans with no allowance for losses .......... 1,303 1,491
Allowance for losses .......................................... (97) (189)
----------------- ------------------
Net carrying value of impaired mortgage loans ................. $ 1,536 $ 2,243
================= ==================
</TABLE>

Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. The average recorded investment in impaired loans before
allowance for losses was $2,102 million, $2,842 million and $4,146 million
during 1997, 1996 and 1995, respectively. Net investment income recognized
on these loans totaled $140 million, $265 million and $415 million for the
years ended December 31, 1997, 1996 and 1995, respectively.

INVESTMENT REAL ESTATE

The Company's "investment real estate" of $1,519 million and $2,586 million
at December 31, 1997 and 1996, respectively, is held through direct
ownership. Of the Company's real estate, $1,490 million and $406 million
consists of commercial and agricultural assets held for disposal at
December 31, 1997 and 1996, respectively. Impairment losses and the
valuation allowances aggregated $40 million, $38 million and $124 million
for the years ended December 31, 1997, 1996 and 1995, respectively, and are
included in "Realized investment gains, net."

RESTRICTED ASSETS AND SPECIAL DEPOSITS

Assets of $2,783 million and $2,453 million at December 31, 1997 and 1996,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Additionally, assets valued at $2,352
million at December 31, 1997, were held in voluntary trusts. Of this
amount, $1,801 million related to the multi-state policyholder settlement
as described in Note 14. The remainder relates to trusts established to
fund guaranteed dividends to certain policyholders. The terms of these
trusts provide that the assets are to be used for payment of the designated
settlement and dividend benefits, as the case may be. Assets valued at $741
million and $3,414 million at December 31, 1997 and 1996, respectively,
were maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Restricted cash and securities of
$1,835 million and $1,614 million at December 31, 1997, and 1996,
respectively, were included in the consolidated financial statements. The
restricted cash represents funds deposited by clients and funds accruing to
clients as a result of trades or contracts.

OTHER LONG-TERM INVESTMENTS

The Company's "Other long-term investments" of $3,360 million and $2,995
million as of December 31, 1997 and 1996, respectively, are composed of
$1,349 million and $832 million in real estate related interests and $2,011
million and $2,163 million of non-real estate related interests, including
a $149 million net investment in a leveraged lease entered into in 1997.
The Company's share of net income from such entities was $411 million, $245
million, and $326 million for 1997, 1996, and 1995, respectively, and is
reported in "Net investment income."

17
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES

NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:

1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities-available for sale........................ $ 5,074 $ 4,871 $ 4,774
Fixed maturities-held to maturity.......................... 1,622 1,793 1,717
Trading account assets..................................... 504 444 588
Equity securities-available for sale ...................... 52 81 57
Mortgage loans on real estate.............................. 1,555 1,690 2,075
Real estate ............................................... 565 685 742
Policy loans............................................... 396 384 392
Securities purchased under agreements to resell............ 15 11 19
Receivables from broker-dealer clients..................... 706 579 678
Short-term investments..................................... 697 536 590
Other investment income.................................... 573 725 983
-------------- -------------- -------------
Gross investment income.................................... 11,759 11,799 12,615
Less investment expenses................................... (1,896) (2,057) (2,437)
-------------- -------------- -------------
Net investment income...................................... $ 9,863 $ 9,742 $ 10,178
============== ============== =============
</TABLE>

REALIZED INVESTMENT GAINS, NET, including changes in allowances for losses
and charges for other than temporary reductions in value, for the years
ended December 31, were from the following sources:

1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities....................................... $ 684 $ 513 $ 1,180
Mortgage loans on real estate ......................... 68 248 67
Investment real estate ................................ 700 76 (19)
Equity securities-available for sale .................. 363 267 400
Other gains (losses)................................... 372 34 (125)
-------------- -------------- -----------

Realized investment gains, net......................... $ 2,187 $ 1,138 $ 1,503
============== ============== ===========
</TABLE>

NET UNREALIZED INVESTMENT GAINS on securities available for sale are
included in the consolidated statement of financial position as a component
of equity, net of tax. Changes in these amounts for the years ended
December 31, are as follows:

1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Balance, beginning of year................................. $ 1,136 $ 2,397
Changes in unrealized investment
gains(losses) attributable to:
Fixed maturities ....................................... 1,766 (2,892)
Equity securities....................................... (85) 254
Participating group annuity contracts................... (564) 479
Deferred policy acquisition costs....................... (154) 261
Deferred federal income taxes........................... (347) 637
----------------- -----------------
Sub-total............................................... 616 (1,261)
----------------- -----------------
Balance, end of year....................................... $ 1,752 $ 1,136
================= =================
</TABLE>

18
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS (CONTINUED)

Based on the carrying value, assets categorized as "non-income producing"
for the year ended December 31, 1997 included in fixed maturities available
for sale, mortgage loans on real estate and other long term investments
totaled $26 million, $93 million and $7 million, respectively.

4. DEFERRED POLICY ACQUISITION COSTS

The balances of and changes in deferred policy acquisition costs as of and
for the years ended December 31, are as follows:

1997 1996 1995
-------------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year ............................ $ 6,291 $ 6,088 $ 6,403
Capitalization of commissions, sales and issue expenses 1,049 931 919
Amortization and other adjustments..................... (1,192) (989) (783)
Change in unrealized investment gains ................. (154) 261 (451)
-------------- -------------- -----------
Balance, end of year .................................. $ 5,994 $ 6,291 $ 6,088
============== ============== ===========
</TABLE>

5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES

FUTURE POLICY BENEFITS at December 31 are as follows:

1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Life insurance ............................................ $ 46,712 $ 44,118
Annuities ................................................. 15,469 14,828
Other contract liabilities ................................ 3,400 5,009
----------------- -----------------
Future policy benefits .................................... $ 65,581 $ 63,955
================= =================
</TABLE>

Life insurance liabilities include reserves for death and endowment policy
benefits, terminal dividends, premium deficiency reserves and certain health
benefits. Annuity liabilities include reserves for immediate annuities and
non-participating group annuities. Other contract liabilities primarily consist
of unearned premium and benefit reserves for group health products.

The following table highlights the key assumptions generally utilized in
calculating these reserves:

<TABLE>
<CAPTION>
PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- ------------------------- ------------------------ --------------- ------------------------
<S> <C> <C> <C>
Life insurance Generally rates 2.5% to 7.5% Net level premium
guaranteed in calculating based on non-forfeiture
cash surrender values interest rate

Individual immediate 1983 Individual 3.25% to 11.25% Present value of
annuities Annuity Mortality expected future payments
Table with certain based on historical
modifications experience

Group annuities in 1950 Group 3.75% to 17.35% Present value of
payout status Annuity Mortality expected future payments
Table with certain based on historical
modifications experience

Other contract liabilities -- 6.0% to 7.0% Present value of
expected future payments
based on historical
experience
</TABLE>

19
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)

For the above categories, premium deficiency reserves are established, if
necessary, when the liability for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for
expected future policy benefits and expenses. A premium deficiency reserve
has been recorded for the group single premium annuity business, which
consists of limited-payment, long duration, traditional non-participating
annuities. A liability of $1,645 million and $1,320 million is included in
"Future policy benefits" with respect to this deficiency for the years
ended December 31, 1997 and 1996, respectively.

POLICYHOLDERS' ACCOUNT BALANCES at December 31, are as follows:

1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Individual annuities........................................ $ 5,695 $ 6,408
Group annuities & guaranteed investment contracts........... 19,053 21,706
Interest-sensitive life contracts........................... 3,160 2,888
Dividend accumulations...................................... 5,033 5,007
--------- ---------
Policyholders' account balances............................. $ 32,941 $ 36,009
========= =========
</TABLE>

Policyholders' account balances for interest-sensitive life and
investment-type contracts are equal to policy account values. The policy
account values represent an accumulation of gross premium payments plus
credited interest less withdrawals, expenses and mortality charges.

Certain contract provisions that determine the policyholder account
balances are as follows:
<TABLE>
<CAPTION>

WITHDRAWAL/
PRODUCT INTEREST RATE SURRENDER CHARGES
----------------------------------- ------------------------ -------------------------------------
<S> <C> <C>
Individual annuities 3.1% to 6.6% 0% to 8% for up to 8 years

Group annuities 5.0% to 12.7% Contractually limited or subject to
market value adjustments

Guaranteed investment contracts 3.9% to 14.34% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive and
contractual payments

Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years

Dividend accumulations 3.0% to 4.0%
</TABLE>

20
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' LIABILITIES (CONTINUED)

OTHER POLICYHOLDERS' LIABILITIES. The following table provides a
reconciliation of the activity in the liability for unpaid claims and claim
adjustment expense for property and casualty and accident and health
insurance, which is included in "Other policyholder's liabilities" at
December 31:
<TABLE>
<CAPTION>

1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1......................................... $ 6,043 $ 5,933 $ 7,983
Less reinsurance recoverables.............................. 563 572 865
---------- ---------- ----------

Net balance at January 1..................................... 5,480 5,361 7,118
---------- ---------- ----------

Incurred related to:
Current year............................................... 10,691 10,281 10,534
Prior years................................................ 11 (91) 141
---------- ---------- ----------

Total incurred............................................... 10,702 10,190 10,675
---------- ---------- ----------

Paid related to:
Current year............................................... 7,415 7,497 7,116
Prior years................................................ 2,651 2,574 2,800
---------- ---------- ----------

Total paid................................................... 10,066 10,071 9,916
---------- ---------- ----------
Less Reinsurance
Segment.................................................... -- -- 2,516
---------- ---------- ----------

Net balance at December 31................................... 6,116 5,480 5,361
Plus reinsurance recoverables.............................. 543 563 572
---------- ---------- ----------

Balance at December 31....................................... $ 6,659 $ 6,043 $ 5,933
========== ========== ==========
</TABLE>

The changes in provision for claims and claim adjustment expenses related
to prior years of $11 million, $(91) million and $141 million in 1997, 1996
and 1995, respectively, are due to such factors as changes in claim cost
trends in healthcare, an accelerated decline in indemnity health business,
and lower than anticipated property and casualty unpaid claims and claim
adjustment expenses.

The other policyholders' liabilities presented above consist primarily of
unpaid claim liabilities which include estimates for liabilities associated
with reported claims and for incurred but not reported claims based, in
part, on the Company's experience. Changes in the estimated cost to settle
unpaid claims are charged or credited to the statement of operations
periodically as the estimates are revised. Accident and health unpaid
claims liabilities for 1997 and 1996 included above are discounted using
interest rates ranging from 6.0% to 7.5%.

21
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. SHORT-TERM AND LONG-TERM DEBT

Debt consists of the following at December 31:

SHORT-TERM DEBT

<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Commercial paper.......................................... $ 4,268 $ 4,511
Notes payable............................................. 2,151 1,614
Current portion of long-term debt......................... 355 437
-------------- --------------

Total short-term debt................................ $ 6,774 $ 6,562
============== ==============
</TABLE>

The weighted average interest rate on outstanding short-term debt was
approximately 6.0% and 5.6% at December 31, 1997 and 1996, respectively.

The Company issues commercial paper primarily to manage operating cash
flows and existing commitments, meet working capital needs and take
advantage of current investment opportunities. Commercial paper borrowings
are supported by various lines of credit.

LONG-TERM DEBT
<TABLE>
<CAPTION>

DESCRIPTION MATURITY DATES RATE 1997 1996
------------------------------------ ----------------- -------------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Floating rate notes ("FRN") 1998 6.5% $ 40 $ 128
Long term notes 1998 - 2023 4% - 12% 1,194 1,023
Zero coupon notes 1998 - 1999 8.6% (a) 334 365
Australian dollar notes 1997 9% -- 55
Canadian dollar notes 1997 - 1998 7.0% - 9.125% 117 320
Japanese yen notes 1998 - 2000 0.5% - 4.6% 178 90
Swiss francs notes 1998 3.875% 120 103
Canadian dollar FRN 2003 5.89% 96 96
Surplus notes 2003 - 2025 6.875% - 8.3% 986 985
Commercial paper backed by long-term
credit agreements 1,500 1,000
Other notes payable 1998 - 2017 4% - 7.5% 63 32
---------- ----------
Sub-total............................................................................. 4,628 4,197
Less: current portion of long-term debt............................................ (355) (437)
---------- ----------
Total long-term debt.................................................................. $ 4,273 $ 3,760
========== ==========
</TABLE>

(a) The rate shown for zero coupon notes, which do not bear interest,
represents a level yield to maturity.

Payment of interest and principal on the surplus notes of $686 million
issued after 1993 may be made only with the prior approval of the
Commissioner of Insurance of the State of New Jersey.

In order to modify exposure to interest rate and currency exchange rate
movements, the Company utilizes derivative instruments, primarily interest
rate swaps, in conjunction with some of its debt issues. The effect of
these derivative instruments is included in the calculation of the interest
expense on the associated debt, and as a result, the effective interest
rates on the debt may differ from the rates reflected in the tables above.
Floating rates are determined by formulas and may be subject to certain
minimum or maximum rates.

Scheduled principal repayments of long-term debt as of December 31, 1997,
are as follows: $357 million in 1998, $808 million in 1999, $260 million in
2000, $32 million in 2001, $1,814 million in 2002 and $1,379 million
thereafter.

At December 31, 1997, the Company had $8,257 million in lines of credit
from numerous financial institutions of which $5,160 million were unused.
These lines of credit generally have terms ranging from 1 to 5 years.

22
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT PLANS

PENSION PLANS

The Company has one funded non-contributory defined benefit pension plan,
which covers substantially all of its employees. The Company also has
several non-contributory non-funded defined benefit plans covering certain
executives. Benefits are generally based on career average earnings and
credited length of service. The Company's funding policy is to contribute
annually an amount necessary to satisfy the Internal Revenue Service
contribution guidelines.

Prepaid and accrued pension costs are included in "Other assets" and "Other
liabilities," respectively, in the Company's consolidated statements of
financial position. The status of these plans as of September 30, adjusted
for fourth quarter activity related to funding activity and contractual
termination benefits is summarized below:

1997 1996
--------------------------------- --------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- -------------- -------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefit obligation.............. $ (4,129) $ (205) $ (3,826) $ (180)
============ ============ =========== =============

Accumulated benefit obligation......... $ (4,434) $ (226) $ (4,121) $ (198)
============ ============ =========== =============

Projected benefit obligation............. $ (5,238) $ (319) $ (4,873) $ (274)

Plan assets at fair value................ 8,489 -- 7,306 --
------------ ------------ ----------- -------------
Plan assets in excess of (less than)
projected benefit obligation........... 3,251 (319) 2,433 (274)
Unrecognized transition amount........... (662) 1 (769) 1
Unrecognized prior service cost.......... 317 10 356 11
Unrecognized net (gain) loss............. (1,689) 45 (916) 16
Additional minimum liability............. -- (11) -- (10)
Effect of fourth quarter activity........ (67) 4 (98) 4
------------ ------------ ----------- -------------
Prepaid (accrued) pension cost
at December 31......................... $ 1,150 $ (270) $ 1,006 $ (252)
============ ============ =========== =============
</TABLE>

Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $6,022 million and $5,668 million are
included in Separate Account assets and liabilities at December 31, 1997
and 1996, respectively.

Effective December 31, 1996, The Prudential Securities Incorporated Cash
Balance Plan (the "PSI Plan") was merged into The Retirement System for
United States Employees and Special Agents of The Prudential Insurance
Company of America (the "Prudential Plan"). The name of the merged plan is
The Prudential Merged Retirement Plan ("Merged Retirement Plan"). All of
the assets of the Merged Retirement Plan are available to pay benefits to
participants and their beneficiaries who are covered by the Merged
Retirement Plan. The merger of the plans had no effect on the December 31,
1996 consolidated financial position or results of operations.

During 1996, the Prudential Plan was amended to provide cost of living
adjustments for retirees. The effect of this plan amendment increased
benefit obligations and unrecognized prior service cost by $170 million at
September 30, 1996. In addition, the Prudential Plan was amended to provide
contractual termination benefits to certain plan participants who were
notified between September 15, 1996 and December 31, 1997 that their
employment had been terminated. During 1997, the Prudential Retirement Plan
Document, a component of the Merged Retirement Plan was amended to extend
the contractual termination benefits to December 31, 1998. Costs related to
these amendments are reflected below in contractual termination benefits.

23
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

Net periodic pension income included in "General and administrative
expenses" in the Company's consolidated statement of operations for the
years ended December 31, 1997, 1996 and 1995 include the following
components:

1997 1996 1995
-------------- ------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year......... $ 127 $ 140 $ 133
Interest cost on projected benefit obligation........ 376 354 392
Actual return on plan assets......................... (1,693) (748) (1,288)
Net amortization and deferral........................ 1,012 73 629
Contractual termination benefits..................... 30 63 --
-------------- ------------- --------------
Net periodic pension income.......................... $ (148) $ (118) $ (134)
============== ============= ==============
</TABLE>

The assumptions at September 30 used by the Company are to calculate the
projected benefit obligations as of that date and determine the pension
expense for the following fiscal year:

1997 1996 1995
-------------- ------------- --------------

<S> <C> <C> <C>
Discount rate.......................................... 7.25% 7.75% 7.50%

Rate of increase in compensation levels................ 4.50% 4.50% 4.50%

Expected long-term rate of return on plan assets....... 9.50% 9.50% 9.00%
</TABLE>