PRUDENTIAL SERIES FUND INC, 485BPOS, 1998-04-24

PRUDENTIAL SERIES FUND INC
485BPOS, 1998-04-24

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AS FILED WITH THE SEC ON _______________. REGISTRATION NO. 2-80896

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
PRE-EFFECTIVE AMENDMENT NO. |_|
POST-EFFECTIVE AMENDMENT NO. 34 |X|

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT NO. 37 |X|
(Check appropriate box or boxes)

----------

THE PRUDENTIAL SERIES FUND, INC.
(Exact Name of Registrant)

751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 437-4016
(Address and telephone number of principal executive offices)

----------

CAREN A. CUNNINGHAM
SECRETARY
THE PRUDENTIAL SERIES FUND, INC.
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(Name and address of agent for service)

Copy to:
CHRISTOPHER E. PALMER
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036

----------

It is proposed that this filing will become effective (check appropriate space):

|_| immediately upon filing pursuant to paragraph (b) of Rule 485

|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485

|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485

|X| on April 30, 1998 pursuant to paragraph (b) of Rule 485
--------------

|_| on pursuant to paragraph (a)(1) of Rule 485
--------------

|_| on pursuant to paragraph (a)(2) of Rule 485
--------------

Title of Securities Being Registered......Shares of common stock, $.01 par value

<PAGE>

CROSS REFERENCE SHEET
(AS REQUIRED BY 495(A) UNDER THE 1933 ACT)

<TABLE>
<CAPTION>
N-1A ITEM NUMBER AND CAPTION LOCATION
- ---------------------------- --------
<S> <C> <C>
PART A
1. Cover Page ................................................ Cover Page

2. Synopsis .................................................. Not Applicable

3. Condensed Financial Information............................ Financial Highlights; Portfolio Rates of Return;
Investment Objectives and Policies of the Portfolios

4. General Description of Registrant.......................... The Series Fund; Investment Objectives and Policies
of the Portfolios; Investment Restrictions
Applicable to the Portfolios

5. Management of the Fund..................................... Investment Manager; Investment Management
Arrangements and Expenses; Portfolio Brokerage and
Related Practices; Portfolio Transactions and
Brokerage; Custodian, Transfer Agent and Dividend
Disbursing Agent; Monitoring for Possible Conflict

6. Capital Stock and Other Securities......................... Investment Objectives and Policies of the
Portfolios; Dividends, Distributions and Taxes;
Voting Rights; Additional Information

7. Purchase of Securities Being Offered....................... Purchase and Redemption of Shares; Determination of
Net Asset Value

8. Redemption or Repurchase................................... Purchase and Redemption of Shares; Other Information
Concerning the Series Fund

9. Pending Legal Proceedings.................................. Not Applicable

PART B
10. Cover Page................................................. Cover Page

11. Table of Contents.......................................... Contents

12. General Information and History............................ Not Applicable

13. Investment Objectives and Policies......................... Investment Objectives and Policies of the
Portfolios; Investment Restrictions

14. Management of the Fund..................................... Management of the Series Fund

15. Control Persons and Principal Holders of
Securities................................................. Not Applicable

16. Investment Advisory and Other
Services................................................... Investment Management Arrangements and Expenses;
Custodian, Transfer Agent, and Dividend Disbursing
Agent; Experts

17. Brokerage Allocation....................................... Portfolio Transactions and Brokerage

18. Capital Stock and Other Securities......................... Not Applicable
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
N-1A ITEM NUMBER AND CAPTION LOCATION
<S> <C> <C>

19. Purchase, Redemption and Pricing of
Securities Being Offered................................... Determination of Net Asset Value

20. Tax Status................................................. Not Applicable

21. Underwriters............................................... Determination of Net Asset Value

22. Calculations of Performance Data........................... Not Applicable

23. Financial Statements....................................... Financial Statements of The Prudential Series Fund,
Inc.
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration
Statement.

<PAGE>

PART A

INFORMATION REQUIRED IN A PROSPECTUS

<PAGE>

PROSPECTUS

MAY 1, 1998

THE PRUDENTIAL
SERIES FUND, INC.

The Prudential Series Fund, Inc. (the "Series Fund") is a diversified, open-end
management investment company (commonly known as a "mutual fund") that is
intended to provide a range of investment alternatives through its fifteen
separate portfolios, each of which is, for investment purposes, in effect a
separate fund. The portfolios are: the Money Market Portfolio, the Diversified
Bond Portfolio, the Government Income Portfolio, two Zero Coupon Bond Portfolios
with different liquidation dates--2000 and 2005, the Conservative Balanced
Portfolio, the Flexible Managed Portfolio, the High Yield Bond Portfolio, the
Stock Index Portfolio, the Equity Income Portfolio, the Equity Portfolio, the
Prudential Jennison Portfolio, the Small Capitalization Stock Portfolio, the
Global Portfolio, and the Natural Resources Portfolio. A separate class of
capital stock is issued for each portfolio. Shares of the Series Fund are
currently sold only to separate accounts (the "Accounts") of The Prudential
Insurance Company of America ("Prudential") and certain other insurers to fund
the benefits under variable life insurance and variable annuity contracts (the
"Contracts") issued by those Companies. The Accounts invest in shares of the
Series Fund through subaccounts that correspond to the portfolios. The Accounts
will redeem shares of the Series Fund to the extent necessary to provide
benefits under the Contracts or for such other purposes as may be consistent
with the Contracts.

NOT EVERY PORTFOLIO IS AVAILABLE UNDER ALL OF THE VARIABLE CONTRACTS. THE
PROSPECTUS FOR EACH CONTRACT LISTS THE PORTFOLIOS CURRENTLY AVAILABLE UNDER THAT
PARTICULAR CONTRACT.

SHARES OF THE MONEY MARKET PORTFOLIO AND THE GOVERNMENT INCOME PORTFOLIO ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. WHILE THE MONEY MARKET
PORTFOLIO SEEKS TO MAINTAIN A STABLE PRICE PER SHARE, THERE IS NO ASSURANCE THAT
THE PORTFOLIO WILL BE ABLE TO DO SO.

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

THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS CAN BE FOUND ON THE NEXT PAGE

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

Information contained in this prospectus should be read carefully by a
prospective investor before an investment is made. Additional information about
the Series Fund has been filed with the Securities and Exchange Commission in a
statement of additional information, dated May 1, 1998, which information is
incorporated herein by reference and is available without charge upon written
request to The Prudential Series Fund, Inc., 751 Broad Street, Newark, New
Jersey 07102-3777, or by telephoning (800) 437-4016.

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

PLEASE READ THIS PROSPECTUS AND KEEP IT 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 SERIES FUND, INC.
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (800) 437-4016

PSF-1 Ed 5-98

<PAGE>

INVESTMENT OBJECTIVES OF THE PORTFOLIOS ARE AS FOLLOWS:

FIXED INCOME PORTFOLIOS

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.

DIVERSIFIED BOND PORTFOLIO. A high level of income over the longer term while
providing reasonable safety of capital through investment primarily in readily
marketable intermediate and long-term fixed income securities that provide
attractive yields but do not involve substantial risk of loss of capital through
default.

GOVERNMENT INCOME PORTFOLIO. Achievement of a high level of income over the
longer term consistent with the preservation of capital through investment
primarily in U.S. Government securities, including intermediate and long-term
U.S. Treasury securities and debt obligations issued by agencies of or
instrumentalities established, sponsored or guaranteed by the U.S. Government.
At least 65% of the total assets of the portfolio will be invested in U.S.
Government securities.

ZERO COUPON BOND PORTFOLIOS 2000 AND 2005. Achievement of the highest
predictable compounded investment return for a specific period of time,
consistent with the safety of invested capital, by investing primarily in debt
obligations of the United States Treasury and investment-grade corporations that
have been issued without interest coupons or stripped of their unmatured
interest coupons, interest coupons that have been stripped from such debt
obligations, and receipts and certificates for such stripped debt obligations
and stripped coupons.

To obtain the predicted investment return an investor must plan to retain his or
her investment in the selected portfolio until the designated year in which the
portfolio will be liquidated. Redemption prior to that time may result in a
loss. Moreover, since the portfolios will be actively managed with the objective
of obtaining a yield higher than the predicted yield, there is a risk that the
actual yield may be lower.

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED PORTFOLIO. Achievement of a favorable total investment
return consistent with a portfolio having a conservatively 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 prefers a relatively lower risk of loss than
that associated with the Flexible Managed Portfolio while recognizing that this
reduces the chances of greater appreciation.

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.

HIGH YIELD BOND PORTFOLIOS

HIGH YIELD BOND PORTFOLIO. Achievement of a high total return through investment
in high yield/high risk fixed income securities in the medium to lower quality
ranges. SUCH SECURITIES MAY HAVE SPECULATIVE CHARACTERISTICS AND GENERALLY
INVOLVE GREATER RISKS OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER RATED
SECURITIES.

DIVERSIFIED STOCK PORTFOLIOS

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 (the "S&P 500 Index").

EQUITY INCOME PORTFOLIO. Both current income and capital appreciation through
investment primarily in common stocks and convertible securities that provide
favorable prospects for investment income returns above those of the S&P 500
Index or the NYSE Composite 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 is superior to broadly-based stock indices. Current income, if
any, is incidental.

PRUDENTIAL JENNISON PORTFOLIO. Long-term growth of capital through investment
primarily in equity securities of established companies with above-average
growth prospects. Current income, if any, is incidental.

SMALL CAPITALIZATION STOCK PORTFOLIO. Long-term growth of capital through
investment primarily in equity securities of publicly-traded companies with
small market capitalization. Current income, if any, is incidental.

GLOBAL PORTFOLIO. Long-term growth of capital through investment primarily in
common stock and common stock equivalents of foreign and domestic issuers.
Current income, if any, is incidental.

<PAGE>

SPECIALIZED PORTFOLIOS

NATURAL RESOURCES PORTFOLIO. Long-term growth of capital through investment
primarily in common stocks and convertible securities of "natural resource
companies" (as defined in this prospectus) and in securities (typically debt
securities and preferred stock) the terms of which are related to the market
value of a natural resource.

There can be no assurance that the objectives of any portfolio will be realized.
See INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS, page 10. The Series
Fund may in the future establish other portfolios with different investment
objectives.

<PAGE>

CONTENTS

Page
----

FINANCIAL HIGHLIGHTS........................................................ 1

PORTFOLIO RATES OF RETURN................................................... 9

THE SERIES FUND............................................................. 10

THE ACCOUNTS AND THE CONTRACTS.............................................. 10

INVESTMENT MANAGER.......................................................... 10

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS........................ 10
FIXED INCOME PORTFOLIOS............................................ 11
Money Market Portfolio............................................. 11
Diversified Bond Portfolio......................................... 11
Government Income Portfolio........................................ 12
Zero Coupon Bond Portfolios 2000 and 2005......................... 14
BALANCED PORTFOLIOS................................................ 15
Conservative Balanced Portfolio.................................... 15
Flexible Managed Portfolio......................................... 16
HIGH YIELD BOND PORTFOLIOS......................................... 17
High Yield Bond Portfolio.......................................... 17
DIVERSIFIED STOCK PORTFOLIOS....................................... 19
Stock Index Portfolio.............................................. 19
Equity Income Portfolio............................................ 21
Equity Portfolio................................................... 22
Prudential Jennison Portfolio...................................... 22
Small Capitalization Stock Portfolio............................... 23
Global Portfolio................................................... 24
SPECIALIZED PORTFOLIOS............................................. 25
Natural Resources Portfolio........................................ 25
CONVERTIBLE SECURITIES............................................. 26
LOAN PARTICIPATIONS................................................ 27
FOREIGN SECURITIES................................................. 27
OPTIONS ON EQUITY SECURITIES....................................... 28
OPTIONS ON DEBT SECURITIES......................................... 29
OPTIONS ON STOCK INDICES........................................... 30
OPTIONS ON FOREIGN CURRENCIES...................................... 30
FUTURES CONTRACTS.................................................. 31
OPTIONS ON FUTURES CONTRACTS....................................... 31
REPURCHASE AGREEMENTS.............................................. 32
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS..................... 32
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES........................ 32
SHORT SALES........................................................ 33
SHORT SALES AGAINST THE BOX........................................ 33
INTEREST RATE SWAPS................................................ 33
LOANS OF PORTFOLIO SECURITIES...................................... 33

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS........................ 34

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES............................. 34

PURCHASE AND REDEMPTION OF SHARES........................................... 35

DETERMINATION OF NET ASSET VALUE............................................ 35

DIVIDENDS, DISTRIBUTIONS, AND TAXES......................................... 36

OTHER INFORMATION CONCERNING THE SERIES FUND................................ 37
INCORPORATION AND AUTHORIZED STOCK................................. 37
VOTING RIGHTS...................................................... 38
MONITORING FOR POSSIBLE CONFLICT................................... 38
PERIODIC REPORTS................................................... 38

<PAGE>

PORTFOLIO BROKERAGE AND RELATED PRACTICES.......................... 38
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT....................... 39

YEAR 2000.......................................................... 39

ADDITIONAL INFORMATION............................................. 39

APPENDIX: SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST................................... A1

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

The following highlights for the two years ended December 31, 1997 have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. In addition, the financial highlights for each of the years
prior to and including the period ended December 31, 1995 have been audited by
other independent auditors, whose report thereon was also unqualified. Price
Waterhouse LLP's report is included in the Statement of Additional Information.

MONEY MARKET
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ................... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income and net
realized
gains .................. 0.54 0.51 0.56 0.40 0.29 0.37 0.60 0.78 0.88 0.72
Dividends and
distributions .......... (0.54) (0.51) (0.56) (0.40) (0.29) (0.37) (0.60) (0.78) (0.88) (0.72)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of year ............ $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .............. 5.41% 5.22% 5.80% 4.05% 2.95% 3.79% 6.16% 8.16% 9.25% 7.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions) .............. $657.5 $668.8 $613.3 $583.3 $474.7 $528.7 $529.6 $434.2 $236.1 $155.9
Ratios to average
net assets:
Expenses ............... 0.43% 0.44% 0.44% 0.47% 0.45% 0.47% 0.46% 0.50% 0.55% 0.57%
Net investment
income ................. 5.28% 5.10% 5.64% 4.02% 2.90% 3.72% 5.96% 7.80% 8.77% 7.17%
</TABLE>

DIVERSIFIED BOND
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
-------- -------- -------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ................ $11.07 $11.31 $10.04 $11.10 $10.83 $11.00 $10.33 $10.32 $9.94 $10.04
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income .............. 0.80 0.76 0.76 0.68 0.68 0.76 0.80 0.83 0.89 0.88
Net realized and
unrealized gains
(losses) on
investments ......... 0.11 (0.27) 1.29 (1.04) 0.40 0.01 0.84 (0.01) 0.42 (0.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations .......... 0.91 0.49 2.05 (0.36) 1.08 0.77 1.64 0.82 1.31 0.81
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income .............. (0.83) (0.73) (0.75) (0.68) (0.66) (0.72) (0.78) (0.81) (0.85) (0.91)
Distributions from
net realized
gains ............... (0.13) -- (0.03) (0.02) (0.15) (0.22) (0.19) -- (0.08) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions ....... (0.96) (0.73) (0.78) (0.70) (0.81) (0.94) (0.97) (0.81) (0.93) (0.91)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of year ......... $11.02 $11.07 $11.31 $10.04 $11.10 $10.83 $11.00 $10.33 $10.32 $9.94
====== ====== ====== ====== ====== ====== ====== ====== ====== =====

TOTAL INVESTMENT
RETURN(b) ........... 8.57% 4.40% 20.73% (3.23)% 10.13% 7.19% 16.44% 8.32% 13.49% 8.19%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions) ........... $816.7 $720.2 $655.8 $541.6 $576.2 $428.8 $318.7 $227.7 $191.1 $148.8
Ratios to average
net assets:
Expenses ............ 0.43% 0.45% 0.44% 0.45% 0.46% 0.47% 0.49% 0.47% 0.53% 0.53%
Net investment
income .............. 7.18% 6.89% 7.00% 6.41% 6.05% 6.89% 7.43% 8.06% 8.56% 8.52%
Portfolio turnover
rate ................ 224% 210% 199% 32% 41% 61% 131% 42% 273% 222%
</TABLE>

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

1 - Series Fund

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

GOVERNMENT INCOME
------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 1, 1989(d)
DECEMBER 31, TO
----------------------------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a)
-------- -------- -------- ------- ------- ------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
period ................. $11.22 $11.72 $10.46 $11.78 $11.09 $11.13 $10.15 $10.32 $10.02
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ................. 0.75 0.75 0.74 0.70 0.70 0.73 0.73 0.79 0.54
Net realized and
unrealized gains
(losses) on
investments ............ 0.30 (0.51) 1.28 (1.31) 0.68 (0.09) 0.85 (0.17) 0.61
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations ......... 1.05 0.24 2.02 (0.61) 1.38 0.64 1.58 0.62 1.15
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................. (0.75) (0.74) (0.76) (0.71) (0.64) (0.59) (0.60) (0.77) (0.49)
Distributions from
net realized
gains .................. -- -- -- -- (0.05) (0.09) -- (0.02) (0.36)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions ...... (0.75) (0.74) (0.76) (0.71) (0.69) (0.68) (0.60) (0.79) (0.85)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of period .......... $11.52 $11.22 $11.72 $10.46 $11.78 $11.09 $11.13 $10.15 $10.32
====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .............. 9.67% 2.22% 19.48% (5.16)% 12.56% 5.85% 16.11% 6.34% 11.60%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in
millions) .............. $429.6 $482.0 $501.8 $487.6 $540.1 $315.5 $95.0 $23.7 $17.0
Ratios to average
net assets:
Expenses ............... 0.44% 0.46% 0.45% 0.45% 0.46% 0.53% 0.58% 0.74% 0.50%(c)
Net investment
income ............... 6.40% 6.38% 6.55% 6.30% 5.91% 6.58% 6.97% 7.86% 5.06%(c)
Portfolio turnover
rate ................... 88% 95% 195% 34% 19% 81% 127% 379% 209%
</TABLE>

ZERO COUPON BOND 2000
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ......................... $12.92 $13.27 $11.86 $13.72 $12.55 $12.40 $11.28 $11.88 $11.00 $10.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ....................... 0.67 0.55 0.59 0.92 0.85 0.89 0.91 1.11 0.92 0.92
Net realized and
unrealized gains
(losses) on
investments .................. 0.22 (0.36) 1.95 (1.91) 1.16 0.14 1.30 (0.59) 1.28 0.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ............... 0.89 0.19 2.54 (0.99) 2.01 1.03 2.21 0.52 2.20 1.21
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ....................... (0.67) (0.54) (0.60) (0.85) (0.84) (0.88) (0.94) (1.12) (0.92) (0.90)
Distributions from
net realized
gains ........................ (0.53) -- (0.53) (0.02) (0.01) -- (0.15) -- (0.40) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ............ (1.20) (0.54) (1.13) (0.87) (0.85) (0.88) (1.09) (1.12) (1.32) (0.90)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of year .................. $12.61 $12.92 $13.27 $11.86 $13.71 $12.55 $12.40 $11.28 $11.88 $11.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .................... 7.17% 1.53% 21.56% (7.18)% 16.15% 8.59% 20.71% 5.11% 20.38% 11.56%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions) .................... $41.3 $44.7 $25.3 $20.6 $22.2 $16.7 $14.6 $13.9 $13.1 $10.9
Ratios to average
net assets:
Expenses ..................... 0.66% 0.52% 0.48% 0.51% 0.62% 0.66% 0.68% 0.75% 0.75% 0.75%
Net investment
income ..................... 4.78% 4.88% 4.53% 6.69% 6.21% 7.24% 7.77% 9.99% 7.73% 8.24%
Portfolio turnover
rate ......................... 32% 13% 71% 9% 1% -- -- -- 39% --
</TABLE>

(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for less than a
full year are not annualized.
(c) Annualized.
(d) Commencement of Investment operations.

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

2 - Series Fund
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

<TABLE>
<CAPTION>
ZERO COUPON BOND 2005
------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 1, 1989(d)
DECEMBER 31, TO
-------------------------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a)
-------- -------- --------- -------- -------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
period ............... $12.25 $13.19 $10.74 $12.68 $11.03 $10.87 $9.80 $10.46 $10.02
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ............... 0.68 0.66 0.66 0.75 0.77 0.80 0.82 0.85 0.56
Net realized and
unrealized gains
(losses) on
investments .......... 0.66 (0.82) 2.73 (1.97) 1.62 0.21 1.14 (0.65) 0.60
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ....... 1.34 (0.16) 3.39 (1.22) 2.39 1.01 1.96 0.20 1.16
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ............... (0.71) (0.64) (0.65) (0.72) (0.74) (0.79) (0.83) (0.86) (0.53)
Distributions from
net realized
gains ................ (0.28) (0.14) (0.29) -- -- (0.06) (0.06) -- (0.19)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions .... (0.99) (0.78) (0.94) (0.72) (0.74) (0.85) (0.89) (0.86) (0.72)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of period ........ $12.60 $12.25 $13.19 $10.74 $12.68 $11.03 $10.87 $9.80 $10.46
====== ====== ====== ====== ====== ====== ====== ===== ======

TOTAL INVESTMENT
RETURN(b) ............ 11.18% (1.01)% 31.85% (9.61)% 21.94% 9.66% 21.16% 2.56% 11.67%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in
millions) ............ $30.8 $25.8 $23.6 $16.5 $14.5 $9.8 $8.7 $7.3 $7.2
Ratios to average
net assets:
Expenses ............. 0.74% 0.53% 0.49% 0.60% 0.66% 0.75% 0.75% 0.75% 0.49%(c)
Net investment
income ............. 5.71% 5.42% 5.32% 6.53% 6.17% 7.46% 8.08% 8.83% 5.25%(c)
Portfolio turnover
rate ................. 35% 10% 69% 6% 4% 11% 6% 4% 60%
</TABLE>

CONSERVATIVE BALANCED
---------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ......................... $15.52 $15.31 $14.10 $14.91 $14.24 $14.32 $13.06 $13.36 $12.30 $11.89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ....................... 0.76 0.66 0.63 0.53 0.49 0.56 0.69 0.82 0.89 0.77
Net realized and
unrealized gains
(losses) on
investments .................. 1.26 1.24 1.78 (0.68) 1.23 0.41 1.74 (0.14) 1.15 0.43
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ............... 2.02 1.90 2.41 (0.15) 1.72 0.97 2.43 0.68 2.04 1.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ....................... (0.76) (0.66) (0.64) (0.51) (0.47) (0.54) (0.67) (0.81) (0.89) (0.79)
Distributions from
net realized
gains ........................ (1.81) (1.03) (0.56) (0.15) (0.58) (0.51) (0.50) (0.17) (0.09) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ............ (2.57) (1.69) (1.20) (0.66) (1.05) (1.05) (1.17) (0.98) (0.98) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of year .................. $14.97 $15.52 $15.31 $14.10 $14.91 $14.24 $14.32 $13.06 $13.36 $12.30
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .................... 13.45% 12.63% 17.27% (0.97)% 12.20% 6.95% 19.07% 5.27% 16.99% 10.19%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions).....................$4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6
Ratios to average
net assets:
Expenses ..................... 0.56% 0.59% 0.58% 0.61% 0.60% 0.62% 0.63% 0.65% 0.64% 0.65%
Net investment
income ..................... 4.48% 4.13% 4.19% 3.61% 3.22% 3.88% 4.89% 6.21% 6.81% 6.22%
Portfolio turnover
rate ......................... 295% 295% 201% 125% 79% 62% 115% 44% 154% 111%
Average commission
rate paid per
share......................... $0.0563 $0.0554 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

3 - Series Fund

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

FLEXIBLE MANAGED
-----------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
-------- -------- -------- --------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ......................... $17.79 $17.86 $15.50 $16.96 $16.01 $16.29 $14.00 $14.45 $13.12 $12.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ....................... 0.59 0.57 0.56 0.47 0.57 0.58 0.65 0.72 0.82 0.72
Net realized and
unrealized gains
(losses) on
investments .................. 2.52 1.79 3.15 (1.02) 1.88 0.61 2.81 (0.47) 1.99 0.84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ............... 3.11 2.36 3.71 (0.55) 2.45 1.19 3.46 0.25 2.81 1.56
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ....................... (0.58) (0.58) (0.56) (0.45) (0.57) (0.56) (0.66) (0.70) (0.81) (0.77)
Distributions from
net realized
gains ........................ (3.04) (1.85) (0.79) (0.46) (0.93) (0.91) (0.51) -- (0.67) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ............ (3.62) (2.43) (1.35) (0.91) (1.50) (1.47) (1.17) (0.70) (1.48) (0.77)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of year .................. $17.28 $17.79 $17.86 $15.50 $16.96 $16.01 $16.29 $14.00 $14.45 $13.12
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .................... 17.96% 13.64% 24.13% (3.16)% 15.58% 7.61% 25.43% 1.91% 21.77% 12.83%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions).....................$5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9
Ratios to average
net assets:
Expenses ..................... 0.62% 0.64% 0.63% 0.66% 0.66% 0.67% 0.67% 0.69% 0.69% 0.70%
Net investment
income ..................... 3.02% 3.07% 3.30% 2.90% 3.30% 3.63% 4.23% 5.13% 5.66% 5.52%
Portfolio turnover
rate ......................... 227% 233% 173% 124% 63% 59% 93% 52% 141% 128%
Average commission
rate paid per
share......................... $0.0569 $0.0563 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

HIGH YIELD BOND
----------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------- ------- -------- -------- -------- -------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ................... $7.87 $7.80 $7.37 $8.41 $7.72 $7.21 $5.84 $7.67 $8.90 $8.74
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ................. 0.78 0.80 0.81 0.87 0.82 0.82 0.83 0.94 1.07 1.07
Net realized and
unrealized gains
(losses) on
investments ............ 0.26 0.06 0.46 (1.10) 0.63 0.42 1.40 (1.79) (1.22) 0.06
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations ......... 1.04 0.86 1.27 (0.23) 1.45 1.24 2.23 (0.85) (0.15) 1.13
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................. (0.77) (0.78) (0.84) (0.81) (0.76) (0.73) (0.86) (0.98) (1.08) (0.97)
Dividends in
excess of net
investment
income ................. -- (0.01) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions .......... (0.77) (0.79) (0.84) (0.81) (0.76) (0.73) (0.86) (0.98) (1.08) (0.97)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of year ........ $8.14 $7.87 $7.80 $7.37 $8.41 $7.72 $7.21 $5.84 $7.67 $8.90
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

TOTAL INVESTMENT
RETURN(b) .............. 13.78% 11.39% 17.56% (2.72)% 19.27% 17.54% 39.71% (11.84)% (2.05)% 13.17%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions) .............. $568.7 $432.9 $367.9 $306.2 $282.9 $153.7 $78.7 $49.8 $60.0 $65.8
Ratios to average
net assets:
Expenses ............... 0.57% 0.63% 0.61% 0.65% 0.65% 0.70% 0.75% 0.75% 0.71% 0.75%
Net investment
income ............... 9.78% 9.89% 10.34% 9.88% 9.91% 10.67% 12.05% 13.42% 12.29% 11.60%
Portfolio turnover
rate ................... 106% 88% 139% 69% 96% 75% 57% 35% 61% 71%
</TABLE>

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

4 - Series Fund
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

STOCK INDEX
------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------- ------- ------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ......................... $23.74 $19.96 $14.96 $15.20 $14.22 $13.61 $10.76 $11.73 $9.45 $8.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ....................... 0.43 0.40 0.40 0.38 0.36 0.35 0.35 0.36 0.33 0.36
Net realized and
unrealized gains
(losses) on
investments .................. 7.34 4.06 5.13 (0.23) 1.00 0.60 2.82 (0.79) 2.57 0.95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ............... 7.77 4.46 5.53 0.15 1.36 0.95 3.17 (0.43) 2.90 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ....................... (0.42) (0.40) (0.38) (0.37) (0.35) (0.33) (0.31) (0.31) (0.35) (0.39)
Distributions from
net realized
gains ........................ (0.87) (0.28) (0.15) (0.02) (0.03) (0.01) (0.01) (0.23) (0.27) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ............ (1.29) (0.68) (0.53) (0.39) (0.38) (0.34) (0.32) (0.54) (0.62) (0.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of year .................. $30.22 $23.74 $19.96 $14.96 $15.20 $14.22 $13.61 $10.76 $11.73 $9.45
====== ====== ====== ====== ====== ====== ====== ====== ====== =====

TOTAL INVESTMENT
RETURN(b) .................... 32.83% 22.57% 37.06% 1.01% 9.66% 7.13% 29.72% (3.63)% 30.93% 15.44%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions) ....................$2,448.2 $1,581.4 $1,031.3 $664.5 $615.1 $433.5 $236.9 $104.5 $53.8 $36.0
Ratios to average
net assets:
Expenses ..................... 0.37% 0.40% 0.38% 0.42% 0.42% 0.46% 0.47% 0.60% 0.69% 0.78%
Net investment
income ..................... 1.55% 1.95% 2.27% 2.50% 2.43% 2.56% 2.82% 3.23% 2.95% 3.87%
Portfolio turnover
rate ......................... 5% 1% 1% 2% 1% 1% 1% 18% 15% 16%
Average commission
rate paid per
share......................... $0.0235 $0.0250 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
EQUITY INCOME
----------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 19,
DECEMBER 31, 1988(d) TO
--------------------------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------- ------- -------- -------- ------- ------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
period ................. $18.51 $16.27 $14.48 $15.66 $13.67 $13.21 $11.24 $12.25 $10.62 $10.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ................. 0.61 0.58 0.64 0.67 0.55 0.58 0.58 0.51 0.54 0.45
Net realized and
unrealized gains
(losses) on
investments ............ 6.06 2.88 2.50 (0.45) 2.46 0.72 2.43 (0.98) 1.84 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ......... 6.67 3.46 3.14 0.22 3.01 1.30 3.01 (0.47) 2.38 1.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................. (0.57) (0.71) (0.62) (0.56) (0.50) (0.52) (0.54) (0.46) (0.46) (0.42)
Distributions from
net realized
gains .................. (2.22) (0.51) (0.73) (0.82) (0.52) (0.32) (0.50) (0.08) (0.29) (0.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ...... (2.79) (1.22) (1.35) (1.38) (1.02) (0.84) (1.04) (0.54) (0.75) (0.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of period .......... $22.39 $18.51 $16.27 $14.50 $15.66 $13.67 $13.21 $11.24 $12.25 $10.62
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .............. 36.61% 21.74% 21.70% 1.44% 22.28% 10.14% 27.50% (3.73)% 22.67% 11.31%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in
millions)...............$2,029.8 $1,363.5 $1,110.0 $859.7 $602.8 $234.4 $106.9 $55.5 $34.9 $11.3
Ratios to average
net assets:
Expenses................ 0.41% 0.45% 0.43% 0.52% 0.54% 0.57% 0.57% 0.60% 0.74% 0.64%(c)
Net investment
income................ 2.90% 3.36% 4.00% 3.92% 3.56% 4.32% 4.53% 4.53% 4.48% 4.08%(c)
Portfolio turnover
rate.................... 38% 21% 64% 63% 41% 40% 60% 55% 57% 61%
Average commission
rate paid per
share................... $0.0566 $0.0553 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods less
than a one year are not annualized.
(c) Annualized.
(d) Commencement of investment operations.

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

5 - Series Fund
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

EQUITY
-----------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------- ------- -------- --------- --------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
year ......................... $26.96 $25.64 $20.66 $21.49 $18.90 $17.91 $15.45 $18.54 $15.46 $13.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ....................... 0.69 0.71 0.55 0.51 0.42 0.44 0.48 0.58 0.47 0.40
Net realized and
unrealized gains
(losses) on
investments .................. 5.88 3.88 5.89 0.05 3.67 2.05 3.42 (1.58) 4.07 1.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ............... 6.57 4.59 6.44 0.56 4.09 2.49 3.90 (1.00) 4.54 2.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ....................... (0.70) (0.67) (0.52) (0.49) (0.40) (0.44) (0.48) (0.56) (0.50) (0.47)
Distributions from
net realized
gains ........................ (1.76) (2.60) (0.94) (0.90) (1.10) (1.06) (0.96) (1.53) (0.96) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ............ (2.46) (3.27) (1.46) (1.39) (1.50) (1.50) (1.44) (2.09) (1.46) (0.47)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
end of year .................. $31.07 $26.96 $25.64 $20.66 $21.49 $18.90 $17.91 $15.45 $18.54 $15.46
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) .................... 24.66% 18.52% 31.29% 2.78% 21.87% 14.17% 26.01% (5.21)% 29.73% 17.05%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions).....................$6,024.0 $4,814.0 $3,813.8 $2,617.8 $2,186.5 $1,416.6 $1,032.8 $700.5 $675.5 $500.1
Ratios to average
net assets:
Expenses...................... 0.46% 0.50% 0.48% 0.55% 0.53% 0.53% 0.51% 0.56% 0.56% 0.57%
Net investment
income...................... 2.27% 2.54% 2.28% 2.39% 1.99% 2.33% 2.66% 3.37% 2.66% 2.67%
Portfolio turnover
rate.......................... 13% 20% 18% 7% 13% 16% 21% 85% 74% 62%
Average commission
rate paid per
share......................... $0.0336 $0.0524 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

PRUDENTIAL JENNISON
------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
------------------ TO
1997 1996 DECEMBER 31, 1995(a)
-------- -------- ---------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period ............... $14.32 $12.55 $10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .............................. 0.04 0.02 0.02
Net realized and unrealized gains on
investments ...................................... 4.48 1.78 2.54
--------- --------- ---------
Total from investment operations ............... 4.52 1.80 2.56
--------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.04) (0.03) (0.01)
Distributions from net realized
gains ............................................ (1.07) -- --
--------- --------- ---------
Total distributions ............................ (1.11) (0.03) (0.01)
--------- --------- ---------
Net Asset Value, end of period ..................... $17.73 $14.32 $12.55
====== ====== ======

TOTAL INVESTMENT RETURN(b) ......................... 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions) ........................................ $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses ......................................... 0.64% 0.66% 0.79%(c)
Net investment income ............................ 0.25% 0.20% 0.15%(c)
Portfolio turnover rate ............................ 60% 46% 37%
Average commission rate paid per
share ............................................ $0.0590 $0.0603 N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of Operations

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

6 - Series Fund

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK

------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
------------------ TO
1997 1996 DECEMBER 31, 1995(a)
-------- ------- ----------------------

<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period ................. $13.79 $11.83 $10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................ 0.10 0.09 0.08
Net realized and unrealized gains
(losses) on investments ............................ 3.32 2.23 1.91
--------- --------- ---------
Total from investment operations ................. 3.42 2.32 1.99
--------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.10) (0.09) (0.04)
Distributions from net realized
gains .............................................. (1.18) (0.27) (0.12)
--------- --------- ---------
Total distributions .............................. (1.28) (0.36) (0.16)
--------- --------- ---------
Net Asset Value, end of period ....................... $15.93 $13.79 $11.83
========= ========= =========

TOTAL INVESTMENT RETURN(b) ........................... 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions) .......................................... $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses ........................................... 0.50% 0.56% 0.60%(c)
Net investment income .............................. 0.69% 0.87% 0.68%(c)
Portfolio turnover rate .............................. 31% 13% 32%
Average commission rate paid per
share .............................................. $0.0291 $0.0307 N/A
</TABLE>

GLOBAL
--------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 19,
DECEMBER 31, 1988(d) TO
-------------------------------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
------ ----- ------ ------- ------- ------ ------- -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATIN
PERFORMANCE:
Net Asset Value,
beginning of
year .............. $17.85 $15.53 $13.88 $14.64 $10.37 $10.79 $9.87 $11.55 $10.51 $9.82
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ............ 0.09 0.11 0.06 0.02 0.02 0.05 0.09 0.20 0.08 0.05
Net realized and
unrealized gains
(losses) on
investments ....... 1.11 2.94 2.14 (0.74) 4.44 (0.42) 1.02 (1.80) 1.81 0.79
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations .... 1.20 3.05 2.20 (0.72) 4.46 (0.37) 1.11 (1.60) 1.89 0.84
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ............ (0.13) (0.11) (0.24) (0.02) (0.08) (0.05) (0.10) (0.07) (0.07) (0.15)
Dividends in
excess of net
investment
income ............ (0.10) -- -- -- -- -- -- -- -- --
Distributions from
net realized
gains ............. (0.90) (0.62) (0.31) (0.02) (0.11) -- (0.09) (0.01) (0.78) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions . (1.13) (0.73) (0.55) (0.04) (0.19) (0.05) (0.19) (0.08) (0.85) (0.15)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of year ....... $17.92 $17.85 $15.53 $13.88 $14.64 $10.37 $10.79 $9.87 $11.55 $10.51
====== ====== ====== ====== ====== ====== ====== ===== ====== ======

TOTAL INVESTMENT
RETURN(b) ......... 6.98% 19.97% 15.88% (4.89)% 43.14% (3.42)% 11.39% (12.91)% 18.82% 8.57%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
year (in
millions) ......... $638.4 $580.6 $400.1 $345.7 $129.1 $34.0 $34.3 $26.2 $29.4 $26.9
Ratios to average
net assets:
Expenses .......... 0.85% 0.92% 1.06% 1.23% 1.44% 1.87% 1.62% 1.67% 1.47% 0.42%(c)
Net investment
income .......... 0.47% 0.64% 0.44% 0.20% 0.18% 0.49% 0.92% 1.92% 0.70% 0.51%(c)
Portfolio turnover
rate .............. 70% 41% 59% 37% 55% 78% 136% 43% 48% 6%
Average commission
rate paid per
share.............. $0.0247 $0.0358 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

7 - Series Fund

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

NATURAL RESOURCES
----------------------------------------------------------------------------------------------------------
FEBRUARY 19,
YEAR ENDED 1988(d) TO
DECEMBER 31, DECEMBER
--------------------------------------------------------------------------------------------- 31,
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
-------- ------- -------- ------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net Asset Value,
beginning of
period ............... $19.77 $17.27 $14.44 $15.56 $12.95 $12.45 $11.62 $12.71 $10.14 $9.91
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income ............... 0.12 0.15 0.21 0.18 0.23 0.32 0.37 0.41 0.36 0.26
Net realized and
unrealized gains
(losses) on
investments .......... (2.43) 5.11 3.66 (0.85) 3.00 0.59 0.82 (1.14) 3.22 0.27
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations ....... (2.31) 5.26 3.87 (0.67) 3.23 0.91 1.19 (0.73) 3.58 0.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ............... (0.10) (0.14) (0.21) (0.15) (0.21) (0.31) (0.36) (0.34) (0.36) (0.25)
Distributions from
net realized
gains ................ (2.12) (2.62) (0.83) (0.30) (0.41) (0.10) -- (0.02) (0.65) (0.05)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions .... (2.22) (2.76) (1.04) (0.45) (0.62) (0.41) (0.36) (0.36) (1.01) (0.30)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of period ........ $15.24 $19.77 $17.27 $14.44 $15.56 $12.95 $12.45 $11.62 $12.71 $10.14
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

TOTAL INVESTMENT
RETURN(b) ............ (11.59)% 30.88% 26.92% (4.30)% 25.15% 7.30% 10.30% (5.76)% 35.64% 5.42%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in
millions) ............ $358.0 $438.4 $293.2 $227.3 $158.8 $77.5 $62.6 $50.6 $17.9 $9.5
Ratios to average
net assets:
Expenses ............. 0.54% 0.52% 0.50% 0.61% 0.60% 0.72% 0.68% 0.75% 0.86% 0.58%(c)
Net investment
income ............. 0.60% 0.75% 1.25% 1.09% 1.50% 2.44% 2.97% 3.45% 3.04% 2.46%(c)
Portfolio turnover
rate ................. 32% 36% 46% 18% 20% 29% 21% 42% 49% 59%
Average commission
rate paid per
share................. $0.0439 $0.0454 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for less than a
full year are not annualized.

(d) Commencement of investment operations.

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

8 - Series Fund
<PAGE>

PORTFOLIO RATES OF RETURN

The following table, based upon the immediately preceding financial highlights
for the Series Fund, shows first the average annual compounded net rates of
return for each Portfolio for the year ended December 31, 1997, for the 5 year
and 10 year periods ending on that date, and from the inception date of each
Portfolio to December 31, 1997. These rates of return should not be regarded as
an estimate or prediction of future performance. They may be useful in assessing
the competence and performance of the Series Fund's investment advisor and in
helping you to decide which portfolios to choose. THIS INFORMATION RELATES ONLY
TO THE SERIES FUND AND DOES NOT REFLECT THE VARIOUS OTHER CHARGES MADE UNDER THE
CONTRACTS.

5 YEARS 10 YEARS INCEPTION TO
INCEPTION YEAR ENDED ENDED ENDED DATE
PORTFOLIO DATE 12/31/97 12/31/97 12/31/97 12/31/97
- ------------------------------ --------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET 5/83 5.41% 4.68% 5.80% 6.46%
DIVERSIFIED BOND 5/83 8.57% 7.84% 9.24% 9.39%
GOVERNMENT INCOME 5/89 9.67% 7.41% N/A 8.85%
ZERO COUPON BOND 2000 2/86 7.17% 7.36% 10.19% 10.30%
ZERO COUPON BOND 2005 5/89 11.18% 9.85% N/A 10.81%
CONSERVATIVE BALANCED 5/83 13.45% 10.74% 11.15% 10.80%
FLEXIBLE MANAGED 5/83 17.96% 13.25% 13.41% 12.18%
HIGH YIELD BOND 2/87 13.78% 11.57% 10.69% 9.30%
STOCK INDEX 10/87 32.83% 19.84% 17.47% 17.92%
EQUITY INCOME 2/88 36.61% 20.22% N/A 16.82%
EQUITY 5/83 24.66% 19.43% 17.54% 15.55%
PRUDENTIAL JENNISON 5/95 31.71% N/A N/A 26.97%
SMALL CAPITALIZATION STOCK 5/95 25.17% N/A N/A 24.50%
GLOBAL 9/88 6.98% 15.10% N/A 10.10%
NATURAL RESOURCES 5/88 -11.59% 11.96% N/A 11.26%
</TABLE>

9 - Series Fund

<PAGE>

THE SERIES FUND

The Prudential Series Fund, Inc. (the "Series Fund"), a diversified open-end
management investment company, is a Maryland corporation organized on November
15, 1982. The Series Fund is currently made up of fifteen separate portfolios:
the Money Market Portfolio, the Diversified Bond Portfolio, the Government
Income Portfolio, the Zero Coupon Bond Portfolios 2000 and 2005, the
Conservative Balanced Portfolio, the Flexible Managed Portfolio, the High Yield
Bond Portfolio, the Stock Index Portfolio, the Equity Income Portfolio, the
Equity Portfolio, the Prudential Jennison Portfolio, the Small Capitalization
Stock Portfolio, the Global Portfolio, and the Natural Resources Portfolio. Each
portfolio is, for investment purposes, in effect a separate investment fund, and
a separate class of capital stock is issued for each portfolio. In other
respects the Series Fund is treated as one entity. Each share of capital stock
issued with respect to a portfolio has a pro-rata interest in the assets of that
portfolio and has no interest in the assets of any other portfolio. Each
portfolio bears its own liabilities and also its proportionate share of the
general liabilities of the Series Fund. The Series Fund is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end, diversified,
management investment company. This registration does not imply any supervision
by the Securities and Exchange Commission ("SEC") over the Series Fund's
management or its investment policies or practices.

THE ACCOUNTS AND THE CONTRACTS

Shares in the Series Fund are currently sold only to separate accounts of The
Prudential Insurance Company of America ("Prudential") and certain other
insurers to fund benefits under variable life insurance and variable annuity
contracts issued by those Companies. All the separate accounts are referred to
as the "Accounts," and all the contracts are referred to as the "Contracts."
Each Contract owner allocates the net premiums and the assets relating to the
Contract, within the limitations described in the Contracts, among the
subaccounts of the Accounts which in turn invest in the corresponding portfolios
of the Series Fund. Not all portfolios of the Series Fund are currently
available to all Contracts. The attached prospectus for the Contracts lists the
portfolios that are currently available and describes the particular type of
Contract selected and the relationship between changes in the value of shares of
each portfolio and changes in the benefits payable under the Contracts. The
rights of the Accounts as shareholders should be distinguished from the rights
of a Contract owner which are described in the Contracts. The terms
"shareholder" or "shareholders" in this prospectus refer to the Accounts.

INVESTMENT MANAGER

Prudential is the investment manager of the Series Fund. Prudential's principal
business address is 751 Broad Street, Newark, New Jersey 07102-3777.

Prudential has entered into a Service Agreement with its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), which provides that
PIC will furnish to Prudential such services as Prudential may require in
connection with the performance of its obligations under an Investment Advisory
Agreement with the Series Fund. One of PIC's business groups is Prudential
Investments. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio. See INVESTMENT MANAGEMENT
ARRANGEMENTS AND EXPENSES, page 34.

Prudential will continue to have responsibility for all investment advisory
services under its Investment Advisory Agreement with respect to the Series
Fund.

INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS

Each portfolio of the Series Fund has a different investment objective which it
pursues through separate investment policies as described below. Since each
portfolio has a different investment objective, each can be expected to have
different investment results and incur different market and financial risks. The
Series Fund may in the future establish other portfolios with different
investment objectives.

The investment objectives of each portfolio are fundamental and may not be
changed without the approval of the holders of a majority of the outstanding
shares of the portfolio affected (which for this purpose and under the 1940 Act
means the lesser of: (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented; or (ii) more than 50%
of the outstanding shares). The policies by which a portfolio seeks to achieve
its investment objectives, however, are not fundamental. They may be changed by
the Board of Directors of the Series Fund without the approval of the
shareholders.

10 - Series Fund

<PAGE>

The portfolio turnover rate of the portfolios that were available for investment
as of December 31, 1997 can be found in the FINANCIAL HIGHLIGHTS table on pages
1 through 8. The portfolio turnover rate is, generally, the percentage computed
by dividing the lesser of portfolio purchases or sales by the average value of
the portfolio, in each case excluding securities with maturities of 1 year or
less. Generally, the higher the portfolio turnover rate, the greater the
brokerage costs incurred by a portfolio.

The following paragraphs describe the investment objectives and policies of each
portfolio. There is no guarantee that any of these objectives will be met.

FIXED INCOME PORTFOLIOS

MONEY MARKET PORTFOLIO. The objective of this portfolio is to achieve, through
investment in high-quality short-term debt obligations, the maximum current
income that is consistent with stability of capital and maintenance of
liquidity.

The portfolio seeks to achieve this objective by following the policy of
investing primarily in money market instruments denominated in U.S. dollars that
mature in 397 days or less from the date the portfolio acquires them. Money
market instruments include short-term obligations of the United States and
foreign governments, their agencies, instrumentalities, and political
subdivisions, and of domestic and foreign banks and corporations. They also
include commercial paper, other corporate obligations, obligations of savings
and loan associations and savings banks, and variable amount demand master
notes. The portfolio may also enter into repurchase and reverse repurchase
agreements and may purchase and sell securities on a when-issued and delayed
delivery basis. These investment techniques may involve additional risks. A
detailed description of the money market instruments in which the portfolio may
invest, of the repurchase and reverse repurchase agreements it may enter into,
and of the risks associated with those instruments and agreements may be found
in the Appendix to this prospectus.

Because of the high quality, short-term nature of the portfolio's holdings,
increases in the value of an investment in the portfolio will be derived almost
entirely from interest on the securities held by it. Accordingly, the results
for the portfolio are subject to the risk of fluctuation in short-term interest
rates.

DIVERSIFIED BOND PORTFOLIO. The objective of this portfolio is to achieve a high
level of income over the longer term while providing reasonable safety of
capital through investment primarily in readily marketable intermediate and
long-term fixed income securities that provide attractive yields but do not
involve substantial risk of loss of capital through default.

The portfolio seeks to achieve this objective by following the policies of
purchasing primarily debt securities of investment grade or, if not rated, of
comparable quality in the opinion of the portfolio manager and of investing from
time to time a portion of its assets in high quality money market instruments of
the kind held in the Money Market Portfolio as described in the Appendix to this
prospectus. Moreover, when conditions dictate a temporary defensive strategy or
during temporary periods of portfolio structuring and restructuring, the
Diversified Bond Portfolio may invest, without limit, in high quality money
market instruments of the kind held by the Money Market Portfolio.

Since the value of fixed income securities generally fluctuates inversely with
changes in interest rates, the proportions of intermediate or longer-term
securities and short-term debt obligations held in the portfolio will vary to
reflect Prudential's assessment of prospective changes in interest rates, so
that the portfolio may benefit from relative price appreciation when interest
rates decline and suffer lesser declines in value when interest rates rise. The
success of this strategy will depend on Prudential's ability to forecast changes
in interest rates, and there is a corresponding risk that the value of the
securities held in the portfolio will decline.

At least 80% of the portfolio's holdings (including short-term debt obligations)
will generally consist of debt securities that at the time of purchase have a
rating within the four highest grades determined by Moody's Investor Services,
Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P"), or a similar
nationally-recognized rating service. The portfolio may retain a security whose
rating has dropped below the four highest grades as determined by a commercial
rating service. Without limitation, the portfolio may invest in obligations of
the U.S. Government and its agencies and instrumentalities. The Appendix to the
statement of additional information defines the ratings that are given to debt
securities by Moody's and S&P and describes the standards applied by them in
assigning these ratings.

The remaining assets of the portfolio may be invested in, among other things,
debt securities that are not rated within the four highest grades or convertible
debt securities, preferred stocks or convertible preferred stocks of any
quality. On occasion, however, the portfolio may acquire common stock, not
through direct investment but by the conversion of convertible debt securities
or the exercise of warrants. For additional information regarding warrants, see
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS in the statement of
additional information. No more than 10% of the value of the total assets of the
portfolio will be held in common stocks, and those will usually be sold as soon
as a favorable opportunity is available.

11 - Series Fund

<PAGE>

The portfolio may invest up to 20% of its total assets in United States currency
denominated debt securities issued outside the United States by foreign or
domestic issuers. For additional information regarding such securities, see
FOREIGN SECURITIES, page 27.

In addition, the portfolio may: (i) purchase and sell options on debt
securities; (ii) purchase and sell interest rate futures contracts and options
thereon; (iii) purchase securities on a when-issued or delayed delivery basis;
(iv) use interest rate swaps; and (v) make short sales. These techniques are
described on pages 29 through 33, and further information about some of them is
included in the statement of additional information.

Barbara Kenworthy, Managing Director, Prudential Investments, has been portfolio
manager of the Diversified Bond Portfolio since 1995. Ms. Kenworthy is also
portfolio manager of the Prudential Diversified Bond Fund, Inc., the Prudential
Government Income Fund, Inc., and the Government Income and Zero Coupon Bond
Portfolios 2000 and 2005 of the Series Fund. Prior to 1994, Ms. Kenworthy was a
portfolio manager and president of several taxable fixed-income funds for The
Dreyfus Corp.

GOVERNMENT INCOME PORTFOLIO. The objective of this portfolio is to achieve a
high level of income over the longer term consistent with the preservation of
capital through investment primarily in intermediate and long-term U.S. Treasury
securities and debt obligations issued by agencies of or instrumentalities
established, sponsored or guaranteed by the U.S. Government. At least 65% of the
total assets of the portfolio will be invested in U.S. Government securities.

The portfolio seeks to achieve this objective by investing at least 65% of its
assets in U.S. Treasury securities, obligations issued or guaranteed by U.S.
Government agencies and instrumentalities, mortgage-related securities issued by
U.S. Government instrumentalities or non-governmental corporations, or related
collateralized mortgage obligations. These instruments are described below. The
portfolio may invest up to a total of 35% of its assets in the following four
categories: (1) money market instruments of the kind held in the Money Market
Portfolio; (2) securities of issuers other than the U.S. Government and related
entities, usually foreign governments, where the principal and interest are
substantially guaranteed (generally to the extent of 90% thereof) by U.S.
Government agencies whose guarantee is backed by the full faith and credit of
the United States and where an assurance of payment on the unguaranteed portion
is provided for in a comparable way; (3) Foreign Government Securities including
debt securities issued or guaranteed, as to payment of principal and interest,
by governments, governmental agencies, supranational entities and other
governmental entities denominated in U.S. dollars. A supranational entity is an
entity constituted by the national governments of several countries to promote
economic development (examples of such supranational entities include, among
others, the World Bank (International Bank for Reconstruction and Development),
the European Investment Bank and the Asian Development Bank); and (4)
asset-backed securities rated in either of the top two ratings by Moody's or
S&P, or if not rated, determined by the portfolio manager to be of comparable
quality. A description of corporate bond ratings is contained in the Appendix to
the statement of additional information. When conditions dictate a temporary
defensive strategy or during temporary periods of portfolio structuring and
restructuring, the Government Income Portfolio may invest, without limit, in
high quality money market instruments of the kind held by the Money Market
Portfolio.

U.S. Treasury Securities. U.S. Treasury securities include bills, notes, and
bonds issued by the U.S. Treasury. These instruments are direct obligations of
the U.S. Government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their coupons, the lengths of their
maturities, and the dates of their issuances.

Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Obligations issued by agencies of the U.S. Government or
instrumentalities established or sponsored by the U.S. Government include
securities that are guaranteed by federal agencies or instrumentalities, and may
or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration, and the Export-Import Bank are backed by the full
faith and credit of the United States. Securities in which the portfolio may
invest that are not backed by the full faith and credit of the United States
include obligations issued by the Tennessee Valley Authority, The Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), the United States Postal Service, each of which has the
right to borrow from the United States Treasury to meet its obligations, and
obligations of the Federal Farm Credit Bank and the Federal Home Loan Bank, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. In the case of securities not backed by the full faith and
credit of the U.S. Government, the portfolio must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the U.S. Government if the agency or
instrumentality does not meet its commitments.

U.S. Government Securities are considered among the most creditworthy of fixed
income investments. The yields available from U.S. Government Securities are
generally lower than the yields available from corporate debt securities. The
values of U.S. Government Securities (like those of fixed income securities,
generally) will change as interest rates fluctuate. During periods of falling
U.S. interest rates, the values of outstanding long-term U.S. Government
Securities generally rise. Conversely, during periods of rising interest rates,
the values of such

12 - Series Fund

<PAGE>

securities generally decline. The magnitude of these fluctuations will generally
be greater for securities with longer maturities. Although changes in the value
of U.S. Government Securities will not affect investment income from those
securities, they will affect the portfolio's net asset value. The proportions of
intermediate and long-term securities held in the portfolio will vary to reflect
Prudential's assessment of prospective changes in interest rates, so that the
portfolio may benefit from relative price appreciation when interest rates
decline and suffer lesser declines in value when interest rates rise. The
success of this strategy will depend on Prudential's ability to forecast changes
in interest rates, and there is a corresponding risk that the value of the
securities held in the portfolio will decline.

Mortgage-Related Securities Issued by U.S. Government Instrumentalities or by
Non-Governmental Corporations. The portfolio may invest in the following three
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC; (ii) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; and (iii) those issued
by private issuers that represent an interest in or are collateralized by whole
mortgage loans or mortgage-backed securities without government guarantee but
usually having some form of private credit enhancement. The portfolio may invest
in adjustable rate and fixed rate mortgage securities. With respect to private
mortgage-backed securities not collateralized by securities of the U.S.
Government or its agencies, the portfolio will only purchase such securities
rated not lower than Aa by Moody's or AA by S&P or similarly rated by another
nationally recognized rating service or, if unrated, of comparable quality in
the opinion of the portfolio manager. The mortgages backing these securities
include conventional 30 year fixed rate mortgages, 15 year fixed rate mortgages,
graduated payment mortgages, and adjustable rate mortgages ("ARMs"). The
mortgage-backed securities may include those representing an undivided ownership
interest in a pool of mortgages, e.g., GNMA, FNMA and FHLMC certificates. The
U.S. Government or the issuing agency guarantees the payment of interest and
principal of mortgage-backed securities issued by the U.S. Government or its
agencies/instrumentalities. However, these guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
portfolio's shares. Mortgage-backed securities are in most cases pass-through
instruments, through which the holders receive a share of all interest and
principal payments from the mortgages underlying the securities, net of certain
fees. Because the prepayment characteristics of the underlying mortgages vary,
it is not possible to predict accurately the average life of a particular issue
of pass-through securities. Mortgage-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying mortgage
obligations. For example, securities backed by mortgages with 30 year maturities
are customarily treated as prepaying fully in the 12th year and securities
backed by mortgages with 15 year maturities are customarily treated as prepaying
fully in the seventh year. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the portfolio reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at the time.
Therefore, the portfolio's ability to maintain a portfolio of high yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
Mortgage-backed securities of the types described under (i) and (ii) above are
considered to be U.S. Government Securities for purposes of meeting the
requirement that at least 65% of the portfolio's assets be invested in U.S.
Government Securities.

Adjustable rate mortgage securities are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. Generally
ARMs have a specified maturity date and amortize principal over their life. In
periods of declining interest rates, there is a reasonable likelihood that ARMs
will experience increased rates of pre-payment of principal. However, the major
difference between ARMs and fixed rate mortgage securities is that the interest
rate and the rate of amortization of principal of ARMs can and do change in
accordance with movements in a particular pre-specified, published interest rate
index.

CMOs. The portfolio may also purchase collateralized mortgage obligations
("CMOs"). A CMO is a security issued by a corporation or a U.S. Government
instrumentality that is backed by a portfolio of mortgages or mortgage-backed
securities. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed securities.
CMOs are partitioned into several classes with a ranked priority by which the
classes of obligations are redeemed. The portfolio may invest in CMOs issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing. With
respect to privately issued CMOs, the portfolio will only purchase such
securities rated not lower than Aa by Moody's or AA by S&P or similarly rated by
another nationally recognized rating service, or if unrated,

13 - Series Fund

<PAGE>

of comparable quality in the opinion of the portfolio manager. Privately issued
CMOs that are collateralized by mortgage-backed securities issued by GNMA, FHLMC
or FNMA, and CMOs issued by agencies or instrumentalities of the U.S. Government
are considered to be U.S. Government Securities for purposes of meeting the
requirement that at least 65% of the portfolio's assets be invested in U.S.
Government Securities. Neither the United States Government nor any U.S.
Government agency guarantees the payment of principal or interest on these
securities.

Asset-Backed Securities. Asset-backed securities represent a participation in,
or are secured by and payable from, a stream of payments generated by particular
assets, such as automobile or credit card receivables. Asset-backed securities
present certain risks, including the risk that the underlying obligor on the
asset, such as the automobile purchaser or the credit card holder, may default
on his or her obligation. In addition, asset-backed securities often do not
provide a security interest in the related collateral. For example, credit card
receivables are generally unsecured, and for automobile receivables the security
interests in the underlying automobiles are often not transferred when the pool
is created, with the resulting possibility that the collateral could be resold.

In addition, the portfolio may: (i) purchase and sell options on debt
securities; (ii) purchase and sell interest rate futures contracts and options
thereon; (iii) purchase securities on a when-issued or delayed delivery basis;
(iv) make short sales; and (v) use interest rate swaps. These techniques are
described on pages 29 through 33, and further information about some of them is
included in the statement of additional information.

Under normal circumstances, this portfolio's turnover rate is not expected to
exceed 200%. Purchases of U.S. Government Securities are generally made from
dealers at prices which usually include a profit to the dealer. See PORTFOLIO
BROKERAGE AND RELATED PRACTICES, page 38.

Barbara Kenworthy, Managing Director, Prudential Investments, has been portfolio
manager of the Government Income Portfolio since 1995. Ms. Kenworthy is also
portfolio manager of the Prudential Diversified Bond Fund, Inc., the Prudential
Government Income Fund, Inc., and the Diversified Bond and Zero Coupon Bond
Portfolios 2000 and 2005 of the Series Fund. Prior to 1994, Ms. Kenworthy was a
portfolio manager and president of several taxable fixed-income funds for The
Dreyfus Corp.

ZERO COUPON BOND PORTFOLIOS 2000 AND 2005. The objective of both of these
portfolios is to achieve the highest predictable compounded investment return
for a specific period of time, consistent with the safety of invested capital,
by investing primarily in debt obligations of the United States Treasury and
investment-grade corporations that have been issued without interest coupons or
stripped of their unmatured interest coupons, interest coupons that have been
stripped from such debt obligations, and receipts and certificates for such
stripped debt obligations and stripped coupons (collectively "stripped
securities"). The two portfolios differ only in their liquidation dates, which
for each portfolio is November 15 of the specified year.

In pursuing this objective, each Zero Coupon Bond Portfolio invests only in
readily marketable debt securities that do not involve substantial risk of loss
of capital through default, although their value may vary because of changes in
the general level of interest rates. It is the policy of each Zero Coupon Bond
Portfolio to invest at least 70% of its assets in stripped securities that are
obligations of the United States Government maturing within 2 years of the
portfolio liquidation date. Up to 30% of the assets may be invested and held
either in stripped securities issued by investment-grade corporations or in
high-grade interest bearing corporate debt securities, in each case with a
quality rating of Baa or better, provided that no more than 20% of the assets of
the portfolio may be invested in interest bearing securities. However, as a
defensive position, as the liquidation date of each portfolio draws near, more
than 20% of assets may be invested in interest bearing securities when deemed
appropriate in the view of the portfolio manager given prevailing market
conditions and investment opportunities available at the time. Prudential will
evaluate the creditworthiness of potential investments in corporate securities
in order to determine whether such securities are suitable for purchase by the
portfolios. A small portion of the portfolios may be invested in money market
instruments of the kind held in the Money Market Portfolio in order to make
effective use of cash reserves pending investments in the securities described
above. Moreover, when conditions dictate a temporary defensive strategy or
during temporary periods of portfolio structuring and restructuring, each Zero
Coupon Bond Portfolio may invest, without limit, in high quality money market
instruments of the kind held by the Money Market Portfolio.

At the beginning of each week, Prudential will calculate the anticipated
compounded growth rate that investors purchasing shares of each portfolio that
day are predicted to achieve if their investment is maintained until the
portfolio liquidation date. That rate will change from day to day depending on
various factors, including particularly the general level of interest rates, but
daily changes will generally not be significant. If there is a significant
change in interest rates (greater than a 0.30% change in the yield of a zero
coupon Treasury bond maturing in the specified year), Prudential will
recalculate the predicted yield. Prudential will furnish the anticipated
compounded growth rate on request.

In order to achieve a predictable compounded investment return to each
portfolio's liquidation date that will be as little affected as possible by
variations in the general level of interest rates, the composition of the
securities held in each portfolio is such that the weighted average period of
time until receipt of scheduled cash payments

14 - Series Fund

<PAGE>

(whether of principal or interest)--sometimes referred to as the portfolio's
"duration"--will be kept within 1 year of the period remaining until the
portfolio liquidation date. When the portfolio's duration is thus maintained,
differences between the market value and the face amount of unmatured bonds on
the portfolio's liquidation date resulting from changes in the general level of
interest rates will be approximately equal in magnitude to, but opposite in
direction from, the difference between the amount of interest accumulated
through the reinvestment of earlier coupon or principal payments and the amount
that would have been accumulated at the originally predicted rate. Each
portfolio is thus able to hold interest bearing securities and stripped
securities with maturity dates before, during, and after the portfolio's
liquidation date. The concept of "duration" is explained more fully in the
statement of additional information.

On the liquidation date of a Zero Coupon Bond Portfolio, all of the securities
held by the portfolio will be sold and all outstanding shares of the portfolio
will be redeemed. The redemption proceeds will, except as otherwise directed by
Contract owners, be used to purchase shares of the Money Market Portfolio.

Each portfolio seeks to realize a higher yield than would be obtained simply by
maintaining the portfolio's initial investments. The portfolios are actively
managed by Prudential to take advantage of trading opportunities that may exist
from time to time due to price and yield distortions resulting from changes in
the supply and demand characteristics or perceived differences in quality or
liquidity characteristics of the securities available for purchase by the
portfolio. There is a corresponding risk that, to the extent that this strategy
is unsuccessful, the initial yield objective will not be met.

The stripping of interest coupons will cause the stripped securities to be
purchased at a substantial (or "deep") discount from their principal amounts
payable at maturity. If held to maturity, these obligations provide a
predictable yield. But because interest on stripped securities is not paid in
cash on a current basis but rather is in effect compounded until maturity (or
the payment date in the case of a coupon), the market values of securities of
this type are subject to greater fluctuations, as a result of changes in
interest rates, than are the values of debt securities that provide for the
periodic payment of interest; and the longer the term to maturity of a
portfolio, the greater the risk of such fluctuations. In light of these factors,
investors who desire to attain the anticipated growth rate on their investment
expected at the time of purchase must plan to hold the portfolio's shares and to
reinvest all dividends and distributions until the portfolio matures. Any
investor who redeems his or her interest in the portfolio prior to the portfolio
liquidation date or who fails to reinvest dividends is likely to achieve quite a
different investment return than the return that was predicted on the date the
investment was made, and may even suffer a loss.

Barbara Kenworthy, Managing Director, Prudential Investments, has been portfolio
manager of the Zero Coupon Bond Portfolios 2000 and 2005 since 1995. Ms.
Kenworthy is also portfolio manager of the Prudential Diversified Bond Fund,
Inc., the Prudential Government Income Fund, Inc., and the Diversified Bond and
Government Income Portfolios of the Series Fund. Prior to 1994, Ms. Kenworthy
was a portfolio manager and president of several taxable fixed-income funds for
The Dreyfus Corp.

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED PORTFOLIO. The objective of this portfolio is to achieve a
favorable total investment return consistent with a portfolio having a
conservatively 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 prefers a
relatively lower risk of loss than that associated with the Flexible Managed
Portfolio while recognizing that this reduces the chances of greater
appreciation.

To achieve this objective, the Conservative Balanced Portfolio will follow a
policy of maintaining a more conservative asset mix among stocks, bonds and
money market instruments than the Flexible Managed Portfolio. In general, the
portfolio manager will observe the following range of target asset allocation
mixes:

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 15% 35% 50%
Bonds and Money Market 25% 65% 85%

The portfolio manager will make variations in the proportions of each investment
category in accordance with its judgment about the expected returns and risks of
the various investment categories, but will maintain at least 25% of the value
of the portfolio's assets in fixed-income senior securities.

The bond portion of this portfolio will be invested primarily in securities with
maturities of 2 to 10 years and ratings at the time of purchase within the four
highest grades determined by Moody's, S&P, or a similar nationally-recognized
rating service or if unrated, of comparable quality in the opinion of the
portfolio manager. However, the portfolio may purchase below-investment grade
debt. The risks of medium to lower rated securities, also known as high risk
securities, are described below in connection with the High Yield Bond
Portfolio. A description of corporate bond ratings is contained in the Appendix
to the statement of additional information.

15 - Series Fund

<PAGE>

Because of their shorter maturities, the value of the notes and bonds in this
portfolio will be less sensitive to changes in interest rates than the
longer-term bonds likely to be held in the Flexible Managed Portfolio. Thus,
there will be less of a risk of loss of principal, but not as much of a
likelihood for greater appreciation in value. Up to 20% of the bond portion of
this portfolio may be invested in United States currency denominated debt
securities issued outside the United States by foreign or domestic issuers. The
stock portion of this portfolio will be invested primarily in the equity
securities of major, established corporations in sound financial condition that
appear to offer attractive prospects of a total return from dividends and
capital appreciation that is superior to broadly based stock indices. The
portfolio may also invest in preferred stock, including below investment grade
preferred stock, and other equity-related securities. The money market portion
of the portfolio will hold high quality money market instruments of the kind
held by the Money Market Portfolio. Moreover, when conditions dictate a
temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Conservative Balanced Portfolio may invest,
without limit, in high quality money market instruments of the kind held by the
Money Market Portfolio.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in nonUnited States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under FOREIGN SECURITIES, page
27.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when-issued or delayed delivery basis; (v) make
short sales; and (vi) use interest rate swaps. These techniques are described on
pages 28 through 33, and further information about some of them is included in
the statement of additional information.

The Conservative Balanced Portfolio is managed by a team of portfolio managers.
Mark Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Conservative Balanced Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, has been the portfolio manager of the
portfolio since 1995 and manages a portion of the portfolio's equity holdings.
The balance of the portfolio's equity holdings are managed to replicate the
performance of the S&P 500 Index. Tony Rodriguez, Managing Director, Prudential
Investments, has been the portfolio manager of the fixed income portion of the
portfolio since 1993. Mr. Stumpp also supervises the team of portfolio managers
for the Flexible Managed Portfolio. Mr. Stumpp is also portfolio manager for
several employee benefit trusts including The Prudential Retirement System for
U.S. Employees and Special Agents. Prior to 1994, he was responsible for
corporate pension asset management for Prudential Diversified Investment
Strategies' corporate clients. Mr. Spitz is also portfolio manager of the
Prudential Equity Income Fund and the Equity Income and Flexible Managed
Portfolios of the Series Fund. Mr. Rodriguez is also portfolio manager for the
Prudential Structured Maturity Fund, Inc. and the Flexible Managed Portfolio of
the Series Fund.

FLEXIBLE MANAGED PORTFOLIO. The objective of this portfolio is 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.

To achieve this objective, the Flexible Managed Portfolio will follow a policy
of maintaining a more aggressive asset mix among stocks, bonds and money market
investments than the Conservative Balanced Portfolio. In general, the portfolio
manager will observe the following range of target asset allocation mixes:

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 25% 60% 100%
Bonds 0% 40% 75%
Money Market 0% 0% 75%

The portfolio manager may make short-run, and sometimes substantial, variations
in the asset mix based upon its judgment about the expected returns and risks of
the various investment categories. In varying the asset mix in accordance with
these judgments, Prudential will also seek to take advantage of imbalances in
fundamental values among the different markets.

The bond component of this portfolio is expected under normal circumstances to
have a weighted average maturity of greater than 10 years. The values of bonds
with long maturities are generally more sensitive to changes in interest rates
than those of shorter maturities. The bond portion of this portfolio will
primarily be invested in securities that have a rating at the time of purchase
within the four highest grades determined by Moody's, S&P, or a similar
nationally-recognized rating service. A description of corporate bond ratings is
contained in the Appendix to the statement of additional information. However,
up to 25% of the bond component of this portfolio may be invested in securities
having ratings at the time of purchase of "BB," "Ba" or lower, or if not rated,
of

16 - Series Fund

<PAGE>

comparable quality in the opinion of the portfolio manager, also known as high
risk securities. The risks of medium to lower rated securities, are described
below in connection with the High Yield Bond Portfolio. Up to 20% of the bond
portion of this portfolio may be invested in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
The established company common stock component of this portfolio will consist of
the equity securities of major corporations that are believed to be in sound
financial condition. In selecting stocks of smaller capitalization companies,
the portfolio manager may invest in companies that show above average
profitability (measured by return-on-equity, earnings, and dividend growth
rates) with modest price/earnings ratios or alternatively, in companies whose
stock is undervalued relative to other stocks in the market. The individual
equity selections for this portfolio may have more volatile market values than
the equity securities selected for the Equity Portfolio or the Conservative
Balanced Portfolio. The portfolio may also invest in preferred stock, including
below investment grade preferred stock, and other equity-related securities. The
money market portion of the portfolio will hold high quality money market
instruments of the kind held by the Money Market Portfolio. Moreover, when
conditions dictate a temporary defensive strategy or during temporary periods of
portfolio structuring and restructuring, the Flexible Managed Portfolio may
invest, without limit, in high quality money market instruments of the kind held
by the Money Market Portfolio.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under FOREIGN SECURITIES, page
27.

The facts that this portfolio will invest in a mix of common stocks regarded as
having higher risks than the mix of common stocks that will be purchased by the
Conservative Balanced Portfolio; that it will invest in bonds with longer
maturities; and that the "normal" mix for this portfolio will include a higher
percentage of stocks all combine to mean that the risk of investing in this
portfolio is relatively higher--to the extent that each of these factors results
in greater risks--than the risk of investing in the Conservative Balanced
Portfolio.

The Flexible Managed Portfolio is managed by a team of portfolio managers. Mark
Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Flexible Managed Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, manages a portion of the portfolio's
equity holdings. The balance of the portfolio's equity holdings are managed to
replicate the performance of the S&P 500 Index. Tony Rodriguez, Managing
Director, Prudential Investments, has been the portfolio manager of the fixed
income portion of the portfolio since 1993. Mr. Stumpp also supervises the team
of portfolio managers for the Conservative Balanced Portfolio. Mr. Stumpp is
also portfolio manager for several employee benefit trusts including The
Prudential Retirement System for U.S. Employees and Special Agents. Prior to
1994, he was responsible for corporate pension asset management for Prudential
Diversified Investment Strategies' corporate clients. Mr. Spitz has been
portfolio manager of the equity portion of the Conservative Balanced Portfolio
since 1995 and is also portfolio manager of the Prudential Equity Income Fund
and the Equity Income Portfolio of the Series Fund. Mr. Rodriguez is also
portfolio manager for the Prudential Structured Maturity Fund, Inc. and the
Conservative Balanced Portfolio of the Series Fund.

HIGH YIELD BOND PORTFOLIOS

HIGH YIELD BOND PORTFOLIO. The objective of this portfolio is to achieve a high
total return through investment in a diversified portfolio of high yield/high
risk fixed income securities.

The portfolio seeks to achieve its objective by following a policy of generally
investing in fixed income securities rated in the medium to lower categories by
recognized rating services or in unrated fixed income securities of comparable
quality. The portfolio expects to invest principally in fixed income securities
rated Baa or lower by Moody's, or BBB or lower by S&P. These securities are
sometimes known as "junk bonds." Corporate bonds which are rated Baa by Moody's
are described by Moody's as being investment grade, but are also characterized
as having speculative characteristics. Corporate bonds rated below Baa by
Moody's and BBB by S&P are considered speculative. A description of corporate
bond ratings is contained in the Appendix to the statement of additional
information.

Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of

17 - Series Fund

<PAGE>

loss of income and principal than higher rated securities, investors should
consider carefully the relative risks associated with investments in high
yield/high risk securities which carry medium to lower ratings and in comparable
non-rated securities. Investors should understand that such securities are not
generally meant for short-term investing.

The achievement of the portfolio's investment objectives will depend on
Prudential's analytical and portfolio management skills. These skills are more
important in connection with the investment in medium to lower rated and
comparable unrated securities and to the portfolio's performance than would be
the case if the portfolio invested in higher quality fixed income securities. In
selecting securities for the portfolio, Prudential will evaluate, among other
things, an issuer's financial history, condition, prospects and management. A
credit rating assigned by a commercial rating service will not measure the
market risk of high yield/high risk bonds and may not be a timely reflection of
the condition and economic viability of an individual issuer. In its credit
analysis, Prudential therefore will not rely principally on the ratings assigned
by the ratings services (e.g., Moody's and S&P), although such ratings will be
considered. Through careful selection and by investment in a diversified mix of
securities, Prudential will seek to reduce the risks that are associated with
investing in medium to lower rated and comparable unrated debt securities.

Fixed income securities are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). The value of the fixed income securities in the
portfolio will be directly impacted by the market perception of the
creditworthiness of the securities' issuers and will fluctuate inversely with
changes in interest rates. Lower rated or unrated securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. For example, because investors generally perceive that there are
greater risks associated with investing in medium or lower rated securities, the
yields and prices of such securities may tend to fluctuate more than those of
higher rated securities. Moreover, in the lower quality segments of the fixed
income securities market, changes in perception of the creditworthiness of
individual issuers tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed income securities
market. The yield and price of medium to lower rated securities therefore may
experience greater volatility than is the case with higher rated securities.
Prudential considers both credit risk and market risk in selecting securities
for the portfolio. By holding a diversified selection of such securities, the
portfolio seeks to reduce this volatility.

The secondary market for high yield/high risk securities, which is concentrated
in relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities. Under adverse market or economic conditions,
the secondary market for high yield/high risk securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, Prudential could find it more difficult to sell such
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities therefore may be less than the prices used in
calculating the portfolio's net asset value. In the absence of readily available
market quotations, high yield/high risk securities will be valued by the Series
Fund's Board of Directors using a method that, in the good faith belief of the
Board, accurately reflects fair value. Valuing such securities in an illiquid
market is a difficult task. The Board's judgment plays a more significant role
in valuing such securities than those securities for which more objective market
data are available.

From time to time, federal laws have been enacted which have required the
divestiture by companies of their investments in high yield bonds and have
limited the deductibility of interest by certain corporate issuers of high yield
bonds. These types of laws could adversely affect the portfolio's net asset
value and investment practices, the secondary market for high yield securities,
the financial condition of issuers of these securities and the value of
outstanding high yield securities. There is currently no legislation pending
that would adversely impact the market for high yield/high risk securities.
However, there can be no assurance that such legislation will not be proposed or
enacted in the future.

During the fiscal year ended December 31, 1997, the monthly dollar weighted
average ratings of the debt obligations held by the High Yield Bond Portfolio,
expressed as a percentage of the portfolio's total investments, were as follows:

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<PAGE>

- --------------------------------------------------------------------------------
Percentage of Total
RATINGS Investments
- --------------------------------------------------------------------------------
AAA/Aaa 0%
AA/Aa 0%
A/A 0%
BBB/Baa 0.2%
BB/Ba 19.4%
B/B 49.6%
CCC/Caa or lower 10.1%
Unrated 20.7%
- --------------------------------------------------------------------------------

Consistent with its investment objective, the portfolio anticipates that under
normal conditions at least 80% of the value of its total assets will be invested
in high yield/high risk, medium to lower rated fixed income securities. Fixed
income securities appropriate for the portfolio may include both convertible and
nonconvertible debt securities and preferred stock. The portfolio will not
acquire common stocks, except when attached to or included in a unit with fixed
income securities which otherwise would be attractive to the portfolio.

The portfolio may invest up to 20% of its total assets in United States currency
denominated fixed-income securities issued outside the United States by foreign
and domestic issuers. For additional information regarding such securities, see
FOREIGN SECURITIES, page 27.

The portfolio may, when it has temporary cash available, invest in money market
instruments of the kind held by the Money Market Portfolio. The portfolio may
also invest in commercial paper of domestic corporations that does not meet the
quality restrictions applicable to the investments of the Money Market
Portfolio. Moreover, when conditions dictate a temporary defensive strategy or
during temporary periods of portfolio structuring and restructuring, the High
Yield Bond Portfolio may invest, without limit, in high quality money market
instruments of the kind held by the Money Market Portfolio. The portfolio may
also: (i) purchase and sell options on debt securities; (ii) purchase and sell
interest rate futures contracts and options thereon; (iii) purchase securities
on a when-issued or delayed delivery basis; (iv) make short sales; and (v) use
interest rate swaps. These techniques are described on pages 29 through 33, and
further information about some of them is included in the statement of
additional information.

Although the portfolio is not expected to engage in substantial short-term
trading, it may sell securities it owns without regard to the length of time
they have been held. The portfolio's turnover rate is not expected to exceed
150%.

George Edwards, Managing Director, Prudential Investments, has been the manager
of the High Yield Bond Portfolio since 1997. Mr. Edwards also manages the
Prudential High Yield Total Return Fund, Inc. and co-manages the Prudential
Distressed Securities Fund, Inc. Mr. Edwards has held various positions with
Prudential Investments since 1985.

DIVERSIFIED STOCK PORTFOLIOS

STOCK INDEX PORTFOLIO. The objective of this portfolio is to achieve investment
results that correspond to the price and yield performance of publicly-traded
common stocks in the aggregate.

The portfolio seeks to achieve this objective by following the policy of
attempting to duplicate the price and yield performance of the S&P 500 Index, an
index which represents more than 70% of the total market value of all
publicly-traded common stocks and is widely viewed among investors as
representative of the performance of publicly-traded common stocks as a whole.
The S&P 500 Index is composed of 500 selected common stocks, over 95% of which
are listed on the New York Stock Exchange ("NYSE"). S&P chooses the stocks to be
included in the index on a statistical basis taking into account market values
and industry diversification. Inclusion in the index in no way implies an
opinion by S&P as to a stock's attractiveness as an investment. "Standard &
Poor's," "Standard & Poor's 500" and "500" are trademarks of McGraw Hill, Inc.
and have been licensed for use by The Prudential Insurance Company of America
and its affiliates and subsidiaries. The Series Fund is not sponsored, endorsed,
sold or promoted by S&P and S&P makes no representation regarding the
advisability of investing in the Series Fund. Reference is made to the statement
of additional information which sets forth certain additional disclaimers and
limitations of liabilities on behalf of S&P.

The S&P 500 Index is a "weighted" index in which the weighting of each stock
depends on its relative total market value: its market price per share times the
number of shares outstanding. Because of this weighting, approximately 11% of
the S&P 500 Index's value is accounted for by the stocks of the five largest
companies by relative market value. As of December 31, 1997 those companies
were: General Electric Co., Coca-Cola Co., Microsoft Corp., Exxon Corp. and
Merck & Co., Inc.

19 - Series Fund

<PAGE>

This portfolio will not be "managed" in the traditional sense of using economic,
financial or market analysis to determine the stocks to be purchased by the
portfolio. Rather, the portfolio manager will purchase stocks for the portfolio
in proportion to their weighting in the S&P 500 Index. Thus, adverse financial
performance by a company will not result in reduction or elimination of the
portfolio's holdings of its stock and, conversely, superior financial
performance by a company will not lead the portfolio to increase its holdings of
the company's stock. If a stock held by this portfolio is eliminated from the
S&P 500 Index, the portfolio will sell its holdings of the stock regardless of
the prospects of the company. Because the portfolio will not be "managed" in the
traditional sense, portfolio turnover is expected to be low and is generally not
expected to exceed 10%. A 10% portfolio turnover rate would occur if one-tenth
of the portfolio's securities were sold and either repurchased or replaced
within 1 year. Because of the expected low turnover, transaction costs, such as
brokerage commissions, are also expected to be relatively low.

The following table shows the performance of the S&P 500 Index for the 25 years
ending in 1997. The period covered by this table is one of generally rising
stock prices, and the performance of the S&P 500 Index in this period should not
be viewed as a representation of any future performance by that index. In
addition, the fees and costs involved in the operation of the Stock Index
Portfolio mean that the performance of a share of stock in the portfolio may not
equal the performance of the S&P 500 Index even if the assets held by the
portfolio do equal that performance.

- --------------------------------------------------------------------------------
*S&P 500 INDEX WITH DIVIDENDS REINVESTED
ANNUAL PERCENTAGE CHANGE
- --------------------------------------------------------------------------------
1973 -14.77 1986 +18.56
1974 -26.39 1987 +5.10
1975 +37.16 1988 +16.61
1976 +23.57 1989 +31.69
1977 -7.42 1990 -3.10
1978 +6.38 1991 +30.47
1979 +18.20 1992 +7.61
1980 +32.27 1993 +10.08
1981 -5.01 1994 +1.32
1982 +21.44 1995 +37.58
1983 +22.38 1996 +22.96
1984 +6.10 1997 +33.36
1985 +31.57
- --------------------------------------------------------------------------------
SOURCE: STANDARD & POOR'S RATINGS SERVICES. PERCENTAGE CHANGE CALCULATED IN
ACCORDANCE WITH SPECIFICATIONS OF SEC RELEASE NUMBER IA-327.
- --------------------------------------------------------------------------------

IN THE LAST TEN YEARS, THIS PORTFOLIO'S TOTAL RETURN, COMPARED TO THAT OF THE
S&P 500 INDEX, WAS AS FOLLOWS:

- --------------------------------------------------------------------------------
ANNUAL PERCENTAGE CHANGE TOTAL RETURN
S&P 500 INDEX WITH STOCK INDEX PORTFOLIO
DIVIDENDS REINVESTED (AFTER DEDUCTION OF EXPENSES)
- --------------------------------------------------------------------------------
1988 +16.61 +15.44
1989 +31.69 +30.93
1990 -3.10 -3.63
1991 +30.47 +29.72
1992 +7.61 +7.13
1993 +10.08 +9.66
1994 +1.32 +1.01
1995 +37.58 +37.06
1996 +22.96 +22.57
1997 +33.36 +32.83
- --------------------------------------------------------------------------------

Under normal circumstances, the portfolio generally intends to purchase all 500
stocks represented in the S&P 500 Index and to invest its assets as fully in
those stocks (in proportion to their weighting in the index) as is feasible in
light of cash flows into and out of the portfolio. In order to reduce
transaction costs, a weighted investment in the 500 stocks comprising the S&P
500 Index is most efficiently made in relatively large amounts. As additional
cash is received from the purchase of shares in the portfolio, it may be held
temporarily in short-term, high quality investments of the sort in which the
Money Market Portfolio invests, until the portfolio has a sufficient amount of
assets in such investments to make an efficient weighted investment in the 500
stocks comprising the S&P 500 Index. If net cash outflows from the portfolio are
anticipated, the portfolio may sell stocks (in proportion to their

20 - Series Fund

<PAGE>

weighting in the S&P 500 Index) in amounts in excess of those needed to satisfy
the cash outflows and hold the balance of the proceeds in short-term investments
if such a transaction appears, taking into account transaction costs, to be more
efficient than selling only the amount of stocks needed to meet the cash
requirements. The portfolio will not, however, increase its holdings of cash in
anticipation of any decline in the value of the S&P 500 Index or of the stock
markets generally. The portfolio will instead remain as fully invested in the
S&P 500 Index stocks as feasible in light of its cash flow patterns during
periods of market declines as well as advances, and investors in the portfolio
thus run the risk of remaining fully invested in common stocks during a period
of general decline in the stock markets.

Tracking accuracy is measured by the difference between total return for the S&P
500 Index with dividends reinvested and total return for the portfolio with
dividends reinvested before deductions of portfolio fees and expenses. Tracking
accuracy is monitored by the portfolio manager on a daily basis. All tracking
accuracy deviations are reviewed to determine the effectiveness of investment
policies and techniques.

If the portfolio does hold short-term investments as a result of the patterns of
cash flows to and from the portfolio, such holdings may cause its performance to
differ from that of the S&P 500 Index. The portfolio will attempt to minimize
any such difference in performance through transactions involving stock index
futures contracts, options on stock indices, and/or options on stock index
future contracts. These derivative investment instruments are described under
OPTIONS ON STOCK INDICES, FUTURES CONTRACTS, and OPTIONS ON FUTURES CONTRACTS on
pages 30 through 31. The portfolio will not use such instruments for speculative
purposes or to hedge against any decline in the value of the stocks held in the
portfolio, but instead will employ them only as a temporary substitute for
investment of cash holdings directly in the 500 stocks when the portfolio's cash
holdings are too small to make such an investment in an efficient manner.

For example, if the portfolio's cash reserves are insufficient to invest
efficiently in another unit of the basket of stocks comprising the S&P 500
Index, the portfolio may purchase S&P 500 futures contracts to hedge against a
rise in the value of the stocks the portfolio intends to acquire. In its attempt
to minimize any difference in performance between the portfolio and the S&P 500
Index, the portfolio currently intends to engage in transactions involving S&P
500 Index futures contracts, NYSE Composite Index futures contracts, options on
the S&P 500 Index, the S&P 100 Index, and the NYSE Composite Index, and options
on S&P 500 Index futures contracts and NYSE Composite Index futures contracts.
There can be no assurance that the portfolio's attempt to minimize such
performance difference through the use of any of these instruments will succeed.
See the statement of additional information for a more detailed discussion of
the manner in which the portfolio will employ these instruments and for a
description of other risks involved in the use of such instruments.

The above described investment policies and techniques of the Stock Index
Portfolio are non-fundamental and may be changed without shareholder approval if
it is determined that alternative investment techniques would be more effective
in achieving the portfolio's objective.

EQUITY INCOME PORTFOLIO. The objective of this portfolio is both current income
and capital appreciation through investment primarily in common stocks and
convertible securities that provide favorable prospects for investment income
returns above those of the S&P 500 Index or the NYSE Composite Index. In
selecting these securities, the portfolio will put emphasis on earnings, balance
sheet and cash flow analysis, and the relationships that these factors have to
the price and return of a given security. Under normal circumstances, the
portfolio intends to invest at least 65% of its total assets in such securities.

The portfolio may invest the balance of its assets in other stocks, other
securities convertible into common stocks, other equity-related securities, debt
securities (including money market instruments), options on stocks and stock
indices, and stock index futures. The portfolio may under normal circumstances
invest up to 35% of its total assets in money market instruments of the kind
held by the Money Market Portfolio. Moreover, when conditions dictate a
temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Equity Income Portfolio may invest, without
limit, in high quality money market instruments of the kind held by the Money
Market Portfolio.

In addition, up to 35% of the portfolio's total assets may be invested in other
fixed-income obligations including convertible and nonconvertible preferred
stock. The portfolio anticipates that these will primarily be rated A or better
by Moody's or S&P. However, the portfolio may also invest in lower-rated
fixed-income securities, although it will not invest in securities rated lower
than CC or Ca by Moody's or S&P, respectively. The risks of medium to lower
rated securities, also known as high risk securities, are described above in
connection with the High Yield Bond Portfolio. A description of debt ratings is
contained in the Appendix to the statement of additional information. The
portfolio may also invest in non-rated fixed-income securities which, in the
opinion of the investment manager, are of a quality comparable to rated
securities in which the portfolio may invest.

To the extent permitted by applicable insurance law, the portfolio may invest up
to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under FOREIGN SECURITIES, page
27.

21 - Series Fund

<PAGE>

In addition, the portfolio may: (i) purchase and sell options on equity
securities, stock indices and foreign currencies; (ii) purchase and sell stock
index and foreign currency futures contracts and options thereon; (iii) enter
into forward foreign currency exchange contracts; and (iv) purchase securities
on a when-issued or delayed delivery basis. These techniques are described on
pages 28 through 32, and further information about some of them is included in
the statement of additional information.

As a result of its investment policies, the portfolio's turnover rate may exceed
100%, although it is not expected to exceed 200%.

Warren Spitz, Managing Director, Prudential Investments, has been portfolio
manager of the Equity Income Portfolio since 1988. Mr. Spitz is also portfolio
manager of the Prudential Equity Income Fund and the Conservative Balanced and
Flexible Managed Portfolios of the Series Fund.

EQUITY PORTFOLIO. The objective of this portfolio is to achieve 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
is superior to broadly-based stock indices. Current income, if any, is
incidental.

Although the portfolio will be invested primarily in common stocks, it may also
invest to a limited extent in short, intermediate or long term debt, either
convertible or nonconvertible into common stock, as well as in nonconvertible
preferred stock and other equity-related securities. In addition, it may also
invest up to 5% of its assets in below investment grade debt securities. The
risks of medium to lower rated securities, also known as high risk securities,
are described above in connection with the High Yield Bond Portfolio. A
description of corporate bond ratings is contained in the Appendix to the
statement of additional information. The portfolio will attempt to maintain a
flexible approach to the selection of common stocks of various types of
companies whose valuations appear to offer opportunities for above-average
appreciation. Thus, the portfolio may invest in securities of companies whose
estimated growth in earnings exceeds that projected for the market as a whole
because of factors such as expanding market share, new products or changes in
market environment. Or it may invest in "undervalued" securities which are often
characterized by a lack of investor recognition of the basic value of a
company's assets. Securities of companies with sales and earnings trends which
are currently unfavorable but which are expected to reverse may also be in the
portfolio. The effort to achieve price appreciation that is superior to broadly
based stock indices necessarily involves accepting a greater risk of declining
values. During periods when stock prices decline generally, it can be expected
that the value of the portfolio will also decline.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in nonUnited States currency denominated common
stock and fixed-income securities convertible into common stock of foreign and
U.S. issuers. The particular risks of investments in foreign securities are
described under FOREIGN SECURITIES, page 27.

A portion of the portfolio may be invested in money market instruments of the
kind held by the Money Market Portfolio in order to make effective use of cash
reserves pending investment in common stocks. Moreover, when conditions dictate
a temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Equity Portfolio may invest, without limit,
in high quality money market instruments of the kind held by the Money Market
Portfolio.

Thomas Jackson, Managing Director, Prudential Investments, has been portfolio
manager of the Equity Portfolio since 1990. Mr. Jackson is also portfolio
manager of the Prudential Equity Fund, Inc. and the PRICOA Worldwide Investors
Portfolio, US Equity Fund.

PRUDENTIAL JENNISON PORTFOLIO. The objective of the Prudential Jennison
Portfolio is to achieve long-term growth of capital through investment primarily
in equity securities of established companies with above-average growth
prospects. Current income, if any, is incidental.

In order to achieve this objective, the Prudential Jennison Portfolio will
follow a policy of selecting stocks on a company-by-company basis primarily
through the use of fundamental analysis. The portfolio manager will look for
companies that have demonstrated growth in earnings and sales, high returns on
equity and assets, or other strong financial characteristics, and in the opinion
of the portfolio manager, are attractively valued. These companies tend to have
a unique market niche, a strong new product profile or superior management.
Under normal market conditions, at least 65% of the value of the total assets of
the portfolio will be invested in common stocks and preferred stocks of
companies which exceed $1 billion in market capitalization.

22 - Series Fund

<PAGE>

The portfolio may invest up to 35% of its total assets in: (i) common stocks,
preferred stocks, and other equity-related securities of companies that are
undergoing changes in management or product and marketing dynamics which have
not yet been reflected in reported earnings but which are expected to impact
earnings in the intermediate term -- these securities often lack investor
recognition and are often favorably valued; (ii) other equity-related
securities; (iii) with respect to a maximum of 30% of its total assets, common
stocks, preferred stocks and other equity-related securities of non-United
States currency denominated issuers or American Depository Receipts ("ADRs");
(iv) investment grade fixed income securities and mortgage-backed securities,
including lower rated securities (i.e., rated in the fourth highest rating
category by a nationally recognized rating service (Baa by Moody's or BBB by
S&P) or, if not rated, determined by the portfolio manager to be of comparable
quality to securities so rated (a description of debt ratings is contained in
the Appendix to the statement of additional information); and (v) obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities.
Moreover, when conditions dictate a temporary defensive strategy or during
temporary periods of portfolio structuring and restructuring, the Prudential
Jennison Portfolio may invest, without limit, in high quality money market
instruments of the kind held by the Money Market Portfolio.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, stock indices, and foreign currencies; (ii) lend its portfolio
securities; (iii) purchase and sell stock index and foreign currency futures
contracts and options thereon; (iv) enter into forward foreign currency exchange
contracts; and (v) enter into repurchase agreements and purchase securities on a
when-issued or delayed delivery basis. These techniques are described on pages
28 through 32, and further information about some of them is included in the
statement of additional information.

The effort to achieve superior investment returns necessarily involves a risk of
exposure to declining values. Securities in which the portfolio may primarily
invest have historically been more volatile than the S&P 500 Index. Accordingly,
during periods when stock prices decline generally, it can be expected that the
value of the portfolio will decline more than the market indices.

David Poiesz, Director and Senior Vice President of Jennison Associates LLC
("Jennison"), is the portfolio manager, and Peter Reinemann, Director and Senior
Vice President of Jennison, is the associate portfolio manager of the Prudential
Jennison Portfolio. Mr. Poiesz is responsible for the day to day management of
the portfolio and has been portfolio manager of the Prudential Jennison
Portfolio since its inception in 1995. Mr. Poiesz also manages the Prudential
Jennison Growth Fund. Mr. Poiesz joined Jennison in 1983 as an equity research
analyst and has been an equity portfolio manager since 1991. Mr. Reinemann is
also the associate portfolio manager for the Prudential Jennison Growth Fund,
the Prudential Jennison Growth and Income Fund, and the Prudential Jennison
Active Balanced Fund. Mr. Reinemann has been with Jennison since 1992 as an
associate portfolio manager. Prior to 1992, he served as a Vice President at
Paribas Asset Management, Inc.

SMALL CAPITALIZATION STOCK PORTFOLIO. The objective of this portfolio is to
achieve long-term growth of capital through investment primarily in equity
securities of publicly-traded companies with small market capitalization.
Current income, if any, is incidental.

The portfolio seeks to achieve this objective by following the policy of
attempting to duplicate the price and yield performance of the Standard & Poor's
Small Capitalization Stock Index (the "S&P SmallCap 600 Index"), an index which
consists of six-hundred smaller capitalization domestic stocks chosen for market
size, liquidity, and industry group representation. Stocks in the index have
market capitalizations between $35 million and $1.215 billion. However, to be
included in the index, stock selections are also screened for trading volume,
share turnover, ownership concentration, share price and bid/ask spreads. The
initial sector weightings were selected to reflect the industry distribution of
all small capitalization stocks followed by S&P. The S&P SmallCap 600 Index has
above average risk and may fluctuate more than the S&P 500 Index which invests
in stocks of larger, more established firms.

The S&P SmallCap 600 Index is a market weighted index (stock price times shares
outstanding), with each stock affecting the index in proportion to its market
value. S&P is responsible for selecting and maintaining the list of stocks to be
included in the index. Inclusion in the index in no way implies an opinion by
S&P as to a stock's attractiveness as an investment. "Standard & Poor's,"
"Standard & Poor's Small Capitalization Stock Index" and "Standard & Poor's
SmallCap 600" are trademarks of McGraw Hill, Inc. The Series Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Series Fund. Reference is made to
the statement of additional information which sets forth certain additional
disclaimers and limitations of liabilities on behalf of S&P.

The following table shows the performance of the S&P SmallCap 600 Index for the
10 years ending in 1997. Although the index was first published in 1994, S&P
reconstructed its performance for earlier years. The performance of the S&P
SmallCap 600 Index in this period should not be viewed as a representation of
any future performance by that index. In addition, the fees and costs involved
in the operation of the Small Capitalization Stock Portfolio mean that the
performance of a share of stock in the portfolio may not equal the performance
of the S&P SmallCap 600 Index even if the assets held by the portfolio do equal
that performance.

23 - Series Fund

<PAGE>

- --------------------------------------------------------------------------------
S&P SMALLCAP 600 INDEX WITH DIVIDENDS REINVESTED
ANNUAL PERCENTAGE CHANGE
- --------------------------------------------------------------------------------
1988 +19.49
1989 +13.89
1990 - 9.90
1991 +48.49
1992 +21.04
1993 +18.79
1994 - 4.77
1995 +29.96
1996 +21.32
1997 +25.58
- --------------------------------------------------------------------------------

Source: Standard & Poor's Ratings Services. Percentage change calculated in
accordance with specifications of SEC release number IA-327.
- --------------------------------------------------------------------------------

Under normal circumstances, this portfolio intends to be invested in all or a
representative sample of the stocks in the S&P SmallCap 600 Index. The portfolio
may hold cash or its equivalent, which may cause its performance to differ from
that of the S&P SmallCap 600 Index. The portfolio will attempt to minimize any
such differences in performance through transactions involving stock index
futures contracts, options on stock indices, and/or options on stock index
future contracts. These investment instruments are described under OPTIONS ON
STOCK INDICES, FUTURES CONTRACTS, and OPTIONS ON FUTURES CONTRACTS on pages 30
through 31.

In addition, the portfolio may: (i) purchase and sell options on equity
securities; (ii) lend its portfolio securities; and (iii) purchase securities on
a when-issued or delayed delivery basis. These techniques are described on pages
28 through 32, and further information about some of them is included in the
statement of additional information.

The investment policies and techniques of the Small Capitalization Stock
Portfolio are not fundamental and may be changed without shareholder approval if
it is determined that alternative investment techniques would be more effective
in achieving the portfolio's objective.

Wai Chiang, Vice President, Prudential Investments, has been portfolio manager
of the Small Capitalization Stock Portfolio since its inception in 1995. Mr.
Chiang manages several other funds for Prudential including the Prudential
Small-Capitalization Index Fund and the unregistered commingled domestic equity
index separate accounts, Pridex and Pridex 500 for Prudential. Mr. Chiang has
been employed by Prudential as a portfolio manager since 1986.

GLOBAL PORTFOLIO. The objective of this portfolio is long-term growth of capital
through investment primarily in common stocks and common stock equivalents (such
as convertible debt securities) of foreign and domestic issuers. Current income,
if any, is incidental.

The portfolio is intended to provide investors with the opportunity to invest in
a portfolio of common stocks and other equity-related securities of companies
located throughout the world. In making the allocation of assets among the
various countries and geographic regions, the portfolio manager ordinarily
considers such factors as: prospects for relative economic growth between
foreign countries; expected levels of inflation and interest rates; government
policies influencing business conditions; the range of individual investment
opportunities available to international investors; and other pertinent
financial, tax, social, political and national factors--all in relation to the
prevailing prices of the securities in each country or region.

There are, generally, no geographic limitations on companies in which the
portfolio may invest. Depending upon market conditions, the portfolio may be
invested primarily in foreign securities. Investments may be made in companies
based in the Pacific Basin (for example, Japan, Australia, New Zealand,
Singapore, Malaysia, and Hong Kong) and Western Europe (for example, the United
Kingdom, Spain, Germany, Switzerland, the Netherlands, France, and Scandinavia),
as well as the United States, Canada, and such other areas and countries as the
portfolio manager may determine from time to time. The portfolio may seek to
hedge its position in foreign currencies as more fully described herein.

The portfolio is not required to maintain any particular geographic or currency
mix of its investments. The portfolio intends to maintain investments in at
least three countries (including the United States), but may, when market
conditions warrant, invest up to 35% of its assets in companies located in any
one country (other than the United States).

24 - Series Fund

<PAGE>

In analyzing companies for investment, the portfolio manager ordinarily looks
for one or more of the following characteristics: prospects for above-average
earnings growth per share; high return on invested capital; healthy balance
sheet; sound financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their marketplace--all in relation to the prevailing prices of
the securities of such companies.

Investing in securities of foreign companies and countries involves special
risks. The particular risks of investments in foreign securities are described
under FOREIGN SECURITIES, page 27.

When conditions dictate a temporary defensive strategy or during temporary
periods of portfolio structuring and restructuring, the Global Portfolio may
invest, without limit, in high quality money market instruments of the kind held
by the Money Market Portfolio.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, stock indices and foreign currencies; (ii) purchase and sell stock
index, interest rate and foreign currency futures contracts and options thereon;
(iii) enter into forward foreign currency exchange contracts; and (iv) purchase
securities on a when-issued or delayed delivery basis. These techniques are
described on pages 28 through 32, and further information about some of them is
included in the statement of additional information.

The operating expense ratio of the portfolio can be expected to be significantly
higher than that of a fund investing exclusively in domestic securities since
the expenses of the portfolio, such as custodial, valuation and communication
costs, as well as the rate of the investment management fee (0.75% of the
portfolio's average daily net assets), though similar to such expenses of other
global funds, are higher than those generally incurred by funds investing solely
in the securities of U.S. issuers.

As a result of its investment policies, the portfolio's turnover rate may exceed
100% although it is not expected to exceed 200%.

Daniel Duane, Managing Director, Prudential Investments, Ingrid Holm, Vice
President, Prudential Investments, and Michelle Picker, Vice President,
Prudential Investments, have been co-managers of the Global Portfolio since
1997. Mr. Duane has managed the Global Portfolio since 1990 and also manages
several funds including the Prudential World Fund, Inc., Global Series. Ms. Holm
has assisted in the management of several mutual funds since 1994 and manages a
portion of Prudential's general account. Prior to 1994, Ms. Holm headed the high
yield research group for Prudential's general account. Ms. Picker has been an
analyst in Prudential's global equity investments group since 1992 and has also
managed a portion of Prudential's general account.

SPECIALIZED PORTFOLIOS

NATURAL RESOURCES PORTFOLIO. The objective of this portfolio is long-term growth
of capital through investment primarily in common stocks and convertible
securities of "natural resource companies" (as defined below) and in securities
(typically debt securities and preferred stocks) the terms of which are related
to the market value of some natural resource ("asset-indexed securities"). Under
normal circumstances, the portfolio will invest at least 65% of its total assets
in such securities.

Companies that primarily own, explore, mine, process or otherwise develop
natural resources, or supply goods and services primarily to such companies,
will be considered "natural resource companies." Natural resources generally
include precious metals (e.g., gold, silver and platinum), ferrous and
nonferrous metals (e.g., iron, aluminum and copper), strategic metals (e.g.,
uranium and titanium), hydrocarbons (e.g., coal, oil and natural gases), timber
land, undeveloped real property and agricultural commodities.

The value of equity securities of natural resource companies (including those
companies that are primarily involved in providing goods and services to natural
resource companies) will fluctuate pursuant to market conditions generally, as
well as to the market for the particular natural resource in which the issuer is
involved. In addition, the values of natural resources are affected by numerous
factors including events occurring in nature, inflationary pressures and
international politics. For instance, events in nature (such as earthquakes or
fires in prime natural resource areas) and political events (such as coups or
military confrontations) can affect the overall supply of a natural resource and
thereby the value of companies involved in such natural resources. In addition,
rising interest rates (i.e., inflationary pressures) may affect the demand for
natural resources such as timber. The portfolio manager will seek securities
that are attractively priced relative to the intrinsic values of the relevant
natural resource or that are of companies which are positioned to benefit under
existing or anticipated economic conditions. Accordingly, the portfolio may
shift its emphasis from one natural resource industry to another depending upon
prevailing trends or developments, provided that the portfolio will not invest
25% or more of its total assets in the securities of companies in any one
natural resource industry. See INVESTMENT RESTRICTIONS in the statement of
additional information for information concerning the industry classifications.
The portfolio is not required to maintain any particular mix of investments
among the natural resource industries.

25 - Series Fund

<PAGE>

In addition to common stocks and equity-related securities, the portfolio may
invest in securities, the principal amount, redemption terms or conversion terms
of which are related to the market price of a natural resource asset, referred
to herein as "asset-indexed securities." The portfolio expects to purchase
asset-indexed securities which are rated, or are issued by issuers that have
outstanding obligations which are rated, at least BBB or Baa by S&P or Moody's,
respectively, or commercial paper rated at least A-2 or P-2 by S&P or Moody's,
respectively, or in unrated securities that the portfolio manager has determined
to be of comparable quality. The portfolio reserves the right, however, to
invest in asset-indexed securities rated as low as CC or Ca by Moody's or S&P,
respectively, or in unrated securities of comparable quality, also known as high
risk securities. A description of security ratings is set forth in the Appendix
to the statement of additional information. If the asset-indexed security is
backed by a letter of credit or other similar instrument, the investment manager
may take such backing into account in determining the quality of the security.

Although it is expected that the market prices of the asset-indexed securities
will fluctuate on the basis of the natural resources on which such securities
are based, there may not be a perfect correlation between the price movements of
the asset-indexed securities and the underlying natural resources. Asset-indexed
securities are not always secured with a security interest in the underlying
natural resource asset. Further, asset-indexed securities typically bear
interest or pay dividends at below market rates (and in certain cases at nominal
rates). Although the value of asset-indexed securities that bear interest may
fluctuate inversely with market interest rates, such fluctuations are
anticipated generally to be minimal since the value of such securities is
typically based on the natural resources on which the securities are based.

Certain asset-indexed securities may be payable at maturity in cash, or, at the
option of the holder, directly in a stated amount of the asset to which the
securities are related. The portfolio does not intend to invest directly in
natural resources and, therefore, would elect to be paid in cash or would
attempt to sell the asset-indexed security prior to maturity to realize the
appreciation in the underlying asset.

As indicated above, the portfolio intends to invest primarily in common stocks
and convertible securities of natural resource companies and asset-indexed
securities. The portfolio may invest the balance of its assets in other stocks,
other securities convertible into common stocks, debt securities (including
money market instruments), and options on stocks and on natural resource-related
stock indices. The portfolio may under normal circumstances invest up to 35% of
its total assets in money market instruments of the type held by the Money
Market Portfolio. Moreover, when conditions dictate a temporary defensive
strategy or during temporary periods of portfolio structuring and restructuring,
the Natural Resources Portfolio may invest, without limit, in high quality money
market instruments of the kind held by the Money Market Portfolio. In addition,
up to 35% of the portfolio's total assets may be invested in other fixed-income
obligations. The portfolio anticipates that these will primarily be rated A or
better by Moody's or S&P. However, the portfolio may also invest in lower-rated
fixed-income securities, also known as high risk securities, although it will
not invest in securities rated lower than CC or Ca by Moody's or S&P,
respectively. The portfolio may also invest in non-rated fixed-income securities
which, in the opinion of the investment manager, are of a quality comparable to
rated securities in which the portfolio may invest.

As a result of its investment policies, the portfolio's turnover rate may exceed
100%, although it is not expected to exceed 200%.

Leigh Goehring, Vice President, Prudential Investments, has been portfolio
manager of the Natural Resources Portfolio since 1992. Mr. Goehring also manages
the Prudential Natural Resources Fund, Inc. Prior to 1992, Mr. Goehring was
portfolio manager of The Prudential-Bache Option Growth Fund.

CONVERTIBLE SECURITIES

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Small Capitalization Stock, Global, and Natural Resources Portfolios
may invest in convertible securities and such securities may constitute a major
part of the holdings of the Equity Income, Global and Natural Resources
Portfolios. A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar

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<PAGE>

nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without risk, investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

LOAN PARTICIPATIONS

The Diversified Bond, Conservative Balanced, Flexible Managed, and High Yield
Bond Portfolios may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a corporate borrower and one or more
financial institutions ("Lenders"). The portfolios may invest in such Loans
generally in the form of participations in Loans ("Participations").
Participations typically will result in the Series Fund having a contractual
relationship only with the Lender, not with the borrower. The Series Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, the Series Fund generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement relating
to the Loan, nor any rights of set-off against the borrower, and the Series Fund
may not benefit directly from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Series Fund will assume the credit
risk of both the borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, the Series
Fund may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the borrower.

FOREIGN SECURITIES

The Global Portfolio may invest up to 100% of its total assets in common stock
and convertible securities denominated in a foreign currency and issued by
foreign or domestic issuers. The Diversified Bond and High Yield Bond Portfolios
may each invest up to 20% of their assets in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
In addition, the bond components of the Conservative Balanced and Flexible
Managed Portfolios may each invest up to 20% of their assets in such securities.
To the extent permitted by applicable law, the Conservative Balanced, Flexible
Managed, and Equity Income Portfolios may invest up to 30% of their total assets
in debt and equity securities denominated in a foreign currency and issued by
foreign or domestic issuers. Further, to the extent permitted by applicable
insurance law, the Equity, Prudential Jennison, and Natural Resources Portfolios
may invest up to 30% of their total assets in non-United States currency
denominated common stock and fixed-income securities convertible into common
stock of foreign and U.S. issuers. Securities issued outside the United States
and not publicly traded in the United States, as well as ADRs, and securities
denominated in a foreign currency are referred to collectively in this
prospectus as "foreign securities."

ADRs are U.S. dollar-denominated certificates issued by a United States bank or
trust company and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a United States bank and
traded on a United States exchange or in an over-the-counter market. Investment
in ADRs has certain advantages over direct investment in the underlying foreign
securities because they are easily transferable, have readily available market
quotations, and the foreign issuers are usually subject to comparable auditing,
accounting, and financial reporting standards as domestic issuers.

Foreign securities involve certain risks, which should be considered carefully
by an investor. These risks include political or economic instability in the
country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and, in the case of
securities not denominated in United States currency, the risk of currency
fluctuations. Such securities may be subject to greater fluctuations in price
than domestic securities. Under certain market conditions, foreign securities
may be less liquid than domestic securities. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of securities
exchanges, brokers, and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries. Finally, in the event of a default of any
foreign debt obligations, it may be more difficult for a portfolio to obtain or
to enforce a judgment against the issuers of such securities.

If the security is denominated in foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between currencies. The portfolios that
may invest in foreign securities may, but need not, enter into forward foreign
currency exchange contracts

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<PAGE>

for the purchase or sale of foreign currency for hedging purposes, including:
locking-in the U.S. dollar price equivalent of interest or dividends to be paid
on such securities which are held by the portfolio; and protecting the U.S.
dollar value of such securities which are held by the portfolio. The portfolios
will not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the portfolio
to deliver an amount of foreign currency in excess of the value of the
portfolio's portfolio securities or other assets denominated in that currency.
See FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS in the statement of additional
information. In addition, the portfolios may, for hedging purposes, enter into
certain transactions involving options on foreign currencies, foreign currency
futures contracts and options on foreign currency futures contracts. See OPTIONS
ON FOREIGN CURRENCIES, FUTURES CONTRACTS, and OPTIONS ON FUTURES CONTRACTS on
pages 30 through 31.

OPTIONS ON EQUITY SECURITIES

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Small Capitalization Stock, Global, and Natural Resources Portfolios
may purchase and write (i.e., sell) put and call options on equity securities
that are traded on securities exchanges, are listed on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), or that result from
privately negotiated transactions with broker-dealers ("OTC options"). A call
option is a short-term contract pursuant to which the purchaser or holder, in
return for a premium paid, has the right to buy the equity security underlying
the option at a specified exercise price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option, to deliver the underlying equity
security against payment of the exercise price. A put option is a similar
contract which gives the purchaser or holder, in return for a premium, the right
to sell the underlying equity security at a specified price during the term of
the option. The writer of the put, who receives the premium, has the obligation
to buy the underlying equity security at the exercise price upon exercise by the
holder of the put.

A portfolio will write only "covered" options on stocks. A call option is
covered if: (1) the portfolio owns the security underlying the option; or (2)
the portfolio has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities it holds; or (3) the portfolio holds on a share-for-share basis a
call on the same security as the call written where the exercise price of the
call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the portfolio in cash, U.S. Government securities or other liquid
unencumbered assets in a segregated account with its custodian. A put option is
covered if: (1) the portfolio deposits and maintains with its custodian in a
segregated account cash, U.S. Government securities or other liquid unencumbered
assets having a value equal to or greater than the exercise price of the option;
or (2) the portfolio holds on a share-for-share basis a put on the same security
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written or less than the exercise
price if the difference is maintained by the portfolio in cash, U.S. Government
securities or other liquid unencumbered assets in a segregated account with its
custodian.

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Small Capitalization Stock, Global, and Natural Resources Portfolios
may also purchase "protective puts" (i.e., put options acquired for the purpose
of protecting a portfolio security from a decline in market value). In exchange
for the premium paid for the put option, the portfolio acquires the right to
sell the underlying security at the exercise price of the put regardless of the
extent to which the underlying security declines in value. The loss to the
portfolio is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the portfolio realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on debt securities and stock indices,
as described under OPTIONS ON DEBT SECURITIES, page 29 and OPTIONS ON STOCK
INDICES, page 30.

These portfolios may purchase call options for hedging and investment purposes.
No portfolio intends to invest more than 5% of its net assets at any one time in
the purchase of call options on stocks. These portfolios may also purchase
putable and callable equity securities, which are securities coupled with a put
or a call option provided by the issuer.

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<PAGE>

option will generally reflect increases in the market price of the underlying
security, any loss resulting from a closing purchase transaction with respect to
a call option is likely to be offset in whole or in part by appreciation of the
underlying equity security owned by the portfolio. Unlike exchange-traded
options, OTC options generally do not have a continuous liquid market.
Consequently, the portfolio will generally be able to realize the value of an
OTC option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the portfolio writes an OTC option, it generally
will be able to close out the OTC option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the
portfolio originally wrote the OTC option. There is, in general, no guarantee
that closing purchase or closing sale transactions can be effected.

There are certain special risks associated with the portfolios' transactions in
stock options, in addition to a risk that the market value of the security will
move adversely to the portfolio's option position. These risks, which relate
primarily to liquidity, are discussed in the statement of additional
information.

OPTIONS ON DEBT SECURITIES

The Diversified Bond, Government Income, Conservative Balanced, Flexible
Managed, and High Yield Bond Portfolios may purchase and write (i.e., sell) put
and call options on debt securities (including U.S. Government debt securities)
that are traded on U.S. securities exchanges or that result from privately
negotiated transactions with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York ("OTC options"). Options on
debt are similar to options on stock, except that the option holder has the
right to take or make delivery of a debt security, rather than stock.

A portfolio will write only "covered" options. Options on debt securities are
covered in the same manner as options on stocks, discussed above, except that,
in the case of call options on U.S. Treasury Bills, the portfolio might own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract amount
and a maturity date no later than that of the securities deliverable under the
call option. The principal reason for a portfolio to write an option on one or
more of its securities is to realize through the receipt of the premiums paid by
the purchaser of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not be written
when, in the opinion of Prudential, interest rates are likely to decline
significantly, because under those circumstances the premium received by writing
the call likely would not fully offset the foregone appreciation in the value of
the underlying security.

These portfolios may also write straddles (i.e., a combination of a call and a
put written on the same security at the same strike price where the same issue
of the security is considered "cover" for both the put and the call). In such
cases, the portfolio will also segregate or deposit for the benefit of the
portfolio's broker cash, U.S. Government securities or other liquid unencumbered
assets equivalent to the amount, if any, by which the put is "in the money." It
is contemplated that each portfolio's use of straddles will be limited to 5% of
the portfolio's net assets (meaning that the securities used for cover or
segregated as described above will not exceed 5% of the portfolio's net assets
at the time the straddle is written). The writing of a call and a put on the
same security at the same strike price where the call and the put are covered by
different securities is not considered a straddle for purposes of this limit.

These portfolios may purchase "protective puts" in an effort to protect the
value of a security that it owns against a substantial decline in market value.
Protective puts are described in OPTIONS ON EQUITY SECURITIES, page 28. A
portfolio may wish to protect certain portfolio securities against a decline in
market value at a time when put options on those particular securities are not
available for purchase. A portfolio may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio. While changes in the value of the put
option should generally offset changes in the value of the securities being
hedged, the correlation between the two values may not be as close in these
transactions as in transactions in which the portfolio purchases a put option on
an underlying security it owns.

These portfolios may also purchase call options on debt securities for hedging
or investment purposes. No portfolio currently intends to invest more than 5% of
its net assets at any one time in the purchase of call options on debt
securities. A portfolio may also purchase putable and callable debt securities,
which are securities coupled with a put or call option provided by the issuer.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" or a "closing sale
transaction" in a manner similar to that discussed above in connection with
options on equity securities.

The staff of the SEC has taken the position that purchased OTC options and the
assets used as "cover" for written OTC options are illiquid for purposes of a
portfolio's 15% limitation on investment in illiquid securities. However,
pursuant to the terms of certain no-action letters issued by the staff, the
securities used as cover for written OTC options may be considered liquid
provided that the portfolio sells OTC options only to qualified dealers who
agree that the portfolio may repurchase any OTC option it writes for a maximum
price to be calculated by a

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predetermined formula. In such cases, the OTC option would be considered
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option.

There are certain risks associated with the portfolios' transactions in debt
options, in addition to a risk that the market value of the security will move
adversely to the portfolio's option position. These risks, which relate
primarily to liquidity, are discussed in the statement of additional
information.

OPTIONS ON STOCK INDICES

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Global, and Natural Resources Portfolios may purchase and sell put and
call options on stock indices traded on securities exchanges, listed on NASDAQ
or that result from privately negotiated transactions with broker-dealers ("OTC
options"). The Stock Index and Small Capitalization Stock Portfolios may utilize
options on stock indices by constructing "put/call" combinations that are
economically comparable to a long stock index futures position, as described in
the statement of additional information. Options on stock indices are similar to
options on stock except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks.

The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.

A portfolio will write only "covered" options on stock indices. The manner in
which these options are covered is discussed in the statement of additional
information.

These portfolios may purchase put and call options for hedging and investment
purposes. No portfolio intends to invest more than 5% of its net assets at any
time in the purchase of puts and calls on stock indices. A portfolio may effect
closing sale and purchase transactions involving options on stock indices, as
described above in connection with stock options.

OPTIONS ON FOREIGN CURRENCIES

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Global, and Natural Resources Portfolios may purchase and write put
and call options on foreign currencies traded on U.S. or foreign securities
exchanges or boards of trade for hedging purposes in a manner similar to that in
which forward foreign currency exchange contracts (discussed under FOREIGN
SECURITIES, page 27 and futures contracts on foreign currencies (discussed under
FUTURES CONTRACTS, page 31) will be employed. Options on foreign currencies are
similar to options on stock, except that the option holder has the right to take
or make delivery of a specified amount of foreign currency, rather than stock.

A portfolio may purchase and write options to hedge the portfolio's securities
denominated in foreign currencies. If there is a decline in the dollar value of
a foreign currency in which the portfolio's securities are denominated, the
dollar value of such securities will decline even though the foreign currency
value remains the same. To hedge against the decline of the foreign currency, a
portfolio may purchase put options on such foreign currency. If the value of the
foreign currency declines, the gain realized on the put option would offset, in
whole or in part, the adverse effect such decline would have on the value of the
portfolio's securities. Alternatively, a portfolio may write a call option on
the foreign currency. If the foreign currency declines, the option would not be
exercised and the decline in the value of the portfolio securities denominated
in such foreign currency would be offset in part by the premium the portfolio
received for the option.

If, on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), a portfolio may purchase call options on
the foreign currency. The purchase of such options could offset, at least
partially, the effects of the adverse movements of the exchange rates.
Alternatively, a portfolio could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

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<PAGE>

currency being hedged has moved in a favorable direction, the corresponding
appreciation of the portfolio's securities denominated in such currency would be
partially offset by the premiums paid on the options. Further, if the currency
exchange rate does not change, the portfolio net income would be less than if
the portfolio had not hedged since there are costs associated with options.

The use of these options is subject to various additional risks. The correlation
between movements in the price of options and the price of the currencies being
hedged is imperfect. The use of these instruments will hedge only the currency
risks associated with investments in foreign securities, not market risks. The
portfolio's ability to establish and maintain positions will depend on market
liquidity. The ability of the portfolio to close out an option depends upon a
liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular option at any particular time.

FUTURES CONTRACTS

The Conservative Balanced, Flexible Managed, Stock Index, Equity Income, Equity,
Prudential Jennison, Small Capitalization Stock, Global, and Natural Resources
Portfolios may, to the extent permitted by applicable regulations, purchase and
sell stock index futures contracts. A stock index futures contract is an
agreement between the buyer and the seller of the contract to transfer an amount
of cash equal to the daily variation margin of the contract. No physical
delivery of the underlying stocks in the index is made.

The Diversified Bond, Government Income, Conservative Balanced, Flexible
Managed, High Yield Bond, and Global Portfolios may, to the extent permitted by
applicable regulations, purchase and sell futures contracts on interest-bearing
securities (such as U.S. Treasury bonds and notes) or interest rate indices
(referred to collectively as "interest rate futures contracts").

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Global, and Natural Resources Portfolios may, to the extent permitted
by applicable regulations, purchase and sell futures contracts on foreign
currencies or groups of foreign currencies.

When the futures contract is entered into, each party deposits with a futures
commission merchant (or in a segregated custodial account) approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the futures commission merchant, called the "variation margin," will be
made on a daily basis as the underlying security, index or rate fluctuates
making the long and short positions in the futures contracts more or less
valuable, a process known as "marking to the market."

A portfolio may purchase or sell futures contracts without limit for hedging
purposes and may purchase and sell such contracts for non-hedging purposes
provided the initial margins and premiums associated with the contracts do not
exceed 5% of the fair market value of the portfolio's assets, taking into
account unrealized profits and unrealized losses on any such futures. Hedging is
generally considered to be the use of futures to reduce the risk of a particular
position in a security. For example, a portfolio manager might attempt to reduce
the risk of investment in equity securities by hedging a portion of its equity
portfolio through the use of stock index futures contracts. Subject to the
limitation discussed above, futures may also be utilized by a portfolio for
non-hedging uses, such as for investment purposes, to enhance income or to
adjust its asset mix. An example of non-hedging use of futures would be if the
investment manager expects bonds to outperform stocks, it may purchase interest
rate futures contracts rather than actually selling stocks and buying bonds.

A portfolio's successful use of futures contracts depends upon the investment
manager's ability to predict the direction of the relevant market. The
correlation between movement in the price of the futures contract and the price
of the securities or currencies being hedged is imperfect. The ability of a
portfolio to close out a futures position depends on a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular futures contract at any particular time.

OPTIONS ON FUTURES CONTRACTS

To the extent permitted by applicable insurance law and federal regulations, the
Conservative Balanced, Flexible Managed, Stock Index, Equity Income, Equity,
Prudential Jennison, Small Capitalization Stock, Global and Natural Resources
Portfolios may enter into certain transactions involving options on stock index
futures contracts; the Diversified Bond, Government Income, Conservative
Balanced, Flexible Managed, High Yield Bond and Global Portfolios may enter into
certain transactions involving options on interest rate futures contracts; and
the Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Global and Natural Resources Portfolios may enter into certain
transactions involving options on foreign currency futures contracts. An option
on a futures contract gives the purchaser or holder the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by the
writer and holder of the option will

31 - Series Fund

<PAGE>

be accomplished by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
As an alternative to exercise, the holder or writer of an option may terminate a
position by selling or purchasing an option of the same series. There is no
guarantee that such closing transactions can be effected. The Stock Index and
Small Capitalization Stock Portfolios intend to utilize options on stock index
futures contracts by constructing "put/call" combinations that are economically
comparable to a long stock index futures position, as described in the statement
of additional information. The other portfolios intend to utilize options on
futures contracts for the same purposes that they use the underlying futures
contracts.

REPURCHASE AGREEMENTS

The portfolios may enter into repurchase agreements, subject to each portfolio's
investment limit in short-term debt obligations, whereby the seller of a
security agrees to repurchase that security from the portfolio at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the portfolio's
money is invested in the repurchase agreement. The repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the portfolio will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the portfolio may incur a loss. All portfolios, except the
Global Portfolio, participate in a joint repurchase account pursuant to an order
of the SEC. On a daily basis, any uninvested cash balances of the portfolios may
be aggregated and invested in one or more repurchase agreements. Each portfolio
participates in the income earned or accrued in the joint account based on the
percentage of its investment.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

The Diversified Bond, Government Income and High Yield Bond Portfolios, as well
as the fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios, may use reverse repurchase agreements and dollar rolls. The Money
Market Portfolio and the money market portion of any portfolio may use reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by a portfolio with an agreement by the portfolio to repurchase
the same securities at an agreed upon price and date. During the reverse
repurchase period, the portfolio often continues to receive principal and
interest payments on the sold securities. The terms of each agreement reflect a
rate of interest for use of the funds for the period, and thus these agreements
have the characteristics of borrowing by the portfolio. Dollar rolls involve
sales by a portfolio of securities for delivery in the current month with a
simultaneous contract to repurchase substantially similar securities (same type
and coupon) from the same party at an agreed upon price and date. During the
roll period, the portfolio forgoes principal and interest paid on the
securities. A portfolio is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
A portfolio will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid unencumbered
assets equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities retained by the
portfolio may decline below the price of the securities the portfolio has sold
but is obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the portfolio's obligation to repurchase
the securities. The Diversified Bond, Government Income and High Yield Bond
Portfolios, as well as the fixed income portions of the Conservative Balanced
and Flexible Managed Portfolios, will not obligate more than 30% of their net
assets in connection with reverse repurchase agreements and dollar rolls. No
other portfolio will obligate more than 10% of its net assets in connection with
reverse repurchase agreements.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, the Diversified Bond,
Government Income, Conservative Balanced, Flexible Managed, High Yield Bond,
Equity Income, Equity, Prudential Jennison, Small Capitalization Stock, Global
and Natural Resources Portfolios may purchase or sell securities on a
when-issued or delayed delivery basis, that is, delivery and payment can take
place a month or more after the date of the transaction. A portfolio will make
commitments for such when-issued transactions only with the intention of
actually acquiring the securities. A portfolio's custodian will maintain, in a
separate account, cash, U.S. Government securities or other liquid unencumbered
assets having a value equal to or greater than such commitments. If a portfolio
chooses to

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dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio security, incur a gain
or loss due to market fluctuations.

In addition, the Money Market Portfolio and short-term portions of the other
portfolios may purchase money market securities on when-issued or delayed
delivery basis on the terms set forth in the Appendix to this prospectus.

SHORT SALES

The Diversified Bond, Government Income, Conservative Balanced, Flexible Managed
and High Yield Bond Portfolios may sell securities they do not own in
anticipation of a decline in the market value of those securities ("short
sales"). To complete such a transaction, the portfolio will borrow the security
to make delivery to the buyer. The portfolio is then obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the portfolio. Until the security is replaced, the
portfolio is required to pay to the lender any interest which accrues during the
period of the loan. To borrow the security the portfolio may be required to pay
a fee which would increase the cost of the security sold. The proceeds of the
short sale will be retained by the broker to the extent necessary to meet margin
requirements until the short position is closed out. Until the portfolio
replaces the borrowed security, it will (a) maintain in a segregated account
cash, U.S. Government securities or other liquid unencumbered assets at such a
level that the amount deposited in the account plus the amount deposited with
the broker as collateral will equal the current market value of the security
sold short and will not be less than the market value of the security at the
time it was sold short or (b) otherwise cover its short position.

The portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the portfolio replaces the borrowed security. The portfolio will realize a gain
if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
will be increased, by the amount of any fee or interest paid in connection with
the short sale. No more than 25% of any portfolio's net assets will be, when
added together: (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales and (ii) allocated to segregated
accounts in connection with short sales.

SHORT SALES AGAINST THE BOX

All portfolios (other than the Money Market and Zero Coupon Bond Portfolios) may
make short sales of securities or maintain a short position, provided that at
all times when a short position is open the portfolio owns an equal amount of
such securities or securities convertible into or exchangeable, with or without
payment of any further consideration, for an equal amount of the securities of
the same issuer as the securities sold short (a "short sale against the box");
provided, that if further consideration is required in connection with the
conversion or exchange, cash, U.S. Government securities or other liquid
unencumbered assets in an amount equal to such consideration must be put in a
segregated account.

INTEREST RATE SWAPS

The Diversified Bond, Government Income and High Yield Bond Portfolios and the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use interest rate swaps to increase or decrease a portfolio's
exposure to long- or short-term interest rates. No portfolio currently intends
to invest more than 5% of its net assets at any one time in interest rate swaps.
For more information, see the statement of additional information.

LOANS OF PORTFOLIO SECURITIES

All of the portfolios except the Money Market Portfolio may from time to time
lend the securities they hold to broker-dealers, qualified banks and certain
institutional investors provided that such loans are made pursuant to written
agreements and are continuously secured by collateral in the form of cash, U.S.
Government securities or irrevocable standby letters of credit in an amount
equal to at least the market value at all times of the loaned securities plus
the accrued interest and dividends. During the time securities are on loan, the
portfolio will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from the
borrower or earning interest on the investment of the cash collateral. The right
to terminate the loan will be given to either party subject to appropriate
notice. Upon termination of the loan, the borrower will return to the lender
securities identical to the loaned securities. The portfolio will not have the
right to vote securities on loan, but would terminate the loan and retain the
right to vote if that were considered important with respect to the investment.

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<PAGE>

existing collateral might be insufficient to purchase back the full amount of
the security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage; but the portfolio
would be an unsecured creditor with respect to such shortage and might not be
able to recover all or any of it. However, this risk may be minimized by a
careful selection of borrowers and securities to be lent and by monitoring
collateral.

No portfolio will lend securities to entities affiliated with Prudential,
including Prudential Securities Incorporated. This will not affect a portfolio's
ability to maximize its securities lending opportunities.

INVESTMENT RESTRICTIONS APPLICABLE
TO THE PORTFOLIOS

The Series Fund is subject to certain investment restrictions which are
fundamental to the operations of the Series Fund and may not be changed except
with the approval of a majority vote (as defined under INVESTMENT OBJECTIVES AND
POLICIES OF THE PORTFOLIOS on page 10) of the persons participating in the
affected portfolio.

The investments of the various portfolios are generally subject to certain
additional restrictions under state laws. In the event of future amendments to
the applicable statutes, each portfolio will comply, without the approval of the
shareholders, with the statutory requirements as so modified.

For a detailed discussion of investment restrictions applicable to the Series
Fund, see INVESTMENT RESTRICTIONS in the statement of additional information.

INVESTMENT MANAGEMENT ARRANGEMENTS
AND EXPENSES

The Series Fund has entered into an Investment Advisory Agreement with
Prudential under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio. The
directors, in addition to reviewing the actions of the Series Fund's investment
manager, decide upon matters of general policy. The Series Fund's officers
conduct and supervise the daily business operations of the Series Fund.

Prudential, founded in 1875 under the laws of New Jersey, is subject to
regulation by the Department of Insurance of the State of New Jersey as well as
by the insurance departments of all the other states and jurisdictions in which
it does business. Prudential is registered as an investment advisor under the
Investment Advisers Act of 1940. Prudential's principal business address is 751
Broad Street, Newark, New Jersey 07102-3777.

Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment advisor. Total assets under management as of
December 31, 1997 were over $370.4 billion which includes over $251.6 billion
owned by Prudential and approximately $118.8 billion of external assets under
Prudential's management.

Subject to Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by Prudential are furnished, with
respect to fourteen of the Series Fund's fifteen portfolios, by its wholly-owned
subsidiary, PIC, pursuant to the Service Agreement between Prudential and PIC.
The Agreement provides that a portion of the fee received by Prudential for
providing investment advisory services will be paid to PIC. Investment advisory
services with respect to the Prudential Jennison Portfolio provided by
Prudential are furnished by another wholly-owned subsidiary, Jennison, pursuant
to an Investment Subadvisory Agreement between Prudential and Jennison. That
Agreement provides that a portion of the fee received by Prudential for
providing investment advisory services to the Prudential Jennison Portfolio will
be paid to Jennison. PIC and Jennison are both registered as investment advisors
under the Investment Advisers Act of 1940.

The investment management fee for the Stock Index Portfolio is equal to an
annual rate of 0.35% of the average daily net assets of the portfolio. For the
Money Market, Diversified Bond, Government Income, Equity Income, Zero Coupon
Bond, and Small Capitalization Stock Portfolios that fee is equal to an annual
rate of 0.40% of the average daily net assets of each of the portfolios. For the
Equity and Natural Resources Portfolios, the fee is equal to an annual rate of
0.45% of the average daily net assets of each of the portfolios. The fee for the
Conservative Balanced and the High Yield Bond Portfolios is equal to an annual
rate of 0.55% of the average daily net assets of each of the portfolios. For the
Flexible Managed and Prudential Jennison Portfolios, the fee is equal to an
annual rate of 0.60% of the average daily net assets of each of the portfolios.
The fee for the Global Portfolio is equal

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to an annual rate of 0.75% of the average daily net assets of the portfolio. For
further information about the expenses of the Series Fund, see INVESTMENT
MANAGEMENT ARRANGEMENTS AND EXPENSES in the statement of additional information.

PURCHASE AND REDEMPTION OF SHARES

Shares in the Series Fund are currently offered continuously, without sales
charge, at prices equal to the respective net asset values of the portfolios,
only to the Accounts to fund benefits payable under the Contracts. The Series
Fund may at some later date also offer its shares to other separate accounts of
Prudential or other insurers. Currently, Pruco Securities Corporation
("Prusec"), an indirect wholly-owned subsidiary of Prudential, acts as the
principal underwriter of the Series Fund. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. Subject to Board approval,
during the second quarter of 1998 Prusec's responsibilities as principal
underwriter will be assigned to Prudential Investment Management Services LLC
("PIMS"). PIMS, also an indirect wholly-owned subsidiary of Prudential, is a
limited liability corporation organized under Delaware law in 1996. PIMS will
act as principal underwriter under substantially the same terms as Prusec does
currently. Both Prusec and PIMS are registered as broker-dealers under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. PIMS' principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777.

The Series Fund is required to redeem all full and fractional shares of the
Series Fund for cash within 7 days of receipt of proper notice of redemption.
The redemption price is the net asset value per share next determined after the
initial receipt of proper notice of redemption.

The right to redeem shares or to receive payment with respect to any redemption
may be suspended only for any period during which trading on the NYSE is
restricted as determined by the SEC or when such exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the SEC as a result of which disposal of a
portfolio's securities or determination of the net asset value of each portfolio
is not reasonably practicable, and for such other periods as the SEC may by
order permit for the protection of shareholders of each portfolio.

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of each portfolio is determined once daily, as
of 4:15 p.m. New York City time (12:00 noon New York City time in the case of
the Money Market Portfolio) on each day during which the NYSE is open for
business. The NYSE is open for business Monday through Friday except for the
days on which the following holidays are observed: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. In the event the NYSE closes
early on any business day, the net asset value of each portfolio shall be
determined at a time between such closing and 4:15 p.m. New York City time. The
net asset value per share of each portfolio except the Money Market Portfolio is
computed by adding the sum of the value of the securities held by that portfolio
plus any cash or other assets it holds, subtracting all its liabilities, and
dividing the result by the total number of shares outstanding of that portfolio
at such time. Expenses, including the investment management fee payable to
Prudential, are accrued daily.

In determining the net asset value of the Diversified Bond, Government Income
and High Yield Bond Portfolios, securities (other than debt obligations with
remaining maturities of less than 60 days, which are valued at amortized cost)
will be valued utilizing an independent pricing service to determine valuations
for normal institutional size trading units of securities. The pricing service
considers such factors as security prices, yields, maturities, call features,
ratings, and developments relating to specific securities in arriving at
securities valuations.

The net asset value of shares of the Money Market Portfolio will normally remain
at $10 per share, because the net investment income of this portfolio (including
realized and unrealized gains and losses on portfolio holdings) will be declared
as a dividend each time the portfolio's net income is determined, see DIVIDENDS,
DISTRIBUTIONS, AND TAXES, page 36. If in the view of the Board of Directors of
the Series Fund it is inadvisable to continue to maintain the net asset value of
the Money Market Portfolio at $10 per share, the Board reserves the right to
alter the procedure. The Series Fund will notify shareholders of any such
alteration.

All short-term debt obligations in the Money Market Portfolio of 397 days'
maturity or less are valued on an amortized cost basis. This means that each
obligation will be valued initially at its purchase price and thereafter by
amortizing any discount or premium uniformly to maturity, regardless of the
impact of fluctuating interest rates on the market value of the obligation. This
highly practical method of valuation is in widespread use and almost always
results in a value that is extremely close to the actual market value. In order
to continue to utilize the amortized cost method of valuation, the Money Market
Portfolio may not purchase any security with a remaining

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maturity of more than 397 days and must maintain a dollar-weighted average of
portfolio maturity of 90 days or less. In the event of sizeable changes in
interest rates, however, the value determined by this method may be higher or
lower than the price that would be received if the obligation were sold. The
Board of Directors has established procedures to determine whether, on these
occasions, if any should occur, the deviation might be enough to affect the
value of shares in the portfolio by more than 1/2 of one percent, and, if it
does, an appropriate adjustment will be made in the value of the obligations.
The portfolio may only be invested in securities of high quality as described in
detail in the Appendix to this prospectus.

The net asset value of the Conservative Balanced and Flexible Managed Portfolios
(collectively, the "Balanced Portfolios"), Stock Index, Equity Income, Equity,
Prudential Jennison, Small Capitalization Stock, Global and Natural Resources
Portfolios will be determined in the following manner. NASDAQ National Market
System equity securities and securities for which the primary market is on an
exchange are generally valued at the last sale price on such system or exchange
on that day or, in the absence of recorded sales, at the mean between the most
recently quoted bid and asked prices on that day or at the bid price on such day
in the absence of an asked price. Other over-the-counter equity securities are
valued by an independent pricing agent or principal market maker. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by a principal market maker. Corporate bonds (other
than convertible debt securities) and Government bonds held by the Balanced,
Equity Income and Natural Resources Portfolios are valued on the same basis as
securities in the Diversified Bond and High Yield Bond Portfolios, as described
above. Short-term debt instruments which mature in less than 60 days are valued
at amortized cost. For valuation purposes, quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents.

In determining the net asset value of shares of Zero Coupon Bond Portfolios 2000
and 2005, securities (other than debt obligations with maturities of less than
60 days, which are valued at amortized cost) will be valued utilizing an
independent pricing service to determine valuations for normal institutional
size trading units of securities. The pricing service considers such factors as
security prices, yields, maturities, call features, ratings, and developments
relating to specific securities in arriving at securities valuations.

With respect to all the portfolios which utilize such investments, options on
stock and stock indices traded on national securities exchanges are valued at
the average of the bid and asked prices as of the close of the respective
exchange (which is currently 4:10 p.m. New York City time). Futures contracts
and options thereon are valued at the last sale price at the close of the
applicable commodities exchanges or board of trade (which is currently 4:15 p.m.
New York City time) or, if there was no sale on the applicable commodities
exchange or board of trade on such day, at the mean between the most recently
quoted bid and asked prices on such exchange or board of trade.

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by Prudential under the direction of the
Board of Directors of the Series Fund.

At the beginning of each week, after the net asset value of each Zero Coupon
Bond Portfolio has been determined, Prudential will calculate the compounded
annual yield that would result if all securities in the portfolio were held
until the liquidation date or until their maturity dates, if earlier (with the
proceeds reinvested until the liquidation date). This is the predicted yield for
that date. It can also be expressed as the amount to which a premium payment of
$10,000 is predicted to grow by the portfolio's liquidation date. Prudential
will furnish both of these numbers on request. Unless there is a significant
change in the general level of interest rates--in which case a recalculation
will be made--the predicted yield is not likely to vary materially over the
course of each week.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

The Series Fund intends to continue to qualify as a regulated investment company
under certain provisions of the Internal Revenue Code (the "Code"). Under such
provisions, the Series Fund will not be subject to federal income tax on the
part of its net ordinary income and net realized capital gains that it
distributes to the Accounts. The Series Fund intends to meet the requirements
for treatment as a regulated investment company both on a portfolio-by-portfolio
basis and for the Series Fund as a whole. The Series Fund's compliance with
those requirements may prevent a portfolio from utilizing options and futures
contracts as much as the portfolio manager might otherwise believe to be
desirable.

The Series Fund intends to distribute as dividends substantially all the net
investment income, if any, of each portfolio. For dividend purposes, net
investment income of each portfolio, other than the Money Market Portfolio and
the Zero Coupon Bond Portfolios, will consist of all payments of dividends
(other than stock dividends) or interest received by such portfolio less the
estimated expenses of such portfolio (including fees payable to the investment
manager). Net investment income of the Money Market Portfolio consists of: (i)
interest accrued and/or discount earned (including both original issue and
market discount); (ii) plus or minus all realized and unrealized gains and
losses; (iii) less the expenses of the portfolio (including the fees payable to
the investment manager).

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The Internal Revenue Service has ruled that the owner of a zero coupon bond, for
federal income tax purposes, realizes taxable interest each year equal to a
portion of the difference between the face value of the zero coupon bond and its
purchase price. For dividend purposes, the net investment income of each Zero
Coupon Bond Portfolio will be equal to the sum of such taxable interest realized
by such portfolio and the interest upon the interest-bearing securities less the
estimated expenses of the portfolio. Therefore, each portfolio may be required
to distribute more cash than it actually has received. Each portfolio will raise
the cash necessary to make such distributions by selling securities or from
interest income. This may require the portfolio to sell securities when it would
not do so for investment reasons, and may cause the portfolio to realize
additional gains. The Contract owner is not subject to federal or state income
taxes on distributions from the Series Fund portfolios to the corresponding
subaccounts.

Dividends on the Money Market Portfolio will be declared and reinvested daily in
additional full and fractional shares of the portfolio. Shares will begin
accruing dividends on the day following the date on which they are issued.
Dividends from investment income of the other portfolios will normally be
declared and reinvested in additional full and fractional shares
quarter-annually.

The Series Fund will also declare and distribute annually all net realized
capital gains of the Series Fund, other than short-term gains of the Money
Market Portfolio, which are declared as dividends daily.

The Code generally imposes a 4% excise tax on a portion of the undistributed
income of a regulated investment company if that company fails to distribute
required percentages of its ordinary income and capital gain net income. The
Series Fund intends to employ practices that will eliminate or minimize the
imposition of this excise tax.

In addition, Section 817(h) of the Code requires that assets underlying variable
life insurance and variable annuity contracts must meet certain diversification
requirements if the contracts are to qualify as life insurance and annuity
contracts. The diversification requirements ordinarily must be met within 1 year
after Contract owner funds are first allocated to the particular portfolio, and
within 30 days after the end of each calendar quarter thereafter. In order to
meet the diversification requirements set forth in Treasury Regulations issued
pursuant to Section 817(h), each portfolio must meet one of two alternative
tests. Under the first test, no more than 55% of the portfolio's assets can be
invested in any one investment; no more than 70% of the assets can be invested
in any two investments; no more than 80% of the assets can be invested in any
three investments; and no more than 90% can be invested in any four investments.
Under the second test, the portfolio must meet the tax law diversification
requirements for a regulated investment company and no more than 55% of the
value of the portfolio's assets can be invested in cash, cash items, Government
securities, and securities of other regulated investment companies. A third test
is available for portfolios that underlie only variable life insurance
contracts, such as the Zero Coupon Bond Portfolios. Under this test, such
portfolios can be invested without limit in Treasury securities and, where the
portfolio is invested in part in Treasury securities, the percentages of the
first test are revised and applied to the portion of the portfolio not invested
in Treasury securities.

For purposes of determining whether a variable account is adequately
diversified, each United States Government agency or instrumentality is treated
as a separate issuer for purposes of determining whether a variable account is
adequately diversified. The Series Fund's compliance with the diversification
requirements will generally limit the amount of assets that may be invested in
federally insured certificates of deposit and all types of securities issued or
guaranteed by each United States Government agency or instrumentality.

Any portfolio investing in foreign securities may be required to pay withholding
or other taxes to foreign governments. If so, the taxes will reduce the
portfolio's dividends. Foreign tax withholding from dividends and interest (if
any) is typically set at a rate between 10% and 15%. While Contract owners will
thus bear the cost of foreign tax withholding, they will not be able to claim a
foreign tax credit or deduction for foreign taxes paid by the portfolio.

The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. The Code and these Regulations are
subject to change by legislative or administrative actions.

OTHER INFORMATION CONCERNING THE SERIES FUND

INCORPORATION AND AUTHORIZED STOCK

The Series Fund was incorporated under Maryland law on November 15, 1982. As of
the date of this prospectus, the shares of Capital Stock are divided into
fifteen classes: Money Market Portfolio Capital Stock, Diversified Bond
Portfolio Capital Stock, Government Income Portfolio Capital Stock, Zero Coupon
Bond Portfolio 2000 Capital Stock, Zero Coupon Bond Portfolio 2005 Capital
Stock, Conservative Balanced Portfolio Capital Stock, Flexible

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Managed Portfolio Capital Stock, High Yield Bond Portfolio Capital Stock, Stock
Index Portfolio Capital Stock, Equity Income Portfolio Capital Stock, Equity
Portfolio Capital Stock, Prudential Jennison Portfolio Capital Stock, Small
Capitalization Stock Portfolio Capital Stock, Global Portfolio Capital Stock,
Natural Resources Portfolio Capital Stock. The shares of each portfolio, when
issued, will be fully paid and non-assessable, will have no conversion, exchange
or similar rights, and will be freely transferable.

Each share of stock will have a pro rata interest in the assets of the portfolio
to which the stock of that class relates and will have no interest in the assets
of any other portfolio. Holders of shares of any portfolio are entitled to
redeem their shares as set forth under PURCHASE AND REDEMPTION OF SHARES, page
35.

From time to time, Prudential has purchased Series Fund shares to provide
initial capital for the Series Fund and to enable portfolios to avoid
unrealistically poor investment performance that might otherwise result because
the amounts available for investment were too small. Prudential will not redeem
any of its shares until a portfolio is large enough so that redemption will not
have an adverse effect upon investment performance. Prudential will vote its
shares in the same manner and in the same proportion as the shares held in the
Accounts, which generally are voted in accordance with instructions of Contract
owners.

VOTING RIGHTS

The voting rights of Contract owners, and limitations on those rights, are
explained in the accompanying prospectus for the Contracts. Prudential and
certain other insurers with separate accounts which invest in the Series Fund,
as the owners of the assets in the Accounts, vote all of the shares of the
Series Fund, but they will generally do so in accordance with the instructions
of Contract owners pursuant to the current SEC requirements and staff
interpretations regarding pass-through voting. Under certain circumstances,
however, Prudential and/or the other insurers with separate accounts which
invest in the Series Fund may disregard voting instructions received from
Contract owners. The Series Fund does not hold annual meetings of shareholders
in any year in which it is not required to do so either under Maryland law or
the Investment Company Act of 1940. For additional information describing how
the Companies will vote the shares of the Series Fund, see VOTING RIGHTS in the
accompanying prospectus for the Contracts.

MONITORING FOR POSSIBLE CONFLICT

As stated above, Series Fund shares will be sold to separate accounts of
Prudential and certain other insurers to fund both variable life insurance and
variable annuity contracts. The Board of Directors of the Series Fund intends to
monitor events for the existence of any material conflict between the interests
of variable life insurance and variable annuity contract owners. Prudential
and/or the other insurers with separate accounts which invest in the Series Fund
have agreed to be responsible for reporting any potential or existing conflicts
to the Board of Directors. Moreover, they have agreed to be responsible, at
their cost, to remedy any material irreconcilable conflict up to and including
establishing a new registered management investment company and segregating the
assets underlying the variable life insurance and variable annuity contracts.

PERIODIC REPORTS

The Series Fund will send each shareholder, at least annually, statements
showing as of a specified date the number of shares in each portfolio credited
to the shareholder. The Series Fund will also send Contract owners annual and
semi-annual reports showing the financial condition of the portfolios and the
investments held in each. If a single individual or company invests in the
Series Fund through more than one variable insurance contract, then the
individual or company will receive only one copy of each annual or semi-annual
report issued by the Series Fund. However, if such individual or company wishes
to receive multiple copies of any such report, a request may be made by calling
the toll-free telephone number listed on the cover page of this prospectus. The
annual report may take the form of an updated copy of this prospectus and its
accompanying statement of additional information.

PORTFOLIO BROKERAGE AND RELATED PRACTICES

Prudential is responsible for decisions to buy and sell securities for the
portfolios, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Transactions on a stock
exchange in equity securities will be executed primarily through brokers that
will receive a commission paid by the portfolio. The Money Market, Diversified
Bond, High Yield Bond, Government Income, and Zero Coupon Bond Portfolios, on
the other hand, will not normally incur any brokerage commissions. Fixed income
securities, as well as equity securities traded in the over-the-counter market,
are generally traded on a "net" basis with dealers acting as principals for
their own accounts without a stated commission, although the price of the
security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.

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Certain of these securities may also be purchased directly from an issuer, in
which case neither commissions nor discounts are paid.

An affiliated broker may be employed to execute brokerage transactions on behalf
of the portfolios, as long as the commissions are reasonable and fair compared
to the commissions received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Series Fund may not
engage in any transactions in which Prudential or its affiliates, including
Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal. Additional information about portfolio brokerage and related
transactions is included in the statement of additional information.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Prudential is the transfer agent and dividend disbursing agent for the Series
Fund. Prudential as transfer agent issues and redeems shares of the Series Fund
and maintains records of ownership for the shareholders. Prudential's principal
business address is 751 Broad Street, Newark, New Jersey 07102-3777.

YEAR 2000

The services provided to the Series Fund and its shareholders by Prudential,
PIC, Jennison, as well as the Series Fund's principal underwriter and its
custodians, depend on the smooth functioning of their computer systems and those
of their outside service providers. Many computer software systems in use today
cannot distinguish the year 2000 from the year 1900 because of the way dates are
encoded and calculated. Such event could have a negative impact on handling
securities trades, payments of interest and dividends, pricing and account
services. Although at this time, there can be no assurance that there will be no
adverse impact on the Series Fund, Prudential, PIC, Jennison, as well as the
Series Fund's principal underwriter and its custodians, have advised the Series
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
their outside service providers, will be adapted in time for that event.

ADDITIONAL INFORMATION

This prospectus and the statement of additional information referred to on the
cover page do not contain all the information set forth in the registration
statement, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the fees prescribed by the
SEC.

For further information, shareholders may also contact the Series Fund's office,
the address and phone number of which are set forth on the cover of this
prospectus.

39 - Series Fund

<PAGE>

APPENDIX

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO
MAY CURRENTLY INVEST

The Money Market Portfolio, and the other portfolios to the extent their
investment policies so provide, may invest in the following liquid, short-term,
debt securities regularly bought and sold by financial institutions:

1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These are debt securities
(including bills, certificates of indebtedness, notes, and bonds) issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government that is established under the authority of an act of Congress.
Although all obligations of agencies and instrumentalities are not direct
obligations of the U.S. Treasury, payment of the interest and principal on them
is generally backed directly or indirectly by the U.S. Government. This support
can range from the backing of the full faith and credit of the United States, to
U.S. Treasury guarantees or to the backing solely of the issuing instrumentality
itself. Securities which are not backed by the full faith and credit of the
United States include but are not limited to obligations of the Tennessee Valley
Authority, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the United States Postal Service, each of which has
the right to borrow from the U.S. Treasury to meet its obligations, and
obligations of the Federal Farm Credit System and the Federal Home Loan Banks,
the obligations of which may only be satisfied by the individual credit of the
issuing agency. Obligations of the Government National Mortgage Association, the
Farmers Home Administration, and the Export-Import Bank are examples of
securities that are backed by the full faith and credit of the United States.

2. Obligations (including certificates of deposit, bankers' acceptances, and
time deposits) of domestic banks, foreign branches of U.S. banks, U.S. branches
of foreign banks, and foreign offices of foreign banks provided that such bank
has, at the time of the portfolio's investment, total assets of at least $1
billion or the equivalent. Obligations of any savings and loan association or
savings bank organized under the laws of the United States or any state thereof,
provided that such association or savings bank has, at the time of the
portfolio's investment, total assets of at least $1 billion. The term
"certificates of deposit" includes both Eurodollar certificates of deposit,
which are traded in the over-the-counter market, and Eurodollar time deposits,
for which there is generally not a market. "Eurodollars" are dollars deposited
in banks outside the United States. An investment in Eurodollar instruments
involves risks that are different in some respects from an investment in debt
obligations of domestic issuers, including future political and economic
developments such as possible expropriation or confiscatory taxation that might
adversely affect the payment of principal and interest on the Eurodollar
instruments.

"Certificates of deposit" are certificates evidencing the indebtedness of a
commercial bank to repay funds deposited with it for a definite period of time
(usually from 14 days to 1 year). "Bankers' acceptances" are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. "Time deposits"
are non-negotiable deposits in a bank for a fixed period of time.

3. Commercial paper, variable amount demand master notes, bills, notes, and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies, instrumentalities or political subdivisions,
denominated in U.S. dollars, and, at the date of investment, rated at least A or
A-2 by Standard & Poor's Ratings Services ("S&P"), A or Prime-2 by Moody's
Investors Service ("Moody's") or, if not rated, issued by an entity having an
outstanding unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2
by Moody's. A description of corporate bond ratings is contained in the Appendix
to the statement of additional information. If such obligations are guaranteed
or supported by a letter of credit issued by a bank, such bank (including a
foreign bank) must meet the requirements set forth in paragraph 2 above. If such
obligations are guaranteed or insured by an insurance company or other non-bank
entity, such insurance company or other non-bank entity must represent a credit
of high quality, as determined by the Series Fund's investment advisor under the
supervision of the Series Fund's Board of Directors. Any guarantee relied upon
by the Money Market Portfolio to comply with the credit quality, maturity or
liquidity requirements of Investment Company Act Rule 2a-7 must comply with the
rating requirements above unless excepted by the Rule.

A1 - Series Fund

<PAGE>

issuer than about a domestic one, and foreign issuers may not be subject to the
same accounting, auditing and financial recordkeeping standards, and
requirements as domestic issuers. Securities issued by foreign issuers may be
subject to greater fluctuations in price than securities issued by U.S.
entities. Finally, in the event of a default with respect to any such foreign
debt obligations, it may be more difficult for the Series Fund to obtain or to
enforce a judgment against the issuers of such securities.

4. Repurchase Agreements. When the Money Market Portfolio purchases money market
securities of the types described above, it may on occasion enter into a
repurchase agreement with the seller wherein the seller and the buyer agree at
the time of sale to a repurchase of the security at a mutually agreed upon time
and price. The period of maturity is usually quite short, possibly overnight or
a few days, although it may extend over a number of months. The resale price is
in excess of the purchase price, reflecting an agreed-upon market rate effective
for the period of time the portfolio's money is invested in the security, and is
not related to the coupon rate of the purchased security. Repurchase agreements
may be considered loans of money to the seller of the underlying security, which
are collateralized by the securities underlying the repurchase agreement. The
Series Fund will not enter into repurchase agreements unless the agreement is
"fully collateralized" (i.e., the value of the securities is, and during the
entire term of the agreement remains, at least equal to the amount of the "loan"
including accrued interest). The Series Fund will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Series Fund has adopted standards for the parties
with whom it will enter into repurchase agreements which it believes are
reasonably designed to assure that such a party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement. In the event that a seller defaults on a repurchase
agreement, the Series Fund may incur a loss in the market value of the
collateral, as well as disposition costs; and, if a party with whom the Series
Fund had entered into a repurchase agreement becomes involved in bankruptcy
proceedings, the Series Fund's ability to realize on the collateral may be
limited or delayed and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.

The Series Fund will not enter into repurchase agreements with Prudential or its
affiliates, including Prudential Securities Incorporated. This will not affect
the Series Fund's ability to maximize its opportunities to engage in repurchase
agreements.

5. Reverse Repurchase Agreements. The Money Market Portfolio may use reverse
repurchase agreements, which are described on page 32 of the prospectus. No
portfolio may obligate more than 10% of its net assets in connection with
reverse repurchase agreements, except that the Diversified Bond, High Yield
Bond, and Government Income Portfolios, as well as the fixed income portions of
the Conservative Balanced and Flexible Managed Portfolios, may obligate up to
30% of their net assets in connection with reverse repurchase agreements and
dollar rolls.

6. When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Money Market Portfolio may purchase securities
on a when-issued or delayed delivery basis (i.e., delivery and payment can take
place a month or more after the date of the transaction). The purchase price and
the interest rate payable on the securities are fixed on the transaction date.
The securities so purchased are subject to market fluctuation, and no interest
accrues to the portfolio until delivery and payment take place. At the time the
portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value. The
portfolio will make commitments for when-issued transactions only with the
intention of actually acquiring the securities and, to facilitate such
acquisitions, the Series Fund's custodian bank will maintain in a separate
account securities of the portfolio having a value equal to or greater than such
commitments. On delivery dates for such transactions, the portfolio will meet
its obligations from maturities or sales of the securities held in the separate
account and/or from then available cash flow. If the portfolio chooses to
dispose of the right to acquire a when issued security prior to its acquisition,
it could, as with the disposition of any other obligation, incur a gain or loss
due to market fluctuation. No when-issued commitments will be made if, as a
result, more than 15% of the portfolio's net assets would be so committed.

A2 - Series Fund

<PAGE>

which are rated by at least two NRSROs, or by the only NRSRO that has rated the
security, in the highest short-term rating category, or unrated securities of
comparable quality as determined by the Series Fund's Board. Second tier
securities are eligible securities that are not first tier securities; (3) The
portfolio will not invest more than 5% of its total assets in second tier
securities; (4) The portfolio may not invest more than 1% of its assets in
second tier securities of any one issuer; (5) In the event a first tier security
held by the portfolio is downgraded and becomes a second tier security, or in
the case of an unrated security the Series Fund's Board determines it is no
longer of comparable quality to a first tier security, or in the event
Prudential becomes aware that a NRSRO has rated a second tier security or an
unrated portfolio security below its second highest rating, the Board will
reassess promptly whether the security presents minimal credit risks and shall
cause the portfolio to take such action as the Board determines is in the best
interests of the portfolio and its shareholders; (6) In the event of a default
or because of a rating downgrade a security held in the portfolio is no longer
an eligible investment, the portfolio will sell the security as soon as
practicable unless the Series Fund's Board makes a specific finding that such
action would not be in the best interest of the portfolio; and (7) The
portfolio's dollar-weighted average maturity will be no more than 90 days. The
Series Fund's Board of Directors has adopted written procedures delegating to
the investment advisor under certain guidelines the responsibility to make
several of the above-described determinations, including certain credit quality
determinations.

A3 - Series Fund

<PAGE>

THE PRUDENTIAL
SERIES FUND, INC.

[GRAPHIC OMITTED]

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, Newark, NJ 07102-3777
Telephone (800) 437-4016

<PAGE>

PRUvider(SM) Variable
Appreciable Life(R) Insurance

PROSPECTUS

The Pruco Life PRUvider Variable
Appreciable Account and
The Prudential Series Fund, Inc.

May 1, 1998

PRUCO LIFE INSURANCE COMPANY

<PAGE>

PROSPECTUS

MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY
PRUVIDER VARIABLE APPRECIABLE ACCOUNT

PRUVIDER (SM)
VARIABLE APPRECIABLE LIFE (R)
INSURANCE CONTRACT

This prospectus describes a variable life insurance contract issued by Pruco
Life Insurance Company ("Pruco Life"), a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"). Pruco Life calls this contract its PRUVIDER(sm) Variable
APPRECIABLE LIFE(R) Insurance Contract* (the "Contract"). The Contract provides
whole-life insurance protection. The death benefit varies daily with investment
experience but will never be less than a guaranteed minimum amount (the face
amount specified in the Contract). The Contract also generally provides a cash
surrender value which does not have a guaranteed minimum amount.

The assets held for the purpose of paying benefits under these and other similar
contracts are segregated from the other assets of Pruco Life and are invested in
one or both of the current subaccounts of the Pruco Life PRUVIDER Variable
Appreciable Account (from now on, the "Account"). In this case, the assets will
be invested in the corresponding portfolio of The Prudential Series Fund, Inc.
(from now on, the "Series Fund"). The two portfolios of the Series Fund
currently available to Contract owners are the CONSERVATIVE BALANCED PORTFOLIO
and the FLEXIBLE MANAGED PORTFOLIO. The contract owner may also choose to have
the assets invested in a FIXED-RATE OPTION. This prospectus describes the
Contract generally, the Pruco Life PRUVIDER Variable Appreciable Account and the
securities issued by the Series Fund.

Although it is advantageous to the purchaser to pay a Scheduled Premium amount
on the dates due, which are at least once a year but may be more often,
purchasers have flexibility as to when and in what amounts they pay premiums.

Before you sign an application to purchase this life insurance contract, you
should read this prospectus with care and have any questions you may have
answered by your Pruco Life representative. If you do purchase the Contract, you
should retain this prospectus for future reference, together with the Contract
itself that you will receive.

Additional information about the contract and the Series Fund is set forth in a
separate Statement of Additional Information which is incorporated by reference
into this prospectus. It is available without charge upon request to the Pruco
Life Insurance Company at the address shown below.

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 CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISOR.

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

PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992

Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.

<PAGE>

TABLE OF CONTENTS

PAGE

INTRODUCTION AND SUMMARY.......................................................1
BRIEF DESCRIPTION OF THE CONTRACT.....................................1
BALANCED PORTFOLIOS...................................................3
CONSERVATIVE BALANCED PORTFOLIO..............................3
FLEXIBLE MANAGED PORTFOLIO...................................4
FIXED-RATE OPTION.....................................................4
TRANSFERS BETWEEN INVESTMENT OPTIONS..................................4
THE SCHEDULED PREMIUM.................................................4
PAYMENT OF HIGHER PREMIUMS............................................4
CONTRACT LOANS........................................................4
PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS................4

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND......................5

PORTFOLIO RATES OF RETURN......................................................7

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED
PREMIUMS.....................................................................8

GENERAL INFORMATION ABOUT PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
AND THE FIXED RATE OPTION.............................................9
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT......................9
THE FIXED-RATE OPTION.................................................9

DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT..............................10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".........................10
CONTRACT FEES AND CHARGES............................................10
Deductions from Premiums....................................10
Deductions from Portfolios..................................10
Monthly Deductions from Contract Fund.......................11
Daily Deduction from the Contract Fund......................12
Surrender or Withdrawal Charges.............................12
Transaction Charges.........................................13
CONTRACT DATE........................................................13
PREMIUMS ............................................................13
ALLOCATION OF PREMIUMS...............................................14
TRANSFERS............................................................14
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE.............15
HOW A CONTRACT'S DEATH BENEFIT WILL VARY.............................15
CONTRACT LOANS.......................................................16
SURRENDER OF A CONTRACT..............................................16
LAPSE AND REINSTATEMENT..............................................17
Fixed Extended Term Insurance...............................17
Fixed Reduced Paid-Up Insurance.............................17
Variable Reduced Paid-Up Insurance..........................17
What Happens If No Request Is Made?.........................17
PAID-UP INSURANCE OPTION.............................................17
WHEN PROCEEDS ARE PAID...............................................18
LIVING NEEDS BENEFIT.................................................18
Terminal Illness Option.....................................18
Nursing Home Option.........................................18
VOTING RIGHTS........................................................19
REPORTS TO CONTRACT OWNERS...........................................19
TAX TREATMENT OF CONTRACT BENEFITS...................................20
Treatment as Life Insurance.................................20
Pre-Death Distributions.....................................20
Other Tax Consequences......................................20
Withholding.................................................20
OTHER CONTRACT PROVISIONS............................................21

FURTHER INFORMATION ABOUT THE SERIES FUND.....................................21

<PAGE>

PAGE

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS..........................21
BALANCED PORTFOLIOS..................................................21
Conservative Balanced Portfolio.............................21
Flexible Managed Portfolio..................................22
FOREIGN SECURITIES...................................................24
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE.........................................24
OPTIONS, FUTURES CONTRACTS AND SWAPS.................................25
SHORT SALES..........................................................25
REPURCHASE AGREEMENTS................................................25
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS.......................26
LOANS OF PORTFOLIO SECURITIES........................................26

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS..........................26

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES...............................26
PORTFOLIO BROKERAGE AND RELATED PRACTICES............................27

STATE REGULATION..............................................................27

EXPERTS .....................................................................27

LITIGATION....................................................................28

YEAR 2000 COMPLIANCE..........................................................28

EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............28

ADDITIONAL INFORMATION........................................................30

FINANCIAL STATEMENTS..........................................................30

FINANCIAL STATEMENTS OF THE PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT..A1

CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES................................................................B1

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
THE SERIES FUND.

<PAGE>

INTRODUCTION AND SUMMARY

This section provides only an overview of the more significant provisions of the
Contract. It omits details which are provided in the rest of this prospectus, as
well as in a Statement of Additional Information which is available to you upon
request without charge. A description of the contents of that Statement of
Additional Information is on page 28.

As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is VARIABLE LIFE INSURANCE -
and variable life insurance has significant investment aspects and requires you
to make investment decisions - it is also a "security." That is why you have
been given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission ("SEC"), and the
prospectus that is a part of the registration statement must be given to all
prospective buyers. But because a substantial part of your premium pays for life
insurance that will pay to your beneficiary, in the event of your death, an
amount far exceeding your total premium payments, you should not buy this
contract unless a major reason for the purchase is to provide life insurance
protection. Because the contract provides whole-life or permanent insurance, it
also serves a second important objective. It can be expected to provide an
increasing cash surrender value that can be used during your lifetime.

BRIEF DESCRIPTION OF THE CONTRACT

The PRUVIDER Variable APPRECIABLE LIFE Contract (referred to from now on as the
"Contract") is issued and sold by the Pruco Life Insurance Company ("Pruco
Life"), a stock life insurance company, organized in 1971 under the laws of the
State of Arizona. It is licensed to sell life insurance and annuities in the
District of Columbia, Guam, and in all states except New York. These Contracts
are not offered in any state in which the necessary approvals have not yet been
obtained.

Pruco Life is a wholly-owned subsidiary of Prudential, 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
the Company'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 Company policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by the
Board of Directors and management of the Company 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.

Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and Contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and Contract owners of Prudential's subsidiaries,
including the Pruco Life insurance companies.

As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential is under no obligation to make such contributions and its
assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.

1
<PAGE>

The Contract is a form of flexible premium variable life insurance. It is built
around a Contract Fund, the amount of which changes every business day. That
amount represents the value of your Contract on that day although you will have
to pay a surrender charge if you decide to surrender the Contract during the
first ten Contract years.

A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Pruco Life has established
the Pruco Life PRUVIDER Variable Appreciable Account (the "Account") under
Arizona law as a separate investment account whose assets are segregated from
all other assets of Pruco Life. Whenever you pay a premium, Pruco Life first
deducts certain charges (described below) and, unless you decide otherwise puts
the remainder - often called the "net premium" - into the Account, where it is
combined with the net premiums from all other contracts like this one. The money
in the Account, including your Contract Fund, is then invested in the following
way. The Account is divided into 2 subaccounts and you must decide which one[s]
will hold the assets of your Contract Fund. The money allocated to each
subaccount is immediately invested in a corresponding portfolio of The
Prudential Series Fund, Inc. Those two portfolios -- called the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO -- differ in the amount of
risk associated with them and are described in more detail below.

Because the assets that relate to the Contract may be invested in these variable
investment options, the Contract offers an opportunity for your cash surrender
value to appreciate more rapidly than it would under comparable fixed-benefit
whole-life insurance. You, however, must accept the risk that if investment
performance is unfavorable the cash surrender value may not appreciate as
rapidly and, indeed, may decrease in value. If you prefer to avoid this risk you
may elect to allocate part or all of the net premiums in a fixed-rate option
under which a stated interest rate is credited to the amount of your Contract
Fund allocated to that option. See THE FIXED-RATE OPTION, page 9.

Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, Pruco Life makes
certain additional charges if a Contract lapses or is surrendered during the
first 10 Contract years. All these charges, which are largely designed to cover
insurance costs and risks as well as sales and administrative expenses, are
fully described under CONTRACT FEES AND CHARGES on page 10. In brief, and
subject to that fuller description, the following diagram outlines the charges
which may be made:

------------------------------------------------------------
PREMIUM PAYMENT
------------------------------------------------------------
|
---------------------------------------------
o less charge for taxes attributable
to premiums
o less $2 processing fee
---------------------------------------------
|
---------------------------------------------------------------------
INVESTED PREMIUM AMOUNT

2
<PAGE>

---------------------------------------------------------------------
DAILY CHARGES

o A daily charge equivalent to an annual rate of up to 0.9% is deducted
from the assets of the subaccounts for mortality and expense risks.

o Management fees and expenses are deducted from the assets of the
Series Fund. See DEDUCTIONS FROM PORTFOLIOS, page 10.

---------------------------------------------------------------------
|
---------------------------------------------------------------------
MONTHLY CHARGES

o A sales charge is deducted from the Contract Fund in the amount of
1/2 of 1% of the primary annual premium.

o The Contract Fund is reduced by a guaranteed minimum death benefit
risk charge of not more than $0.01 per $1,000 of the face amount of
insurance.

o The Contract Fund is reduced by an administrative charge of up to $6
per Contract and up to $0.19 per $1,000 of face amount of insurance
(currently, on a non-guaranteed basis, the $0.19 charge is decreased
to $0.09 per $1,000); if the face amount of the Contract is less than
$10,000, there is an additional charge of $0.30 per $1,000 of face
amount.

o A charge for anticipated mortality is deducted, with the maximum
charge based on the non-smoker/smoker 1980 CSO Tables.

o If the Contract includes riders, a deduction from the Contract Fund
will be made for charges applicable to those riders; a deduction will
also be made if the rating class of the insured results in an extra
charge.
---------------------------------------------------------------------

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

o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred sales charge is assessed; the maximum contingent
deferred sales charge during the first 5 years is 50% of the first
year's primary annual premium but this charge is both subject to other
important limitations and reduced for Contracts that have been in
force for more than 5 years.

o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred administrative charge is assessed; during the
first 5 years, this charge equals $5 per $1,000 of face amount and it
begins to decline uniformly after the fifth Contract year so that it
disappears on the tenth Contract anniversary.

o An administrative processing charge of up to $15 will be made in
connection with each withdrawal of excess cash surrender value.

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

Because of the charges listed above, and in particular because of the
significant charges deducted upon early surrender or lapse, you should purchase
a Contract only if you intend and have the financial capability to keep it in
force for a substantial period.

When you first buy the Contract you give instructions to Pruco Life as to what
combination of the three investment options you wish your Contract Fund
invested. Thereafter you may make changes in these allocations either in writing
or by telephone. The investment objectives of the portfolios, described more
fully starting on page 21 of this prospectus, and of the fixed-rate option are
as follows:

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED PORTFOLIO. Achievement of a favorable total investment
return consistent with a portfolio having a conservatively 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 who desires
diversification of investment who prefers a relatively

3
<PAGE>

lower risk of loss than that associated with the Flexible Managed Portfolio
while recognizing that this reduces the chances of greater appreciation.

FLEXIBLE MANAGED PORTFOLIO. Achievement of a high total investment 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.

FIXED-RATE OPTION

Guarantee against loss of principal plus income at a rate which may change at
yearly intervals, but will never be lower than an effective annual rate of 4%.

TRANSFERS BETWEEN INVESTMENT OPTIONS

You may at any time change the instructions for the allocation of your premiums
to the various investment options. You may also transfer amounts held in one
option to another. There are restrictions upon transfers out of the fixed-rate
option which under certain circumstances Pruco Life may waive.

THE SCHEDULED PREMIUM

Your Contract sets forth an annual Scheduled Premium, or one that is payable
more frequently, such as monthly. Pruco Life guarantees that, if the Scheduled
Premiums are paid when due (or if missed premiums are paid later, with
interest), the death benefit will be paid upon the death of the insured. The
Contract will not lapse even if investment experience is unexpectedly so
unfavorable that the Contract Fund value drops to below zero.

The amount of the scheduled premium depends on the Contract's face amount, the
insured's sex (except where unisex rates apply) and age at issue, the insured's
risk classification, the rate for taxes attributable to premiums, and the
frequency of premium payments selected. Under certain low face amount Contracts
issued on younger insureds, the payment of the Scheduled Premium may cause the
Contract to be classified as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 20. The scheduled premium will not be increased (except
to reflect changes in the rate for taxes attributable to premiums). See
PREMIUMS, page 13.

PAYMENT OF HIGHER PREMIUMS

The payment of premiums in excess of Scheduled Premiums may cause the Contract
to be classified as a Modified Endowment Contract. See PREMIUMS, page 13 and TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

CONTRACT LOANS

The Contract permits the owner to borrow up to 90% of the amount of the cash
surrender value (100% of the portion allocated to the fixed-rate option) on
favorable terms. See CONTRACT LOANS, page 16. When a loan is made, the amount
held under the investment options described above is reduced, proportionately,
by the amount of the loan.

PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS

Pruco Life's PRUVIDER Variable APPRECIABLE LIFE Insurance Contract is a form of
life insurance that provides much of the flexibility of variable universal life.
However, it differs in two important ways. First, Pruco Life guarantees that if
the Scheduled Premiums are paid when due or within the grace period (or missed
premiums are paid later with interest), the Contract will not lapse and the face
amount of insurance will be paid upon the death of the insured even if, because
of

4
<PAGE>

unfavorable investment experience, the Contract Fund value should drop to below
zero. Second, if all premiums are not paid when due (or made up), the Contract
will not lapse as long as the Contract Fund is higher than a stated amount set
forth in a table in the Contract - an amount that increases each year and in
later years becomes quite high; it is called the "Tabular Contract Fund." The
Contract lapses when the Contract Fund falls to below this stated amount, rather
than when it drops to zero. Thus, when a PRUVIDER Variable APPRECIABLE LIFE
Contract lapses, it may still have considerable value and you will, therefore,
have a substantial incentive to reinstate it, as well as an opportunity to make
a considered decision whether to do so or to take, in one form or another, the
cash surrender value. In effect, Pruco Life provides an early and timely warning
against the imprudent use of the flexibility provided by the Contract.

In the following pages of this prospectus we describe in much greater detail all
of the provisions of the Contract. That description is preceded by two sets of
tables. The first set provides, in condensed form, financial information about
the portfolios of the Series Fund, beginning on the date each of them was first
established. The second set shows what the cash surrender values and death
benefits would be under a Contract issued on a hypothetical person, making
certain assumptions. These tables show generally how the values under the
Contract would vary, with different investment performances.

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF
THE SERIES FUND

The tables that follow provide information about the annual investment income,
capital appreciation and expenses of the 2 available portfolios of the Series
Fund for each year, beginning with the year after the Series Fund was
established. They are prepared on a per share basis and therefore provide useful
information about the investment performance of each portfolio.

NOTE, HOWEVER, THAT THESE TABLES DO NOT TELL YOU HOW YOUR CONTRACT FUND WOULD
HAVE CHANGED DURING THIS PERIOD BECAUSE THEY DO NOT REFLECT THE DEDUCTIONS FROM
THE CONTRACT FUND OTHER THAN THE PORTFOLIO DEDUCTIONS.

5
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)
The following highlights for the two years ended December 31, 1997 have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. In addition, the financial highlights for each of the years
prior to and including the period ended December 31, 1995 have been audited by
other independent auditors, whose report thereon was also unqualified. Price
Waterhouse LLP's report is included in the Statement of Additional Information.

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
----------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30 $ 11.89
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.76 0.66 0.63 -0.53 0.49 0.56 0.69 0.82 0.89 0.77
Net realized and
unrealized gains
(losses) on
investments..... 1.26 1.24 1.78 (0.68) 1.23 0.41 1.74 (0.14) 1.15 0.43
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total from
investment
operations... 2.02 1.90 2.41 (0.15) 1.72 0.97 2.43 0.68 2.04 1.20
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.76) (0.66) (0.64) (0.51) (0.47) (0.54) (0.67) (0.81) (0.89) (0.79)
Distributions from
net realized
gains........... (1.81) (1.03) (0.56) (0.15) (0.58) (0.51) (0.50) (0.17) (0.09) --
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total
distributions. (2.57) (1.69) (1.20) (0.66) (1.05) (1.05) (1.17) (0.98) (0.98) (0.79)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Net Asset Value,
end of year..... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30
========= ========= ========= ======== ======== ========= ========= ========= ======== ========
TOTAL INVESTMENT
RETURN(b)....... 13.45% 12.63% 17.27% (0.97)% 12.20% 6.95% 19.07% 5.27% 16.99% 10.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $ 4,744.2 $ 4,478.8 $ 3,940.8 $3,501.1 $3,103.2 $ 2,114.0 $ 1,500.0 $ 1,100.2 $ 976.0 $ 815.6
Ratios to average
net assets:
Expenses........ 0.56% 0.59% 0.58% 0.61% 0.60% 0.62% 0.63% 0.65% 0.64% 0.65%
Net investment
income........ 4.48% 4.13% 4.19% 3.61% 3.22% 3.88% 4.89% 6.21% 6.81% 6.22%
Portfolio turnover
rate............ 295% 295% 201% 125% 79% 62% 115% 44% 154% 111%
Average commission
rate paid per
share........... $0.0563 $0.0554 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12 $ 12.33
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.59 0.57 0.56 0.47 0.57 0.58 0.65 0.72 0.82 0.72
Net realized and
unrealized gains
(losses) on
investments..... 2.52 1.79 3.15 (1.02) 1.88 0.61 2.81 (0.47) 1.99 0.84
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total from
investment
operations.. 3.11 2.36 3.71 (0.55) 2.45 1.19 3.46 0.25 2.81 1.56
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.58) (0.58) (0.56) (0.45) (0.57) (0.56) (0.66) (0.70) (0.81) (0.77)
Distributions from
net realized
gains........... (3.04) (1.85) (0.79) (0.46) (0.93) (0.91) (0.51) -- (0.67) --
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total
distributions. (3.62) (2.43) (1.35) (0.91) (1.50) (1.47) (1.17) (0.70) (1.48) (0.77)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Net Asset Value,
end of year..... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12
========= ========= ========= ======== ======== ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN(b)....... 17.96% 13.64% 24.13% (3.16)% 15.58% 7.61% 25.43% 1.91% 21.77% 12.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9
Ratios to average
net assets:
Expenses........ 0.62% 0.64% 0.63% 0.66% 0.66% 0.67% 0.67% 0.69% 0.69% 0.70%
Net investment
income........ 3.02% 3.07% 3.30% 2.90% 3.30% 3.63% 4.23% 5.13% 5.66% 5.52%
Portfolio turnover
rate............ 227% 233% 173% 124% 63% 59% 93% 52% 141% 128%
Average commission
rate paid per
share........... $0.0569 $0.0563 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

<PAGE>

PORTFOLIO RATES OF RETURN

<TABLE>
<CAPTION>
5 YEARS 10 YEARS INCEPTION TO
INCEPTION YEAR ENDED ENDED ENDED DATE
PORTFOLIO DATE 12/31/97 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C> <C> <C>
- -------------------------- ------------- ----------- ----------- ----------- -------------
CONSERVATIVE BALANCED 5/83 13.45% 10.74% 11.15% 10.80%
FLEXIBLE MANAGED 5/83 17.96% 13.25% 13.41% 12.18%
</TABLE>

<PAGE>

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS
AND ACCUMULATED PREMIUMS

The following tables have been prepared to help show how values under the
Contract change with investment performance of the Account. The tables assume
that no portion of the Contract Fund is allocated to the fixed-rate option. The
tables illustrate how cash surrender values (reflecting the deduction of
deferred sales load and administrative charges, if any) and death benefits of
Contracts issued on an insured of a given age would vary over time if the gross
investment return on the assets held in the selected Series Fund portfolios were
a uniform, after tax, annual rate of 0%, 4%, 8%, and 12% and minimum scheduled
premiums were paid. The death benefits and cash surrender values would be
different from those shown if the returns averaged 0%, 4%, 8%, and 12% but
fluctuated over and under those averages throughout the years.

The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life's current charges. The values shown in these
tables are calculated upon the assumption that Pruco Life will continue to use
the administrative charges and mortality rates that it is currently using, even
though it is permitted under the Contract to use higher administrative charges
and the higher mortality charges specified in the 1980 CSO Table. While Pruco
Life does not currently intend to withdraw or modify these reductions in
charges, it reserves the right to do so.

The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum
administrative charges allowable under the Contract and the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract; they do not reflect Pruco Life's current practice of reducing the
administrative and mortality charges.

The amounts shown for the death benefit and cash surrender value as of each
Contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross, after-tax return of the Series
Fund's portfolios. This is because these tables assume an investment management
fee and other estimated Series Fund expenses totaling 0.59% and also reflect the
daily charge to the Account for assuming mortality and expense risks, which is
equivalent to an effective annual rate of 0.9%. The 0.59% figure is based on an
average of the current management fees of the two available portfolios and an
analysis of historical operating expenses other than management fees, taking
into account any applicable expense offsets. Actual fees and expenses of the
portfolios associated with a Contract may be more or less than 0.59%, will vary
from year to year, and will depend on how the Contract Fund is allocated. Based
on the above assumptions, gross annual rates of return of 0%, 4%, 8%, and 12%
correspond in the tables to approximate net annual rates of return of -1.49%,
2.51%, 6.51%, and 10.51%, respectively. The tables reflect the fact that no
charges for federal or state income taxes are currently made against the Account
(other than "taxes attributable to premiums"). If such a charge is made in the
future, it will take higher gross rates of return to produce the same net
after-tax returns. The tables assume that the insured is in the preferred rating
class, and the charge for federal, state and local taxes attributable to
premiums is 3.25%.

Upon request, Pruco Life will furnish a comparable hypothetical illustration
based on the proposed insured's age and sex (except where unisex rates apply)
and on the face amount or premium amount requested. The illustrations can be
prepared upon the assumptions that the insured is in the preferred or standard
rating class or in a different risk classification, and can assume that annual,
semi-annual, quarterly or monthly premiums are paid.

8
<PAGE>
<TABLE>

ILLUSTRATIONS
-------------

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>

DEATH BENEFIT (2) CASH SURRENDER VALUE (2)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- ----------------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET) (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,003 $5,007 $ 5,011 $ 5,016 $ 0 $ 0 $ 2 $ 6
2 $ 369 $5,002 $5,013 $ 5,025 $ 5,036 $ 48 $ 59 $ 70 $ 82
3 $ 564 $5,000 $5,019 $ 5,040 $ 5,063 $101 $ 121 $ 142 $ 165
4 $ 767 $5,000 $5,024 $ 5,058 $ 5,096 $154 $ 185 $ 219 $ 257
5 $ 978 $5,000 $5,028 $ 5,079 $ 5,136 $205 $ 249 $ 300 $ 357
6 $ 1,198 $5,000 $5,034 $ 5,105 $ 5,187 $268 $ 330 $ 401 $ 483
7 $ 1,427 $5,000 $5,039 $ 5,134 $ 5,248 $331 $ 411 $ 507 $ 620
8 $ 1,665 $5,000 $5,043 $ 5,167 $ 5,320 $392 $ 494 $ 618 $ 771
9 $ 1,912 $5,000 $5,047 $ 5,205 $ 5,404 $452 $ 578 $ 736 $ 935
10 $ 2,169 $5,000 $5,050 $ 5,248 $ 5,503 $511 $ 663 $ 861 $ 1,116
15 $ 3,617 $5,000 $5,058 $ 5,544 $ 6,271 $721 $1,047 $ 1,532 $ 2,259
20 $ 5,379 $5,000 $5,048 $ 6,027 $ 9,117 $882 $1,457 $ 2,436 $ 4,122
25 $ 7,523 $5,000 $5,016 $ 6,983 $13,550 $970 $1,882 $ 3,643 $ 7,069
30 (Age 65) $10,132 $5,000 $5,000 $ 8,747 $19,608 $940 $2,304 $ 5,202 $11,661
35 $13,305 $5,000 $5,000 $10,721 $27,975 $700 $2,696 $ 7,157 $18,678
40 $17,166 $5,000 $5,000 $12,973 $39,652 $ 52 $3,019 $ 9,560 $29,220
45 $21,864 $5,000 $5,000 $15,607 $56,163 $ 0 $3,189 $12,446 $44,788
</TABLE>

(1) If premiums are paid more frequently than annually, the payments would be
$89.46 semi-annually, $46.15 quarterly or $16.90 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.

(2) Assumes no Contract loan has been made.

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, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%,
8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY
PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

T1
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER VALUE (2)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- ----------------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET) (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,012 $20,024 $20,036 $ 20,048 $ 39 $ 50 $ 62 $ 74
2 $ 829 $20,013 $20,046 $20,080 $ 20,115 $ 243 $ 276 $ 310 $ 345
3 $ 1,269 $20,002 $20,065 $20,133 $ 20,204 $ 442 $ 506 $ 573 $ 644
4 $ 1,726 $20,000 $20,082 $20,195 $ 20,317 $ 636 $ 739 $ 852 $ 974
5 $ 2,202 $20,000 $20,095 $20,266 $ 20,457 $ 833 $ 986 $ 1,157 $ 1,347
6 $ 2,697 $20,000 $20,112 $20,357 $ 20,636 $1,084 $ 1,296 $ 1,540 $ 1,820
7 $ 3,211 $20,000 $20,128 $20,461 $ 20,853 $1,335 $ 1,617 $ 1,950 $ 2,342
8 $ 3,746 $20,000 $20,141 $20,579 $ 21,111 $1,582 $ 1,944 $ 2,383 $ 2,914
9 $ 4,302 $20,000 $20,152 $20,715 $ 21,416 $1,824 $ 2,276 $ 2,839 $ 3,539
10 $ 4,881 $20,000 $20,160 $20,867 $ 21,773 $2,060 $ 2,612 $ 3,319 $ 4,225
15 $ 8,140 $20,000 $20,164 $21,949 $ 24,589 $2,900 $ 4,119 $ 5,903 $ 8,544
20 $12,106 $20,000 $20,092 $23,738 $ 34,499 $3,549 $ 5,730 $ 9,376 $ 15,597
25 $16,931 $20,000 $20,000 $26,860 $ 51,316 $3,900 $ 7,391 $14,013 $ 26,771
30 (Age 65) $22,801 $20,000 $20,000 $33,679 $ 74,293 $3,775 $ 9,031 $20,028 $ 44,181
35 $29,942 $20,000 $20,000 $41,307 $106,029 $2,801 $10,514 $27,578 $ 70,789
40 $38,631 $20,000 $20,000 $50,014 $150,318 $ 181 $11,630 $36,856 $110,771
45 $49,203 $20,000 $20,000 $60,199 $212,938 $ 0 $11,934 $48,007 $169,812
</TABLE>

(1) If premiums are paid more frequently than annually, the payments would be
$202.79 semi-annually, $103.98 quarterly or $36.59 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.

(2) Assumes no Contract loan has been made.

T2
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>

(2) Assumes no Contract loan has been made.

T3
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>

(2) Assumes no Contract loan has been made.

<PAGE>

GENERAL INFORMATION ABOUT
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
AND THE FIXED RATE OPTION

PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

Pruco Life PRUVIDER Variable Appreciable Account was established on July 10,
1992 under Arizona law as a separate investment account. The Account meets the
definition of a "separate account" under the federal securities laws. The
Account holds assets that are segregated from all of Pruco Life's other assets.

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

The Account is registered with the 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 Account. For state law purposes, the Account is
treated as a part or division of Pruco Life. There are currently two subaccounts
within the Account, one of which invests in the Conservative Balanced Portfolio
and the other of which invests in the Flexible Managed Portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.

THE FIXED-RATE OPTION

Because of exemptive and exclusionary provisions, interests in the fixed-rate
option under the Contract have not been registered under the Securities Act of
1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, interests in the
fixed-rate option are not subject to the provisions of these Acts, and Pruco
Life has been advised that the staff of the Securities and Exchange Commission
has not reviewed the disclosure in this Prospectus relating to the fixed-rate
option. Any inaccurate or misleading disclosure regarding the fixed-rate option
may, however, subject Pruco Life and its directors to civil liability if that
results in any damage.

As explained earlier, you may elect to allocate, either initially or by
transfer, all or part of the amount credited under the Contract to the
fixed-rate option, and the amount so allocated or transferred becomes part of
The Pruco Life's general assets. Sometimes this is referred to as Pruco Life's
general account, which consists of all assets owned by Pruco Life other than
those in the Account and in other separate accounts that have been or may be
established by Pruco Life. Subject to applicable law, Pruco Life has sole
discretion over the investment of the assets of the general account, and
Contract owners do not share in the investment experience of those assets.
Instead, Pruco Life guarantees that the part of the Contract Fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Pruco Life declares periodically. This rate may not be less than an
effective annual rate of 4%. Currently, declared interest rates remain in effect
from the date money is allocated to the fixed-rate option until the Monthly date
in the same month in the following year. See CONTRACT DATE, page 13. Thereafter,
a new crediting rate will be declared each year and will remain in effect for
the calendar year. Pruco Life reserves the right to change this practice. Pruco
Life is not obligated to credit interest at a higher rate than 4%, although in
its sole discretion it may do so. Different crediting rates may be declared for
different portions of the Contract Fund allocated to the fixed-rate option. At
least annually and on request, a Contract owner will be advised of the interest
rates that currently apply to his or her Contract.

Transfers from the fixed-rate option are subject to strict limits. (See
TRANSFERS, page 14). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to 6 months (see WHEN PROCEEDS ARE PAID,
page 18).

9
<PAGE>

DETAILED INFORMATION FOR PROSPECTIVE
CONTRACT OWNERS

REQUIREMENTS FOR ISSUANCE OF A CONTRACT

Generally, the minimum initial guaranteed death benefit that can be applied for
is $5,000 and the maximum that can be applied for is $25,000. For proposed
insureds 21 years of age or younger, the minimum initial guaranteed death
benefit that can be applied for is $10,000. The Contract may generally be issued
on insureds below the age of 76. Before issuing any Contract, Pruco Life
requires evidence of insurability which may include a medical examination.
Non-smokers who meet preferred underwriting requirements are offered the most
favorable premium rate. A higher premium is charged if an extra mortality risk
is involved. These are the current underwriting requirements. The Company
reserves the right to change these requirements on a non-discriminatory basis.

SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"

Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. A refund can be requested by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be deemed
void from the beginning. You will then receive a refund of all premium payments
made, plus or minus any change due to investment experience. However, if
applicable law so requires, if you exercise your short-term cancellation right,
you will receive a refund of all premium payments made, with no adjustment for
investment experience.

CONTRACT FEES AND CHARGES

This section provides a detailed description of each charge that is described
briefly in the chart on page 2, and an explanation of the purpose of the charge.

In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, will be the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.

A Contract owner may add several "riders" to the Contract which provide
additional benefits, which are charged for separately. The statement and
description of charges that follows assumes there are no riders to the Contract.

Deductions from Premiums

(a) A charge for taxes attributable to premiums is deducted from each premium.
That charge is currently made up of two parts. The first part is a charge for
state and local premium-based taxes. It varies from jurisdiction to jurisdiction
and generally ranges from 0.75% to 5% (but in some instances it may exceed 5%)
of the premium received by Pruco Life. The amount charged may be more than Pruco
Life actually pays. The second part is for federal income taxes measured by
premiums and it is equal to 1.25% of the premium. Pruco Life believes that this
charge is a reasonable estimate of an increase in its federal income taxes
resulting from a 1990 change in the Internal Revenue Code. It is intended to
recover this increased tax. During 1997, 1996 and 1995, Pruco Life received a
total of approximately $1,668,969, $2,187,535, and $2,003,387, respectively, in
taxes attributable to premiums.

(b) A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually, this
charge will be $2 per year. If you pay premiums monthly, the charge will be $24
per year. If you pay premiums more frequently, for example under a payroll
deduction plan with your employer, the charge may be more than $24 per year.
During 1997, 1996 and 1995, Pruco Life received a total of approximately
$1,239,689, $1,155,021, and $965,634, respectively, in processing charges.

Deductions from Portfolios

(a) An investment advisory fee is deducted daily from each portfolio at an
annual rate of 0.55% for the Conservative Balanced Portfolio and 0.60% for the
Flexible Managed Portfolio.

(b) The expenses incurred in conducting the investment operations of the
portfolios (such as investment advisory fees, custodian fees and preparation and
distribution of annual reports) are paid out of the portfolio's income. These
expenses also vary from portfolio to portfolio. The total expenses of each
portfolio for the year 1997 expressed as a percentage of the average assets
during the year are shown as follows:

10
<PAGE>

- --------------------------------------------------------------------------------
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Conservative Balanced 0.55% 0.01% 0.56%
Flexible Managed 0.60% 0.02% 0.62%
- --------------------------------------------------------------------------------

Monthly Deductions from Contract Fund

The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].

(a) A sales charge, often called a sales load, is deducted to pay part of the
costs Pruco Life incurs in selling the Contracts, including commissions,
advertising and the printing and distribution of prospectuses and sales
literature. The charge is equal to 0.5% of the "primary annual premium" which is
equal to the Scheduled Premium that would be payable if premiums were being paid
annually, less the two deductions from premiums (taxes attributable to premiums
and the $2 processing charge), and less the $6 part of the monthly deduction
described in (c) below, the $0.30 per $1,000 of face amount for Contracts with a
face amount of less than $10,000, and any extra premiums for riders or
substandard risks. The deduction is made whether the Contract owner is paying
premiums annually or more frequently. It is lower on Contracts issued on
insureds over 60 years of age. To summarize, this charge is somewhat less than
(significantly less for Contracts with small face amounts) 6% of the annual
Scheduled Premium.

There is a second sales load, which will be charged only if a Contract lapses or
is surrendered before the end of the 10th Contract year. It is often described
as a contingent deferred sales load ("CDSL") and is described later under
SURRENDER OR WITHDRAWAL CHARGES. During 1997, 1996 and 1995, Pruco Life received
a total of approximately $3,998,082, $3,685,080, and $3,035,533, respectively,
in sales load charges.

(b) A charge of not more than $0.01 per $1000 of face amount of insurance is
made to compensate Pruco Life for the risk it assumes by guaranteeing that, no
matter how unfavorable investment experience may be, the death benefit will
never be less than the guaranteed minimum death benefit so long as Scheduled
Premiums are paid on or before the due date or during the grace period. This
charge will not be made if the Contract has been continued in force pursuant to
an option on lapse. During 1997, 1996 and 1995, Pruco Life received a total of
approximately $158,412, $147,942, and $120,813, respectively, for this risk
charge.

(c) An administrative charge of $6 plus up to $0.19 per $1,000 per month of face
amount of insurance is deducted each month. Currently, on a non-guaranteed
basis, this charge is reduced from $0.19 to $0.09 per $1,000. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. If premiums are paid by automatic transfer under the Pru-Matic
Plan, as described on page 13, the current charge is further reduced to $0.07
per $1,000 of face amount. There is an additional charge of $0.30 per $1,000 of
face amount if the face amount of the Contract is less than $10,000. This
monthly administrative charge will not be made if the Contract has been
continued in force pursuant to an option on lapse. During 1997, 1996 and 1995,
Pruco Life received a total of approximately $8,726,448, $8,169,343, and
$6,876,677, respectively, in monthly administrative charges.

(d) A mortality charge is deducted that is intended to be used to pay death
benefits. When an insured dies, the amount payable to the beneficiary is larger
than the Contract Fund and significantly larger if the insured dies in the early
years of a Contract. The mortality charges collected from all Contract owners
enables Pruco Life to pay the death benefit for the few insureds who die. The
maximum mortality charge is determined by multiplying the "net amount at risk"
under a Contract (the amount by which the Contract's death benefit, computed as
if there were neither riders nor Contract debt, exceeds the Contract Fund) by a
rate based upon the insured's current attained age and sex (except where unisex
rates apply) and the anticipated mortality for that class of persons. The
anticipated mortality is based upon mortality tables published by The National
Association of Insurance Commissioners called the Non-Smoker/Smoker 1980 CSO
Tables. Pruco Life may determine that a lesser amount than that called for by
these mortality tables will be adequate for insureds of particular ages and may
thus make a lower mortality charge for such persons. Any lower current mortality
charges are not applicable to Contracts in force pursuant to an option on lapse.
See LAPSE AND REINSTATEMENT, page 17.

(e) If the Contract includes riders, Pruco Life deducts any charges applicable
to those riders from the Contract Fund on each Monthly date. In addition, Pruco
Life will deduct on each Monthly date any extra charge incurred because of the
rating class of the insured.

11
<PAGE>

no charge is made. Pruco Life will review the question of a charge to the
Account for company federal income taxes periodically. Such a charge may be made
in future years for any company federal income taxes that would be attributable
to the Account.

Under current law, Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Account. If there is a material change in
the applicable state or local tax laws, the imposition of any such taxes upon
Pruco Life that are attributable to the Account may result in a corresponding
charge against the Account.

Daily Deduction from the Contract Fund

Each day a charge is deducted from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. This charge is
intended to compensate Pruco Life for assuming mortality and expense risks under
the Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than Pruco Life estimated when it determined what mortality
charge to make. The expense risk assumed is that expenses incurred in issuing
and administering the Contract will be greater than Pruco Life estimated in
fixing its administrative charges. This charge is not assessed against amounts
allocated to the fixed-rate option. During 1997, 1996 and 1995, Pruco Life
received a total of approximately $1,776,910, $1,391,951, and $976,867,
respectively, in mortality and expense risk charges.

Surrender or Withdrawal Charges

(a) An additional sales load (the CDSL) is charged if a Contract is surrendered
for its cash surrender value or lapses during the first 10 Contract years. It is
not deducted from the death benefit if the insured should die during this
period. This maximum contingent deferred charge is equal to 50% of the first
year's primary annual premium upon Contracts that lapse during the first 5
Contract years. That percentage is reduced uniformly on a daily basis starting
from the Contract's fifth anniversary until it disappears on the tenth
anniversary. Other important limitations apply. They are described more fully in
the Statement of Additional Information. The amount of this charge can be more
easily understood by reference to the following table which shows the sales
loads that would be paid by a 35 year old man with $20,000 face amount of
insurance, both through the monthly deductions from the Contract Fund described
above and upon the surrender of the Contract.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
CUMULATIVE TOTAL SALES
CUMULATIVE SALES LOAD CONTINGENT LOAD AS
SURRENDER, SCHEDULED DEDUCTED DEFERRED TOTAL PER-
LAST DAY OF PREMIUMS FROM SALES SALES CENTAGE OF
YEAR NO. PAID CONTRACT LOAD LOAD SCHEDULED
FUND PREMIUMS
PAID
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 390.90 $ 18.24 $ 87.22 $105.46 26.98%
2 781.80 36.48 104.16 140.64 17.99%
3 1,172.70 54.72 121.10 175.82 14.99%
4 1,563.60 72.96 138.04 211.00 13.49%
5 1,954.50 91.20 146.55 237.75 12.16%
6 2,345.40 109.44 121.80 231.24 9.86%
7 2,736.30 127.68 91.40 219.08 8.01%
8 3,127.20 145.92 60.80 206.72 6.61%
9 3,518.10 164.16 30.40 194.56 5.53%
10 3,909.00 182.40 0.00 182.40 4.67%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

The percentages shown in the last column will not be appreciably different for
insureds of different ages.

(b) An administrative charge of $5 per $1,000 of face amount of insurance is
deducted upon lapse or surrender to cover the cost of processing applications,
conducting medical examinations, determining insurability and the insured's
rating class, and establishing records. However, this charge is reduced
beginning on the Contract's fifth anniversary and declines daily at a constant
rate until it disappears entirely on the tenth Contract anniversary. We are
currently allowing partial surrenders of the Contract, but we reserve the right
to cancel this administrative practice. If the Contract is partially surrendered
during the first 10 years, a proportionate amount of the charge will be deducted
from the Contract Fund. During 1997, 1996 and 1995, Pruco Life received a total
of approximately $295,205, $269,611, and $219,895, respectively, for surrendered
or lapsed Contracts. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

12
<PAGE>

Transaction Charges

An administrative processing charge equal to the lesser of $15 or 2% of the
amount withdrawn will be made in connection with each withdrawal of excess cash
surrender value of a Contract. This charge is described in more detail in the
Statement of Additional Information.

CONTRACT DATE

When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of any medical examination. In most cases no medical examination will be
necessary. If the first premium is not paid with the application, the Contract
date will ordinarily be the date the first premium was paid and the Contract was
delivered. Under certain circumstances, Pruco Life will permit a Contract to be
back-dated but only to a date not earlier than 6 months prior to the date of the
application. It may be advantageous for a Contract owner to have an earlier
Contract date since that will result in the use by Pruco Life of a lower issue
age in determining the amount of the scheduled premium. Pruco Life will require
the payment of all premiums that would have been due had the application date
coincided with the back-dated Contract date. The death benefit and cash
surrender value under the Contract will be equal to what they would have been
had the Contract been issued on the Contract date, all scheduled premiums been
received on their due dates, and all Contract charges been made.

PREMIUMS

The Contract provides for a Scheduled Premium which, if paid when due or within
a 61 day grace period, ensures that the Contract will not lapse. If you pay
premiums other than on a monthly basis, you will receive a notice that a premium
is due about 3 weeks before each due date. If you pay premiums monthly, you will
receive a book each year with 12 coupons that will serve as a reminder. With
Pruco Life's consent, you may change the frequency of premium payments.

You may elect to have monthly premiums paid automatically under the "Pru-Matic
Premium Plan" by pre-authorized transfers from a bank checking account. If you
select the Pru-Matic Premium Plan, one of the current monthly charges will be
reduced. See MONTHLY DEDUCTIONS FROM CONTRACT FUND, page 11. Some Contract
owners may also be eligible to have monthly premiums paid by pre-authorized
deductions from an employer's payroll.

The following table shows, for two face amounts, representative preferred and
standard annual premium amounts under Contracts issued on insureds who are not
substandard risks. These premiums do not reflect any additional riders or
supplementary benefits.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
-------------------------------------------------------------------------
PREFERRED STANDARD PREFERRED STANDARD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 35 $233.70 $274.01 $390.90 $ 471.52
at issue
- --------------------------------------------------------------------------------------------------
Female, age 45 $278.04 $308.53 $479.59 $ 540.57
at issue
- --------------------------------------------------------------------------------------------------
Male, age 55 $450.96 $562.17 $825.43 $1047.86
at issue
- --------------------------------------------------------------------------------------------------
</TABLE>

The following table compares annual and monthly premiums for insureds who are in
the preferred rating class. Note that in these examples the sum of 12 monthly
premiums for a particular Contract is approximately 110% to 116% of the annual
scheduled premium for that Contract.

13
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
--------------------------------------------------------------------
MONTHLY ANNUAL MONTHLY ANNUAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 35 $22.43 $233.70 $36.59 $390.90
at issue
- ---------------------------------------------------------------------------------------------
Female, age 45 $26.46 $278.04 $44.65 $479.59
at issue
- ---------------------------------------------------------------------------------------------
Male, age 55 $41.96 $450.96 $75.66 $825.43
at issue
- ---------------------------------------------------------------------------------------------
</TABLE>

A significant feature of this Contract is that it permits you to pay greater
than Scheduled Premiums. This may be done by making occasional unscheduled
premium payments or on a periodic basis. If you wish, you may select a higher
contemplated premium than the Scheduled Premium. Pruco Life will then bill you
for the chosen premium. In general, the regular payment of higher premiums will
result in higher cash surrender values and higher death benefits. Conversely,
payment of a Scheduled Premium need not be made if the Contract Fund is
sufficiently large to enable the charges due under the Contract to be made
without causing the Contract to lapse. See LAPSE AND REINSTATEMENT, page 17. The
payment of premiums in excess of Scheduled Premiums may cause the Contract to
become a Modified Endowment Contract. If this happens, loans and other
distributions which would otherwise not be taxable events will be subject to
federal income taxation. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

Pruco Life will generally accept any premium payment if the payment is at least
$25. Pruco Life does reserve the right, however, to limit unscheduled premiums
to a total of $5,000 in any Contract year, and to refuse to accept premiums that
would immediately result in more than a dollar-for-dollar increase in the death
benefit. See HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 15. The privilege of
making large or additional premium payments offers a way of investing amounts
which accumulate without current income taxation, but again, there are tax
consequences if the Contract becomes a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

ALLOCATION OF PREMIUMS

On the Contract date, a $2 processing charge and the charge for taxes
attributable to premiums are deducted from the initial premium. The remainder is
allocated on the Contract date among the subaccount[s] or the fixed-rate option
according to the desired allocation specified in the application form. From this
invested portion of the initial premium, the first monthly deductions are made.
See CONTRACT FEES AND CHARGES, page 10. The invested portion of any part of the
initial premium in excess of the Scheduled Premium is placed in the selected
investment option[s] on the date of receipt at a Home Office, but not earlier
than the Contract date. Thus, to the extent that the receipt of the first
premium precedes the Contract date, there will be a period during which the
Contract owner's initial premium will not be invested. All subsequent premium
payments, after the deduction from premiums, will be invested as of the end of
the valuation period in which it is received at a Home Office in accordance with
the allocation previously designated. Provided the Contract is not in default,
you may change the way in which subsequent premiums are allocated by giving
written notice to a Home Office. You may also change the way in which subsequent
premiums are allocated by telephoning the Home Office, provided you are enrolled
to use the Telephone Transfer system. There is no charge for reallocating future
premiums. If any part of the invested portion of a premium is allocated to a
particular investment option, that portion must be at least 10% on the date the
allocation takes effect. All percentage allocations must be in whole numbers.
For example, 33% can be selected but 33 1/3% cannot. Of course, the total
allocation of all selected investment options must equal 100%.

TRANSFERS

If the Contract is not in default, or if the Contract is in force as variable
reduced paid-up insurance (see LAPSE AND REINSTATEMENT, page 17), you may, up to
four times in each Contract year, transfer amounts from one subaccount to the
other subaccount or to the fixed-rate option. Currently you may make additional
transfers with Pruco Life's consent. There is no charge. All or a portion of the
amount credited to a subaccount may be transferred.

In addition, the total amount credited to a Contract held in the subaccounts may
be transferred to the fixed-rate option at any time during the first two
Contract years. If you wish to convert your variable Contract to a fixed-benefit
Contract in this manner, you must request a complete transfer of funds to the
fixed-rate option and should also change your allocation instructions regarding
any future premiums.

14
<PAGE>

are made when the net asset values of the portfolios are calculated, which is
generally at 4:15 p.m. New York City time on each day during which the New York
Stock Exchange is open. The request may be in terms of dollars, such as a
request to transfer $1,000 from one subaccount to the other, or may be in terms
of a percentage reallocation between subaccounts. In the latter case, as with
premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to a Home Office or by telephone,
provided you are enrolled to use the Telephone Transfer System. You will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned, depending on the
terms of the assignment. Pruco Life has adopted procedures designed to ensure
that requests by telephone are genuine and will require appropriate
identification for that purpose. Pruco Life will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.

Transfers from the fixed-rate option are subject to restrictions and may only be
made with Pruco Life's consent. Transfers from the fixed-rate option to the
subaccounts are currently permitted once each Contract year and only during the
30-day period beginning on the Contract anniversary. The maximum amount which
may be transferred out of the fixed-rate option each year is currently the
greater of: (a) 25% of the amount in the fixed-rate option, or (b) $2,000. Such
transfer requests received prior to the Contract anniversary will be effected on
the Contract anniversary. Transfer requests received within the 30-day period
beginning on the Contract anniversary will be effected as of the end of the
valuation period in which a proper transfer request is received at a Home
Office. These limits are subject to change in the future.

The Contract was not designed for professional market timing organizations,
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 subaccounts and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent under
a power of attorney on behalf of more than one Contract owner.

HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE

As previously stated, after the tenth Contract year, there will no longer be a
surrender charge and, if there is no Contract loan, the cash surrender value
will be equal to the Contract Fund. This section, therefore, also describes how
the cash surrender value of the Contract will change with investment experience.

On the Contract Date, the Contract Fund value is the initial premium less the
deductions from premiums and the first monthly deductions. See CONTRACT FEES AND
CHARGES, page 10. This amount is placed in the investment options designated by
the owner. Thereafter the Contract Fund value changes daily, reflecting
increases or decreases in the value of the securities in which the assets of the
subaccount have been invested, and interest credited on any amounts allocated to
the fixed-rate option. It is also reduced by the daily asset charge for
mortality and expense risks assessed against the variable investment options.
The Contract Fund value also increases to reflect the receipt of additional
premium payments and is decreased by the monthly deductions.

A Contract's cash surrender value on any date will be the Contract Fund value
reduced by the withdrawal charges, if any, and by any Contract debt. Upon
request, Pruco Life will tell a Contract owner the cash surrender value of his
or her Contract. It is possible, although highly unlikely, that the cash
surrender value of a Contract could decline to zero because of unfavorable
investment performance, even if a Contract owner continues to pay Scheduled
Premiums when due.

The tables on pages T1 through T4 of this prospectus illustrate what the death
benefit and cash surrender values would be for a representative Contract,
assuming uniform hypothetical investment results in the selected portfolio[s],
and also provide information about the aggregate premiums payable under the
Contract.

HOW A CONTRACT'S DEATH BENEFIT WILL VARY

The death benefit will change from the outset with investment experience. The
precise way in which that will occur is complicated and is described in the
Statement of Additional Information. In general, and assuming the optional
paid-up benefit is not in effect, see PAID-UP INSURANCE OPTION, on page 17, if
the net investment performance is 4% per year or higher, the death benefit will
increase; if it is below 4%, it will decrease. Pruco Life guarantees, however,
that it will not decrease below the face amount of insurance. If unfavorable
experience of that kind should occur, it must be offset by favorable experience
before the death benefit begins to increase again.

15
<PAGE>

required difference between the death benefit and Contract Fund value is higher
at younger ages than at older ages. A precise description is in the Statement of
Additional Information.

CONTRACT LOANS

The owner may borrow from Pruco Life up to the "loan value" of the Contract,
using the Contract as the only security for the loan. The loan value is equal to
(1) 90% of an amount equal to the portion of the Contract Fund value
attributable to the variable investment options and to any prior loan[s]
supported by the variable investment options, minus the portion of any charges
attributable to variable investment options that would be payable upon an
immediate surrender; plus (2) 100% of an amount equal to the portion of the
Contract Fund value attributable to the fixed-rate option and to any prior
loan[s] supported by the fixed-rate option, minus the portion of any charges
attributable to the fixed-rate option that would be payable upon an immediate
surrender. The minimum amount that may be borrowed at any one time is $200
unless the proceeds are used to pay premiums on the Contract.

Interest charged on a loan accrues daily at a fixed effective annual rate of
5.5%. Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds what
the cash surrender value would be if there were no Contract debt, Pruco Life
will notify you of its intent to terminate the Contract in 61 days, within which
time you may repay all or enough of the loan to obtain a positive cash surrender
value and thus keep the Contract in force for a limited time. If you fail to
keep the Contract in force, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 20, and LAPSE AND REINSTATEMENT, page 17.

When a loan is made, an amount equal to the loan proceeds will be transferred
out of the variable investment options and/or the fixed-rate option, as
applicable. The reduction will normally be made in the same proportions as the
value in each subaccount and the fixed-rate option bears to the total value of
the Contract. While a loan is outstanding, the amount that was so transferred
will continue to be treated as part of the Contract Fund but it will be credited
with the assumed rate of return of 4% rather than with the actual rate of return
of the subaccount[s] or fixed-rate option.

A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, any Contract debt will be deducted from the death benefit or the
cash surrender value.

A loan will have an effect on a Contract's cash surrender value and may have an
effect on the death benefit, even if the loan is fully repaid, because the
investment results of the selected investment options will apply only to the
amount remaining invested under those options. 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, values under
the Contract will not increase as rapidly as they would have if no loan had been
made. If investment results are below that rate, Contract values will be higher
than they would have been had no loan been made. A loan that is repaid will not
have any effect upon the guaranteed minimum death benefit.

Consider the Contract issued on a 35 year old male insured illustrated in the
table on page T2 with an 8% gross investment return. Assume a $1,500 loan was
made under this Contract at the end of Contract year 8 and repaid at the end of
Contract year 10 and loan interest was paid when due. Upon repayment, the cash
surrender value would be $3,242.58. This amount is lower than the cash surrender
value shown on that page for the end of Contract year 10 because the loan amount
was credited with the 4% assumed rate of return rather than the 6.51% net return
for the designated subaccount[s] resulting from the 8% gross return in the
underlying Series Fund. Loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See TAX TREATMENT OF CONTRACT
BENEFITS, page 20.

SURRENDER OF A CONTRACT

You may surrender a Contract for its cash surrender value while the insured is
living. To surrender a Contract, you must deliver or mail it, together with a
written request in a form that meets our needs, to a Home Office. The cash
surrender value of a surrendered Contract (taking into account the deferred
sales and administrative charges, if any) will be determined as of the end of
the valuation period in which such a request is received in the Home Office. We
are currently allowing partial surrenders of Contracts, but we reserve the right
to cancel this administrative practice. Surrender of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

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LAPSE AND REINSTATEMENT

If Scheduled Premiums are paid on or before each due date, or within the grace
period after each due date, and there are no withdrawals, a Contract will remain
in force even if the investment results of that Contract's variable investment
option[s] have been so unfavorable that the Contract Fund has decreased to zero
or less.

In addition, even if a Scheduled Premium is not paid, the Contract will remain
in force as long as the Contract Fund on any Monthly Date is equal to or greater
than the Tabular Contract Fund value on the following Monthly Date. (A Table of
Tabular Contract Fund Values is included in the Contract; the values increase
with each year the Contract remains in force.) This could occur because of such
factors as favorable investment experience, deduction of current rather than
maximum charges, or the previous payment of greater than Scheduled Premiums.

However, if a Scheduled Premium is not paid, and the Contract Fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, Pruco Life will send you a notice of default setting forth
the payment necessary to keep the Contract in force on a premium paying basis.
This payment must be received at a Home Office within the 61 day grace period
after the notice of default is mailed or the Contract will lapse. A Contract
that lapses with an outstanding Contract loan may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

A Contract that has lapsed may be reinstated within 5 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.

If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Pruco Life prior to the
end of the 61 day grace period. You may also choose one of the three forms of
insurance described below for which no further premiums are payable.

Fixed Extended Term Insurance. The amount of insurance that would have been paid
on the date of default will continue for a stated period of time. You will be
told in writing how long that will be. The insurance amount will not change.
There will be a diminishing cash surrender value but no loan value. Extended
term insurance is not available to insureds in high risk classifications or
under Contracts issued in connection with tax-qualified pension plans.

Fixed Reduced Paid-Up Insurance. This insurance continues for the lifetime of
the insured but at an insurance amount that is generally lower than that
provided by fixed extended term insurance. It will decrease only if a Contract
loan is taken. You will be told, if you ask, what the amount of the insurance
will be. Fixed paid-up insurance has a cash surrender value and a loan value. It
is possible for this Contract to be classified as a Modified Endowment Contract
if this option is exercised. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

Variable Reduced Paid-Up Insurance. This is similar to fixed paid-up insurance
and will initially be in the same amount. The Contract Fund will continue to
vary to reflect the experience of the selected investment options. There will be
a new guaranteed minimum death benefit. Variable reduced paid-up insurance has
cash surrender and loan values.

Variable reduced paid-up insurance is the automatic option provided upon lapse,
if the amount of variable reduced paid-up insurance is at least as great as the
amount of fixed extended term insurance which would have been provided upon
lapse. Variable reduced paid-up insurance will be available only if the insured
is not in one of the high risk rating classes for which Pruco Life does not
offer fixed extended term insurance. It is possible for this Contract to be
classified as a Modified Endowment Contract if this option is exercised. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

What Happens If No Request Is Made? Except in the two situations described
below, if no request is made the "automatic option" will be fixed extended term
insurance. If that is not available to the insured, then fixed reduced paid-up
insurance will be provided. However, if variable reduced paid-up insurance is
available and the amount is at least as great as the amount of fixed extended
term insurance, then the automatic option will be variable reduced paid-up
insurance. This could occur when there is a Contract debt outstanding when the
Contract lapses.

PAID-UP INSURANCE OPTION

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<PAGE>

by the attained age factor. This option will generally be available only when
the Contract has been in force for many years and the Contract Fund has grown
because of favorable investment experience or the payment of unscheduled
premiums or both. Once the paid-up insurance option is exercised, the actual
death benefit is equal to the greater of the guaranteed paid-up insurance amount
and the Contract Fund multiplied by the attained age factor. Upon request, Pruco
Life will quote the amount needed to pay up the Contract and to guarantee the
paid-up insurance amount as long as a payment equal to or greater than the
quoted amount is received within two weeks of the quote. There is no guarantee
if the remittance is received within the two week period and is less than the
quoted amount or if the remittance is received outside the two week period. In
this case, Pruco Life will add the remittance to the Contract Fund and
recalculate the guaranteed paid-up insurance amount. If the guaranteed paid-up
insurance amount is equal to or greater than the face amount, the paid-up
request will be processed. If the guaranteed paid-up insurance amount is
calculated below the face amount, the insured will be notified that the amount
is insufficient to process the request. In some cases, the quoted amount, if
paid, would increase the death benefit by more than it increases the Contract
Fund. In these situations, underwriting might be required to accept the premium
payment and to process the paid-up request. Pruco Life reserves the right to
change this procedure in the future. After the first Contract year, you must
make a proper written request for the Contract to become fully paid-up and send
the Contract to a Home Office to be endorsed. It is possible for this Contract
to be classified as a Modified Endowment Contract if this option is exercised.
See TAX TREATMENT OF CONTRACT BENEFITS, page 20. A Contract in effect under a
paid-up insurance option will have cash surrender and loan values.

WHEN PROCEEDS ARE PAID

Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within 7 days after receipt at a Home Office 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 at a Home
Office. However, Pruco Life may delay payment of proceeds from the subaccount[s]
and the variable portion of the death benefit due under the Contract if the sale
or valuation of the 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-rate option, and with respect to a Contract in force as fixed reduced
paid-up insurance or as extended term insurance, Pruco Life expects to pay the
cash surrender value promptly upon request. However, Pruco Life has the right to
delay payment of such cash surrender value for up to 6 months (or a shorter
period if required by applicable law). Pruco Life will pay interest of at least
3% a year if it delays such a payment for more than 30 days (or a shorter period
if required by applicable law).

LIVING NEEDS BENEFIT

Contract applicants may elect to add the LIVING NEEDS BENEFIT(SM) to their
Contracts at issue. The benefit may vary state-by-state. It can generally be
added only when the aggregate face amounts of the insured's eligible contracts
equal $50,000 or more. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.

Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows the
Contract owner to elect to receive an accelerated payment of all or part of the
Contract'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 will generally be greater than the Contract's cash
surrender value. One or both of the following options may be available. A Pruco
Life representative should be consulted as to whether additional options may be
available.

Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a LIVING NEEDS
BENEFIT. You may (1) elect to receive the benefit in a single sum or (2) receive
equal monthly payments for 6 months. If the insured dies before all the payments
have been made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single sum.

Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for 6 months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. You may (1) elect to receive the
benefit in a single sum or (2) receive equal monthly payments for a specified
number of years (not more than 10 nor less than 2), depending upon the age of
the insured. If the insured dies before all of the

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<PAGE>

payments have been made, the present value of the remaining payments will be
paid to the beneficiary designated in the LIVING NEEDS BENEFIT claim form in a
single sum.

All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Pruco Life reserves the right
to determine the minimum amount that may be accelerated.

No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. Pruco
Life can furnish details about the amount of LIVING NEEDS BENEFIT that is
available to an eligible Contract owner under a particular Contract, and the
adjusted premium payments that would be in effect if less than the entire death
benefit is accelerated.

The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the LIVING NEEDS BENEFIT to
the Contract has no adverse consequences; however, electing to use it could.
With the exception of certain business-related policies, the Health Insurance
Portability and Accountability Act of 1996 excludes from income the Living Needs
Benefit if the insured is terminally ill or chronically ill as defined by the
tax law (although the exclusion in the latter case may be limited). Contract
owners should consult a qualified tax advisor before electing to receive this
benefit. Receipt of a LIVING NEEDS BENEFIT payment may also affect a Contract
owner's eligibility for certain government benefits or entitlements.

VOTING RIGHTS

As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.

Matters on which Contract owners may give voting instructions including the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter.

The number of shares in a portfolio for which you may give instructions is
determined by dividing the portion of your Contract Fund attributable to the
portfolio, by the value of one share of the portfolio. The number of votes for
which each Contract owner may give Pruco Life instructions will be determined as
of the record date chosen by the Board of Directors of the Series Fund. Pruco
Life will furnish Contract owners with proper forms and proxies to enable them
to give these instructions. Pruco Life 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.

Pruco Life 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 Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment manager of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.

REPORTS TO CONTRACT OWNERS

Once each Contract year (except where the Contract is in force as fixed extended
term insurance or fixed reduced paid-up insurance), you will be sent a statement
that provides certain information pertinent to your own Contract. These
statements show all transactions during the year that affected the value of your
Contract Fund, including monthly changes attributable to investment experience.
That statement will also show the current death benefit, cash surrender value,
and loan values of your Contract. On request, you will be sent a current
statement in a form

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<PAGE>

similar to that of the annual statement described above, but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.

You will also be sent annual and semi-annual reports of the Series Fund showing
the financial condition of the portfolios and the investments held in both. If a
single individual or company invests in the Series Fund through more than one
variable insurance contract, then the individual or company will receive only
one copy of each annual or semi-annual report issued by the Series Fund.
However, if such individual or company wishes to receive multiple copies of any
such report, a request may be made by calling the toll-free telephone number
listed on the inside front cover page of this prospectus.

TAX TREATMENT OF CONTRACT BENEFITS

The tax treatment of life insurance is complex and may change. Each prospective
purchaser is urged to consult a qualified tax advisor. 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 Pruco Life believes the tax laws apply in the
most commonly occurring circumstances. A more technical discussion of what
follows is contained in the Statement of Additional Information.

Treatment as Life Insurance. Pruco Life believes that the Contract should
qualify as "life insurance" under the Internal Revenue Code. This means that:
(1) except as noted below, the Contract owner should not be taxed on any part of
the Contract Fund, including additions attributable to interest, dividends or
appreciation until amounts are distributed under the Contract; and (2) the death
benefit should be excludable from the gross income of the beneficiary under
section 101(a) of the Code.

Although Pruco Life believes the Contract should qualify as "life insurance" for
federal tax purposes, there are uncertainties, particularly because the
Secretary of the Treasury has not yet issued permanent regulations that bear on
this question. Accordingly, we have reserved the right to make changes -- which
will be applied uniformly to all Contract owners after advance written notice --
that we deem necessary to insure that the Contract will continue to qualify as
life insurance.

Pre-Death Distributions. The tax treatment of any distribution received by an
owner prior to an insured's death will depend upon whether the Contract is
classified as a Modified Endowment Contract.

If the Contract is not classified as a Modified Endowment Contract, proceeds
received in the event of a lapse, surrender of the Contract, or withdrawal of
part of the cash surrender value will generally not be taxable unless the total
amount received exceeds the gross premiums paid less the untaxed portion of any
prior withdrawals. In certain limited circumstances, all or a portion of a
withdrawal during the first 15 contract years may be taxable even if total
withdrawals do not exceed total premiums paid to date. The proceeds of any loan
will be treated as indebtedness of the owner and will not be treated as taxable
income.

If the Contract is classified as a Modified Endowment Contract, pre-death
distributions, including loans and withdrawals (even those made during the 2
year period before the Contract became a Modified Endowment Contract), will be
taxed first as investment income to the extent of gain in the Contract, and then
as a return of the Contract owner's investment in the Contract. In addition,
pre-death distributions (including full surrenders) will be subject to a penalty
of 10% of the amount includible in income unless the amount is distributed on or
after the owner reaches age 59 1/2, on account of the owner's disability, or as
a life annuity.

A Contract may be classified as a Modified Endowment Contract under various
circumstances. For example, low face amount Contracts issued on younger insureds
may be classified as a Modified Endowment Contract even though the Contract
owner pays only the Scheduled Premiums or even less than the Scheduled Premiums.
Before purchasing such a Contract, you should understand the tax treatment of
pre-death distributions and consider the purpose for which the Contract is being
purchased. More generally, a Contract may be classified as a Modified Endowment
Contract if premiums in excess of Scheduled Premiums are paid or the face amount
of insurance is decreased during the first seven Contract years, or if the face
amount of insurance is increased or if a rider is added or removed from the
Contract. You should consult with your tax advisor before making any of these
policy changes.

Other Tax Consequences. There may be federal estate taxes and state and local
estate and inheritance taxes payable if either the owner or the insured dies.
The transfer or assignment of the Contract to a new owner may also have tax
consequences. The individual situation of each Contract owner or beneficiary
will be significant.

Withholding. The taxable portion of any amounts received under the Contract will
be subject to withholding to meet federal income tax obligations if the Contract
owner fails to elect that no taxes will be withheld or in certain other
circumstances.

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OTHER CONTRACT PROVISIONS

There are several other Contract provisions that are of less significance to you
than those already described in detail either because they relate to options
that you may choose under the Contract but are not likely to exercise for
several years after you first purchase it or because they are of a routine
nature not likely to influence your decision to buy the Contract. These
provisions are summarized in the Expanded Table of Contents of the Statement of
Additional Information, page 28 and described in greater detail in the Statement
of Additional Information.

FURTHER INFORMATION ABOUT THE SERIES FUND

The Prudential Series Fund, Inc. (the "Series Fund") is a Maryland corporation
organized on November 15, 1982. It is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end, diversified, management investment
company. This registration does not imply any supervision by the Securities and
Exchange Commission over the Series Fund's management or its investment policies
or practices.

The Series Fund is currently made up of fifteen separate portfolios, two of
which, the Conservative Balanced and Flexible Managed Portfolios, are available
to Contract owners. Each portfolio is, for many purposes, in effect a separate
investment fund, and a separate class of capital stock is issued for each
portfolio. Each share of capital stock issued with respect to a portfolio has a
pro-rata interest in the assets of that portfolio and has no interest in the
assets of any other portfolio. Each portfolio bears its own liabilities and also
its proportionate share of the general liabilities of the Series Fund. In other
respects the Series Fund is treated as one entity. For example, the Series Fund
has only one Board of Directors and owners of the shares of each portfolio are
entitled to vote for members of the Board.

Shares in the Series Fund are currently sold and redeemed at the close of each
business day, at their net asset value, determined in the manner described in
the Statement of Additional Information, only to separate accounts of Prudential
and its subsidiaries. They may, in the future, be sold to other insurers to fund
benefits under variable life insurance and variable annuity contracts issued by
those companies.

Prudential is the investment manager of the Series Fund. Prudential has entered
into a Service Agreement with its wholly-owned subsidiary The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to
Prudential such services as Prudential may require in connection with the
performance of its obligations under an Investment Advisory Agreement with the
Series Fund. One of PIC's business groups is Prudential Investments. See
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 26.

INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS

Each portfolio of the Series Fund has a different objective which it pursues
through separate investment policies as described below. Since each portfolio
has a different investment objective, each can be expected to have different
investment results and incur different market and financial risks. Those risks,
as explained above, are borne by the Contract owner. The Series Fund may in the
future establish other portfolios with different investment objectives.

The investment objectives of both portfolios available to PRUVIDER Contract
owners are set forth on page 3. For the sake of convenience, they are repeated
here, followed in each case by a brief description of the policies of both
portfolios. In some cases a fuller description of those policies is in the
Statement of Additional Information. There is no guarantee that any of these
objectives will be met.

BALANCED PORTFOLIOS

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Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 15% 35% 50%
Bonds and Money Market 25% 65% 85%

The bond portion of this portfolio will be invested primarily in securities with
maturities of 2 to 10 years and ratings at the time of purchase within the four
highest grades determined by Moody's Investors Services, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), or a similar nationally-recognized
rating service or if unrated, of comparable quality in the opinion of the
portfolio manager. However, the portfolio may purchase below-investment grade
debt. A description of corporate bond ratings is contained in the Statement of
Additional Information. Because of their shorter maturities, the value of the
notes and bonds in this portfolio will be less sensitive to changes in interest
rates than the longer-term bonds likely to be held in the Flexible Managed
Portfolio. Thus, there will be less of a risk of loss of principal, but not as
much of a likelihood for greater appreciation in value. Up to 20% of the bond
portion of this portfolio may be invested in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
The stock portion of this portfolio will be invested primarily in the equity
securities of major, established corporations in sound financial condition that
appear to offer attractive prospects of a total return from dividends and
capital appreciation that is superior to broadly based stock indices. The
portfolio may also invest in preferred stock, including below investment grade
preferred stock, and other equity-related securities. The money market portion
of the portfolio will hold high quality money market instruments of the kind
held by the Money Market Portfolio. Moreover, when conditions dictate a
temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Conservative Balanced Portfolio may invest,
without limit, in high quality money market instruments of the kind held by the
Money Market Portfolio. See SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST in the Statement of Additional Information.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when- issued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, beginning on
page 25, and in detail in the Statement of Additional Information.

The Conservative Balanced Portfolio is managed by a team of portfolio managers.
Mark Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Conservative Balanced Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, has been the portfolio manager of the
portfolio since 1995 and manages a portion of the portfolio's equity holdings.
The balance of the portfolio's equity holdings are managed to replicate the
performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"). Tony Rodriguez, Managing Director, Prudential Investments, has been
the portfolio manager of the fixed income portion of the portfolio since 1993.
Mr. Stumpp also supervises the team of portfolio managers for the Flexible
Managed Portfolio. Mr. Stumpp is also portfolio manager for several employee
benefit trusts including The Prudential Retirement System for U.S. Employees and
Special Agents. Prior to 1994, he was responsible for corporate pension asset
management for Prudential Diversified Investment Strategies' corporate clients.
Mr. Spitz is also portfolio manager of the Prudential Equity Income Fund and the
Equity Income and Flexible Managed Portfolios of the Series Fund. Mr. Rodriguez
is also portfolio manager for the Prudential Structured Maturity Fund, Inc. and
the Flexible Managed Portfolio of the Series Fund.

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<PAGE>

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 25% 60% 100%
Bonds 0% 40% 75%
Money Market 0% 0% 75%

The bond component of this portfolio is expected under normal circumstances to
have a weighted average maturity of greater than 10 years. The values of bonds
with longer maturities are generally more sensitive to changes in interest rates
than those of shorter maturities. The bond portion of this portfolio will
primarily be invested in securities that have a rating at the time of purchase
within the four highest grades determined by Moody's, S&P, or a similar
nationally-recognized rating service. A description of corporate bond ratings is
contained in the Statement of Additional Information. However, up to 25% of the
bond component of this portfolio may be invested in securities having ratings at
the time of purchase of "BB," "Ba" or lower, or if not rated, of comparable
quality in the opinion of the portfolio manager, also known as high risk
securities. Up to 20% of the bond portion of this portfolio may be invested in
United States currency denominated debt securities issued outside the United
States by foreign or domestic issuers. The established company common stock
component of this portfolio will consist of the equity securities of major
corporations that are believed to be in sound financial condition. In selecting
stocks of smaller capitalization companies, the portfolio manager may invest in
companies that show above average profitability (measured by return-on-equity,
earnings, and dividend growth rates) with modest price/earnings ratios or
alternatively, in companies whose stock is undervalued relative to other stocks
in the market. The individual equity selections for this portfolio may have more
volatile market values than the equity securities selected for the Conservative
Balanced Portfolio. The portfolio may also invest in preferred stock, including
below investment grade preferred stock, and other equity-related securities. The
money market portion of the portfolio will hold high quality money market
instruments of the kind held by the Money Market Portfolio. Moreover, when
conditions dictate a temporary defensive strategy or during temporary periods of
portfolio structuring and restructuring, the Flexible Managed Portfolio may
invest, without limit, in high quality money market instruments of the kind held
by the Money Market Portfolio. See SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST in the Statement of Additional Information.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when-issued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, below, and
in detail in the Statement of Additional Information.

The Flexible Managed Portfolio is managed by a team of portfolio managers. Mark
Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Flexible Managed Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, manages a portion of the portfolio's
equity holdings. The balance of the portfolio's equity holdings are managed to
replicate the performance of the S&P 500 Index. Tony Rodriguez, Managing
Director, Prudential Investments, has been the portfolio manager of the fixed
income portion of the portfolio since 1993. Mr. Stumpp also supervises the team
of portfolio managers for the Conservative Balanced Portfolio. Mr. Stumpp is
also portfolio manager for several employee benefit trusts including The
Prudential Retirement System for U.S. Employees and Special Agents. Prior to
1994, he was responsible for corporate pension asset management for Prudential
Diversified Investment Strategies' corporate clients. Mr. Spitz has been
portfolio manager of the equity portion of the Conservative Balanced Portfolio
since 1995 and is also portfolio manager of the Prudential Equity Income Fund
and the Equity Income Portfolio of the Series Fund. Mr. Rodriguez is also
portfolio manager for the Prudential Structured Maturity Fund, Inc., and the
Conservative Balanced Portfolio of the Series Fund.

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FOREIGN SECURITIES

The bond components of the Conservative Balanced and Flexible Managed Portfolios
may each invest up to 20% of their assets in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
To the extent permitted by applicable insurance law, the Conservative Balanced
and Flexible Managed Portfolios may invest up to 30% of their total assets in
debt and equity securities denominated in a foreign currency and issued by
foreign or domestic issuers. Securities issued outside the United States and not
publicly traded in the United States, as well as American Depository Receipts
("ADRs") and securities denominated in a foreign currency are referred to
collectively in this prospectus as "foreign securities."

Foreign securities involve risks of political and economic instability in the
country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and, in the case of
securities not denominated in United States currency, the risk of currency
fluctuations. Such securities may be subject to greater fluctuations in price
than domestic securities. Under certain market conditions, foreign securities
may be less liquid than domestic securities. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of securities
exchanges, brokers, and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries. If the security is denominated in foreign
currency, it may be affected by changes in currency rates and in exchange
control regulations, and costs may be incurred in connection with conversions
between currencies. Finally, in the event of a default of any foreign debt
obligations, it may be more difficult for a portfolio to obtain or to enforce a
judgment against the issuers of such securities. See FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACTS in the Statement of Additional Information.

RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED BELOW
INVESTMENT GRADE

The Conservative Balanced and Flexible Managed Portfolios may invest in below
investment grade fixed income securities. Medium to lower rated and comparable
non-rated securities tend to offer higher yields than higher rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not have been as strong as that of other issuers.
Since medium to lower rated securities generally involve greater risks of loss
of income and principal than higher rated securities, investors should consider
carefully the relative risks associated with investments in high yield/high risk
securities which carry medium to lower ratings and in comparable non-rated
securities. Investors should understand that such securities are not generally
meant for short-term investing.

24
<PAGE>

specific adverse changes in the condition of a particular issuer. As a result,
Prudential could find it more difficult to sell such securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities
therefore may be less than the prices used in calculating the portfolio's net
asset value. In the absence of readily available market quotations, high
yield/high risk securities will be valued by the Series Fund's Board of
Directors using a method that, in the good faith belief of the Board, accurately
reflects fair value. Valuing such securities in an illiquid market is a
difficult task. The Board's judgment plays a more significant role in valuing
such securities than those securities for which more objective market data are
available.

OPTIONS, FUTURES CONTRACTS AND SWAPS

The description of the portfolios' investment policies also state whether they
will invest in what are sometimes called derivative securities. These include
options (which may be to buy or sell equity securities, debt securities, stock
indices, foreign currencies and stock index futures contracts); futures
contracts on interest bearing securities, stock and interest rate indices, and
foreign currencies; and interest rate swaps. These investments have not in the
past represented more than a very minor part of the investments of any portfolio
but may increase in the future.

A call option gives the owner the right to buy and a put option the right to
sell a designated security or index at a predetermined price for a given period
of time. They will be used primarily to hedge or minimize fluctuations in the
principal value of a portfolio or to generate additional income. They involve
risks which differ, depending upon the particular option. But they often offer
an attractive alternative to the purchase or sale of the related security.

Futures contracts represent a contractual obligation to buy or sell a designated
security or index within a stated period. They can be used as a hedge against or
to minimize fluctuations of a portfolio or as an efficient way of establishing
certain positions more quickly than direct purchase of the securities. They
involve risks of various kinds, all of which could result in losses rather than
in achieving the intended objective of any particular purchase.

Because options, futures and swaps are now used to such a limited extent, a full
description of these investments and the risks associated with them is in the
Statement of Additional Information.

SHORT SALES

The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). The portfolio will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the portfolio replaces the borrowed security. The
portfolio will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash purchase
of a long position in a security. The amount of any gain will be decreased, and
the amount of any loss will be increased, by the amount of any fee or interest
paid in connection with the short sale.

REPURCHASE AGREEMENTS

The portfolios may enter into repurchase agreements, subject to each portfolio's
investment limit in short-term debt obligations, whereby the seller of a
security agrees to repurchase that security from the portfolio at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the portfolio's
money is invested in the repurchase agreement. The repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the portfolio will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the portfolio may incur a loss. Both portfolios participate
in a joint repurchase account pursuant to an order of the SEC. On a daily basis,
any uninvested cash balances of the portfolios may be aggregated and invested in
one or more repurchase agreements. Each portfolio participates in the income
earned or accrued in the joint account based on the percentage of its
investment.

25
<PAGE>

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

The fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use reverse repurchase agreements and dollar rolls. The money
market portion of these portfolios may use reverse repurchase agreements.
Reverse repurchase agreements involve the sale of securities held by a portfolio
with an agreement by the portfolio to repurchase the same securities at an
agreed upon price and date. During the reverse repurchase period, the portfolio
often continues to receive principal and interest payments on the sold
securities. The terms of each agreement reflect a rate of interest for use of
the funds for the period, and thus these agreements have the characteristics of
borrowing by the portfolio. Dollar rolls involve sales by a portfolio of
securities for delivery in the current month with a simultaneous contract to
repurchase substantially similar securities (same type and coupon) from the same
party at an agreed upon price and date. During the roll period, the portfolio
forgoes principal and interest paid on the securities. A portfolio is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. A portfolio will establish a
segregated account with its custodian in which it will maintain cash, U.S.
Government securities or other liquid unencumbered assets equal in value to its
obligations in respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by the portfolio may decline below the price of
the securities the portfolio has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, the
portfolio's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the portfolio's obligation to repurchase the securities. No portfolio will
obligate more than 30% of its net assets in connection with reverse repurchase
agreements and dollar rolls.

LOANS OF PORTFOLIO SECURITIES

Both of the portfolios may from time to time lend the securities they hold to
broker-dealers, qualified banks and certain institutional investors, provided
that such loans are made pursuant to written agreements and are continuously
secured by collateral in the form of cash, U.S. Government Securities or
irrevocable standby letters of credit in an amount equal to at least the market
value at all times of the loaned securities plus the accrued interest and
dividends. During the time securities are on loan, the portfolio will continue
to receive the interest and dividends, or amounts equivalent thereto, on the
loaned securities, while receiving a fee from the borrower or earning interest
on the investment of the cash collateral.

There is a slight risk that the borrower may become insolvent, which might delay
carrying out a decision to sell the loaned security. This risk can be minimized
by careful selection of borrowers and requiring and monitoring the adequacy of
capital. No loans will be made to any broker affiliated with Prudential.

INVESTMENT RESTRICTIONS APPLICABLE TO
THE PORTFOLIOS

The Series Fund is subject to certain investment restrictions which are
fundamental to the operations of the Series Fund and may not be changed except
with the approval of a majority vote of the persons participating in the
affected portfolio.

The investments of the various portfolios are generally subject to certain
additional restrictions under state laws. In the event of future amendments to
the applicable New Jersey statutes, each portfolio will comply, without the
approval of the shareholders, with the statutory requirements as so modified.

A detailed discussion of investment restrictions applicable to the Series Fund
is in the Statement of Additional Information.

INVESTMENT MANAGEMENT ARRANGEMENTS AND
EXPENSES

The Series Fund has entered into an Investment Advisory Agreement with
Prudential under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio.
Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment manager.

<PAGE>

management as of December 31, 1997 were over $370.4 billion which includes over
$251.6 billion owned by Prudential and approximately $118.8 billion of external
assets under Prudential's management.

Subject to Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by Prudential with respect to the
Conservative Balanced and Flexible Managed Portfolios, are furnished by its
wholly-owned subsidiary, PIC, pursuant to the Service Agreement between
Prudential and PIC which provides that a portion of the fee received by
Prudential for providing investment advisory services will be paid to PIC. PIC
is registered as an investment advisor under the Investment Advisers Act of
1940.

Under the Investment Advisory Agreement, Prudential receives an investment
management fee as compensation for its services to the Series Fund. The fee is a
daily charge, payable quarterly, equal to an annual percentage of the average
daily net assets of each individual portfolio. It is set forth on page 10.
Further information about the investment management arrangements and the
expenses of the Series Fund is in the Statement of Additional Information.

PORTFOLIO BROKERAGE AND RELATED PRACTICES

Prudential is responsible for decisions to buy and sell securities for the
portfolios, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Fixed income securities, as
well as equity securities traded in the over-the-counter market, are generally
traded on a "net" basis with dealers acting as principals for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer.

STATE REGULATION

Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, 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.

Pruco Life 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, Pruco Life is required
to file with Arizona 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 reports appearing herein, and
are included in reliance upon the reports 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 Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.

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

27
<PAGE>

LITIGATION

Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.

YEAR 2000 COMPLIANCE

The services provided to the Contract owners by Pruco Life and Prusec 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, Pruco Life and Prusec'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 Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.

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 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.

EXPANDED TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION

Included in the registration statements for the Contracts and the Series Fund is
a Statement of Additional Information which is available without charge by
writing to Pruco Life at 213 Washington Street, Newark, New Jersey 07102-2992.
The following table of contents of that Statement provides a brief summary of
what is included in each section.

I. MORE DETAILED INFORMATION ABOUT THE CONTRACT.

SALES LOAD UPON SURRENDER. A description is given of exactly how Pruco
Life determines the amount of the part of the sales load that is imposed
only upon surrenders or withdrawals during the first 10 Contract years.

REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS. Where
the Contract is sold at the same time to several individuals who are
members of an associated class and Pruco Life's expenses will be
reduced, some of the charges under those Contracts may be reduced.

PAYING PREMIUMS BY PAYROLL DEDUCTION. Your employer may pay monthly
premiums for you with deductions from your salary.

UNISEX PREMIUMS AND BENEFITS. In some states and under certain
circumstances, premiums and benefits will not vary with the sex of the
insured.

HOW THE DEATH BENEFIT WILL VARY. A description is given of exactly how
the death benefit may increase to satisfy Internal Revenue Code
requirements.

WITHDRAWAL OF EXCESS CASH SURRENDER VALUE. If the Contract Fund value is
high enough you may be able to withdraw part of the cash surrender value
while keeping the Contract in effect. There will be a

28
<PAGE>

transaction charge. The death benefit will change. There may be tax
consequences. You should consult your Pruco Life representative to
discuss whether a withdrawal or a loan is preferable.

TAX TREATMENT OF CONTRACT BENEFITS. A fuller account is provided of how
Contract owners may be affected by federal income taxes.

SALE OF THE CONTRACT AND SALES COMMISSIONS. The Contract is sold
primarily by agents of Prudential who are also registered
representatives of one of its subsidiaries, Pruco Securities
Corporation, a broker and dealer registered under the Securities and
Exchange Act of 1934. Generally, selling agents receive a commission of
50% of the Scheduled Premium in the first year, no more than 6% of the
Scheduled Premiums for the second through tenth years and smaller
commissions thereafter.

RIDERS. Various extra fixed-benefits may be obtained for an extra
premium. They are described in what are known as "riders" to the
Contract.

OTHER STANDARD CONTRACT PROVISIONS. The Contract contains several
provisions commonly included in all life insurance policies. They
include provisions relating to beneficiaries, misstatement of age or
sex, suicide, assignment, incontestability, and settlement options.

II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.
General
Convertible Securities
Loan Participations
Warrants
Options and Futures
When-Issued and Delayed Delivery Securities
Short Sales
Short Sales Against the Box
Interest Rate Swaps
Loans of Portfolio Securities
Illiquid Securities
Forward Foreign Currency Exchange Contracts

A more detailed description is given of these investments and the
policies of these portfolios.

III. INVESTMENT RESTRICTIONS.

There are many restrictions upon the investments the portfolios may make
and the practices in which they may engage; these are fundamental,
meaning they may not be changed without Contract owner approval.

IV. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.

A fuller description than that in the prospectus is given.

V. PORTFOLIO TRANSACTIONS AND BROKERAGE.

A description is given of how securities transactions are effected and
how Prudential selects the brokers.

VI. DETERMINATION OF NET ASSET VALUE.

A full description is given of how the daily net asset value of each
portfolio is determined.

VII. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST.

A full description is given.

VIII. DEBT RATINGS.

A description is given of how Moody's Investors Services, Inc. and
Standard & Poor's Ratings Services describe the creditworthiness of debt
securities.

IX. POSSIBLE REPLACEMENT OF THE SERIES FUND.

Although it is most unlikely, it is conceivable that Pruco Life might
wish to replace the Series Fund portfolios with other investment
options. SEC approval will be needed.

X. OTHER INFORMATION CONCERNING THE SERIES FUND.

Incorporation and Authorized Stock
Dividends, Distributions and Taxes
Custodian, Transfer Agent, and Dividend Disbursing Agent
Year 2000

29
<PAGE>

Experts
License

More detail is provided about these matters.

XI. DIRECTORS AND OFFICERS OF PRUCO LIFE AND MANAGEMENT OF THE SERIES FUND.

The names and recent affiliations of Pruco Life's directors and
executive officers are given. The same information is given for the
Series Fund.

XII. FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.

XIII. THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS.

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 and
the Statement of Additional Information do not include all of 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 Pruco Life. Its address and
telephone number are on the inside front cover of this prospectus.

FINANCIAL STATEMENTS

The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and subsidiaries which should be
considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts. The financial statements of the Series Fund are
in the Statement of Additional Information.

30
<PAGE>

FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF NET ASSETS
December 31, 1997

SUBACCOUNTS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3] .... $108,801,658 $103,787,488
Receivable from Pruco Life Insurance Company
[Note 2] .................................... 67,000 70,991
------------ ------------
Net Assets ................................ $108,868,658 $103,858,479
============ ============

NET ASSETS, representing:
Equity of Contract owners ................... $108,868,658 $103,858,479
============ ============

STATEMENTS OF OPERATIONS
For the year ended December 31, 1997

SUBACCOUNTS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------

INVESTMENT INCOME
Dividend distributions received .............. $ 3,045,029 $ 4,605,400

EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] .. 890,696 886,214
------------- -------------

NET INVESTMENT INCOME ........................... 2,154,333 3,719,186
------------- -------------

NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ......... 16,205,801 11,137,278
Realized gain on shares redeemed
[average cost basis] ....................... 130,940 212,244
Net change in unrealized (loss) on investments (3,235,860) (3,623,420)
------------- -------------

NET GAIN ON INVESTMENTS ......................... 13,100,881 7,726,102
------------- -------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................... $ 15,255,214 $ 11,445,288
============= =============

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5
A1

<PAGE>

FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------------------------ --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $2,154,333 $1,773,662 $1,286,436 $3,719,186 $2,785,827 $2,140,247
Capital gains distributions received............. 16,205,801 8,045,666 2,529,393 11,137,278 5,586,889 2,376,572
Realized gain on shares redeemed
[average cost basis]........................... 130,940 0 0 212,244 3,248 0
Net change in unrealized gain (loss) on
investments.................................... (3,235,860) (782,631) 6,464,304 (3,623,420) 771,969 4,408,774
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........................ 15,255,214 9,036,697 10,280,133 11,445,288 9,147,933 8,925,593
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]......................................... 6,605,926 16,291,683 13,702,273 427,926 12,500,355 13,523,927
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8]......................................... (328,229) 302,045 (910,613) (322,721) 285,561 (963,325)
------------ ----------- ----------- ------------ ----------- -----------

TOTAL INCREASE IN NET ASSETS........................ 21,532,911 25,630,425 23,071,793 11,550,493 21,933,849 21,486,195

NET ASSETS:
Beginning of year............................... 87,335,747 61,705,322 38,633,529 92,307,986 70,374,137 48,887,942
------------ ----------- ----------- ------------ ----------- -----------
End of year..................................... $108,868,658 $87,335,747 $61,705,322 $103,858,479 $92,307,986 $70,374,137
============ =========== =========== ============ =========== ===========

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5
A2

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997

NOTE 1: GENERAL

Pruco Life PRUvider Variable Appreciable Account (the "Account") was
established on July 10, 1992 under Arizona law as a separate
investment account of Pruco Life Insurance Company ("Pruco Life")
which is a wholly-owned subsidiary of The Prudential Insurance
Company of America ("Prudential"). The assets of the Account are
segregated from Pruco Life's other assets.

The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are two subaccounts
within the Account, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund").
The Series Fund is a diversified open-end management investment
company, and is managed by Prudential.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.

Investments--The investments in shares of the Series Fund are stated
-----------
at the net asset value of the respective portfolio.

Security Transactions--Realized gains and losses on security
-----------------------
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.

Distributions Received--Dividend and capital gain distributions
------------------------
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.

Equity of Pruco Life Insurance Company--Pruco Life maintains a
------------------------------------------
position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions, and expense
processing. Pruco Life monitors the balance daily and transfers funds
based upon anticipated activity. At times, Pruco Life may owe an
amount to the Account, which is reflected in the Account's Statements
of Net Assets as a receivable from Pruco Life. The receivable does
not have an effect on the Contract owner's account or the related
unit value.

<PAGE>

NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS

The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of the
Account and the aggregate cost of investments in such shares at
December 31, 1997 were as follows:

PORTFOLIOS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------

Number of Shares: 6,296,287 6,932,930
Net asset value per share: $ 17.28029 $ 14.97022
Cost: $109,239,908 $104,868,420

NOTE 4: CONTRACT OWNER UNIT INFORMATION

Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:

SUBACCOUNTS
-----------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-----------------------------------
Contract Owner Units Outstanding 36,300,321.680 41,809,466.917
Unit Value ..................... $ 2.99911 $ 2.48409
---------------- ---------------
TOTAL CONTRACT OWNER EQUITY ... $ 108,868,658 $ 103,858,479
================ ===============

NOTE 5: CHARGES AND EXPENSES

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges at an effective
annual rate of 0.90% are applied daily against the net assets
representing equity of Contract owners held in each subaccount.
Mortality risk is that Contract owners may not live as long as
estimated and expense risk is that the cost of issuing and
administering the policies may exceed the estimated expenses. For
1997, the amount of these charges paid to Pruco Life was
$1,776,910.

B. Deferred Sales Charge

Subsequent to a Contract owner redemption, a deferred sales
charge is imposed upon surrenders of certain variable life
insurance contracts to compensate Pruco Life for sales and other
marketing expenses. The amount of any sales charge will depend on
the number of years that have elapsed since the Contract was
issued. No sales charge will be imposed after the tenth year of
the Contract. No sales charge will be imposed on death benefits.
For 1997, the amount of these charges paid to Pruco Life was $
295,205.

C. Cost of Insurance Charges

Contract owner contributions are applied to the Account net of
the following charges: transaction costs, premium taxes, sales
loads, administrative charges, and death benefit risk charges.
During 1997, Pruco Life received a total of $1,239,689,
$1,668,969, $3,998,082, $8,726,448 and $158,412, respectively,
for these charges.

NOTE 6: TAXES

Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Pruco Life's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.

<PAGE>

NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS

The following amounts represent Contract owner activity components
for the year ended December 31, 1997:

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------- -------------
<S> <C> <C>
Contract Owner Net Payments ........................... $ 26,737,492 $ 19,001,987
Policy Loans .......................................... $ (912,970) $ (704,562)
Policy Loan Repayment and Interest .................... $ 390,085 $ 350,979
Surrenders, Withdrawals, and Death Benefits ........... $ (6,402,537) $ (6,555,299)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Options .......................................... $ 567,479 $ (476,329)
Administrative and Other Charges ...................... $(13,773,623) $(11,188,850)
</TABLE>

NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS

The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life to the
Account.

NOTE 9: UNIT ACTIVITY

Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1997 and December 31, 1996 were as follows:

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------------------------- -------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>

Contract Owner Contributions: 9,998,784.494 14,116,349.476 8,324,435.867 13,901,186.920
Contract Owner Redemptions: (7,621,394.910) (7,281,504.623) (8,122,803.908) (7,840,673.413)
</TABLE>

NOTE 10: PURCHASES AND SALES OF INVESTMENTS

The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund were as follows:

PORTFOLIOS
----------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
---------------- ---------------
For the year ended December 31, 1997:
Purchases.................................. $ 6,505,000 $ 2,017,000
Sales...................................... $ (1,185,000) $ (2,869,000)

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Contract Owners of the
Pruco Life PRUvider Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company

In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Flexible Managed
and Conservative Balanced) of the Pruco Life PRUvider Variable Appreciable
Account at December 31, 1997, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Pruco Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial 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, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1997, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
New York, New York
March 20, 1998

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Contract Owners of
Pruco Life PRUvider Variable Appreciable
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey

We have audited the accompanying statements of changes in net assets of Pruco
Life PRUvider Variable Appreciable Account of Pruco Life Insurance Company
(comprising, respectively, the Flexible Managed and Conservative Balanced
subaccounts) 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 these financial statements based on our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life PRUvider Variable Appreciable Account for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996
----------------- -----------------

<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351

Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-1

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES

Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------

TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES

Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------

TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------

Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------

Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------

Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------

NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-2

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602

Net income -- -- 152,644 -- -- 152,644

Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)

Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193

Net income -- -- 149,222 -- -- 149,222

Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)

Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981

Net income -- -- 106,374 -- -- 106,374

Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)

Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517

============= ============= ============= ============= =========== =============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-3

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)

--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-4

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. BUSINESS

Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.

The only reportable industry segment of the Company is "Life Insurance."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. 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."

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 separate component of equity,
"Net unrealized investment gains."

MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts

POLICY LOANS are carried at unpaid principal balances.

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.
These 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 maturity and equity securities are adjusted for
impairments considered to be other than temporary.

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

B-5

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. 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.

FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES

Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.

For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.

Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.

SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities 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 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.

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
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, 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."

Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.

B-6

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "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.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch 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."

DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."

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 subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. 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 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.

B-7

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

B-8

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

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 as of December 31,:

<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)

<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902

Foreign government bonds 83,889 1,118 19 84,988

Corporate securities 2,263,898 36,857 2,017 2,298,738

Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============

1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)

FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911

Foreign government bonds 90,447 857 205 91,099

Corporate securities 2,087,250 30,365 4,206 2,113,409

Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>

B-9

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. INVESTMENTS (CONTINUED)

The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)

<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838

Due after one year through five years 1,738,532 1,758,946 204,298 212,050

Due after five years through ten years 555,194 567,928 98,192 101,143

Due after ten years 201,993 206,023 22,622 23,025

Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>

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

Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.

The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:

AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------

AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)

<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797

BBB 1,047,203 1,062,641 128,481 131,820

BB 80,136 83,293 20,540 21,264

B 73,717 76,781 2,132 2,172

CCC or lower 5,943 6,288 -- --

In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------

Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>

The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.

B-10

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

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,

1997 1996
---------------------- -----------------------

(In Thousands)

Office buildings $ 4,607 20% $ 18,497 39%

Retail stores 8,090 35% 8,731 19%

Apartment complexes 6,080 27% 11,771 25%

Industrial buildings 4,010 18% 7,916 17%

---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================

The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).

SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.

OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."

B-11

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

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 Thousands)

<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>

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

1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------

Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</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 1995
----------------- ----------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>

B-12

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. INCOME TAXES

The components of income taxes for the years ended December 31, are as follows:

1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------

Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------

Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>

The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:

1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)

<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>

B-13

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. INCOME TAXES (CONTINUED)

Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:

1997 1996
-------------------- --------------------
(In Thousands)

<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------

Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------

Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>

Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.

The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.

5. REINSURANCE

The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:

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

Life insurance premiums

Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========

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

Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========

B-14

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6. EQUITY

RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME

Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.

1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)

<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565

Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================

1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645

Adjustments to reconcile to equity on a GAAP basis:

Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>

The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.

B-15

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such estimates
presented may not be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies could have a material effect
on the estimated fair values. The following methods and assumptions were used in
calculating the fair values (for all other financial instruments presented in
the table, the carrying value approximates fair value.)

FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.

MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.

POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.

DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.

The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:

1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)

<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851

Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>

B-16

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8. DERIVATIVE INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.

9. RELATED PARTY TRANSACTIONS

SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.

REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.

10. CONTINGENCIES

Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.

In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.

11. DIVIDENDS

The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.

B-17

<PAGE>

Report of Independent Accountants
---------------------------------

To the Board of Directors of
Pruco Life Insurance Company

In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company 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
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. 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.

/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998

B-18
<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey

We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company 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
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.

/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996

B-19

<PAGE>

PRUvider(sm)
Variable Appreciable Life(R)
Insurance

[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
SVAL-1 Ed. 5/98 CAT#6469898

<PAGE>

PRUvider(sm) Variable

Appreciable Life(r) Insurance

PROSPECTUS

The Pruco Life of New Jersey Variable

Appreciable Account and

The Prudential Series Fund, Inc.

May 1, 1998

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

<PAGE>

PROSPECTUS

MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

PRUVIDER(sm)

VARIABLE APPRECIABLE LIFE(r)

INSURANCE CONTRACT

This prospectus describes a variable life insurance contract issued by Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), a stock life
insurance company that is an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America ("Prudential"). Pruco Life of New Jersey calls this
contract its PRUVIDER(sm) Variable APPRECIABLE LIFE(r) Insurance Contract* (the
"Contract"). The Contract provides whole-life insurance protection. The death
benefit varies daily with investment experience but will never be less than a
guaranteed minimum amount (the face amount specified in the Contract). The
Contract also generally provides a cash surrender value which does not have a
guaranteed minimum amount.

The assets held for the purpose of paying benefits under these and other similar
contracts are segregated from the other assets of Pruco Life of New Jersey and
are invested in one or both of the current subaccounts of the Pruco Life of New
Jersey Variable Appreciable Account (from now on, the "Account"). In this case,
the assets will be invested in the corresponding portfolio of The Prudential
Series Fund, Inc. (from now on, the "Series Fund"). The two portfolios of the
Series Fund currently available to Contract owners are the CONSERVATIVE BALANCED
PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO. The Contract owner may also choose
to have the assets invested in a FIXED-RATE OPTION. This prospectus describes
the Contract generally, the Pruco Life of New Jersey Variable Appreciable
Account and the securities issued by the Series Fund.

Before you sign an application to purchase this life insurance contract, you
should read this prospectus with care and have any questions you may have
answered by your Pruco Life of New Jersey representative. If you do purchase the
Contract, you should retain this prospectus for future reference, together with
the Contract itself that you will receive.

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.

<PAGE>

TABLE OF CONTENTS

PAGE
----
INTRODUCTION AND SUMMARY .................................................. 1
BRIEF DESCRIPTION OF THE CONTRACT ....................................... 1
BALANCED PORTFOLIOS ..................................................... 4
CONSERVATIVE BALANCED PORTFOLIO ....................................... 4
FLEXIBLE MANAGED PORTFOLIO ............................................ 4
FIXED-RATE OPTION ....................................................... 4
TRANSFERS BETWEEN INVESTMENT OPTIONS .................................... 4
THE SCHEDULED PREMIUM ................................................... 4
PAYMENT OF HIGHER PREMIUMS .............................................. 4
CONTRACT LOANS .......................................................... 5
PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS .................. 5

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND ................. 5

PORTFOLIO RATES OF RETURN ................................................. 7

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUMS .................................................... 8

GENERAL INFORMATION ABOUT PRUCO LIFE OF NEW JERSEY VARIABLE
APPRECIABLE ACCOUNT AND THE FIXED RATE OPTION ........................... 9
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT ................... 9
THE FIXED-RATE OPTION ................................................... 9

DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS ...................... 10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT ................................. 10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK" ............................ 10
CONTRACT FEES AND CHARGES ............................................... 10
Deductions from Premiums .............................................. 10
Deductions from Portfolios ............................................ 10
Monthly Deductions from Contract Fund ................................. 11
Daily Deduction from the Contract Fund ................................ 12
Surrender or Withdrawal Charges ....................................... 12
Transaction Charges ................................................... 13
CONTRACT DATE ........................................................... 13
PREMIUMS ................................................................ 13
ALLOCATION OF PREMIUMS .................................................. 14
TRANSFERS ............................................................... 14
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE ................ 15
HOW A CONTRACT'S DEATH BENEFIT WILL VARY ................................ 16
CONTRACT LOANS .......................................................... 16
SURRENDER OF A CONTRACT ................................................. 17
LAPSE AND REINSTATEMENT ................................................. 17
Fixed Extended Term Insurance ......................................... 17
Fixed Reduced Paid-Up Insurance ....................................... 17
Variable Reduced Paid-Up Insurance .................................... 17
What Happens If No Request Is Made? ................................... 18
PAID-UP INSURANCE OPTION ................................................ 18
REDUCED PAID-UP INSURANCE OPTION ........................................ 18
WHEN PROCEEDS ARE PAID .................................................. 18
LIVING NEEDS BENEFIT .................................................... 19
Terminal Illness Option ............................................... 19
VOTING RIGHTS ........................................................... 19
REPORTS TO CONTRACT OWNERS .............................................. 20
TAX TREATMENT OF CONTRACT BENEFITS ...................................... 20
Treatment as Life Insurance ........................................... 20
Pre-Death Distributions ............................................... 20
Other Tax Consequences ................................................ 21

<PAGE>

PAGE
----
Withholding ........................................................... 21
OTHER CONTRACT PROVISIONS ............................................... 21

FURTHER INFORMATION ABOUT THE SERIES FUND ................................. 21

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ...................... 22
BALANCED PORTFOLIOS ..................................................... 22
Conservative Balanced Portfolio ....................................... 22
Flexible Managed Portfolio ............................................ 23
FOREIGN SECURITIES ...................................................... 24
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED
BELOW INVESTMENT GRADE ................................................ 25
OPTIONS, FUTURES CONTRACTS AND SWAPS .................................... 26
SHORT SALES ............................................................. 26
REPURCHASE AGREEMENTS ................................................... 26
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS .......................... 26
LOANS OF PORTFOLIO SECURITIES ........................................... 27

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS ...................... 27

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES ........................... 27
PORTFOLIO BROKERAGE AND RELATED PRACTICES ............................... 28

STATE REGULATION .......................................................... 28

EXPERTS ................................................................... 28

LITIGATION ................................................................ 28

YEAR 2000 COMPLIANCE ...................................................... 29

EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ......... 29

ADDITIONAL INFORMATION .................................................... 31

FINANCIAL STATEMENTS ...................................................... 31

FINANCIAL STATEMENTS OF THE PRUCO LIFE OF NEW JERSEY VARIABLE
APPRECIABLE ACCOUNT ..................................................... A1

FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY ........ B1

<PAGE>

================================================================================

INTRODUCTION AND SUMMARY

BRIEF DESCRIPTION OF THE CONTRACT

The PRUVIDER Variable APPRECIABLE LIFE Contract (referred to from now on as the
"Contract") is issued and sold by the Pruco Life Insurance Company of New Jersey
("Pruco Life of New Jersey"), a stock life insurance company, organized in 1982
under the laws of the State of New Jersey. It is licensed to sell life insurance
and annuities only in the States of New Jersey and New York. These Contracts are
not offered in any state in which the necessary approvals have not yet been
obtained.

Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life Insurance
Company, which in turn is a wholly-owned subsidiary of Prudential, 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 the Company'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 Company policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of the Company 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.

As of December 31, 1997, Prudential has invested $127 million in Pruco Life of
New Jersey through its subsidiary Pruco Life Insurance Company in connection
with Pruco Life of New Jersey's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life of New Jersey
as needed to enable it to meet its reserve requirements

================================================================================

<PAGE>

================================================================================

and expenses in connection with its business. Prudential is under no obligation
to make such contributions and its assets do not back the benefits payable under
the Contract. Pruco Life of New Jersey's financial statements begin on page B1
and should be considered only as bearing upon Pruco Life of New Jersey's ability
to meet its obligations under the Contracts.

A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Pruco Life of New Jersey has
established the Pruco Life of New Jersey Variable Appreciable Account (the
"Account") under New Jersey law as a separate investment account whose assets
are segregated from all other assets of Pruco Life of New Jersey. Whenever you
pay a premium, Pruco Life of New Jersey first deducts certain charges (described
below) and, unless you decide otherwise puts the remainder - often called the
"net premium" - into the Account, where it is combined with the net premiums
from all other contracts like this one. The money in the Account, including your
Contract Fund, is then invested in the following way. The Account is divided
into 2 subaccounts and you must decide which one[s] will hold the assets of your
Contract Fund. The money allocated to each subaccount is immediately invested in
a corresponding portfolio of The Prudential Series Fund, Inc. Those two
portfolios -- called the CONSERVATIVE BALANCED PORTFOLIO and the FLEXIBLE
MANAGED PORTFOLIO -- differ in the amount of risk associated with them and are
described in more detail below.

Pruco Life of New Jersey deducts certain charges from each premium payment and
from the amounts held in the designated investment options. In addition, Pruco
Life of New Jersey makes certain additional charges if a Contract lapses or is
surrendered during the first 10 Contract years. All these charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under CONTRACT FEES AND CHARGES on
page 10. In brief, and subject to that fuller description, the following diagram
outlines the charges which may be made:

-------------------------------------------------------------
PREMIUM PAYMENT
-------------------------------------------------------------
|
|
--------------------------------------
o less charge for taxes attributable
to premiums

o less $2 processing fee
---------------------------------------

================================================================================

<PAGE>

================================================================================

----------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT

o To be invested in one or a combination of:
o The Conservative Balanced Portfolio
o The Flexible Managed Portfolio
o The Fixed-Rate Option
----------------------------------------------------------------------------
|
|
----------------------------------------------------------------------------
DAILY CHARGES

o A daily charge equivalent to an annual rate of up to 0.9% is deducted
from the assets of the subaccounts for mortality and expense risks.

o Management fees and expenses are deducted from the assets of the
Series Fund. See DEDUCTIONS FROM PORTFOLIOS, page 10.

----------------------------------------------------------------------------
|
|
----------------------------------------------------------------------------
MONTHLY CHARGES

o A sales charge is deducted from the Contract Fund in the amount
of 1/2 of 1% of the primary annual premium.

o The Contract Fund is reduced by a guaranteed minimum death benefit
risk charge of not more than $0.01 per $1,000 of the face amount of
insurance.

o A charge for anticipated mortality is deducted, with the maximum
charge based on the non-smoker/smoker 1980 CSO Tables.

o An administrative processing charge of up to $15 will be made in
connection with each withdrawal of excess cash surrender value.

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

When you first buy the Contract you give instructions to Pruco Life of New
Jersey as to what combination of the three investment options you wish your
Contract Fund invested. Thereafter

================================================================================

<PAGE>

================================================================================

you may make changes in these allocations either in writing or by telephone. The
investment objectives of the portfolios, described more fully starting on page
22 of this prospectus, and of the fixed-rate option are as follows:

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED PORTFOLIO. Achievement of a favorable total investment
return consistent with a portfolio having a conservatively 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 who desires
diversification of investment who prefers a relatively lower risk of loss than
that associated with the Flexible Managed Portfolio while recognizing that this
reduces the chances of greater appreciation.

FIXED-RATE OPTION

Guarantee against loss of principal plus income at a rate which may change at
yearly intervals, but will never be lower than an effective annual rate of 4%.

TRANSFERS BETWEEN INVESTMENT OPTIONS

THE SCHEDULED PREMIUM

Your Contract sets forth an annual Scheduled Premium, or one that is payable
more frequently, such as monthly. Pruco Life of New Jersey guarantees that, if
the Scheduled Premiums are paid when due (or if missed premiums are paid later,
with interest), the death benefit will be paid upon the death of the insured.
The Contract will not lapse even if investment experience is unexpectedly so
unfavorable that the Contract Fund value drops to below zero.

The amount of the scheduled premium depends on the Contract's face amount, the
insured's sex and age at issue, the insured's risk classification, the rate for
taxes attributable to premiums, and the frequency of premium payments selected.
Under certain low face amount Contracts issued on younger insureds, the payment
of the Scheduled Premium may cause the Contract to be classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 20. The
scheduled premium will not be increased (except to reflect changes in the rate
for taxes attributable to premiums). See PREMIUMS, page 13.

PAYMENT OF HIGHER PREMIUMS

================================================================================

<PAGE>

================================================================================

CONTRACT LOANS

PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS

Pruco Life of New Jersey's PRUVIDER Variable APPRECIABLE LIFE Insurance Contract
is a form of life insurance that provides much of the flexibility of variable
universal life. However, it differs in two important ways. First, Pruco Life of
New Jersey guarantees that if the Scheduled Premiums are paid when due or within
the grace period (or missed premiums are paid later with interest), the Contract
will not lapse and the face amount of insurance will be paid upon the death of
the insured even if, because of unfavorable investment experience, the Contract
Fund value should drop to below zero. Second, if all premiums are not paid when
due (or made up), the Contract will not lapse as long as the Contract Fund is
higher than a stated amount set forth in a table in the Contract - an amount
that increases each year and in later years becomes quite high; it is called the
"Tabular Contract Fund." The Contract lapses when the Contract Fund falls to
below this stated amount, rather than when it drops to zero. Thus, when a
PRUVIDER Variable APPRECIABLE LIFE Contract lapses, it may still have
considerable value and you will, therefore, have a substantial incentive to
reinstate it, as well as an opportunity to make a considered decision whether to
do so or to take, in one form or another, the cash surrender value. In effect,
Pruco Life of New Jersey provides an early and timely warning against the
imprudent use of the flexibility provided by the Contract.

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS
OF THE SERIES FUND

================================================================================

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
----------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30 $ 11.89
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.76 0.66 0.63 0.53 0.49 0.56 0.69 0.82 0.89 0.77
Net realized and
unrealized gains
(losses) on
investments..... 1.26 1.24 1.78 (0.68) 1.23 0.41 1.74 (0.14) 1.15 0.43
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total from
investment
operations... 2.02 1.90 2.41 (0.15) 1.72 0.97 2.43 0.68 2.04 1.20
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.76) (0.66) (0.64) (0.51) (0.47) (0.54) (0.67) (0.81) (0.89) (0.79)
Distributions from
net realized
gains........... (1.81) (1.03) (0.56) (0.15) (0.58) (0.51) (0.50) (0.17) (0.09) --
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total
distributions... (2.57) (1.69) (1.20) (0.66) (1.05) (1.05) (1.17) (0.98) (0.98) (0.79)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Net Asset Value,
end of year..... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
TOTAL INVESTMENT
RETURN(b)....... 13.45% 12.63% 17.27% (0.97)% 12.20% 6.95% 19.07% 5.27% 16.99% 10.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6
Ratios to average
net assets:
Expenses........ 0.56% 0.59% 0.58% 0.61% 0.60% 0.62% 0.63% 0.65% 0.64% 0.65%
Net investment
income........ 4.48% 4.13% 4.19% 3.61% 3.22% 3.88% 4.89% 6.21% 6.81% 6.22%
Portfolio turnover
rate............ 295% 295% 201% 125% 79% 62% 115% 44% 154% 111%
Average commission
rate paid per
share........... $0.0563 $0.0554 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12 $ 12.33
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.59 0.57 0.56 0.47 0.57 0.58 0.65 0.72 0.82 0.72
Net realized and
unrealized gains
(losses) on
investments..... 2.52 1.79 3.15 (1.02) 1.88 0.61 2.81 (0.47) 1.99 0.84
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total from
investment
operations... 3.11 2.36 3.71 (0.55) 2.45 1.19 3.46 0.25 2.81 1.56
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.58) (0.58) (0.56) (0.45) (0.57) (0.56) (0.66) (0.70) (0.81) (0.77)
Distributions from
net realized
gains........... (3.04) (1.85) (0.79) (0.46) (0.93) (0.91) (0.51) -- (0.67) --
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total
distributions... (3.62) (2.43) (1.35) (0.91) (1.50) (1.47) (1.17) (0.70) (1.48) (0.77)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Net Asset Value,
end of year..... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN(b)....... 17.96% 13.64% 24.13% (3.16)% 15.58% 7.61% 25.43% 1.91% 21.77% 12.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9
Ratios to average
net assets:
Expenses........ 0.62% 0.64% 0.63% 0.66% 0.66% 0.67% 0.67% 0.69% 0.69% 0.70%
Net investment
income........ 3.02% 3.07% 3.30% 2.90% 3.30% 3.63% 4.23% 5.13% 5.66% 5.52%
Portfolio turnover
rate............ 227% 233% 173% 124% 63% 59% 93% 52% 141% 128%
Average commission
rate paid per
share........... $0.0569 $0.0563 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

This information should be read in conjunction with the financial statements of
The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.

Further information about performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

<PAGE>

PORTFOLIO RATES OF RETURN

<PAGE>

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS
AND ACCUMULATED PREMIUMS

The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life of New Jersey's current charges. The values
shown in these tables are calculated upon the assumption that Pruco Life of New
Jersey will continue to use the administrative charges and mortality rates that
it is currently using, even though it is permitted under the Contract to use
higher administrative charges and the higher mortality charges specified in the
1980 CSO Table. While Pruco Life of New Jersey does not currently intend to
withdraw or modify these reductions in charges, it reserves the right to do so.

The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum
administrative charges allowable under the Contract and the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract; they do not reflect Pruco Life of New Jersey's current practice of
reducing the administrative and mortality charges.

Upon request, Pruco Life of New Jersey will furnish a comparable hypothetical
illustration based on the proposed insured's age, sex and the face amount or
premium amount requested. The illustrations can be prepared upon the assumptions
that the insured is in the preferred or standard rating class or in a different
risk classification, and can assume that annual, semi-annual, quarterly or
monthly premiums are paid.

<PAGE>

<TABLE>

ILLUSTRATIONS
-------------

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES

<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net) (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,003 $5,007 $ 5,011 $ 5,016 $ 0 $ 0 $ 2 $ 6
2 $ 369 $5,002 $5,013 $ 5,025 $ 5,036 $ 48 $ 59 $ 70 $ 82
3 $ 564 $5,000 $5,019 $ 5,040 $ 5,063 $101 $ 121 $ 142 $ 165
4 $ 767 $5,000 $5,024 $ 5,058 $ 5,096 $154 $ 185 $ 219 $ 257
5 $ 978 $5,000 $5,028 $ 5,079 $ 5,136 $205 $ 249 $ 300 $ 357
6 $ 1,198 $5,000 $5,034 $ 5,105 $ 5,187 $268 $ 330 $ 401 $ 483
7 $ 1,427 $5,000 $5,039 $ 5,134 $ 5,248 $331 $ 411 $ 507 $ 620
8 $ 1,665 $5,000 $5,043 $ 5,167 $ 5,320 $392 $ 494 $ 618 $ 771
9 $ 1,912 $5,000 $5,047 $ 5,205 $ 5,404 $452 $ 578 $ 736 $ 935
10 $ 2,169 $5,000 $5,050 $ 5,248 $ 5,503 $511 $ 663 $ 861 $ 1,116
15 $ 3,617 $5,000 $5,058 $ 5,544 $ 6,271 $721 $1,047 $ 1,532 $ 2,259
20 $ 5,379 $5,000 $5,048 $ 6,027 $ 9,117 $882 $1,457 $ 2,436 $ 4,122
25 $ 7,523 $5,000 $5,016 $ 6,983 $13,550 $970 $1,882 $ 3,643 $ 7,069
30 (Age 65) $10,132 $5,000 $5,000 $ 8,747 $19,608 $940 $2,304 $ 5,202 $11,661
35 $13,305 $5,000 $5,000 $10,721 $27,975 $700 $2,696 $ 7,157 $18,678
40 $17,166 $5,000 $5,000 $12,973 $39,652 $ 52 $3,019 $ 9,560 $29,220
45 $21,864 $5,000 $5,000 $15,607 $56,163 $ 0 $3,189 $12,446 $44,788

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

(1) If premiums are paid more frequently than annually, the payments would be $89.46 semi-annually, $46.15 quarterly or $16.90
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.

(2) Assumes no Contract loan has been made.

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, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

</TABLE>
T1

<PAGE>

<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES

<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net) (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,012 $20,024 $20,036 $ 20,048 $ 39 $ 50 $ 62 $ 74
2 $ 829 $20,013 $20,046 $20,080 $ 20,115 $ 243 $ 276 $ 310 $ 345
3 $ 1,269 $20,002 $20,065 $20,133 $ 20,204 $ 442 $ 506 $ 573 $ 644
4 $ 1,726 $20,000 $20,082 $20,195 $ 20,317 $ 636 $ 739 $ 852 $ 974
5 $ 2,202 $20,000 $20,095 $20,266 $ 20,457 $ 833 $ 986 $ 1,157 $ 1,347
6 $ 2,697 $20,000 $20,112 $20,357 $ 20,636 $1,084 $ 1,296 $ 1,540 $ 1,820
7 $ 3,211 $20,000 $20,128 $20,461 $ 20,853 $1,335 $ 1,617 $ 1,950 $ 2,342
8 $ 3,746 $20,000 $20,141 $20,579 $ 21,111 $1,582 $ 1,944 $ 2,383 $ 2,914
9 $ 4,302 $20,000 $20,152 $20,715 $ 21,416 $1,824 $ 2,276 $ 2,839 $ 3,539
10 $ 4,881 $20,000 $20,160 $20,867 $ 21,773 $2,060 $ 2,612 $ 3,319 $ 4,225
15 $ 8,140 $20,000 $20,164 $21,949 $ 24,589 $2,900 $ 4,119 $ 5,903 $ 8,544
20 $12,106 $20,000 $20,092 $23,738 $ 34,499 $3,549 $ 5,730 $ 9,376 $ 15,597
25 $16,931 $20,000 $20,000 $26,860 $ 51,316 $3,900 $ 7,391 $14,013 $ 26,771
30 (Age 65) $22,801 $20,000 $20,000 $33,679 $ 74,293 $3,775 $ 9,031 $20,028 $ 44,181
35 $29,942 $20,000 $20,000 $41,307 $106,029 $2,801 $10,514 $27,578 $ 70,789
40 $38,631 $20,000 $20,000 $50,014 $150,318 $ 181 $11,630 $36,856 $110,771
45 $49,203 $20,000 $20,000 $60,199 $212,938 $ 0 $11,934 $48,007 $169,812

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

(1) If premiums are paid more frequently than annually, the payments would be $202.79 semi-annually, $103.98 quarterly or $36.59
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.

(2) Assumes no Contract loan has been made.

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, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

</TABLE>
T2

<PAGE>

<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES

<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net) (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,000 $5,000 $ 5,004 $ 5,009 $ 0 $ 0 $ 0 $ 0
2 $ 369 $5,000 $5,000 $ 5,010 $ 5,022 $ 35 $ 45 $ 56 $ 67
3 $ 564 $5,000 $5,000 $ 5,018 $ 5,040 $ 82 $ 101 $ 120 $ 142
4 $ 767 $5,000 $5,000 $ 5,028 $ 5,063 $128 $ 157 $ 189 $ 224
5 $ 978 $5,000 $5,000 $ 5,040 $ 5,093 $172 $ 214 $ 261 $ 314
6 $ 1,198 $5,000 $5,000 $ 5,054 $ 5,130 $228 $ 285 $ 350 $ 426
7 $ 1,427 $5,000 $5,000 $ 5,071 $ 5,174 $283 $ 356 $ 443 $ 547
8 $ 1,665 $5,000 $5,000 $ 5,090 $ 5,228 $336 $ 428 $ 541 $ 679
9 $ 1,912 $5,000 $5,000 $ 5,112 $ 5,291 $388 $ 501 $ 643 $ 822
10 $ 2,169 $5,000 $5,000 $ 5,137 $ 5,366 $439 $ 574 $ 750 $ 979
15 $ 3,617 $5,000 $5,000 $ 5,320 $ 5,954 $603 $ 887 $1,309 $ 1,942
20 $ 5,379 $5,000 $5,000 $ 5,627 $ 7,702 $713 $1,205 $2,037 $ 3,482
25 $ 7,523 $5,000 $5,000 $ 6,110 $11,242 $742 $1,503 $2,975 $ 5,865
30 (Age 65) $10,132 $5,000 $5,000 $ 7,022 $15,936 $635 $1,744 $4,176 $ 9,477
35 $13,305 $5,000 $5,000 $ 8,452 $22,224 $284 $1,853 $5,643 $14,837
40 $17,166 $5,000 $5,000 $10,014 $30,713 $ 0 $1,672 $7,379 $22,633
45 $21,864 $5,000 $5,000 $11,750 $42,268 $ 0 $ 767 $9,370 $33,708

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

(1) If premiums are paid more frequently than annually, the payments would be $89.46 semi-annually, $46.15 quarterly or $16.90
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.

(2) Assumes no Contract loan has been made.

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, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

</TABLE>

<PAGE>

<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES

<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net) (-1.49% Net) (2.51% Net) (6.51% Net) (10.51% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,000 $20,000 $20,009 $ 20,020 $ 12 $ 24 $ 35 $ 46
2 $ 829 $20,000 $20,000 $20,024 $ 20,057 $ 191 $ 222 $ 253 $ 286
3 $ 1,269 $20,000 $20,000 $20,045 $ 20,111 $ 364 $ 423 $ 485 $ 551
4 $ 1,726 $20,000 $20,000 $20,074 $ 20,186 $ 533 $ 628 $ 731 $ 843
5 $ 2,202 $20,000 $20,000 $20,110 $ 20,284 $ 705 $ 844 $ 1,000 $ 1,174
6 $ 2,697 $20,000 $20,000 $20,154 $ 20,408 $ 925 $1,117 $ 1,338 $ 1,591
7 $ 3,211 $20,000 $20,000 $20,208 $ 20,561 $1,145 $1,398 $ 1,697 $ 2,050
8 $ 3,746 $20,000 $20,000 $20,271 $ 20,746 $1,360 $1,683 $ 2,074 $ 2,549
9 $ 4,302 $20,000 $20,000 $20,345 $ 20,968 $1,569 $1,970 $ 2,469 $ 3,092
10 $ 4,881 $20,000 $20,000 $20,431 $ 21,232 $1,772 $2,260 $ 2,883 $ 3,683
15 $ 8,140 $20,000 $20,000 $21,070 $ 23,346 $2,433 $3,487 $ 5,024 $ 7,300
20 $12,106 $20,000 $20,000 $22,169 $ 28,945 $2,881 $4,725 $ 7,807 $ 13,086
25 $16,931 $20,000 $20,000 $23,925 $ 42,300 $2,994 $5,874 $11,387 $ 22,068
30 (Age 65) $22,801 $20,000 $20,000 $26,854 $ 60,009 $2,566 $6,774 $15,970 $ 35,686
35 $29,942 $20,000 $20,000 $32,365 $ 83,731 $1,153 $7,105 $21,608 $ 55,902
40 $38,631 $20,000 $20,000 $38,386 $115,758 $ 0 $6,187 $28,287 $ 85,303
45 $49,203 $20,000 $20,000 $45,078 $159,345 $ 0 $2,146 $35,948 $127,073

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

(1) If premiums are paid more frequently than annually, the payments would be $202.79 semi-annually, $103.98 quarterly or $36.59
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.

(2) Assumes no Contract loan has been made.

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, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OF NEW JERSEY OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

</TABLE>

<PAGE>

GENERAL INFORMATION ABOUT
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE
ACCOUNT AND THE FIXED RATE OPTION

PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

The Pruco Life of New Jersey Variable Appreciable Account was established on
January 13, 1984 under New Jersey law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of Pruco
Life of New Jersey's other assets.

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

The Account is registered with the Securities and Exchange Commission 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 Account. For state
law purposes, the Account is treated as a part or division of Pruco Life of New
Jersey. There are currently two subaccounts within the Account, one of which
invests in the Conservative Balanced Portfolio and the other of which invests in
the Flexible Managed Portfolio of the Series Fund. Additional subaccounts may be
added in the future. The Account's financial statements begin on page A1.

THE FIXED-RATE OPTION

Because of exemptive and exclusionary provisions, interests in the fixed-rate
option under the Contract have not been registered under the Securities Act of
1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, interests in the
fixed-rate option are not subject to the provisions of these Acts, and Pruco
Life of New Jersey has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosure in this Prospectus relating
to the fixed-rate option. Any inaccurate or misleading disclosure regarding the
fixed-rate option may, however, subject Pruco Life of New Jersey and its
directors to civil liability if that results in any damage.

As explained earlier, you may elect to allocate, either initially or by
transfer, all or part of the amount credited under the Contract to the
fixed-rate option, and the amount so allocated or transferred becomes part of
Pruco Life of New Jersey's general assets. Sometimes this is referred to as
Pruco Life of New Jersey's general account, which consists of all assets owned
by Pruco Life of New Jersey other than those in the Account and in other
separate accounts that have been or may be established by Pruco Life of New
Jersey. Subject to applicable law, Pruco Life of New Jersey has sole discretion
over the investment of the assets of the general account, and Contract owners do
not share in the investment experience of those assets. Instead, Pruco Life of
New Jersey guarantees that the part of the Contract Fund allocated to the
fixed-rate option will accrue interest daily at an effective annual rate that
Pruco Life of New Jersey declares periodically. This rate may not be less than
an effective annual rate of 4%. Currently, declared interest rates remain in
effect from the date money is allocated to the fixed-rate option until the
Monthly date in the same month in the following year. See CONTRACT DATE, page
13. Thereafter, a new crediting rate will be declared each year and will remain
in effect for the calendar year. Pruco Life of New Jersey reserves the right to
change this practice. Pruco Life of New Jersey is not obligated to credit
interest at a higher rate than 4%, although in its sole discretion it may do so.
Different crediting rates may be declared for different portions of the Contract
Fund allocated to the fixed-rate option. At least annually and on request, a
Contract owner will be advised of the interest rates that currently apply to his
or her Contract.

<PAGE>

DETAILED INFORMATION FOR PROSPECTIVE
CONTRACT OWNERS

REQUIREMENTS FOR ISSUANCE OF A CONTRACT

The Contract may generally be issued on insureds below the age of 76. Generally,
the minimum initial guaranteed death benefit that can be applied for is $5,000
and the maximum that can be applied for is $25,000. For proposed insureds 21
years of age or younger, the minimum initial guaranteed death benefit that can
be applied for is $10,000. Before issuing any Contract, Pruco Life of New Jersey
requires evidence of insurability which may include a medical examination.
Non-smokers who meet preferred underwriting requirements are offered the most
favorable premium rate. A higher premium is charged if an extra mortality risk
is involved. These are the current underwriting requirements. The Company
reserves the right to change these requirements on a non-discriminatory basis.

SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"

CONTRACT FEES AND CHARGES

This section provides a detailed description of each charge that is described
briefly in the chart on page 2, and an explanation of the purpose of the charge.

In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, will be the highest charge that
Pruco Life of New Jersey is entitled to make under the Contract. The "current
charge" is the lower amount that Pruco Life of New Jersey is now charging.
However, if circumstances change, Pruco Life of New Jersey reserves the right to
increase each current charge, up to but to no more than the maximum charge,
without giving any advance notice.

Deductions from Premiums

(a) A charge for taxes attributable to premiums is deducted from each premium.
That charge is currently made up of two parts. The first part is a charge for
state and local premium-based taxes. It varies from jurisdiction to jurisdiction
and generally ranges from 0.75% to 5% (but in some instances it may exceed 5%)
of the premium received by Pruco Life of New Jersey. The amount charged may be
more than Pruco Life of New Jersey actually pays. The second part is for federal
income taxes measured by premiums and it is equal to 1.25% of the premium. Pruco
Life of New Jersey believes that this charge is a reasonable estimate of an
increase in its federal income taxes resulting from a 1990 change in the
Internal Revenue Code. It is intended to recover this increased tax. During
1997, 1996 and 1995, Pruco Life of New Jersey received a total of approximately
$130,658, $168,923, and $153,339, respectively, in charges for payment of taxes
attributable to premiums.

(b) A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually, this
charge will be $2 per year. If you pay premiums monthly, the charge will be $24
per year. If you pay premiums more frequently, for example under a payroll
deduction plan with your employer, the charge may be more than $24 per year.
During 1997, 1996 and 1995, Pruco Life of New Jersey received a total of
approximately $219,537, $205,362, and $169,672, respectively, in processing
charges.

Deductions from Portfolios

(a) An investment advisory fee is deducted daily from each portfolio at an
annual rate of 0.55% for the Conservative Balanced Portfolio and 0.60% for the
Flexible Managed Portfolio.

<PAGE>

These expenses also vary from portfolio to portfolio. The total expenses of each
portfolio for the year 1997 expressed as a percentage of the average assets
during the year are shown below:

----------------------------------------------------------------------
| ADVISORY | OTHER | TOTAL
PORTFOLIO | FEE | EXPENSES | EXPENSES
--------------------------|---------------|--------------|------------
Conservative Balanced | 0.55% | 0.01% | 0.56%
Flexible Managed | 0.60% | 0.02% | 0.62%
----------------------------------------------------------------------

Monthly Deductions from Contract Fund

The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].

(a) A sales charge, often called a sales load, is deducted to pay part of the
costs Pruco Life of New Jersey incurs in selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses and
sales literature. The charge is equal to 0.5% of the "primary annual premium"
which is equal to the Scheduled Premium that would be payable if premiums were
being paid annually, less the two deductions from premiums (taxes attributable
to premiums and the $2 processing charge), and less the $6 part of the monthly
deduction described in (c) below, the $0.30 per $1,000 of face amount for
Contracts with a face amount of less than $10,000, and any extra premiums for
riders or substandard risks. The deduction is made whether the Contract owner is
paying premiums annually or more frequently. It is lower on Contracts issued on
insureds over 60 years of age. To summarize, this charge is somewhat less than
(significantly less for Contracts with small face amounts) 6% of the annual
Scheduled Premium.

There is a second sales load, which will be charged only if a Contract lapses or
is surrendered before the end of the 10th Contract year. It is often described
as a contingent deferred sales load ("CDSL") and is described later under
SURRENDER OR WITHDRAWAL CHARGES, page 12. During 1997, 1996 and 1995, Pruco Life
of New Jersey received a total of approximately $568,524, $468,823, and $351,003
,respectively, in sales load charges.

(b) A charge of not more than $0.01 per $1000 of face amount of insurance is
made to compensate Pruco Life of New Jersey for the risk it assumes by
guaranteeing that, no matter how unfavorable investment experience may be, the
death benefit will never be less than the guaranteed minimum death benefit so
long as Scheduled Premiums are paid on or before the due date or during the
grace period. This charge will not be made if the Contract has been continued in
force pursuant to an option on lapse. During 1997, 1996 and 1995, Pruco Life of
New Jersey received a total of approximately $26,181, $24,222, and $19,558,
respectively, for this risk charge.

(c) An administrative charge of $6 plus up to $0.19 per $1,000 per month of face
amount of insurance is deducted each month. Currently, on a non-guaranteed
basis, this charge is reduced from $0.19 to $0.09 per $1,000. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. If premiums are paid by automatic transfer under the Pru-Matic
Plan, as described on page 13, the current charge is further reduced to $0.07
per $1,000 of face amount. There is an additional charge of $0.30 per $1,000 of
face amount if the face amount of the Contract is less than $10,000. This
monthly administrative charge will not be made if the Contract has been
continued in force pursuant to an option on lapse. During 1997, 1996 and 1995,
Pruco Life of New Jersey received a total of approximately $1,352,185,
$1,263,734, and $1,028,516, respectively, in monthly administrative charges.

(d) A mortality charge is deducted that is intended to be used to pay death
benefits. When an insured dies, the amount payable to the beneficiary is larger
than the Contract Fund and significantly larger if the insured dies in the early
years of a Contract. The mortality charges collected from all Contract owners
enables Pruco Life of New Jersey to pay the death benefit for the few insureds
who die. The maximum mortality charge is determined by multiplying the "net
amount at risk" under a Contract (the amount by which the Contract's death
benefit, computed as if there were neither riders nor Contract debt, exceeds the
Contract Fund) by a rate based upon the insured's current attained age, sex and
the anticipated mortality for that class of persons. The anticipated mortality
is based upon mortality tables published by The National Association of
Insurance Commissioners called the Non- Smoker/Smoker 1980 CSO Tables. Pruco
Life of New Jersey may determine that a lesser amount than that called for by
these mortality tables will be adequate for insureds of particular ages and may
thus make a lower mortality charge for such persons. Any lower current mortality
charges are not applicable to Contracts in force pursuant to an option on lapse.
See LAPSE AND REINSTATEMENT, page 17.

<PAGE>

(e) If the Contract includes riders, Pruco Life of New Jersey deducts any
charges applicable to those riders from the Contract Fund on each Monthly date.
In addition, Pruco Life of New Jersey will deduct on each Monthly date any extra
charge incurred because of the rating class of the insured.

(f) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. At present no such taxes are imposed and no charge is
made. Pruco Life of New Jersey will review the question of a charge to the
Account for company federal income taxes periodically. Such a charge may be made
in future years for any company federal income taxes that would be attributable
to the Account.

Under current law, Pruco Life of New Jersey may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant and they are not charged against the Account. If there is a material
change in the applicable state or local tax laws, the imposition of any such
taxes upon Pruco Life of New Jersey that are attributable to the Account may
result in a corresponding charge against the Account.

Daily Deduction from the Contract Fund

Each day a charge is deducted from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. This charge is
intended to compensate Pruco Life of New Jersey for assuming mortality and
expense risks under the Contract. The mortality risk assumed is that insureds
may live for shorter periods of time than Pruco Life of New Jersey estimated
when it determined what mortality charge to make. The expense risk assumed is
that expenses incurred in issuing and administering the Contract will be greater
than Pruco Life of New Jersey estimated in fixing its administrative charges.
This charge is not assessed against amounts allocated to the fixed-rate option.
During 1997, 1996 and 1995, Pruco Life of New Jersey received a total of
approximately $154,038, $113,587, and $71,857, respectively, in mortality and
expense risk charges.

Surrender or Withdrawal Charges

---------------------------------------------------------------------------
| | | | | CUMULATIVE
| | CUMULATIVE | | | TOTAL SALES
SURRENDER, | CUMULATIVE | SALES LOAD | CONTINGENT | TOTAL | LOAD AS
LAST DAY OF | SCHEDULED | DEDUCTED | DEFERRED | SALES | PERCENTAGE OF
YEAR NO. | PREMIUMS | FROM | SALES LOAD | LOAD | SCHEDULED
| PAID | CONTRACT | | | PREMIUMS
| | FUND | | | PAID
------------|------------|------------|------------|---------|-------------
1 | $ 390.90 | $ 18.24 | $ 87.22 | $105.46 | 26.98%
2 | 781.80 | 36.48 | 104.16 | 140.64 | 17.99%
3 | 1,172.70 | 54.72 | 121.10 | 175.82 | 14.99%
4 | 1,563.60 | 72.96 | 138.04 | 211.00 | 13.49%
5 | 1,954.50 | 91.20 | 146.55 | 237.75 | 12.16%
6 | 2,345.40 | 109.44 | 121.80 | 231.24 | 9.86%
7 | 2,736.30 | 127.68 | 91.40 | 219.08 | 8.01%
8 | 3,127.20 | 145.92 | 60.80 | 206.72 | 6.61%
9 | 3,518.10 | 164.16 | 30.40 | 194.56 | 5.53%
10 | 3,909.00 | 182.40 | 0.00 | 182.40 | 4.67%
---------------------------------------------------------------------------

The percentages shown in the last column will not be appreciably different for
insureds of different ages.

<PAGE>

anniversary and declines daily at a constant rate until it disappears entirely
on the tenth Contract anniversary. We are currently allowing partial surrenders
of the Contract, but we reserve the right to cancel this administrative
practice. If the Contract is partially surrendered during the first 10 years, a
proportionate amount of the charge will be deducted from the Contract Fund.
During 1997, 1996 and 1995, Pruco Life of New Jersey received a total of
approximately $53,157, $33,452, and $22,963, respectively, for surrendered or
lapsed Contracts. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

Transaction Charges

CONTRACT DATE

When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of any medical examination. In most cases no medical examination will be
necessary. If the first premium is not paid with the application, the Contract
date will ordinarily be the date the first premium was paid and the Contract was
delivered. Under certain circumstances, Pruco Life of New Jersey will permit a
Contract to be back-dated but only to a date not earlier than 6 months prior to
the date of the application. It may be advantageous for a Contract owner to have
an earlier Contract date since that will result in the use by Pruco Life of New
Jersey of a lower issue age in determining the amount of the scheduled premium.
Pruco Life of New Jersey will require the payment of all premiums that would
have been due had the application date coincided with the back-dated Contract
date. The death benefit and cash surrender value under the Contract will be
equal to what they would have been had the Contract been issued on the Contract
date, all scheduled premiums been received on their due dates, and all Contract
charges been made.

PREMIUMS

As already explained, the Contract provides for a Scheduled Premium which, if
paid when due or within a 61 day grace period, ensures that the Contract will
not lapse. If you pay premiums other than on a monthly basis, you will receive a
notice that a premium is due about 3 weeks before each due date. If you pay
premiums monthly, you will receive a book each year with 12 coupons that will
serve as a reminder. With Pruco Life of New Jersey's consent, you may change the
frequency of premium payments.

- --------------------------------------------------------------------------------
| $10,000 FACE AMOUNT | $20,000 FACE AMOUNT
|------------------------------|------------------------------
| PREFERRED | STANDARD | PREFERRED | STANDARD
- ------------------|---------------|--------------|----------------|-------------
Male, age 35 | $233.70 | $274.01 | $390.90 | $ 471.52
at issue | | | |
- ------------------|---------------|--------------|----------------|-------------
Female, age 45 | $278.04 | $308.53 | $479.59 | $ 540.57
at issue | | | |
- ------------------|---------------|--------------|----------------|-------------
Male, age 55 | $450.96 | $562.17 | $825.43 | $1047.86
at issue | | | |
- -------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
| $10,000 FACE AMOUNT | $20,000 FACE AMOUNT
|-----------------------------|-----------------------------
| MONTHLY | ANNUAL | MONTHLY | ANNUAL
- --------------------|---------------|-------------|---------------|-------------
Male, age 35 | $22.43 | $233.70 | $36.59 | $390.90
at issue | | | |
- --------------------|---------------|-------------|---------------|-------------
Female, age 45 | $26.46 | $278.04 | $44.65 | $479.59
at issue | | | |
- --------------------|---------------|-------------|---------------|-------------
Male, age 55 | $41.96 | $450.96 | $75.66 | $825.43
at issue | | | |
- --------------------------------------------------------------------------------

A significant feature of this Contract is that it permits you to pay greater
than Scheduled Premiums. This may be done by making occasional unscheduled
premium payments or on a periodic basis. If you wish, you may select a higher
contemplated premium than the Scheduled Premium. Pruco Life of New Jersey will
then bill you for the chosen premium. In general, the regular payment of higher
premiums will result in higher cash surrender values and higher death benefits.
Conversely, payment of a Scheduled Premium need not be made if the Contract Fund
is sufficiently large to enable the charges due under the Contract to be made
without causing the Contract to lapse. See LAPSE AND REINSTATEMENT, page 17. The
payment of premiums in excess of Scheduled Premiums may cause the Contract to
become a Modified Endowment Contract. If this happens, loans and other
distributions which would otherwise not be taxable events will be subject to
federal income taxation. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

Pruco Life of New Jersey will generally accept any premium payment if the
payment is at least $25. Pruco Life of New Jersey does reserve the right,
however, to limit unscheduled premiums to a total of $5,000 in any Contract
year, and to refuse to accept premiums that would immediately result in more
than a dollar-for-dollar increase in the death benefit. See HOW A CONTRACT'S
DEATH BENEFIT WILL VARY, page 16. The privilege of making large or additional
premium payments offers a way of investing amounts which accumulate without
current income taxation, but again, there are tax consequences if the Contract
becomes a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 20.

ALLOCATION OF PREMIUMS

On the Contract date, a $2 processing charge and the charge for taxes
attributable to premiums are deducted from the initial premium. The remainder is
allocated on the Contract date among the subaccount[s] or the fixed-rate option
according to the desired allocation specified in the application form. From this
invested portion of the initial premium, the first monthly deductions are made.
See CONTRACT FEES AND CHARGES, page 10. The invested portion of any part of the
initial premium in excess of the Scheduled Premium is placed in the selected
investment option[s] on the date of receipt at a Home Office, but not earlier
than the Contract date. Thus, to the extent that the receipt of the first
premium precedes the Contract date, there will be a period during which the
Contract owner's initial premium will not be invested. All subsequent premium
payments, after the deduction from premiums, will be invested as of the end of
the valuation period in which it is received at a Home Office in accordance with
the allocation previously designated. Provided the Contract is not in default,
you may change the way in which subsequent premiums are allocated by giving
written notice to a Home Office. You may also change the way in which subsequent
premiums are allocated by telephoning the Home Office, provided you are enrolled
to use the Telephone Transfer system. There is no charge for reallocating future
premiums. If any part of the invested portion of a premium is allocated to a
particular investment option, that portion must be at least 10% on the date the
allocation takes effect. All percentage allocations must be in whole numbers.
For example, 33% can be selected but 331/3% cannot. Of course, the total
allocation of all selected investment options must equal 100%.

TRANSFERS

If the Contract is not in default, or if the Contract is in force as variable
reduced paid-up insurance (see LAPSE AND REINSTATEMENT , page 17), you may, up
to four times in each Contract year, transfer amounts from one subaccount to the
other subaccount or to the fixed-rate option. Currently, you may make additional
transfers with Pruco Life of New Jersey's consent. There is no charge. All or a
portion of the amount credited to a subaccount may be transferred.

<PAGE>

fixed-benefit Contract in this manner, you must request a complete transfer of
funds to the fixed-rate option and should also change your allocation
instructions regarding any future premiums.

Transfers between subaccounts will take effect as of the end of the valuation
period (usually the business day) in which a proper transfer request is received
at a Home Office. The valuation period is defined as the period of time from one
determination of the value of the amount invested in a subaccount to the next.
Such determinations are made when the net asset values of the portfolios are
calculated, which is generally at 4:15 p.m. New York City time on each day
during which the New York Stock Exchange is open. The request may be in terms of
dollars, such as a request to transfer $1,000 from one subaccount to the other,
or may be in terms of a percentage reallocation between subaccounts. In the
latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned, depending on the
terms of the assignment. Pruco Life of New Jersey has adopted procedures
designed to ensure that requests by telephone are genuine and will require
appropriate identification for that purpose. Pruco Life of New Jersey will not
be held liable for following telephone instructions that we reasonably believe
to be genuine. Pruco Life of New Jersey cannot guarantee that you will be able
to get through to complete a telephone transfer during peak periods such as
periods of drastic economic or market change.

Transfers from the fixed-rate option are subject to restrictions and may only be
made with Pruco Life of New Jersey's consent. Transfers from the fixed-rate
option to the subaccounts are currently permitted once each Contract year and
only during the 30-day period beginning on the Contract anniversary. The maximum
amount which may be transferred out of the fixed-rate option each year is
currently the greater of: (a) 25% of the amount in the fixed-rate option, or (b)
$2,000. Such transfer requests received prior to the Contract anniversary will
be effected on the Contract anniversary. Transfer requests received within the
30-day period beginning on the Contract anniversary will be effected as of the
end of the valuation period in which a proper transfer request is received at a
Home Office. These limits are subject to change in the future.

HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE

As explained above, after the tenth Contract year, there will no longer be a
surrender charge and, if there is no Contract loan, the cash surrender value
will be equal to the Contract Fund. This section, therefore, also describes how
the cash surrender value of the Contract will change with investment experience.

A Contract's cash surrender value on any date will be the Contract Fund value
reduced by the withdrawal charges, if any, and by any Contract debt. Upon
request, Pruco Life of New Jersey will tell a Contract owner the cash surrender
value of his or her Contract. It is possible, although highly unlikely, that the
cash surrender value of a Contract could decline to zero because of unfavorable
investment performance, even if a Contract owner continues to pay Scheduled
Premiums when due.

<PAGE>

HOW A CONTRACT'S DEATH BENEFIT WILL VARY

The death benefit will change from the outset with investment experience. The
precise way in which that will occur is complicated and is described in the
Statement of Additional Information. In general, and assuming the optional
paid-up benefit is not in effect, see PAID-UP INSURANCE OPTION, page 18, if the
net investment performance is 4% per year or higher, the death benefit will
increase; if it is below 4%, it will decrease. Pruco Life of New Jersey
guarantees, however, that it will not decrease below the face amount of
insurance. If unfavorable experience of that kind should occur, it must be
offset by favorable experience before the death benefit begins to increase
again.

If the Contract is kept in force for several years and if investment performance
is relatively favorable, the Contract Fund value may grow to the point where, to
meet certain provisions of the Internal Revenue Code which require that the
death benefit always be greater than the Contract Fund value, the death benefit
must be increased. The required difference between the death benefit and
Contract Fund value is higher at younger ages than at older ages. A precise
description is in the Statement of Additional Information.

CONTRACT LOANS

The owner may borrow from Pruco Life of New Jersey up to the "loan value" of the
Contract, using the Contract as the only security for the loan. The loan value
is equal to (1) 90% of an amount equal to the portion of the Contract Fund value
attributable to the variable investment options and to any prior loan[s]
supported by the variable investment options, minus the portion of any charges
attributable to variable investment options that would be payable upon an
immediate surrender; plus (2) 100% of an amount equal to the portion of the
Contract Fund value attributable to the fixed-rate option and to any prior
loan[s] supported by the fixed-rate option, minus the portion of any charges
attributable to the fixed-rate option that would be payable upon an immediate
surrender. The minimum amount that may be borrowed at any one time is $200
unless the proceeds are used to pay premiums on the Contract.

Interest charged on a loan accrues daily at a fixed effective annual rate of
5.5%. Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds what
the cash surrender value would be if there were no Contract debt, Pruco Life of
New Jersey will notify you of its intent to terminate the Contract in 61 days,
within which time you may repay all or enough of the loan to obtain a positive
cash surrender value and thus keep the Contract in force for a limited time. If
you fail to keep the Contract in force, the amount of unpaid Contract debt will
be treated as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT
BENEFITS, page 20, and LAPSE AND REINSTATEMENT, page 17.

<PAGE>

Contract year 10 because the loan amount was credited with the 4% assumed rate
of return rather than the 6.51% net return for the designated subaccount[s]
resulting from the 8% gross return in the underlying Series Fund. Loans from
Modified Endowment Contracts may be treated for tax purposes as distributions of
income. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

SURRENDER OF A CONTRACT

LAPSE AND REINSTATEMENT

As has already been explained, if Scheduled Premiums are paid on or before each
due date, or within the grace period after each due date, and there are no
withdrawals, a Contract will remain in force even if the investment results of
that Contract's variable investment option[s] have been so unfavorable that the
Contract Fund has decreased to zero or less.

However, if a Scheduled Premium is not paid, and the Contract Fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, Pruco Life of New Jersey will send you a notice of default
setting forth the payment necessary to keep the Contract in force on a premium
paying basis. This payment must be received at a Home Office within the 61 day
grace period after the notice of default is mailed or the Contract will lapse. A
Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

A Contract that has lapsed may be reinstated within 5 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life of New Jersey requires renewed
evidence of insurability, and submission of certain payments due under the
Contract.

If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Pruco Life of New Jersey
prior to the end of the 61 day grace period. You may also choose one of the
three forms of insurance described below for which no further premiums are
payable.

Variable reduced paid-up insurance is the automatic option provided upon lapse,
if the amount of variable reduced paid-up insurance is at least as great as the
amount of fixed extended term insurance which would have been provided upon
lapse. Variable reduced paid-up insurance will be available only if the insured
is not in one of the high risk rating classes for which Pruco Life of New Jersey
does not offer fixed extended term insurance. It is

<PAGE>

possible for this Contract to be classified as a Modified Endowment Contract if
this option is exercised. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

PAID-UP INSURANCE OPTION

In certain circumstances you may elect to stop paying premiums and to have
guaranteed insurance coverage for the lifetime of the insured. This benefit is
available only if the following conditions are met: (1) the Contract is not in
default; (2) Pruco Life of New Jersey is not paying premiums in accordance with
any payment of premium benefit that may be included in the Contract; and (3) the
Contract Fund is sufficiently large so that the calculated guaranteed paid-up
insurance amount is at least equal to the face amount of insurance plus the
excess, if any, of the Contract Fund over the tabular Contract Fund. The amount
of guaranteed paid-up insurance coverage may be greater. It will be equal to the
difference between the Contract Fund and the present value of future monthly
charges from the Contract Fund (other than charges for anticipated mortality
costs and for payment of premium riders) multiplied by the attained age factor.
This option will generally be available only when the Contract has been in force
for many years and the Contract Fund has grown because of favorable investment
experience or the payment of unscheduled premiums or both. Once the paid-up
insurance option is exercised, the actual death benefit is equal to the greater
of the guaranteed paid-up insurance amount and the Contract Fund multiplied by
the attained age factor. Upon request, Pruco Life of New Jersey will quote the
amount needed to pay up the Contract and to guarantee the paid-up insurance
amount as long as a payment equal to or greater than the quoted amount is
received within two weeks of the quote. There is no guarantee if the remittance
is received within the two week period and is less than the quoted amount or if
the remittance is received outside the two week period. In this case, Pruco Life
of New Jersey will add the remittance to the Contract Fund and recalculate the
guaranteed paid-up insurance amount. If the guaranteed paid-up insurance amount
is equal to or greater than the face amount, the paid-up request will be
processed. If the guaranteed paid-up insurance amount is calculated below the
face amount, the insured will be notified that the amount is insufficient to
process the request. In some cases, the quoted amount, if paid, would increase
the death benefit by more than it increases the Contract Fund. In these
situations, underwriting might be required to accept the premium payment and to
process the paid-up request. Pruco Life of New Jersey reserves the right to
change this procedure in the future. After the first Contract year, you must
make a proper written request for the Contract to become fully paid-up and send
the Contract to a Home Office to be endorsed. It is possible for this Contract
to be classified as a Modified Endowment Contract if this option is exercised.
See TAX TREATMENT OF CONTRACT BENEFITS, page 20. A Contract in effect under a
paid-up insurance option will have cash surrender and loan values.

REDUCED PAID-UP INSURANCE OPTION

Like the paid-up insurance option, reduced paid-up insurance provides the
insured with lifetime insurance coverage without the payment of additional
premiums. However, reduced paid-up insurance provides insurance coverage which
is generally lower than the death benefit of the Contract. Reduced paid-up
insurance is based upon a Contract's current net cash value and can be requested
at any time. This option is available only when the Contract is not in default
and Pruco Life of New Jersey is not paying any premiums in accordance with any
payment of premium benefit that may be included in the Contract. In order to
receive reduced paid-up insurance, a Contract owner must make a proper written
request, and Pruco Life of New Jersey may request that the owner send the
Contract to a Home Office to be endorsed. It is possible for this Contract to be
classified as a Modified Endowment Contract if this option is exercised. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

WHEN PROCEEDS ARE PAID

Pruco Life of New Jersey will generally pay any death benefit, cash surrender
value, loan proceeds or withdrawal within 7 days after receipt at a Home Office
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 at
a Home Office. However, Pruco Life of New Jersey may delay payment of proceeds
from the subaccount[s] and the variable portion of the death benefit due under
the Contract if the sale or valuation of the Account's assets is not reasonably
practicable because the New

<PAGE>

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-rate option, and with respect to a Contract in force as fixed reduced
paid-up insurance or as extended term insurance, Pruco Life of New Jersey
expects to pay the cash surrender value promptly upon request. However, Pruco
Life of New Jersey has the right to delay payment of such cash surrender value
for up to 6 months (or a shorter period if required by applicable law). Pruco
Life of New Jersey will pay interest of at least 3% a year if it delays such a
payment for more than 30 days (or a shorter period if required by applicable
law).

LIVING NEEDS BENEFIT

Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows the
Contract owner to elect to receive an accelerated payment of all or part of the
Contract'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 will generally be greater than the Contract's cash
surrender value. The following option may be available. A Pruco Life of New
Jersey representative should be consulted as to whether additional options may
be available.

Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, Pruco Life of New Jersey will provide an accelerated
payment of the portion of the death benefit selected by the Contract owner as a
LIVING NEEDS BENEFIT. You may (1) elect to receive the benefit in a single sum
or (2) receive equal monthly payments for 6 months. If the insured dies before
all the payments have been made, the present value of the remaining payments
will be paid to the beneficiary designated in the LIVING NEEDS BENEFIT claim
form in a single sum.

All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Pruco Life of New Jersey
reserves the right to determine the minimum amount that may be accelerated.

No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. Pruco
Life of New Jersey can furnish details about the amount of LIVING NEEDS BENEFIT
that is available to an eligible Contract owner under a particular Contract, and
the adjusted premium payments that would be in effect if less than the entire
death benefit is accelerated.

The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the LIVING NEEDS BENEFIT to
the Contract has no adverse consequences; however, electing to use it could.
With the exception of certain business-related policies, the Health Insurance
Portability and Accountability Act of 1996 excludes from income the LIVING NEEDS
BENEFIT if the insured is terminally ill or chronically ill as defined by the
tax law (although the exclusion in the latter case may be limited). Contract
owners should consult a qualified tax advisor before electing to receive this
benefit. Receipt of a LIVING NEEDS BENEFIT payment may also affect a Contract
owner's eligibility for certain government benefits or entitlements.

VOTING RIGHTS

As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life of New Jersey is the legal owner of those shares and as such has the right
to vote on any matter voted on at Series Fund shareholders meetings. However,
Pruco Life of New Jersey will, as required by law, vote the shares of the Series
Fund at any regular and special shareholders meetings it is required to hold in
accordance with voting instructions received from Contract owners. The Series
Fund will not hold annual shareholders meetings when not required to do so under
Maryland law or the Investment Company Act of 1940. Series Fund shares for which
no timely instructions from Contract owners are received, and any shares
attributable to general account investments of Pruco Life of New Jersey will be
voted in the same proportion as shares in the respective portfolios for which
instructions are received.

<PAGE>

Contract owner's selected subaccount[s]; and (5) any other matter requiring a
vote of the shareholders of the Series Fund. With respect to approval of the
investment advisory agreement or any change in a portfolio's fundamental
investment policy, Contract owners participating in such portfolios will vote
separately on the matter.

The number of shares in a portfolio for which you may give instructions is
determined by dividing the portion of your Contract Fund attributable to the
portfolio, by the value of one share of the portfolio. The number of votes for
which each Contract owner may give Pruco Life of New Jersey instructions will be
determined as of the record date chosen by the Board of Directors of the Series
Fund. Pruco Life of New Jersey will furnish Contract owners with proper forms
and proxies to enable them to give these instructions. Pruco Life of New Jersey
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.

Pruco Life of New Jersey 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 Series Fund's portfolios, or to approve or disapprove an
investment advisory contract for the Series Fund. In addition, Pruco Life of New
Jersey itself may disregard voting instructions that would require changes in
the investment policy or investment manager of one or more of the Series Fund's
portfolios, provided that Pruco Life of New Jersey reasonably disapproves such
changes in accordance with applicable federal regulations. If Pruco Life of New
Jersey does disregard voting instructions, it will advise Contract owners of
that action and its reasons for such action in the next annual or semi-annual
report to Contract owners.

REPORTS TO CONTRACT OWNERS

TAX TREATMENT OF CONTRACT BENEFITS

The tax treatment of life insurance is complex and may change. Each prospective
purchaser is urged to consult a qualified tax advisor. 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 Pruco Life of New Jersey believes the tax laws
apply in the most commonly occurring circumstances. A more technical discussion
of what follows is contained in the Statement of Additional Information.

Treatment as Life Insurance. Pruco Life of New Jersey believes that the Contract
should qualify as "life insurance" under the Internal Revenue Code. This means
that: (1) except as noted below, the Contract owner should not be taxed on any
part of the Contract Fund, including additions attributable to interest,
dividends or appreciation until amounts are distributed under the Contract; and
(2) the death benefit should be excludible from the gross income of the
beneficiary under section 101(a) of the Code.

Although Pruco Life of New Jersey believes the Contract should qualify as "life
insurance" for federal tax purposes, there are uncertainties, particularly
because the Secretary of the Treasury has not yet issued permanent regulations
that bear on this question. Accordingly, we have reserved the right to make
changes -- which will be applied uniformly to all Contract owners after advance
written notice -- that we deem necessary to insure that the Contract will
continue to qualify as life insurance.

Pre-Death Distributions. The tax treatment of any distribution received by an
owner prior to an insured's death will depend upon whether the Contract is
classified as a Modified Endowment Contract.

<PAGE>

the total amount received exceeds the gross premiums paid less the untaxed
portion of any prior withdrawals. In certain limited circumstances, all or a
portion of a withdrawal during the first 15 contract years may be taxable even
if total withdrawals do not exceed total premiums paid to date. The proceeds of
any loan will be treated as indebtedness of the owner and will not be treated as
taxable income.

OTHER CONTRACT PROVISIONS

There are several other Contract provisions that are of less significance to you
than those already described in detail either because they relate to options
that you may choose under the Contract but are not likely to exercise for
several years after you first purchase it or because they are of a routine
nature not likely to influence your decision to buy the Contract. These
provisions are summarized in the EXPANDED TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION, page 29 and described in greater detail in the Statement
of Additional Information.

FURTHER INFORMATION ABOUT THE SERIES FUND

<PAGE>

to Prudential such services as Prudential may require in connection with the
performance of its obligations under an Investment Advisory Agreement with the
Series Fund. One of PIC's business groups is Prudential Investments. See
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 27.

INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS

The investment objectives of both portfolios available to PRUVIDER Contract
owners are set forth on page 4. For the sake of convenience, they are repeated
here, followed in each case by a brief description of the policies of both
portfolios. In some cases a fuller description of those policies is in the
Statement of Additional Information. There is no guarantee that any of these
objectives will be met.

BALANCED PORTFOLIOS

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 15% 35% 50%
Bonds and Money Market 25% 65% 85%

The bond portion of this portfolio will be invested primarily in securities with
maturities of 2 to 10 years and ratings at the time of purchase within the four
highest grades determined by Moody's Investors Services, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), or a similar nationally-recognized
rating service or if unrated, of comparable quality in the opinion of the
portfolio manager. However, the portfolio may purchase below-investment grade
debt. A description of corporate bond ratings is contained in the Statement of
Additional Information. Because of their shorter maturities, the value of the
notes and bonds in this portfolio will be less sensitive to changes in interest
rates than the longer-term bonds likely to be held in the Flexible Managed
Portfolio. Thus, there will be less of a risk of loss of principal, but not as
much of a likelihood for greater appreciation in value. Up to 20% of the bond
portion of this portfolio may be invested in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
The stock portion of this portfolio will be invested primarily in the equity
securities of major, established corporations in sound financial condition that
appear to offer attractive prospects of a total return from dividends and
capital appreciation that is superior to broadly based stock indices. The
portfolio may also invest in preferred stock, including below investment grade
preferred stock, and other equity-related securities. The money market portion
of the portfolio will hold high quality money market instruments of the kind
held by the Money Market Portfolio. Moreover, when conditions dictate a
temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Conservative Balanced

<PAGE>

Portfolio may invest, without limit, in high quality money market instruments of
the kind held by the Money Market Portfolio. See SECURITIES IN WHICH THE MONEY
MARKET PORTFOLIO MAY CURRENTLY INVEST in the Statement of Additional
Information.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when- issued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, beginning on
page 26, and in detail in the Statement of Additional Information.

The Conservative Balanced Portfolio is managed by a team of portfolio managers.
Mark Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Conservative Balanced Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, has been the portfolio manager of the
portfolio since 1995 and manages a portion of the portfolio's equity holdings.
The balance of the portfolio's equity holdings are managed to replicate the
performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"). Tony Rodriguez, Managing Director, Prudential Investments, has been
the portfolio manager of the fixed income portion of the portfolio since 1993.
Mr. Stumpp also supervises the team of portfolio managers for the Flexible
Managed Portfolio. Mr. Stumpp is also portfolio manager for several employee
benefit trusts including The Prudential Retirement System for U.S. Employees and
Special Agents. Prior to 1994, he was responsible for corporate pension asset
management for Prudential Diversified Investment Strategies' corporate clients.
Mr. Spitz is also portfolio manager of the Prudential Equity Income Fund and the
Equity Income and Flexible Managed Portfolios of the Series Fund. Mr. Rodriguez
is also portfolio manager for the Prudential Structured Maturity Fund, Inc. and
the Flexible Managed Portfolio of the Series Fund.

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 25% 60% 100%
Bonds 0% 40% 75%
Money Market 0% 0% 75%

<PAGE>

price/earnings ratios or alternatively, in companies whose stock is undervalued
relative to other stocks in the market. The individual equity selections for
this portfolio may have more volatile market values than the equity securities
selected for the Conservative Balanced Portfolio. The portfolio may also invest
in preferred stock, including below investment grade preferred stock, and other
equity-related securities. The money market portion of the portfolio will hold
high quality money market instruments of the kind held by the Money Market
Portfolio. Moreover, when conditions dictate a temporary defensive strategy or
during temporary periods of portfolio structuring and restructuring, the
Flexible Managed Portfolio may invest, without limit, in high quality money
market instruments of the kind held by the Money Market Portfolio. See
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST in the
Statement of Additional Information.

In addition, the portfolio may: (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies; (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when- issued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under OPTIONS, FUTURES CONTRACTS AND SWAPS and SHORT SALES, beginning on
page 26, and in detail in the Statement of Additional Information.

The Flexible Managed Portfolio is managed by a team of portfolio managers. Mark
Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Flexible Managed Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, manages a portion of the portfolio's
equity holdings. The balance of the portfolio's equity holdings are managed to
replicate the performance of the S&P 500 Index. Tony Rodriguez, Managing
Director, Prudential Investments, has been the portfolio manager of the fixed
income portion of the portfolio since 1993. Mr. Stumpp also supervises the team
of portfolio managers for the Conservative Balanced Portfolio. Mr. Stumpp is
also portfolio manager for several employee benefit trusts including The
Prudential Retirement System for U.S. Employees and Special Agents. Prior to
1994, he was responsible for corporate pension asset management for Prudential
Diversified Investment Strategies' corporate clients. Mr. Spitz has been
portfolio manager of the equity portion of the Conservative Balanced Portfolio
since 1995 and is also portfolio manager of the Prudential Equity Income Fund
and the Equity Income Portfolio of the Series Fund. Mr. Rodriguez is also
portfolio manager for the Prudential Structured Maturity Fund, Inc., and the
Conservative Balanced Portfolio of the Series Fund.

FOREIGN SECURITIES

<PAGE>

subject to greater fluctuations in price than domestic securities. Under certain
market conditions, foreign securities may be less liquid than domestic
securities. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally are
subject to uniform accounting, auditing, and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers, and listed companies
abroad than in the United States, and, with respect to certain foreign
countries, there is a possibility of expropriation, confiscatory taxation or
diplomatic developments which could affect investment in those countries. If the
security is denominated in foreign currency, it may be affected by changes in
currency rates and in exchange control regulations, and costs may be incurred in
connection with conversions between currencies. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for a
portfolio to obtain or to enforce a judgment against the issuers of such
securities. See FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS in the Statement of
Additional Information.

RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED BELOW
INVESTMENT GRADE

<PAGE>

OPTIONS, FUTURES CONTRACTS AND SWAPS

Because options, futures and swaps are now used to such a limited extent, a full
description of these investments and the risks associated with them is in the
Statement of Additional Information.

SHORT SALES

The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). The portfolio will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the portfolio replaces the borrowed security. The
portfolio will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash purchase
of a long position in a security. The amount of any gain will be decreased, and
the amount of any loss will be increased, by the amount of any fee or interest
paid in connection with the short sale.

REPURCHASE AGREEMENTS

The portfolios may enter into repurchase agreements, subject to each portfolio's
investment limit in short-term debt obligations, whereby the seller of a
security agrees to repurchase that security from the portfolio at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the portfolio's
money is invested in the repurchase agreement. The repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the portfolio will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the portfolio may incur a loss. Both portfolios participate
in a joint repurchase account pursuant to an order of the SEC. On a daily basis,
any uninvested cash balances of the portfolios may be aggregated and invested in
one or more repurchase agreements. Each portfolio participates in the income
earned or accrued in the joint account based on the percentage of its
investment.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

<PAGE>

an offsetting cash position or a cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction. A
portfolio will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid unencumbered
assets equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities retained by the
portfolio may decline below the price of the securities the portfolio has sold
but is obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the portfolio's obligation to repurchase
the securities. No portfolio will obligate more than 30% of its net assets in
connection with reverse repurchase agreements and dollar rolls.

LOANS OF PORTFOLIO SECURITIES

INVESTMENT RESTRICTIONS APPLICABLE TO THE
PORTFOLIOS

The Series Fund is subject to certain investment restrictions which are
fundamental to the operations of the Series Fund and may not be changed except
with the approval of a majority vote of the persons participating in the
affected portfolio.

A detailed discussion of investment restrictions applicable to the Series Fund
is in the Statement of Additional Information.

INVESTMENT MANAGEMENT ARRANGEMENTS AND
EXPENSES

The Series Fund has entered into an Investment Advisory Agreement with
Prudential under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio.
Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment manager.

Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment manager. Total assets under management as of
December 31, 1997 were over $370.4 billion which includes over $251.6 billion
owned by Prudential and approximately $118.8 billion of external assets under
Prudential's management.

Subject to Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by Prudential, with respect to the
Conservative Balanced and Flexible Managed Portfolios, are furnished by its
wholly-owned subsidiary, PIC, pursuant to the Service Agreement between
Prudential and PIC which provides that a portion of the fee received by
Prudential for providing investment advisory services will be paid to PIC. PIC
is registered as an investment advisor under the Investment Advisers Act of
1940.

<PAGE>

the average daily net assets of each individual portfolio. It is set forth on
page 10. Further information about the investment management arrangements and
the expenses of the Series Fund is in the Statement of Additional Information.

PORTFOLIO BROKERAGE AND RELATED PRACTICES

STATE REGULATION

Pruco Life of New Jersey 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.

Pruco Life of New Jersey 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, Pruco Life of New Jersey
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 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 Pruco Life of New Jersey. There have been no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statements disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of the accountant, would have caused them to make a
reference to the matter in their reports.

LITIGATION

Several actions have been brought against Pruco Life of New Jersey alleging that
Pruco Life of New Jersey and its agents engaged in improper life insurance sales
practices. Prudential has agreed to indemnify Pruco Life of New Jersey for
losses, if any, resulting from such litigation. No other significant litigation
is being brought against Pruco Life of New Jersey that would have a material
effect on its financial position.

<PAGE>

YEAR 2000 COMPLIANCE

The services provided to the Contract owners by Pruco Life of New Jersey and
Prusec 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, Pruco Life of New Jersey and Prusec'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 Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life of New
Jersey's abilities to meet its contractual commitments to Contract owners.

EXPANDED TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION

Included in the registration statements for the Contracts and the Series Fund is
a Statement of Additional Information which is available without charge by
writing to Pruco Life of New Jersey at 213 Washington Street, Newark, New Jersey
07102-2992. The following table of contents of that Statement provides a brief
summary of what is included in each section.

I. MORE DETAILED INFORMATION ABOUT THE CONTRACT.

SALES LOAD UPON SURRENDER. A description is given of exactly how Pruco
Life of New Jersey determines the amount of the part of the sales load
that is imposed only upon surrenders or withdrawals during the first 10
Contract years.

REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS. Where
the Contract is sold at the same time to several individuals who are
members of an associated class and Pruco Life of New Jersey's expenses
will be reduced, some of the charges under those Contracts may be
reduced.

PAYING PREMIUMS BY PAYROLL DEDUCTION. Your employer may pay monthly
premiums for you with deductions from your salary.

UNISEX PREMIUMS AND BENEFITS. In some states and under certain
circumstances, premiums and benefits will not vary with the sex of the
insured.

HOW THE DEATH BENEFIT WILL VARY. A description is given of exactly how
the death benefit may increase to satisfy Internal Revenue Code
requirements.

WITHDRAWAL OF EXCESS CASH SURRENDER VALUE. If the Contract Fund value is
high enough you may be able to withdraw part of the cash surrender value
while keeping the Contract in effect. There will be a transaction charge.
The death benefit will change. There may be tax consequences. You should
consult your Pruco Life of New Jersey representative to discuss whether a
withdrawal or a loan is preferable.

TAX TREATMENT OF CONTRACT BENEFITS. A fuller account is provided of how
Contract owners may be affected by federal income taxes.

<PAGE>

SALE OF THE CONTRACT AND SALES COMMISSIONS. The Contract is sold
primarily by agents of Prudential who are also registered representatives
of one of its subsidiaries, Pruco Securities Corporation, a broker and
dealer registered under the Securities and Exchange Act of 1934.
Generally, selling agents receive a commission of 50% of the Scheduled
Premium in the first year, no more than 6% of the scheduled premiums for
the second through tenth years and smaller commissions thereafter.

RIDERS. Various extra fixed-benefits may be obtained for an extra
premium. They are described in what are known as "riders" to the
Contract.

OTHER STANDARD CONTRACT PROVISIONS. The Contract contains several
provisions commonly included in all life insurance policies. They include
provisions relating to beneficiaries, misstatement of age or sex,
suicide, assignment, incontestability, and settlement options.

II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.

General
Convertible Securities
Loan Participations
Warrants
Options and Futures
When-Issued and Delayed Delivery Securities
Short Sales
Short Sales Against the Box
Interest Rate Swaps
Loans of Portfolio Securities
Illiquid Securities
Forward Foreign Currency Exchange Contracts

A more detailed description is given of these investments and the
policies of these portfolios.

III. INVESTMENT RESTRICTIONS.

IV. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.

A fuller description than that in the prospectus is given.

V. PORTFOLIO TRANSACTIONS AND BROKERAGE.

A description is given of how securities transactions are effected and
how Prudential selects the brokers.

VI. DETERMINATION OF NET ASSET VALUE.

A full description is given of how the daily net asset value of each
portfolio is determined.

VII. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST.

A full description is given.

VIII. DEBT RATINGS.

A description is given of how Moody's Investors Services, Inc. and
Standard & Poor's Ratings Services describe the creditworthiness of debt
securities.

IX. POSSIBLE REPLACEMENT OF THE SERIES FUND.

Although it is most unlikely, it is conceivable that Pruco Life of New
Jersey might wish to replace the Series Fund portfolios with other
investment options. SEC approval will be needed.

X. OTHER INFORMATION CONCERNING THE SERIES FUND.

Incorporation and Authorized Stock
Dividends, Distributions and Taxes
Custodian, Transfer Agent, and Dividend Disbursing Agent
Year 2000
Experts
License

<PAGE>

More detail is provided about these matters.

XI. DIRECTORS AND OFFICERS OF PRUCO LIFE NEW JERSEY AND MANAGEMENT OF THE
SERIES FUND.

The names and recent affiliations of Pruco Life of New Jersey's directors
and executive officers are given. The same information is given for the
Series Fund.

XII. FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.

XIII. THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS.

ADDITIONAL INFORMATION

Further information may also be obtained from Pruco Life of New Jersey. Its
address and telephone number are on the inside front cover of this prospectus.

FINANCIAL STATEMENTS

The financial statements of the Account should be distinguished from the
financial statements of Pruco Life of New Jersey which should be considered only
as bearing upon the ability of Pruco Life of New Jersey to meet its obligations
under the Contracts. The financial statements of the Series Fund are in the
Statement of Additional Information.

<PAGE>

FINANCIAL STATEMENTS OF THE
PRUVIDER VARIABLE APPRECIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF NET ASSETS
December 31, 1997

<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------ ------------------
<S> <C> <C>
ASSETS
Investment in shares of The Prudential Series Fund,
Inc.
Portfolios at net asset value [Note 3]............. $ 379,348,661 $ 110,777,098
Receivable from Pruco Life Insurance Company
of New Jersey [Note 2]............................. 0 16,127
------------------ -----------------
Net Assets........................................ $ 379,348,661 $ 110,793,225
================== =================

NET ASSETS, representing:
Equity of Contract owners............................ $ 379,336,848 $ 110,793,225
Equity of Pruco Life Insurance Company of New Jersey 11,813 0
------------------ -----------------
$ 379,348,661 $ 110,793,225
================== =================
</TABLE>

STATEMENTS OF OPERATIONS
For the year ended December 31, 1997

<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------ ------------------
<S> <C> <C>

INVESTMENT INCOME
Dividend distributions received...................... $ 10,897,673 $ 4,982,357
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A].......... 2,184,985 665,939
Reimbursement for excess expenses [Note 5D].......... (793,096) (163,989)
------------------ -----------------
NET EXPENSES............................................ 1,391,889 501,950
------------------ -----------------
NET INVESTMENT INCOME................................... 9,505,784 4,480,407
------------------ -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received................. 56,731,648 11,925,141
Realized gain on shares redeemed
[average cost basis]............................... 2,974,960 961,056
Net change in unrealized (loss) on investments....... (11,688,757) (4,407,263)
------------------ -----------------
NET GAIN ON INVESTMENTS................................. 48,017,851 8,478,934
------------------ -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................ $ 57,523,635 $ 12,959,341
================== =================
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A6
A1

<PAGE>

FINANCIAL STATEMENTS OF THE
PRUVIDER VARIABLE APPRECIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED

-------------------------------------- ------------------------------------
1997 1996 1995 1997 1996 1995
--------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>

OPERATIONS:
Net investment income........................ $9,505,784 $8,554,971 $ 7,690,078 $4,480,407 $3,617,454 $3,339,301
Capital gains distributions received......... 56,731,648 31,237,057 12,349,890 11,925,141 6,285,583 3,199,302
Realized gain on shares redeemed
[average cost basis]....................... 2,974,960 1,665,484 862,723 961,056 631,625 395,934
Net change in unrealized gain (loss) on
investments................................ (11,688,757) (2,307,005) 35,074,463 (4,407,263) 818,813 6,759,491
------------ ------------ ------------ ------------ ------------ -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... 57,523,635 39,150,507 55,987,154 12,959,341 11,353,475 13,694,028
------------ ------------ ------------ ------------ ------------ -----------

NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]..................................... (10,329,244) (4,012,445) 7,645,276 (4,971,703) (2,779,707) (668,617)
------------ ------------ ------------ ------------ ------------ -----------

NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8]..................................... (219,866) (30,235) (84,390) (508,220) 307,568 (183,597)
------------ ------------ ------------ ------------ ------------ -----------

TOTAL INCREASE IN NET ASSETS.................... 46,974,525 35,107,827 63,548,040 7,479,418 8,881,336 12,841,814

NET ASSETS:
Beginning of year............................
332,374,136 297,266,309 233,718,269 103,313,807 94,432,471 81,590,657
------------ ------------ ------------ ------------ ------------ -----------
End of year.................................. $379,348,661 $332,374,136 $297,266,309 $110,793,225 $103,313,807 $94,432,471
============ ============ ============ ============ ============ ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A6
A2

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF THE
PRUVIDER VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997

NOTE 1: GENERAL

Pruco Life of New Jersey Variable Appreciable Account ("the Account")
was established on January 13, 1984 under New Jersey law as a
separate investment account of Pruco Life Insurance Company of New
Jersey ("Pruco Life of New Jersey") which is a wholly-owned
subsidiary of Pruco Life Insurance Company (an Arizona domiciled
company) and is indirectly wholly-owned by The Prudential Insurance
Company of America ("Prudential"). The assets of the Account are
segregated from Pruco Life of New Jersey's other assets. Proceeds
from the purchases of Pruco Life of New Jersey Variable Appreciable
Life ("VAL") and Pruco Life of New Jersey PRUvider Variable
Appreciable Life ("PRUvider") Contracts are invested in the Account.

The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are thirteen
subaccounts within the Account. PRUvider Contracts offer the option
to invest in two of the subaccounts within the Account, each of which
invests only in a corresponding portfolio of The Prudential Series
Fund, Inc. (the "Series Fund"). The Series Fund is a diversified
open-end management investment company, and is managed by Prudential.

New sales of the VAL product, which invests in the Account, were
discontinued as of May 1, 1992. However, premium payments made by
current Contract owners will continue to be received by the Account.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Investments--The investments in shares of the Series Fund are stated
-----------
at the net asset value of the respective portfolio.

Distributions Received--Dividend and capital gain distributions
------------------------
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.

Equity of Pruco Life Insurance Company of New Jersey--Pruco Life of
-----------------------------------------------------
New Jersey maintains a position in the Account for liquidity purposes
including unit purchases and redemptions, fund share transactions and
expense processing. Pruco Life of New Jersey monitors the balance
daily and transfers funds based upon anticipated activity. At times,
Pruco Life of New Jersey may owe an amount to the Account which is
reflected in the Account's Statements of Net Assets as a receivable
from Pruco Life of New Jersey. The receivable does not have an effect
on the Contract owner's account or related unit value.

<PAGE>

NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS

<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------------- --------------------
<S> <C> <C>
Number of Shares: 21,952,679 7,399,831
Net asset value per share: $ 17.28029 $ 14.97022
Cost: $ 349,173,522 $ 103,622,084
</TABLE>

NOTE 4: CONTRACT OWNER UNIT INFORMATION

Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:

<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------------- --------------------
<S> <C> <C>
Contract Owner Units Outstanding (VAL) .......... 85,181,520.765 29,375,352.214
Unit Value (VAL) ................................ $ 4.32695 $ 3.50133
-------------------- --------------------
Contract Owner Equity (VAL) ..................... $ 368,576,181 $ 102,852,802
-------------------- --------------------
Contract Owner Units Outstanding (PRUvider) ..... 3,587,953.482 3,196,511.786
Unit value (PRUvider) ........................... $ 2.99911 $ 2.48409
-------------------- --------------------
Contract Owner Equity (PRUvider) ................ $ 10,760,667 $ 7,940,423
-------------------- --------------------
TOTAL CONTRACT OWNER EQUITY .................... $ 379,336,848 $ 110,793,225
==================== ====================
</TABLE>

<PAGE>

NOTE 5: CHARGES AND EXPENSES

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges at an effective
annual rate of 0.60% and 0.90% are applied daily against the net
assets representing equity of VAL and PRUvider Contract owners
held in each subaccount, respectively. Mortality risk is that
Contract owners may not live as long as estimated and expense
risk is that the cost of issuing and administering the policies
may exceed the estimated expenses. For 1997, the amount of these
charges, pertaining to the thirteen subaccounts within the
Account, paid to Pruco Life of New Jersey was $4,199,662 for VAL
and $154,038 for PRUvider.

B. Deferred Sales Charge

Subsequent to a Contract owner redemption, a deferred sales
charge is imposed upon surrenders of certain variable life
insurance contracts to compensate Pruco Life of New Jersey for
sales and other marketing expenses. The amount of any sales
charge will depend on the number of years that have elapsed since
the Contract was issued. No sales charge will be imposed after
the tenth year of the Contract. No sales charge will be imposed
on death benefits. For 1997, the amount of these charges,
pertaining to the two subaccounts within the Account, paid
to Pruco Life of New Jersey was $53,157.

C. Partial Withdrawal Charge

A charge is imposed by Pruco Life of New Jersey on partial
withdrawals of the cash surrender value. For 1997, the amountf of
these charges, pertaining to the two subaccounts within the
Account, paid to Pruco Life of New Jersey was $27,494.

D. Expense Reimbursement

The Account is reimbursed by Pruco Life of New Jersey for
expenses in excess of 0.40% of the VAL product's average daily
net assets incurred by the Money Market, Diversified Bond,
Equity, Flexible Managed and Conservative Balanced Portfolios of
the Series Fund. PRUvider contracts do not provide for
reimbursement by Pruco Life of New Jersey.

E. Cost of Insurance Charges

Contract owner contributions to the two subaccounts within the
Account are subject to the following charges: transaction costs,
premium taxes, sales loads, monthly administration charges and
death benefit risk charges. During 1997, Pruco Life of New Jersey
received a total of $219,537, $130,658, $568,524, $1,352,185 and
$26,181, respectively, for these charges.

NOTE 6: TAXES

Pruco Life of New Jersey is taxed as a "life insurance company" as
defined by the Internal Revenue Code and the results of operations of
the Account form a part of Pruco Life of New Jersey's consolidated
federal tax return. Under current federal law, no federal income
taxes are payable by the Account. As such, no provision for tax
liability has been recorded in these financial statements.

<PAGE>

NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS

The following amounts represent components of Contract owner activity
for the year ended December 31, 1997:

<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
--------------------- ----------------------
<S> <C> <C>
Contract Owner Net Payments.................................. $ 22,730,003 $ 10,313,839
Policy Loans................................................. $ (7,849,567) $ (3,213,273)
Policy Loan Repayments and Interest.......................... $ 5,129,697 $ 2,156,195
Surrenders, Withdrawals, and Death Benefits.................. $ (15,259,724) $ (6,793,526)
Net Transfers From (To) Other Subaccounts or Fixed Rate $ (2,359,588) $ (1,375,131)
Options.................................................
Administrative and Other Charges............................. $ (12,720,065) $ (6,059,807)
</TABLE>

NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS

The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life of New
Jersey to (from) the Account.

NOTE 9: UNIT ACTIVITY

Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1997 and 1996, were as follows:

<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------------------------ ---------------------------------
1997 1996 1997 1996
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 7,728,571.499 10,117,095.280 4,308,576.994 5,634,628.443
Contract Owner Redemptions: (10,193,317.300) (10,999,911.624) (5,775,601.357) (6,423,986.641)
------------------------------------

NOTE 10: PURCHASES AND SALES OF INVESTMENTS

The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund were as follows:

PORTFOLIOS
------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------- ---------------------
<S> <C> <C>
For the year ended December 31, 1997
Purchases......................................... $ 3,553,000 $ 328,000
Sales............................................. $ (15,494,000) $ (6,326,000)
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Contract Owners of the
PRUvider Variable Appreciable Life Subaccounts of
Pruco Life of New Jersey Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company of New Jersey

In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Flexible Managed and
Conservative Balanced Subaccounts of the Pruco Life of New Jersey Variable
Appreciable Account at December 31, 1997, the results of each of their
operations for the year then ended and the changes in each of their net assets
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Pruco Life Insurance Company of New Jersey's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial 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, which included confirmation of shares owned in The
Prudential Series Fund, Inc. at December 31, 1997, provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE LLP

New York, New York
March 20, 1998

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Contract Owners of
Pruco Life of New Jersey Variable Appreciable
Account and the Board of Directors of
Pruco Life Insurance Company of New Jersey
Newark, New Jersey

We have audited the accompanying statements of changes in net assets of the
Flexible Managed and Conservative Balanced subaccounts of Pruco Life of New
Jersey Variable Appreciable Account of Pruco Life Insurance Company of New
Jersey for the periods presented in 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 these financial statements based on
our audits.

In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of the Flexible Managed and Conservative
Balanced subaccounts of Pruco Life of New Jersey Variable Appreciable Account
for the respective stated periods in conformity with generally accepted
accounting principles.

Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996

<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------

1997 1996
------------------- ------------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $585,109;
and 1996: $551,728) $ 592,361 $ 555,898
Policy loans 127,306 113,918
Short-term investments 52,464 17,002
------------------- ------------------
Total investments 772,131 686,818
Cash 3 3,928
Deferred policy acquisition costs 101,625 106,965
Accrued investment income 14,075 12,908
Other assets 4,037 1,736
Separate Account assets 1,110,561 883,261
------------------- ------------------
TOTAL ASSETS $2,002,432 $1,695,616
=================== ==================

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 379,744 $ 375,448
Future policy benefits and other policyholder liabilities 108,077 100,663
Cash collateral for loaned securities 33,663 -
Income taxes payable 12,963 1,970
Deferred income tax liability 22,188 24,175
Payable to affiliates 4,307 6,059
Other liabilities 17,103 11,990
Separate Account liabilities 1,108,994 880,065
------------------- ------------------
TOTAL LIABILITIES 1,687,039 1,400,370
------------------- ------------------
CONTINGENCIES -(SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
December 31, 1997 and 1996 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 185,437 166,214
Net unrealized investment gains 2,956 2,032
------------------- ------------------
TOTAL STOCKHOLDER'S EQUITY 315,393 295,246
------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,002,432 $1,695,616
=================== ==================
</TABLE>

See Notes to Financial Statements

B-1
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------

1997 1996 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES

Premiums $ 1,105 $ 1,345 $ 1,042
Policy charges and fee income 56,382 58,571 59,515
Net investment income 46,324 43,784 43,530
Realized investment gains, net 1,707 1,221 3,592
Other income 5,286 4,047 3,900
------------------- ------------------ ------------------

TOTAL REVENUES 110,804 108,968 111,579
------------------- ------------------ ------------------

BENEFITS AND EXPENSES

Policyholders' benefits 33,999 28,653 26,331
Interest credited to policyholders' account balances 19,372 20,069 21,364
General, administrative and other expenses 27,236 12,848 21,881
------------------- ------------------ ------------------

TOTAL BENEFITS AND EXPENSES 80,607 61,570 69,576
------------------- ------------------ ------------------

Income from operations before income taxes 30,197 47,398 42,003
------------------- ------------------ ------------------

Income taxes
Current 13,279 12,682 15,248
Deferred (2,305) 2,929 (246)
------------------- ------------------ ------------------

Total income taxes 10,974 15,611 15,002
------------------- ------------------ ------------------

NET INCOME $ 19,223 $ 31,787 $ 27,001
=================== ================== ==================

</TABLE>

See Notes to Financial Statements

B-2
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------

NET UNREALIZED TOTAL
RETAINED INVESTMENT STOCKHOLDER'S
COMMON STOCK PAID-IN-CAPITAL EARNINGS GAINS EQUITY
---------------- ---------------- ------------ ------------- --------------

<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $2,000 $125,000 $107,426 $(11,189) $223,237

Net income -- -- 27,001 -- 27,001

Change in net
unrealized
investment gains -- -- -- 17,777 17,777
---------------- ---------------- ------------ ------------- --------------

BALANCE, DECEMBER 31, 1995 2,000 125,000 134,427 6,588 268,015

Net income -- -- 31,787 -- 31,787

Change in net
unrealized
investment gains -- -- -- (4,556) (4,556)
---------------- ---------------- ------------ ------------- --------------

BALANCE, DECEMBER 31, 1996 2,000 125,000 166,214 2,032 295,246

Net income -- -- 19,223 19,223

Change in net
unrealized -- -- -- 924 924
investment gains
---------------- ---------------- ------------ ------------- --------------

BALANCE, DECEMBER 31, 1997 $2,000 $125,000 $185,437 $ 2,956 $315,393
================ ================ ============ ============= ==============
</TABLE>

See Notes to Financial Statements

B-3
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

1997 1996 1995
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,223 $ 31,787 $ 27,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (7,841) (9,963) (11,931)
Interest credited to policyholders' account balances 19,372 20,069 21,364
Net decrease (increase) in Separate Accounts 1,629 (1,335) 260
Realized investment gains, net (1,707) (1,221) (3,592)
Amortization and other non-cash items 521 8,908 (6,839)
Change in:
Future policy benefits and other policyholders' liabilities 7,414 8,618 900
Accrued investment income (1,167) (1,329) (317)
Policy loans (13,388) (15,724) (12,917)
Payable to affiliates (1,752) 4,300 (982)
Deferred policy acquisition costs 5,340 (10,934) 9,074
Income taxes payable 10,993 1,970 8,328
Deferred income tax liability (1,987) 366 3,460
Other, net 2,812 4,669 1,024
--------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES 39,462 40,181 34,833
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 645,355 901,775 553,681
Payments for the purchase of:
Fixed maturities:
Available for sale (679,709) (956,483) (522,757)
Cash collateral for loaned securities, net 33,663 - -
Short term investments, net (35,461) 28,306 (3,613)
--------------- --------------- --------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (36,152) (26,402) 27,311
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 134,020 16,754 18,348
Withdrawals (141,255) (26,605) (80,509)
--------------- --------------- --------------
CASH FLOWS USED IN FINANCING ACTIVITIES (7,235) (9,851) (62,161)
--------------- --------------- --------------
Net (decrease) increase in Cash (3,925) 3,928 (17)
Cash, beginning of year 3,928 - 17
--------------- --------------- --------------
CASH, END OF YEAR $ 3 $ 3,928 $ -
=============== =============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 1,896 $ 11,673 $ 7,900
=============== =============== ==============

</TABLE>

See Notes to Financial Statements

B-4
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

1. BUSINESS

Pruco Life Insurance Company of New Jersey (the Company) is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licensed to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York.

The Company is a wholly owned subsidiary of Pruco Life Insurance Company (Pruco
Life), a stock life insurance company organized in 1971 under the laws of the
state of Arizona. Pruco Life, in turn, is a wholly owned subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual insurance company
founded in 1875 under the laws of the state of New Jersey. Pruco Life intends to
make additional capital contributions to the Company as it is needed to enable
it to meet its reserve requirements and expenses in connection with its
business. Generally, Pruco Life is under no obligation to make such
contributions and its assets do not back the benefits payable under the
Contracts.

The only reportable industry segment of the Company is "Life Insurance."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The financial statements include the accounts of Pruco Life Insurance Company of
New Jersey, a stock life insurance company. The financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP").

INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. 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."

POLICY LOANS are carried at unpaid principal balances.

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.

REALIZED INVESTMENT GAINS, NET, are computed using the specific identification
method. Costs of fixed maturity are adjusted for impairments considered to be
other than temporary.

CASH
Cash includes cash on hand.

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.

Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $14,176 thousand, $(2,183) thousand,
and $8,918 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross

B-5
<PAGE>

PRUCO LIFE INSURANCE OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

profits on unamortized deferred acquisition costs is reflected in earnings in
the period such estimated gross profits are revised.

FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
8.75% The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using rates ranging from 2.5% to 7.25% and various mortality and morbidity
tables derived from company or industry experience.

SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the statements of financial position.
Substantially, all of the Company's securities loaned are with large brokerage
firms.

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
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, 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 Statement of Operations.
Mortality, policy administration and surrender charges on the accounts are
included in "Policy charges and fee income."

Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life of New Jersey Modified
Guaranteed Annuity Account. The Pruco Life of New Jersey Modified Guaranteed
Annuity Account is a non-unitized separate account, which funds the Modified
Guaranteed Annuity Contract and the Market Value Adjustment Annuity Contract.
Owners of the Pruco Life of New Jersey Modified Guaranteed Annuity and the
Market Value Adjustment Annuity Contracts do not participate in the investment
gain or loss from assets relating to such accounts. Such gain or loss is borne,
in total, by the Company.

INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances". Revenues from these contracts are reflected as "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

B-6
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the
transaction will not close, such gains and losses are included in "Realized
investment gains, net."

Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rates. 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 is a member of a group of affiliated companies which join in filing
a consolidated federal income tax return in addition to separate company state
and local tax returns. Pursuant to the tax allocation arrangement, total federal
income tax expense is determined on a separate company basis. Members with
losses record tax benefits to the extent such losses are recognized in the
consolidated federal tax provision. 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.

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 Statements 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 presentations.

B-7
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

3. INVESTMENTS

FIXED MATURITIES
The following tables provide additional information relating to fixed maturities
as of December 31:

1997
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- ---------------- -------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 42,885 $ 340 $ 3 $ 43,222

Foreign government bonds 38,332 551 -- 38,883

Corporate securities 503,892 6,545 181 510,256
-------------- ----------------- -------------- ------------------
Total fixed maturities available for sale $ 585,109 $ 7,436 $ 184 $ 592,361
============== ================= ============== ==================
</TABLE>

1996
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ----------------- -------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 29,386 $ 1 $ 174 $ 29,213

Foreign government bonds 38,853 420 52 39,221

Corporate securities 483,439 5,108 1,133 487,414

Mortgage-backed securities 50 -- -- 50
-------------- ----------------- -------------- ------------------
Total fixed maturities available for sale $ 551,728 $ 5,529 $ 1,359 $ 555,898
============== ================= ============== ==================
</TABLE>

B-8
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

3. INVESTMENTS (continued)

The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturity at December 31, 1997, are shown below:

AVAILABLE FOR SALE
----------------------------------
ESTIMATED FAIR
AMORTIZED COST VALUE
----------------- -----------------
(IN THOUSANDS)

Due in one year or less $ 28,866 $ 28,987

Due after one year through five years 460,874 465,687

Due after five years through ten years 83,430 85,481

Due after ten years 11,939 12,206
----------------- ----------------

Total $ 585,109 $ 592,361
================= ================

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

Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $635,355 thousand, $854,758 thousand and $525,672 thousand,
respectively. Gross gains of $2,898 thousand, $3,942 thousand, and $6,349
thousand and gross losses of $1,191 thousand, $3,839 thousand, and $3,018
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from maturities of fixed maturities available for sale during 1997,
1996, and 1995 were $10,000 thousand, $47,017 thousand, and $28,009 thousand,
respectively.

The following table describes the amortized cost and estimated fair value of
fixed maturity securities by agency rating equivalent as of December 31, 1997:

AVAILABLE FOR SALE
----------------------------------
ESTIMATED FAIR
AMORTIZED COST VALUE
----------------- -----------------
(IN THOUSANDS)

AAA/AA/A $ 310,409 $ 313,746

BBB 254,084 257,024

BB 20,616 21,591
----------------- ----------------

Total $ 585,109 $ 592,361
================= ================

SPECIAL DEPOSITS
Fixed maturities of $460 thousand and $459 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.

B-9
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO 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 Thousands)

<S> <C> <C> <C>
Fixed maturities - available for sale $37,563 $36,193 $36,861
Policy loans 6,596 5,761 5,029
Short-term investments 3,023 2,504 2,290
Other 333 28 51
----------------- ----------------- -----------------
Gross investment income 47,515 44,486 44,231
Less investment expenses (1,191) (702) (701)
----------------- ----------------- -----------------
Net investment income $46,324 $43,784 $43,530
================= ================= =================

</TABLE>

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

1997 1996 1995
----------------------- ---------------------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale
Realized investment gains $ 2,898 $ 5,232 $ 6,785
Realized investment losses (1,191) (4,011) (3,193)
----------------------- ---------------------------- -----------------
Realized investment gains, net $ 1,707 $ 1,221 $ 3,592
======================= ============================ =================
</TABLE>

NET UNREALIZED INVESTMENT GAINS are included in the statements 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 1995
----------------------- ---------------------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Balance, beginning of year $ 2,032 $ 6,588 $ (11,189)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 3,082 (11,222) 32,875
Participating group annuity contracts 332 (1,175) 1,387
Deferred policy acquisition costs (2,170) 5,277 (6,486)
Deferred federal income taxes (320) 2,564 (9,999)
----------------------- ---------------------------- -----------------
Balance, end of year $ 2,956 $ 2,032 $ 6,588
======================= ============================ =================

</TABLE>

B-10
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

4. INCOME TAXES

The components of income taxes for the years ended December 31, are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense
U.S. $12,880 $13,589 $13,868
State and local 399 (907) 1,380
------------------- -------------------- -----------------
Total 13,279 12,682 15,248
------------------- -------------------- -----------------

Deferred tax expense (benefit):
U.S. (2,305) 2,848 (239)
State and local -- 81 (7)
------------------- -------------------- -----------------
Total (2,305) 2,929 (246)
------------------- -------------------- -----------------

Total income tax expense $10,974 $15,611 $15,002
=================== ==================== =================
</TABLE>

1997 1996 1995
------------------- -------------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $10,569 $16,589 $14,702
State income taxes 259 (826) 1,373
Other 146 (152) (1,073)
------------------- -------------------- -----------------
Total income tax expense $10,974 $15,611 $15,002
=================== ==================== =================

</TABLE>

B-11
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

4. INCOME TAXES (continued)

Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>

1997 1996
-------------------- --------------------
Deferred income tax assets (In Thousands)
<S> <C> <C>
Insurance reserves $ 6,260 $ 6,189
Other 615 -
-------------------- --------------------
Total deferred income tax assets 6,875 6,189
-------------------- --------------------

Deferred income tax liabilities
Deferred acquisition costs 25,429 28,424
Net investment gains 3,634 1,940
-------------------- --------------------
Deferred income tax liabilities 29,063 30,364
-------------------- --------------------
Total deferred federal tax
liabilities $22,188 $24,175
==================== ====================

</TABLE>

5. REINSURANCE

The Company assumes and cedes reinsurance with Prudential. The effect of the
reinsurance for the years ended December 31, is summarized as follows:

1997 1996 1995
---- ------ ------
(In Thousands)
Life insurance premiums
Gross Amount $1,117 $1,345 $1,053
Ceded to other companies (12) -- (11)
------ ------ ------
Net amount $1,105 $1,345 $1,042
====== ====== ======

1997 1996 1995
---- ------ ------
(In Thousands)
Life insurance in force
Gross Amount $8,325,544 $8,599,647 $8,873,763
Ceded to other companies (1,808) (1,831) (1,818)
---------- ---------- ----------
Net amount $8,323,736 $8,597,816 $8,871,945
========== ========== ==========

B-12
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

6. EQUITY

RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and Insurance
with net income and equity determined using GAAP.

1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 18,306 $ 24,774 $ 25,567

Adjustments to reconcile to net income on a GAAP basis:
Deferred acquisition costs (3,170) 5,656 (2,589)
Deferred premium 198 221 (58)
Insurance liabilities 2,324 4,784 2,286
Deferred taxes 1,708 (2,883) 510
Valuation of investments (143) (765) 1,285
------------------ ------------------ ------------------
GAAP NET INCOME $ 19,223 $ 31,787 $ 27,001
================== ================== ==================

</TABLE>

1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 235,958 $ 216,019

Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 18,540 17,768
Deferred acquisition costs 101,625 106,965
Deferred premium (2,007) (2,205)
Insurance liabilities (10,726) (21,501)
Deferred taxes (28,238) (21,829)
Other, net 241 29
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 315,393 $ 295,246
==================== ====================
</TABLE>

B-13
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

FIXED MATURITIES
Fair values for fixed maturities are based on quoted market prices or estimates
from independent pricing services.

POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.

DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for transactions
with similar terms.

The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:

1997 1996
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities available for
sale $ 592,361 $ 592,361 $ 555,898 $ 555,898
Policy loans 127,306 126,262 113,918 110,262
Short-term investments 52,464 52,464 17,002 17,002
Cash 3 3 3,928 3,928
Separate Accounts assets 1,110,561 1,110,561 883,261 883,261

Financial Liabilities:
Policyholders'
account balances $ 379,744 $ 379,744 $ 375,448 $ 375,448
Cash collateral for loaned
securities 33,663 33,663 - -

Separate Accounts liabilities 1,108,994 1,108,994 880,065 880,065
Derivatives 83 83 - -
</TABLE>

B-14
<PAGE>

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

NOTES TO FINANCIAL STATEMENTS

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

8. DERIVATIVE

DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $83 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.

9. RELATED PARTY TRANSACTIONS

SERVICE AGREEMENTS
Prudential, Pruco Life, and Pruco Securities Corporation, an indirect
wholly-owned subsidiary of Prudential, operate under service and lease
agreements whereby services of officers and employees, supplies, use of
equipment and office space are provided. The net cost of these services
allocated to the Company were $16,210 thousand, $12,223 thousand and $15,947
thousand for the years ended December 31, 1997, 1996, and 1995, respectively.

REINSURANCE

The Company currently has a reinsurance agreement in place with Prudential (the
reinsurer). The reinsurance agreement is a yearly renewable term agreement in
which the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net income
for the years ended December 31, 1997, 1996, and 1995.

10. CONTINGENCIES

11. DIVIDENDS

The Company is subject to New Jersey law which limits the amount of dividends
that insurance companies can pay to stockholders. The maximum dividend which may
be paid in any twelve month period without prior approval of the New Jersey
Commissioner of Insurance is limited to the greater of 10% of statutory surplus
as of December 31 of the preceding year or the net gain from operations of the
preceding calendar year. Cash dividends may only be paid out of surplus derived
from realized net profits. Based on these limitations and the Company's surplus
position at December 31, 1997, the Company would be permitted a maximum of
$23,396 thousand in dividend distributions in 1998, all of which could be paid
in cash, without approval from The State of New Jersey Department of Insurance.

B-15

<PAGE>

Report of Independent Accountants
---------------------------------

To the Board of Directors of
Pruco Life Insurance Company of New Jersey

In our opinion, the accompanying statements of financial position and the
related statements of operations, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of Pruco
Life Insurance Company of New Jersey 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 audits. 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 express
above.

PRICE WATERHOUSE LLP
New York, New York
March 23, 1998

B-16
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Pruco Life Insurance Company of New Jersey
Newark, New Jersey

We have audited the accompanying statements of operations, changes in
stockholder's equity and cash flows of Pruco Life Insurance Company of New
Jersey 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.

In our opinion, such statements of operations, changes in stockholder's equity,
and cash flows present fairly, in all material respects, the results of
operations and cash flows of Pruco Life Insurance Company of New Jersey for
the year ended December 31, 1995 in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP
Parsippany, NJ
December 19, 1996

B-17

<PAGE>

PRUvider(sm)

Variable Appreciable Life(r)

Insurance

[logo] PRUDENTIAL

Pruco Life Insurance Company of New Jersey
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016

SVAL-2 Ed. 5/98 CAT# 640189U

<PAGE>

PART B

INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998

THE PRUDENTIAL ----------------------------------------------------------------
SERIES FUND, INC.

Shares of the Series Fund are currently sold only to separate accounts (the
"Accounts") of The Prudential Insurance Company of America ("Prudential") and
certain other insurers (collectively with Prudential, the "Companies") to fund
the benefits under variable life insurance and variable annuity contracts (the
"Contracts") issued by those Companies. The Accounts invest in shares of the
Series Fund through subaccounts that correspond to the portfolios. The Accounts
will redeem shares of the Series Fund to the extent necessary to provide
benefits under the Contracts or for such other purposes as may be consistent
with the Contracts.

NOT EVERY PORTFOLIO IS AVAILABLE UNDER ALL OF THE VARIABLE CONTRACTS. THE
PROSPECTUS FOR EACH CONTRACT LISTS THE PORTFOLIOS CURRENTLY AVAILABLE UNDER THAT
PARTICULAR CONTRACT.

This statement of additional information is not a prospectus and should be read
in conjunction with the Series Fund's prospectus dated May 1, 1998, which is
available without charge upon written request to The Prudential Series Fund,
Inc., 751 Broad Street, Newark, New Jersey 07102-3777 or by telephoning (800)
437-4016.

CONTENTS

CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
----- -------------------
<S> <C> <C>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
GENERAL............................................................................... 1 10
WARRANTS.............................................................................. 1
OPTIONS ON STOCK, OPTIONS ON DEBT SECURITIES, OPTIONS ON STOCK INDICES,
OPTIONS ON FOREIGN CURRENCIES, FUTURES CONTRACTS, AND OPTIONS ON

FUTURES CONTRACTS.................................................................. 1 28

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS........................................... 4 27
INTEREST RATE SWAPS................................................................... 6
ILLIQUID SECURITIES................................................................... 6

INVESTMENT RESTRICTIONS.................................................................. 6 34

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.......................................... 10 34

FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS................................ 12 14
OTHER INFORMATION CONCERNING THE SERIES FUND
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 13 38
CUSTODIANS............................................................................ 15
EXPERTS............................................................................... 15
LICENSES.............................................................................. 15
MANAGEMENT OF THE SERIES FUND............................................................ 17 10

FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.................................. A1
THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS................................. B1
APPENDIX: DEBT RATINGS................................................................... C1

</TABLE>

THE PRUDENTIAL SERIES FUND, INC.
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (800) 437-4016

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS

GENERAL

The Prudential Series Fund, Inc. (the "Series Fund") is made up of fifteen
separate portfolios: the Money Market Portfolio, the Diversified Bond Portfolio,
the Government Income Portfolio, the Zero Coupon Bond Portfolios 2000 and 2005,
the Conservative Balanced Portfolio, the Flexible Managed Portfolio, the High
Yield Bond Portfolio, the Stock Index Portfolio, the Equity Income Portfolio,
the Equity Portfolio, the Prudential Jennison Portfolio, the Small
Capitalization Stock Portfolio, the Global Portfolio, and the Natural Resources
Portfolio. Not every portfolio is available under all of the variable contracts.
The prospectus for each Contract lists the portfolios currently available under
that particular Contract. The portfolios are managed by The Prudential Insurance
Company of America ("Prudential") as discussed in INVESTMENT MANAGEMENT
ARRANGEMENTS AND EXPENSES, page 10.

Each of the fifteen portfolios seeks to achieve a different investment
objective. Accordingly, each portfolio can be expected to have different
investment results and to be subject to different financial and market risks.
Financial risk refers to the ability of an issuer of a debt security to pay
principal and interest and to the earnings stability and overall financial
soundness of an issuer of an equity security. Market risk refers to the degree
to which the price of a security will react to changes in conditions in
securities markets in general, and with particular reference to debt securities,
to changes in the overall level of interest rates.

The investment objectives of the Series Fund's portfolios can be found in
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS in the prospectus. The
policies employed to manage the Zero Coupon Bond Portfolios are discussed in
greater detail in a separate section below.

WARRANTS

The Conservative Balanced, Flexible Managed, Equity Income, Equity, Prudential
Jennison, Small Capitalization Stock, Global, and Natural Resources Portfolios
may invest in warrants on common stocks. Warrants are options to buy a number of
shares of stock at a predetermined price during a specified period. The risk
associated with the purchase of a warrant is that the purchase price will be
lost if the market price of the stock does not reach a level that justifies the
exercise or sale of the warrant before it expires. From time to time, the
Diversified Bond and the High Yield Bond Portfolios may invest in debt
securities that are offered together with warrants but only when the debt
security meets the portfolio's investment criteria and the value of the warrant
is relatively very small. If the warrant later becomes valuable, it may be sold
or exercised.

OPTIONS ON STOCK, OPTIONS ON DEBT SECURITIES, OPTIONS ON STOCK INDICES,
OPTIONS ON FOREIGN CURRENCIES, FUTURES CONTRACTS, AND OPTIONS ON FUTURES
CONTRACTS

A. ADDITIONAL INFORMATION REGARDING THE USE OF FUTURES AND OPTIONS BY THE
DIVERSIFIED BOND, GOVERNMENT INCOME, CONSERVATIVE BALANCED, FLEXIBLE MANAGED,
HIGH YIELD BOND, EQUITY INCOME, EQUITY, PRUDENTIAL JENNISON, SMALL
CAPITALIZATION STOCK, GLOBAL, AND NATURAL RESOURCES PORTFOLIOS.

A portfolio will write only "covered" options on stock indices. A call option is
covered if the portfolio holds a portfolio of stocks at least equal to the value
of the index times the multiplier times the number of contracts. When a
portfolio writes a call option on a broadly based stock market index, the
portfolio will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, cash equivalents or "qualified
securities" (defined below) with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. If a portfolio has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian or pledge to a broker as collateral for the option, at least five
"qualified securities," all of which are stocks of issuers in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. Such stocks will include stocks which represent at least 50% of
the weighting of the industry or market segment index and will represent at
least 50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the portfolio
will so segregate, escrow or pledge an amount in cash, U.S. Government
securities or other liquid unencumbered assets equal in value to the difference.
In addition, when a portfolio writes a call on an index which is in-the-money at
the time the call is written, the portfolio will segregate with its custodian or
pledge to the broker as collateral, cash or U.S. Government securities or other
liquid unencumbered assets equal in value to the amount by which the call is
in-the-money times the

<PAGE>

multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the portfolio's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a securities exchange or listed on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") against which the
portfolio has not written a stock call option and which has not been hedged by
the portfolio by the sale of stock index futures. However, if the portfolio
holds a call on the same index as the call written where the exercise price of
the call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the portfolio in cash, U.S. Government securities or other liquid
unencumbered assets in a segregated account with its custodian, it will not be
subject to the requirement described in this paragraph.

A put option is covered if: (1) the portfolio holds in a segregated account
cash, U.S. Government securities or other liquid unencumbered assets of a value
equal to the strike price times the multiplier times the number of contracts; or
(2) the portfolio holds a put on the same index as the put written where the
strike price of the put held is equal to or greater than the strike price of the
put written or less than the strike price of the put written if the difference
is maintained by the portfolio in cash, U.S. Government securities or other
liquid unencumbered assets in a segregated account with its custodian. In
instances involving the purchase of futures contracts by a portfolio, an amount
of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the portfolio's
custodian and/or in a margin account with a broker to collateralize the position
and thereby ensure that the use of such futures is unleveraged.

B. ADDITIONAL INFORMATION REGARDING THE USE OF FUTURES AND OPTIONS BY THE STOCK
INDEX AND SMALL CAPITALIZATION STOCK PORTFOLIOS.

As explained in the prospectus, the Stock Index Portfolio seeks to duplicate the
performance of the S&P 500 Index and the Small Capitalization Stock Portfolio
seeks to duplicate the performance of the S&P SmallCap 600 Index. The portfolios
will be as fully invested in the S&P Indices stocks as is feasible in light of
cash flow patterns and the cash requirements for efficiently investing in a unit
of the basket of stocks comprising the S&P 500 and S&P SmallCap 600 Indices,
respectively. When the portfolios do have short-term investments, they may
purchase stock index futures contracts in an effort to have the portfolio better
mimic the performance of a fully invested portfolio. When a portfolio purchases
stock index futures contracts, an amount of cash and cash equivalents, equal to
the market value of the futures contracts, will be deposited in a segregated
account with the portfolio's custodian and/or in a margin account with a broker
to collateralize the position and thereby ensure that the use of futures is
unleveraged.

As an alternative to the purchase of a stock index futures contract, the
portfolio may construct synthetic positions involving options on stock indices
and options on stock index futures that are equivalent to such a long futures
position. In particular, the portfolio may utilize "put/call combinations" as
synthetic long stock index futures positions. A put/call combination is the
simultaneous purchase of a call and the sale of a put with the same strike price
and maturity. It is equivalent to a forward position and, if settled every day,
is equivalent to a long futures position. When constructing put/call
combinations, the portfolio will segregate cash or cash equivalents in a
segregated account equal to the market value of the portfolio's forward position
to collateralize the position and ensure that it is unleveraged.

C. RISKS OF TRANSACTIONS IN OPTIONS ON EQUITY AND DEBT SECURITIES.

A portfolio's use of options on equity or debt securities is subject to certain
special risks, in addition to the risk that the market value of the security
will move adversely to the portfolio's option position. An exchange-traded
option position may be closed out only on an exchange, board of trade or other
trading facility which provides a secondary market for an option of the same
series. Although these portfolios will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange or otherwise may exist. In such event it
might not be possible to effect closing transactions in particular options, with
the result that the portfolio would have to exercise its options in order to
realize any profit and would incur brokerage commissions upon the exercise of
such options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a portfolio as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to

<PAGE>

particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.

The purchase and sale of options that result from privately negotiated
transactions with broker-dealers ("OTC options") will also be subject to certain
risks. Unlike exchange-traded options, OTC options generally do not have a
continuous liquid market. Consequently, a portfolio will generally be able to
realize the value of an OTC option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when a portfolio writes an
OTC option, it generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the portfolio originally wrote the OTC option. While the portfolios
will seek to enter into OTC options only with dealers who agree to and which are
expected to be able to be capable of entering into closing transactions with the
portfolio, there can be no assurance that the portfolio will be able to
liquidate an OTC option at a favorable price at any time prior to expiration. In
the event of insolvency of the other party, the portfolio may be unable to
liquidate an OTC option. Prudential monitors the creditworthiness of dealers
with whom the Series Fund enters into OTC option transactions under the Board of
Directors' general supervision.

D. RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDICES.

A portfolio's purchase and sale of options on stock indices will be subject to
the same risks as stock options, described in the previous section. In addition,
the distinctive characteristics of options on indices create certain risks that
are not present with stock options. Index prices may be distorted if trading of
certain stocks included in the index is interrupted. Trading in the index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of stocks included in the index. If this
occurred, a portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in substantial losses
to the portfolio. It is the policy of the portfolios to purchase or write
options only on stock indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.

The ability to establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market. A portfolio
will not purchase or sell any index option contract unless and until, in the
portfolio manager's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on stocks.

There are certain special risks associated with writing calls on stock indices.
Because exercises of index options are settled in cash, a call writer such as a
portfolio cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot precisely provide in advance
for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the portfolios will follow the "cover"
procedures described in item A above.

Price movements in a portfolio's equity security portfolio probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index a portfolio bears the risk that the price of the
securities held by the portfolio may not increase as much as the index. In such
event, the portfolio would bear a loss on the call which is not completely
offset by movement in the price of the portfolio's equity securities. It is also
possible that the index may rise when the portfolio's securities do not rise in
value. If this occurred, the portfolio would experience a loss on the call which
is not offset by an increase in the value of its securities portfolio and might
also experience a loss in its securities portfolio. However, because the value
of a diversified securities portfolio will, over time, tend to move in the same
direction as the market, movements in the value of a portfolio's securities in
the opposite direction as the market would be likely to occur for only a short
period or to a small degree.

<PAGE>

sold. This timing risk makes certain strategies involving more than one option
substantially more risky with options in stock indices than with stock options.
For example, even if an index call which a portfolio has written is "covered" by
an index call held by the portfolio with the same strike price, the portfolio
will bear the risk that the level of the index may decline between the close of
trading on the date the exercise notice is filed with the clearing corporation
and the close of trading on the date the portfolio exercises the call it holds
or the time the portfolio sells the call which in either case would occur no
earlier than the day following the day the exercise notice was filed.

There are also certain special risks involved in purchasing put and call options
on stock indices. If a portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the portfolio will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although the portfolio may be able to minimize the risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
times for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.

E. RISKS OF TRANSACTIONS IN OPTIONS ON FOREIGN CURRENCY.

Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. Risks include
those described in the prospectus under FOREIGN SECURITIES and OPTIONS ON
FOREIGN CURRENCIES. In addition, the quantities of currency underlying option
contracts represent odd lots in a market dominated by transactions between
banks; this can mean extra transaction costs upon exercise. Option markets may
be closed while round-the-clock interbank currency markets are open, and this
can create price and rate discrepancies.

F. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.

There are several risks associated with a portfolio's use of futures contracts.
When used for investment purposes (i.e., non-hedging purposes), successful use
of futures contracts, like successful investment in securities, depends on the
ability of the portfolio manager to predict correctly movements in the relevant
markets, interest rates and/or currency exchange rates. When used for hedging
purposes, there is a risk of imperfect correlation between movements in the
price of the futures contract and the price of the securities or currency that
are the subject of the hedge. In the case of futures contracts on stock or
interest rate indices, the correlation between the price of the futures contract
and movements in the index might not be perfect. To compensate for differences
in historical volatility, a portfolio could purchase or sell futures contracts
with a greater or lesser value than the securities or currency it wished to
hedge or purchase. Other risks apply to use for both hedging and investment
purposes. Temporary price distortions in the futures market could be caused by a
variety of factors. Further, the ability of a portfolio to close out a futures
position depends on a liquid secondary market. There is no assurance that a
liquid secondary market on an exchange will exist for any particular futures
contract at any particular time.

The hours of trading of futures contracts may not conform to the hours during
which the portfolio may trade the underlying securities and/or currency. To the
extent that the futures markets close before the securities or currency markets,
significant price and rate movements can take place in the securities and/or
currency markets that cannot be reflected in the futures markets.

G. RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS.

Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indices, and
futures contracts. These risks include the risk that the portfolio manager may
not correctly predict changes in the market, the risk of imperfect correlation
between the option and the securities being hedged, and the risk that there
might not be a liquid secondary market for the option. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, the portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If the portfolio were unable
to close out an option it had written on a futures contract, it would continue
to be required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was exercised
against the portfolio.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

As explained in the prospectus, the Conservative Balanced, Flexible Managed,
Equity Income, Equity, Prudential Jennison, Global, and Natural Resources
Portfolios may purchase debt and equity securities denominated in foreign
currencies. To address the currency fluctuation risk that such investments
entail, these portfolios may enter into forward foreign currency exchange
contracts in several circumstances. When a portfolio enters into a contract

<PAGE>

for the purchase or sale of a security denominated in a foreign currency, or
when a portfolio anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds, the portfolio may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for a fixed amount of dollars, for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the
portfolio will be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.

Additionally, when a portfolio's manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the portfolio may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The portfolios will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a portfolio to deliver an amount of
foreign currency in excess of the value of the securities or other assets
denominated in that currency held by the portfolio. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the portfolios believe that it is important to have the
flexibility to enter into such forward contracts when it is determined that the
best interests of the portfolios will thereby be served.

The portfolios generally will not enter into a forward contract with a term of
greater than 1 year. At the maturity of a forward contract, a portfolio may
either sell the portfolio security and make delivery of the foreign currency or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a portfolio to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.

If a portfolio retains the portfolio security and engages in an offsetting
transaction, the portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the portfolio's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the portfolio will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The portfolios' dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the portfolios are not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of the portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

Although the portfolios value their assets daily in terms of U.S. dollars, they
do not intend physically to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a portfolio at one rate, while offering a lesser rate of exchange should the
portfolio desire to resell that currency to the dealer.

The High Yield Bond Portfolio may also invest up to 10% of its total assets in
foreign currency denominated debt securities of foreign or domestic issuers;
however, the portfolio will not engage in such investment activity unless it has
been first authorized to do so by the Series Fund's Board of Directors. If the
portfolio does engage in such investment activity, it may also enter into
forward foreign currency exchange contracts.

<PAGE>

INTEREST RATE SWAPS

The Diversified Bond, Government Income, and High Yield Bond Portfolios and the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use interest rate swaps subject to the limitations set forth in
the prospectus.

Interest rate swaps, in their most basic form, involve the exchange by a
portfolio with another party of their respective commitments to pay or receive
interest. For example, a portfolio might exchange its right to receive certain
floating rate payments in exchange for another party's right to receive fixed
rate payments. Interest rate swaps can take a variety of other forms, such as
agreements to pay the net differences between two different indices or rates,
even if the parties do not own the underlying instruments. Despite their
differences in form, the function of interest rate swaps is generally the same -
to increase or decrease a portfolio's exposure to long- or short-term interest
rates. For example, a portfolio may enter into a swap transaction to preserve a
return or spread on a particular investment or a portion of its portfolio or to
protect against any increase in the price of securities the portfolio
anticipates purchasing at a later date.

The use of swap agreements is subject to certain risks. As with options and
futures, if the investment manager's prediction of interest rate movements is
incorrect, the portfolio's total return will be less than if the portfolio had
not used swaps. In addition, if the counterparty's creditworthiness declines,
the value of the swap would likely decline. Moreover, there is no guarantee that
a portfolio could eliminate its exposure under an outstanding swap agreement by
entering into an offsetting swap agreement with the same or another party.

A portfolio will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a portfolio
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the portfolio's accrued
obligations under the swap agreement over the accrued amount the portfolio is
entitled to receive under the agreement. If a portfolio enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the portfolio's accrued obligations under the agreement.

ILLIQUID SECURITIES

Each portfolio, other than the Money Market Portfolio, may hold up to 15% of its
net assets in illiquid securities. The Money Market Portfolio may hold up to 10%
of its net assets in illiquid securities. Illiquid securities are those which
may not be sold in the ordinary course of business within seven days at
approximately the value at which the portfolio has valued them. Repurchase
agreements with a maturity of greater than seven days are considered illiquid.

The portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the investment manager,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the investment manager will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
portfolio's treatment of Rule 144A securities as liquid could have the effect of
increasing the level of portfolio illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. In addition, the investment manager, acting under guidelines
approved and monitored by the Board of Directors, may conditionally determine,
for purposes of the 15% test, that certain commercial paper issued in reliance
on the exemption from registration in Section 4(2) of the Securities Act of 1933
will not be considered illiquid, whether or not it may be resold under Rule
144A. To make that determination, the following conditions must be met: (1) the
security must not be traded flat or in default as to principal or interest; (2)
the security must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"), or
if only one NRSRO rates the security, by that NRSRO; if the security is unrated,
the investment manager must determine that the security is of equivalent
quality; and (3) the investment manager must consider the trading market for the
specific security, taking into account all relevant factors. The investment
manager will continue to monitor the liquidity of any Rule 144A security or any
Section 4(2) commercial paper which has been determined to be liquid and, if a
security is no longer liquid because of changed conditions, the holdings of
illiquid securities will be reviewed to determine if any steps are required to
assure that the 15% test continues to be satisfied.

INVESTMENT RESTRICTIONS

Set forth below are certain investment restrictions applicable to the
portfolios. Restrictions 1, 3, 5, and 8-11 are fundamental and may not be
changed without shareholder approval as required by the 1940 Act. Restrictions
2, 4, 6, 7, and 12 are not fundamental and may be changed by the Board of
Directors without shareholder approval.

<PAGE>

None of the portfolios will:

1. Buy or sell real estate and mortgages, although the portfolios may buy and
sell securities that are secured by real estate and securities of real
estate investment trusts and of other issuers that engage in real estate
operation. Buy or sell commodities or commodities contracts, except that
the Diversified Stock, Balanced, and Specialized Portfolios may purchase
and sell stock index futures contracts and related options; the Fixed
Income Portfolios (other than the Money Market and Zero Coupon Bond
Portfolios), the Global Portfolio, and the Balanced Portfolios may purchase
and sell interest rate futures contracts and related options; and all
portfolios (other than the Money Market, Government Income, Zero Coupon
Bond, and Small Capitalization Stock Portfolios) may purchase and sell
foreign currency futures contracts and related options and forward foreign
currency exchange contracts.

2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company.

3. Acquire securities for the purpose of exercising control or management of
any company except in connection with a merger, consolidation, acquisition
or reorganization.

4. Make short sales of securities or maintain a short position, except that
the Diversified Bond, High Yield Bond, Government Income, Conservative
Balanced and Flexible Managed Portfolios may sell securities short up to
25% of their net assets and except that the portfolios (other than the
Money Market and Zero Coupon Bond Portfolios) may make short sales against
the box. Collateral arrangements entered into with respect to options,
futures contracts and forward contracts are not deemed to be short sales.
Collateral arrangements entered into with respect to interest rate swap
agreements are not deemed to be short sales.

5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that the Diversified Bond, High Yield Bond and Government
Income Portfolios, as well as the fixed income portions of the Balanced
Portfolios, may enter into reverse repurchase agreements, dollar rolls and
may purchase securities on a when-issued and delayed delivery basis; except
that the Money Market Portfolio and the money market portion of any
portfolio may enter into reverse repurchase agreements and may purchase
securities on a when-issued and delayed delivery basis; and except that the
Equity, Prudential Jennison, Small Capitalization Stock, Equity Income,
Natural Resources, Global, Flexible Managed and Conservative Balanced
Portfolios may purchase securities on a when-issued or a delayed delivery
basis. The Series Fund may also obtain such short-term credit as it needs
for the clearance of securities transactions and may borrow from a bank for
the account of any portfolio as a temporary measure to facilitate
redemptions (but not for leveraging or investment) or to exercise an
option, an amount that does not exceed 5% of the value of the portfolio's
total assets (including the amount owed as a result of the borrowing) at
the time the borrowing is made. Interest paid on borrowings will not be
available for investment. Collateral arrangements with respect to futures
contracts and options thereon and forward foreign currency exchange
contracts (as permitted by restriction no. 1) are not deemed to be the
issuance of a senior security or the purchase of a security on margin.
Collateral arrangements with respect to the writing of the following
options by the following portfolios are not deemed to be the issuance of a
senior security or the purchase of a security on margin: Diversified Stock
and Specialized Portfolios other than the Stock Index Portfolio (options on
equity securities, stock indices, foreign currencies) and the Small
Capitalization Stock Portfolio (options on equity securities, stock
indices); Balanced Portfolios (options on debt securities, equity
securities, stock indices, foreign currencies); Diversified Bond and High
Yield Bond Portfolios (options on debt securities, foreign currencies);
Government Income Portfolio (options on debt securities). Collateral
arrangements entered into by the Fixed Income Portfolios (other than the
Money Market and Zero Coupon Bond Portfolios) and the Balanced Portfolios
with respect to interest rate swap agreements are not deemed to be the
issuance of a senior security or the purchase of a security on margin.

6. Enter into reverse repurchase agreements if, as a result, the portfolio's
obligations with respect to reverse repurchase agreements would exceed 10%
of the portfolio's net assets (defined to mean total assets at market value
less liabilities other than reverse repurchase agreements); except that the
Diversified Bond, High Yield Bond, and Government Income Portfolios, as
well as the fixed income portions of the Conservative Balanced and Flexible
Managed Portfolios, may enter into reverse repurchase agreements and dollar
rolls provided that the portfolio's obligations with respect to those
instruments do not exceed 30% of the portfolio's net assets (defined to
mean total assets at market value less liabilities other than reverse
repurchase agreements and dollar rolls).

<PAGE>

forward contracts and the writing of options are not deemed to be the
pledge of assets. Collateral arrangements entered into with respect to
interest rate swap agreements are not deemed to be the pledge of assets.

8. Lend money, except that loans of up to 10% of the value of each portfolio
may be made through the purchase of privately placed bonds, debentures,
notes, and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible into
stock or accompanied by warrants or rights to acquire stock. Repurchase
agreements and the purchase of publicly traded debt obligations are not
considered to be "loans" for this purpose and may be entered into or
purchased by a portfolio in accordance with its investment objectives and
policies.

9. Underwrite the securities of other issuers, except where the Series Fund
may be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of portfolio securities
and with loans that a portfolio may make pursuant to item 8 above.

10. Make an investment unless, when considering all its other investments, 75%
of the value of a portfolio's assets would consist of cash, cash items,
obligations of the United States Government, its agencies or
instrumentalities, and other securities. For purposes of this restriction,
"other securities" are limited for each issuer to not more than 5% of the
value of a portfolio's assets and to not more than 10% of the issuer's
outstanding voting securities held by the Series Fund as a whole. Some
uncertainty exists as to whether certain of the types of bank obligations
in which a portfolio may invest, such as certificates of deposit and
bankers' acceptances, should be classified as "cash items" rather than
"other securities" for purposes of this restriction, which is a
diversification requirement under the 1940 Act. Interpreting most bank
obligations as "other securities" limits the amount a portfolio may invest
in the obligations of any one bank to 5% of its total assets. If there is
an authoritative decision that any of these obligations are not
"securities" for purposes of this diversification test, this limitation
would not apply to the purchase of such obligations.

11. Purchase securities of a company in any industry if, as a result of the
purchase, a portfolio's holdings of securities issued by companies in that
industry would exceed 25% of the value of the portfolio, except that this
restriction does not apply to purchases of obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities or issued by
domestic banks. For purposes of this restriction, neither finance companies
as a group nor utility companies as a group are considered to be a single
industry and will be grouped instead according to their services; for
example, gas, electric, and telephone utilities will each be considered a
separate industry. For purposes of this exception, domestic banks shall
include all banks which are organized under the laws of the United States
or a state (as defined in the 1940 Act), U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and foreign branches
of domestic banks (as permitted by the Securities and Exchange Commission
("SEC").

12. Invest more than 15% of its net assets in illiquid securities. (The Money
Market Portfolio will not invest more than 10% of its net assets in
illiquid securities.) For purposes of this restriction, illiquid securities
are those deemed illiquid pursuant to SEC regulations and guidelines, as
they may be revised from time to time.

Consistent with item 5 above, the Series Fund has entered into a credit
agreement (the "Line of Credit") with an unaffiliated lender to facilitate
redemptions if necessary. The maximum commitment under the Line of Credit, which
expires on December 18, 1998, is $250,000,000. The Series Fund pays a commitment
fee at an annual rate of 0.055 of 1% of the unused portion of the Line of Credit
and interest on any borrowings under the Line of Credit at market rates. As of
April 30, 1998, the Series Fund had not borrowed against the Line of Credit.

The Natural Resources Portfolio will generally invest a substantial majority of
its total assets in securities of natural resource companies. With respect to
item 11 above, as it relates to the Natural Resources Portfolio, the following
categories will be considered separate and distinct industries: integrated
oil/domestic, integrated oil/international, crude oil production, natural gas
production, gas pipeline, oil service, coal, forest products, paper, foods
(including corn and wheat), tobacco, fertilizers, aluminum, copper, iron and
steel, all other basic metals (e.g., nickel, lead), gold, silver, platinum,
mining finance, plantations (e.g., edible oils), mineral sands, and diversified
resources. A company will be deemed to be in a particular industry if the
majority of its revenues is derived from or the majority of its assets is
dedicated to one of the categories described in the preceding sentence. The
Board of Directors of the Series Fund will review these industry classifications
from time to time to determine whether they are reasonable under the
circumstances and may change such classifications, without shareholder approval,
to the extent necessary.

Certain additional non-fundamental investment policies are applicable only to
the Money Market Portfolio. That portfolio will not:

1. Invest in oil and gasI interests, common stock, preferred stock,
warrants or other equity securities.

<PAGE>

2. Write or purchase any put or call option or combination of them,
except that it may purchase putable or callable securities.

3. Invest in any security with a remaining maturity in excess of 397
days, except that securities held pursuant to repurchase agreements
may have a remaining maturity of more than 397 days.

Certain additional non-fundamental investment policies are applicable only to
the High Yield Bond Portfolio. That portfolio will not:

1. Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed income
securities, but not including preferred stock.

2. Invest more than 20% of the market or other fair value of its total
assets in United States currency denominated issues of foreign
governments and other foreign issuers; or invest more than 10% of the
market or other fair value of its total assets in securities which are
payable in currencies other than United States dollars. The portfolio
will not engage in investment activity in non-U.S. dollar denominated
issues without first obtaining authorization to do so from the Series
Fund's Board of Directors. See INVESTMENT OBJECTIVES AND POLICIES OF
THE PORTFOLIOS, page 1.

The investments of the various portfolios are generally subject to certain
additional restrictions under the laws of the State of New Jersey. In the event
of future amendments to the applicable New Jersey statutes, each portfolio will
comply, without the approval of the shareholders, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
stand are, in summary form, as follows:

1. An Account may not purchase any evidence of indebtedness issued,
assumed or guaranteed by any institution created or existing under the
laws of the U.S., any U.S. state or territory, District of Columbia,
Puerto Rico, Canada or any Canadian province, if such evidence of
indebtedness is in default as to interest. "Institution" includes any
corporation, joint stock association, business trust, business joint
venture, business partnership, savings and loan association, credit
union or other mutual savings institution.

2. The stock of a corporation may not be purchased unless: (i) the
corporation has paid a cash dividend on the class of stock during each
of the past 5 years preceding the time of purchase; or (ii) during the
5-year period the corporation had aggregate earnings available for
dividends on such class of stock sufficient to pay average dividends
of 4% per annum computed upon the par value of such stock or upon
stated value if the stock has no par value. This limitation does not
apply to any class of stock which is preferred as to dividends over a
class of stock whose purchase is not prohibited.

3. Any common stock purchased must be: (i) listed or admitted to trading
on a securities exchange in the United States or Canada; or (ii)
included in the National Association of Securities Dealers' national
price listings of "over-the-counter" securities; or (iii) determined
by the Commissioner of Insurance of New Jersey to be publicly held and
traded and have market quotations available.

4. Any security of a corporation may not be purchased if after the
purchase more than 10% of the market value of the assets of a
portfolio would be invested in the securities of such corporation.

As a result of these currently applicable requirements of New Jersey law, which
impose substantial limitations on the ability of the Series Fund to invest in
the stock of companies whose securities are not publicly traded or who have not
recorded a 5-year history of dividend payments or earnings sufficient to support
such payments, the portfolios will not generally hold the stock of newly
organized corporations. Nonetheless, an investment not otherwise eligible under
items 1 or 2 above may be made if, after giving effect to the investment, the
total cost of all such non-eligible investments does not exceed 5% of the
aggregate market value of the assets of the portfolio.

Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the portfolios. For example, the Series Fund will generally invest no more
than 10% of its assets in the obligations of banks of the foreign countries
enumerated in item 2 of the Appendix to the prospectus.

Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Series Fund, as applicable, and not the Contract
owners, are considered the owners of assets held in the Accounts for federal
income tax purposes. See DIVIDENDS, DISTRIBUTIONS, AND TAXES in the prospectus.
Prudential intends to maintain the assets of each portfolio pursuant to those
diversification requirements.

<PAGE>

INVESTMENT MANAGEMENT ARRANGEMENTS
AND EXPENSES

Prudential is the investment advisor of the Series Fund. It is the largest
insurance company in the United States. The Series Fund has entered into an
Investment Advisory Agreement with Prudential under which Prudential will,
subject to the direction of the Board of Directors of the Series Fund, be
responsible for the management of the Series Fund, and provide investment advice
and related services to each portfolio. Prudential has entered into a Service
Agreement with its wholly-owned subsidiary The Prudential Investment Corporation
("PIC"), which provides that PIC will furnish to Prudential such services as
Prudential may require in connection with Prudential's performance of its
obligations under advisory agreements with clients which are registered
investment companies. In addition, Prudential has entered into a Subadvisory
Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp.
("Jennison") under which Jennison furnishes investment advisory services in
connection with the management of the Prudential Jennison Portfolio. More
detailed information about Prudential and its role as investment manager can be
found in INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES in the prospectus.

The investment management fee for the Stock Index Portfolio is equal to an
annual rate of 0.35% of the average daily net assets of the portfolio. For the
Money Market, Diversified Bond, Government Income, Zero Coupon Bond, Equity
Income, and Small Capitalization Stock Portfolios that fee is equal to an annual
rate of 0.40% of the average daily net assets of each of the portfolios. For the
Equity and Natural Resources Portfolios, the fee is equal to an annual rate of
0.45% of the average daily net assets of each of the portfolios. The fee for the
Conservative Balanced and High Yield Bond Portfolios is equal to an annual rate
of 0.55% of the average daily net assets of each of the portfolios. For the
Flexible Managed and Prudential Jennison Portfolios, the fee is equal to an
annual rate of 0.60% of the average daily net assets of the portfolio. The fee
for the Global Portfolio is equal to an annual rate of 0.75% of the average
daily net assets of the portfolio. Under the Service Agreement, Prudential pays
PIC a portion of the fee it receives for providing investment management
services. Prudential pays Jennison a portion of the fee it receives for
providing investment management services to the Prudential Jennison Portfolio.

For the years ended December 31, 1997, 1996 and 1995, Prudential was paid the
following fees for providing investment management services to the Portfolios:

INVESTMENT MANAGEMENT FEES
--------------------------
YEAR ENDED DECEMBER 31
----------------------

PORTFOLIO 1997 1996 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Money Market Portfolio $ 2,667,947 $ 2,495,613 $ 2,399,559
Diversified Bond Portfolio 2,981,884 2,713,429 2,337,700
Government Income Portfolio 1,758,870 1,957,623 1,913,517
Zero Coupon Bond 1995 Portfolio -- -- 42,824
Zero Coupon Bond 2000 Portfolio 161,101 119,545 92,250
Zero Coupon Bond 2005 Portfolio 123,525 97,040 76,677
Conservative Balanced Portfolio 25,757,735 23,052,572 20,327,574
Flexible Managed Portfolio 31,740,440 27,247,674 22,971,401
High Yield Bond Portfolio 2,679,304 2,192,765 1,845,783
Stock Index Portfolio 7,121,699 4,488,042 2,904,883
Equity Income Portfolio 6,601,602 4,863,078 3,999,197
Equity Portfolio 24,840,379 19,216,733 14,518,058
Prudential Jennison Portfolio (1) 2,063,572 821,423 118,016
Small Capitalization Stock Portfolio (1) 867,687 362,830 72,904
Global Portfolio 4,836,302 3,671,568 2,806,038
Natural Resources Portfolio 1,975,906 1,662,931 1,183,826
------------ ----------- -----------
Total $116,177,953 $94,962,866 $77,610,207
============ =========== ===========
</TABLE>

- ---------

(1) Portfolio commenced operations on April 25, 1995.

<PAGE>

space and related facilities necessary to perform these services and the fees or
salaries of all officers and directors of the Series Fund who are affiliated
persons of Prudential or of any subsidiary of Prudential.

Each portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Series Fund's general administrative expenses
allocated on the basis of the asset size of the respective portfolios. Expenses
that will be borne directly by the portfolios include redemption expenses,
expenses of portfolio transactions, shareholder servicing costs, interest,
certain taxes, charges of the custodian and transfer agent, and other expenses
attributable to a particular portfolio. Expenses that will be allocated among
all portfolios include legal expenses, state franchise taxes, auditing services,
costs of printing proxies, costs of stock certificates, SEC fees, accounting
costs, the fees and expenses of directors of the Series Fund who are not
affiliated persons of Prudential or any subsidiary of Prudential, and other
expenses properly payable by the entire Series Fund. If the Series Fund is sued,
litigation costs may be directly applicable to one or more portfolio or
allocated on the basis of the size of the respective portfolios, depending upon
the nature of the lawsuit. The Series Fund's Board of Directors has determined
that this is an appropriate method of allocating expenses.

Under the Investment Advisory Agreement, Prudential has agreed to refund to a
portfolio (except the Global Portfolio) the portion of the investment management
fee for that portfolio equal to the amount that the aggregate annual ordinary
operating expenses of that portfolio (excluding interest, taxes, and brokerage
fees and commissions but including investment management fees) exceeds 0.75% of
the portfolio's average daily net assets. There is no expense limitation or
reimbursement provision for the Global Portfolio.

The Investment Advisory Agreement with Prudential was most recently approved by
the Series Fund's Board of Directors, including a majority of the Directors who
are not interested persons of Prudential, on May 19, 1997 with respect to all
portfolios. The Investment Advisory Agreement was most recently approved by the
shareholders in accordance with instructions from Contract owners at their 1989
annual meeting with respect to all portfolios except the Prudential Jennison and
Small Capitalization Stock Portfolios. A Supplemental Advisory Agreement
regarding the Prudential Jennison and Small Capitalization Stock Portfolios was
approved by the Series Fund Board of Directors on December 20, 1994 and by the
sole shareholder of the Prudential Jennison and Small Capitalization Stock
Portfolios on April 5, 1995. The Investment Advisory and Supplemental Investment
Advisory Agreements will continue in effect if approved annually by: (1) a
majority of the non-interested persons of the Series Fund's Board of Directors;
and (2) by a majority of the entire Board of Directors or by a majority vote of
the shareholders of each portfolio. The required shareholder approval of the
Agreements shall be effective with respect to any portfolio if a majority of the
voting shares of that portfolio vote to approve the Agreements, even if the
Agreements are not approved by a majority of the voting shares of any other
portfolio or by a majority of the voting shares of the entire Series Fund. The
Agreements provide that they may not be assigned by Prudential and that they may
be terminated upon 60 days' notice by the Series Fund's Board of Directors or by
a majority vote of its shareholders. Prudential may terminate the Agreements
upon 90 days' notice.

The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Series Fund at their 1989 annual meeting with respect to all
portfolios except for the Prudential Jennison and Small Capitalization Stock
Portfolios, which had not yet been established. The Service Agreement with
respect to those portfolios and the Investment Subadvisory Agreement with
Jennison were ratified by the sole shareholder of those portfolios, April 5,
1995. The Service Agreement between Prudential and PIC will continue in effect
as to the Series Fund for a period of more than 2 years from its execution, only
so long as such continuance is specifically approved at least annually in the
same manner as the Investment Advisory Agreement between Prudential and the
Series Fund. The Service Agreement may be terminated by either party upon not
less than 30 days prior written notice to the other party, will terminate
automatically in the event of its assignment, and will terminate automatically
as to the Series Fund in the event of the assignment or termination of the
Investment Advisory Agreement between Prudential and the Series Fund. Prudential
is not relieved of its responsibility for all investment advisory services under
the Investment Advisory Agreement.

Prudential also serves as the investment manager to several other investment
companies. When investment opportunities arise that may be appropriate for more
than one entity for which Prudential serves as investment manager, Prudential
will not favor one over another and may allocate investments among them in an
impartial manner believed to be equitable to each entity involved. The
allocations will be based on each entity's investment objectives and its current
cash and investment positions. Because the various entities for which Prudential
acts as investment manager have different investment objectives and positions,
Prudential may from time to time buy a particular security for one or more such
entities while at the same time it sells such securities for another.

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

<PAGE>

Board of Directors and management of Prudential as to the desirability of
demutualization. The Prudential Board of Directors, in its discretion, may
choose not to demutualize or to delay demutualization for a time.

FURTHER INFORMATION ABOUT THE
ZERO COUPON BOND PORTFOLIOS

As stated in the prospectus, the objective of Zero Coupon Bond Portfolios 2000
and 2005 is to achieve the highest predictable compounded investment return for
a specified period of time, consistent with the safety of invested capital. This
discussion provides a more detailed explanation of the investment policies that
will be employed to manage these portfolios.

If each Zero Coupon Bond Portfolio held only stripped securities that were
obligations of the United States Government, maturing on the liquidation date,
the compounded yield of the portfolio from the date of initial investment until
the liquidation date could be calculated arithmetically to a high degree of
accuracy. By: (i) including stripped corporate obligations and interest bearing
debt securities; (ii) including securities with maturity dates within 2 years of
the liquidation date; and (iii) more actively managing the portfolio, the
accuracy of the predicted yield is reduced somewhat with the objective of
achieving an increased yield. The reduction in accuracy is kept to an acceptably
small amount, however, by an investment technique known as "immunization." By
purchasing securities with maturity dates or with interest payment dates prior
to the liquidation date, a risk is incurred that the payments received will not
be able to be reinvested at interest rates as high as or higher than the yield
initially predicted. This is known as "reinvestment risk." By including
securities with maturity dates after the liquidation date, a risk is incurred
that, because interest rates have increased, the market value of such securities
will be lower than had been anticipated. This is known as "market risk." It is
also possible, conversely, that payments received prior to the liquidation date
can be reinvested at higher rates than the predicted yield and that the value of
unmatured securities on the liquidation date will be greater than anticipated.
Reinvestment risk and market risk are thus reciprocal in that any change in the
general level of interest rates has an opposite effect on the two classes of
securities described above.

The portfolios' investment manager seeks to balance these risks by making use of
the concept of "duration." A bond's duration is the average weighted period of
time until receipt of all scheduled cash payments under the bond (whether
principal or interest), where the weights are the present value of the amounts
to be received on each payment date. Unlike the concept of a bond's "term to
maturity," therefore, duration takes into account both the amount and timing of
a bond's interest payments, in addition to its maturity date and yield to
maturity. The duration of a zero coupon bond is the product of the face amount
of the bond and the time until maturity. As applied to a portfolio of bonds, a
portfolio's "duration" is the average weighted period of time until receipt of
all scheduled payments, whether principal or interest, from all bonds in the
portfolio.

When a portfolio's duration is equal to the length of time remaining until its
liquidation date, fluctuations in the amount of income accumulated by the
portfolio through reinvestment of coupon or principal payments received prior to
the liquidation date (i.e., fluctuations caused by reinvestment risk) will, over
the period ending on the liquidation date, be approximately equal in magnitude
to, but opposite in direction from, fluctuations in the market value on the
liquidation date of the portfolio's unmatured bonds (i.e., fluctuations caused
by market risk). By maintaining each portfolio's duration within 1 year of the
length of time remaining until its liquidation date, Prudential believes that
each portfolio's value on its liquidation date, and hence an investor's
compounded investment return to that date, will largely be immunized against
changes in the general level of interest rates. The success of this technique
could be affected, however, by such factors as changes in the relationship
between long-term and short-term interest rates and changes in the difference
between the yield on corporate and Treasury securities.

Prudential will also calculate a projected yield for each Zero Coupon Bond
Portfolio. At the beginning of each week, after the net asset value of each Zero
Coupon Bond Portfolio has been determined, Prudential will calculate the
compounded annual yield that will result if all securities in the portfolio are
held until the liquidation date or, if earlier, until their maturity dates (with
the proceeds reinvested until the liquidation date). This is the predicted yield
for that date. It can also be expressed as the amount to which a premium of
$10,000 is predicted to grow by the portfolio's liquidation date. Both of these
numbers will be furnished upon request. Unless there is a significant change in
the general level of interest rates--in which case a recalculation will be
made--the predicted yield is not likely to vary materially over the course of
each week.

As stated in the prospectus, as much as 30% of each portfolio's assets may be
invested in zero coupon debt securities issued by United States corporations or
in high grade interest bearing debt securities, provided that no more than 20%
of the assets of the portfolio may be invested in interest bearing securities.
The extent to which the portfolio invests in interest bearing securities may
rise above 20% as the portfolio moves closer to its

<PAGE>

liquidation date since both reinvestment risk and market risk become smaller as
the period to the liquidation date decreases.

OTHER INFORMATION CONCERNING THE SERIES FUND

PORTFOLIO TRANSACTIONS AND BROKERAGE

Prudential is responsible for decisions to buy and sell securities, options on
securities and indices, and futures and related options for the Series Fund.
Prudential is also responsible for the selection of brokers, dealers, and
futures commission merchants to effect the transactions and the negotiation of
brokerage commissions, if any. Broker-dealers may receive brokerage commissions
on Series Fund portfolio transactions, including options and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of Prudential.

Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Series Fund will not deal with
Prudential Securities Incorporated in any transaction in which Prudential
Securities Incorporated acts as principal. Thus, it will not deal with
Prudential Securities Incorporated if execution involves Prudential Securities
Incorporated's acting as principal with respect to any part of the Series Fund's
order.

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities Incorporated, during the existence of
the syndicate, is a principal underwriter (as defined in the 1940 Act) except in
accordance with rules of the SEC. This limitation, in the opinion of the Series
Fund, will not significantly affect the portfolios' current ability to pursue
their respective investment objectives. However, in the future it is possible
that the Series Fund may under other circumstances be at a disadvantage because
of this limitation in comparison to other funds not subject to such a
limitation.

In placing orders for portfolio securities of the Series Fund, Prudential is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, Prudential will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Series Fund, Prudential or Prudential's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by
Prudential in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the
Series Fund may be used in managing other investment accounts. Conversely,
brokers, dealers or futures commission merchants furnishing such services may be
selected for the execution of transactions for such other accounts, and the
services furnished by such brokers, dealers or futures commission merchants may
be used by Prudential in providing investment management for the Series Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. Prudential's policy is to pay higher commissions to brokers, other than
Prudential Securities Incorporated, for particular transactions than might be
charged if a different broker had been selected on occasions when, in
Prudential's opinion, this policy furthers the objective of obtaining best price
and execution. Prudential's present policy is not to permit higher commissions
to be paid on Series Fund transactions in order to secure research, statistical,
and investment services from brokers. Prudential might in the future authorize
the payment of such higher commissions but only with the prior concurrence of
the Board of Directors of the Series Fund, if it is determined that the higher
commissions are necessary in order to secure desired research and are reasonable
in relation to all the services that the broker provides.

<PAGE>

to provide that any commissions, fees or other remuneration paid to Prudential
Securities Incorporated are consistent with the foregoing standard. In
accordance with Rule 11a2-2(T) under the Securities Exchange Act of 1934,
Prudential Securities Incorporated may not retain compensation for effecting
transactions on a national securities exchange for the Series Fund unless the
Series Fund has expressly authorized the retention of such compensation in a
written contract executed by the Series Fund and Prudential Securities
Incorporated. Rule 11a2-2(T) provides that Prudential Securities Incorporated
must furnish to the Series Fund at least annually a statement setting forth the
total amount of all compensation retained by Prudential Securities Incorporated
from transactions effected for the Series Fund during the applicable period.
Brokerage and futures transactions with Prudential Securities Incorporated are
also subject to such fiduciary standards as may be imposed by applicable law.

For the years ended December 31 1997, 1996, and 1995, the Series Fund Portfolios
paid the following amounts in brokerage commissions:

COMMISSIONS PAID BY THE PORTFOLIOS
----------------------------------
YEAR ENDED DECEMBER 31, 1997
----------------------------

PERCENTAGE OF
COMMISSIONS COMMISSIONS
PAID PAID
TO PRUDENTIAL TO PRUDENTIAL
AGGREGATE SECURITIES SECURITIES
PORTFOLIO COMMISSIONS INCORPORATED INCORPORATED
- --------- ----------- ------------- --------------

<S> <C> <C> <C>
Diversified Bond Portfolio $ 54,863 -- --
Government Income Portfolio 4,971 -- --
Conservative Balanced Portfolio 3,338,897 $ 256,752 7.69%
Flexible Managed Portfolio 6,544,428 428,008 ` 6.54%
High Yield Bond Portfolio 47,273 -- --
Stock Index Portfolio 200,865 -- --
Equity Income Portfolio 2,241,887 198,726 8.86%
Equity Portfolio 1,823,705 189,498 10.39%
Prudential Jennison Portfolio 484,086 -- --
Small Capitalization Stock Portfolio 227,781 -- --
Global Portfolio 2,055,319 7,621 0.37%
Natural Resources Portfolio 569,768 132 0.02%
----------- ----------
Total $17,593,843 $1,080,737
=========== ==========

</TABLE>

YEAR ENDED DECEMBER 31, 1996
----------------------------

COMMISSIONS
PAID
TO PRUDENTIAL
AGGREGATE SECURITIES
PORTFOLIO COMMISSIONS INCORPORATED
- --------- ----------- --------------
Conservative Balanced Portfolio $ 2,192,303 $ 120,976
Flexible Managed Portfolio 5,760,972 582,317
High Yield Bond Portfolio 300 --
Stock Index Portfolio 190,060 --
Equity Income Portfolio 925,727 66,311
Equity Portfolio 1,498,313 165,924
Prudential Jennison Portfolio 217,853 --
Small Capitalization Stock Portfolio 146,850 --
Global Portfolio 1,231,548 19,388
Natural Resources Portfolio 627,390 6,608
----------- -----------
Total $12,791,316 $ 961,524
=========== ===========

<PAGE>

YEAR ENDED DECEMBER 31, 1995
----------------------------

COMMISSIONS
PAID
TO PRUDENTIAL
AGGREGATE SECURITIES
PORTFOLIO COMMISSIONS INCORPORATED
- --------- ----------- -------------
Conservative Balanced Portfolio $ 1,893,008 $ 82,153
Flexible Managed Portfolio 5,252,363 589,038
High Yield Bond Portfolio 1,874 --
Stock Index Portfolio 90,504 --
Equity Income Portfolio 1,979,661 134,365
Equity Portfolio 1,608,202 86,077
Prudential Jennison Portfolio (1) 66,448 --
Small Capitalization Stock Portfolio (1) 79,283 --
Global Portfolio -- --
Natural Resources Portfolio 624,009 8,106
----------- --------
Total $11,595,352 $899,739
=========== ========

(1) Portfolio commenced operations on April 25, 1995.

For 1997, the percentage of the aggregate dollar amount of transactions effected
through Prudential Securities Incorporated was 5.18% for the Conservative
Balanced Portfolio, 6.92% for the Flexible Managed Portfolio, 12.13% for the
Equity Income Portfolio, 12.97% for the Equity Portfolio, 0.26% for the Global
Portfolio, and 0.13% for the Natural Resources Portfolio.

CUSTODIANS

Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City,
MO 64105-1716, is the custodian of the assets held by all the portfolios except
the Global Portfolio. IFTC is also the custodian of the assets held in
connection with repurchase agreements entered into by the portfolios, and is
authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system of the Federal Reserve Bank with respect to
securities held by these portfolios. Brown Brothers Harriman & Co. ("Brown
Brothers"), 40 Water Street, Boston, MA 02109, is the custodian of the assets of
the Global Portfolio. Each of the Series Fund's custodians employs
subcustodians, who were approved in accordance with regulations of the SEC, for
the purpose of providing custodial service for the Series Fund's foreign assets
held outside the United States.

EXPERTS

The financial statements included in this statement of additional information
and the FINANCIAL HIGHLIGHTS included in the Series Fund's 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, NY 10036.

LICENSES

As part of the Investment Advisory Agreement, Prudential has granted the Series
Fund a royalty-free, non-exclusive license to use the words "The Prudential" and
"Prudential" and its registered service mark of a rock representing the Rock of
Gibraltar. However, Prudential may terminate this license if Prudential or a
company controlled by it ceases to be the Series Fund's investment advisor.
Prudential may also terminate the license for any other reason upon 60 days
written notice; but, in this event, the Investment Advisory Agreement shall also
terminate 120 days following receipt by the Series Fund of such notice, unless a
majority of the outstanding voting securities of the Series Fund vote to
continue the Agreement notwithstanding termination of the license.

The Series Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to Contract owners or any
member of the public regarding the advisability of investing in securities
generally or in the Series Fund particularly or the ability of the S&P 500 Index
or the S&P SmallCap 600 Index to track general stock market performance. S&P's
only relationship to the Series Fund is the licensing of certain trademarks and
trade names of S&P and the S&P 500 Index. The S&P 500 Index and the S&P SmallCap
600 Index are determined, composed and calculated by S&P without regard to the
Series Fund, the Stock Index Portfolio or the Small Capitalization Stock
Portfolio. S&P has no obligation to take the needs of the Series Fund or the
Contract owners into consideration in determining, composing or calculating the
S&P 500 Index or the S&P SmallCap 600 Index. S&P is not responsible for and has
not participated in the determination of the prices and

<PAGE>

amount of the Series Fund shares or the timing of the issuance or sale of those
shares or in the determination or calculation of the equation by which the
shares are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Series Fund
Shares.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS TO BE OBTAINED BY THE SERIES FUND,
CONTRACT OWNERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

<PAGE>

MANAGEMENT OF THE SERIES FUND

The names of all directors and major officers of the Series Fund and the
principal occupation of each during the last 5 years are shown below. Unless
otherwise stated, the address of each director and officer is 751 Broad Street,
Newark, New Jersey 07102-3777.

DIRECTORS OF THE SERIES FUND

MENDEL A. MELZER, CFA*, 37, Chairman of the Board--Chief Investment Officer of
Prudential Investments since 1996; 1995 to 1996: Chief Financial Officer of the
Money Management Group of Prudential; 1993 to 1995: Senior Vice President and
Chief Financial Officer of Prudential Preferred Financial Services; Prior to
1993: Managing Director, The Prudential Investment Corporation.

E. MICHAEL CAULFIELD*, 51, President and Director--Chief Executive Officer of
Prudential Investments since 1995; 1995: Chief Executive Officer, Prudential
Preferred Financial Services; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company; Prior to 1992: President of Investment Services of
Prudential.

SAUL K. FENSTER, 65, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.

W. SCOTT MCDONALD, JR., 61, Director--Principal, Kaludis Consulting Group since
1997; 1995 to 1996: Principal, Scott McDonald & Associates; Prior to 1995:
Executive Vice President of Fairleigh Dickinson University. Address: 9 Zamrok
Way, Morristown, New Jersey 07960.

JOSEPH WEBER, 74, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

OFFICERS WHO ARE NOT DIRECTORS

CAREN A. CUNNINGHAM, Secretary--Assistant General Counsel of Prudential Mutual
Fund Management, Inc. since 1997; 1994 to 1997: Vice President and Associate
General Counsel of Smith Barney Mutual Fund Management Inc.; 1992 to 1994:
Assistant Vice President and Counsel, The Boston Company.

GRACE C. TORRES, Treasurer and Principal Financial and Accounting Officer--First
Vice President of PIFM since 1996; 1994 to 1996: First Vice President of
Prudential Securities Inc.; Prior to 1994: Vice President of Bankers Trust
Corporation.

STEPHEN M. UNGERMAN, Assistant Treasurer--Vice President and Tax Director of
Prudential Investments since 1996; 1993 to 1996: First Vice President of
Prudential Mutual Fund Management, Inc.

No director or officer of the Series Fund who is also an officer, director or
employee of Prudential or its affiliates is entitled to any remuneration from
the Series Fund for services as one of its directors or officers. Each director
of the Series Fund who is not an interested person of the Series Fund will
receive a fee of $2,000 per year plus $200 per portfolio for each meeting of the
Board attended and will be reimbursed for all expenses incurred in connection
with attendance at meetings.

*These members of the Board are interested persons of Prudential, its affiliates
or the Series Fund as defined in the 1940 Act. Certain actions of the Board,
including the annual continuance of the Investment Advisory Agreement between
the Series Fund and Prudential, must be approved by a majority of the members of
the Board who are not interested persons of Prudential, its affiliates or the
Series Fund. Mr. Melzer and Mr. Caulfield, two of the five members of the Board,
are interested persons of Prudential and the Series Fund, as that term is
defined in the 1940 Act, because they are officers and/or affiliated persons of
Prudential, the investment advisor to the Series Fund. Messrs. Fenster,
McDonald, and Weber are not interested persons of Prudential, its affiliates or
the Series Fund. However, Mr. Fenster is President of the New Jersey Institute
of Technology. Prudential has issued a group annuity contract to the Institute
and provides group life and group health insurance to its employees.

<PAGE>

The following table sets forth the aggregate compensation paid by the Series
Fund to the Directors who are not affiliated with Prudential for the fiscal year
ended December 31, 1997 and the aggregate compensation paid to such Directors
for service on the Series Fund's Board and the Boards of any other investment
companies managed by Prudential for the calendar year ended December 31, 1997.
Below are listed all Directors who have served the Series Fund during its most
recent fiscal year.

COMPENSATION TABLE
<TABLE>
<CAPTION>

Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual Related to Funds
Compensation As Part of Series Benefits Upon Managed by
Name and Position From Series Fund Fund Expenses Retirement Prudential
- ----------------- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
E. Michael Caulfield(1) -- -- -- --
Saul K. Fenster $14,400 None N/A $26,200 (5)*
W. Scott McDonald, Jr. $14,400 None N/A $26,200 (5)*
Mendel A. Melzer, CFA(1) -- -- -- --
Joseph Weber $14,400 None N/A $26,200 (5)*

</TABLE>

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

(1) Directors who are "interested" do not receive compensation from Prudential
(including the Series Fund).

* Indicates number of funds (including the Series Fund) to which aggregate
compensation relates.

As of April 30, 1998, the Directors and officers of the Series Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Series
Fund capital stock.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments (amortized cost
$654,059,056)............................ $ 654,059,056
Cash....................................... 13,970,702
Interest receivable........................ 4,191,789
--------------
Total Assets............................. 672,221,547
--------------
LIABILITIES
Payable for investments purchased.......... 13,969,161
Payable to investment adviser.............. 660,450
Accrued expenses........................... 129,796
--------------
Total Liabilities........................ 14,759,407
--------------
NET ASSETS................................... $ 657,462,140
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 657,462
Paid-in capital, in excess of par........ 656,804,678
--------------
Net assets, December 31, 1997.............. $ 657,462,140
--------------
--------------
Net asset value and redemption price per
share, 65,746,214 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 10.00
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 38,030,378
---------------
EXPENSES
Investment advisory fee.................... 2,667,947
Custodian expense.......................... 83,000
Accounting fees............................ 46,000
Shareholders' reports...................... 45,000
Audit fees................................. 12,000
Directors' fees............................ 2,800
Legal fees................................. 500
Miscellaneous expenses..................... 935
---------------
Total Expenses........................... 2,858,182
Less: Custodian fee credit................. (42,342)
---------------
Net Expenses............................. 2,815,840
---------------
NET INVESTMENT INCOME........................ 35,214,538
---------------

NET REALIZED GAIN ON INVESTMENTS............. 13,511
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 35,228,049
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 35,214,538 $ 31,843,235
Net realized gain on investments....................................................... 13,511 1,246
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 35,228,049 31,844,481
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (35,214,538) (31,843,235)
Distributions from net realized capital gains.......................................... (13,511) (1,246)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (35,228,049) (31,844,481)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [22,888,771 and 18,464,400 shares, respectively].................... 228,887,710 184,644,000
Capital stock issued in reinvestment of dividends and distributions [3,522,805 and
3,184,448 shares, respectively]....................................................... 35,228,049 31,844,481
Capital stock repurchased [(27,542,174) and (16,104,000) shares, respectively]......... (275,421,740) (161,040,000)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (11,305,981) 55,448,481
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (11,305,981) 55,448,481
NET ASSETS:
Beginning of year...................................................................... 668,768,121 613,319,640
------------------ -------------------
End of year............................................................................ $ 657,462,140 $ 668,768,121
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$790,639,568)............................ $ 803,286,169
Cash....................................... 880
Interest receivable........................ 14,128,219
Receivable for capital stock sold.......... 430,653
--------------
Total Assets............................. 817,845,921
--------------
LIABILITIES
Payable to investment adviser.............. 797,254
Due to broker -- variation margin.......... 214,531
Accrued expenses........................... 127,405
--------------
Total Liabilities........................ 1,139,190
--------------
NET ASSETS................................... $ 816,706,731
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 740,989
Paid-in capital, in excess of par........ 800,244,621
--------------
800,985,610
Undistributed net investment income........ 229,159
Accumulated net realized gain on
investments.............................. 3,308,830
Net unrealized appreciation on
investments.............................. 12,183,132
--------------
Net assets, December 31, 1997.............. $ 816,706,731
--------------
--------------
Net asset value and redemption price per
share, 74,098,859 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 11.02
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 56,691,387
---------------
EXPENSES
Investment advisory fee.................... 2,981,884
Accounting fees............................ 107,000
Custodian expense.......................... 79,500
Shareholders' reports...................... 20,000
Audit fees................................. 11,000
Directors' fees............................ 2,800
Legal fees................................. 1,000
Miscellaneous expenses..................... 1,222
---------------
Total Expenses........................... 3,204,406
Less: Custodian fee credit................. (44,514)
---------------
Net Expenses............................. 3,159,892
---------------
NET INVESTMENT INCOME........................ 53,531,495
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 13,721,305
Futures contracts........................ (4,526,384)
---------------
9,194,921
---------------
Net change in unrealized appreciation on:
Investments.............................. (1,767,311)
Futures contracts........................ (463,469)
---------------
(2,230,780)
---------------
NET GAIN ON INVESTMENTS...................... 6,964,141
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 60,495,636
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 53,531,495 $ 46,726,825
Net realized gain on investments....................................................... 9,194,921 3,227,785
Net change in unrealized appreciation on investments................................... (2,230,780) (18,849,028)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 60,495,636 31,105,582
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (55,359,529) (44,766,756)
Distributions from net realized capital gains.......................................... (9,016,752) --
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (64,376,281) (44,766,756)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [11,468,488 and 7,068,417 shares, respectively]..................... 127,691,138 78,594,183
Capital stock issued in reinvestment of dividends and distributions [5,812,573 and
4,117,675 shares, respectively]....................................................... 64,376,281 44,766,756
Capital stock repurchased [(8,269,292) and (4,070,327) shares, respectively]........... (91,696,624) (45,319,610)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 100,370,795 78,041,329
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 96,490,150 64,380,155
NET ASSETS:
Beginning of year...................................................................... 720,216,581 655,836,426
------------------ -------------------
End of year............................................................................ $ 816,706,731 $ 720,216,581
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A2
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$411,381,627)............................ $ 424,649,985
Cash....................................... 1,091
Interest receivable........................ 5,592,164
--------------
Total Assets............................. 430,243,240
--------------
LIABILITIES
Payable to investment adviser.............. 456,426
Accrued expenses........................... 82,691
Due to broker -- variation margin.......... 38,438
Payable for capital stock repurchased...... 22,626
--------------
Total Liabilities........................ 600,181
--------------
NET ASSETS................................... $ 429,643,059
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 372,861
Paid-in capital, in excess of par........ 423,192,132
--------------
423,564,993
Undistributed net investment income........ 77,253
Accumulated net realized loss on
investments.............................. (7,194,513)
Net unrealized appreciation on investments
and futures contracts.................... 13,195,326
--------------
Net assets, December 31, 1997.............. $ 429,643,059
--------------
--------------
Net asset value and redemption price per
share, 37,286,113 outstanding shares of
common stock (authorized 90,000,000
shares).................................. $ 11.52
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 30,059,962
---------------
EXPENSES
Investment advisory fee.................... 1,758,870
Accounting fees............................ 106,000
Custodian expense.......................... 49,000
Shareholders' reports...................... 6,000
Audit fee.................................. 6,000
Directors' fees............................ 3,000
Legal fees................................. 300
Miscellaneous expenses..................... 1,825
---------------
Total Expenses........................... 1,930,995
Less: Custodian fee credit................. (13,345)
---------------
Net Expenses............................. 1,917,650
---------------
NET INVESTMENT INCOME........................ 28,142,312
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 1,472,562
Futures contracts........................ (759,159)
Short sales.............................. 9,375
---------------
722,778
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 10,916,448
Futures contracts........................ (73,032)
---------------
10,843,416
---------------
NET GAIN ON INVESTMENTS...................... 11,566,194
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 39,708,506
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 28,142,312 $ 31,242,011
Net realized gain on investments....................................................... 722,778 14,328,542
Net change in unrealized appreciation (depreciation) on investments.................... 10,843,416 (35,068,717)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 39,708,506 10,501,836
------------------ -------------------
DIVIDENDS:
Dividends from net investment income................................................... (28,098,226) (30,988,878)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [550,602 and 778,426 shares, respectively].......................... 6,261,175 8,926,475
Capital stock issued in reinvestment of dividends and distributions [2,484,757 and
2,790,002 shares, respectively]....................................................... 28,098,226 30,988,878
Capital stock repurchased [(8,707,219) and (3,428,037) shares, respectively]........... (98,362,062) (39,168,176)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (64,002,661) 747,177
------------------ -------------------
TOTAL DECREASE IN NET ASSETS............................................................. (52,392,381) (19,739,865)
NET ASSETS:
Beginning of year...................................................................... 482,035,440 501,775,305
------------------ -------------------
End of year............................................................................ $ 429,643,059 $ 482,035,440
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A3
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2000 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$39,763,559)............................. $ 41,346,890
Cash....................................... 852
Interest receivable........................ 89
--------------
Total Assets............................. 41,347,831
--------------
LIABILITIES
Payable to investment adviser.............. 42,002
Accrued expenses........................... 39,109
--------------
Total Liabilities........................ 81,111
--------------
NET ASSETS................................... $ 41,266,720
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 32,734
Paid-in capital, in excess of par........ 39,644,411
--------------
39,677,145
Undistributed net investment income........ 6,244
Net unrealized appreciation on
investments.............................. 1,583,331
--------------
Net assets, December 31, 1997.............. $ 41,266,720
--------------
--------------
Net asset value and redemption price per
share, 3,273,354 outstanding shares of
common stock (authorized 15,000,000
shares).................................. $ 12.61
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 2,189,844
---------------
EXPENSES
Investment advisory fee.................... 161,101
Accounting fees............................ 82,000
Custodian expense.......................... 17,000
Directors' fees............................ 3,000
Shareholders' reports...................... 2,500
Audit fees................................. 500
Miscellaneous expenses..................... 435
---------------
Total Expenses........................... 266,536
Less: Custodian fee credit................. (455)
---------------
Net Expenses............................. 266,081
---------------
NET INVESTMENT INCOME........................ 1,923,763
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 1,279,141
Net change in unrealized appreciation on
investments.............................. (625,354)
---------------
NET GAIN ON INVESTMENTS...................... 653,787
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 2,577,550
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,923,763 $ 1,457,437
Net realized gain on investments....................................................... 1,279,141 350,896
Net change in unrealized appreciation on investments................................... (625,354) (913,982)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 2,577,550 894,351
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,925,903) (1,464,562)
Distributions from net realized capital gains.......................................... (1,630,037) --
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (3,555,940) (1,464,562)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [1,163,699 and 1,886,245 shares, respectively]...................... 14,959,000 24,377,000
Capital stock issued in reinvestment of dividends and distributions [280,836 and
114,738 shares, respectively]......................................................... 3,555,940 1,464,562
Capital stock repurchased [(1,634,789) and (440,396) shares, respectively]............. (21,009,000) (5,791,000)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (2,494,060) 20,050,562
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (3,472,450) 19,480,351
NET ASSETS:
Beginning of year...................................................................... 44,739,170 25,258,819
------------------ -------------------
End of year............................................................................ $ 41,266,720 $ 44,739,170
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A4
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2005 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$27,861,234)............................. $ 30,877,323
Cash....................................... 507
Interest receivable........................ 162
--------------
Total Assets............................. 30,877,992
--------------
LIABILITIES
Accrued expenses........................... 36,152
Payable to investment adviser.............. 30,958
--------------
Total Liabilities........................ 67,110
--------------
NET ASSETS................................... $ 30,810,882
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 24,461
Paid-in capital, in excess of par........ 27,726,884
--------------
27,751,345
Undistributed net investment income........ 4,703
Accumulated net realized gain on
investments.............................. 38,745
Net unrealized appreciation on
investments.............................. 3,016,089
--------------
Net assets, December 31, 1997.............. $ 30,810,882
--------------
--------------
Net asset value and redemption price per
share, 2,446,091 outstanding shares of
common stock (authorized 40,000,000
shares).................................. $ 12.60
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 1,990,828
---------------
EXPENSES
Investment advisory fee.................... 123,525
Accounting fees............................ 83,000
Custodian expense.......................... 14,000
Shareholders' reports...................... 3,500
Directors' fees............................ 3,000
Audit fees................................. 500
Miscellaneous expenses..................... 1,205
---------------
Total Expenses........................... 228,730
Less: Custodian fee credit................. (1,558)
---------------
Net Expenses............................. 227,172
---------------
NET INVESTMENT INCOME........................ 1,763,656
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 685,044
Net change in unrealized appreciation on
investments.............................. 1,108,451
---------------
NET GAIN ON INVESTMENTS...................... 1,793,495
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 3,557,151
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,763,656 $ 1,314,357
Net realized gain on investments....................................................... 685,044 278,534
Net change in unrealized appreciation on investments................................... 1,108,451 (1,746,280)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ 3,557,151 (153,389)
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,819,286) (1,273,302)
Distributions from net realized capital gains.......................................... (646,299) (278,534)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (2,465,585) (1,551,836)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [1,232,187 and 205,219 shares, respectively]........................ 14,912,002 2,571,000
Capital stock issued in reinvestment of dividends and distributions [198,605 and
128,813 shares, respectively]......................................................... 2,465,585 1,551,836
Capital stock repurchased [(1,091,286) and (20,262) shares, respectively].............. (13,473,001) (250,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 3,904,586 3,872,836
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 4,996,152 2,167,611
NET ASSETS:
Beginning of year...................................................................... 25,814,730 23,647,119
------------------ -------------------
End of year............................................................................ $ 30,810,882 $ 25,814,730
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A5
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$4,491,825,742).......................... $4,696,024,117
Cash....................................... 2,749
Interest and dividends receivable.......... 60,006,370
--------------
Total Assets............................. 4,756,033,236
--------------
LIABILITIES
Payable to investment adviser.............. 6,725,610
Payable for investments purchased.......... 3,573,515
Due to broker -- variation margin.......... 653,438
Accrued expenses........................... 546,540
Payable for capital stock repurchased...... 302,094
--------------
Total Liabilities........................ 11,801,197
--------------
NET ASSETS................................... $4,744,232,039
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,169,112
Paid-in capital, in excess of par........ 4,500,747,938
--------------
4,503,917,050
Undistributed net investment income........ 949,046
Accumulated net realized gain on
investments.............................. 36,942,793
Net unrealized appreciation on
investments.............................. 202,423,150
--------------
Net assets, December 31, 1997.............. $4,744,232,039
--------------
--------------
Net asset value and redemption price per
share, 316,911,160 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 14.97
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $187,480 foreign
withholding tax)......................... $ 19,377,627
Interest................................... 216,743,419
---------------
236,121,046
---------------
EXPENSES
Investment advisory fee.................... 25,757,735
Custodian expense.......................... 281,000
Shareholders' reports...................... 169,000
Accounting fees............................ 101,000
Audit fees................................. 67,000
Legal fees................................. 3,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 923
---------------
Total Expenses........................... 26,382,658
Less: Custodian fee credit................. (166,162)
---------------
Net Expenses............................. 26,216,496
---------------
NET INVESTMENT INCOME........................ 209,904,550
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 546,046,706
Futures contracts........................ (20,841,176)
Short sales.............................. (30,344)
---------------
525,175,186
---------------
Net change in unrealized appreciation on:
Investments.............................. (145,915,485)
Futures contracts........................ (1,775,225)
Short sales.............................. (1,139,560)
---------------
(148,830,270)
---------------
NET GAIN ON INVESTMENTS...................... 376,344,916
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 586,249,466
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 209,904,550 $ 173,283,574
Net realized gain on investments....................................................... 525,175,186 270,107,246
Net change in unrealized appreciation on investments................................... (148,830,270) 61,403,321
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 586,249,466 504,794,141
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (209,004,256) (174,034,704)
Dividends in excess of net investment income........................................... -- (41,632)
Distributions from net realized capital gains.......................................... (518,358,296) (273,551,593)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (727,362,552) (447,627,929)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,585,160 and 10,561,256 shares, respectively]..................... 74,015,405 167,668,924
Capital stock issued in reinvestment of dividends and distributions [47,801,252 and
29,086,855 shares, respectively]...................................................... 727,362,552 447,627,929
Capital stock repurchased [(24,112,955) and (8,429,995) shares, respectively].......... (394,841,365) (134,428,797)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 406,536,592 480,868,056
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 265,423,506 538,034,268
NET ASSETS:
Beginning of year...................................................................... 4,478,808,533 3,940,774,265
------------------ -------------------
End of year............................................................................ $ 4,744,232,039 $ 4,478,808,533
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A6
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$5,050,966,053).......................... $5,471,387,547
Cash....................................... 15,631
Interest and dividends receivable.......... 40,850,547
Receivable for investments sold............ 294
--------------
Total Assets............................. 5,512,254,019
--------------
LIABILITIES
Payable for investments purchased.......... 12,760,562
Payable to investment adviser.............. 8,471,572
Accrued expenses........................... 654,878
Due to broker -- variation margin.......... 203,828
Payable for capital stock repurchased...... 21,085
--------------
Total Liabilities........................ 22,111,925
--------------
NET ASSETS................................... $5,490,142,094
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,177,111
Paid-in capital, in excess of par........ 4,984,889,353
--------------
4,988,066,464
Undistributed net investment income........ 768,864
Accumulated net realized gain on
investments.............................. 82,447,694
Net unrealized appreciation on
investments.............................. 418,859,072
--------------
Net assets, December 31, 1997.............. $5,490,142,094
--------------
--------------
Net asset value and redemption price per
share, 317,711,061 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 17.28
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $810,090 foreign
withholding tax)......................... $ 35,833,891
Interest................................... 156,549,837
---------------
192,383,728
---------------
EXPENSES
Investment advisory fee.................... 31,740,440
Custodian expense.......................... 477,000
Shareholders' reports...................... 212,000
Accounting fees............................ 94,000
Audit fees................................. 72,000
Legal fees................................. 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 1,971
---------------
Total Expenses........................... 32,604,411
Less: Custodian fee credit................. (284,638)
---------------
Net Expenses............................. 32,319,773
---------------
NET INVESTMENT INCOME........................ 160,063,955
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 867,141,418
Futures contracts........................ (499,159)
Short sales.............................. 1,049,655
---------------
867,691,914
---------------
Net change in unrealized appreciation on:
Investments.............................. (160,872,103)
Futures contracts........................ (1,562,422)
Short sales.............................. (1,168,571)
---------------
(163,603,096)
---------------
NET GAIN ON INVESTMENTS...................... 704,088,818
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 864,152,773
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 160,063,955 $ 139,211,865
Net realized gain on investments....................................................... 867,691,914 408,046,131
Net change in unrealized appreciation on investments................................... (163,603,096) 41,728,823
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 864,152,773 588,986,819
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (159,343,911) (142,089,785)
Distributions from net realized capital gains.......................................... (823,214,223) (458,909,559)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (982,558,134) (600,999,344)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,859,580 and 8,998,637 shares, respectively]...................... 92,765,042 166,455,957
Capital stock issued in reinvestment of dividends and distributions [56,453,647 and
34,012,173 shares, respectively]...................................................... 982,558,134 600,999,344
Capital stock repurchased [(18,791,325) and (6,420,074) shares, respectively].......... (363,698,408) (119,724,926)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 711,624,768 647,730,375
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 593,219,407 635,717,850
NET ASSETS:
Beginning of year...................................................................... 4,896,922,687 4,261,204,837
------------------ -------------------
End of year............................................................................ $ 5,490,142,094 $ 4,896,922,687
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A7
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$551,773,633)............................ $ 562,701,784
Cash....................................... 9,588,705
Interest and dividends receivable.......... 11,028,778
Receivable for investments sold............ 918,120
--------------
Total Assets............................. 584,237,387
--------------
LIABILITIES
Payable for investments purchased.......... 14,754,249
Payable to investment adviser.............. 738,097
Accrued expenses........................... 69,963
--------------
Total Liabilities........................ 15,562,309
--------------
NET ASSETS................................... $ 568,675,078
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 698,191
Paid-in capital, in excess of par........ 562,703,961
--------------
563,402,152
Undistributed net investment income........ 735,254
Accumulated net realized loss on
investments.............................. (6,390,479)
Net unrealized appreciation on
investments.............................. 10,928,151
--------------
Net assets, December 31, 1997.............. $ 568,675,078
--------------
--------------
Net asset value and redemption price per
share, 69,819,106 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 8.14
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 48,438,901
Dividends.................................. 2,026,846
---------------
50,465,747
---------------
EXPENSES
Investment advisory fee.................... 2,679,304
Custodian expense.......................... 79,000
Accounting fees............................ 68,000
Shareholders' reports...................... 18,000
Audit fee.................................. 6,000
Directors' fees............................ 3,000
Legal fees................................. 300
Miscellaneous expenses..................... 903
---------------
Total Expenses........................... 2,854,507
Less: Custodian fee credit................. (64,527)
---------------
Net Expenses............................. 2,789,980
---------------
NET INVESTMENT INCOME........................ 47,675,767
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 15,354,840
Net change in unrealized appreciation on
investments.............................. (144,633)
---------------
NET GAIN ON INVESTMENTS...................... 15,210,207
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 62,885,974
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 47,675,767 $ 39,424,947
Net realized gain (loss) on investments................................................ 15,354,840 (1,288,395)
Net change in unrealized appreciation on investments................................... (144,633) 4,580,936
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 62,885,974 42,717,488
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (47,277,841) (39,126,995)
Dividends in excess of net investment income........................................... -- (495,859)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (47,277,841) (39,622,854)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [18,324,520 and 5,685,336 shares, respectively]..................... 149,154,244 45,754,000
Capital stock issued in reinvestment of dividends and distributions [5,847,594 and
5,088,084 shares, respectively]....................................................... 47,277,841 39,622,854
Capital stock repurchased [(9,372,701) and (2,919,156) shares, respectively]........... (76,232,015) (23,514,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 120,200,070 61,862,854
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 135,808,203 64,957,488
NET ASSETS:
Beginning of year...................................................................... 432,866,875 367,909,387
------------------ -------------------
End of year............................................................................ $ 568,675,078 $ 432,866,875
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A8
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$1,467,986,080).......................... $2,452,933,864
Interest and dividends receivable.......... 3,244,896
Receivable for capital stock sold.......... 486,793
--------------
Total Assets............................. 2,456,665,553
--------------
LIABILITIES
Payable for investments purchased.......... 6,152,798
Payable to investment adviser.............. 2,079,794
Accrued expenses........................... 222,585
Due to broker -- variation margin.......... 19,150
--------------
Total Liabilities........................ 8,474,327
--------------
NET ASSETS................................... $2,448,191,226
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 810,134
Paid-in capital, in excess of par........ 1,455,746,577
--------------
1,456,556,711
Undistributed net investment income........ 304,262
Accumulated net realized gain on
investments.............................. 5,874,119
Net unrealized appreciation on
investments.............................. 985,456,134
--------------
Net assets, December 31, 1997.............. $2,448,191,226
--------------
--------------
Net asset value and redemption price per
share, 81,013,397 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 30.22
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $243,027 foreign
withholding tax)......................... $ 34,578,154
Interest................................... 4,314,396
---------------
38,892,550
---------------
EXPENSES
Investment advisory fee.................... 7,121,699
Shareholders' reports...................... 126,000
Accounting fees............................ 115,000
Custodian expense.......................... 47,000
Audit fees................................. 26,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 1,448
---------------
Total Expenses........................... 7,441,147
Less: Custodian fee credit................. (8,173)
---------------
Net Expenses............................. 7,432,974
---------------
NET INVESTMENT INCOME........................ 31,459,576
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 57,018,822
Futures contracts........................ 17,002,563
---------------
74,021,385
---------------
Net change in unrealized appreciation on:
Investments.............................. 451,770,825
Futures contracts........................ (207,850)
---------------
451,562,975
---------------
NET GAIN ON INVESTMENTS...................... 525,584,360
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 557,043,936
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 31,459,576 $ 24,969,455
Net realized gain on investments....................................................... 74,021,385 12,465,185
Net change in unrealized appreciation on investments................................... 451,562,975 226,522,837
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 557,043,936 263,957,477
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (31,155,314) (25,100,782)
Distributions from net realized capital gains.......................................... (67,389,823) (17,273,757)
Distributions in excess of net realized capital gains.................................. -- (196,333)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (98,545,137) (42,570,872)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [17,248,797 and 14,156,009 shares, respectively].................... 484,303,403 310,087,550
Capital stock issued in reinvestment of dividends and distributions [3,309,920 and
1,875,670 shares, respectively]....................................................... 98,545,137 42,570,872
Capital stock repurchased [(6,144,732) and (1,109,676) shares, respectively]........... (174,536,420) (23,942,788)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 408,312,120 328,715,634
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 866,810,919 550,102,239
NET ASSETS:
Beginning of year...................................................................... 1,581,380,307 1,031,278,068
------------------ -------------------
End of year............................................................................ $ 2,448,191,226 $ 1,581,380,307
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A9
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$1,533,057,472).......................... $2,032,553,684
Cash....................................... 1,153
Interest and dividends receivable.......... 5,671,121
--------------
Total Assets............................. 2,038,225,958
--------------
LIABILITIES
Payable for investments purchased.......... 6,349,449
Payable to investment adviser.............. 1,968,342
Accrued expenses........................... 152,278
--------------
Total Liabilities........................ 8,470,069
--------------
NET ASSETS................................... $2,029,755,889
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 906,652
Paid-in capital, in excess of par........ 1,489,478,733
--------------
1,490,385,385
Undistributed net investment income........ 4,445,611
Accumulated net realized gain on
investments.............................. 35,428,681
Net unrealized appreciation on
investments.............................. 499,496,212
--------------
Net assets, December 31, 1997.............. $2,029,755,889
--------------
--------------
Net asset value and redemption price per
share, 90,665,193 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 22.39
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $533,835 foreign
withholding tax)......................... $ 48,458,837
Interest................................... 6,190,866
---------------
54,649,703
---------------
EXPENSES
Investment advisory fee.................... 6,601,602
Accounting fees............................ 86,000
Shareholders' reports...................... 65,000
Custodian expense.......................... 50,000
Audit fees................................. 22,000
Directors' fee............................. 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 918
---------------
Total Expenses........................... 6,829,520
Less: Custodian fee credit................. (30,193)
---------------
Net Expenses............................. 6,799,327
---------------
NET INVESTMENT INCOME........................ 47,850,376
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 209,283,667
Net change in unrealized appreciation on
investments.............................. 251,369,014
---------------
NET GAIN ON INVESTMENTS...................... 460,652,681
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 508,503,057
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 47,850,376 $ 40,888,718
Net realized gain on investments....................................................... 209,283,667 35,305,154
Net change in unrealized appreciation on investments................................... 251,369,014 167,448,548
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 508,503,057 243,642,420
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (43,537,704) (49,702,706)
Distributions from net realized capital gains.......................................... (179,961,221) (35,958,853)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (223,498,925) (85,661,559)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [11,266,195 and 3,768,657 shares, respectively]..................... 253,831,217 65,526,000
Capital stock issued in reinvestment of dividends and distributions [10,153,692 and
4,848,028 shares, respectively]....................................................... 223,498,925 85,661,559
Capital stock repurchased [(4,416,916) and (3,172,162) shares, respectively]........... (96,053,000) (55,657,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 381,277,142 95,530,559
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 666,281,274 253,511,420
NET ASSETS:
Beginning of year...................................................................... 1,363,474,615 1,109,963,195
------------------ -------------------
End of year............................................................................ $ 2,029,755,889 $ 1,363,474,615
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A10
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$4,198,636,403).......................... $6,025,444,474
Cash....................................... 77,594
Interest and dividends receivable.......... 14,912,488
Receivable for investments sold............ 2,093,331
Receivable for capital stock sold.......... 486,261
--------------
Total Assets............................. 6,043,014,148
--------------
LIABILITIES
Payable for investments purchased.......... 11,649,933
Payable to investment adviser.............. 6,897,764
Accrued expenses........................... 486,420
--------------
Total Liabilities........................ 19,034,117
--------------
NET ASSETS................................... $6,023,980,031
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,938,894
Paid-in capital, in excess of par........ 4,163,259,125
--------------
4,165,198,019
Undistributed net investment income........ 919,002
Accumulated net realized gain on
investments.............................. 31,068,956
Net unrealized appreciation on investments
and foreign currencies................... 1,826,794,054
--------------
Net assets, December 31, 1997.............. $6,023,980,031
--------------
--------------
Net asset value and redemption price per
share, 193,889,401 outstanding shares of
common stock (authorized 250,000,000
shares).................................. $ 31.07
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $1,062,630 foreign
withholding tax)......................... $ 80,559,590
Interest................................... 70,049,162
---------------
150,608,752
---------------
EXPENSES
Investment advisory fee.................... 24,840,379
Shareholders' reports...................... 249,000
Custodian expense.......................... 122,000
Accounting fees............................ 83,000
Audit fees................................. 75,000
Legal fees................................. 4,000
Directors' fees............................ 2,800
Miscellaneous expenses..................... 1,561
---------------
Total Expenses........................... 25,377,740
Less: Custodian fee credit................. (95,183)
---------------
Net Expenses............................. 25,282,557
---------------
NET INVESTMENT INCOME........................ 125,326,195
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 320,710,878
Foreign currencies....................... 247,917
---------------
320,958,795
---------------
Net change in unrealized appreciation on:
Investments.............................. 744,802,907
Foreign currencies....................... (14,018)
---------------
744,788,889
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 1,065,747,684
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 1,191,073,879
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 125,326,195 $ 108,378,560
Net realized gain on investments and foreign currencies................................ 320,958,795 344,149,867
Net change in unrealized appreciation on investments and foreign currencies............ 744,788,889 282,410,872
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 1,191,073,879 734,939,299
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (127,895,464) (107,745,221)
Distributions from net realized capital gains.......................................... (322,171,256) (422,203,368)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (450,066,720) (529,948,589)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [12,471,611 and 13,547,538 shares, respectively].................... 381,942,219 368,210,773
Capital stock issued in reinvestment of dividends and distributions [14,665,432 and
20,011,095 shares, respectively]...................................................... 450,066,720 529,948,589
Capital stock repurchased [(11,774,942) and (3,776,507) shares, respectively].......... (363,005,143) (102,985,123)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 469,003,796 795,174,239
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 1,210,010,955 1,000,164,949
NET ASSETS:
Beginning of year...................................................................... 4,813,969,076 3,813,804,127
------------------ -------------------
End of year............................................................................ $ 6,023,980,031 $ 4,813,969,076
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A11
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$426,967,254)............................ $ 506,859,751
Cash....................................... 117,479
Interest and dividends receivable.......... 300,382
Receivable for investments sold............ 84,864
--------------
Total Assets............................. 507,362,476
--------------
LIABILITIES
Payable for investments purchased.......... 10,696,174
Payable to investment adviser.............. 676,015
Accrued expenses........................... 53,168
--------------
Total Liabilities........................ 11,425,357
--------------
NET ASSETS................................... $ 495,937,119
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 279,684
Paid-in capital, in excess of par........ 412,804,227
--------------
413,083,911
Undistributed net investment income........ 101,780
Accumulated net realized gain on
investments.............................. 2,858,931
Net unrealized appreciation on
investments.............................. 79,892,497
--------------
Net assets, December 31, 1997.............. $ 495,937,119
--------------
--------------
Net asset value and redemption price per
share, 27,968,374 outstanding shares of
common stock (authorized 40,000,000
shares).................................. $ 17.73
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $58,571 foreign
withholding tax)......................... $ 2,459,372
Interest................................... 613,133
---------------
3,072,505
---------------
EXPENSES
Investment advisory fee.................... 2,063,572
Accounting fees............................ 87,000
Custodian expense.......................... 25,000
Shareholders' reports...................... 23,000
Audit fees................................. 3,500
Directors' fees............................ 3,000
Miscellaneous expenses..................... 2,838
---------------
Total Expenses........................... 2,207,910
Less: Custodian fee credit................. (7,281)
---------------
Net Expenses............................. 2,200,629
---------------
NET INVESTMENT INCOME........................ 871,876
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 33,000,406
Net change in unrealized appreciation on
investments.............................. 54,234,653
---------------
NET GAIN ON INVESTMENTS...................... 87,235,059
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 88,106,935
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 871,876 $ 270,664
Net realized gain (loss) on investments................................................ 33,000,406 (3,092,511)
Net change in unrealized appreciation on investments................................... 54,234,653 21,613,425
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 88,106,935 18,791,578
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (832,883) (373,490)
Distributions from net realized capital gains.......................................... (27,048,964) --
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (27,881,847) (373,490)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [12,593,772 and 11,292,685 shares, respectively].................... 218,245,522 151,529,000
Capital stock issued in reinvestment of dividends and distributions [1,607,079 and
27,287 shares, respectively].......................................................... 27,881,847 373,490
Capital stock repurchased [(1,044,246) and (531,868) shares, respectively]............. (17,547,320) (6,868,000)
Initial capitalization repurchased by The Prudential [(1,004,760) and -0- shares
respectively]......................................................................... (19,411,166) --
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 209,168,883 145,034,490
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 269,393,971 163,452,578
NET ASSETS:
Beginning of year...................................................................... 226,543,148 63,090,570
------------------ -------------------
End of year............................................................................ $ 495,937,119 $ 226,543,148
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A12
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
SMALL CAPITALIZATION STOCK PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$250,408,668)............................ $ 290,466,394
Due from broker -- variation margin........ 238,025
Interest and dividends receivable.......... 161,563
Receivable for investments sold............ 3,325
--------------
Total Assets............................. 290,869,307
--------------
LIABILITIES
Payable to investment adviser.............. 283,977
Bank overdraft............................. 146,909
Accrued expenses........................... 106,412
Payable for investments purchased.......... 22,095
--------------
Total Liabilities........................ 559,393
--------------
NET ASSETS................................... $ 290,309,914
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 182,229
Paid-in capital, in excess of par........ 246,921,199
--------------
247,103,428
Undistributed net investment income........ 66,820
Accumulated net realized gain on
investments.............................. 2,753,991
Net unrealized appreciation on
investments.............................. 40,385,675
--------------
Net assets, December 31, 1997.............. $ 290,309,914
--------------
--------------
Net asset value and redemption price per
share, 18,222,874 outstanding shares of
common stock (authorized 40,000,000
shares).................................. $ 15.93
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $717 foreign withholding
tax)..................................... $ 1,712,972
Interest................................... 881,900
---------------
2,594,872
---------------
EXPENSES
Investment advisory fee.................... 867,687
Accounting fees............................ 128,500
Custodian expense.......................... 75,000
Shareholders' reports...................... 13,000
Directors' fees............................ 3,000
Audit fees................................. 2,000
Miscellaneous expenses..................... 764
---------------
Total Expenses........................... 1,089,951
Less: Custodian fee credit................. (2,725)
---------------
Net Expenses............................. 1,087,226
---------------
NET INVESTMENT INCOME........................ 1,507,646
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 19,300,211
Futures contracts........................ 2,286,760
---------------
21,586,971
---------------
Net change in unrealized appreciation on:
Investments.............................. 24,768,005
Futures contracts........................ 371,000
---------------
25,139,005
---------------
NET GAIN ON INVESTMENTS...................... 46,725,976
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 48,233,622
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,507,646 $ 788,546
Net realized gain on investments....................................................... 21,586,971 2,844,341
Net change in unrealized appreciation on investments................................... 25,139,005 12,638,510
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 48,233,622 16,271,397
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,440,826) (821,179)
Distributions from net realized capital gains.......................................... (19,469,768) (2,604,153)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (20,910,594) (3,425,332)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [8,135,914 and 7,144,721 shares, respectively]...................... 128,260,999 92,968,000
Capital stock issued in reinvestment of dividends and distributions [1,354,381 and
259,822 shares, respectively]......................................................... 20,910,594 3,425,332
Capital stock repurchased [(941,823) and (692,228) shares, respectively]............... (15,480,999) (8,808,000)
Initial capitalization repurchased by The Prudential [(1,049,184) and -0- shares,
respectively]......................................................................... (18,602,031) --
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 115,088,563 87,585,332
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 142,411,591 100,431,397
NET ASSETS:
Beginning of year...................................................................... 147,898,323 47,466,926
------------------ -------------------
End of year............................................................................ $ 290,309,914 $ 147,898,323
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A13
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$501,984,495)............................ $ 618,110,214
Cash....................................... 881
Foreign currency, at value (cost:
$18,305,955)............................. 18,046,890
Receivable for investments sold............ 6,732,972
Dividends and interest receivable.......... 825,037
Forward currency contracts -- amount
receivable from counterparties........... 553,788
Receivable for capital stock sold.......... 63,725
--------------
Total Assets............................. 644,333,507
--------------
LIABILITIES
Payable for investments purchased.......... 4,413,779
Payable to investment adviser.............. 1,247,805
Accrued expenses and other liabilities..... 190,075
Forward currency contracts -- amount
payable to counterparties................ 80,496
--------------
Total Liabilities........................ 5,932,155
--------------
NET ASSETS................................... $ 638,401,352
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 356,200
Paid-in capital, in excess of par........ 523,066,882
--------------
523,423,082
Undistributed net investment income........ 3,515,798
Accumulated net realized gain on
investments.............................. (4,868,770)
Net unrealized appreciation on investments
and foreign currencies................... 116,331,242
--------------
Net assets, December 31, 1997.............. $ 638,401,352
--------------
--------------
Net asset value and redemption price per
share, 35,619,965 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 17.92
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $704,849 foreign
withholding tax)......................... $ 7,940,250
Interest................................... 622,794
---------------
8,563,044
---------------
EXPENSES
Investment advisory fee.................... 4,836,302
Custodian expense.......................... 368,000
Accounting fees............................ 223,000
Shareholders' reports...................... 55,000
Audit fees................................. 3,500
Directors' fees............................ 3,000
Miscellaneous expenses..................... 13,625
---------------
5,502,427
---------------
NET INVESTMENT INCOME........................ 3,060,617
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 29,811,023
Foreign currencies....................... 1,216,034
---------------
31,027,057
---------------
Net change in unrealized appreciation on:
Investments.............................. 5,516,053
Foreign currencies....................... (408,410)
---------------
5,107,643
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 36,134,700
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 39,195,317
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 3,060,617 $ 3,109,922
Net realized gain on investments and foreign currencies................................ 31,027,057 19,772,496
Net change in unrealized appreciation on investments and foreign currencies............ 5,107,643 65,301,446
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 39,195,317 88,183,864
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (4,377,947) (3,109,922)
Distributions in excess of net investment income....................................... (3,434,778) --
Distributions from net realized capital gains.......................................... (30,337,530) (19,019,488)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (38,150,255) (22,129,410)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [5,853,862 and 7,307,979 shares, respectively]...................... 111,692,563 123,508,873
Capital stock issued in reinvestment of dividends and distributions [2,115,902 and
1,310,966 shares, respectively]....................................................... 38,150,255 22,129,410
Capital stock repurchased [(4,869,453) and (1,820,909) shares, respectively]........... (93,116,567) (30,587,232)
Initial capitalization repurchased by The Prudential [-0- and (36,088) shares,
respectively]......................................................................... -- (575,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 56,726,251 114,476,051
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 57,771,313 180,530,505
NET ASSETS:
Beginning of year...................................................................... 580,630,039 400,099,534
------------------ -------------------
End of year............................................................................ $ 638,401,352 $ 580,630,039
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A14
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
NATURAL RESOURCES PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$379,415,418)............................ $ 357,377,590
Cash....................................... 855
Foreign currency, at value (cost:
$510,205)................................ 508,663
Interest and dividends receivable.......... 630,539
--------------
Total Assets............................. 358,517,647
--------------
LIABILITIES
Payable to investment adviser.............. 470,310
Accrued expenses........................... 95,924
--------------
Total Liabilities........................ 566,234
--------------
NET ASSETS................................... $ 357,951,413
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 234,811
Paid-in capital, in excess of par........ 363,006,317
--------------
363,241,128
Undistributed net investment income........ 633,307
Accumulated net realized gain on
investments.............................. 16,116,177
Net unrealized depreciation on investments
and foreign currencies................... (22,039,199)
--------------
Net assets, December 31, 1997.............. $ 357,951,413
--------------
--------------
Net asset value and redemption price per
share, 23,481,072 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 15.24
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $291,018 foreign
withholding tax)......................... $ 4,325,040
Interest................................... 466,389
---------------
4,791,429
---------------
EXPENSES
Investment advisory fee.................... 1,975,906
Accounting fees............................ 85,000
Custodian expense.......................... 47,000
Shareholders' reports...................... 25,000
Audit fees................................. 6,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 1,548
---------------
Total Expenses........................... 2,143,454
Less: Custodian fee credit................. (489)
---------------
Net Expenses............................. 2,142,965
---------------
NET INVESTMENT INCOME........................ 2,648,464
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. 50,711,042
Foreign currencies....................... (55,600)
---------------
50,655,442
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (100,226,395)
Foreign currencies....................... (1,351)
---------------
(100,227,746)
---------------
NET LOSS ON INVESTMENTS AND FOREIGN
CURRENCIES................................... (49,572,304)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (46,923,840)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 2,648,464 $ 2,785,067
Net realized gain on investments and foreign currencies................................ 50,655,442 55,113,208
Net change in unrealized appreciation (depreciation) on investments and foreign
currencies............................................................................ (100,227,746) 36,052,334
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (46,923,840) 93,950,609
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (2,203,301) (2,609,058)
Distributions from net realized capital gains.......................................... (46,135,203) (50,936,196)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (48,338,504) (53,545,254)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [1,537,840 and 2,914,136 shares, respectively]...................... 30,041,015 60,203,000
Capital stock issued in reinvestment of dividends and distributions [3,086,491 and
2,739,322 shares, respectively]....................................................... 48,338,504 53,545,254
Capital stock repurchased [(3,322,673) and (448,045) shares, respectively]............. (63,551,000) (8,940,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 14,828,519 104,808,254
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (80,433,825) 145,213,609
NET ASSETS:
Beginning of year...................................................................... 438,385,238 293,171,629
------------------ -------------------
End of year............................................................................ $ 357,951,413 $ 438,385,238
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A15
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 11.5%
PNC Student Loan Trust I 1997-2 A1 (a).......... 5.91% 07/20/98 $ 4,501 $ 4,501,078
Restructured Asset Securities Enhanced
Return (a).................................... 5.96% 08/28/98 16,000 16,000,000
Short Term Card Trust 1996-1 (a)................ 6.00% 01/15/98 24,000 24,000,000
Short Term Repackaged Asset Trust 1997-A (a).... 6.00% 12/15/98 8,000 8,000,000
Strategic Money Market Trust 1997-A (a)......... 5.91% 12/16/98 23,000 23,000,000
--------------
75,501,078
--------------
BANK NOTES -- 5.8%
Comerica Bank of Detroit (a).................... 5.97% 02/05/98 2,000 1,999,883
Comerica Bank of Detroit (a).................... 5.90% 02/11/98 9,000 8,999,333
FCC National Bank (a)........................... 5.85% 07/02/98 12,000 11,995,370
US Bank, N.A. (a)............................... 5.88% 04/10/98 4,000 3,999,582
Nationsbank Corp. (a)........................... 5.87% 05/21/98 1,450 1,450,122
Wachovia Bank, N.A. (a)......................... 6.14% 06/01/98 10,000 10,000,000
--------------
38,444,290
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.1%
Corestates Bank N.A. (a)........................ 5.78% 01/23/98 1,000 1,000,000
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 6.2%
Banco De Santander De Credito S.A............... 5.76% 04/20/98 4,000 4,000,233
Svenska Handelsbanken, Inc...................... 5.83% 03/12/98 2,000 1,999,710
Svenska Handelsbanken A.B....................... 5.72% 03/16/98 30,000 29,652,033
Westdeutsche Landesbank Girozentral............. 5.81% 03/04/98 5,000 4,999,982
--------------
40,651,958
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 13.4%
Bank of Montreal................................ 5.64% 01/29/98 4,000 4,000,000
Barclays Bank PLC............................... 5.84% 03/09/98 1,000 999,645
Commerzbank, AG................................. 6.08% 05/27/98 8,000 7,998,938
Commerzbank, AG................................. 5.97% 08/17/98 10,000 9,998,217
Credit Agricole Indosuez........................ 5.75% 02/10/98 3,000 3,000,000
Credit Agricole Indosuez........................ 5.95% 10/21/98 5,000 4,998,088
Landesbank Hessen-Thuringen Girozentrale........ 6.13% 04/01/98 10,000 9,997,185
Landesbank Hessen-Thuringen Girozentrale........ 5.94% 06/19/98 10,000 9,997,361
National Westminister Bank, PLC................. 5.86% 03/10/98 2,000 1,999,045
National Westminister Bank, PLC................. 6.06% 05/26/98 5,000 4,999,059
Royal Bank of Canada............................ 5.91% 06/17/98 5,000 4,998,696
Societe Generale................................ 5.85% 03/03/98 1,000 999,545
Societe Generale................................ 6.19% 05/06/98 2,000 1,999,597
Societe Generale................................ 6.01% 06/16/98 10,000 9,998,704
Swiss Bank Corp................................. 5.76% 02/12/98 6,000 5,999,611
Swiss Bank Corp................................. 5.98% 03/19/98 5,000 4,999,801
--------------
86,983,492
--------------
COMMERCIAL PAPER -- 42.9%
AC Acquisition Holding Co....................... 5.70% 02/18/98 3,000 2,977,675
American Express Credit Corp.................... 6.25% 01/13/98 2,300 2,295,608
Aon Corp........................................ 5.82% 02/05/98 6,126 6,092,327
Aristar, Inc.................................... 5.84% 01/29/98 1,000 995,620
Aristar, Inc.................................... 5.93% 02/10/98 2,000 1,987,152
Aristar, Inc.................................... 5.95% 02/12/98 1,000 993,224
Associates First Capital Corp................... 5.79% 02/04/98 3,000 2,984,077
Barnett Bank, Inc............................... 6.70% 01/02/98 4,053 4,053,000
Barton Capital Corp............................. 5.95% 02/09/98 4,000 3,974,878
Bell Atlantic Financial Services, Inc........... 6.10% 01/13/98 14,000 13,973,906
Bell Atlantic Financial Services, Inc........... 6.00% 01/29/98 5,255 5,231,352
BP America...................................... 6.90% 01/02/98 10,000 10,000,000
Carnival Corp................................... 5.83% 01/30/98 3,000 2,986,397
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B1
<PAGE>

MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
Caterpillar Financial Services Corp............. 5.95% 01/27/98 $ 1,000 $ 995,868
Centric Capital Corp............................ 5.92% 02/23/98 2,500 2,478,622
Centric Capital Corp............................ 5.80% 02/27/98 5,000 4,954,889
Chrysler Financial Corp......................... 5.79% 02/09/98 8,000 7,951,106
Coca Cola Enterprises, Inc...................... 5.87% 02/23/98 4,000 3,966,084
Coca Cola Enterprises, Inc...................... 5.85% 02/27/98 1,000 990,900
Corestates Capital Corp. (a).................... 5.93% 08/28/98 3,000 3,000,000
Corporate Receivables Corp...................... 6.00% 01/28/98 3,000 2,987,000
Duke Capital Corp............................... 5.90% 01/23/98 8,000 7,972,467
Enterprise Funding Corp......................... 5.90% 01/27/98 1,000 995,903
Enterprise Funding Corp......................... 5.86% 02/27/98 3,872 3,836,705
Falcon Asset Securitization Corp................ 5.90% 01/21/98 2,000 1,993,772
Falcon Asset Securitization Corp................ 6.07% 02/05/98 7,000 6,959,871
First Chicago Financial Corp.................... 5.83% 03/20/98 2,000 1,975,061
General Electric Capital Corp................... 5.88% 01/30/98 10,000 9,954,267
General Motors Acceptance Corp.................. 5.76% 02/09/98 12,000 11,927,040
ING America Insurance Holdings, Inc............. 5.74% 04/03/98 11,000 10,840,396
ING America Insurance Holdings, Inc............. 5.74% 04/28/98 8,000 7,852,036
Johnson Controls, Inc........................... 5.80% 02/13/98 3,000 2,979,700
Market Street Funding Corp...................... 5.80% 02/03/98 3,000 2,984,533
Martin Marietta Material........................ 5.88% 02/05/98 1,000 994,451
Mont Blanc Capital Corp......................... 5.90% 01/23/98 8,000 7,972,467
Mont Blanc Capital Corp......................... 6.00% 01/28/98 1,000 995,667
National Rural Utility.......................... 5.56% 01/27/98 7,465 7,436,177
Newell Co....................................... 6.80% 01/02/98 30,500 30,500,000
Old Line Funding Corp........................... 5.88% 01/20/98 5,000 4,985,312
Old Line Funding Corp........................... 5.90% 01/21/98 2,000 1,993,772
SAFECO Corp..................................... 5.70% 01/23/98 4,000 3,986,700
SAFECO Corp..................................... 5.83% 02/26/98 5,000 4,955,465
SAFECO Corp..................................... 5.76% 03/17/98 3,000 2,964,480
SAFECO Corp..................................... 5.79% 03/19/98 1,000 987,777
Smith Barney Holdings........................... 5.62% 01/28/98 6,088 6,063,289
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.84% 02/20/98 2,000 1,984,102
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.86% 02/20/98 2,000 1,984,048
Special Purpose Account Receivables Cooperative
Corp.......................................... 5.80% 03/26/98 1,000 986,628
Triple A-One Funding Corp....................... 6.15% 01/09/98 2,250 2,247,309
Triple A-One Funding Corp....................... 6.20% 01/23/98 1,561 1,555,354
TRW, Inc........................................ 6.00% 01/28/98 4,000 3,982,667
Variable Funding Capital Corp................... 5.89% 01/22/98 5,410 5,392,297
Variable Funding Capital Corp................... 5.88% 01/29/98 4,000 3,982,360
WCP Funding, Inc................................ 6.10% 01/27/98 9,000 8,961,875
Windmill Funding Corp........................... 5.89% 01/29/98 8,000 7,964,660
Wood Street Funding Corp........................ 6.25% 01/07/98 3,369 3,366,076
Xerox Overseas Holdings PLC..................... 5.79% 02/10/98 5,000 4,968,637
Xerox Capital (Europe) PLC...................... 5.79% 02/26/98 5,000 4,955,771
--------------
282,308,777
--------------
LOAN PARTICIPATIONS -- 3.5%
Bell Atlantic Financial Services................ 6.10% 01/21/98 6,000 6,000,000
Countrywide Home Loan, Inc...................... 6.25% 01/30/98 17,000 17,000,000
--------------
23,000,000
--------------
OTHER CORPORATE OBLIGATIONS -- 16.1%
American General Finance Corp................... 7.48% 03/02/98 2,700 2,705,005
CIT Group Holdings, Inc......................... 8.75% 04/15/98 2,000 2,014,097
First Union Corp................................ 6.75% 01/15/98 4,000 4,001,218
General Motors Acceptance Corp. (a)............. 5.73% 02/02/98 11,000 10,999,659
General Motors Acceptance Corp. (a)............. 5.79% 09/21/98 4,000 3,996,752
General Motors Acceptance Corp. (a)............. 6.00% 02/02/98 2,000 2,000,469
Goldman Sachs Group L.P. (a).................... 6.03% 12/17/98 30,000 30,000,000
Liquid Asset Backed Security Trust 1997-7 (a)... 6.03% 12/22/98 9,000 9,000,000
Merrill Lynch & Co., Inc. (a)................... 5.96% 10/08/98 16,000 15,998,804
Morgan Stanley Group, Inc. (a).................. 6.34% 03/09/98 4,000 4,002,425
Morgan Stanley Group, Inc. (a).................. 5.88% 10/26/98 4,000 4,000,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B2
<PAGE>

The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British Corporation)

(a) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at December 31, 1997.

(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.

<TABLE>
<S> <C>
The industry classification of portfolio holdings and
other assets in excess of liabilities shown as a
percentage of net assets as of December 31, 1997 was as
follows:

Commercial Bank 33.9%
Asset Backed Securities 14.0%
Security Brokers & Dealers 10.2%
Fire & Marine Casualty Insurance 6.8%
Finance Lessors 5.8%
Miscellaneous Furniture 4.6%
Telephone & Communications 4.1%
Fire Insurance 2.8%
Mortgage Banker 2.6%
Bank Holding Company U.S. 2.2%
Short-Term Business Credit 2.0%
Petroleum Refining 1.5%
Photographic Equipment 1.5%
Personal Credit 1.5%
Electrical Services 1.2%
Accident/Health Insurance 0.9%
Beverages 0.8%
Construction 0.8%
Guided Missiles 0.6%
Pharmaceuticals 0.5%
Water Transport 0.5%
Regulating Controls 0.5%
Mining/Quarry 0.2%
------------
99.5%
Other assets in excess of liabilities 0.5%
------------
100.0%
------------
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B3
<PAGE>

DIVERSIFIED BOND PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM INVESTMENTS -- 92.8%
<S> <C> <C> <C> <C> <C>
RATING INTEREST MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
LONG-TERM BONDS

<CAPTION>
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 1.1%
Agco Corp.,..................................... Ba1 8.50% 03/15/06 $ 600 $ 637,500
Archer Daniels Midland Co.,..................... Aa3 6.95% 12/15/2097 8,400 8,509,536
--------------
9,147,036
--------------
AIRLINES -- 4.7%
Boeing Co., (a)................................. Aa3 8.75% 08/15/21 6,250 7,831,500
Delta Air Lines, Inc., M.T.N.................... Baa3 7.79% 12/01/98 1,000 1,013,930
Delta Air Lines, Inc., M.T.N.................... Baa3 8.38% 06/12/98 2,000 2,018,960
Delta Air Lines, Inc.,.......................... Baa3 9.875% 05/15/00 6,000 6,464,520
United Airlines, Inc.,.......................... Baa3 9.75% 08/15/21 4,500 5,758,515
United Airlines, Inc.,.......................... Baa3 10.67% 05/01/04 7,000 8,390,060
United Airlines, Inc.,.......................... Baa3 11.21% 05/01/14 5,000 7,011,550
--------------
38,489,035
--------------
BANKS AND SAVINGS & LOANS -- 6.4%
Banco Ganadero, M.T.N. SA, (Colombia)........... Baa3 9.75% 08/26/99 4,100 4,212,750
Bangkok Bank, (Thailand) (b).................... Ba1 8.375% 01/15/27 12,000 7,032,120
Banque Cent De Tunisie, (Tunisia)............... Baa3 7.50% 09/19/07 3,000 2,805,000
Capital One Bank,............................... Baa3 7.08% 10/30/01 5,000 5,116,100
Chase Manhattan Corp., (a)...................... A1 8.00% 06/15/99 2,000 2,050,880
Chemical Bank, (a).............................. Aa3 6.625% 08/15/05 2,000 2,016,600
Compass Trust Bank,............................. A3 8.23% 01/15/27 4,500 4,882,500
International Bank for Reconstruction and
Development, (Supranational).................. Aaa 12.375% 10/15/02 750 946,125
Kansallis-Osake Pankki, (Finland)............... A3 8.65% 12/29/49 5,000 5,100,000
Kansallis-Osake Pankki, (Finland) (a)........... A3 10.00% 05/01/02 5,000 5,681,950
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,700,000
Skandinaviska Enskilda Bank, (Sweden)........... Baa1 7.50% 03/29/49 5,000 5,093,750
Svenska Handelsbank, (Sweden)................... A1 7.125% 03/29/49 3,500 3,526,250
--------------
52,164,025
--------------
CABLE -- 1.5%
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,400,000
Videotron Holdings, PLC, Zero Coupon (until
7/1/99)....................................... Baa3 11.125% 07/01/04 8,000 7,619,840
--------------
12,019,840
--------------
CABLE & PAY TELEVISION SYSTEMS -- 0.4%
Grupo Televisa SA, (Mexico)..................... Ba3 11.875% 05/15/06 2,500 2,825,000
--------------
COMPUTER SERVICES -- 0.6%
Seagate Technology, Inc.,....................... Baa3 7.45% 03/01/37 5,000 5,135,100
--------------
COMPUTERS -- 1.4%
International Business Machines Corp., (a)...... A1 7.125% 12/01/2096 10,900 11,276,704
--------------
FINANCIAL SERVICES -- 20.5%
Advanta Corp., M.T.N............................ Ba3 7.25% 08/16/99 10,000 9,859,700
Advanta Mortgage Loan Trust, Series 1994-3
(a)........................................... Aaa 8.49% 01/25/26 8,500 8,925,000
American General Finance, Inc., (a)............. A1 8.125% 03/15/46 12,000 13,311,600
Aristar, Inc., (a).............................. A3 5.75% 07/15/98 2,000 1,999,820
Aristar, Inc.,.................................. Baa1 7.50% 07/01/99 2,000 2,037,120
Arkwright Corp.,................................ Baa3 9.625% 08/15/26 5,000 5,919,750
Chrysler Financial Corp., (a)................... A3 9.50% 12/15/99 5,000 5,309,800
Conseco, Inc.,.................................. Ba2 8.70% 11/15/26 1,600 1,788,880
Conseco, Inc., (b).............................. Ba2 8.796% 04/01/27 15,500 17,300,635
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 7.00% 06/15/00 9,000 9,179,640
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 7.875% 03/15/98 5,000 5,018,600
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 8.75% 12/15/99 3,000 3,147,000
Felcor Suite Hotels, Inc.,...................... Ba1 7.625% 10/01/07 7,900 7,906,320
Ford Motor Credit Co., (a)...................... A1 5.75% 01/25/01 4,000 3,944,680
Ford Motor Credit Co., (a)...................... A1 6.25% 02/26/98 3,000 3,000,780
General Motors Acceptance Corp., (a)............ A3 8.40% 10/15/99 3,700 3,836,937
Green Tree Financial Corp.,..................... NR 7.90% 03/15/28 7,694 7,946,940
Industrial Financial Corp.,..................... Ba1 7.875% 08/04/02 4,000 3,800,000
Lumbermens Mutual Casualty Co.,................. Baa1 8.30% 12/01/37 12,850 13,621,000
Nationwide CSN Trust,........................... A1 9.875% 02/15/25 5,000 5,896,950
Polysindo Int'l. Finance Co., (Indonesia)....... Ba3 11.375% 06/15/06 3,000 2,430,000
Polysindo Int'l. Finance Co., (Indonesia)....... Ba3 13.00% 06/15/01 2,500 2,275,000
PT Alatief Freeport Financial Co.,
(Netherlands)................................. Ba1 9.75% 04/15/01 5,750 5,807,500
Reliastar Financial Corp., (a).................. A3 6.625% 09/15/03 5,000 5,007,500
Union Planters Corp.,........................... Baa1 8.20% 12/15/26 5,000 5,251,550
Vesta Insurance Group,.......................... Baa3 8.525% 01/15/27 12,000 13,231,200
--------------
167,753,902
--------------
FOOD & BEVERAGE -- 1.4%
RJR Nabisco, Inc.,.............................. Baa3 8.25% 07/01/04 11,000 11,563,750
--------------
FOREST PRODUCTS -- 0.8%
Westvaco Corp., (a)............................. A1 9.75% 06/15/20 5,000 6,673,550
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B4
<PAGE>

DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL -- 0.4%
Compania Sud Americana de Vapores, SA,
(Chile)....................................... NR 7.375% 12/08/03 $ 3,000 $ 2,962,500
--------------
INVESTMENT BANKERS -- 7.4%
Lehman Brothers Holdings, Inc., M.T.N........... Baa1 6.40% 08/30/00 23,250 23,220,938
Salomon Inc.,................................... Baa1 6.25% 10/01/99 8,000 8,009,280
Salomon Inc.,................................... A2 6.50% 03/01/00 10,000 10,052,400
Salomon Inc., M.T.N............................. A2 6.59% 02/21/01 10,000 10,083,200
Salomon Inc.,................................... A2 6.65% 07/15/01 7,000 7,059,080
Salomon Inc.,................................... A2 7.25% 05/01/01 2,250 2,309,220
--------------
60,734,118
--------------
LEISURE & TOURISM -- 2.7%
Royal Caribbean Cruises Ltd.,................... Baa3 7.00% 10/15/07 8,000 8,058,640
Royal Caribbean Cruises Ltd.,................... Baa3 7.25% 08/15/06 5,000 5,146,400
Royal Caribbean Cruises Ltd.,................... Baa3 7.50% 10/15/27 8,500 8,655,890
--------------
21,860,930
--------------
MEDIA -- 6.0%
News America Holdings, Inc., (a)................ Baa3 7.50% 03/01/00 6,000 6,134,760
Paramount Communications, Inc.,................. Ba2 7.50% 01/15/02 5,000 5,122,600
Time Warner, Inc.,.............................. Ba1 8.18% 08/15/07 2,500 2,721,150
Time Warner, Inc.,.............................. Ba1 7.75% 06/15/05 7,800 8,226,972
Time Warner, Inc.,.............................. Ba1 9.125% 01/15/13 6,000 7,144,620
Turner Broadcasting System, Inc.,............... Ba1 8.375% 07/01/13 2,000 2,244,040
Turner Broadcasting System, Inc.,............... Ba1 7.40% 02/01/04 13,500 14,023,125
Viacom, Inc.,................................... Ba2 7.75% 06/01/05 3,000 3,051,270
--------------
48,668,537
--------------
MISCELLANEOUS CONSUMER GROWTH -- 0.4%
Whitman Corp.,.................................. Baa2 7.50% 08/15/01 3,000 3,107,220
--------------
MORTGAGE PASS-THROUGHS -- 3.0%
02/15/08
-
Government National Mortgage Association,....... 7.50% 02/15/26 3,675 3,783,890
05/20/02
-
Government National Mortgage Association,....... 7.50% 01/15/26 20,159 20,745,779
Government National Mortgage Association,....... 7.50% 02/15/09 133 137,714
--------------
24,667,383
--------------
OIL & GAS -- 4.8%
Apache Corp.,................................... Baa1 7.95% 04/15/26 1,300 1,456,910
B.J. Services Co.,.............................. Baa2 7.00% 02/01/06 5,000 5,118,750
Gulf Canada Resources Ltd., (Canada)............ Ba1 8.25% 03/15/17 6,600 7,342,566
Occidental Petroleum Corp.,..................... Baa2 10.125% 11/15/01 5,000 5,641,200
Occidental Petroleum Corp.,..................... Baa2 11.125% 08/01/10 5,000 6,810,700
Parker & Parsley Petroleum Co.,................. Baa3 8.25% 08/15/07 4,000 4,405,760
Seagull Energy Corp.,........................... Ba1 7.50% 09/15/27 8,325 8,622,119
--------------
39,398,005
--------------
PAPER & FOREST -- 0.8%
UPM-Kymmene Oyj,................................ Baa1 7.45% 11/26/27 6,000 6,157,500
--------------
RAILROADS -- 1.8%
CSX Corp.,...................................... Baa2 7.95% 05/01/27 3,000 3,391,080
Norfolk Southern Corp., (a)..................... Baa1 7.80% 05/15/27 10,000 11,287,500
--------------
14,678,580
--------------
RESTAURANTS -- 1.2%
Darden Restaurants, Inc., (a)................... Baa1 7.125% 02/01/16 10,000 9,606,500
--------------
RETAIL -- 2.8%
Federated Department Stores, Inc.,.............. Baa2 8.50% 06/15/03 10,200 11,127,180
Federated Department Stores, Inc.,.............. Baa2 8.125% 10/15/02 5,250 5,612,250
Kmart Corp., M.T.N.............................. Ba3 9.80% 06/15/98 2,000 2,020,000
Rite Aid Corp., (a)............................. Baa1 6.70% 12/15/01 4,000 4,065,000
--------------
22,824,430
--------------
TELECOMMUNICATIONS -- 5.4%
Impast Corp.,................................... B2 12.125% 07/15/03 3,000 3,045,000
McLeod USA Inc.,................................ B3 9.25% 07/15/07 2,000 2,100,000
McLeod USA, Inc., Zero Coupon (until 3/1/02).... B3 10.50% 03/01/07 5,000 3,637,500
Tele-Communications, Inc.,...................... Ba1 7.875% 08/01/13 5,800 6,238,306
Tele-Communications, Inc.,...................... Ba1 6.875% 02/15/06 10,000 10,036,800
Tele-Communications, Inc.,...................... Ba1 10.125% 04/15/22 6,300 8,383,851
Total Access Communications Public Company Ltd.,
(Thailand).................................... Ba2 8.375% 11/04/06 15,000 7,200,000
WorldCom, Inc.,................................. Ba1 7.75% 04/01/07 3,500 3,758,615
--------------
44,400,072
--------------
UTILITIES -- 6.4%
Arkla, Inc., M.T.N.............................. Baa3 9.32% 12/18/00 2,000 2,140,300
Avon Energy Partners Holdings,.................. NR 7.05% 12/11/07 5,000 5,081,250
California Infrastructure PG&E, Series
1997-1,....................................... Aaa 6.32% 09/25/05 4,000 3,993,750
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B5
<PAGE>

SHORT-TERM INVESTMENT -- 5.5%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $45,329,000; Note 5).................... 6.53% 01/02/98 45,329 45,329,000
--------------
TOTAL INVESTMENTS -- 98.3%
(cost $790,639,568; Note 6)................................................................. 803,286,169
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C) -- (0.0%)...................................... (214,531)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 1.7%........................................... 13,635,093
--------------
TOTAL NET ASSETS -- 100.0%.................................................................... $ 816,706,731
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Security segregated as collateral for futures contracts.
(b) Portion of security segregated as collateral for future contracts. The
aggregate cost of the segregated securities is $26,272,861. The aggregated
value is $23,624,600.
(c) Open futures contracts as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31,
CONTRACTS TYPE DATE TRADE DATE 1997 DEPRECIATION
<S> <C> <C> <C> <C> <C>
Short Positions:
411 U.S. Treasury Notes Mar 98 $ 45,852,188 $46,096,219 $ (244,031)
145 U.S. Treasury Bond Mar 98 $ 17,248,531 $17,467,969 $ (219,438)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B6
<PAGE>

GOVERNMENT INCOME PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM INVESTMENTS -- 95.7%
<S> <C> <C> <C> <C>
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
LONG-TERM BONDS -- 95.7%

<CAPTION>
------ -------- --------- --------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 5.6%
Chase Manhattan Credit Card Master Trust, Series
1995-2 (a)(b)................................. 6.110% 08/15/01 $ 12,500 $ 12,503,875
Equicon Home Equity Loan Trust, Series 1994-2... 7.850% 03/18/14 1,029 1,034,799
Team Financing Corp., Series 1997-1 Class A..... 7.350% 05/15/03 10,000 10,368,700
--------------
23,907,374
--------------
COLLATERALIZED MORTGAGE OBLIGATION -- 2.3%
Main Place Funding (a).......................... 6.179% 07/17/98 10,000 10,018,750
--------------
CORPORATE -- 1.9%
Merck & Co...................................... 5.760% 05/03/37 8,000 8,232,880
--------------
MORTGAGE PASS-THROUGHS -- 36.0%
Federal Home Loan Mortgage Corp., ARM........... 7.932% 06/01/25 7,450 7,652,695
Federal National Mortgage Association........... 6.560% 08/27/04 25,000 25,218,750
05/01/10
-
Federal National Mortgage Association........... 7.500% 12/01/12 20,920 21,488,806
03/01/22
-
Federal National Mortgage Association........... 8.000% 05/01/26 1,913 1,985,086
05/01/24
-
Federal National Mortgage Association........... 8.500% 04/01/25 24,639 25,836,437
02/01/25
-
Federal National Mortgage Association........... 9.000% 04/01/25 10,179 10,851,475
04/08/07
-
Federal National Mortgage Association Strips.... Zero 10/08/09 43,480 22,792,572
12/15/25
-
Government National Mortgage Association........ 7.500% 02/15/26 18,260 18,719,986
09/15/23
-
Government National Mortgage Association........ 8.000% 10/15/25 19,511 20,249,250
--------------
154,795,057
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 49.9%
Israel AID...................................... Zero 03/15/06 18,272 11,233,991
Israel AID...................................... Zero 08/15/09 20,000 10,000,000
Resolution Funding Corp......................... 8.125% 10/15/19 4,200 5,171,250
Small Business Administration Participation
Certificate................................... 7.150% 01/01/17 19,125 19,966,691
Small Business Administration Participation
Certificate................................... 7.200% 10/01/16 19,338 20,178,133
Small Business Adminstration Participation
Certificate................................... 6.850% 07/01/17 5,000 5,166,050
United States Treasury Bond (b)................. 6.625% 02/15/27 25,000 27,140,500
United States Treasury Bond (b)................. 8.125% 08/15/19 28,000 35,035,000
United States Treasury Bond (b)................. 12.000% 08/15/13 24,100 35,509,904
United States Treasury Note..................... 6.000% 08/15/00 5,000 5,035,950
United States Treasury Note..................... 6.250% 10/31/01 3,500 3,559,605
United States Treasury Note (b)................. 7.750% 12/31/99 35,000 36,361,850
--------------
214,358,924
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $398,044,627)........................................................... 411,312,985
--------------

SHORT-TERM INVESTMENT -- 3.1%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $13,337,000; Note 5).................... 6.53% 01/02/98 13,337 13,337,000
--------------
TOTAL INVESTMENTS -- 98.8%
(cost $411,381,627; Note 6)................................................... 424,649,985
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- (C)............................... (38,438)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 1.2%............................. 5,031,512
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 429,643,059
--------------
--------------
</TABLE>

(a) The interest rate shown reflects the current rate of the variable rate
instrument.

(b) Pledged as initial margin on financial future contracts.

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Short Position:
123 U.S. Treasury Note Mar 98 $ 13,722,187 $ 13,795,219 ($ 73,032)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B7
<PAGE>

ZERO COUPON BOND 2000 PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM INVESTMENTS -- 99.6%
<S> <C> <C> <C> <C>
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
LONG-TERM BONDS

<CAPTION>
------ -------- --------- --------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Federal National Mortgage Association,.......... Zero 01/24/02 $ 7,777 $ 6,140,175
Federal National Mortgage Association,.......... Zero 07/24/02 4,527 3,472,345
United States Government -- Republic of Turkey
Trust, (a).................................... Zero 11/15/01 2,500 1,996,850
United States Treasury Bond..................... Zero 11/15/00 28,080 23,907,312
United States Treasury Bond..................... Zero 02/15/02 7,050 5,586,208
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $39,519,559)............................................................ 41,102,890
--------------

SHORT-TERM INVESTMENT -- 0.6%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account (cost
$244,000; Note 5)............................. 6.53% 01/02/98 244 244,000
--------------
TOTAL INVESTMENTS -- 100.2%
(cost $39,763,559; Note 6).................................................... 41,346,890
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%)................................. (80,170)
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 41,266,720
--------------
--------------
</TABLE>

(a) Trust consists of a Promissary Note issued by the Republic of Turkey and a
U.S. Government Securities Trust and carries the full faith and credit of
the United States.

SEE NOTES TO FINANCIAL STATEMENTS.

B8
<PAGE>

ZERO COUPON BOND 2005 PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM INVESTMENTS -- 98.8%
<S> <C> <C> <C> <C>
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
LONG-TERM BONDS

<CAPTION>
------ -------- --------- --------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Federal National Mortgage Association........... Zero 01/24/05 $ 1,400 $ 922,908
Federal National Mortgage Association........... Zero 01/24/06 2,320 1,432,229
Financing Corp.................................. Zero 03/07/04 3,350 2,325,503
Resoluton Funding Corp.......................... Zero 07/15/07 4,350 2,484,763
United States Treasury Bond..................... Zero 11/15/04 7,600 5,135,472
United States Treasury Bond..................... Zero 05/15/05 13,400 8,787,318
United States Treasury Bond..................... Zero 11/15/05 2,000 1,272,080
United States Treasury Bond..................... Zero 02/15/06 7,000 4,376,050
United States Treasury Bond..................... Zero 05/15/06 6,000 3,696,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $27,416,234)............................................................ 30,432,323
--------------

SHORT-TERM INVESTMENT -- 1.4%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account (cost
$445,000; Note 5)............................. 6.53% 01/02/98 445 445,000
--------------
TOTAL INVESTMENTS -- 100.2%
(cost $27,861,234; Note 6).................................................... 30,877,323
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%)................................. (66,441)
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 30,810,882
--------------
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B9
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.8%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
LONG-TERM BONDS -- 58.6% (NOTE 2)

<CAPTION>
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 2,875 $ 3,054,687
--------------
AIRLINES -- 4.2%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 25,218,200
10.375%, 02/01/11 (a)......................... Ba1 56,905 73,306,108
United Airlines, Inc.,
6.126%, 03/02/04.............................. Aa2 8,000 7,988,000
9.75%, 08/15/21............................... Baa3 10,125 12,956,659
10.67%, 05/01/04.............................. Baa3 46,665 55,931,736
11.21%, 05/01/14.............................. Baa3 18,433 25,848,780
--------------
201,249,483
--------------
ASSET-BACKED SECURITIES -- 1.6%
California Infrastructure,
6.14%, 03/25/02............................... Aaa 5,500 5,511,000
6.17%, 03/25/03............................... Aaa 6,000 6,018,600
6.28%, 09/25/05............................... Aaa 7,000 7,042,000
6.38%, 09/25/08............................... Aaa 21,000 21,172,200
6.42%, 12/26/09............................... Aaa 10,000 10,110,000
6.48%, 11/26/09............................... Aaa 10,000 10,115,625
Standard Credit Card Master Trust,
5.95%, 10/07/04 (a)........................... Aaa 4,650 4,602,012
Team Financing Corp,
7.35%, 05/15/03............................... Aa2 11,000 11,405,570
--------------
75,977,007
--------------
BANKS AND SAVINGS & LOANS -- 5.9%
Banco Ganadero, M.T.N. SA (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,500,750
Bangkok Bank, (Thailand),
7.25%, 09/15/05............................... Ba1 10,000 7,452,800
8.25%, 03/15/16............................... Ba1 7,500 5,250,000
8.375%, 01/15/27 Sr. Note..................... Ba1 40,000 23,440,400
Bank Nova Scotia,
6.50%, 07/15/07............................... A1 7,200 7,218,000
Bank of Boston N.A.,
5.973%, 01/25/99.............................. A2 2,500 2,507,600
Bankers Trust New York Corp.,
5.813%, 08/06/00.............................. A2 7,500 7,485,000
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 17,950 16,783,250
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,362,750
7.08%, 10/30/01............................... Baa3 35,100 35,915,022
7.35%, 06/20/00............................... Baa3 8,100 8,293,266
8.125%, 03/01/00.............................. Baa3 13,150 13,630,501
Chase, Inc.
6.075%, 02/28/00.............................. Aa3 4,000 4,006,160
Kansallis-Osake Pankki, (Finland),
8.65%, 12/29/49............................... A3 10,000 10,200,000
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 14,000 14,000,000
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 5,000 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Okobank, (Finland),
7.20%, 10/29/49............................... A3 $ 9,000 $ 9,101,250
7.20%, 10/29/49............................... A3 3,500 3,539,375
7.312%, 09/27/49.............................. A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (a)........................... Aa3 17,400 17,513,448
Siam Commercila, (Thailand),
7.50%, 03/15/06............................... A3 14,500 9,425,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,075,000
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (a)........................... Ba1 20,000 12,000,000
--------------
278,805,472
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.0%
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Baa3 5,545 5,889,455
Tele-Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 10,036,800
7.375%, 02/15/00.............................. Ba1 27,000 27,521,100
7.875%, 08/01/13.............................. Ba1 19,350 20,812,279
8.25%, 01/15/03............................... Ba1 2,000 2,135,780
9.25%, 04/15/02............................... Ba1 9,500 10,427,865
9.875%, 06/15/22.............................. Ba1 12,900 16,811,667
--------------
93,634,946
--------------
CONSULTING -- 0.7%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 12,500 12,513,250
6.375%, 11/30/01.............................. Baa1 21,500 21,500,000
--------------
34,013,250
--------------
CONSUMER SERVICES -- 0.1%
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 3,500 3,503,570
--------------
FINANCIAL SERVICES -- 15.4%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 15,000 14,400,000
7.25%, 08/16/99............................... Ba3 3,000 2,957,910
7.50%, 08/28/00............................... Ba3 35,000 34,053,250
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 9,471,600
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 20,120,800
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 10,000 10,000,000
Conseco, Inc.,
8.70%, 11/15/26 (a)........................... Ba2 32,313 36,126,991
8.796%, 04/01/27 (a).......................... Ba2 23,900 26,676,463
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,395,827
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B10
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 $ 11,500 $ 11,554,050
6.95%, 03/01/04............................... Baa2 27,500 28,050,000
7.00%, 06/15/00............................... Baa2 30,000 30,598,800
7.50%, 06/15/03............................... Baa2 5,000 5,261,900
8.75%, 12/15/99............................... Baa2 5,000 5,245,000
First Chicago NBD Corp.,
5.819%, 09/23/02.............................. A1 8,000 7,976,000
First Union Corp.,
9.45%, 06/15/99............................... A2 4,000 4,177,920
Great Western Financial,
8.206%, 02/01/27 (a).......................... A3 19,300 20,469,966
Industrial Finance Corp.,
7.75%, 08/04/07............................... Ba1 5,000 4,750,000
7.875%, 08/04/02.............................. Ba1 6,000 5,700,000
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 8,000 7,950,000
6.33%, 08/01/00............................... Baa1 30,000 30,039,600
6.40%, 08/30/00............................... Baa1 79,000 78,901,250
6.71%, 10/12/99............................... Baa1 6,000 6,056,640
6.89%, 10/10/00............................... Baa1 10,545 10,701,804
7.125%, 07/15/02.............................. Baa1 16,000 16,359,680
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 21,750 23,055,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 15,000 15,390,000
Merrill Lynch Pierce, Fenner & Smith,
5.935%, 11/14/00.............................. Aa3 10,000 9,966,250
Paine Webber Group, Inc.,
7.625%, 10/15/08 Sr. Note..................... Baa1 5,000 5,352,700
PT Alatief Freeport Financial Co., Sr. Notes,
(Netherlands),
9.75%, 04/15/01............................... Ba1 8,950 9,039,500
Salomon, Inc.,
6.25%, 10/01/99............................... A2 32,800 32,838,048
6.50%, 03/01/00 (a)........................... A2 38,500 38,701,740
6.59%, 02/21/01 (a)........................... A2 30,750 31,005,840
6.75%, 02/15/03............................... A2 5,000 5,057,850
7.25%, 05/01/01............................... A2 8,625 8,852,010
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 25,000 25,125,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,008,100
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 46,440 46,354,771
Union Planters Corp., Gtd. Notes,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
731,941,767
--------------
FOOD & BEVERAGE -- 0.5%
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 5,000 5,008,650
6.95%, 12/15/2097............................. Aa3 18,800 19,045,152
--------------
24,053,802
--------------
INDUSTRIAL -- 0.8%
Compania Sud Americana de Vapores, SA (Chile),
7.375%, 12/08/03.............................. NR 7,600 7,505,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Reliance Industries Ltd.,
8.125%, 09/27/05.............................. Baa3 $ 15,000 $ 14,025,000
8.25%, 01/15/27............................... Baa3 19,000 17,005,000
--------------
38,535,000
--------------
LEISURE & TOURISM -- 0.1%
Royal Carribean Cruises Ltd.,
7.50%, 10/15/27............................... Baa3 5,750 5,855,455
--------------
MEDIA -- 5.7%
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,582,541
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,016,815
8.11%, 08/15/06............................... Ba1 7,250 7,848,850
8.18%, 08/15/07............................... Ba1 24,915 27,118,981
9.125%, 01/15/13.............................. Ba1 41,270 49,143,078
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 17,325 19,438,997
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 71,325 70,082,518
7.75%, 06/01/05............................... Ba2 60,025 61,050,827
--------------
268,282,607
--------------
OIL & GAS -- 1.6%
Apache Corp.,
7.95%, 04/15/26............................... Baa1 2,900 3,250,030
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,095,000
Gulf Canada Resources, Ltd., (Canada),
8.25%, 03/15/17............................... Ba1 4,500 5,006,295
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,304,320
Petroliam Nasional, (Malaysia),
6.625%, 10/18/01.............................. A2 12,000 11,662,680
Seagull Energy Corp.,
7.50%, 09/15/27............................... Ba1 17,000 17,606,730
Talisman Energy Inc.,
7.25%, 10/15/27............................... Baa1 30,000 30,829,800
--------------
75,754,855
--------------
PAPER & FOREST -- 0.5%
UPM-Kymmene Oyj,
7.45%, 11/26/27............................... Baa1 22,800 23,398,500
--------------
RAILROADS -- 0.5%
Norfolk Southern Corp.,
7.05%, 05/01/37............................... Baa1 25,000 26,218,750
--------------
REAL ESTATE INVESTMENT TRUST -- 0.2%
Falcor Suite Hotels, Inc.,
7.625%, 10/1/07............................... Ba1 8,000 8,006,400
--------------
RETAIL -- 2.8%
Federated Department Stores, Inc.,
8.125%, 10/15/02 Sr. Note (a)................. Baa2 41,030 43,861,070
8.50%, 06/15/03 (a)........................... Baa2 32,400 35,345,160
10.00%, 02/15/01 (a).......................... Baa2 46,115 50,791,061
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,081,250
--------------
135,078,541
--------------
TELECOMMUNICATIONS -- 3.6%
McLeod USA Inc., Sr. Notes,
9.25%, 07/15/07............................... B3 3,000 3,150,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B11
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 $ 33,000 $ 15,840,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 80,000 83,775,200
7.75%, 04/01/07............................... Ba1 25,000 26,847,250
7.75%, 04/01/27............................... Ba1 4,500 4,944,420
8.875%, 01/15/06.............................. Ba1 32,000 34,429,440
--------------
168,986,310
--------------
TOBACCO -- 3.0%
Philip Morris Co. Inc.,
6.375%, 02/01/06.............................. A2 17,675 17,359,501
7.20%, 02/01/07............................... A2 31,915 32,932,769
RJR Nabisco, Inc.,
7.625%, 09/15/03.............................. Baa3 10,500 10,732,260
8.25%, 07/01/04............................... Baa3 8,000 8,410,000
8.50%, 07/01/07............................... Baa3 11,000 11,726,550
8.75%, 04/15/04............................... Baa3 23,090 24,719,000
8.75%, 08/15/05............................... Baa3 19,000 20,499,670
9.25%, 08/15/13............................... Baa3 13,571 15,227,341
--------------
141,607,091
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.0%
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa2 500 527,645
--------------
UTILITIES -- 1.9%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,523,880
7.625%, 01/15/07.............................. Baa3 21,000 22,162,980
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 25,000 25,093,750
6.875%, 12/15/17.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 5,000 4,415,625
--------------
91,634,985
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.1%
United States Treasury Bond,
6.125%, 08/15/07.............................. 7,500 7,707,450
United States Treasury Notes,
5.875%, 01/31/99 (a).......................... 20,000 20,046,800
5.875%, 09/30/02.............................. 28,550 28,706,169
5.875%, 02/15/04.............................. 16,750 16,896,563
6.25%, 10/31/01............................... 9,500 9,661,785
6.375%, 03/31/01 (a).......................... 4,600 4,686,250
6.375%, 08/15/27.............................. 57,325 60,460,104
--------------
148,165,121
--------------
FOREIGN GOVERNMENT BONDS -- 4.2%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 5,500 5,492,850
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 15,592,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 25,000 22,500,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Province of Quebec, (Canada),
6.238%, 06/15/99.............................. A2 $ 3,000 $ 3,007,969
Republic of Colombia, (Colombia),
7.625%, 02/15/07 (a).......................... Baa3 85,000 79,370,450
8.00%, 06/14/01............................... Baa3 2,250 2,257,875
8.75%, 10/06/99............................... Baa3 12,325 12,692,532
Republic of South Africa, (South Africa),
8.50%, 06/23/17............................... Baa3 37,950 36,242,250
Russian Ministry of Finance, (Russia),
10.00%, 06/26/07.............................. Ba2 7,800 7,226,700
United Mexican States, (Mexico),
11.50%, 05/15/26.............................. Ba2 6,900 8,176,500
--------------
198,183,376
--------------
TOTAL LONG-TERM BONDS
(cost $2,787,932,280).................................................... 2,779,026,495
--------------

COMMON STOCKS -- 32.5% SHARES
-------------
AEROSPACE -- 0.8%
AlliedSignal, Inc............................... 196,400 7,647,325
GenCorp, Inc.................................... 100,000 2,500,000
Litton Industries, Inc. (b)..................... 78,900 4,536,750
Lockheed Martin Corp............................ 193,000 19,010,500
Parker-Hannifin Corp. (b)....................... 43,925 2,015,059
Raytheon Co. (Class "A" Stock) (b).............. 7,295 359,749
--------------
36,069,383
--------------
AIRLINES -- 0.4%
AMR Corp. (b)................................... 84,700 10,883,950
US Airways Group, Inc. (b)...................... 114,900 7,181,250
--------------
18,065,200
--------------
APPAREL -- 0.0%
Phillips-Van Heusen Corp........................ 96,300 1,372,275
--------------
AUTOS - CARS & TRUCKS -- 0.4%
Chrysler Corp................................... 147,800 5,200,712
Ford Motor Co................................... 95,600 4,654,525
General Motors Corp............................. 111,000 6,729,375
Mascotech, Inc.................................. 96,000 1,764,000
Titan International, Inc........................ 102,950 2,065,434
--------------
20,414,046
--------------
BANKS AND SAVINGS & LOANS -- 1.4%
BankAmerica Corp................................ 172,000 12,556,000
Barnett Banks, Inc.............................. 179,600 12,908,750
Chase Manhattan Corp............................ 213,800 23,411,100
Citicorp........................................ 56,800 7,181,650
Fleet Financial Group, Inc...................... 166,100 12,447,119
--------------
68,504,619
--------------
CHEMICALS -- 0.2%
Ferro Corp...................................... 137,100 3,333,244
Millennium Chemicals, Inc....................... 148,927 3,509,092
OM Group, Inc................................... 64,400 2,358,650
--------------
9,200,986
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (b)............................... 373,700 12,845,937
--------------
COMPUTER SERVICES -- 1.5%
Autodesk, Inc................................... 671,600 24,849,200
BMC Software, Inc. (b).......................... 296,400 19,451,250
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B12
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cadence Design Systems, Inc. (b)................ 693,800 $ 16,998,100
Microsoft Corp. (a)............................. 67,900 8,776,075
--------------
70,074,625
--------------
COMPUTERS -- 2.1%
3Com Corp. (b).................................. 519,600 18,153,525
Cisco Systems, Inc. (b)......................... 436,050 24,309,787
Compaq Computer Corp............................ 245,300 13,844,119
Digital Equipment Corp. (b)..................... 99,200 3,670,400
International Business Machines Corp............ 179,800 18,800,337
Sun Microsystems, Inc. (b)...................... 552,900 22,046,887
--------------
100,825,055
--------------
CONSTRUCTION -- 0.2%
Oakwood Homes Corp.............................. 141,600 4,699,350
Standard Pacific Corp........................... 156,600 2,466,450
Webb Corp....................................... 142,600 3,707,600
--------------
10,873,400
--------------
CONSUMER-APPLIANCES -- 0.3%
Sunbeam Corp.,.................................. 293,000 12,342,625
--------------
CONTAINERS -- 0.0%
Owens-Illinois, Inc. (b)........................ 58,300 2,211,756
--------------
COSMETICS & SOAPS -- 0.5%
Avon Products, Inc.............................. 425,600 26,121,200
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 289,800 12,914,212
General Electric Co............................. 408,600 29,981,025
Whitman Corp.................................... 135,000 3,518,437
--------------
46,413,674
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.8%
American Home Products Corp.,................... 315,500 24,135,750
Biogen, Inc. (b)................................ 532,500 19,369,687
Bristol-Myers Squibb Co......................... 308,700 29,210,737
Cardinal Health, Inc............................ 300,300 22,560,037
Guidant Corp.................................... 202,400 12,599,400
Medtronic, Inc.................................. 398,500 20,846,531
Novartis Corp., AG, ADR (Switzerland)........... 84,100 6,833,125
Pfizer, Inc..................................... 253,800 18,923,962
Warner-Lambert Co............................... 190,400 23,609,600
--------------
178,088,829
--------------
ELECTRICAL EQUIPMENT -- 0.0%
Belden, Inc..................................... 68,200 2,404,050
--------------
ELECTRONICS -- 0.5%
Intel Corp...................................... 79,600 5,591,900
National Semiconductor Corp. (b)................ 738,400 19,152,250
--------------
24,744,150
--------------
ENGINEERING & CONSTRUCTION -- 0.0%
Giant Cement Holdings, Inc. (b)................. 59,100 1,366,687
--------------
ENVIRONMENTAL SERVICES -- 0.5%
U.S.A. Waste Services, Inc. (b)................. 651,100 25,555,675
--------------
EXPLORATION & PRODUCTION -- 0.0%
Apex Silver Mines Ltd. (b)...................... 83,600 1,065,900
--------------
FINANCIAL SERVICES -- 1.6%
Fannie Mae...................................... 24,900 1,420,856
Lehman Brothers Holdings, Inc................... 254,000 12,954,000
Merrill Lynch & Co., Inc........................ 59,200 4,317,900
Morgan Stanley, Dean Witter, Discover & Co.,.... 334,090 19,753,071
Schwab (Charles) Corp........................... 417,600 17,513,100
Travelers Group, Inc............................ 357,967 19,285,472
--------------
75,244,399
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOOD & BEVERAGES -- 1.3%
PepsiCo, Inc.................................... 740,500 $ 26,981,969
Quaker Oats Co.................................. 317,300 16,737,575
Ralston-Ralston Purina Group.................... 205,600 19,107,950
--------------
62,827,494
--------------
FOREST PRODUCTS -- 0.3%
Boise Cascade Corp.,............................ 145,600 4,404,400
Champion International Corp..................... 96,200 4,359,062
Louisiana-Pacific Corp.......................... 100,400 1,907,600
Mead Corp....................................... 96,500 2,702,000
Willamette Industries, Inc...................... 70,300 2,262,781
--------------
15,635,843
--------------
HEALTHCARE -- 0.1%
A.O. Smith Corp................................. 71,500 3,020,875
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.,.................. 203,800 6,037,575
Healthsouth Corp. (b)........................... 779,300 21,625,575
--------------
27,663,150
--------------
HOUSEHOLD PRODUCTS -- 0.0%
Leggett & Platt, Inc............................ 58,300 2,441,312
--------------
HOUSING RELATED -- 0.2%
Hanson, PLC, ADR (United Kingdom)............... 260,962 6,018,436
Owens Corning................................... 100,100 3,415,912
--------------
9,434,348
--------------
INSURANCE -- 1.2%
Allstate Corp................................... 150,000 13,631,250
Berkley (WR) Corp............................... 43,100 1,891,012
Financial Security Assurance Holdings Ltd.,..... 34,600 1,669,450
Loews Corp...................................... 29,500 3,130,687
PennCorp Financial Group, Inc................... 81,600 2,912,100
Provident Companies, Inc........................ 54,300 2,097,337
Reinsurance Group of America, Inc............... 117,450 4,998,966
TIG Holdings, Inc............................... 86,900 2,883,994
Trenwick Group, Inc............................. 65,950 2,481,369
United Healthcare Corp.......................... 377,000 18,732,187
Western National Corp........................... 134,500 3,984,562
--------------
58,412,914
--------------
INSTRUMENTS-CONTROLS -- 0.0%
Flowserve Corp.................................. 40,186 1,122,696
--------------
LEISURE -- 0.5%
Carnival Corp. (Class "A" Stock)................ 398,800 22,083,550
--------------
MACHINERY -- 0.2%
Case Corp....................................... 88,400 5,342,675
DT Industries, Inc.............................. 36,400 1,237,600
Global Industrial
Technologies, Inc. (b)........................ 62,400 1,056,900
Paxar Corp. (b)................................. 233,725 3,462,052
--------------
11,099,227
--------------
MANUFACTURING -- 1.0%
Illinois Tool Works, Inc. (b)................... 181,300 10,900,663
Tyco International, Ltd......................... 802,800 36,176,175
--------------
47,076,838
--------------
MEDIA -- 0.2%
Central Newspapers, Inc. (Class "A" Stock)...... 50,800 3,756,025
Houghton Mifflin Co............................. 59,700 2,290,988
Knight-Ridder, Inc.............................. 59,200 3,078,400
Lee Enterprises, Inc............................ 51,700 1,528,381
--------------
10,653,794
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B13
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MEDICAL INSTRUMENTS -- 0.3%
Arterial Vascular Engineering, Inc., (b)........ 198,200 $ 12,883,000
--------------
METALS-FERROUS -- 0.2%
Bethlehem Steel Corp. (b)....................... 225,200 1,942,350
LTV Corp........................................ 208,300 2,030,925
Material Sciences Corp. (b)..................... 98,500 1,200,469
National Steel Corp. (Class "B" Stock) (b)...... 42,900 496,031
USX-U.S. Steel Group............................ 61,800 1,931,250
--------------
7,601,025
--------------
METALS-NON FERROUS -- 0.2%
Aluminum Company of America..................... 147,600 10,387,350
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.3%
Coltec Industries, Inc. (b)..................... 44,400 1,029,525
Donaldson, Co................................... 55,500 2,500,969
IDEX Corp....................................... 61,100 2,130,863
Mark IV Industries, Inc......................... 87,942 1,923,731
Trinity Industries, Inc......................... 53,100 2,369,588
Wolverine Tube, Inc. (b)........................ 37,600 1,165,600
York International Corp......................... 27,400 1,084,013
--------------
12,204,289
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.3%
Eastman Kodak Co................................ 29,200 1,775,725
Unilever N.V., ADR (United Kingdom)............. 237,000 14,797,688
--------------
16,573,413
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.2%
CBS Corp........................................ 207,400 6,105,338
Energy Group, PLC, ADR (United Kingdom)......... 49,862 2,225,092
--------------
8,330,430
--------------
OIL & GAS -- 1.3%
Basin Exploration, Inc. (b)..................... 17,700 314,175
Cabot Oil & Gas Corp. (Class "A" Stock)......... 90,100 1,751,319
Cross Timbers Oil Co............................ 296,300 7,388,981
Elf Aquitaine SA, ADR (France).................. 126,900 7,439,513
Enron Oil & Gas Co.............................. 49,200 1,042,425
Murphy Oil Corp................................. 28,100 1,522,669
Noble Affiliates, Inc.,......................... 196,700 6,933,675
Pioneer Natural Resources Co.................... 325,044 9,405,961
Seagull Energy Corp. (b)........................ 63,700 1,313,813
Total SA (Class "B" Stock) (France)............. 126,800 7,037,400
Unocal Corp..................................... 389,700 15,125,231
Western Gas Resources, Inc.,.................... 104,700 2,316,488
--------------
61,591,650
--------------
OIL & GAS SERVICES -- 1.5%
Apache Corp..................................... 498,500 17,478,656
Halliburton Co.................................. 595,200 30,913,200
J. Ray McDermott, SA (b)........................ 166,500 7,159,500
McDermott International, Inc.................... 307,700 11,269,513
Oryx Energy Co. (b)............................. 125,500 3,200,250
--------------
70,021,119
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Crescent Operating, Inc. (b).................... 17,360 425,320
Crescent Real Estate Equities, Inc.............. 166,300 6,548,063
Equity Residential Properties Trust............. 14,600 738,213
--------------
7,711,596
--------------
RETAIL -- 4.2%
Bombay Company, Inc. (b)........................ 141,500 654,438
Borders Group, Inc. (b)......................... 656,000 20,541,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Charming Shoppes, Inc. (b)...................... 824,800 $ 3,866,250
Consolidated Stores Corp. (b)................... 466,900 20,514,419
Costco Companies, Inc. (b)...................... 373,200 16,654,050
CVS Corp........................................ 157,900 10,115,469
Designs, Inc. (b)............................... 52,800 158,400
Dillards, Inc. (Class "A" Stock)................ 32,200 1,135,050
Federated Department Stores, Inc. (b)........... 242,700 10,451,269
Home Depot, Inc................................. 276,050 16,252,444
Jan Bell Marketing, Inc. (b).................... 153,800 384,500
Kmart Corp. (b)................................. 619,600 7,164,125
Kroger Co. (b).................................. 407,400 15,048,338
Liz Claiborne, Inc.............................. 276,600 11,565,338
Rite Aid Corp................................... 241,700 14,184,769
Safeway, Inc. (b)............................... 407,800 25,793,350
Tandy Corp...................................... 47,500 1,831,719
The Limited, Inc................................ 215,300 5,490,150
The TJX Companies, Inc.......................... 449,600 15,455,000
Toys 'R' Us, Inc. (b)........................... 88,700 2,788,506
--------------
200,048,584
--------------
RUBBER -- 0.1%
Goodyear Tire & Rubber Co....................... 39,800 2,532,275
--------------
TELECOMMUNICATIONS -- 1.2%
Alcatel Alsthom, ADR (France)................... 127,000 3,214,688
Deutsche Telekom, ADR (Germany)................. 45,800 853,025
Nextel Communications, Inc. (Class "A" Stock)
(b)........................................... 871,500 22,659,000
Tellabs, Inc. (b)............................... 299,000 15,809,625
WorldCom, Inc................................... 410,800 12,426,700
--------------
54,963,038
--------------
TEXTILES -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (b)... 73,800 1,891,125
Pillowtex Corp.................................. 18,830 656,696
Tultex Corp. (b)................................ 89,800 364,813
--------------
2,912,634
--------------
TOBACCO -- 0.8%
Bat Industries, PLC, ADR (United Kingdom)....... 107,100 2,008,125
Phillip Morris Co. Inc.......................... 646,700 29,303,594
RJR Nabisco Holdings Corp....................... 125,800 4,717,500
--------------
36,029,219
--------------
TOYS -- 0.4%
Mattel, Inc..................................... 475,751 17,721,725
--------------
TRUCKING/SHIPPING -- 0.0%
Yellow Corp. (b)................................ 44,300 1,113,038
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc........................... 208,000 5,720,000
--------------
TOTAL COMMON STOCKS
(cost $1,331,959,806).......................................... 1,543,620,897
--------------

PREFERRED STOCKS -- 0.7%
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp.,.................. 225,900 6,254,606
Central Hispano Corp.,.......................... 1,000,000 26,000,000
--------------
32,254,606
--------------
TOTAL PREFERRED STOCKS
(cost $31,236,594)............................................. 32,254,606
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,151,360,152).......................................... 4,354,901,998
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B14
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 7.2% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.3%
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 $ 1,000 $ 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 4,600 4,560,857
Falcon Asset Securitization Corp.,
5.90%, 01/21/98............................... P1 1,000 996,886
Restructured Asset Securities Enhanced Return,
5.95875%, 08/28/98............................ P1 4,000 4,000,000
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 2,000 2,000,000
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 2,000 1,984,184
Wood Street Funding Corp.,
5.83%, 02/13/98............................... P1 1,000 993,198
--------------
15,526,574
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank--Michigan,
5.00%, 01/30/98............................... P1 2,000 1,998,356
US Bank, N.A.,
5.83094%, 10/21/98............................ P1 1,000 999,358
--------------
7,997,714
--------------
CERTIFICATES OF DEPOSIT-EURO -- 0.2%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 4,000 4,000,209
Westdeutsche Landesbank Girozentral, (Germany),
5.83%, 08/03/98............................... P1 6,000 5,997,462
--------------
9,997,671
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 1.1%
Canadian Imperial Bank of Commerce, (Canada),
5.95%, 06/29/98............................... P1 900 899,706
Corestates Bank, NA,
5.7825%, 01/23/98............................. P1 1,000 1,000,000
Credit Agricole Indosuez,
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 7,000 6,998,241
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
Kansallis-Osake Pankki, N.Y., (Finland),
6.125%, 05/15/98.............................. A3 6,160 6,160,000
9.75%, 12/15/98............................... Baa1 16,950 17,472,908
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,775 2,802,750
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Swiss Bank Corp.,
5.77%, 01/30/98............................... P1 2,000 1,999,421
--------------
53,613,180
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 3.4%
Aon Corp.,
5.79%, 03/12/98............................... P2 $ 880 $ 870,234
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,000 993,719
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 6,000 5,992,907
BP America,
6.90%, 01/02/98............................... P1 6,500 6,500,000
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,088,291
Coca-Cola Enterprises,
5.65%, 03/12/98............................... P2 3,000 2,967,512
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,498,000
6.09%, 11/09/98............................... Baa1 34,000 34,009,860
6.29%, 10/22/98............................... Baa1 5,000 5,009,900
6.689%, 05/22/98.............................. Baa1 9,000 9,024,300
Duke Capital Corp.,
5.90%, 01/23/98............................... P2 1,000 996,558
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
7.875%, 03/15/98 (b).......................... Baa2 9,925 9,961,921
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa3 3,000 3,045,750
Finova Capital Corp.,
5.75%, 02/04/98............................... P2 3,400 3,382,079
First USA Bank,
8.20%, 02/15/98............................... Baa3 11,500 11,521,275
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
Honeywell Inc.,
6.75%, 01/02/98............................... P1 4,250 4,250,000
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 2,000 1,970,981
5.74%, 04/28/98............................... P1 1,600 1,570,407
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Newell Co.,
6.80%, 01/02/98............................... P1 6,500 6,500,000
Old Line Funding Corp.,
5.90%, 01/21/98............................... A1+ 1,000 996,886
PHH Corp.,
6.75%, 01/02/98............................... P1 6,500 6,500,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 2,000 1,976,320
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 1,000 1,000,220
Xerox Capital (Europe) PLC
5.75%, 02/05/98............................... P1 3,000 2,983,708
5.79%, 02/12/98............................... P1 875 869,230
6.85%, 01/02/98............................... P1 2,610 2,610,000
--------------
156,055,189
--------------
MEDIUM TERM NOTES -- 0.2%
Ford Motor Credit Corp.,
9.00%, 03/25/98............................... P1 1,200 1,208,318
General Motors Acceptance Corp.,
5.76825%, 09/21/98............................ P1 3,000 2,997,564
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B15
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 $ 4,000 $ 3,998,626
Morgan Stanley Group, Inc.,
6.34%, 03/09/98............................... P1 1,000 1,000,606
Suntrust Banks, Inc.,
8.875%, 02/01/98.............................. P1 805 806,820
--------------
10,011,934
--------------
OTHER CORPORATE OBLIGATIONS -- 0.1%
Association Corp. of America,
6.125%, 02/01/98.............................. P1 2,040 2,039,976
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,700 2,709,664
--------------
4,749,640
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.0%
United States Treasury Bills,
5.045%, 03/19/98 (a).......................... 700 692,545
5.165%, 01/22/98 (a).......................... 300 299,139
5.29%, 03/19/98 (a)........................... 400 395,533
--------------
1,387,217
--------------
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... 81,783 81,783,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $340,697,062)...................................................... 341,122,119
--------------
TOTAL INVESTMENTS -- 99.0%
(cost $4,491,825,742; Note 6)............................................ 4,696,024,117
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C) -- (0.0%)...................
(653,438)
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0%..............................
48,861,360
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,744,232,039
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Security segregated as collateral for futures contracts.

(b) Non-income producing security.

<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1997 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
61 S&P 500 Index Mar 98 15,095,625 14,931,275 (164,350)
U.S. Treasury 5
318 Yr. Mar 98 34,423,500 34,542,750 119,250
U.S. Treasury 5
166 Yr. Mar 98 19,931,438 19,997,813 66,375
Short Position:
U.S. Treasury 5
637 Yr. Mar 98 75,803,000 76,738,594 (935,594)
U.S. Treasury 5
365 Yr. Mar 98 39,488,438 39,648,125 (159,687)
U.S. Treasury
1181 10 Yr. Mar 98 131,755,312 132,456,531 (701,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B16
<PAGE>

FLEXIBLE MANAGED PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.8%
VALUE
COMMON STOCKS -- 57.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
AlliedSignal, Inc............................... 289,300 $ 11,264,619
GenCorp, Inc.................................... 428,200 10,705,000
Litton Industries, Inc. (a)..................... 324,400 18,653,000
Lockheed Martin Corp............................ 272,900 26,880,650
Raytheon Co. (Class "A" Stock).................. 30,252 1,491,826
--------------
68,995,095
--------------
AIRLINES -- 1.4%
AMR Corp. (a)................................... 346,000 44,461,000
USAir Group, Inc. (a)........................... 491,700 30,731,250
--------------
75,192,250
--------------
AUTOS - CARS & TRUCKS -- 1.5%
Chrysler Corp................................... 632,700 22,263,131
Ford Motor Co................................... 301,300 14,669,544
General Motors Corp............................. 474,400 28,760,500
Mascotech, Inc.................................. 411,300 7,557,637
Titan International, Inc........................ 440,700 8,841,544
--------------
82,092,356
--------------
BANKS AND SAVINGS & LOANS -- 1.8%
BankAmerica Corp................................ 243,900 17,804,700
Barnett Banks, Inc.............................. 254,200 18,270,625
Chase Manhattan Corp............................ 302,100 33,079,950
Citicorp........................................ 80,500 10,178,219
Fleet Financial Group, Inc...................... 235,100 17,617,806
--------------
96,951,300
--------------
CHEMICALS -- 0.7%
Ferro Corp...................................... 586,950 14,270,222
Millennium Chemicals, Inc....................... 637,700 15,025,806
OM Group, Inc................................... 275,900 10,104,837
--------------
39,400,865
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (a)............................... 529,500 18,201,562
--------------
COMPUTERS -- 2.2%
3Com Corp. (a).................................. 737,000 25,748,937
Compaq Computer Corp............................ 346,700 19,566,881
Digital Equipment Corp. (a)..................... 424,700 15,713,900
International Business Machines Corp............ 254,400 26,600,700
Sun Microsystems, Inc. (a)...................... 781,100 31,146,362
--------------
118,776,780
--------------
COMPUTER SERVICES -- 2.4%
Autodesk, Inc................................... 951,300 35,198,100
BMC Software, Inc. (a).......................... 419,800 27,549,375
Cadence Design Systems, Inc. (a)................ 979,500 23,997,750
Cisco Systems, Inc. (a)......................... 617,100 34,403,325
Microsoft Corp.................................. 95,800 12,382,150
--------------
133,530,700
--------------
CONSTRUCTION -- 0.8%
Oakwood Homes Corp.............................. 606,400 20,124,900
Standard Pacific Corp........................... 670,400 10,558,800
Webb Corp....................................... 611,100 15,888,600
--------------
46,572,300
--------------
CONTAINERS -- 0.2%
Owens-Illinois, Inc. (a)........................ 250,000 9,484,375
--------------
COSMETICS & SOAPS -- 0.7%
Avon Products, Inc.............................. 595,600 36,554,950
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS -- 1.7%
Cognizant Corp.................................. 410,000 $ 18,270,625
General Electric Co............................. 577,200 42,352,050
Loews Corp...................................... 175,000 18,571,875
Whitman Corp.................................... 578,000 15,064,125
--------------
94,258,675
--------------
DRUGS AND MEDICAL SUPPLIES -- 4.6%
American Home Products Corp..................... 446,600 34,164,900
Biogen, Inc. (a)................................ 752,300 27,364,912
Bristol-Myers Squibb Co......................... 453,400 42,902,975
Cardinal Health, Inc............................ 425,100 31,935,637
Guidant Corp.................................... 284,900 17,735,025
Medtronic, Inc.................................. 564,000 29,504,250
Novartis Corp., AG, ADR (Switzerland)........... 114,200 9,278,750
Pfizer, Inc..................................... 359,600 26,812,675
Warner-Lambert Co............................... 269,000 33,356,000
--------------
253,055,124
--------------
ELECTRICAL EQUIPMENT -- 0.2%
Baldor Electric Co.............................. 1 29
Belden, Inc..................................... 292,200 10,300,050
--------------
10,300,079
--------------
ELECTRONICS -- 0.6%
Intel Corp...................................... 112,500 7,903,125
National Semiconductor Corp. (a)................ 1,029,600 26,705,250
--------------
34,608,375
--------------
ENERGY -- 0.2%
Energy Group, PLC, ADR (United Kingdom)......... 218,900 9,768,413
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 259,600 6,003,250
--------------
ENVIRONMENTAL SERVICES -- 1.1%
U.S.A. Waste Services, Inc. (a)................. 920,200 36,117,850
Waste Management, Inc........................... 872,300 23,988,250
--------------
60,106,100
--------------
FINANCIAL SERVICES -- 3.3%
Federal National Mortgage Association........... 35,100 2,002,894
Lehman Brothers Holdings, Inc................... 1,087,300 55,452,300
Merrill Lynch & Co., Inc........................ 253,100 18,460,481
Morgan Stanley, Dean Witter, Discover & Co...... 632,195 37,378,529
Schwab (Charles) Corp........................... 589,900 24,738,931
Travelers Group, Inc............................ 763,266 41,120,956
--------------
179,154,091
--------------
FOOD & BEVERAGES -- 2.0%
PepsiCo, Inc.................................... 1,047,900 38,182,856
Quaker Oats Co.................................. 448,500 23,658,375
Ralston-Ralston Purina Group.................... 291,000 27,044,812
RJR Nabisco Holdings Corp....................... 538,700 20,201,250
--------------
109,087,293
--------------
FOREST PRODUCTS -- 1.3%
Boise Cascade Corp.............................. 700,000 21,175,000
Champion International Corp..................... 412,200 18,677,812
Louisiana-Pacific Corp.......................... 412,200 7,831,800
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B17
<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Mead Corp....................................... 413,200 $ 11,569,600
Willamette Industries, Inc...................... 301,600 9,707,750
--------------
68,961,962
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.0%
Columbia/HCA Healthcare Corp.................... 855,000 25,329,375
Healthsouth Corp. (a)........................... 1,101,400 30,563,850
--------------
55,893,225
--------------
HOUSEHOLD PRODUCTS -- 0.5%
Leggett & Platt, Inc............................ 249,500 10,447,812
Sunbeam Corp.................................... 415,000 17,481,875
--------------
27,929,687
--------------
HOUSING RELATED -- 0.7%
Hanson, PLC, ADR (United Kingdom)............... 1,046,700 24,139,519
Owens Corning................................... 429,000 14,639,625
--------------
38,779,144
--------------
INSTRUMENTS-CONTROLS -- 0.2%
Parker-Hannifin Corp............................ 187,500 8,601,563
--------------
INSURANCE -- 2.6%
Allstate Corp................................... 212,000 19,265,500
Berkley (WR) Corp............................... 186,450 8,180,494
Financial Security Assurance Holdings Ltd....... 148,500 7,165,125
PennCorp Financial Group, Inc................... 349,600 12,476,350
Provident Companies, Inc........................ 232,600 8,984,175
Reinsurance Group of America, Inc............... 503,100 21,413,194
TIG Holdings, Inc............................... 372,300 12,355,706
Trenwick Group, Inc............................. 289,700 10,899,962
United Healthcare Corp.......................... 532,700 26,468,531
Western National Corp........................... 575,900 17,061,037
--------------
144,270,074
--------------
LEISURE -- 0.5%
Carnival Corp. (Class "A" Stock)................ 563,300 31,192,737
--------------
MACHINERY -- 0.9%
Case Corp....................................... 378,500 22,875,594
DT Industries, Inc.............................. 155,600 5,290,400
Global Industrial Technologies, Inc. (a)........ 273,600 4,634,100
Paxar Corp. (a)................................. 1,011,875 14,988,398
--------------
47,788,492
--------------
MANUFACTURING -- 1.6%
A.O. Smith Corp................................. 306,300 12,941,175
Flowserve Corp.................................. 171,691 4,796,617
Illinois Tool Works, Inc........................ 256,100 15,398,012
Tyco International, Ltd......................... 1,134,202 51,109,978
--------------
84,245,782
--------------
MEDIA -- 0.8%
Central Newspapers, Inc. (Class "A" Stock)...... 217,600 16,088,800
Houghton Mifflin Co............................. 255,200 9,793,300
Knight-Ridder, Inc.............................. 253,000 13,156,000
Lee Enterprises, Inc............................ 221,400 6,545,137
--------------
45,583,237
--------------
MEDICAL INSTRUMENTS -- 0.3%
Arterial Vascular Engineering, Inc. (a)......... 280,000 18,200,000
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
METALS-FERROUS -- 0.6%
Bethlehem Steel Corp. (a)....................... 958,000 $ 8,262,750
LTV Corp........................................ 892,000 8,697,000
Material Sciences Corp. (a)..................... 421,800 5,140,687
National Steel Corp. (Class "B" Stock) (a)...... 183,200 2,118,250
USX-U.S. Steel Group............................ 265,100 8,284,375
--------------
32,503,062
--------------
METALS-NON FERROUS -- 0.8%
Aluminum Company of America..................... 632,400 44,505,150
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
Coltec Industries, Inc. (a)..................... 190,000 4,405,625
Donaldson, Co................................... 237,800 10,715,862
IDEX Corp....................................... 261,500 9,119,813
Mark IV Industries, Inc......................... 376,900 8,244,688
Trinity Industries, Inc......................... 227,000 10,129,875
Wolverine Tube, Inc. (a)........................ 164,600 5,102,600
York International Corp......................... 117,200 4,636,725
--------------
52,355,188
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.5%
Eastman Kodak Co................................ 120,000 7,297,500
Unilever N.V., ADR (United Kingdom)............. 334,000 20,854,125
--------------
28,151,625
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.5%
CBS Corp........................................ 892,600 26,275,913
--------------
OIL & GAS -- 3.0%
Basin Exploration, Inc. (a)..................... 75,700 1,343,675
Cabot Oil & Gas Corp. (Class "A" Stock)......... 385,700 7,497,044
Cross Timbers Oil Co............................ 417,400 10,408,913
Elf Aquitaine SA, ADR (France).................. 544,200 31,903,725
Enron Oil & Gas Co.............................. 210,600 4,462,088
Murphy Oil Corp................................. 120,900 6,551,269
Noble Affiliates, Inc........................... 426,300 15,027,075
Pioneer Natural Resources Co.................... 1,426,731 41,286,028
Seagull Energy Corp. (a)........................ 260,200 5,366,625
Total SA (Class "B" Stock) (France)............. 179,200 9,945,600
Unocal Corp..................................... 550,500 21,366,281
Western Gas Resources, Inc...................... 448,500 9,923,063
--------------
165,081,386
--------------
OIL & GAS SERVICES -- 3.0%
Apache Corp..................................... 704,200 24,691,013
Halliburton Co.................................. 844,100 43,840,444
J. Ray McDermott, SA (a)........................ 713,300 30,671,900
McDermott International, Inc.................... 1,345,700 49,286,263
Oryx Energy Co. (a)............................. 537,500 13,706,250
--------------
162,195,870
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 360,900 4,601,475
--------------
REAL ESTATE DEVELOPMENT -- 0.7%
Crescent Operating, Inc. (a).................... 71,240 1,745,380
Crescent Real Estate Equities, Inc.............. 712,400 28,050,750
Equity Residential Properties Trust............. 160,000 8,090,000
--------------
37,886,130
--------------
RETAIL -- 6.4%
Bombay Company, Inc. (a)........................ 605,900 2,802,288
Borders Group, Inc. (a)......................... 927,500 29,042,344
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B18
<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Charming Shoppes, Inc. (a)...................... 3,532,600 $ 16,559,063
Consolidated Stores Corp. (a)................... 661,800 29,077,838
Costco Companies, Inc. (a)...................... 526,000 23,472,750
CVS Corp........................................ 223,000 14,285,938
Designs, Inc. (a)............................... 216,200 648,600
Dillards, Inc. (Class "A" Stock)................ 138,100 4,868,025
Federated Department Stores, Inc. (a)........... 342,800 14,761,825
Home Depot, Inc................................. 390,000 22,961,250
Jan Bell Marketing, Inc. (a).................... 658,700 1,646,750
K mart Corp. (a)................................ 2,646,900 30,604,781
Kroger Co. (a).................................. 575,200 21,246,450
Liz Claiborne, Inc.............................. 391,300 16,361,231
Phillips-Van Heusen Corp........................ 412,600 5,879,550
Rite Aid Corp................................... 341,400 20,035,913
Safeway, Inc. (a)............................... 576,300 36,450,975
Tandy Corp...................................... 203,800 7,859,038
The Limited, Inc................................ 837,400 21,353,700
The TJX Companies, Inc.......................... 637,200 21,903,750
Toys 'R' Us, Inc. (a)........................... 379,600 11,933,675
--------------
353,755,734
--------------
RUBBER -- 0.2%
Goodyear Tire & Rubber Co....................... 170,800 10,867,150
--------------
TELECOMMUNICATIONS -- 1.6%
Alcatel Alsthom, ADR (France)................... 543,800 13,764,938
Deutsche Telekom, ADR (Germany)................. 196,100 3,652,363
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 1,242,000 32,292,000
Tellabs, Inc. (a)............................... 422,500 22,339,688
WorldCom, Inc................................... 579,500 17,529,875
--------------
89,578,864
--------------
TEXTILES -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 316,400 8,107,750
Pillowtex Corp.................................. 78,333 2,731,856
Tultex Corp. (a)................................ 384,400 1,561,625
--------------
12,401,231
--------------
TOBACCO -- 1.0%
Bat Industries, PLC, ADR (United Kingdom)....... 458,600 8,598,750
Phillip Morris Co. Inc.......................... 1,034,900 46,893,906
--------------
55,492,656
--------------
TOYS -- 0.5%
Mattel, Inc..................................... 672,700 25,058,075
--------------
TRUCKING/SHIPPING -- 0.1%
Yellow Corp. (a)................................ 189,400 4,758,675
--------------
TOTAL COMMON STOCKS
(cost $2,741,915,742).......................................... 3,159,008,020
--------------

PREFERRED STOCKS -- 0.5%
FINANCIAL SERVICES -- 0.5%
Central Hispano Corp............................ 1,000,000 26,000,000
--------------
(cost $25,440,000)
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS -- 35.8% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 2,875 $ 3,054,687
--------------
AIRLINES -- 2.3%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 24,379,695
10.375%, 02/01/11 (c)......................... Ba1 25,750 33,388,737
United Airlines, Inc.,
6.126%, 03/02/04.............................. Aa2 8,000 7,988,000
9.75%, 08/15/21............................... Baa3 10,125 12,956,659
10.67%, 05/01/04.............................. Baa3 19,500 23,372,310
11.21%, 05/01/14.............................. Baa3 17,500 24,540,425
--------------
126,625,826
--------------
APPAREL MANUFACTURING -- 0.4%
Nine West Group, Inc.,
8.375%, 08/15/05.............................. Ba2 25,000 23,937,500
--------------
ASSET-BACKED SECURITIES -- 0.4%
California Infrastructure,
6.17%, 03/25/03............................... Aaa 4,000 4,012,400
MBNA Master Credit Card Trust,
5.976%, 11/15/02.............................. Aaa 1,000 1,000,312
Standard Credit Card Master Trust,
5.95%, 10/07/04 (b)........................... Aaa 4,500 4,453,560
--------------
9,466,272
--------------
BANKS AND SAVINGS & LOANS -- 5.5%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 5,500 5,492,850
Banc One Corp.,
5.876%, 09/30/99.............................. Aa3 5,000 5,010,400
Banco Ganadero, SA, (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,500,750
Bangkok Bank, (Thailand),
7.25%, 09/15/05 (b)........................... Ba1 10,000 7,452,800
8.25%, 03/15/16............................... Ba1 7,500 5,250,000
8.375%, 01/15/27 (b).......................... Ba1 43,000 25,198,430
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 5,400 5,413,500
Bank of Boston N.A.,
5.973%, 01/25/99.............................. A2 2,500 2,507,600
Bankers Trust New York Corp.,
5.813%, 08/06/00.............................. A2 2,500 2,495,000
BT Securities Corp.,
6.125%, 02/24/00.............................. A3 5,000 4,955,000
Capital One Bank,
6.844%, 06/13/00.............................. Baa3 23,900 24,225,757
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 5,000 5,000,000
Chemical Banking,
6.075%, 02/28/00.............................. Aa3 6,000 6,009,240
Citicorp, M.T.N.,
6.045%, 05/15/00.............................. Aa3 10,000 10,031,800
First Chicago NBD Corp.,
5.986%, 06/10/02.............................. A1 10,000 9,989,600
Great Western Financial,
8.206%, 02/01/27.............................. Baa2 14,200 15,060,804
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B19
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CONSULTING -- 0.3%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 $ 12,500 $ 12,513,250
6.375%, 11/30/01.............................. Baa1 2,700 2,700,000
--------------
15,213,250
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 4,000 4,004,080
--------------
FINANCIAL SERVICES -- 5.3%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 10,000 9,600,000
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Caterpillar Financial Services,
5.829%, 04/10/00.............................. A2 5,000 5,011,850
Conseco, Inc.,
8.70%, 11/15/26 (c)........................... Baa3 32,538 36,378,552
8.796%, 04/01/27.............................. Ba2 29,000 32,368,930
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 20,700 20,797,290
6.95%, 03/01/04............................... Baa2 7,500 7,650,000
7.00%, 06/15/00............................... Baa3 13,500 13,769,460
Ford Credit Europe PLC,
6.086%, 12/20/99.............................. A1 10,000 10,010,000
General Motors Acceptance Corp., M.T.N.,
5.813%, 10/30/00.............................. A3 10,000 9,941,250
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 10,000 9,937,500
6.40%, 08/30/00 (c)........................... Baa1 93,250 93,133,437
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 23,100 24,486,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
--------------
290,489,844
--------------
FOOD & BEVERAGE -- 0.5%
Archer Daniels,
6.95%, 12/15/2097............................. Aa3 19,700 19,956,888
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 5,000 5,008,650
--------------
24,965,538
--------------
FOREST PRODUCTS -- 0.4%
UPM-Kymmene Corp.,
7.45%, 11/26/27............................... Baa1 23,400 24,014,250
--------------
INVESTMENT BANKING -- 1.9%
Merrill Lynch Pierce, Fenner & Smith, Inc.,
5.935%, 11/14/00.............................. A3 10,000 9,966,250
Morgan Stanley Group, Inc.,
5.869%, 12/19/01.............................. A1 5,000 4,987,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B20
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 1.9%
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 $ 4,000 $ 1,920,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 57,000 59,689,830
7.75%, 04/01/07............................... Ba1 20,000 21,477,800
7.75%, 04/01/27............................... Ba1 6,000 6,592,560
8.875%, 01/15/06.............................. Ba1 16,000 17,214,720
--------------
106,894,910
--------------
TOBACCO -- 2.4%
Philip Morris Co. Inc.,
7.20%, 02/01/07............................... A2 10,000 10,318,900
7.50%, 04/01/04............................... A2 50,000 52,363,500
RJR Nabisco, Inc.,
8.50%, 07/01/07............................... Baa3 12,750 13,592,138
8.75%, 04/15/04............................... Baa3 5,000 5,352,750
8.75%, 08/15/05............................... Baa3 12,500 13,486,625
8.75%, 07/15/07............................... Baa3 25,000 27,110,750
9.25%, 08/15/13............................... Baa3 7,000 7,854,350
--------------
130,079,013
--------------
UTILITIES -- 1.4%
Cleveland Electric Illumination,
7.88%, 11/01/17............................... Ba1 27,000 28,503,900
Consolidated Edison,
5.998%, 06/15/02.............................. A1 7,000 7,014,420
Hyder PLC, (United Kingdom),
6.75%, 12/15/17............................... Baa1 5,000 5,018,750
6.875%, 12/15/07.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 6,250 5,519,531
Southern California Edison Co.,
6.38%, 09/25/08............................... Aaa 7,000 7,057,400
--------------
78,552,751
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19 (b)..................... 11,800 3,071,658
United States Treasury Bonds,
6.125%, 08/15/07.............................. 10,450 10,739,047
United States Treasury Notes,
5.875%, 09/30/02 (c).......................... 7,650 7,691,846
6.00%, 08/15/00............................... 2,750 2,769,773
6.375%, 08/15/27.............................. 37,910 39,983,298
--------------
64,255,622
--------------
FOREIGN GOVERNMENT BONDS -- 3.4%
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 13,600 12,716,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B21
<PAGE>

SHORT-TERM INVESTMENTS -- 5.8%
ASSET-BACKED SECURITIES -- 0.4%
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,100 1,093,091
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 1,000 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 5,400 5,354,049
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Restructured Asset Securities Enhanced Return,
5.958%, 08/28/98.............................. P1 4,000 4,000,000
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 5,000 5,000,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 $ 2,135 $ 2,118,116
5.88%, 01/29/98............................... P1 1,000 995,590
5.98%, 01/21/98............................... P1 1,225 1,221,134
--------------
23,746,477
--------------
BANK ACCEPTANCE -- 0.1%
Bank of Montreal, (Canada),
5.68%, 02/17/98............................... P1 4,000 3,970,969
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank Michigan,
5.00%, 01/30/98............................... P1 3,000 2,997,534
US Bank, N.A.,
5.830%, 10/21/98.............................. P1 3,000 2,998,073
--------------
10,995,607
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.1%
Taubman Realty Group,
6.519%, 07/27/98.............................. P1 5,500 5,517,710
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 3,000 3,000,157
Westdeutsche Landesbank Girozentral, (Germany),
5.82%, 08/03/98............................... P1 2,000 1,999,096
5.83%, 08/03/98............................... P1 3,000 2,998,731
--------------
7,997,984
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.4%
Canadian Imperial Bank of Commerce, (Canada),
5.80%, 03/02/98............................... P1 1,000 999,485
5.95%, 06/29/98............................... P1 3,500 3,498,858
Credit Agricole Indosuez, (France),
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 5,000 4,998,743
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Societe Generale, (France),
6.19%, 05/06/98............................... P1 4,000 3,999,194
--------------
21,495,497
--------------
COMMERCIAL PAPER -- 1.4%
American General Finance Corp.,
5.72%, 03/13/98............................... P1 2,000 1,977,756
Aon Corp.,
5.79%, 03/13/98............................... P2 1,000 988,742
5.79%, 03/18/98............................... P2 1,048 1,035,358
Associates First Capital Corp.,
5.79%, 02/04/98............................... P1 1,000 994,692
Bank of New York,
5.75%, 02/06/98............................... P1 2,285 2,272,226
Barnett Bank, Inc.,
6.00%, 01/28/98............................... P1 3,000 2,987,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B22
<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
BBL North America,
6.73%, 01/02/98............................... P1 $ 2,393 $ 2,393,000
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 8,000 7,990,542
BP America, Inc.,
6.90%, 01/02/98............................... P1 8,000 8,000,000
Carnival Corp.,
5.83%, 01/30/98............................... P1 1,000 995,466
Duke Capital Corp.,
5.90%, 01/21/98............................... P2 1,900 1,894,084
First Chicago Financial Corp.,
5.73%, 02/26/98............................... P1 2,000 1,982,492
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
General Motors Acceptance Corp.,
5.76%, 02/09/98............................... P1 4,000 3,975,680
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 3,000 2,956,472
5.74%, 04/28/98............................... P1 2,000 1,963,009
Newell Co.,
6.80%, 01/02/98............................... P1 8,000 8,000,000
PHH Corp.,
6.75%, 01/02/98............................... P2 8,000 8,000,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 3,000 2,964,480
Xerox Capital PLC,
5.75%, 02/05/98............................... P1 3,221 3,203,508
6.85%, 01/02/98............................... P1 3,804 3,804,000
Xerox Overseas Holdings PLC,
5.79%, 02/10/98............................... P1 996 989,753
--------------
74,360,343
--------------
FOREIGN GOVERNMENT OBLIGATIONS
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,700 2,727,000
--------------
OTHER CORPORATE OBLIGATIONS -- 0.5%
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,715 2,724,705
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
General Electric Capital Corp.,
13.50%, 01/20/98.............................. P1 3,000 3,010,899
General Motors Acceptance Corp.,
6.00%, 07/13/98............................... P1 1,000 1,000,400
5.786%, 09/21/98.............................. P1 3,500 3,497,158
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 3,500 3,498,798
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co.,
6.34%, 03/09/98............................... P1 $ 1,000 $ 1,000,606
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 1,000 1,000,220
--------------
24,013,723
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bills,
4.95%, 01/15/98 (b)........................... 1,140 1,137,962
5.135%, 01/22/98 (b).......................... 3,000 2,991,442
5.19%, 01/22/98 (b)........................... 1,500 1,495,675
5.195%, 03/19/98 (c).......................... 370 365,942
5.275%, 01/22/98 (b).......................... 800 797,656
--------------
6,788,677
--------------
REPURCHASE AGREEMENT -- 2.5%
Joint Repurchase Agreement Account,
6.53%, 01/02/98
(Note 5).................................... 137,860 137,860,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $319,318,208)...................................................... 319,473,987
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,050,966,053; Note 6)............................................ 5,471,387,547
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (D).............................
(203,828)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 0.3%........................
18,958,375
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,490,142,094
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
L.P. Limited Partnership
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities -- $100,311,229.

(d) Open futures contracts as of December 31, 1997 are as follows:

<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1997 DEPRECIATION
Long positions:
U.S. 5 yr
627 T-Note Mar 98 $67,867,922 $68,107,875 $239,953
865 U.S. T-Bond Mar 98 $103,945,625 $104,205,469 $259,844
Short Position:
1,779 U.S. T-Bond Mar 98 $205,927,125 $207,989,344 $(2,062,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B23
<PAGE>

HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM INVESTMENTS -- 96.2%
<S> <C> <C> <C> <C> <C>
RATING INTEREST MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
CORPORATE BONDS -- 88.7%

<CAPTION>
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 1.4%
Fairchild Corp., Sub. Deb....................... Caa 12.00% 10/15/01 $ 2,571 $ 2,583,855
Sequa Corp., Sr. Sub. Notes..................... B3 9.375% 12/15/03 2,000 2,080,000
Talley Manufacturing & Technology, Inc., Sr.
Notes......................................... B2 10.75% 10/15/03 3,000 3,195,000
--------------
7,858,855
--------------
AUTOMOTIVE PARTS -- 2.1%
JPS Automotive Products Corp., L.P., Sr.
Notes......................................... B2 11.125% 06/15/01 4,000 4,460,000
Stanadyne Automotive, Sr. Sub. Notes............ Caa 10.25% 12/15/07 3,000 3,000,000
Venture Holdings Trust, Sr. Notes............... B2 9.50% 07/01/05 3,700 3,755,500
Walbro Corp., Sr. Notes......................... B2 10.125% 12/15/07 1,000 1,025,000
--------------
12,240,500
--------------
BROADCASTING & OTHER MEDIA -- 4.4%
American Lawyer Media Holdings, Inc., Sr. Disc.
Notes,
Zero Coupon (until 12/15/02).................. B3 12.25% 12/15/08 1,000 565,000
American Lawyer Media Holdings, Inc., Sr.
Notes......................................... B1 9.75% 12/15/07 1,300 1,319,500
Benedek Broadcasting Corp., Sr. Notes........... B2 11.875% 03/01/05 2,910 3,266,475
Capstar Broadcasting, Sr. Sub. Notes............ B2 9.25% 07/01/07 2,000 2,010,000
Globo Communicacoes E Particip., Sr. Notes...... NR 10.50% 12/20/06 2,040 1,963,500
Paxson Communications Corp., Sr. Sub. Notes..... B3 11.625% 10/01/02 2,500 2,700,000
Plitt Theaters, Inc., Sr. Sub. Notes............ B3 10.875% 06/15/04 4,000 4,325,000
Transwestern Publishing, Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... B3 11.875% 11/15/08 3,650 2,190,000
TV Azteca SA DE CV, Sr. Notes................... NR 10.50% 02/15/07 2,850 2,935,500
United Artists Theatre Circuit, Inc., Sr.
Notes......................................... Ba3 11.50% 05/01/02 3,000 3,127,500
Von Hoffman Press, Inc., Sr. Sub. Notes......... B3 10.375% 05/15/07 500 533,750
--------------
24,936,225
--------------
BUILDING & RELATED INDUSTRIES -- 1.8%
EMCOR Group, Inc., Notes........................ NR 11.00% 12/15/01 2,654 2,763,501
Falcon Building Products, Inc., Sr. Sub. Disc.
Notes,
Zero Coupon (until 6/15/02)................... NR 10.50% 06/15/07 1,900 1,254,000
Koppers Industry, Inc., Sr. Sub. Notes.......... B2 9.875% 12/01/07 1,050 1,081,500
Nortek, Inc., Sr. Notes......................... B1 9.125% 09/01/07 2,500 2,518,750
Wickes Lumber Co., Sr. Notes.................... B3 11.625% 12/15/03 3,000 2,865,000
--------------
10,482,751
--------------
CABLE -- 5.2%
CD Radio, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/01/02).............................. NR 12.25% 12/01/07 7,245 3,260,250
Comcast Corp., Sr. Sub. Notes................... B1 10.625% 07/15/12 1,500 1,857,855
Diamond Cable Co., Sr. Disc. Notes, Zero Coupon
(until 9/30/99)............................... B3 13.25% 09/30/04 2,000 1,800,000
Echostar Communications Corp., Sr. Disc. Notes,
Zero Coupon (until 6/01/99)................... Caa 12.25% 06/01/04 3,165 2,895,975
Echostar Satellite, Sr. Disc. Notes, Zero Coupon
(until 3/15/00)............................... B2 13.125% 03/15/04 1,500 1,245,000
Falcon Holdings Group, L.P., Series B, Sr. Sub.
Notes, PIK.................................... B3 11.00% 09/15/03 4,241 4,569,611
Intermedia Capital Partners, Sr. Notes.......... B2 11.25% 08/01/06 3,380 3,751,800
International Cabletel, Inc., Zero Coupon (until
10/15/98)..................................... B3 10.875% 10/15/03 1,500 1,436,250
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/30/01)................... B3 12.75% 04/15/05 4,350 3,654,000
Rogers Cablesystems Inc., Sr. Sec'd. Deb.
(Canada)...................................... Ba3 10.00% 12/01/07 1,000 1,095,000
Rogers Cablesystems, Inc., Sr. Sec'd. Notes
(Canada)...................................... Ba3 10.00% 03/15/05 1,750 1,925,000
Star Choice Communications, Inc., Sr. Notes
(Canada) (b) (cost $1,750,000; purchased
12/18/97)..................................... B3 13.00% 12/15/05 1,750 1,811,250
--------------
29,301,991
--------------
CHEMICALS -- 1.3%
Applied Extrusion Technology, Inc., Sr. Notes... B2 11.50% 04/01/02 1,500 1,597,500
Borden Chemicals & Plastics, L.P., Sr. Notes.... Ba2 9.50% 05/01/05 1,500 1,593,750
Sterling Chemical Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until 8/15/01)............ Caa 13.50% 08/15/08 5,060 3,036,000
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes......................................... B3 11.75% 08/15/06 1,000 1,020,000
--------------
7,247,250
--------------
CONSUMER PRODUCTS -- 3.9%
Coleman Escrow Corp., Sr. Disc. Notes........... B3 Zero 05/15/01 2,250 1,496,250
Coleman Holdings, Sr. Disc. Notes............... Caa Zero 05/15/01 1,500 903,750
French Fragrances, Inc., Sr. Notes.............. NR 10.375% 05/15/07 1,350 1,417,500
Hedstrom Corp., Sr. Disc. Notes, Zero Coupon
(until 6/01/02)............................... Caa 12.00% 06/01/09 400 240,000
Hedstrom Corp., Sr. Sub. Notes.................. B3 10.00% 06/01/07 900 906,750
IHF Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/15/99).............................. Caa 15.00% 11/15/04 2,000 1,740,000
Packaging Resources Group, Sr. Notes............ NR 13.00% 06/30/03 1,864 1,742,606
Radnor Holdings, Sr. Notes...................... B2 10.00% 12/01/03 1,500 1,557,500
Rayovac Corp., Sr. Sub. Notes................... B3 10.25% 11/01/06 2,080 2,267,200
Remington Products Co., Sr. Sub. Notes.......... B3 11.00% 05/15/06 2,500 2,112,500
Sealy Corp., Sr. Disc. Notes, Zero Coupon (until
12/15/02)..................................... B3 10.875% 12/15/07 2,500 1,512,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B24
<PAGE>

DRUGS & HEALTHCARE -- 4.5%
Alliance Imaging, Sr. Sub. Notes................ B3 9.625% 12/15/05 1,500 1,530,000
Community Distributors, Sr. Notes............... B2 10.25% 10/15/04 900 922,500
Dade International, Inc., Sr. Sub. Notes........ B3 11.125% 05/01/06 6,000 6,675,000
Graham-Field Health Products, Inc., Sr. Sub.
Notes......................................... B3 9.75% 08/15/07 2,630 2,741,775
Integrated Health Services, Inc., Sr. Sub.
Notes......................................... B2 9.25% 01/15/08 4,000 4,080,000
Owens & Minor, Inc., Sr. Sub. Notes............. B1 10.875% 06/01/06 3,450 3,829,500
Paracelsus Health, Sr. Sub. Notes............... B1 10.00% 08/15/06 2,750 2,805,000
Paragon Health Networks, Sr. Sub. Notes, Zero
Coupon (until 11/01/02)....................... B3 10.50% 11/01/07 3,000 1,860,000
Tenet Healthcare Corp., Sr. Sub. Notes.......... Ba3 8.625% 01/15/07 1,250 1,290,625
--------------
25,734,400
--------------
ENERGY -- 3.0%
Anker Coal Group, Inc., Sr. Notes............... B3 9.75% 10/01/07 2,900 2,885,500
Clark USA, Inc., Sr. Notes...................... B3 10.875% 12/01/05 1,250 1,360,937
Falcon Drilling Co., Inc., L.P., Series B, Sr.
Sub. Notes.................................... B3 12.50% 03/15/05 2,500 2,856,250
KCS Energy, Inc., Sr. Notes..................... B1 11.00% 01/15/03 4,000 4,380,000
Petroleum Heat & Power, Inc., Sub. Deb.......... B2 9.375% 02/01/06 3,000 2,700,000
Petroleum Heat & Power, Inc., Sub. Deb.......... B2 12.25% 02/01/05 813 827,227
Transamerican Energy Corp., Sr. Disc. Notes,
Zero Coupon (until 6/15/99)................... B3 13.00% 06/15/02 1,300 1,049,750
Transamerican Energy Corp., Sr. Disc. Notes..... B3 11.50% 06/15/02 900 904,500
--------------
16,964,164
--------------
FINANCIAL SERVICES -- 2.4%
AmeriCredit Corp., Sr. Notes.................... B+ 9.25% 02/01/04 2,500 2,500,000
Beaver Valley Funding, Inc., Deb................ B1 8.625% 06/01/07 1,453 1,546,675
Delta Financial Corp., Sr. Notes................ B1 9.50% 08/01/04 1,125 1,116,562
First Nationwide Holdings, Inc., Sr. Notes...... B2 12.50% 04/15/03 2,600 2,951,000
First Nationwide Holdings, Inc., Sr. Sub.
Notes......................................... NR 10.625% 10/01/03 1,600 1,788,000
Korea Development Bank (Korea) Bonds............ A1 6.50% 11/15/02 1,000 801,940
Korea Development Bank (Korea) Bonds............ Ba1 7.00% 07/15/99 900 819,720
Korea Development Bank (Korea) Bonds............ Ba1 7.375% 09/17/04 2,000 1,600,420
Polysindo Int'l. Finance Co., Gtd. Notes,
(Indonesia)................................... Ba3 11.375% 06/15/06 800 648,000
--------------
13,772,317
--------------
FOOD & BEVERAGE -- 2.0%
Curtis-Burns Foods, Inc., Sr. Sub. Notes........ B3 12.25% 02/01/05 2,870 3,142,650
NBTY Inc., Sr. Sub. Notes....................... B1 8.625% 09/15/07 2,000 2,000,000
Pilgrim's Pride Corp., Sr. Sub. Notes........... B3 10.875% 08/01/03 1,951 2,038,795
PSF Holdings, LLC, Notes (b) (cost $255,739;
purchased 9/17/96 and
3/03/97)...................................... NR 11.00% 09/17/03 256 274,919
Specialty Foods Acquisition Corp., Sr. Notes.... B2 10.25% 08/15/01 2,765 2,723,525
Specialty Foods Corp., Sr. Sub. Notes........... Caa 11.25% 08/15/03 1,000 930,000
--------------
11,109,889
--------------
GAMING -- 6.0%
Aztar Corp., Sr. Sub. Notes..................... B2 13.75% 10/01/04 2,000 2,290,000
Blue Chip Casino, Sr. Sub. Notes................ NR 9.50% 09/15/02 2,749 2,061,750
Casino Magic Finance Corp., First Mtge. Bonds... B3 13.00% 08/15/03 4,500 4,275,000
Colorado Gaming & Entertainment, Sr. Notes,
PIK........................................... NR 12.00% 06/01/03 4,026 4,347,799
Fitzgerald Gaming, Sr. Notes.................... B3 12.25% 12/15/04 1,750 1,763,125
Grand Casinos, Inc., Sr. Notes.................. B2 9.00% 10/15/04 1,000 1,005,000
Grand Casinos, Inc., Sr. Notes.................. Ba3 10.125% 12/01/03 3,950 4,266,000
Isle of Capri Black Hawk, LLC, First Mtg.
Notes......................................... B3 13.00% 08/31/04 3,000 3,030,000
Lady Luck Gaming, First Mtge. Notes............. B2 11.875% 03/01/01 3,000 3,045,000
Louisiana Casino Cruises, Inc., Sr. Notes....... NR 11.50% 12/01/98 2,680 2,683,100
Majestic Star Casino, Sr. Notes................. B2 12.75% 05/15/03 2,175 2,332,688
Trump Atlantic City Assoc., First Mtge. Notes... Caa 11.75% 11/15/03 3,000 2,760,000
--------------
33,859,462
--------------
INDUSTRIAL -- 4.5%
Allied Waste North America, Inc., Sr. Sub.
Notes......................................... B2 10.25% 12/01/06 3,000 3,292,500
Clean Harbors, Inc., Sr. Notes.................. B2 12.50% 05/15/01 50 50,000
Continental Global Group, Sr. Notes............. B2 11.00% 04/01/07 1,170 1,246,050
Glasstech, Inc., Sr. Notes...................... NR 12.75% 07/01/04 1,500 1,552,500
ICF Kaiser International, Inc., Sr. Sub.
Notes......................................... B3 12.00% 12/31/03 500 520,625
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B25
<PAGE>

MISCELLANEOUS -- 1.3%
Coinstar, Inc., Sr. Sub. Notes.................. NR 13.00% 10/01/06 2,275 1,797,250
Electronic Retailing Systems, Sr. Disc. Notes,
Zero Coupon (until 2/01/00)................... NR 13.25% 02/01/04 2,000 1,330,000
Interact Systems Inc., Sr. Disc. Notes, Zero
Coupon (until 8/1/99)......................... NR 14.00% 08/01/03 4,400 1,628,000
Kindercare Learning Center, Sr. Sub. Notes...... B3 9.50% 02/15/09 2,500 2,487,500
--------------
7,242,750
--------------
OIL & GAS -- 0.8%
Empire Gas Corp., Sr. Notes..................... Caa 7.00% 07/15/04 5,300 4,743,500
--------------

PAPER/PACKAGING -- 7.1%
APP Int'l. Finance Co., Sr. Notes (b) (cost
$4,093,123; purchased 2/11/97 and 2/20/97).... Ba3 11.75% 10/01/05 3,750 3,468,750
Consumers Int'l., Sr. Notes..................... Ba3 10.25% 04/01/05 2,700 2,943,000
Envirodyne Industries, Sr. Disc. Notes.......... B1 12.00% 06/15/00 4,600 4,922,000
Gaylord Container Corp., Sr. Notes.............. B 9.75% 06/15/07 2,100 2,026,500
Gaylord Container Corp., Sr. Sub. Disc. Notes... Caa 12.75% 05/15/05 4,365 4,670,550
Maxxam Group Holdings, Inc., Sr. Notes.......... NR 12.00% 08/01/03 4,000 4,320,000
Pacific Lumber Co., Sr. Notes................... B3 10.50% 03/01/03 4,875 5,045,625
SD Warren Co., Sr. Sub. Notes................... B1 12.00% 12/15/04 2,500 2,793,750
Silgan Holdings, Inc., Sub. Deb................. NR 13.25% 07/15/06 3,149 3,597,733
Stone Container, Sr. Sub. Notes................. B3 12.25% 04/01/02 1,300 1,316,250
U.S. Timberlands Klamath Fall, LLC, Sr. Notes... B1 9.625% 11/15/07 2,250 2,328,750
United Stationer Supply Co., Sr. Sub. Notes..... B3 12.75% 05/01/05 2,667 3,033,713
--------------
40,466,621
--------------
PUBLISHING -- 1.5%
American Banknote Corp., Sr. Sub. Notes......... B3 11.25% 12/01/07 4,000 4,010,000
Sullivan Graphics, Inc., Sr. Sub. Notes......... Caa 12.75% 08/01/05 4,500 4,545,000
--------------
8,555,000
--------------
RESTAURANTS -- 1.1%
American Restaurant, Sr. Notes.................. NR 13.00% 09/15/98 694 672,893
Flagstar Corp., Sr. Notes....................... B2 10.75% 09/15/01 3,000 3,337,500
FRI-MRD Corp., Sr. Disc. Notes, Zero Coupon
(until 8/1/99)................................ NR 15.00% 01/24/02 3,000 2,497,500
--------------
6,507,893
--------------
RETAIL -- 7.8%
Barry's Jewelers, Inc., Sr. Notes (b) (cost
$603,980; purchased 2/13/97).................. B3 11.00% 12/22/00 750 450,000
County Seat Stores, Inc., Sr. Notes (b) (cost
$2,750,000; purchased 10/23/97)............... NR 12.75% 11/01/04 2,750 2,832,500
Duane Reade Corp., Sub. Notes, Zero Coupon
(until 9/15/99)............................... Caa 15.00% 09/15/04 7,840 6,546,400
Edison Brothers, Inc., Sr. Notes................ NR 11.00% 01/01/07 3,000 2,700,000
Hechinger Co., Sr. Notes........................ B2 6.95% 10/15/03 4,125 2,928,750
Jitney-Jungle Stores America, Inc., Sr. Notes... B2 12.00% 03/01/06 2,000 2,270,000
Kmart Corp., Deb................................ Ba3 8.25% 01/01/22 3,250 3,152,500
Kmart Corp., Deb................................ Ba3 8.375% 07/01/22 2,500 2,437,500
Leslie's Poolmart, Sr. Notes.................... NR 10.375% 07/15/04 2,500 2,600,000
Merisel, Inc., Sr. Notes........................ Ca 12.50% 12/31/04 3,250 3,640,000
New Sassco, Inc., Sr. Notes..................... NR 12.75% 05/01/04 7,171 7,592,296
Pamida, Inc., Sr. Notes......................... B3 11.75% 03/15/03 2,500 2,562,500
Phar-Mor, Inc., Sr. Notes....................... B3 11.72% 09/11/02 4,564 4,792,200
--------------
44,504,646
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B26
<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
STEEL & METAL -- 3.3%
Earle M. Jorgensen Co., Sr. Notes............... B3 10.75% 03/01/00 $ 3,250 $ 3,347,500
Ladish Company, Inc., Sr. Sub. Notes............ NR 12.00% 12/22/00 517 521,841
Northwestern Steel & Wire, Sr. Notes............ B3 9.50% 06/15/01 1,000 970,000
Pohang Iron & Steel, Sr. Notes.................. Ba1 6.625% 07/01/03 2,000 1,544,040
Sheffield Steel Corp., First Mtg. Notes......... Caa 11.50% 12/01/05 3,500 3,640,000
WCI Steel, Inc. Sr. Notes....................... B2 10.00% 12/01/04 4,000 4,090,000
Wheeling-Pittsburgh Corp., Sr. Notes............ B2 9.25% 11/15/07 4,625 4,463,125
--------------
18,576,506
--------------
SUPERMARKETS -- 1.7%
Homeland Stores, Inc., Notes.................... NR 10.00% 08/01/03 4,181 3,762,900
Pantry, Inc., Sr. Sub. Notes.................... B3 10.25% 10/15/07 2,800 2,870,000
Shoppers Food Warehouse Corp., Sr. Notes........ NR 9.75% 06/15/04 2,500 2,550,000
Southland Corp., Sr. Notes...................... B3 12.00% 06/15/09 500 500,000
--------------
9,682,900
--------------
TECHNOLOGY -- 1.2%
Details Holdings Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... Caa 11.875% 11/15/07 1,300 760,500
Details, Inc., Sr. Sub. Notes................... B3 10.00% 11/15/05 1,000 1,027,500
DII Group, Sr. Sub. Notes....................... B1 8.50% 09/15/07 2,000 1,965,000
Unisys Corp., Sr. Notes......................... B1 11.75% 10/15/04 2,500 2,862,500
--------------
6,615,500
--------------
TELECOMMUNICATIONS -- 15.0%
Cellnet Data Systems, Inc., Sr. Disc. Notes (b),
Zero Coupon (until 10/01/02), (cost
$3,686,306; purchased on various dates:
6/06/95 through 9/24/97)...................... NR 14.00% 10/01/07 7,010 3,119,450
Centennial Cellular Corp., Sr. Notes............ B1 10.125% 05/15/05 2,000 2,170,000
Concentric Network Corp., Sr. Notes............. NR 12.75% 12/15/07 2,500 2,562,500
Crown Castle Int'l Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... B3 11.875% 11/15/07 1,400 875,000
Geotek Communication, Inc., Sr. Disc. Notes,
Zero Coupon (until 7/15/00)................... Caa 15.00% 07/15/05 5,000 2,600,000
GST Telecommunications, Inc., Sr. Disc. Notes,
Series L,
Zero Coupon (until 12/15/00).................. NR 13.875% 12/15/05 5,200 3,978,000
Highway Master Communications, Inc., Sr.
Notes......................................... Caa 13.75% 09/15/05 2,000 2,030,000
Hyperion Telecom, Inc., Sr. Disc. Notes, Zero
Coupon (until 4/01/01)........................ NR 13.00% 04/15/03 1,250 906,250
ICG Holdings Inc., Sr. Sub. Notes, Zero Coupon
(until 9/15/00)............................... NR 13.50% 09/15/05 3,800 3,120,750
Impsat Corp., Gtd. Sr. Notes.................... B2 12.125% 07/15/03 3,500 3,552,500
International Wireless Group, Inc., Sr. Sub.
Notes......................................... NR 11.75% 06/01/05 3,000 3,292,500
Ionica PLC, Sr. Notes........................... NR 13.50% 08/15/06 5,000 4,237,500
McCaw Int'l. Ltd., Sr. Disc. Notes, Zero Coupon
(until 4/15/02)............................... NR 13.00% 04/15/07 2,000 1,165,000
McLeod USA, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/02)............................... B3 10.50% 03/01/07 4,400 3,201,000
Metrocall, Inc., Sr. Sub. Notes................. B2 10.375% 10/01/07 1,250 1,265,625
MGC Communications, Inc., Sr. Notes............. Caa 13.00% 10/01/04 2,950 3,023,750
Microcell Telecommunications, Sr. Disc. Notes,
Zero Coupon (until 6/01/06)................... NR 14.00% 06/01/06 2,000 1,350,000
Netia Holdings, Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. NR 11.25% 11/01/07 3,250 1,852,500
Netia Holdings, Sr. Notes....................... NR 10.25% 11/01/07 1,000 960,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/31/02).................. B3 9.75% 10/31/07 1,500 920,625
Omnipoint Corp., Sr. Notes...................... B3 11.625% 08/15/06 500 531,875
Omnipoint Corp., Sr. Notes...................... B3 11.625% 08/15/06 3,875 4,097,813
PTC Int'l. Finance Co., Zero Coupon (until
7/01/02)...................................... NR 10.75% 07/01/07 2,100 1,344,000
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Series H,
Zero Coupon (until 2/1/00).................... NR 15.00% 02/01/05 6,500 5,557,500
Price Communications Cellular Holdings, Sr.
Disc. Notes, Zero Coupon (until 11/01/02)..... NR 13.50% 08/01/07 2,000 1,280,000
Price Communications Wireless, Inc., Sr. Sub.
Notes......................................... NR 11.75% 07/15/07 2,500 2,712,500
Primus Telecom Group, Sr. Notes................. B3 11.75% 08/01/04 1,500 1,605,000
RCN Corp., Sr. Disc. Notes, Zero Coupon (until
10/15/02)..................................... NR 11.125% 10/15/07 2,200 1,380,500
RCN Corp., Sr. Notes............................ NR 10.00% 10/15/07 1,100 1,141,250
Rogers Cantel, Inc., Sr. Sub. Notes, Zero Coupon
(until 11/30/02).............................. B2 8.80% 10/01/07 4,800 4,776,000
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/1/00)................................ NR 10.50% 11/01/04 4,000 3,095,000
Telesystem Int'l. Wireless, Inc., Sr. Disc.
Notes......................................... Caa 10.50% 11/01/07 1,150 638,250
Telesystem Int'l. Wireless, Inc., Sr. Disc.
Notes, Zero Coupon (until 6/30/02)............ NR 13.25% 06/30/07 1,000 632,500
UNIFI Communications, Inc., Sr. Notes........... NR 14.00% 03/01/04 3,750 3,375,000
Unisite, Inc., Sub. Accrual Note................ NR 13.00% 12/15/04 4,000 4,000,000
USN Communications, Inc., Sr. Disc. Notes, Zero
Coupon (until 8/15/00)........................ Caa 14.625% 08/15/04 1,059 804,840
Vialog Corp., Sr. Notes......................... NR 12.75% 11/15/01 2,000 2,090,000
--------------
85,244,978
--------------
TEXTILES -- 1.6%
Congoleum Corp., Sr. Notes...................... B1 9.00% 02/01/01 945 968,625
Foamex, L.P., Sr. Sub. Notes.................... B3 9.875% 06/15/07 3,700 3,792,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B27
<PAGE>

CONVERTIBLE BONDS -- 0.9%
TELECOMMUNICATIONS
GST Telecommunications, Inc., Sr. Disc. Notes,
Series H,
Zero Coupon (until 12/15/00).................. NR 13.875% 12/15/05 650 624,000
Geotek Communications, Inc...................... Caa 12.00% 02/15/01 2,000 1,500,000
Winstar Communications, Inc., Conv. Notes....... NR 14.00% 10/15/05 2,875 2,961,250
--------------
(cost $4,766,282)......................................................................... 5,085,250
--------------

COMMON STOCKS (A) -- 0.2% SHARES
-------------
Cellnet Data Systems, Inc. (b) (cost $170;
purchased 6/23/97)............................ 34,000 263,500
Coinstar, Inc................................... 6,300 57,488
Dr. Pepper Bottling Holdings, Inc., (Class "B"
Stock)........................................ 5,807 119,044
Hedstrom Holding Co............................. 24,261 30,326
Intermedia Communications, PIK.................. 1,132 68,769
Loehmann's Holdings, Inc........................ 4,403 25,317
Pagemart Nationwide, Inc........................ 13,125 118,125
PM Holdings Corp................................ 1,103 579,075
PSF Holdings, LLC (b)/(c) (cost $757,452;
purchased 9/17/96)............................ 22,025 726,825
--------------
TOTAL COMMON STOCKS
(cost $804,909)................................................ 1,988,469
--------------

PREFERRED STOCKS -- 5.9%
Adelphia Communications, Inc.................... 52,500 6,221,250
American Communication Services, Inc............ 4,643 467,827
AmeriKing, Inc.................................. 19,990 539,730
BioSafe International, Inc...................... 7,219 1,925,091
Cablevision Systems Corp., Series L, PIK........ 1 9,240
California Federal Bancorp, Inc................. 100,000 2,625,000
Chancellor Media Corp........................... 17,058 2,046,960
Clark USA, Inc.................................. 4,750 503,500
EchoStar Communications, Inc.................... 35,534 3,660,018
Fitzgerald Gaming, Inc.......................... 50,000 1,561,500
Geneva Steel, Inc............................... 18,000 1,350,000
Hyperion Telecommunications..................... 5,659 570,178
ICG Communications, Inc......................... 11,085 1,274,758
Intermedia Comm., PIK........................... 76,084 932,029
Intermedia Communications....................... 90,000 2,542,500
Pantry Pride, Inc. (Ex. Pfd.; Class "B"
Stock)........................................ 25,000 2,525,000
Paxson Communications, Inc...................... 20,000 2,010,000
Petroleum Heat & Power, Inc..................... 80,000 1,600,000
Viasystems, Inc................................. 40,800 835,003
Von Hoffman Press, Inc.......................... 20,000 625,000
--------------
TOTAL PREFERRED STOCKS
(cost $33,395,215)............................................. 33,824,584
--------------

WARRANTS (A) -- 0.5% UNITS
-------------
American Banknote Corp., expiring 12/01/02...... 4,000 0
American Telecasting, Inc., expiring 08/10/00... 6,500 65
Cellnet Data Systems, Inc., expiring 01/01/49
(b) (cost $0; purchased 9/24/97 and
9/29/97)...................................... 7,010 140,200
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B28
<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
WARRANTS (A) (CONTINUED) UNITS (NOTE 2)
------------- --------------
<S> <C> <C>
Cellular Communications Int'l., Inc., expiring
08/15/03...................................... 4,375 $ 87,500
Clearnet Communications, Inc., expiring
09/15/05...................................... 26,202 235,818
Cocentric Network Corp., expiring 01/01/49...... 2,500 0
County Seat Stores, Inc., expiring 01/01/49 (b)
(cost $0; purchased 10/23/97)................. 2,750 0
Discovery Zone, Inc., expiring 01/01/49......... 2,000 0
Electronic Retailing Systems, expiring
01/01/49...................................... 2,000 40,000
Fitzgerald Gaming, Inc., expiring 12/19/98...... 62,701 0
Foamex - JPS Automotive, expiring 07/01/99...... 2,000 40,000
Glasstech, Inc., expiring 06/30/04.............. 1,500 1,500
Globalstar Capital Co., expiring 02/15/04....... 1,200 122,400
Highwaymaster Communications, Inc., expiring
01/01/49...................................... 2,000 24,000
Hyperion Telecommunications Corp., expiring
04/15/01...................................... 4,250 255,000
ICF Kaiser International, Inc., expiring
12/31/98...................................... 500 0
ICG Communications, Inc., expiring 09/15/05..... 20,790 301,455
Interact Systems, Inc., expiring 08/01/03....... 4,400 550
Intermedia Communications of Florida, Inc.,
expiring 06/01/00 (b) (cost $0; purchased
5/25/95)...................................... 3,000 330,000
McCaw Int'l. Ltd., expiring 01/01/49............ 2,000 5,000
MGC Communications, Inc., expiring 01/01/49..... 2,950 0
Nextel Communications
expiring 12/15/98 (b) (cost $0; purchased
12/16/93).................................... 1,543 417
expiring 04/05/99 (b) (cost $0; purchased
4/15/94)..................................... 2,250 6,750
Pagemart, Inc., expiring 11/01/03............... 9,200 69,000
Powertel, Inc., expiring 02/01/06............... 6,720 63,840
President Riverboat Casinos, expiring
09/30/99...................................... 22,075 883
Price Communications Cellular Holdings, expiring
08/01/07...................................... 6,880 69
Primus Telecom Group, expiring 08/01/07......... 1,500 15,000
Star Choice Communications, Inc., expiring
12/15/05 (b) (cost $0; purchased 12/18/97).... 40,530 405
Sterling Chemical Holdings, Inc., expiring
08/15/08...................................... 560 16,800
Unifi Communications, expiring 03/01/04......... 3,750 75,000
Unisite, Inc., expiring 12/15/04................ 1,943 0
USN Communications, Inc., expiring 01/01/49..... 10,590 0
Vialog Corp., expiring 01/01/49................. 2,000 0
--------------
TOTAL WARRANTS
(cost $237,500)................................................ 1,831,652
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $536,082,633)............................................ 547,010,784
--------------
</TABLE>

<TABLE>
<CAPTION>
INTEREST MATURITY PRINCIPAL
SHORT-TERM INVESTMENT -- 2.8% RATE DATE (000)
------ -------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account.............. 6.53% 01/02/98 $ 15,691 15,691,000
--------------
(cost $15,691,000; Note 5)
TOTAL INVESTMENTS -- 98.9%
(cost $551,773,633; Note 6)................................................... 562,701,784
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.1%................................... 5,973,294
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 568,675,078
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
LP Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities

(a) Non-income producing security
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $16,995,840. The aggregate value, $13,424,966 is
approximately 2.4% of net assets.
(c) Indicates a fair valued security.

SEE NOTES TO FINANCIAL STATEMENTS.

B29
<PAGE>

STOCK INDEX PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.0%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.8%
Aeroquip-Vickers, Inc........................... 8,300 $ 407,219
AlliedSignal, Inc............................... 175,600 6,837,425
Boeing Co....................................... 311,336 15,236,005
General Dynamics Corp........................... 19,400 1,676,887
Lockheed Martin Corp............................ 60,149 5,924,676
Northrop Grumman Corp........................... 20,600 2,369,000
Parker-Hannifin Corp............................ 35,225 1,615,947
Raytheon Co. (Class "A" Stock).................. 14,418 711,007
Raytheon Co. (Class "B" Stock).................. 72,900 3,681,450
United Technologies Corp........................ 73,000 5,315,312
--------------
43,774,928
--------------
AIRLINES -- 0.4%
AMR Corp. (a)................................... 28,500 3,662,250
Delta Air Lines, Inc............................ 23,000 2,737,000
Southwest Airlines Co........................... 68,100 1,676,962
USAir Group, Inc. (a)........................... 29,000 1,812,500
--------------
9,888,712
--------------
AUTOS - CARS & TRUCKS -- 2.0%
Chrysler Corp................................... 208,500 7,336,594
Cummins Engine Co., Inc......................... 12,200 720,562
Dana Corp....................................... 33,400 1,586,500
Echlin, Inc..................................... 18,700 676,706
Ford Motor Co................................... 372,700 18,145,831
General Motors Corp............................. 226,100 13,707,312
Genuine Parts Co................................ 54,425 1,847,048
Johnson Controls, Inc........................... 26,400 1,260,600
Navistar International Corp. (a)................ 23,400 580,612
PACCAR, Inc..................................... 23,960 1,257,900
Safety Kleen Corp............................... 17,350 476,041
TRW, Inc........................................ 38,600 2,060,275
--------------
49,655,981
--------------
BANKS AND SAVINGS & LOANS -- 8.1%
Banc One Corp................................... 180,694 9,813,943
Bank of New York Co., Inc....................... 117,300 6,781,406
BankAmerica Corp................................ 216,096 15,775,008
BankBoston Corp................................. 44,800 4,208,400
Bankers Trust NY Corp........................... 30,900 3,474,319
Barnett Banks, Inc.............................. 61,600 4,427,500
BB&T Corp....................................... 41,900 2,684,219
Chase Manhattan Corp............................ 131,247 14,371,546
Citicorp........................................ 142,100 17,966,769
Comerica, Inc................................... 32,900 2,969,225
CoreStates Financial Corp....................... 65,000 5,204,062
First Chicago NBD Corp.......................... 92,015 7,683,252
First Union Corp................................ 194,550 9,970,687
Fleet Financial Group, Inc...................... 77,600 5,815,150
Golden West Financial Corp...................... 17,600 1,721,500
H.F. Ahmanson & Co.............................. 30,700 2,054,981
Huntington Bancshares, Inc...................... 58,600 2,109,600
KeyCorp......................................... 67,400 4,772,762
Mellon Bank Corp................................ 78,200 4,740,875
Morgan (J.P.) & Co., Inc........................ 55,450 6,258,919
National City Corp.............................. 66,600 4,378,950
NationsBank Corp................................ 220,526 13,410,737
Norwest Corp.................................... 233,600 9,022,800
PNC Bank Corp................................... 95,500 5,449,469
Providian Financial Corp........................ 29,300 1,323,994
Republic New York Corp.......................... 17,100 1,952,606
Suntrust Banks, Inc............................. 65,800 4,696,475
Synovus Financial Corp.......................... 53,700 1,758,675
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
U.S. Bancorp.................................... 75,642 $ 8,467,176
Wachovia Corp................................... 63,400 5,143,325
Wells Fargo & Co................................ 27,166 9,221,159
--------------
197,629,489
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................... 45,900 1,626,581
Omnicom Group, Inc.............................. 30,000 1,271,250
--------------
2,897,831
--------------
CHEMICALS -- 2.0%
Air Products & Chemicals, Inc................... 33,700 2,771,825
Dow Chemical Co................................. 70,300 7,135,450
E.I. du Pont de Nemours & Co.................... 352,100 21,148,006
Eastman Chemical Co............................. 23,600 1,405,675
FMC Corp. (a)................................... 11,200 753,900
Hercules, Inc................................... 30,400 1,521,900
Monsanto Co..................................... 183,700 7,715,400
Nalco Chemical Co............................... 20,900 826,856
Rohm & Haas Co.................................. 18,700 1,790,525
Sigma-Aldrich Corp.............................. 31,400 1,248,150
Union Carbide Corp.............................. 38,200 1,640,212
--------------
47,957,899
--------------
CHEMICALS - SPECIALTY -- 0.3%
Engelhard Corp.................................. 46,975 816,191
Great Lakes Chemical Corp....................... 17,700 794,287
Morton International, Inc....................... 42,400 1,457,500
Praxair, Inc.................................... 48,500 2,182,500
Raychem Corp.................................... 26,800 1,154,075
W.R. Grace & Co................................. 24,300 1,954,631
--------------
8,359,184
--------------
COMMERCIAL SERVICES -- 0.4%
Cendant Corp. (a)............................... 245,719 8,446,582
Deluxe Corp..................................... 24,800 855,600
John H. Harland Co.............................. 7,400 155,400
Moore Corp., Ltd................................ 25,900 391,737
--------------
9,849,319
--------------
COMPUTER SERVICES -- 4.5%
3Com Corp. (a).................................. 110,000 3,843,125
Adobe Systems, Inc.............................. 21,700 895,125
Autodesk, Inc................................... 14,300 529,100
Automatic Data Processing, Inc.................. 91,100 5,591,262
Bay Networks, Inc. (a).......................... 63,900 1,633,444
Cabletron Systems, Inc. (a)..................... 47,900 718,500
Ceridian Corp. (a).............................. 24,800 1,136,150
Cisco Systems, Inc. (a)......................... 313,100 17,455,325
Computer Associates International, Inc.......... 169,643 8,969,874
Computer Sciences Corp. (a)..................... 24,200 2,020,700
EMC Corp. (a)................................... 154,000 4,225,375
First Data Corp................................. 138,300 4,045,275
Microsoft Corp.................................. 375,200 48,494,600
Novell, Inc. (a)................................ 104,900 786,750
Oracle Corp. (a)................................ 303,587 6,773,785
Parametric Technology Corp. (a)................. 39,700 1,880,787
Siebel Systems, Inc. (a)........................ 72 3,010
Silicon Graphics, Inc. (a)...................... 53,600 666,650
--------------
109,668,837
--------------
COMPUTERS -- 3.4%
Apple Computer, Inc. (a)........................ 37,700 494,812
Compaq Computer Corp............................ 235,285 13,278,897
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B30
<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Dell Computer Corp. (a)......................... 102,700 $ 8,626,800
Digital Equipment Corp. (a)..................... 47,900 1,772,300
Hewlett-Packard Co.............................. 323,800 20,237,500
International Business Machines Corp............ 304,400 31,828,825
Seagate Technology, Inc. (a).................... 76,000 1,463,000
Sun Microsystems, Inc. (a)...................... 115,000 4,585,625
--------------
82,287,759
--------------
CONSTRUCTION -- 0.1%
Fluor Corp...................................... 26,600 994,175
Foster Wheeler Corp............................. 12,000 324,750
Kaufman & Broad Home Corp....................... 11,866 266,243
Pulte Corp...................................... 6,400 267,600
--------------
1,852,768
--------------
CONSTRUCTION & HOUSING -- 0.0%
Centex Corp..................................... 8,800 553,850
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 9,100 321,344
Bemis Co., Inc.................................. 17,200 757,875
Crown Cork & Seal Co., Inc...................... 39,600 1,984,950
Owens-Illinois, Inc. (a)........................ 44,100 1,673,044
Stone Container Corp. (a)....................... 31,266 326,339
--------------
5,063,552
--------------
COSMETICS & SOAPS -- 1.8%
Alberto Culver Co. (Class "B" Stock)............ 17,400 557,887
Avon Products, Inc.............................. 41,300 2,534,787
Colgate Palmolive Co............................ 92,000 6,762,000
International Flavors & Fragrances, Inc......... 33,200 1,709,800
Procter & Gamble Co............................. 418,404 33,393,869
--------------
44,958,343
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 31,700 1,418,575
Pitney Bowes, Inc............................... 44,700 4,020,206
Unisys Corp. (a)................................ 53,500 742,312
Xerox Corp...................................... 100,646 7,428,933
--------------
13,610,026
--------------
DIVERSIFIED OPERATIONS -- 3.3%
Cognizant Corp.................................. 51,160 2,279,817
Fortune Brands, Inc............................. 53,600 1,986,550
General Electric Co............................. 1,018,000 74,695,750
Whitman Corp.................................... 29,500 768,844
--------------
79,730,961
--------------
DRUGS AND MEDICAL SUPPLIES -- 10.0%
Abbott Laboratories............................. 238,600 15,643,212
Allergan, Inc................................... 19,900 667,894
ALZA Corp. (a).................................. 26,400 839,850
American Home Products Corp..................... 202,200 15,468,300
Amgen, Inc. (a)................................. 82,000 4,438,250
Bausch & Lomb, Inc.............................. 17,400 689,475
Baxter International, Inc....................... 86,800 4,377,975
Becton, Dickinson & Co.......................... 38,500 1,925,000
Biomet, Inc..................................... 33,600 861,000
Boston Scientific Corp. (a)..................... 60,600 2,780,025
Bristol-Myers Squibb Co......................... 309,280 29,265,620
C.R. Bard, Inc.................................. 18,600 582,412
Cardinal Health, Inc............................ 33,700 2,531,712
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Eli Lilly & Co.................................. 344,600 $ 23,992,775
Guidant Corp.................................... 45,900 2,857,275
Johnson & Johnson............................... 418,000 27,535,750
Mallinckrodt, Inc............................... 22,300 847,400
Medtronic, Inc.................................. 145,900 7,632,394
Merck & Co., Inc................................ 374,550 39,795,937
Pfizer, Inc..................................... 402,000 29,974,125
Pharmacia & Upjohn, Inc......................... 158,025 5,787,666
PharMerica, Inc. (a)............................ 15,063 156,279
Schering-Plough Corp............................ 227,700 14,145,862
St. Jude Medical, Inc. (a)...................... 27,800 847,900
United States Surgical Corp..................... 22,600 662,462
Warner-Lambert Co............................... 84,400 10,465,600
--------------
244,772,150
--------------
ELECTRICAL EQUIPMENT -- 0.1%
W.W. Grainger, Inc.............................. 15,800 1,535,562
--------------
ELECTRONICS -- 3.3%
Advanced Micro Devices, Inc. (a)................ 43,200 774,900
AMP, Inc........................................ 69,044 2,899,848
Applied Materials, Inc. (a)..................... 113,400 3,416,175
Data General Corp. (a).......................... 15,500 270,281
EG&G, Inc....................................... 12,900 268,481
Emerson Electric Co............................. 138,100 7,794,019
Harris Corp..................................... 24,800 1,137,700
Honeywell, Inc.................................. 39,000 2,671,500
Intel Corp...................................... 508,800 35,743,200
KLA-Tencor Corp. (a)............................ 26,900 1,039,012
LSI Logic Corp. (a)............................. 43,300 855,175
Micron Technology, Inc. (a)..................... 65,900 1,713,400
Motorola, Inc................................... 186,000 10,613,625
National Semiconductor Corp. (a)................ 50,300 1,304,656
Perkin-Elmer Corp............................... 14,000 994,875
Rockwell International Corp..................... 64,500 3,370,125
Tektronix, Inc.................................. 15,600 619,125
Texas Instruments, Inc.......................... 121,200 5,454,000
Thomas & Betts Corp............................. 17,600 831,600
--------------
81,771,697
--------------
FINANCIAL SERVICES -- 3.8%
American Express Co............................. 144,900 12,932,325
Beneficial Corp................................. 16,100 1,338,312
Countrywide Credit Industries, Inc.............. 33,100 1,419,162
Federal Home Loan Mortgage Corp................. 215,700 9,045,919
Federal National Mortgage Association........... 330,200 18,842,037
Fifth Third Bancorp............................. 47,600 3,891,300
Green Tree Financial Corp....................... 42,100 1,102,494
H & R Block, Inc................................ 32,300 1,447,444
Household International, Inc.................... 33,200 4,235,075
MBNA Corp....................................... 155,212 4,239,228
Merrill Lynch & Co., Inc........................ 103,700 7,563,619
Morgan Stanley, Dean Witter, Discover & Co...... 184,005 10,879,296
Schwab (Charles) Corp........................... 81,400 3,413,712
State Street Corp............................... 49,300 2,868,644
Sunamerica, Inc................................. 60,700 2,594,925
Transamerica Corp............................... 19,800 2,108,700
Washington Mutual Inc........................... 79,920 5,099,895
--------------
93,022,087
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B31
<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOOD & BEVERAGES -- 5.8%
Adolph Coors Co. (Class "B" Stock).............. 11,600 $ 385,700
Anheuser-Busch Companies, Inc................... 153,400 6,749,600
Archer-Daniels-Midland Co....................... 173,537 3,763,584
Brown-Forman Corp. (Class "B" Stock)............ 21,300 1,176,825
Campbell Soup Co................................ 142,000 8,253,750
Coca-Cola Co.................................... 769,100 51,241,287
ConAgra, Inc.................................... 145,800 4,784,062
Corn Products International, Inc................ 11,075 330,173
CPC International, Inc.......................... 44,300 4,773,325
General Mills, Inc.............................. 49,200 3,523,950
Giant Food, Inc. (Class "A" Stock).............. 18,000 606,375
H.J. Heinz & Co................................. 113,450 5,764,678
Hershey Foods Corp.............................. 43,700 2,706,669
Kellogg Co...................................... 127,600 6,332,150
PepsiCo, Inc.................................... 474,400 17,285,950
Pioneer Hi-Bred International, Inc.............. 23,700 2,541,825
Quaker Oats Co.................................. 42,200 2,226,050
Ralston-Ralston Purina Group.................... 33,040 3,070,655
Sara Lee Corp................................... 148,200 8,345,512
Seagram Co., Ltd................................ 115,300 3,725,631
Sysco Corp...................................... 53,600 2,442,150
W. M. Wrigley, Jr. Co........................... 35,900 2,856,294
--------------
142,886,195
--------------
FOREST PRODUCTS -- 0.8%
Boise Cascade Corp.............................. 17,286 522,901
Champion International Corp..................... 29,300 1,327,656
Fort James Corp................................. 65,200 2,493,900
Georgia-Pacific Corp............................ 28,500 1,731,375
Georgia-Pacific Corp. (Timber Group) (a)........ 28,500 646,594
International Paper Co.......................... 93,734 4,042,279
Louisiana-Pacific Corp.......................... 34,200 649,800
Mead Corp....................................... 31,800 890,400
Potlatch Corp................................... 9,000 387,000
Temple-Inland Inc............................... 17,600 920,700
Union Camp Corp................................. 21,700 1,165,019
Westvaco Corp................................... 32,700 1,028,006
Weyerhaeuser Co................................. 61,800 3,032,062
Willamette Industries, Inc...................... 33,800 1,087,937
--------------
19,925,629
--------------
GAS PIPELINES -- 0.5%
Columbia Gas System, Inc........................ 17,300 1,359,131
Consolidated Natural Gas Co..................... 29,100 1,760,550
Enron Corp...................................... 98,700 4,102,219
Peoples Energy Corp............................. 10,200 401,625
Sonat, Inc...................................... 26,600 1,216,950
Williams Companies, Inc......................... 99,600 2,826,150
--------------
11,666,625
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.7%
Columbia/HCA Healthcare Corp.................... 202,798 6,007,891
Healthsouth Corp. (a)........................... 122,400 3,396,600
Humana, Inc. (a)................................ 51,700 1,072,775
Manor Care, Inc................................. 19,050 666,750
Service Corp. International..................... 77,900 2,877,431
Shared Medical Systems Corp..................... 7,400 488,400
Tenet Healthcare Corp. (a)...................... 94,800 3,140,250
--------------
17,650,097
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 1.2%
Clorox Co....................................... 32,100 $ 2,537,906
Gillette Co..................................... 173,800 17,456,037
Kimberly-Clark Corp............................. 173,188 8,540,333
--------------
28,534,276
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 13,100 979,225
Fleetwood Enterprises, Inc...................... 10,900 462,569
Lowe's Companies, Inc........................... 54,400 2,594,200
Masco Corp...................................... 51,300 2,609,887
Maytag Corp..................................... 30,700 1,145,494
Owens Corning................................... 16,900 576,712
Stanley Works................................... 27,800 1,311,812
Tupperware Corp................................. 18,900 526,837
Whirlpool Corp.................................. 23,100 1,270,500
--------------
11,477,236
--------------
INSURANCE -- 4.8%
Aetna, Inc...................................... 46,512 3,282,003
Allstate Corp................................... 134,794 12,249,405
American General Corp........................... 76,986 4,162,056
American International Group, Inc............... 217,855 23,691,731
Aon Corp........................................ 51,350 3,010,394
Chubb Corp...................................... 53,400 4,038,375
CIGNA Corp...................................... 23,000 3,980,437
Cincinnati Financial Corp....................... 17,000 2,392,750
Conseco, Inc.................................... 57,500 2,612,656
General Re Corp................................. 24,550 5,204,600
Hartford Financial Services Group, Inc.......... 36,600 3,424,387
Jefferson-Pilot Corp............................ 21,975 1,711,303
Lincoln National Corp........................... 31,600 2,468,750
Loews Corp...................................... 35,700 3,788,662
Marsh & McLennan Companies, Inc................. 52,400 3,907,075
MBIA, Inc....................................... 27,400 1,830,662
MGIC Investment Corp............................ 35,500 2,360,750
Progressive Corp................................ 22,300 2,673,212
SAFECO Corp..................................... 43,500 2,120,625
St. Paul Companies, Inc......................... 26,300 2,158,244
Torchmark Corp.................................. 42,700 1,796,069
Travelers Group, Inc............................ 356,409 19,201,535
United Healthcare Corp.......................... 57,700 2,866,969
UNUM Corp....................................... 43,200 2,349,000
USF&G Corp...................................... 33,200 732,475
--------------
118,014,125
--------------
LEISURE -- 1.1%
Brunswick Corp.................................. 30,800 933,625
Harrah's Entertainment, Inc. (a)................ 31,150 587,956
Hilton Hotels Corp.............................. 77,100 2,293,725
King World Productions, Inc..................... 11,050 638,137
Mirage Resorts, Inc. (a)........................ 56,200 1,278,550
Walt Disney Co.................................. 210,067 20,809,762
--------------
26,541,755
--------------
LODGING -- 0.2%
ITT Corp. (a)................................... 36,400 3,016,650
Marriott International, Inc..................... 39,700 2,749,225
--------------
5,765,875
--------------
MACHINERY -- 0.9%
Briggs & Stratton Corp.......................... 7,600 369,075
Case Corp....................................... 23,800 1,438,412
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B32
<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Caterpillar, Inc................................ 116,600 $ 5,662,387
Cincinnati Milacron, Inc........................ 12,300 319,031
Cooper Industries, Inc.......................... 37,800 1,852,200
Deere & Co...................................... 78,400 4,571,700
Dover Corp...................................... 68,800 2,485,400
Eaton Corp...................................... 23,700 2,115,225
Harnischfeger Industries, Inc................... 15,000 529,688
Ingersoll-Rand Co............................... 51,850 2,099,925
Snap-On, Inc.................................... 18,700 815,788
Timken Co....................................... 19,200 660,000
--------------
22,918,831
--------------
MANUFACTURING -- 0.5%
Illinois Tool Works, Inc........................ 77,600 4,665,700
Tyco International, Ltd......................... 165,600 7,462,350
--------------
12,128,050
--------------
MEDIA -- 2.6%
CBS Corp........................................ 218,300 6,426,206
Clear Channel Communications, Inc. (a).......... 30,100 2,391,069
Comcast Corp. (Special Class "A" Stock)......... 107,100 3,380,344
Dow Jones & Co., Inc............................ 29,700 1,594,519
Dun & Bradstreet Corp........................... 53,460 1,653,919
Gannett Co., Inc................................ 87,500 5,408,594
HBO & Co........................................ 61,600 2,956,800
Interpublic Group of Companies, Inc............. 38,400 1,912,800
Knight-Ridder, Inc.............................. 27,100 1,409,200
McGraw-Hill, Inc................................ 30,700 2,271,800
Meredith Corp................................... 16,600 592,413
New York Times Co. (Class "A" Stock)............ 29,600 1,957,300
R. R. Donnelley & Sons Co....................... 44,500 1,657,625
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 162,900 4,551,019
Time Warner, Inc................................ 173,940 10,784,280
Times Mirror Co. (Class "A" Stock).............. 29,100 1,789,650
Tribune Co...................................... 38,400 2,390,400
US West Media Group (a)......................... 188,600 5,445,825
Viacom, Inc. (Class "B" Stock) (a).............. 109,567 4,540,183
--------------
63,113,946
--------------
METALS - FERROUS -- 0.2%
Allegheny Teledyne, Inc......................... 55,580 1,438,133
Armco, Inc. (a)................................. 26,700 131,831
Bethlehem Steel Corp. (a)....................... 33,500 288,938
Inland Steel Industries, Inc.................... 15,300 262,013
Nucor Corp...................................... 27,600 1,333,425
USX-U.S. Steel Group............................ 27,340 854,375
Worthington Industries, Inc..................... 29,400 485,100
--------------
4,793,815
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum, Ltd............................. 70,250 1,940,656
Aluminum Company of America..................... 53,900 3,793,213
Cyprus Minerals Co.............................. 28,100 432,038
Inco Ltd........................................ 51,100 868,700
Reynolds Metals Co.............................. 23,400 1,404,000
--------------
8,438,607
--------------
MINERAL RESOURCES -- 0.2%
ASARCO, Inc..................................... 12,500 280,469
Burlington Resources, Inc....................... 54,617 2,447,524
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Echo Bay Mines, Ltd............................. 39,900 $ 97,256
Homestake Mining Co............................. 45,300 402,038
Phelps Dodge Corp............................... 18,900 1,176,525
--------------
4,403,812
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.7%
Browning-Ferris Industries, Inc................. 65,000 2,405,000
Crane Co........................................ 14,150 613,756
Ecolab, Inc..................................... 19,700 1,092,119
General Signal Corp............................. 15,362 648,084
ITT Industries, Inc............................. 36,400 1,142,050
Laidlaw, Inc.................................... 101,500 1,382,938
Millipore Corp.................................. 13,200 447,975
NACCO Industries, Inc. (Class "A" Stock)........ 2,500 267,969
Pall Corp....................................... 39,200 810,950
PPG Industries Inc.............................. 55,500 3,170,438
Textron, Inc.................................... 51,300 3,206,250
Thermo Electron Corp. (a)....................... 46,700 2,078,150
--------------
17,265,679
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.5%
American Greetings Corp. (Class "A" Stock)...... 24,300 950,738
Black & Decker Corp............................. 29,900 1,167,969
Corning, Inc.................................... 71,800 2,665,575
Eastman Kodak Co................................ 101,100 6,148,144
Jostens, Inc.................................... 12,200 281,363
Minnesota Mining & Manufacturing Co............. 128,600 10,553,238
Polaroid Corp................................... 15,100 735,181
Rubbermaid, Inc................................. 46,000 1,150,000
Unilever N.V.................................... 198,800 12,412,575
--------------
36,064,783
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.1%
Tenneco, Inc.................................... 53,600 2,117,200
--------------
OIL & GAS -- 7.0%
Amerada Hess Corp............................... 28,100 1,541,988
Amoco Corp...................................... 152,230 12,958,579
Anadarko Petroleum Corp......................... 18,400 1,116,650
Ashland, Inc.................................... 23,500 1,261,656
Atlantic Richfield Co........................... 99,470 7,970,034
Chevron Corp.................................... 204,000 15,708,000
Coastal Corp.................................... 32,600 2,019,163
Eastern Enterprises............................. 6,400 288,000
Exxon Corp...................................... 767,200 46,943,050
Kerr-McGee Corp................................. 14,800 937,025
Mobil Corp...................................... 243,500 17,577,656
NICOR, Inc...................................... 14,400 607,500
Occidental Petroleum Corp....................... 105,400 3,089,538
Pennzoil Co..................................... 15,000 1,002,188
Phillips Petroleum Co........................... 82,500 4,011,563
Royal Dutch Petroleum Co........................ 666,500 36,115,969
Sun Co., Inc.................................... 22,500 946,406
Texaco, Inc..................................... 174,382 9,482,021
Union Pacific Resources Group, Inc.............. 79,256 1,921,958
Unocal Corp..................................... 77,000 2,988,563
USX-Marathon Group.............................. 89,600 3,024,000
--------------
171,511,507
--------------
OIL & GAS SERVICES -- 1.1%
Apache Corporation.............................. 28,600 1,002,788
Baker Hughes, Inc............................... 51,900 2,264,138
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B33
<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Dresser Industries, Inc......................... 55,000 $ 2,306,563
Halliburton Co.................................. 81,300 4,222,519
Helmerich & Payne, Inc.......................... 7,900 536,213
McDermott International, Inc.................... 16,900 618,963
ONEOK, Inc...................................... 9,800 395,675
Oryx Energy Co. (a)............................. 32,700 833,850
Rowan Companies, Inc. (a)....................... 26,200 799,100
Schlumberger, Ltd............................... 154,100 12,405,050
Western Atlas, Inc. (a)......................... 17,100 1,265,400
--------------
26,650,259
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 115,100 2,143,738
Battle Mountain Gold Corp....................... 71,500 420,063
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock)........................................ 63,000 992,250
Newmont Mining Corp............................. 48,103 1,413,026
Placer Dome, Inc................................ 75,600 959,175
--------------
5,928,252
--------------
RAILROADS -- 0.7%
Burlington Northern, Inc........................ 48,442 4,502,078
CSX Corp........................................ 68,112 3,678,048
Norfolk Southern Corp........................... 116,800 3,598,900
Union Pacific Corp.............................. 76,900 4,801,444
--------------
16,580,470
--------------
REMARKET/LEASING OFFICE EQUIPMENT -- 0.0%
IKON Office Solutions, Inc...................... 41,376 1,163,700
--------------
RESTAURANTS -- 0.5%
Darden Restaurants, Inc......................... 45,900 573,750
McDonald's Corp................................. 213,900 10,213,725
Tricon Global Restaurants, Inc. (a)............. 47,750 1,387,734
Wendy's International, Inc...................... 40,600 976,938
--------------
13,152,147
--------------
RETAIL -- 4.9%
Albertson's, Inc................................ 75,900 3,595,763
American Stores Co.............................. 84,000 1,727,250
AutoZone, Inc. (a).............................. 48,000 1,392,000
Charming Shoppes, Inc. (a)...................... 23,300 109,219
Circuit City Stores, Inc........................ 30,100 1,070,431
Costco Companies, Inc. (a)...................... 66,366 2,961,583
CVS Corp........................................ 54,000 3,459,375
Dayton-Hudson Corp.............................. 68,242 4,606,335
Dillards, Inc. (Class "A" Stock)................ 35,450 1,249,613
Federated Department Stores, Inc. (a)........... 64,900 2,794,756
Great Atlantic & Pacific Tea Co., Inc........... 11,200 332,500
Harcourt General, Inc........................... 21,906 1,199,354
Home Depot, Inc................................. 228,123 13,430,742
J.C. Penney Co., Inc............................ 77,800 4,692,313
Kmart Corp. (a)................................. 150,300 1,737,844
Kroger Co. (a).................................. 78,700 2,906,981
Limited, Inc.................................... 84,248 2,148,324
Liz Claiborne, Inc.............................. 21,600 903,150
Longs Drug Stores, Inc.......................... 11,700 375,863
May Department Stores Co........................ 72,000 3,793,500
Mercantile Stores Co., Inc...................... 11,200 681,800
Newell Co....................................... 49,600 2,108,000
Nike, Inc. (Class "B" Stock).................... 89,900 3,528,575
Nordstrom, Inc.................................. 24,100 1,455,038
Pep Boys-Manny, Moe & Jack...................... 19,300 460,788
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Reebok International, Ltd. (a).................. 17,300 $ 498,456
Rite Aid Corp................................... 39,300 2,306,419
Sears, Roebuck & Co............................. 121,900 5,515,975
Sherwin-Williams Co............................. 53,600 1,487,400
Supervalu, Inc.................................. 20,000 837,500
Tandy Corp...................................... 32,330 1,246,726
The Gap, Inc.................................... 124,650 4,417,284
TJX Companies, Inc.............................. 50,000 1,718,750
Toys 'R' Us, Inc. (a)........................... 89,550 2,815,228
Wal-Mart Stores, Inc............................ 701,900 27,681,181
Walgreen Co..................................... 153,200 4,806,650
Winn Dixie Stores, Inc.......................... 45,900 2,005,256
Woolworth Corp. (a)............................. 42,400 863,900
--------------
118,921,822
--------------
RUBBER -- 0.2%
B.F. Goodrich Co................................ 22,300 924,056
Cooper Tire & Rubber Co......................... 24,600 599,625
Goodyear Tire & Rubber Co....................... 49,300 3,136,713
--------------
4,660,394
--------------
TELECOMMUNICATIONS -- 7.8%
Airtouch Communications, Inc. (a)............... 157,200 6,533,625
Alltel Corp..................................... 57,700 2,369,306
Ameritech Corp.................................. 170,400 13,717,200
Andrew Corp. (a)................................ 27,312 655,488
AT&T Corp....................................... 505,273 30,947,971
Bell Atlantic Corp.............................. 241,895 22,012,445
BellSouth Corp.................................. 308,100 17,349,881
DSC Communications Corp. (a).................... 36,100 866,400
Frontier Corp................................... 51,100 1,229,594
GTE Corp........................................ 297,820 15,561,095
Lucent Technologies, Inc........................ 200,060 15,979,793
MCI Communications Corp......................... 216,600 9,273,188
NextLevel Systems, Inc. (a)..................... 44,500 795,438
Northern Telecom, Ltd........................... 81,600 7,262,400
SBC Communications, Inc......................... 284,893 20,868,412
Scientific-Atlanta, Inc......................... 24,800 415,400
Sprint Corp..................................... 133,800 7,844,025
Tellabs, Inc. (a)............................... 56,100 2,966,288
US West Communications, Inc..................... 150,700 6,800,338
WorldCom, Inc................................... 280,800 8,494,200
--------------
191,942,487
--------------
TEXTILES -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 24,700 632,938
National Service Industries, Inc................ 13,500 669,094
Russell Corp.................................... 11,500 305,469
Springs Industries, Inc......................... 6,100 317,200
V.F. Corp....................................... 38,836 1,784,029
--------------
3,708,730
--------------
TOBACCO -- 1.5%
Phillip Morris Co., Inc......................... 753,800 34,156,563
UST, Inc........................................ 56,800 2,098,050
--------------
36,254,613
--------------
TOYS -- 0.2%
Hasbro, Inc..................................... 39,500 1,244,250
Mattel, Inc..................................... 91,281 3,400,217
--------------
4,644,467
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B34
<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TRUCKING/SHIPPING -- 0.1%
Caliber System, Inc............................. 11,900 $ 579,381
Federal Express Corp. (a)....................... 35,900 2,192,144
Ryder System, Inc............................... 25,300 828,575
--------------
3,600,100
--------------
UTILITY - ELECTRIC -- 2.7%
American Electric Power Co., Inc................ 58,900 3,040,713
Baltimore Gas & Electric Co..................... 46,350 1,578,797
Carolina Power & Light Co....................... 46,200 1,960,613
Central & South West Corp....................... 66,500 1,799,656
CINergy Corp.................................... 48,239 1,848,157
Consolidated Edison Co. of NY, Inc.............. 72,300 2,964,300
Dominion Resources, Inc......................... 57,750 2,457,984
DTE Energy Company.............................. 44,800 1,554,000
Duke Power Co................................... 112,231 6,214,792
Edison International............................ 123,100 3,346,781
Entergy Corp.................................... 75,000 2,245,313
First Energy Corp. (a).......................... 70,800 2,053,200
FPL Group, Inc.................................. 56,600 3,350,013
GPU, Inc........................................ 37,900 1,596,538
Houston Industries, Inc......................... 97,510 2,602,298
Niagara Mohawk Power Corp. (a).................. 43,300 454,650
Northern States Power Co........................ 23,300 1,357,225
P P & L Resources, Inc.......................... 51,100 1,223,206
Pacific Enterprises............................. 25,900 974,488
Pacific Gas & Electric, Co...................... 136,200 4,145,588
PacifiCorp...................................... 92,600 2,529,138
PECO Energy Co.................................. 68,000 1,649,000
Public Service Enterprise Group, Inc............ 71,100 2,252,981
Southern Co..................................... 213,200 5,516,550
Texas Utilities Co.............................. 76,306 3,171,468
Unicom Corp..................................... 66,900 2,057,175
Union Electric Company.......................... 31,000 1,340,750
--------------
65,285,374
--------------
WASTE MANAGEMENT -- 0.2%
Waste Management, Inc........................... 140,000 3,850,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,365,454,009).......................................... 2,350,401,793
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 4.2% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 4.0%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... $ 98,176 $ 98,176,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
United States Treasury Bills,
5.065%, 03/19/98 (b).......................... 4,000 3,957,229
5.21%, 01/22/98 (b)........................... 400 398,842
--------------
4,356,071
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $102,532,071)............................................ 102,532,071
--------------
TOTAL INVESTMENTS -- 100.2%
(cost $1,467,986,080; Note 6).................................. 2,452,933,864
--------------
VARIATION MARGIN ON OPEN
FUTURES CONTRACTS -- (0.0%).................................... (19,150)
OTHER LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.2%)......................................... (4,723,488)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $2,448,191,226
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 APPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
383 S&P 500 Index Mar 98 $ 93,240,475 $ 93,748,825 $ 508,350
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B35
<PAGE>

EQUITY INCOME PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.3%
VALUE
COMMON STOCKS -- 90.9% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.1%
Raytheon Co. (Class "A" Stock).................. 28,696 $ 1,415,096
United Industrial Corp.......................... 31,700 344,737
--------------
1,759,833
--------------
AIRLINES -- 2.9%
AMR Corp. (a)................................... 464,200 59,649,700
--------------
AUTOS - CARS & TRUCKS -- 5.3%
Chrysler Corp................................... 1,398,034 49,193,321
Ford Motor Co................................... 630,000 30,673,125
General Motors Corp............................. 450,000 27,281,250
--------------
107,147,696
--------------
CHEMICALS -- 4.3%
Dow Chemical Co................................. 667,600 67,761,400
Millennium Chemicals, Inc....................... 824,998 19,439,015
--------------
87,200,415
--------------
COMPUTERS -- 1.5%
Digital Equipment Corp. (a)..................... 673,100 24,904,700
Intergraph Corp. (a)............................ 607,700 6,077,000
--------------
30,981,700
--------------
CONSUMER SERVICES
Petroleum Heat and Power, Inc. (Class "A"
Stock)........................................ 47,300 109,381
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 4.4%
Eastman Kodak Co................................ 174,900 10,636,106
Gibson Greetings Inc. (a)....................... 724,000 15,837,500
RJR Nabisco Holdings Corp....................... 1,698,880 63,708,000
--------------
90,181,606
--------------
ELECTRICAL EQUIPMENT -- 1.3%
Kuhlman Corp.................................... 560,000 21,910,000
Pacific Scientific Co........................... 185,700 4,456,800
--------------
26,366,800
--------------
ELECTRONICS -- 0.9%
Esterline Technologies Corp. (a)................ 275,700 9,925,200
Instron Corp.................................... 154,800 2,921,850
Newport Corp.................................... 306,900 4,315,781
--------------
17,162,831
--------------
FINANCIAL SERVICES -- 10.8%
A.G. Edwards, Inc............................... 316,500 12,580,875
Bear Stearns Companies, Inc..................... 928,251 44,091,922
Lehman Brothers Holdings, Inc................... 1,760,900 89,805,900
PaineWebber Group, Inc.......................... 1,269,300 43,870,181
Travelers Group, Inc............................ 539,200 29,049,400
--------------
219,398,278
--------------
FOREST PRODUCTS -- 1.8%
Fletcher Challenge Ltd., ADR, (Canada).......... 62,400 522,600
Louisiana-Pacific Corp.......................... 771,500 14,658,500
Potlatch Corp................................... 125,300 5,387,900
Rayonier, Inc................................... 396,700 16,884,544
--------------
37,453,544
--------------
GAS DISTRIBUTION -- 1.6%
British Gas PLC, ADR, (United Kingdom).......... 1,077,525 24,446,348
TransCanada Pipelines, Ltd...................... 389,600 8,717,300
--------------
33,163,648
--------------
GAS PIPELINES -- 0.5%
Sonat, Inc...................................... 206,300 9,438,225
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSING RELATED -- 3.2%
Hanson, PLC, ADR, (United Kingdom).............. 1,574,150 $ 36,303,834
Kaufman & Broad Home Corp....................... 462,700 10,381,831
Ryland Group, Inc............................... 750,000 17,718,750
--------------
64,404,415
--------------
INSURANCE -- 3.3%
Marsh & McLennan Companies, Inc................. 537,600 40,084,800
Ohio Casualty Corp.............................. 379,900 16,953,037
Selective Insurance Group, Inc.................. 397,600 10,735,200
--------------
67,773,037
--------------
MEDIA -- 2.4%
CBS Corp........................................ 1,488,945 43,830,818
Dun & Bradstreet Corp........................... 195,600 6,051,375
--------------
49,882,193
--------------
METALS-FERROUS -- 2.3%
USX-U.S. Steel Group............................ 1,509,400 47,168,750
--------------
METALS-NON FERROUS -- 3.2%
Aluminum Company of America..................... 525,000 36,946,875
Kaiser Aluminum Corp. (a)....................... 266,572 2,349,166
Reynolds Metals Co.............................. 431,586 25,895,160
--------------
65,191,201
--------------
MISCELLANEOUS - INDUSTRIAL -- 2.2%
Energy Group, PLC, (United Kingdom)............. 253,750 11,323,594
Nova Corp....................................... 2,449,400 23,422,387
Tenneco, Inc.................................... 227,700 8,994,150
--------------
43,740,131
--------------
OIL & GAS -- 6.0%
Crestar Energy, Inc., ADR, (Canada) (a)......... 200,000 3,078,969
Elf Aquitaine SA, ADR, (France)................. 680,000 39,865,000
Occidental Petroleum Corp....................... 1,000,000 29,312,500
Pioneer Natural Resources Co.................... 1,416,487 40,989,593
USX-Marathon Group.............................. 230,600 7,782,750
--------------
121,028,812
--------------
OIL & GAS SERVICES -- 4.1%
McDermott International, Inc.................... 1,861,300 68,170,113
Quaker State Corp............................... 1,000,000 14,250,000
--------------
82,420,113
--------------
PRECIOUS METALS -- 0.3%
Ashanti Goldfields Co., Ltd..................... 500,000 3,750,000
Coeur D'Alene Mines Corp........................ 194,678 1,752,102
Echo Bay Mines, Ltd............................. 298,499 727,591
--------------
6,229,693
--------------
REAL ESTATE DEVELOPMENT -- 17.6%
Alexander Haagen Properties, Inc................ 420,000 7,323,750
Amli Residential Properties Trust............... 208,300 4,634,675
Bradley Real Estate, Inc........................ 204,200 4,288,200
CCA Prison Realty Trust......................... 787,100 35,124,338
Crescent Operating, Inc. (a).................... 152,150 3,727,675
Crescent Real Estate Equities, Inc.............. 1,591,500 62,665,313
Crown American Realty Trust..................... 1,127,800 10,502,638
Equity Inns, Inc................................ 200,000 2,950,000
Equity Office Properties Trust.................. 544,378 17,181,954
Equity Residential Properties Trust............. 1,572,700 79,519,644
Gables Residential Trust........................ 435,800 12,038,975
Glimcher Realty Trust........................... 515,400 11,628,713
Irvine Apartment Communities, Inc............... 392,000 12,470,500
JDN Realty Corp................................. 235,500 7,624,313
JP Realty, Inc.................................. 84,000 2,178,750
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B36
<PAGE>

EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Kimco Realty Corp............................... 56,250 $ 1,982,813
Malan Realty Investors, Inc..................... 140,000 2,537,500
Manufactured Home Communities, Inc.............. 632,000 17,064,000
Pennsylvania Real Estate
Investment Trust.............................. 50,100 1,230,581
Security Capital Pacific Trust.................. 587,034 14,235,575
Simon Debartolo Group, Inc...................... 214,300 7,004,931
Sunstone Hotel Investors, Inc................... 240,000 4,140,000
TriNet Corporate Realty Trust, Inc.............. 166,700 6,449,206
Vornado Realty Trust............................ 400,000 18,775,000
Walden Residential Properties, Inc.............. 355,000 9,052,500
--------------
356,331,544
--------------
RETAIL -- 5.1%
Blair Corporation............................... 80,400 1,386,900
Heilig-Meyers, Co............................... 589,900 7,078,800
J.C. Penney Co., Inc............................ 769,800 46,428,563
Tandy Corp...................................... 280,000 10,797,500
The Limited, Inc................................ 1,504,600 38,367,300
--------------
104,059,063
--------------
TELECOMMUNICATIONS -- 1.3%
Telefonos de Mexico SA (Class "L" Stock), ADR
(Mexico)...................................... 460,500 25,816,781
--------------
TEXTILES -- 0.8%
Garan, Inc...................................... 2,900 74,675
Kellwood Co..................................... 518,900 15,567,000
Oxford Industries, Inc.......................... 34,500 1,121,250
--------------
16,762,925
--------------
TOBACCO -- 0.6%
BAT Industries, PLC, ADR, (United Kingdom)...... 606,500 11,371,875
--------------
TRUCKING/SHIPPING -- 0.6%
Alexander & Baldwin, Inc........................ 287,750 7,859,172
Yellow Corp..................................... 157,800 3,964,725
--------------
11,823,897
--------------
UTILITY - ELECTRIC -- 0.4%
Central Louisiana Electric Co................... 6,100 197,488
First Energy Corp. (a).......................... 24,465 709,485
Pacific Gas & Electric, Co...................... 240,000 7,305,000
--------------
8,211,973
--------------
WASTE MANAGEMENT -- 2.1%
Waste Management, Inc........................... 1,546,900 42,539,750
--------------
TOTAL COMMON STOCKS
(cost $1,337,420,791).......................................... 1,844,769,810
--------------

PREFERRED STOCKS -- 3.5%
INTEGRATED PRODUCERS -- 0.1%
Unocal Corp. (Conv.) Series 6.25%............... 34,372 1,944,166
--------------
METALS-FERROUS -- 1.0%
Bethlehem Steel Corp. (Cum. Conv.).............. 264,000 10,692,000
Rouge Steel..................................... 262,500 3,346,875
USX Capital Trust 6/7 (Cum. Conv.).............. 114,600 5,271,600
--------------
19,310,475
--------------
METALS-NON FERROUS -- 0.1%
Hecla Mining Co. (Cum. Conv.), Series B......... 60,000 2,805,000
--------------
OIL SERVICES -- 0.2%
McDermott International, Inc. (Cum. Conv.),
Series C...................................... 88,000 4,829,000
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 0.1%
Security Capital Pacific Trust (Cum. Conv.),
Series A...................................... 54,500 $ 1,784,875
--------------
RETAIL -- 2.0%
Kmart Corp. (Cum. Conv.)........................ 763,600 39,420,850
--------------
TOTAL PREFERRED STOCKS
(cost $78,873,899)............................................. 70,094,366
--------------

WARRANTS UNITS
-------------
CONSTRUCTION
Morrison Knudsen Corp., 03/11/03................ 5,689 16,356
--------------
REAL ESTATE DEVELOPMENT
Security Capital Pacific Trust,
09/18/98...................................... 31,610 165,952
--------------
TOTAL WARRANTS
(cost $248,929)................................................ 182,308
--------------
PRINCIPAL
AMOUNT
CONVERTIBLE BONDS -- 0.9% (000)
-------------
EXPLORATION & PRODUCTION -- 0.1%
Oryx Energy Co.,
7.50%, 05/15/14............................... $ 1,760 1,777,600
--------------
OIL & GAS SERVICES -- 0.2%
Baker Hughes, Inc., Zero Coupon, 05/05/08....... 5,940 4,989,600
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Alexander Haagen Properties, Inc., Series A
7.50%, 01/15/01............................... 1,600 1,585,000
Malan Realty Investors, Inc. 9.50%, 07/15/04.... 3,000 3,180,000
--------------
4,765,000
--------------
RETAIL -- 0.4%
Charming Shoppes, Inc.,
7.50%, 07/15/06............................... 8,000 7,540,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $18,078,853)............................................. 19,072,200
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,434,622,472).......................................... 1,934,118,684
--------------

SHORT-TERM INVESTMENT -- 4.8%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account, 6.53%,
01/02/98
(cost $98,435,000; Note 5).................... 98,435 98,435,000
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $1,533,057,472; Note 6).................................. 2,032,553,684
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.1%)......................................... (2,797,795)
--------------
NET ASSETS -- 100.0%............................................. $2,029,755,889
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt

(a) Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B37
<PAGE>

EQUITY PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 83.3%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.0%
Raytheon Co..................................... 44,639 $ 2,201,261
--------------
AUTOS - CARS & TRUCKS -- 4.3%
Chrysler Corp................................... 2,627,820 92,466,416
General Motors Corp............................. 700,000 42,437,500
LucasVarity PLC (United Kingdom)................ 19,000,000 67,472,027
Navistar International Corp. (a)................ 395,200 9,805,900
PACCAR, Inc..................................... 279,400 14,668,500
TRW, Inc........................................ 634,600 33,871,775
--------------
260,722,118
--------------
BANKS AND SAVINGS & LOANS -- 6.2%
Bank of New York Co., Inc....................... 1,200,000 69,375,000
BankAmerica Corp................................ 750,000 54,750,000
Chase Manhattan Corp............................ 475,600 52,078,200
First America Bank Corp......................... 280,500 21,633,562
Mellon Bank Corp................................ 270,100 16,374,812
Mercantile Bankshares Corp...................... 419,400 16,409,025
Morgan (J.P.) & Co., Inc........................ 395,400 44,630,775
NationsBank Corp................................ 800,000 48,650,000
Republic New York Corp.......................... 225,000 25,692,187
Washington Mutual, Inc.......................... 429,060 27,379,391
--------------
376,972,952
--------------
CHEMICALS -- 3.3%
BOC Group, PLC ADR (United Kingdom)............. 800,000 26,350,000
Dow Chemical Co................................. 556,300 56,464,450
Eastman Chemical Co............................. 941,550 56,081,072
Potash Corp. of Saskatchewan, Inc............... 380,000 31,540,000
Wellman, Inc.................................... 798,200 15,564,900
Witco Corp...................................... 268,800 10,970,400
--------------
196,970,822
--------------
COMPUTERS -- 3.3%
Digital Equipment Corp. (a)..................... 3,050,000 112,850,000
International Business Machines Corp............ 600,000 62,737,500
NCR Corp........................................ 100,000 2,781,250
Seagate Technology, Inc. (a).................... 950,000 18,287,500
--------------
196,656,250
--------------
CONSTRUCTION & HOUSING -- 1.3%
American Standard Co., Inc. (a)................. 1,050,000 40,228,125
Centex Corp..................................... 600,000 37,762,500
--------------
77,990,625
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 5.3%
Gibson Greeting Inc. (a)........................ 750,000 16,406,250
Loews Corp...................................... 1,775,000 188,371,875
RJR Nabisco Holdings Corp....................... 3,100,000 116,250,000
--------------
321,028,125
--------------
ELECTRONICS -- 0.6%
Harris Corp..................................... 600,000 27,525,000
Gerber Scientific, Inc.......................... 419,800 8,343,525
--------------
35,868,525
--------------
FINANCIAL SERVICES -- 7.7%
American Express Co............................. 700,000 62,475,000
Lehman Brothers Holdings, Inc................... 900,000 45,900,000
Morgan Stanley, Dean Witter, Discover & Co...... 3,200,000 189,200,000
Travelers Group, Inc............................ 3,061,500 164,938,312
--------------
462,513,312
--------------
FOOD & BEVERAGES -- 0.5%
Diageo PLC (United Kingdom)..................... 3,000,000 27,599,940
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 7.9%
Fort James Corp................................. 560,000 $ 21,420,000
Georgia-Pacific Corp............................ 1,158,000 70,348,500
Georgia-Pacific Corp. (a)....................... 1,158,000 26,272,125
International Paper Co.......................... 1,638,000 70,638,750
Mead Corp....................................... 1,800,000 50,400,000
Rayonier Inc.................................... 830,400 35,343,900
Temple-Inland Inc............................... 892,500 46,688,906
Weyerhaeuser Co................................. 1,522,500 74,697,656
Willamette Industries, Inc...................... 2,500,000 80,468,750
--------------
476,278,587
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 5.0%
Columbia/HCA Healthcare Corp.................... 2,383,500 70,611,187
Foundation Health Corp. (a)..................... 2,044,210 45,739,199
PacifiCare Health Systems, Inc. (a)............. 291,500 15,267,312
Tenet Healthcare Corp. (a)...................... 3,237,832 107,253,185
Wellpoint Health Networks Inc................... 1,508,300 63,725,675
--------------
302,596,558
--------------
INSURANCE -- 10.9%
American Financial Group, Inc................... 552,700 22,280,719
American General Corp........................... 1,000,000 54,062,500
Chubb Corp...................................... 2,206,400 166,859,000
Citizens Corp................................... 700,000 20,125,000
Equitable Companies, Inc........................ 1,800,000 89,550,000
Old Republic International Corp................. 1,950,885 72,548,536
SAFECO Corp..................................... 2,327,000 113,441,250
St. Paul Companies, Inc......................... 826,900 67,857,481
Western National Corp........................... 1,624,300 48,119,888
--------------
654,844,374
--------------
METALS-FERROUS -- 0.6%
Bethlehem Steel Corp. (a)....................... 500,000 4,312,500
Birmingham Steel Corp........................... 1,527,400 24,056,550
Carpenter Technology Corp....................... 100,000 4,806,250
--------------
33,175,300
--------------
METALS-NON FERROUS -- 1.1%
Aluminum Company of America..................... 600,000 42,225,000
Cyprus Amax Minerals Co......................... 1,533,200 23,572,950
Nord Resources Corp. (a)........................ 130,500 236,531
--------------
66,034,481
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.5%
Eastman Kodak Co................................ 475,000 28,885,938
--------------
OIL & GAS -- 2.4%
Amerada Hess Corp............................... 325,000 17,834,375
Atlantic Richfield Co........................... 1,081,700 86,671,213
Total SA, ADR (France).......................... 738,365 40,979,258
--------------
145,484,846
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 3.7%
Elf Aquitaine SA, ADR (France).................. 2,424,433 142,132,385
Occidental Petroleum Corp....................... 1,100,000 32,243,750
Oryx Energy Co. (a)............................. 1,600,000 40,800,000
Union Texas Petroleum Holdings, Inc............. 504,500 10,499,906
--------------
225,676,041
--------------
PRECIOUS METALS -- 0.4%
AMAX Gold Inc. (a).............................. 131,342 303,728
Newmont Mining Corp............................. 883,900 25,964,563
--------------
26,268,291
--------------
RESTAURANTS -- 1.6%
Darden Restaurants, Inc......................... 7,922,700 99,033,750
--------------
RETAIL -- 8.0%
BJ'S Wholesale Club, Inc. (a)................... 1,300,000 40,787,500
Dayton-Hudson Corp.............................. 358,800 24,219,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B38
<PAGE>

EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Dillard's, Inc.................................. 3,300,000 $ 116,325,000
Homebase, Inc. (a).............................. 1,300,000 10,237,500
Kmart Corp. (a)................................. 6,500,000 75,156,250
Nine West Group, Inc. (a)....................... 715,800 18,566,063
Petrie Stores Corp. (a)......................... 540,000 1,651,050
Sears, Roebuck and Co........................... 690,000 31,222,500
Tandy Corp...................................... 2,765,800 106,656,163
Toys 'R' Us, Inc. (a)........................... 1,800,000 56,587,500
--------------
481,408,526
--------------
TELECOMMUNICATIONS -- 5.4%
360 Communication Co. (a)....................... 1,696,066 34,239,332
AT&T Corp....................................... 1,950,000 119,437,500
Loral Corp...................................... 1,800,000 38,587,500
Portugal Telecom SA, ADR (Portugal)............. 1,262,500 59,337,500
Telefonica de Espana, SA, ADR (Spain)........... 800,000 72,850,000
--------------
324,451,832
--------------
TEXTILES -- 0.0%
Worldtex, Inc. (a).............................. 107,199 850,892
--------------
TRANSPORTATION -- 0.4%
OMI Corp. (a)................................... 1,000,000 9,187,500
Overseas Shipholding Group, Inc................. 600,000 13,087,500
--------------
22,275,000
--------------
UTILITY - ELECTRIC -- 2.3%
American Electric Power, Inc.................... 180,000 9,292,500
GPU, Inc........................................ 500,000 21,062,500
Houston Industries, Inc......................... 974,519 26,007,476
Long Island Lighting Co......................... 1,541,400 46,434,675
Unicom Corp..................................... 1,112,900 34,221,675
--------------
137,018,826
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 7,374,375
--------------
WASTE MANAGEMENT -- 0.5%
Waste Management, Inc........................... 1,100,000 30,250,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,193,641,271).......................................... 5,020,431,547
--------------

PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 16.7% RATING (000)
------------ ---------
CERTIFICATES OF DEPOSIT-YANKEE -- 2.3%
Bank of Montreal, (Canada),
5.90%, 01/16/98............................... P1 $ 27,000 27,000,000
Barclays Bank PLC, (United Kingdom)
5.64%, 01/20/98............................... P1 21,000 20,997,178
Bayerische LandesBank, (Federal Republic of
Germany)
5.69%, 01/28/98............................... P1 20,000 19,997,165
Bayerische VereinBank, (Federal Republic of
Germany)
5.69%, 01/23/98............................... P1 13,000 12,998,349
Canadian Imperial Bank, (Canada)
5.80%, 02/13/98............................... P1 59,000 59,000,000
--------------
139,992,692
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 4.6%
Associates Corp. of North America,
5.70%, 01/15/98............................... P1 $ 17,000 $ 16,965,008
5.70%, 01/16/98............................... P1 24,000 23,946,800
Associates First Capital Corp.,
5.75%, 01/30/98............................... P1 19,000 18,915,028
Bell Atlantic Financial,
5.80%, 01/14/98............................... P1 9,000 8,982,600
Beneficial Corp.,
5.74%, 02/12/98............................... P1 59,000 58,614,304
General Electric Capital Corp.,
5.71%, 01/23/98............................... P1 27,000 26,910,067
5.80%, 01/14/98............................... P1 34,000 33,934,267
Morgan (J.P.) & Co., Inc.,
5.77%, 02/10/98............................... P1 8,030 7,979,806
Norwest Financial, Inc.,
5.70%, 01/16/98............................... P1 48,384 48,276,749
Smith Barney, Inc.,
5.82%, 01/15/98............................... P1 10,000 9,978,983
Xerox Corp.,
5.75%, 02/10/98............................... P1 20,000 19,875,417
--------------
274,379,029
--------------
REPURCHASE AGREEMENT -- 8.1%
Joint Repurchase Agreement Account,
6.53%, 01/02/98
(Note 5).................................... 490,528 490,528,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.7%
Federal Home Loan Mortgage Corp.,
5.61%, 03/10/98............................... 7,000 6,929,020
Federal National Mortgage Association,
5.40%, 02/05/98............................... 10,000 9,946,200
5.63%, 08/14/98............................... 8,000 7,991,760
5.71%, 09/09/98............................... 15,000 14,983,650
5.89%, 05/21/98............................... 12,200 12,209,516
United States Treasury Notes,
5.125%, 02/28/98.............................. 20,000 19,984,400
5.875%, 04/30/98.............................. 10,000 10,012,500
6.125%, 08/31/98.............................. 18,000 18,056,160
--------------
100,113,206
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,004,995,132).................................................... 1,005,012,927
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $4,198,636,403; Note 6)............................................ 6,025,444,474
--------------
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.0%)................................................... (1,464,443)
--------------
TOTAL NET ASSETS -- 100.0%................................................. $6,023,980,031
--------------
--------------
</TABLE>

<TABLE>
<S> <C>
The following abbreviations are used in portfolio descriptions:
-- American Depository Receipt.
ADR
-- Public Limited Company (British Corporation).
PLC
SA -- Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation).
</TABLE>

(a) Non-Income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B39
<PAGE>

PRUDENTIAL JENNISON PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 2.6%
Boeing Co....................................... 147,700 $ 7,228,069
Gartner Group Inc. (a).......................... 153,400 5,714,150
--------------
12,942,219
--------------
BANKS AND SAVINGS & LOANS -- 4.5%
Chase Manhattan Corp............................ 106,400 11,650,800
Citicorp........................................ 42,600 5,386,237
Fleet Financial Group, Inc...................... 73,200 5,485,425
--------------
22,522,462
--------------
BUSINESS SERVICES -- 3.6%
Manpower, Inc................................... 67,400 2,375,850
Mastering Inc. (a).............................. 84,600 771,975
Omnicom Group, Inc.............................. 196,600 8,330,925
Reuters Holdings PLC, (United Kingdom), ADR..... 95,500 6,326,875
--------------
17,805,625
--------------
CHEMICALS -- 2.0%
Monsanto Co..................................... 233,000 9,786,000
--------------
COMMERCIAL SERVICES -- 1.8%
Cendant Corp. (a)............................... 258,100 8,872,187
--------------
COMPUTER SERVICES -- 3.1%
Microsoft Corp.................................. 68,900 8,905,325
SAP AG, (Germany), ADR.......................... 58,100 6,256,644
--------------
15,161,969
--------------
COMPUTER SYSTEMS -- 1.6%
Diebold, Inc.................................... 158,500 8,024,062
--------------
COMPUTERS -- 10.0%
3Com Corp. (a).................................. 112,000 3,913,000
Cisco Systems, Inc. (a)......................... 179,350 9,998,762
Compaq Computer Corp............................ 198,650 11,211,309
Dell Computer Corp. (a)......................... 93,200 7,828,800
Hewlett-Packard Co.............................. 171,500 10,718,750
International Business Machines Corp............ 55,600 5,813,675
--------------
49,484,296
--------------
DIVERSIFIED OPERATIONS -- 2.4%
General Electric Co............................. 165,700 12,158,237
--------------
DRUGS AND MEDICAL SUPPLIES -- 10.7%
Boston Scientific Corp. (a)..................... 80,000 3,670,000
Bristol-Myers Squibb Co......................... 90,600 8,573,025
Eli Lilly & Co.................................. 104,400 7,268,850
Pfizer, Inc..................................... 242,600 18,088,863
Smithkline Beecham, PLC, ADR (United Kingdom)... 186,700 9,603,381
Warner-Lambert Co............................... 46,700 5,790,800
--------------
52,994,919
--------------
ELECTRONICS -- 9.1%
Applied Materials, Inc. (United States) (a)..... 190,800 5,747,850
Intel Corp. (United States)..................... 96,600 6,786,150
International Rectifier Corp. (a)............... 181,300 2,141,606
KLA-Tencor Corp. (a)............................ 132,000 5,098,500
Motorola, Inc. (United States).................. 129,400 7,383,888
Symbol Technologies, Inc. (a)................... 186,950 7,057,363
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Texas Instruments, Inc. (United States)......... 164,800 $ 7,416,000
Xilinx Inc. (a)................................. 106,400 3,730,650
--------------
45,362,007
--------------
FINANCIAL SERVICES -- 6.8%
MBNA Corp....................................... 276,225 7,544,395
Morgan Stanley, Dean Witter, Discover & Co.,.... 170,520 10,081,995
Schwab (Charles) Corp. (a)...................... 156,300 6,554,831
Washington Mutual, Inc.......................... 151,300 9,654,831
--------------
33,836,052
--------------
HOSPITAL MANAGEMENT -- 1.2%
PhyCor, Inc. (a)................................ 220,000 5,940,000
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.4%
Healthsouth Corp. (a)........................... 245,200 6,804,300
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 1.5%
Gillette Co..................................... 72,300 7,261,631
--------------
INSURANCE -- 6.4%
MGIC Investment Corp............................ 106,200 7,062,300
Mutual Risk Management, Ltd..................... 255,332 7,644,002
Provident Companies, Inc........................ 192,400 7,431,450
UNUM Corp....................................... 173,900 9,455,813
--------------
31,593,565
--------------
LEISURE -- 5.4%
Hilton Hotels Corp.............................. 287,400 8,550,150
Promus Hotel Corp. (a).......................... 156,000 6,552,000
Walt Disney Co.................................. 116,800 11,570,500
--------------
26,672,650
--------------
MACHINERY -- 1.4%
Case Corp....................................... 119,100 7,198,106
--------------
MEDIA -- 1.5%
Clear Channel Communications, Inc. (a).......... 93,700 7,443,294
--------------
OIL & GAS SERVICES -- 1.8%
Schlumberger Ltd................................ 108,400 8,726,200
--------------
RETAIL -- 8.3%
AutoZone, Inc. (a).............................. 181,200 5,254,800
Dollar General Corporation...................... 183,775 6,661,844
Home Depot, Inc................................. 130,200 7,665,525
Kohl's Corp. (a)................................ 93,200 6,349,250
Sears, Roebuck & Co............................. 168,600 7,629,150
The Gap, Inc.................................... 210,000 7,441,875
--------------
41,002,444
--------------
SOFTWARE -- 1.1%
Intuit, Inc. (a)................................ 138,200 5,700,750
--------------
TELECOMMUNICATIONS -- 6.5%
Airtouch Communications, Inc. (a)............... 182,200 7,572,688
Ciena Corp. (a)................................. 77,800 4,755,525
Nokia AB Corp., (Japan), ADR.................... 79,500 5,565,000
Tellabs, Inc. (a)............................... 136,400 7,212,150
Vodafone Group, (United Kingdom) ADR, PLC....... 95,100 6,894,750
--------------
32,000,113
--------------
TRUCKING/SHIPPING -- 1.9%
Federal Express Corp. (a)....................... 157,800 9,635,663
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $399,036,254)............................................ 478,928,751
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B40
<PAGE>

PRUDENTIAL JENNISON PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 5.6% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT --
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (cost $27,931,000; Note 5).... $ 27,931 $ 27,931,000
--------------
27,931,000
--------------
TOTAL INVESTMENTS -- 102.2%
(cost $426,967,254; Note 6).................................... 506,859,751
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.2%).................. (10,922,632)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 495,937,119
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)

(a) Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B41
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ADVERTISING -- 0.1%
HA-LO Industries, Inc. (a)...................... 15,700 $ 408,200
--------------
AEROSPACE -- 0.7%
BE Aerospace, Inc. (a).......................... 17,300 462,775
Kaman Corp. (Class "A" Stock)................... 14,800 242,350
Orbital Sciences Corp. (a)...................... 25,200 749,700
Trimble Navigation, Ltd. (a).................... 17,400 379,537
Watkins-Johnson Co.............................. 6,300 163,406
--------------
1,997,768
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.3%
Delta & Pine Land Co............................ 28,900 881,450
--------------
AIRLINES -- 0.6%
Comair Holdings, Inc............................ 52,237 1,260,218
Mesa Air Group, Inc. (a)........................ 22,100 109,119
SkyWest, Inc.................................... 8,000 237,000
--------------
1,606,337
--------------
APPAREL -- 0.1%
Phillips-Van Heusen Corp........................ 21,100 300,675
--------------
AUTOS - CARS & TRUCKS -- 0.9%
Breed Technologies, Inc......................... 24,575 448,494
Myers Industries, Inc........................... 14,422 246,075
Simpson Industries, Inc......................... 14,200 166,850
Spartan Motors, Inc............................. 9,600 59,400
Standard Motor Products, Inc.................... 9,900 223,369
Standard Products Co............................ 12,800 328,000
TBC Corp. (a)................................... 18,400 175,950
Titan International, Inc........................ 16,600 333,037
Wabash National Corp............................ 15,500 440,781
Wynn's International, Inc....................... 9,850 313,969
--------------
2,735,925
--------------
BANKS AND SAVINGS & LOANS -- 8.4%
Astoria Financial Corp. (a)..................... 20,200 1,126,150
CCB Financial Corp.............................. 16,000 1,720,000
Centura Banks, Inc.............................. 19,900 1,373,100
Coast Savings Financial, Inc. (a)............... 14,450 990,728
Commercial Federal Corp. (a).................... 24,925 886,395
Cullen/Frost Bankers, Inc....................... 17,300 1,049,894
Deposit Guaranty Corp........................... 31,525 1,792,984
Downey Financial Corp........................... 20,719 589,197
First Commercial Corp........................... 29,128 1,707,617
First Merit Corp................................ 48,800 1,384,700
FirstBank Puerto Rico (a)....................... 11,600 395,125
JSB Financial, Inc.............................. 7,500 375,469
Keystone Financial, Inc......................... 40,500 1,630,125
Magna Group, Inc................................ 25,600 1,171,200
ONBANcorp, Inc.................................. 10,000 705,000
Provident Bancorp, Inc.......................... 32,225 1,562,912
Riggs National Corp. (a)........................ 23,800 639,625
Sovereign Bancorp, Inc.......................... 69,526 1,442,664
St. Paul Bancorp, Inc........................... 26,700 700,875
Whitney Holding Corp............................ 16,200 923,400
Zions Bancorp, Inc.............................. 50,600 2,295,975
--------------
24,463,135
--------------
BROADCASTING SERVICES -- 0.5%
Metro Networks, Inc. (a)........................ 13,000 425,750
Westwood One, Inc. (a).......................... 24,200 898,425
--------------
1,324,175
--------------
BUSINESS SERVICES -- 0.2%
Franklin Covey Co............................... 19,500 429,000
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CHEMICALS -- 1.7%
Cambrex Corp.................................... 9,100 $ 418,600
Chemed Corp..................................... 7,700 319,069
Chemfirst Inc. (a).............................. 15,700 443,525
Hauser Chemical Research, Inc. (a).............. 8,100 48,600
Lilly Industries, Inc. (Class "A" Stock)........ 17,700 365,062
MacDermid, Inc.................................. 6,600 560,175
McWhorter Technologies, Inc. (a)................ 8,000 206,000
Mississippi Chemical Corp. (a).................. 21,472 391,864
Mycogen Corp. (a)............................... 24,300 455,625
OM Group, Inc................................... 17,100 626,287
Penford Corp.................................... 5,700 199,500
Quaker Chemical Corp............................ 6,600 124,987
Scotts Co. (Class "A" Stock) (a)................ 14,400 435,600
WD-40 Co........................................ 12,200 353,800
--------------
4,948,694
--------------
COMMERCIAL SERVICES -- 3.3%
AAR Corp........................................ 14,600 565,750
ABM Industries, Inc............................. 15,600 476,775
ADVO, Inc....................................... 18,800 366,600
Billing Information Concepts Corp. (a).......... 12,600 604,800
Bowne & Company, Inc............................ 14,000 558,250
CDI Corp. (a)................................... 15,300 699,975
Central Parking Corp............................ 20,350 922,109
Hadco Corp. (a)................................. 10,300 466,075
Insurance Auto Auction, Inc. (a)................ 8,800 101,200
Interim Services, Inc. (a)...................... 30,400 786,600
LSB Industries, Inc............................. 10,000 40,625
Merrill Corp.................................... 12,600 292,950
NFO Worldwide, Inc. (a)......................... 16,075 336,570
Norrell Corp.................................... 20,600 409,425
Pharmaceutical Marketing Services, Inc. (a)..... 10,300 105,575
Plenum Publishing Corp.......................... 2,700 124,875
Primark Corp. (a)............................... 20,100 817,819
Thomas Nelson, Inc.............................. 13,150 152,047
True North Communications, Inc.................. 19,400 480,150
Vantive Corp.................................... 19,000 479,750
Volt Information Sciences, Inc. (a)............. 200 10,775
World Color Press, Inc.......................... 29,200 775,625
--------------
9,574,320
--------------
COMPUTER SERVICES -- 6.5%
Acxiom Corp. (a)................................ 40,600 781,550
American Management Systems, Inc. (a)........... 32,350 630,825
Amtech Corp..................................... 13,200 52,800
Analysts International Corp..................... 17,400 600,300
Auspex Systems, Inc. (a)........................ 19,400 194,000
BancTec, Inc. (a)............................... 16,500 442,406
BISYS Group, Inc. (a)........................... 19,700 655,025
Boole & Babbage, Inc............................ 14,600 436,175
Broderbund Software, Inc. (a)................... 16,200 415,125
Cerner Corp. (a)................................ 25,700 542,912
Chips & Technologies, Inc. (a).................. 16,900 243,994
Ciber, Inc...................................... 16,000 928,000
Comverse Technology, Inc. (a)................... 19,700 768,300
Fair Issac & Company, Inc....................... 10,500 349,781
FileNet Corp. (a)............................... 11,900 358,487
Henry (Jack) & Associates, Inc.................. 14,250 388,312
Hyperion Software Corp. (a)..................... 14,500 518,375
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B42
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Keane, Inc. (a)................................. 51,200 $ 2,080,000
Komag, Inc. (a)................................. 40,900 608,387
National Computer Systems, Inc.................. 12,000 423,000
National Data Corp.............................. 20,625 745,078
Platinum Software Corp. (a)..................... 17,700 207,975
PLATINUM Technology, Inc. (a)................... 48,400 1,367,300
Progress Software Corp. (a)..................... 9,000 194,625
Read-Rite Corp. (a)............................. 37,400 589,050
Standard Microsystems Corp. (a)................. 12,100 105,119
Sterling Software, Inc. (a)..................... 29,700 1,217,700
System Software Associates, Inc................. 33,300 291,375
Tech Data Corp. (a)............................. 36,700 1,426,712
Telxon Corp..................................... 12,100 288,887
Wall Data, Inc. (a)............................. 7,300 99,462
Xircom, Inc. (a)................................ 17,700 178,106
Zebra Technologies Corp. (Class "A"
Stock) (a).................................... 19,000 565,250
Zilog, Inc. (a)................................. 15,600 297,375
--------------
18,991,768
--------------
COMPUTERS -- 0.4%
Applied Magnetics Corp. (a)..................... 18,500 205,812
Exabyte Corp. (a)............................... 17,500 112,656
Gerber Scientific, Inc.......................... 17,900 355,762
Vanstar Corp. (a)............................... 33,400 377,837
--------------
1,052,067
--------------
CONSTRUCTION -- 1.4%
Halter Marine Group............................. 21,300 615,037
Insituform Technologies, Inc. (Class "A"
Stock) (a).................................... 21,100 163,525
Lone Star Industries, Inc....................... 8,500 451,562
M.D.C. Holdings, Inc............................ 13,500 203,344
Morrison Knudsen Corp. (a)...................... 41,800 407,550
Oakwood Homes Corp.............................. 35,900 1,191,431
Republic Group, Inc............................. 9,070 148,521
Southern Energy Homes, Inc. (a)................. 11,312 90,496
Standard Pacific Corp........................... 22,750 358,312
Stone & Webster, Inc............................ 9,900 464,062
--------------
4,093,840
--------------
CONTAINERS -- 0.4%
Aptar Group, Inc................................ 13,900 771,450
Shorewood Packaging Corp. (a)................... 14,100 377,175
--------------
1,148,625
--------------
COSMETICS & SOAPS -- 0.2%
Nature's Sunshine Products, Inc................. 14,500 377,000
USA Detergent, Inc. (a)......................... 10,800 87,750
--------------
464,750
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Nashua Corp..................................... 5,100 59,925
New England Business Service, Inc............... 10,400 351,000
--------------
410,925
--------------
DRUGS AND MEDICAL SUPPLIES -- 5.8%
ADAC Laboratories............................... 14,700 290,325
Advanced Tissue Sciences, Inc. (a).............. 29,400 363,825
Alliance Pharmaceutical Corp.................... 23,800 172,550
Alpharma Inc. (Class "A" Stock)................. 17,800 387,150
Ballard Medical Products........................ 22,300 540,775
Cephalon, Inc. (a).............................. 20,100 228,637
Circon Corp. (a)................................ 4,600 70,150
Coherent Inc. (a)............................... 8,900 312,612
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Collagen Corp................................... 6,900 $ 144,037
COR Therapeutics, Inc. (a)...................... 18,000 405,000
Cygnus, Inc. (a)................................ 14,800 294,150
Enzo Biochem, Inc. (a).......................... 18,013 263,440
Gulf South Medical Supply, Inc. (a)............. 12,800 476,800
ICN Pharmaceuticals, Inc........................ 29,200 1,425,325
IDEXX Laboratories, Inc. (a).................... 29,700 473,344
ImmuLogic Pharmaceutical Corp. (a).............. 15,800 29,625
Invacare Corp................................... 23,100 502,425
Liposome Company, Inc. (a)...................... 29,300 135,512
Medimmune, Inc. (a)............................. 18,600 797,475
Mentor Corp..................................... 19,500 711,750
Molecular Biosystems, Inc. (a).................. 13,850 117,725
NBTY, Inc. (a).................................. 14,600 487,275
North American Vaccine, Inc. (a)................ 24,500 610,969
Noven Pharmaceuticals, Inc. (a)................. 16,000 112,000
Owens & Minor, Inc.............................. 24,900 361,050
Patterson Dental Co. (a)........................ 17,200 778,300
Protein Design Labs, Inc. (a)................... 14,200 568,000
Regeneron Pharmaceuticals, Inc. (a)............. 24,200 207,212
Resound Corp. (a)............................... 15,200 83,600
Respironics, Inc. (a)........................... 15,500 346,812
Roberts Pharmaceutical Corp. (a)................ 21,600 206,550
Safeskin Corp. (a).............................. 20,500 1,163,375
SciClone Pharmaceuticals, Inc. (a).............. 13,300 45,719
Sequus Pharmaceuticals, Inc. (a)................ 23,800 177,012
SpaceLabs Medical, Inc. (a)..................... 7,500 142,500
STERIS Corp. (a)................................ 26,532 1,280,169
Summit Technology, Inc. (a)..................... 24,400 110,563
Sunrise Medical, Inc. (a)....................... 14,900 230,019
Syncor International Corp. (a).................. 7,600 122,550
The Immune Response Corp. (a)................... 17,500 194,687
TheraTech, Inc. (a)............................. 16,350 130,800
US Bioscience, Inc. (a)......................... 18,550 168,109
Vertex Pharmaceuticals, Inc. (a)................ 19,600 646,800
VISX, Inc. (a).................................. 12,100 267,712
Vital Signs, Inc................................ 9,900 193,050
Zoll Medical Corp. (a).......................... 4,900 26,031
--------------
16,803,496
--------------
ELECTRICAL EQUIPMENT -- 2.5%
Anixter International, Inc. (a)................. 36,800 607,200
Baldor Electric Co.............................. 27,867 604,358
Belden, Inc..................................... 20,300 715,575
C-Cube Microsystems, Inc. (a)................... 28,600 466,537
Fluke Corp...................................... 14,200 370,087
KEMET Corp. (a)................................. 30,500 590,937
Kent Electronics Corp. (a)...................... 20,500 515,062
Kuhlman Corp.................................... 12,700 496,887
Kulicke & Soffa Industries, Inc. (a)............ 18,100 337,112
Microchip Technology, Inc. (a).................. 41,750 1,252,500
Pacific Scientific Co........................... 9,400 225,600
Valence Technology, Inc. (a).................... 18,100 91,631
Vicor Corp. (a)................................. 33,300 903,262
--------------
7,176,748
--------------
ELECTRONICS -- 4.8%
Bell Industries, Inc............................ 7,025 96,594
Benchmark Electronics, Inc. (a)................. 9,000 200,812
BMC Industries, Inc............................. 21,600 348,300
C-COR Electronics, Inc. (a)..................... 7,300 112,237
Cable Design Technologies (a)................... 300 11,662
Checkpoint Systems, Inc. (a).................... 26,300 460,250
Dallas Semiconductor Corp....................... 21,200 863,900
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B43
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Dionex Corp. (a)................................ 9,400 $ 472,350
Dynatech Corp. (a).............................. 12,850 602,344
Electro Scientific Industries, Inc. (a)......... 8,900 338,200
Electroglas, Inc. (a)........................... 15,100 233,106
Etec Systems, Inc............................... 16,700 776,550
Helix Technology Corp........................... 15,500 302,250
Innovex, Inc.................................... 11,400 261,487
Integrated Circuit Systems, Inc. (a)............ 9,400 267,900
Intermagnetics General Corp. (a)................ 9,764 78,722
International Rectifier Corp. (a)............... 39,600 467,775
Itron, Inc. (a)................................. 11,300 203,400
Lattice Semiconductor Corp. (a)................. 18,000 852,750
Marshall Industries (a)......................... 12,800 384,000
Methode Electronics, Inc. (Class "A" Stock)..... 27,700 450,125
Oak Industries, Inc. (a)........................ 13,800 409,687
Park Electrochemical Corp....................... 8,700 246,862
Photronics, Inc. (a)............................ 18,600 451,050
Picturetel Corp. (a)............................ 29,500 191,750
Pioneer Standard Electronics, Inc............... 20,400 311,100
Plexus Corp. (a)................................ 11,500 171,062
S3, Inc. (a).................................... 38,800 194,000
Sanmina Corp. (a)............................... 16,100 1,090,775
SpeedFam International, Inc. (a)................ 11,900 315,350
Three-Five Systems, Inc. (a).................... 6,075 100,237
Tracor, Inc. (a)................................ 19,500 592,312
Tseng Laboratories, Inc......................... 14,900 20,487
Ultratech Stepper, Inc. (a)..................... 16,100 319,987
Unitrode Corp. (a).............................. 18,100 389,150
VLSI Technology, Inc. (a)....................... 36,300 857,587
X-Rite, Inc..................................... 16,500 301,125
ZERO Corp....................................... 9,600 284,400
--------------
14,031,635
--------------
ENVIRONMENTAL SERVICES -- 0.4%
Dames & Moore, Inc.............................. 13,900 184,175
Ionics, Inc. (a)................................ 12,400 485,150
OHM Corp. (a)................................... 21,100 160,887
TETRA Technologies, Inc. (a).................... 10,200 214,837
--------------
1,045,049
--------------
EXPLORATION & PRODUCTION -- 0.2%
Newfield Exploration Co. (a).................... 27,550 642,259
--------------
FINANCIAL SERVICES -- 2.9%
AMRESCO, Inc. (a)............................... 28,400 859,100
Eaton Vance Corp................................ 14,350 541,712
Envoy Corporation (a)........................... 12,900 375,712
Interra Financial, Inc.......................... 9,600 662,400
Investors Financial Services Corp. (a).......... 69 3,174
Legg Mason, Inc................................. 18,866 1,055,317
National Auto Credit, Inc....................... 22,090 117,353
Pioneer Group, Inc.............................. 19,700 554,062
Piper Jaffray Companies, Inc.................... 14,450 526,522
Quick & Reilly Group, Inc....................... 29,825 1,282,475
Raymond James Financial, Inc.................... 24,712 980,757
SEI Corp........................................ 14,400 604,800
TCF Financial Corp.............................. 200 6,787
U.S. Trust Corp................................. 15,300 958,162
--------------
8,528,333
--------------
FOOD & BEVERAGES -- 2.3%
Canandaigua Wine Co............................. 14,300 791,862
Chiquita Brands International, Inc.............. 43,575 710,817
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Coca-Cola Bottling Co........................... 6,500 $ 448,500
Dekalb Genetics Corp. (Class "B" Stock)......... 26,600 1,044,050
Earthgrains Co.................................. 16,700 784,900
GoodMark Foods, Inc............................. 5,700 105,450
J & J Snack Foods Corp. (a)..................... 6,900 112,987
JP Foodservice, Inc. (a)........................ 16,740 618,334
Nash-Finch Co................................... 8,800 167,200
Richfood Holdings, Inc.......................... 36,600 1,033,950
Smithfield Foods, Inc. (a)...................... 29,400 970,200
--------------
6,788,250
--------------
FOREST PRODUCTS -- 0.3%
Caraustar Industries, Inc....................... 19,300 661,025
Pope & Talbot, Inc.............................. 10,325 155,520
Universal Forest Products, Inc.................. 13,400 182,575
--------------
999,120
--------------
FURNITURE -- 0.9%
Ethan Allen Interiors, Inc. (a)................. 22,400 863,800
Interface, Inc. (Class "A" Stock)............... 18,800 545,200
Juno Lighting, Inc.............................. 14,500 253,750
La-Z-Boy Chair Co............................... 14,000 603,750
Thomas Industries, Inc.......................... 12,150 239,962
--------------
2,506,462
--------------
HEALTHCARE -- 1.4%
A.O. Smith Corp................................. 13,500 570,375
Bio-Technology General Corp..................... 36,800 395,600
Coventry Corp. (a).............................. 25,900 394,975
LCA-Vision, Inc. (a)............................ 6,857 7,714
Paragon Health Network, Inc. (a)................ 12,705 248,542
Renal Care Group, Inc. (a)...................... 17,700 566,400
Renal Treatment Centers, Inc.................... 19,400 700,825
Sierra Health Services, Inc. (a)................ 14,050 472,431
Sola International, Inc. (a).................... 18,800 611,000
--------------
3,967,862
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 2.9%
Access Health, Inc. (a)......................... 14,100 414,187
Express Scripts, Inc. (Class "A" Stock) (a)..... 12,900 774,000
Genesis Health Ventures, Inc. (a)............... 27,100 714,762
Integrated Health Services, Inc................. 33,460 1,043,534
Lincare Holdings, Inc. (a)...................... 22,200 1,265,400
Magellan Health Services, Inc. (a).............. 22,300 479,450
Mariner Health Group, Inc. (a).................. 23,000 373,750
Orthodontic Centers of America, Inc. (a)........ 34,000 565,250
Pediatrix Medical Group, Inc. (a)............... 200 8,550
PhyCor, Inc. (a)................................ 50,275 1,357,425
Universal Health Services, Inc. (Class "B"
Stock) (a).................................... 25,175 1,268,191
--------------
8,264,499
--------------
HOUSING RELATED -- 0.9%
Champion Enterprises, Inc. (a).................. 36,200 744,362
Continental Homes Holding Corp.................. 5,300 213,325
Fedders Corp.................................... 28,700 179,375
Kimberly-Clark Corp............................. 6,510 321,024
National Presto Industries, Inc................. 100 3,956
Ryland Group, Inc............................... 11,525 272,278
Skyline Corp.................................... 7,400 203,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B44
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TJ International, Inc........................... 13,800 $ 341,550
U.S. Home Corp. (a)............................. 9,100 357,175
--------------
2,636,545
--------------
INSURANCE -- 5.0%
Allied Group, Inc............................... 23,475 671,972
American Bankers Insurance Group, Inc........... 32,200 1,479,187
Arthur J. Gallagher & Co........................ 12,600 433,912
Capital Re Corp................................. 12,200 757,163
CMAC Investment Corp............................ 17,300 1,044,488
Compdent Corp. (a).............................. 7,900 160,222
Enhance Financial Services Group, Inc........... 14,300 850,850
Executive Risk, Inc............................. 8,200 572,463
Fidelity National Financial, Inc................ 11,774 366,478
First American Financial Corp................... 8,900 657,488
Fremont General Corp............................ 25,270 1,383,533
Frontier Insurance Group, Inc................... 25,920 592,920
Hilb, Rogal and Hamilton Co..................... 10,100 195,056
Life Re Corp.................................... 10,525 686,098
Mutual Risk Management, Ltd..................... 28,900 865,194
Orion Capital Corp.............................. 21,400 993,763
Protective Life Corp............................ 23,900 1,428,025
Selective Insurance Group, Inc.................. 22,900 618,300
Trenwick Group, Inc............................. 9,350 351,794
Zenith National Insurance Corp.................. 13,800 355,350
--------------
14,464,256
--------------
LEISURE -- 2.1%
Aztar Corp. (a)................................. 34,800 217,500
Bell Sports Corp. (a)........................... 10,800 91,125
Carmike Cinemas, Inc. (Class "A" Stock) (a)..... 8,900 255,319
Cineplex Odeon Corp. (a)........................ 136,700 170,875
GC Companies, Inc. (a).......................... 5,800 274,775
Global Motorsport Group, Inc. (a)............... 4,000 46,500
Grand Casinos, Inc. (a)......................... 32,450 442,131
Hollywood Park, Inc. (a)........................ 19,800 435,600
Huffy Corp...................................... 9,800 132,300
K2, Inc. (a).................................... 12,800 291,200
Marcus Corp..................................... 23,225 428,211
Players International, Inc. (a)................. 25,000 79,688
Primadonna Resorts, Inc. (a).................... 22,600 377,138
Prime Hospitality Corp. (a)..................... 31,500 641,813
Regal Cinemas, Inc. (a)......................... 28,225 786,772
Showboat, Inc................................... 12,400 364,250
Sturm Ruger & Company, Inc...................... 20,900 385,344
Thor Industries, Inc............................ 6,300 216,169
Winnebago Industries, Inc....................... 19,600 173,950
WMS Industries, Inc. (a)........................ 19,700 416,163
--------------
6,226,823
--------------
MACHINERY -- 2.6%
Applied Industrial Technologies, Inc............ 16,800 449,400
Applied Power, Inc. (Class "A" Stock)........... 10,600 731,400
Astec Industries, Inc. (a)...................... 7,300 122,275
Cognex Corp. (a)................................ 32,400 882,900
Global Industrial Technologies, Inc. (a)........ 17,400 294,713
JLG Industries, Inc............................. 33,800 477,425
Lindsay Manufacturing Co. (a)................... 7,275 315,553
Manitowoc Company, Inc.......................... 13,275 431,438
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Novellus Systems, Inc. (a)...................... 26,000 $ 840,125
Paxar Corp...................................... 27,852 412,558
Regal Beloit Corp............................... 16,000 473,000
Robbins & Myers, Inc............................ 8,500 336,813
Roper Industries, Inc........................... 23,700 669,525
Royal Appliance Manufacturing Co. (a)........... 18,100 119,913
SPX Corp........................................ 9,020 622,380
Toro Co......................................... 9,300 396,413
--------------
7,575,831
--------------
MEDIA -- 0.2%
Catalina Marketing Corp. (a).................... 14,200 656,750
NTN Communications, Inc. (a).................... 17,600 17,600
--------------
674,350
--------------
METALS-FERROUS -- 0.6%
Acme Metals, Inc. (a)........................... 9,100 89,863
Birmingham Steel Corp........................... 23,000 362,250
Commercial Metals Co............................ 11,400 359,813
Material Sciences Corp. (a)..................... 11,825 144,117
Northwestern Steel and Wire Co. (a)............. 19,500 51,188
Quanex Corp..................................... 10,825 304,453
Steel Technologies, Inc......................... 9,400 110,450
WHX Corp. (a)................................... 17,300 205,438
--------------
1,627,572
--------------
METALS-NON FERROUS -- 0.6%
Amcast Industrial Corp.......................... 6,700 153,681
AMCOL International Corp........................ 22,250 353,219
Castle (A.M.) & Co.............................. 10,800 247,050
Commonwealth Industries, Inc.................... 11,900 172,550
Handy & Harman.................................. 9,200 317,400
Hecla Mining Co. (a)............................ 42,500 209,844
IMCO Recycling, Inc. (a)........................ 9,700 155,806
--------------
1,609,550
--------------
MINERAL RESOURCES -- 0.1%
Dravo Corp...................................... 11,400 125,400
Kronos, Inc. (a)................................ 6,400 197,200
--------------
322,600
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 5.6%
Air Express International Corp.................. 53,600 1,634,800
Alliant Techsystems, Inc........................ 10,100 563,075
Apogee Enterprises, Inc......................... 21,700 257,688
Aquarion Co..................................... 5,550 191,822
Bassett Furniture Industries, Inc............... 10,200 306,000
Blout International, Inc........................ 28,800 768,600
Butler Manufacturing Co......................... 6,000 193,500
Clarcor, Inc.................................... 12,400 367,350
Consumers Water Co.............................. 6,900 138,000
CPI Corp........................................ 9,100 205,888
Cross (A.T.) Co. (Class "A" Stock).............. 12,700 128,588
Cyrk, Inc. (a).................................. 10,700 103,656
Expeditors International of Washington, Inc..... 19,100 735,350
Figgie International, Inc. (Class "A"
Stock) (a).................................... 14,400 189,000
Fisher Scientific International, Inc............ 15,675 748,481
Flow International Corp. (a).................... 11,500 107,813
Gentex Corp. (a)................................ 27,400 736,375
Geon Co. (a).................................... 17,800 416,075
Griffon Corp. (a)............................... 23,500 343,688
Harmon Industries, Inc.......................... 5,400 149,850
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B45
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Hologic, Inc. (a)............................... 10,200 $ 211,013
Insteel Industries, Inc......................... 6,500 44,688
Intermet Corp. (a).............................. 19,700 344,750
Justin Industries, Inc.......................... 20,600 280,675
K-Swiss, Inc. (Class "A" Stock)................. 4,600 74,750
Lydall, Inc. (a)................................ 12,800 249,600
Medusa Corp..................................... 13,100 547,744
Mohawk Industries, Inc. (a)..................... 39,800 873,113
Mueller Industries, Inc. (a).................... 13,450 793,550
O'Sullivan Corp................................. 12,100 128,563
Paragon Trade Brands, Inc. (a).................. 9,200 118,450
SPS Technologies, Inc. (a)...................... 9,500 414,438
Standex International Corp...................... 10,200 359,550
Texas Industries, Inc........................... 16,200 729,000
The Rival Co.................................... 7,400 97,125
Timberland Co. (Class "A" Stock) (a)............ 8,700 505,144
Tredegar Industries, Inc........................ 9,650 635,694
Valmont Industries, Inc......................... 21,500 419,250
Walbro Corp..................................... 6,800 91,375
Watsco, Inc..................................... 200 4,938
Whittaker Corp. (a)............................. 8,600 94,600
Wolverine Tube, Inc. (a)........................ 10,900 337,900
Wolverine World Wide, Inc....................... 32,712 740,109
--------------
16,381,618
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.1%
DeVRY, Inc. (a)................................. 26,675 850,266
Hughes Supply, Inc.............................. 13,550 473,403
Philadelphia Suburban Corp...................... 15,050 443,034
Southern California Water Co.................... 6,900 173,363
Valassis Communications, Inc. (a)............... 31,300 1,158,100
--------------
3,098,166
--------------
OIL & GAS -- 1.8%
Benton Oil & Gas Co. (a)........................ 22,700 293,681
Cabot Oil & Gas Corp. (Class "A" Stock)......... 18,900 367,369
Cascade Natural Gas Corp........................ 8,422 157,913
Cross Timbers Oil Co............................ 20,350 507,478
Northwest Natural Gas Co........................ 17,800 551,800
Piedmont Natural Gas Company, Inc............... 23,000 826,563
Santa Fe Energy Resources, Inc. (a)............. 79,600 895,500
Snyder Oil Corp................................. 23,000 419,750
Southwest Gas Corp.............................. 21,000 392,438
Vintage Petroleum, Inc.......................... 39,800 756,200
Wiser Oil Co.................................... 6,900 97,463
--------------
5,266,155
--------------
OIL & GAS SERVICES -- 5.3%
Atmos Energy Corp............................... 22,800 689,700
Barrett Resources Corp. (a)..................... 24,210 732,353
Camco International, Inc........................ 29,860 1,901,709
Connecticut Energy Corp......................... 7,100 213,888
Daniel Industries............................... 13,100 252,175
Devon Energy Corp............................... 25,000 962,500
Energen Corp.................................... 10,200 405,450
HS Resources, Inc. (a).......................... 13,000 179,563
Input/Output, Inc. (a).......................... 33,500 994,531
KCS Energy, Inc................................. 22,600 468,950
KN Energy, Inc.................................. 24,150 1,304,100
New Jersey Resources Corp....................... 13,900 556,869
Oceaneering International, Inc. (a)............. 17,900 353,525
Offshore Logistics, Inc. (a).................... 16,600 354,825
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Pennsylvania Enterprises, Inc................... 7,400 $ 186,850
Plains Resources, Inc. (a)...................... 12,700 218,281
Pogo Producing Co............................... 25,900 764,050
Pool Energy Services Co. (a).................... 15,000 333,750
Pride Petroleum Services, Inc................... 36,500 921,625
Public Service Company of North Carolina,
Inc........................................... 15,175 347,128
Remington Oil & Gas Corp. (Class "B"
Stock) (a).................................... 15,900 82,481
Seitel, Inc. (a)................................ 16,894 289,310
Southwestern Energy Co.......................... 19,100 245,913
St. Mary Land & Exploration Co.................. 8,600 301,000
Tuboscope Vetco International, Inc. (a)......... 33,700 810,906
United Meridian Corp. (a)....................... 27,600 776,250
WICOR, Inc...................................... 14,200 659,413
--------------
15,307,095
--------------
PAPER AND RELATED PRODUCTS -- 0.7%
Buckeye Technologies, Inc. (a).................. 14,500 670,625
Schweitzer-Mauduit International, Inc........... 12,500 465,625
W.H. Brady Co................................... 17,200 533,200
Wausau-Mosinee Paper Corp....................... 16,449 331,028
--------------
2,000,478
--------------
PRECIOUS METALS -- 0.4%
Coeur D'Alene Mines Corp........................ 16,900 152,100
Getchell Gold Co. (a)........................... 20,900 501,600
Glamis Gold, Ltd................................ 24,200 89,238
Stillwater Mining Co. (a)....................... 15,600 261,300
--------------
1,004,238
--------------
RAILROADS -- 0.0%
RailTex, Inc. (a)............................... 7,200 103,050
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Toll Brothers, Inc. (a)......................... 26,400 706,200
--------------
RESTAURANTS -- 2.0%
Applebee's International, Inc................... 24,600 444,338
Au Bon Pain, Inc. (Class "A" Stock) (a)......... 9,200 69,575
Bertucci's, Inc. (a)............................ 6,900 43,988
Cheesecake Factory (a).......................... 10,100 308,050
CKE Restaurants, Inc............................ 31,450 1,324,831
Foodmaker, Inc. (a)............................. 30,200 454,888
IHOP Corp. (a).................................. 7,500 243,750
Landry's Seafood Restaurants, Inc............... 20,000 480,000
Luby's Cafeterias, Inc.......................... 18,000 316,125
Ruby Tuesday Inc................................ 13,500 347,625
Ryan's Family Steak Houses, Inc. (a)............ 37,000 316,813
Shoney's, Inc. (a).............................. 37,600 119,850
Showbiz Pizza Time, Inc. (a).................... 14,650 336,950
Sonic Corp. (a)................................. 9,950 279,844
Taco Cabana (Class "A" Stock) (a)............... 1,400 6,650
TCBY Enterprises, Inc........................... 18,300 138,394
Triarc Companies, Inc. (Class "A" Stock) (a).... 23,300 634,925
--------------
5,866,596
--------------
RETAIL -- 6.0%
Arbor Drugs, Inc................................ 45,937 849,835
Arctic Cat, Inc................................. 22,800 220,875
Bombay Company, Inc. (a)........................ 29,400 135,975
Books-A-Million, Inc. (a)....................... 13,600 79,050
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B46
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Brown Group, Inc................................ 14,050 $ 187,041
Building Materials Holding Corp. (a)............ 9,300 97,650
Carson Pirie Scott & Co. (a).................... 12,300 616,538
Casey's General Stores, Inc..................... 20,500 520,188
Cash America International, Inc................. 18,643 241,194
Cato Corp. (Class "A" Stock).................... 22,300 197,913
Consolidated Products, Inc. (a)................. 15,875 259,953
Damark International, Inc. (a).................. 6,300 61,425
Designs, Inc. (a)............................... 12,200 36,600
Discount Auto Parts, Inc. (a)................... 12,700 242,888
Dress Barn, Inc. (a)............................ 17,900 507,913
Eagle Hardware & Garden, Inc. (a)............... 22,700 439,813
Fabri-Centers of America (Class "A" Stock)...... 14,100 314,613
Filene's Basement Corp. (a)..................... 16,200 64,800
Footstar, Inc. (a).............................. 22,600 607,375
Galoob Toys, Inc. (a)........................... 13,900 141,606
Gottschalks, Inc. (a)........................... 8,000 67,000
Gymboree Corp................................... 19,400 531,075
J. Baker, Inc................................... 10,900 61,313
Jan Bell Marketing, Inc. (a).................... 20,000 50,000
Just For Feet, Inc.............................. 23,400 307,125
Lechters, Inc. (a).............................. 1,100 5,569
Lillian Vernon Corp............................. 7,400 123,025
Michaels Stores, Inc. (a)....................... 22,200 649,350
MicroAge, Inc. (a).............................. 12,100 182,256
O'Reilly Automotive, Inc. (a)................... 16,500 433,125
Oshkosh B' Gosh, Inc. (Class "A" Stock)......... 7,900 260,700
Pier 1 Imports, Inc............................. 52,500 1,187,813
Proffitt's, Inc. (a)............................ 41,500 1,180,156
Regis Corp...................................... 17,700 444,713
Ross Stores, Inc................................ 38,900 1,414,988
Russ Berrie & Company, Inc...................... 16,800 441,000
Shopko Stores, Inc.............................. 20,100 437,175
Sports Authority, Inc........................... 24,450 360,638
Stein Mart, Inc. (a)............................ 18,100 484,175
Stride Rite Corp................................ 37,500 450,000
Swiss Army Brands, Inc. (a)..................... 6,400 64,800
The Men's Wearhouse, Inc. (a)................... 17,200 597,700
Whole Foods Market, Inc. (a).................... 19,000 971,375
Williams-Sonoma, Inc. (a)....................... 20,000 837,500
--------------
17,365,816
--------------
SAFETY -- 0.1%
Rural/Metro Corp. (a)........................... 10,300 343,763
--------------
TELECOMMUNICATIONS -- 2.7%
ACC Corp........................................ 13,100 661,550
Allen Telecom, Inc.............................. 21,200 390,875
Aspect Telecommunications Corp. (a)............. 38,600 805,775
Boston Technology, Inc.......................... 21,000 527,625
BroadBand Technologies, Inc. (a)................ 10,400 42,900
California Microwave, Inc. (a).................. 12,800 248,000
Centigram Communications Corp. (a).............. 5,600 94,850
CommNet Cellular, Inc. (a)...................... 10,800 384,075
Dialogic Corp................................... 12,400 542,500
Digi International, Inc. (a).................... 10,500 178,500
Digital Microwave Corp. (a)..................... 29,500 427,750
General Communication, Inc. (a)................. 38,700 256,388
Geotek Communications, Inc...................... 52,200 79,931
InterVoice, Inc. (a)............................ 11,900 89,250
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Network Equipment Technologies, Inc. (a)........ 16,300 $ 238,388
P-COM, Inc. (a)................................. 32,400 558,900
Symmetricom, Inc. (a)........................... 12,400 144,150
TCSI Corp. (a).................................. 16,900 135,200
Tel-Save Holdings, Inc.......................... 51,100 1,015,613
Vitesse Semicondutor Corp. (a).................. 27,650 1,043,788
--------------
7,866,008
--------------
TEXTILES -- 1.8%
Angelica Corp................................... 7,000 158,375
Ashworth, Inc. (a).............................. 9,600 105,600
Authentic Fitness Corp.......................... 17,300 318,969
Cone Mills Corp. (a)............................ 20,100 155,775
Delta Woodside Industries, Inc.................. 18,800 91,650
Dixie Group, Inc................................ 8,800 100,100
G & K Services, Inc. (Class "A" Stock).......... 16,000 672,000
Galey & Lord, Inc. (a).......................... 9,000 160,875
Guilford Mills, Inc............................. 17,137 469,125
Haggar Corp..................................... 6,700 105,525
Hancock Fabrics................................. 16,700 242,150
Hartmarx Corp. (a).............................. 26,000 198,250
Johnston Industries, Inc........................ 8,300 36,313
Kellwood Co..................................... 16,475 494,250
Nautica Enterprises, Inc. (a)................... 30,300 704,475
Oxford Industries, Inc.......................... 6,800 221,000
Pillowtex Corp. (a)............................. 10,210 356,070
St. John Knits, Inc............................. 12,850 514,000
Tultex Corp. (a)................................ 23,100 93,844
--------------
5,198,346
--------------
TOBACCO -- 0.3%
DIMON, Inc...................................... 34,175 897,094
--------------
TRUCKING/SHIPPING -- 1.8%
American Freightways, Inc....................... 24,500 241,938
Arkansas Best Corp.............................. 15,300 149,175
Fritz Companies Inc. (a)........................ 27,700 386,069
Frozen Food Express Industries, Inc............. 13,100 117,900
Heartland Express, Inc. (a)..................... 23,449 630,192
Kirby Corp. (a)................................. 18,700 361,144
Landstar Systems, Inc. (a)...................... 9,900 261,113
M.S. Carriers, Inc. (a)......................... 9,400 233,825
Pittston Burlington Group....................... 15,875 416,719
Rollins Truck Leasing Corp...................... 31,800 568,425
USFreightways Corp.............................. 20,300 659,750
Werner Enterprises, Inc......................... 29,950 613,975
Yellow Corp. (b)................................ 22,200 557,775
--------------
5,198,000
--------------
UTILITY - ELECTRIC -- 1.8%
Bangor Hydro-Electric Co. (a)................... 5,675 35,114
Central Hudson Gas & Electric................... 13,400 587,925
Central Vermont Public Service.................. 8,800 134,200
CILCORP, Inc.................................... 10,500 513,188
Commonwealth Energy System...................... 16,575 551,119
Eastern Utilities Associates.................... 15,800 414,750
Green Mountain Power Corp....................... 4,000 73,250
Interstate Power Co............................. 7,500 280,781
Orange & Rockland Utilities, Inc................ 10,600 493,563
Sierra Pacific Resources........................ 23,900 896,250
TNP Enterprises, Inc............................ 10,100 335,825
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B47
<PAGE>

SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
United Illuminating Co.......................... 10,825 $ 497,273
United Water Resources, Inc..................... 27,400 536,013
--------------
5,349,251
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $232,617,042)............................................ 272,674,768
--------------

PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 6.2% (000)
-------------
REPURCHASE AGREEMENT -- 6.0%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... $ 17,297 17,297,000
--------------
U. S. GOVERNMENT OBLIGATIONS -- 0.2%
United States Treasury Bills,
5.065%, 03/19/98 (b).......................... 400 395,723
5.195%, 03/19/98.............................. 100 98,903
--------------
494,626
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $17,791,626)............................................. 17,791,626
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $250,408,668; Note 6).................................... 290,466,394
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C)...................
68,375
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)..................
(224,855)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 290,309,914
--------------
--------------
</TABLE>

(a) Non-income producing security.

(b) Security segregated as collateral for future contracts.

<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, UNREALIZED
CONTRACTS TYPE DATE TRADE DATE 1997 APPRECIATION
Long Position
MIDCAP 400
105 Index Mar 98 $17,267,425 $17,595,375 $327,950
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B48
<PAGE>

GLOBAL PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.1%
VALUE
COMMON STOCKS -- 92.1% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 2.6%
Brambles Industries, Ltd. (Diversified
Operations)................................... 615,200 $ 12,204,445
FXF Trust (Media) (a)........................... 224,600 38,045
Publishing and Broadcasting, Ltd. (Media)....... 224,600 1,011,704
Woolworths, Ltd. (Retail)....................... 1,056,356 3,530,548
--------------
16,784,742
--------------
FEDERAL REPUBLIC OF GERMANY -- 4.0%
Linde, AG (Machinery)........................... 12,040 7,350,730
SAP, AG (Computer Services)..................... 39,100 11,881,426
Volkswagen, AG (Autos - Cars & Trucks).......... 11,700 6,583,669
--------------
25,815,825
--------------
FINLAND -- 2.0%
Nokia Corp. (Class "A" Stock)
(Telecommunications).......................... 177,300 12,587,555
--------------
FRANCE -- 5.1%
Carrefour Supermarche, SA (Retail).............. 10,300 5,375,551
France Telecom, SA (Telecommunications) (a)..... 50,000 1,814,178
Legrand, SA (Electrical Equipment).............. 42,500 8,469,625
Total, SA (Class "B" Stock) (Petroleum)......... 69,400 7,555,389
Valeo, SA (Autos - Cars & Trucks)............... 144,685 9,816,408
--------------
33,031,151
--------------
HONG KONG -- 2.0%
Hutchison Whampoa, Ltd. (Diversified
Operations)................................... 1,349,000 8,444,308
New World Development Co., Ltd. (Real Estate
Development).................................. 1,179,000 4,078,110
--------------
12,522,418
--------------
IRELAND -- 2.7%
Bank Of Ireland (Banks and Savings & Loans)..... 1,105,100 17,066,660
--------------
ITALY -- 4.7%
Credito Italiano (Financial Services) (a)....... 3,307,500 10,200,510
Telecom Italia Mobile SpA
(Telecommunications).......................... 4,263,000 19,678,808
--------------
29,879,318
--------------
JAPAN -- 5.2%
Aoyama Trading Co., Ltd. (Retail)............... 214,000 3,823,333
Daibiru Corp. (Real Estate Development)......... 1,070,000 7,835,372
Daito Trust Construction Co. (Construction)..... 541,000 3,306,192
NAMCO, Ltd. (Leisure)........................... 70,500 2,048,806
Nomura Securities Co., Ltd (Financial
Services)..................................... 709,000 9,459,495
Okumura Corp. (Construction).................... 1,275,000 3,030,710
Senshukai Co., Ltd. (Retail).................... 163,000 612,430
Shiseido Co., Ltd. (Cosmetics & Soaps).......... 116,000 1,583,253
Xebio Co., Ltd. (Retail)........................ 146,900 1,171,460
Yamamura Glass Co., Ltd. (Household Products)... 95,000 105,624
--------------
32,976,675
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
NETHERLANDS -- 2.6%
Nutricia Verenigde Bedrijven (Food &
Beverages).................................... 200,000 $ 6,067,713
Royal Dutch Petroleum Co. (Oil Services)........ 186,100 10,217,895
SGS-Thomson Microelectronics, N.V.
(Electronics) (a)............................. 5,440 332,180
--------------
16,617,788
--------------
PHILIPPINES -- 1.0%
Philippine Long Distance Telephone,
ADR (Telecommunications)...................... 276,400 6,219,000
--------------
SINGAPORE -- 0.2%
Sembawang Maritime, Ltd. (Trucking/Shipping).... 883,500 1,302,276
--------------
SPAIN -- 3.2%
Banco Central Hispanoamericano, SA (Banks &
Financial Services) (a)....................... 514,212 12,520,792
Telefonica De Espana (Telecommunications)....... 285,300 8,145,293
--------------
20,666,085
--------------
SWEDEN -- 3.9%
Allgon Corp. (Electronics)...................... 48,000 648,381
Hennes & Mauritz, AB (Retail)................... 261,300 11,545,492
Mo Och Domsjo, AB (Series "B" Free) (Forest
Products)..................................... 124,800 3,229,784
Nordbanken Holding, AB (Banks & Financial
Services) (a)................................. 1,697,000 9,619,072
--------------
25,042,729
--------------
SWITZERLAND -- 1.5%
Novartis, AG (Drugs and Medical Supplies)....... 5,900 9,564,295
--------------
UNITED KINGDOM -- 11.9%
Barclays, PLC (Banks and Savings & Loans)....... 353,200 9,455,372
Dixons Group, PLC (Retail)...................... 886,200 8,943,430
Guest Kean & Nettlefolds, PLC (Autos - Cars &
Trucks)....................................... 339,840 6,999,582
Hays, PLC (Commercial Services)................. 584,400 7,823,669
Johnson Matthey, PLC (Precious Metals).......... 723,400 6,511,877
Royal & Sun Alliance Insurance Group, PLC
(Insurance)................................... 701,400 7,101,620
Siebe, PLC (Machinery).......................... 482,240 9,518,364
Vodafone Group, PLC (Telecommunications)........ 2,692,600 19,568,417
--------------
75,922,331
--------------
UNITED STATES -- 39.5%
3Com Corp. (Computers) (a)...................... 152,200 5,317,487
Adaptec, Inc. (Computer Services) (a)........... 276,400 10,261,350
Adobe Systems, Inc. (Computer Services)......... 199,500 8,229,375
Baker Hughes, Inc. (Oil & Gas Services)......... 184,300 8,040,087
Circus Circus Enterprises, Inc. (Leisure) (a)... 346,300 7,099,150
Cisco Systems, Inc. (Computers) (a)............. 260,700 14,534,025
Consolidated Stores Corp. (Retail) (a).......... 215,400 9,464,137
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B49
<PAGE>

GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Electronic Arts, Inc. (Computer Services) (a)... 264,000 $ 9,982,500
Intel Corp. (Electronics)....................... 113,600 7,980,400
Mattel, Inc. (Toys)............................. 323,658 12,056,260
Microsoft Corp. (Computer Services) (a)......... 91,200 11,787,600
Mirage Resorts, Inc. (Leisure) (a).............. 342,800 7,798,700
Mobil Corp. (Oil & Gas)......................... 182,700 13,188,656
Oracle Corp. (Computer Services) (a)............ 190,500 4,250,531
PMC-Sierra, Inc. (Electronics) (a).............. 287,500 8,912,500
Proffitt's, Inc. (Retail) (a)................... 170,400 4,845,750
Progressive Corp. (Insurance)................... 49,800 5,969,775
Quorum Health Group, Inc. (Hospitals) (a)....... 228,400 5,966,950
Safeway, Inc. (Retail) (a)...................... 166,600 10,537,450
Tenet Healthcare Corp. (Hospitals/ Hospital
Management) (a)............................... 242,000 8,016,250
Texas Instruments, Inc. (Electronics)........... 248,800 11,196,000
The Limited, Inc. (Retail)...................... 383,200 9,771,600
Tiffany & Co. (Retail).......................... 180,000 6,491,250
Time Warner, Inc. (Media)....................... 195,000 12,090,000
Transocean Offshore, Inc. (Petroleum
Services)..................................... 179,500 8,649,656
U.S.A. Waste Services, Inc. (Environmental
Services) (a)................................. 185,300 7,273,025
Walt Disney Co. (Leisure)....................... 103,900 10,292,594
Wells Fargo & Co. (Banks and Savings & Loans)... 35,700 12,117,919
--------------
252,120,977
--------------
TOTAL COMMON STOCKS
(cost $472,116,637)............................................ 588,119,825
--------------

PREFERRED STOCKS -- 1.0%
FEDERAL REPUBLIC OF GERMANY -- 1.0%
Wella, AG (Cosmetics & Soaps)
(cost $6,328,858)............................. 8,500 6,451,389
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $478,445,495)............................................ 594,571,214
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 3.7% (000)
-------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
6.25%, 01/02/98 (cost $23,539,000) (b)........ $ 23,539 23,539,000
--------------
TOTAL INVESTMENTS -- 96.8%
(cost $501,984,495; Note 6).................................... 618,110,214

FORWARD CURRENCY CONTRACTS --
NET AMOUNT RECEIVABLE FROM
COUNTERPARTIES (C) -- 0.1%..................................... 473,292

OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.1%....................
19,817,846
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 638,401,352
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.
(b) Merrill Lynch, Pierce, Fenner & Smith, Inc., repurchase price $23,547,664
due 1/2/98. The value of the collateral was $24,008,143.
(c) Outstanding forward currency contracts at December 31, 1997 were as
follows:

<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT APPRECIATION
CONTRACTS DATE VALUE (DEPRECIATION)
- ---------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Sale:
Hong Kong Dollar,
expiring 04/27/98.... $ 2,122,100 $ 2,202,596 $ (80,496)
Japanese Yen,
expiring 05/21/98.... $ 16,000,000 $ 15,446,212 $ 553,788
</TABLE>

The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of December 31, 1997 were as
follows:

<TABLE>
<S> <C>
Commercial Banks 12.6%
Computer Services 11.9%
Retail 11.9%
Telecommunications 10.6%
Oil & Gas Services 7.4%
Electronics 5.9%
Leisure 4.3%
Automobiles 3.7%
Diversified Operations 3.2%
Machinery 2.6%
Hospitals 2.2%
Media 2.1%
Insurance 2.1%
Toys 1.9%
Real Estate Development 1.9%
Drugs & Medical Supplies 1.5%
Cosmetics & Soaps 1.3%
Commercial Services 1.2%
Environmental Services 1.1%
Precious Metals 1.0%
Construction 1.0%
Food & Beverage 1.0%
Forest Products 0.5%
Trucking & Shipping 0.2%
Repurchase Agreement 3.7%
---------
96.8%
---------
Forward currency contracts 0.1%
Other assets in excess of liabilities 3.1%
---------
100.0%
---------
---------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B50
<PAGE>

NATURAL RESOURCES PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.6%
VALUE
COMMON STOCKS -- 93.9% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ALUMINUM -- 1.9%
Aluminum Company of America..................... 59,100 $ 4,159,162
Comalco Ltd., ADR (Australia)................... 134,900 2,786,306
--------------
6,945,468
--------------
CHEMICALS
Agrium, Inc..................................... 503 6,124
--------------
EXPLORATION & PRODUCTION -- 14.1%
Abacan Resource Corp. (a)....................... 676,500 1,057,031
Apex Silver Mines, Ltd. (a)..................... 221,600 2,825,400
Arakis Energy Corp.............................. 1,010,000 2,083,125
Atna Resources, Ltd. (a)........................ 331,200 340,691
Brigham Exploration Company (a)................. 123,000 1,798,875
Fx Energy, Inc.................................. 147,800 960,700
Harcor Energy, Inc.............................. 355,300 588,466
Newfield Exploration Co. (a).................... 468,800 10,928,900
PetroCorp, Inc. (a)............................. 206,600 1,704,450
Pioneer Natural Resources Co.................... 543,660 15,732,161
Ranger Oil, Ltd................................. 856,246 5,841,922
Sutton Resources, Ltd. (a)...................... 134,200 906,217
Tom Brown, Inc. (a)............................. 291,000 5,601,750
--------------
50,369,688
--------------
FOREST PRODUCTS -- 13.2%
Boise Cascade Corp.............................. 200,000 6,050,000
Champion International Corp..................... 320,100 14,504,531
Fletcher Challenge, Ltd., ADR (New Zealand)..... 418,300 3,503,262
Louisiana-Pacific Corp.......................... 324,700 6,169,300
Macmillan Bloedel, Ltd.......................... 912,000 9,477,065
Rayonier, Inc................................... 177,600 7,559,100
--------------
47,263,258
--------------
GOLD -- 16.9%
Agnico-Eagle Mines, Ltd......................... 450,600 2,450,137
Ashanti Goldfields Co., Ltd..................... 229,800 1,723,500
Avgold, Ltd., ADR (South Africa) (a)............ 175,000 1,312,500
Barrick Gold Corp............................... 313,053 5,830,612
Battle Mountain Gold Corp....................... 154,200 905,925
Bema Gold Corp.................................. 679,000 1,655,062
Cambior, Inc.................................... 690,500 4,035,900
Coeur D'Alene Mines Corp........................ 87,825 790,425
Durban Roodeport Deep, ADR (South Africa)....... 150,000 225,000
Getchell Gold Co. (a)........................... 329,111 7,898,664
Golden Knight Resources, Inc. (a)............... 285,400 675,030
Golden Star Resources........................... 328,000 1,168,500
Greenstone Resources, Ltd....................... 459,200 2,185,060
Harmony Gold Mining, ADR (South Africa)......... 468,000 1,053,000
Iamgold International Mining (South Africa)..... 400,000 1,259,578
International Pursuit Corp...................... 343,100 271,301
Kloof Gold Mining Co., Ltd., ADR (South
Africa)....................................... 257,900 854,294
Meridian Gold, Inc.............................. 714,900 2,001,050
Newmont Mining Corp............................. 406,307 11,935,268
Placer Dome, Inc................................ 284,000 3,603,250
Rea Gold Corp. (a).............................. 1,467,000 123,187
Royal Oaks Mines, Inc. (a)...................... 400,000 625,000
Samax Gold, Inc................................. 363,800 1,081,943
TVX Gold, Inc. (a).............................. 552,900 1,866,037
Vaal Reefs Exploration & Mining Co., Ltd., ADR
(South Africa)................................ 350,000 1,345,313
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Western Areas Gold Mining Co., Ltd., ADR (South
Africa) (a)................................... 194,000 $ 1,018,500
Western Deep Levels Ltd., ADR (South Africa).... 147,000 2,737,875
--------------
60,631,911
--------------
METALS-NON FERROUS -- 9.4%
Cameco Corp..................................... 316,300 10,281,271
Freeport-McMoRan Copper & Gold, Inc., (Class "A"
Stock)........................................ 242,800 3,717,875
Potash Corp. of Saskatchewan, Inc. (Canada)..... 169,800 14,093,400
Reynolds Metals Co.............................. 90,000 5,400,000
Rio Tinto Ltd., ADR (Australia) (a)............. 1 47
--------------
33,492,593
--------------
OIL & GAS -- 20.8%
3-D Geophyscial, Inc. (a)....................... 232,800 1,513,200
Alberta Energy Co., Ltd......................... 481,600 9,343,248
Amerada Hess Corp............................... 81,400 4,466,825
Barrington Petroleum Ltd. (Canada) (a).......... 604,700 1,946,482
Beau Canada Exploration Ltd. (Class "A" Stock)
(Canada) (a).................................. 980,600 1,989,952
Blue Range Resource Corp. (Canada) (a).......... 636,000 3,004,094
Crestar Energy, Inc. (Canada) (a)............... 550,000 8,467,164
Cross Timbers Oil Co............................ 300,400 7,491,225
Noble Affiliates, Inc........................... 274,300 9,669,075
Northstar Energy Corp. (Canada) (a)............. 648,300 4,559,262
Rigel Energy Corp. (Canada) (a)................. 309,000 2,529,938
Rio Alto Exploration, Ltd. (Canada) (a)......... 332,900 2,795,424
Western Gas Resources, Inc...................... 759,000 16,792,875
--------------
74,568,764
--------------
OIL & GAS SERVICES -- 6.7%
Bouyges Offshore, SA, ADR (France) (a).......... 220,700 4,800,225
J. Ray McDermott, SA (a)........................ 239,200 10,285,600
NGC Corp........................................ 514,545 9,004,538
Tejas Gas Corp. (a)............................. 1 61
--------------
24,090,424
--------------
OIL SERVICES -- 1.9%
Dawson Production Services, Inc. (a)............ 145,700 2,531,538
Tesco Corp. (a)................................. 285,000 4,237,955
--------------
6,769,493
--------------
PLATINUM -- 9.0%
Anglo American Platinum, Ltd., ADR (South
Africa)....................................... 731,369 9,690,639
Impala Platinum Holdings, Ltd................... 947,600 8,942,975
Stillwater Mining Co. (a)....................... 799,600 13,393,300
--------------
32,026,914
--------------
TOTAL COMMON STOCKS
(cost $356,721,778)............................................ 336,164,637
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B51
<PAGE>

NATURAL RESOURCES PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS -- 1.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
GOLD -- 1.5%
Amax Gold, Inc. (Conv.), Series B............... 47,300 $ 1,702,800
Hecla Mining Co. (Cum. Conv.), Series B......... 82,400 3,852,200
--------------
5,555,000
--------------
NON-FERROUS METALS -- 0.3%
Freeport - McMoRan Copper & Gold, Inc........... 55,300 1,071,438
--------------
TOTAL PREFERRED STOCKS
(cost $7,394,941).............................................. 6,626,438
--------------

PRINCIPAL
AMOUNT
CONVERTIBLE BOND -- 0.9% (000)
-------------
GOLD
Coeur d'Alene Mines Corp.
6.375%, 01/31/04 (cost $3,835,699)............ $ 3,979 3,123,515
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $367,952,418)............................................ 345,914,590
--------------
SHORT-TERM
INVESTMENT -- 3.2%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
6.53% 01/02/98 (cost: $11,463,000; Note 5).... 11,463 11,463,000
--------------
TOTAL INVESTMENTS -- 99.8%
(cost $379,415,418; Note 6).................................... 357,377,590
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2%.................... 573,823
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 357,951,413
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-Income producing Security.

SEE NOTES TO FINANCIAL STATEMENTS.

B52
<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock: Money Market Portfolio,
Diversified Bond Portfolio, Government Income Portfolio, Zero Coupon Bond 2000
Portfolio, Zero Coupon Bond 2005 Portfolio, Conservative Balanced Portfolio,
Flexible Managed Portfolio, High Yield Bond Portfolio, Stock Index Portfolio,
Equity Income Portfolio, Equity Portfolio, Prudential Jennison Portfolio, Small
Capitalization Stock Portfolio, Global Portfolio and Natural Resources
Portfolio. Shares in the Series Fund are currently sold only to certain separate
accounts of The Prudential Insurance Company of America ("The Prudential"),
Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey
(together referred to as the "Companies") to fund benefits under certain
variable life insurance and variable annuity contracts ("contracts") issued by
the Companies. The accounts invest in shares of the Series Fund through
subaccounts that correspond to the Portfolios. The accounts will redeem shares
of the Series Fund to the extent necessary to provide benefits under the
contracts or for such other purposes as may be consistent with the contracts.
The ability of the issuers of the securities held by the Money Market Portfolio
to meet their obligations may be affected by economic developments in a specific
industry or region.

NOTE 2: ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.

Securities Valuation: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors.

The Money Market, Conservative Balanced and Flexible Managed Portfolios use
amortized cost to value short-term securities. Short-term securities that are
held in the other Portfolios which mature in more than 60 days are valued at
current market quotations and those short-term securities which mature in 60
days or less are valued at amortized cost.

Repurchase Agreements: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).

Foreign Currency Translation: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investment securities, other assets and liabilities - at the
current rates of exchange.

(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.

B53
<PAGE>

of securities held at the end of the fiscal year. Similarly, the Series Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal year. Accordingly, these realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions.

Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.

Short Sales: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the buyer. The proceeds of the short sale will be
retained by the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Portfolio may have to pay a fee to borrow the particular security and may be
obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.

Options: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.

The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.

Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.

B54
<PAGE>

loss. The use of futures transactions involves the risk of imperfect correlation
in movements in the price of futures contracts and the underlying assets.

The High Yield Bond Portfolio may hold up to 15% of its net assets in illiquid
securities, including those which are restricted as to disposition under
securities law ("restricted securities"). Certain issues of restricted
securities held by the High Yield Bond Portfolio at December 31, 1997 include
registration rights, some of which are currently under contract to be
registered. Restricted securities, sometimes referred to as private placements,
are valued pursuant to the valuation procedures noted above.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the period is
estimated to be a return of capital and is recorded as a reduction of their
costs. During the year ended December 31, 1997, certain portfolios purchased
securities from and sold securities to other portfolios of the Series Fund or
other funds or accounts managed by The Prudential or its affiliates in
accordance with the provisions of Rule 17a-7 of the Investment Company Act of
1940. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.

CUSTODY FEE CREDITS: The Series Fund, exclusive of the Global Portfolio, has an
arrangement with its custodian bank, whereby uninvested monies earn credits
which reduce the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying Statement of
Operations.

TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.

Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.

DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
The Money Market Portfolio will declare and reinvest dividends from net
investment income and net realized capital gain (loss) daily. Each other
Portfolio will declare and distribute dividends from net investment income, if
any, quarterly and net capital gains, if any, at least annually. Dividends and
distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. For the fiscal year
ended December 31, 1997, the application of this statement increased (decreased)
net unrealized appreciation on investments ("APP"), paid-in capital in excess of
par ("PC"), undistributed net investment income ("UNI") and accumulated net
realized gains (losses) on investments ("GL") by the following amounts:

<TABLE>
<CAPTION>
APP PC UNI G/L
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Conservative Balanced Portfolio........ -- $ 33,509 $ 48,752 $ (82,261)
Flexible Managed Portfolio............. -- -- 625,749 (625,749)
High Yield Bond Portfolio.............. $ (227,243) -- 337,328 (110,085)
Equity Income Portfolio................ -- (387,527) (2,921) 390,448
Equity Portfolio....................... -- -- 247,917 (247,917)
Global Portfolio....................... -- (903,000) 6,950,576 (6,047,576)
Natural Resources Portfolio............ -- -- 139,572 (139,572)
</TABLE>

B55
<PAGE>

Net investment income, net realized gains and net assets were not affected by
these reclassifications.

NOTE 3: AGREEMENTS

The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement, The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Associates LLC ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. The Prudential compensates Jennison for its
services as follows: 0.75% on the first $10 million of that Portfolio's average
daily net assets, 0.50% on the next $30 million, 0.35% on the next $25 million,
0.25% on the next $335 million, 0.22% on the next $600 million and 0.20%
thereafter. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.

The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.

<TABLE>
<CAPTION>
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
<S> <C>
Money Market Portfolio................. 0.40%
Diversified Bond Portfolio............. 0.40
Government Income Portfolio............ 0.40
Zero Coupon Bond 2000 Portfolio........ 0.40
Zero Coupon Bond 2005 Portfolio........ 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
High Yield Bond Portfolio.............. 0.55
Stock Index Portfolio.................. 0.35
Equity Income Portfolio................ 0.40
Equity Portfolio....................... 0.45
Prudential Jennison Portfolio.......... 0.60
Small Capitalization Stock Portfolio... 0.40
Global Portfolio....................... 0.75
Natural Resources Portfolio............ 0.45
</TABLE>

The Prudential has agreed to refund to a Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No refund was required for the fiscal year ended
December 31, 1997.

PIC and Jennison are indirect, wholly-owned subsidiaries of The Prudential.

The Series Fund entered into a credit agreement (the "Agreement") on October 28,
1997 with an unaffiliated lender. The maximum commitment under the Agreement is
$250,000,000. The Agreement expires on December 18, 1998. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series Fund has not borrowed any amounts pursuant to the Agreement as of
December 31, 1997. The Series Fund pays a commitment fee at an annual rate of
.055 of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly by the Series Fund.

B56
<PAGE>

NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES

For the fiscal year ended December 31, 1997, Prudential Securities Incorporated,
an indirect, wholly-owned subsidiary of The Prudential, earned $1,080,737 in
brokerage commissions from transactions executed on behalf of the Series Fund as
follows:

<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- -----------
<S> <C>
Conservative Balanced Portfolio........ $ 256,752
Flexible Managed Portfolio............. 428,008
Equity Income Portfolio................ 198,726
Equity Portfolio....................... 189,498
Global Portfolio....................... 7,621
Natural Resources Portfolio............ 132
-----------
$1,080,737
</TABLE>

NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT

The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$1,038,519,000 as of December 31, 1997. The Portfolios of the Series Fund with
cash invested in the joint accounts had the following principal amounts and
percentage participation in the account:

<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
--------------- ----------
<S> <C> <C>
Diversified Bond Portfolio............. $ 45,329,000 4.37%
Government Income Portfolio............ 13,337,000 1.28
Zero Coupon Bond 2000 Portfolio........ 244,000 0.02
Zero Coupon Bond 2005 Portfolio........ 445,000 0.04
Conservative Balanced Portfolio........ 81,783,000 7.88
Flexible Managed Portfolio............. 137,860,000 13.28
High Yield Bond Portfolio.............. 15,691,000 1.51
Stock Index Portfolio.................. 98,176,000 9.45
Equity Income Portfolio................ 98,435,000 9.48
Equity Portfolio....................... 490,528,000 47.23
Prudential Jennison Portfolio.......... 27,931,000 2.69
Small Capitalization Stock Portfolio... 17,297,000 1.67
Natural Resources Portfolio............ 11,463,000 1.10
--------------- ----------
$ 1,038,519,000 100.00%
</TABLE>

As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:

CIBC Oppenheimer, 6.10%, in the principal amount of $138,519,000, repurchase
price $138,566,045, due 1/2/98. The value of the collateral including accrued
interest was $141,862,492.

Salomon Smith Barney Inc. 6.75%, in the principal amount of $300,000,000,
repurchase price $300,112,500, due 1/2/98. The value of the collateral including
accrued interest was $306,560,575.

SBC Warburg Dillon Read Inc. 6.50%, in the principal amount of $300,000,000,
repurchase price $300,108,333, due 1/2/98. The value of the collateral including
accrued interest was $306,557,797.

UBS Securities Corp., 6.55%, in the principal amount of $300,000,000, repurchase
price $300,109,167, due 1/2/98. The value of the collateral including accrued
interest was $306,001,638.

B57
<PAGE>

NOTE 6: PORTFOLIO SECURITIES

The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1997 were
as follows:

Cost of Purchases:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON CONSERVATIVE FLEXIBLE
BOND INCOME 2000 2005 BALANCED MANAGED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Non-Government......................... $945,035,546 $ 32,595,904 0 0 $7,826,155,071 $8,194,217,051
Government............................. $698,725,477 $339,764,606 $ 12,753,549 $ 11,659,591 $5,017,442,019 $3,054,412,991

<CAPTION>
HIGH
YIELD
BOND
------------
<S> <C>
Non-Government......................... $621,811,073
Government............................. 0
</TABLE>
<TABLE>
<CAPTION>
SMALL
STOCK EQUITY PRUDENTIAL CAPITALIZATION
INDEX INCOME EQUITY JENNISON STOCK GLOBAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Non-Government......................... $403,642,905 $740,428,728 $867,315,279 $372,363,033 $155,584,708 $444,118,554
Government............................. 0 $ 30,617,187 0 0 0 0

NATURAL
RESOURCES
------------
<S> <C>
Non-Government......................... $139,386,211
Government............................. 0
</TABLE>

Proceeds from Sales:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON CONSERVATIVE FLEXIBLE
BOND INCOME 2000 2005 BALANCED MANAGED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Non-Government......................... $874,682,352 $ 43,532,205 0 0 $7,823,232,061 $8,576,103,609
Government............................. $748,008,571 $378,144,111 $ 18,975,771 $ 10,780,860 $5,106,797,609 $3,018,431,969

<CAPTION>
HIGH
YIELD
BOND
------------
<S> <C>
Non-Government......................... $493,219,610
Government............................. 0
</TABLE>
<TABLE>
<CAPTION>
SMALL
STOCK EQUITY PRUDENTIAL CAPITALIZATION
INDEX INCOME EQUITY JENNISON STOCK GLOBAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Non-Government......................... $ 93,393,476 $578,561,955 $566,041,815 $200,408,743 $ 61,682,584 $430,051,852
Government............................. 0 $ 31,762,500 0 0 0 0

NATURAL
RESOURCES
------------
<S> <C>
Non-Government......................... $173,746,937
Government............................. 0
</TABLE>

The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON CONSERVATIVE FLEXIBLE
BOND INCOME 2000 2005 BALANCED MANAGED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 30,167,647 $ 13,268,358 $ 1,583,332 $ 3,016,234 $311,261,405 $565,581,079
Gross Unrealized Depreciation.......... 17,570,453 -- -- 145 111,299,483 149,894,627
Total Net Unrealized................... 12,597,194 13,268,358 1,583,332 3,016,089 199,961,922 415,686,452
Tax Basis.............................. 790,688,975 411,381,627 39,763,556 27,861,234 4,496,062,195 5,055,701,095

<CAPTION>
HIGH
YIELD
BOND
------------
<S> <C>
Gross Unrealized Appreciation.......... $ 21,326,564
Gross Unrealized Depreciation.......... 10,398,413
Total Net Unrealized................... 10,928,151
Tax Basis.............................. 551,773,633
</TABLE>
<TABLE>
<CAPTION>
SMALL
STOCK EQUITY PRUDENTIAL CAPITALIZATION
INDEX INCOME EQUITY JENNISON STOCK GLOBAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $1,004,558,128 $531,904,089 $1,911,479,018 $ 91,141,747 $ 55,949,509 $144,895,851
Gross Unrealized Depreciation.......... 20,055,024 32,407,877 84,670,946 11,774,207 16,253,049 28,770,132
Total Net Unrealized................... 984,503,104 499,496,212 1,826,808,072 79,367,540 39,696,460 116,125,719
Tax Basis.............................. 1,468,430,760 1,533,057,472 4,198,636,403 427,492,211 250,769,934 501,984,495

NATURAL
RESOURCES
------------
<S> <C>
Gross Unrealized Appreciation.......... $ 44,707,858
Gross Unrealized Depreciation.......... 66,745,686
Total Net Unrealized................... (22,037,828)
Tax Basis.............................. 379,415,418
</TABLE>

For federal income tax purposes, the following Portfolios had post October
losses deferred and capital loss carryforwards as of December 31, 1997.
Accordingly, no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amounts:

<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
POST OCTOBER CARRYFORWARDS CARRYFORWARDS
LOSSES DEFERRED UTILIZED IN 1997 AVAILABLE EXPIRATION YEAR
--------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Government Income Portfolio............ -- $ 649,746 $ 7,267,545 2003
High Yield Bond Portfolio.............. -- 12,940,997 6,390,479 2003
Prudential Jennison Portfolio.......... -- 2,160,575 -- --
Natural Resources Portfolio............ $ 14,054 -- -- --
</TABLE>

B58
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
MONEY MARKET
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and realized and
unrealized gains..................... 0.54 0.51 0.56 0.40 0.29
Dividends and distributions............ (0.54) (0.51) (0.56) (0.40) (0.29)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RATE OF RETURN:(b).... 5.41% 5.22% 5.80% 4.05% 2.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $657.5 $668.8 $613.3 $583.3 $474.7
Ratios to average net assets:
Expenses............................. 0.43% 0.44% 0.44% 0.47% 0.45%
Net investment income................ 5.28% 5.10% 5.64% 4.02% 2.90%
</TABLE>

<TABLE>
<CAPTION>
DIVERSIFIED BOND
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.07 $ 11.31 $ 10.04 $ 11.10 $ 10.83
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.80 0.76 0.76 0.68 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.11 (0.27) 1.29 (1.04) 0.40
-------- -------- -------- -------- --------
Total from investment operations... 0.91 0.49 2.05 (0.36) 1.08
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.83) (0.73) (0.75) (0.68) (0.66)
Distributions from net realized
gains................................ (0.13) -- (0.03) (0.02) (0.15)
-------- -------- -------- -------- --------
Total distributions................ (0.96) (0.73) (0.78) (0.70) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 8.57% 4.40% 20.73% (3.23)% 10.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $816.7 $720.2 $655.8 $541.6 $576.2
Ratios to average net assets:
Expenses............................. 0.43% 0.45% 0.44% 0.45% 0.46%
Net investment income................ 7.18% 6.89% 7.00% 6.41% 6.05%
Portfolio turnover rate................ 224% 210% 199% 32% 41%
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B59
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GOVERNMENT INCOME
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.22 $ 11.72 $ 10.46 $ 11.78 $ 11.09
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.75 0.75 0.74 0.70 0.70
Net realized and unrealized gains
(losses) on investments.............. 0.30 (0.51) 1.28 (1.31) 0.68
-------- -------- -------- -------- --------
Total from investment operations... 1.05 0.24 2.02 (0.61) 1.38
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.75) (0.74) (0.76) (0.71) (0.64)
Distributions from net realized
gains................................ -- -- -- -- (0.05)
-------- -------- -------- -------- --------
Total distributions................ (0.75) (0.74) (0.76) (0.71) (0.69)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 11.52 $ 11.22 $ 11.72 $ 10.46 $ 11.78
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 9.67% 2.22% 19.48% (5.16)% 12.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $429.6 $482.0 $501.8 $487.6 $540.1
Ratios to average net assets:
Expenses............................. 0.44% 0.46% 0.45% 0.45% 0.46%
Net investment income................ 6.40% 6.38% 6.55% 6.30% 5.91%
Portfolio turnover rate................ 88% 95% 195% 34% 19%
</TABLE>

<TABLE>
<CAPTION>
ZERO COUPON BOND 2000
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 12.92 $ 13.27 $ 11.86 $ 13.72 $ 12.55
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.55 0.59 0.92 0.85
Net realized and unrealized gains
(losses) on investments.............. 0.22 (0.36) 1.95 (1.91) 1.16
-------- -------- -------- -------- --------
Total from investment operations... 0.89 0.19 2.54 (0.99) 2.01
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.67) (0.54) (0.60) (0.85) (0.84)
Distributions from net realized
gains................................ (0.53) -- (0.53) (0.02) (0.01)
-------- -------- -------- -------- --------
Total distributions................ (1.20) (0.54) (1.13) (0.87) (0.85)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 12.61 $ 12.92 $ 13.27 $ 11.86 $ 13.72
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 7.17% 1.53% 21.56% (7.18)% 16.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $41.3 $44.7 $25.3 $20.6 $22.2
Ratios to average net assets:
Expenses............................. 0.66% 0.52% 0.48% 0.51% 0.62%
Net investment income................ 4.78% 4.88% 4.53% 6.69% 6.21%
Portfolio turnover rate................ 32% 13% 71% 9% 1%
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B60
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
ZERO COUPON BOND 2005
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 12.25 $ 13.19 $ 10.74 $ 12.68 $ 11.03
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.68 0.66 0.66 0.75 0.77
Net realized and unrealized gains
(losses) on investments.............. 0.66 (0.82) 2.73 (1.97) 1.62
-------- -------- -------- -------- --------
Total from investment operations... 1.34 (0.16) 3.39 (1.22) 2.39
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.71) (0.64) (0.65) (0.72) (0.74)
Distributions from net realized
gains................................ (0.28) (0.14) (0.29) -- --
-------- -------- -------- -------- --------
Total distributions................ (0.99) (0.78) (0.94) (0.72) (0.74)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 12.60 $ 12.25 $ 13.19 $ 10.74 $ 12.68
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 11.18% (1.01)% 31.85% (9.61)% 21.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $30.8 $25.8 $23.6 $16.5 $14.5
Ratios to average net assets:
Expenses............................. 0.74% 0.53% 0.49% 0.60% 0.66%
Net investment income................ 5.71% 5.42% 5.32% 6.53% 6.17%
Portfolio turnover rate................ 35% 10% 69% 6% 4%
</TABLE>

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.76 0.66 0.63 0.53 0.49
Net realized and unrealized gains
(losses) on investments.............. 1.26 1.24 1.78 (0.68) 1.23
--------- --------- --------- --------- ---------
Total from investment operations... 2.02 1.90 2.41 (0.15) 1.72
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.66) (0.64) (0.51) (0.47)
Distributions from net realized
gains................................ (1.81) (1.03) (0.56) (0.15) (0.58)
--------- --------- --------- --------- ---------
Total distributions................ (2.57) (1.69) (1.20) (0.66) (1.05)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 13.45% 12.63% 17.27% (0.97)% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2
Ratios to average net assets:
Expenses............................. 0.56% 0.59% 0.58% 0.61% 0.60%
Net investment income................ 4.48% 4.13% 4.19% 3.61% 3.22%
Portfolio turnover rate................ 295% 295% 201% 125% 79%
Average commission rate paid per
share................................ $0.0563 $0.0554 N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B61
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.59 0.57 0.56 0.47 0.57
Net realized and unrealized gains
(losses) on investments.............. 2.52 1.79 3.15 (1.02) 1.88
--------- --------- --------- --------- ---------
Total from investment operations... 3.11 2.36 3.71 (0.55) 2.45
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.58) (0.58) (0.56) (0.45) (0.57)
Distributions from net realized
gains................................ (3.04) (1.85) (0.79) (0.46) (0.93)
--------- --------- --------- --------- ---------
Total distributions................ (3.62) (2.43) (1.35) (0.91) (1.50)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 17.96% 13.64% 24.13% (3.16)% 15.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2
Ratios to average net assets:
Expenses............................. 0.62% 0.64% 0.63% 0.66% 0.66%
Net investment income................ 3.02% 3.07% 3.30% 2.90% 3.30%
Portfolio turnover rate................ 227% 233% 173% 124% 63%
Average commission rate paid per
share................................ $0.0569 $0.0563 N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
HIGH YIELD BOND
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 7.87 $ 7.80 $ 7.37 $ 8.41 $ 7.72
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.78 0.80 0.81 0.87 0.82
Net realized and unrealized gains
(losses) on investments.............. 0.26 0.06 0.46 (1.10) 0.63
-------- -------- -------- -------- --------
Total from investment operations... 1.04 0.86 1.27 (0.23) 1.45
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.77) (0.78) (0.84) (0.81) (0.76)
Dividends in excess of net investment
income............................... -- (0.01) -- -- --
-------- -------- -------- -------- --------
Total distributions................ (0.77) (0.79) (0.84) (0.81) (0.76)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 13.78% 11.39% 17.56% (2.72)% 19.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $568.7 $432.9 $367.9 $306.2 $282.9
Ratios to average net assets:
Expenses............................. 0.57% 0.63% 0.61% 0.65% 0.65%
Net investment income................ 9.78% 9.89% 10.34% 9.88% 9.91%
Portfolio turnover rate................ 106% 88% 139% 69% 96%
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B62
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
STOCK INDEX
---------------------------------------------------
YEAR ENDED
DECEMBER 31,
---------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 23.74 $ 19.96 $ 14.96 $ 15.20 $ 14.22
--------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.43 0.40 0.40 0.38 0.36
Net realized and unrealized gains
(losses) on investments.............. 7.34 4.06 5.13 (0.23) 1.00
--------- --------- --------- -------- --------
Total from investment operations... 7.77 4.46 5.53 0.15 1.36
--------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.42) (0.40) (0.38) (0.37) (0.35)
Distributions from net realized
gains................................ (0.87) (0.28) (0.15) (0.02) (0.03)
--------- --------- --------- -------- --------
Total distributions................ (1.29) (0.68) (0.53) (0.39) (0.38)
--------- --------- --------- -------- --------
Net Asset Value, end of year........... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 32.83% 22.57% 37.06% 1.01% 9.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,448.2 $1,581.4 $1,031.3 $664.5 $615.1
Ratios to average net assets:
Expenses............................. 0.37% 0.40% 0.38% 0.42% 0.42%
Net investment income................ 1.55% 1.95% 2.27% 2.50% 2.43%
Portfolio turnover rate................ 5% 1% 1% 2% 1%
Average commission rate paid per
share................................ $0.0235 $0.0250 N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
EQUITY INCOME
---------------------------------------------------
YEAR ENDED
DECEMBER 31,
---------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 18.51 $ 16.27 $ 14.48 $ 15.66 $ 13.67
--------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.61 0.58 0.64 0.67 0.55
Net realized and unrealized gains
(losses) on investments.............. 6.06 2.88 2.50 (0.45) 2.46
--------- --------- --------- -------- --------
Total from investment operations... 6.67 3.46 3.14 0.22 3.01
--------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.57) (0.71) (0.62) (0.56) (0.50)
Distributions from net realized
gains................................ (2.22) (0.51) (0.73) (0.82) (0.52)
--------- --------- --------- -------- --------
Total distributions................ (2.79) (1.22) (1.35) (1.38) (1.02)
--------- --------- --------- -------- --------
Net Asset Value, end of year........... $ 22.39 $ 18.51 $ 16.27 $ 14.50 $ 15.66
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 36.61% 21.74% 21.70% 1.44% 22.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,029.8 $1,363.5 $1,110.0 $859.7 $602.8
Ratios to average net assets:
Expenses............................. 0.41% 0.45% 0.43% 0.52% 0.54%
Net investment income................ 2.90% 3.36% 4.00% 3.92% 3.56%
Portfolio turnover rate................ 38% 21% 64% 63% 41%
Average commission rate paid per
share................................ $0.0566 $0.0553 N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B63
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
EQUITY
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 26.96 $ 25.64 $ 20.66 $ 21.49 $ 18.90
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.69 0.71 0.55 0.51 0.42
Net realized and unrealized gains on
investments.......................... 5.88 3.88 5.89 0.05 3.67
--------- --------- --------- --------- ---------
Total from investment operations... 6.57 4.59 6.44 0.56 4.09
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.70) (0.67) (0.52) (0.49) (0.40)
Distribution from net realized gains... (1.76) (2.60) (0.94) (0.90) (1.10)
--------- --------- --------- --------- ---------
Total distributions................ (2.46) (3.27) (1.46) (1.39) (1.50)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 24.66% 18.52% 31.29% 2.78% 21.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $6,024.0 $4,814.0 $3,813.8 $2,617.8 $2,186.5
Ratios to average net assets:
Expenses............................. 0.46% 0.50% 0.48% 0.55% 0.53%
Net investment income................ 2.27% 2.54% 2.28% 2.39% 1.99%
Portfolio turnover rate................ 13% 20% 18% 7% 13%
Average commission rate paid per
share................................ $0.0336 $0.0524 N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
-----------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
------------------ TO
1997 1996 DECEMBER 31, 1995(a)
-------- -------- ---------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 14.32 $ 12.55 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 4.48 1.78 2.54
-------- -------- --------
Total from investment operations... 4.52 1.80 2.56
-------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (1.07) -- --
-------- -------- --------
Total distributions................ (1.11) (0.03) (0.01)
-------- -------- --------
Net Asset Value, end of period......... $ 17.73 $ 14.32 $ 12.55
-------- -------- --------
-------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.64% 0.66% 0.79%(c)
Net investment income................ 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 60% 46% 37%
Average commission rate paid per
share................................ $0.0590 $0.0603 N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.

(d) Commencement of operations

SEE NOTES TO FINANCIAL STATEMENTS.

B64
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK
-----------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
------------------ TO
1997 1996 DECEMBER 31, 1995(a)
-------- -------- ---------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 13.79 $ 11.83 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.10 0.09 0.08
Net realized and unrealized gains on
investments.......................... 3.32 2.23 1.91
-------- -------- --------
Total from investment operations... 3.42 2.32 1.99
-------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.09) (0.04)
Distributions from net realized
gains................................ (1.18) (0.27) (0.12)
-------- -------- --------
Total distributions................ (1.28) (0.36) (0.16)
-------- -------- --------
Net Asset Value, end of period......... $ 15.93 $ 13.79 $ 11.83
-------- -------- --------
-------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses............................. 0.50% 0.56% 0.60%(c)
Net investment income................ 0.69% 0.87% 0.68%(c)
Portfolio turnover rate................ 31% 13% 32%
Average commission rate paid per
share................................ $0.0291 $0.0307 N/A
</TABLE>

<TABLE>
<CAPTION>
GLOBAL
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.85 $ 15.53 $ 13.88 $ 14.64 $ 10.37
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.09 0.11 0.06 0.02 0.02
Net realized and unrealized gains
(losses) on investments.............. 1.11 2.94 2.14 (0.74) 4.44
-------- -------- -------- -------- --------
Total from investment operations... 1.20 3.05 2.20 (0.72) 4.46
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.13) (0.11) (0.24) (0.02) (0.08)
Dividends in excess of net investment
income............................... (0.10) -- -- -- --
Distributions from net realized
gains................................ (0.90) (0.62) (0.31) (0.02) (0.11)
-------- -------- -------- -------- --------
Total distributions................ (1.13) (0.73) (0.55) (0.04) (0.19)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 6.98% 19.97% 15.88% (4.89)% 43.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $638.4 $580.6 $400.1 $345.7 $129.1
Ratios to average net assets:
Expenses............................. 0.85% 0.92% 1.06% 1.23% 1.44%
Net investment income................ 0.47% 0.64% 0.44% 0.20% 0.18%
Portfolio turnover rate................ 70% 41% 59% 37% 55%
Average commission rate paid per
share................................ $0.0247 $0.0358 N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
(d) Commencement of operations

SEE NOTES TO FINANCIAL STATEMENTS.

B65
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
NATURAL RESOURCES
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 19.77 $ 17.27 $ 14.44 $ 15.56 $ 12.95
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.12 0.15 0.21 0.18 0.23
Net realized and unrealized gains
(losses) on investments.............. (2.43) 5.11 3.66 (0.85) 3.00
-------- -------- -------- -------- --------
Total from investment operations... (2.31) 5.26 3.87 (0.67) 3.23
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.14) (0.21) (0.15) (0.21)
Distributions from net realized
gains................................ (2.12) (2.62) (0.83) (0.30) (0.41)
-------- -------- -------- -------- --------
Total distributions................ (2.22) (2.76) (1.04) (0.45) (0.62)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 15.24 $ 19.77 $ 17.27 $ 14.44 $ 15.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ (11.59)% 30.88% 26.92% (4.30)% 25.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $358.0 $438.4 $293.2 $227.3 $158.8
Ratios to average net assets:
Expenses............................. 0.54% 0.52% 0.50% 0.61% 0.60%
Net investment income................ 0.60% 0.75% 1.25% 1.09% 1.50%
Portfolio turnover rate................ 32% 36% 46% 18% 20%
Average commission rate paid per
share................................ $0.0439 $0.0454 N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B66
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the Money Market,
Diversified Bond, Government Income, Zero Coupon Bond 2000, Zero Coupon Bond
2005, Conservative Balanced, Flexible Managed, High Yield Bond, Stock Index,
Equity Income, Equity, Prudential Jennison, Small Capitalization Stock, Global
and Natural Resources Portfolios (constituting The Prudential Series Fund, Inc.;
collectively, the "Portfolios") at December 31, 1997, the results of each of
their operations for the year then ended and the changes in each of their net
assets and the financial highlights for the two years in the period then ended,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolios' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial 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, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
The financial highlights of the Prudential Jennison Portfolio and Small
Capitalization Stock Portfolio for the period April 25, 1995 through December
31, 1995 and the financial highlights for each of the three years in the period
ended December 31, 1995 for each of the other portfolios were audited by other
independent accountants whose report thereon dated February 15, 1996 expressed
an unqualified opinion on those financial highlights.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 13, 1998

B67
<PAGE>

TAX INFORMATION

Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1997) as to the federal tax status of dividends paid by the Fund during such
fiscal year. Accordingly, we are advising you that in 1997, the Fund paid
dividends as follows:

<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
- ----------------------------------------------------------------------------------------------------
LONG-TERM CAPITAL GAINS TOTAL
--------------------------------
SHORT-TERM
INCOME CAPITAL GAINS TAXED @ 28% TAXED @ 20% DIVIDENDS
----------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Money Market Portfolio.............. $ 0.540 -- -- -- $ 0.540
Diversified Bond Portfolio.......... 0.827 $ 0.079 $ 0.053 -- 0.959
Government Income Portfolio......... 0.750 -- -- -- 0.750
Zero Coupon Bond 2000 Portfolio..... 0.669 0.001 0.288 $ 0.245 1.203
Zero Coupon Bond 2005 Portfolio..... 0.711 0.042 0.018 0.217 0.988
Conservative Balanced Portfolio..... 0.759 0.585 0.356 0.874 2.574
Flexible Managed Portfolio.......... 0.585 0.856 1.016 1.168 3.625
High Yield Bond Portfolio........... 0.773 -- -- -- 0.773
Stock Index Portfolio............... 0.422 0.068 0.024 0.771 1.285
Equity Income Portfolio............. 0.565 0.016 0.508 1.699 2.788
Equity Portfolio.................... 0.704 0.150 0.682 0.930 2.466
Prudential Jennison Portfolio....... 0.041 0.069 0.488 0.509 1.107
Small Capitalization Stock
Portfolio......................... 0.098 0.347 0.200 0.634 1.279
Global Portfolio.................... 0.230 -- 0.301 0.595 1.126
Natural Resources Portfolio......... 0.100 0.470 0.957 0.693 2.220
</TABLE>

B68
<PAGE>

BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.

MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN, Ph.D. CEO,
THE PRUDENTIAL SERIES PRINCIPAL, PRUDENTIAL INVESTMENTS,
FUND, INC. KALUDIS CONSULTING PRESIDENT, THE
GROUP PRUDENTIAL SERIES FUND,
INC.

SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)

B69

<PAGE>

APPENDIX

DEBT RATINGS

Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:

Bonds:

Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Baa -- Bonds which are rated "Baa" are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba -- Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.

Ca -- Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C -- Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Commercial paper:

o Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

- --Leading market positions in well-established industries.

- --High rates of return of funds employed.

- --Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- --Well established access to a range of financial markets and assured sources of
alternate liquidity.

o Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

<PAGE>

Standard & Poor's Ratings Services describes its grades of corporate debt
securities and its "A" commercial paper as follows:

Bonds:

AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.

A Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.

BBB Debt rated "BBB" is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.

BB-B-CCC-CC-C

Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of
speculation and C the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.

Commercial paper:

Commercial paper rated A by Standard & Poor's Ratings Services has the
following characteristics: Liquidity ratios are better than the
industry average. Long term senior debt rating is "A" or better. In
some cases BBB credits may be acceptable. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowances made for unusual
circumstances. Typically, the issuer's industry is well established,
the issuer has a strong position within its industry and the
reliability and quality of management is unquestioned. Issuers rated A
are further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this classification.

<PAGE>

THE PRUDENTIAL

SERIES FUND, INC.
[GRAPHIC OMITTED]

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, Newark, NJ 07102-3777

Telephone (800) 437-4016

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY
PRUVIDER VARIABLE APPRECIABLE ACCOUNT

PRUVIDER
VARIABLE
APPRECIABLE
LIFE(R)___________________
INSURANCE CONTRACTS

PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF

THE PRUDENTIAL SERIES
FUND, INC.

The Pruco Life Insurance Company, a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America, offers a
variable life insurance contract called the PRUVIDER Variable APPRECIABLE
LIFE(R) Insurance Contract*. The Contract provides whole-life insurance
protection. The death benefit varies daily with investment experience but will
never be less than the "face amount" of insurance specified in the Contract. The
Contract also generally provides a cash surrender value which also varies with
investment experience. There is no guaranteed minimum cash surrender value.

The assets held for the purpose of paying benefits under these contracts can be
invested in one or both of the two current subaccounts of the Pruco Life
PRUVIDER Variable Appreciable Account. The assets invested in each subaccount
are in turn invested in a corresponding portfolio of The Prudential Series Fund,
Inc., a diversified, open-end management investment company (commonly known as a
mutual fund) that is intended to provide a range of investment alternatives to
variable contract owners. Each portfolio is, for investment purposes, in effect
a separate fund. The two available Series Fund portfolios are the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO. A separate class of
capital stock is issued for each portfolio. Shares of the Series Fund are
currently sold only to separate accounts of Pruco Life and certain other
insurers to fund the benefits under variable life insurance and variable annuity
contracts issued by those companies.

The PRUVIDER Variable APPRECIABLE LIFE(R) Insurance Contract owner may also
choose to invest in a FIXED-RATE OPTION which is described in the prospectus of
The Pruco Life PRUVIDER Variable Appreciable Account.

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

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUCO LIFE PRUVIDER VARIABLE
APPRECIABLE ACCOUNT DATED MAY 1, 1998, WHICH IS AVAILABLE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE PRUCO LIFE INSURANCE COMPANY, 213 WASHINGTON STREET,
NEWARK, NEW JERSEY 07102-2992 OR BY TELEPHONING (800) 437-4016.

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

PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.
SVAL-1SAI Ed 5-98
Catalog No. 64M086G

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
CONTENTS

PAGE

MORE DETAILED INFORMATION ABOUT THE CONTRACT...................................1
SALES LOAD UPON SURRENDER...........................................1
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS....1
PAYING PREMIUMS BY PAYROLL DEDUCTION................................1
UNISEX PREMIUMS AND BENEFITS........................................1
HOW THE DEATH BENEFIT WILL VARY.....................................2
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE...........................2
TAX TREATMENT OF CONTRACT BENEFITS..................................3
TREATMENT AS LIFE INSURANCE...............................3
PRE-DEATH DISTRIBUTIONS...................................3
WITHHOLDING...............................................4
OTHER TAX CONSIDERATIONS..................................4
SALE OF THE CONTRACT AND SALES COMMISSIONS..........................5
RIDERS..............................................................5
OTHER STANDARD CONTRACT PROVISIONS..................................5
BENEFICIARY...............................................5
INCONTESTABILITY..........................................5
MISSTATEMENT OF AGE OR SEX................................5
SUICIDE EXCLUSION.........................................5
ASSIGNMENT................................................5
SETTLEMENT OPTIONS........................................5

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS...........................6
GENERAL ..........................................................6
CONVERTIBLE SECURITIES..............................................6
LOAN PARTICIPATIONS.................................................6
WARRANTS ..........................................................6
OPTIONS AND FUTURES.................................................6
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES........................13
SHORT SALES........................................................13
SHORT SALES AGAINST THE BOX........................................13
INTEREST RATE SWAPS................................................14
LOANS OF PORTFOLIO SECURITIES......................................14
ILLIQUID SECURITIES................................................14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS........................15

INVESTMENT RESTRICTIONS.......................................................16

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES...............................18

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................20

DETERMINATION OF NET ASSET VALUE..............................................21

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST...........22

DEBT RATINGS..................................................................24

POSSIBLE REPLACEMENT OF THE SERIES FUND.......................................26

OTHER INFORMATION CONCERNING THE SERIES FUND..................................26
INCORPORATION AND AUTHORIZED STOCK.................................26
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................26
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT..........26
YEAR 2000..........................................................27
EXPERTS............................................................27
LICENSE............................................................27

DIRECTORS AND OFFICERS OF PRUCO LIFE AND MANAGEMENT OF THE SERIES FUND........28

FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.......................A1

THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS......................B1

<PAGE>

MORE DETAILED INFORMATION ABOUT THE CONTRACT

SALES LOAD UPON SURRENDER

A contingent deferred sales load is assessed if the Contract lapses or is
surrendered during the first 10 Contract years. No such charge is applicable to
the death benefit, no matter when that may become payable. Subject to the
additional limitations described below, for Contracts that lapse or are
surrendered during the first 5 Contract years the charge will be equal to 50% of
the first year's primary annual premium. In the next 5 Contract years that
percentage is reduced uniformly on a daily basis until it reaches zero on the
tenth Contract anniversary. Thus, for Contracts surrendered at the end of the
sixth year, the maximum deferred sales charge will be 40% of the first year's
primary annual premium, for Contracts surrendered at the end of year 7, the
maximum deferred sales charge will be 30% of the first year's primary annual
premium, and so forth. We are currently allowing partial surrenders of the
Contract, but we reserve the right to cancel this administrative practice. If
the Contract is partially surrendered during the first 10 years, a proportionate
amount of the charge will be deducted from the Contract Fund. Surrender of all
or part of a Contract may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 3.

The contingent deferred sales load is also subject to a further limit at older
issue ages (approximately above age 61) in order to comply with certain
requirements of state law. Specifically, the contingent deferred sales load for
such insureds is no more than $32.50 per $1,000 of face amount.

The sales load is subject to a further important limitation that may,
particularly for Contracts that lapse or are surrendered within the first 5 or 6
years, result in a lower contingent deferred sales load than that described
above. (This limitation might also, under unusual circumstances, apply to reduce
the monthly sales load deductions described in the prospectus in item (a) under
MONTHLY DEDUCTIONS FROM CONTRACT FUND.)

The limitation is based on a Guideline Annual Premium ("GAP") that is associated
with every Contract. The GAP is an amount determined actuarially in accordance
with a definition set forth in a regulation of the Securities and Exchange
Commission ("SEC"). The maximum aggregate sales load that Pruco Life will charge
(that is, the sum of the monthly sales load deduction and the contingent
deferred sales charge) will not be more than 30% of the premiums actually paid
until those premiums total one GAP plus no more than 9% of the next premiums
paid until total premiums are equal to 5 GAPS, plus no more than 6% of all
subsequent premiums. If the sales charges described above would at any time
exceed this maximum amount then the charge, to the extent of any excess, will
not be made.

REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS

Pruco Life may reduce the sales charges and/or other charges on individual
Contracts sold to members of a class of associated individuals, or to a trustee,
employer or other entity representing such a class, where it is expected that
such multiple sales will result in savings of sales or administrative expenses.
Pruco Life determines both the eligibility for such reduced charges, as well as
the amount of such reductions, by considering the following factors: (1) the
number of individuals; (2) the total amount of premium payments expected to be
received from these Contracts; (3) the nature of the association between these
individuals, and the expected persistency of the individual Contracts; (4) the
purpose for which the individual Contracts are purchased and whether that
purpose makes it likely that expenses will be reduced; and (5) any other
circumstances which Pruco Life believes to be relevant in determining whether
reduced sales or administrative expenses may be expected. Some of the reductions
in charges for these sales may be contractually guaranteed; other reductions may
be withdrawn or modified by Pruco Life on a uniform basis. Pruco Life's
reductions in charges for these sales will not be unfairly discriminatory to the
interests of any individual Contract owners.

PAYING PREMIUMS BY PAYROLL DEDUCTION

In addition to the annual, semi-annual, quarterly and monthly premium payment
modes, a payroll budget method of paying premiums may also be available under
certain Contracts. The employer generally deducts the necessary amounts from
employee paychecks and sends premium payments to Pruco Life monthly. Any Pruco
Life representative authorized to sell this Contract can provide further details
concerning the payroll budget method of paying premiums.

UNISEX PREMIUMS AND BENEFITS

The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on a blended unisex rate whether the
insured is male or female. In addition, employers and

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employee organizations considering purchase of a Contract should consult their
legal advisors to determine whether purchase of a Contract based on sex-distinct
actuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or
other applicable law. Pruco Life may offer the Contract with unisex mortality
rates to such prospective purchasers.

HOW THE DEATH BENEFIT WILL VARY

The death benefit will vary with investment experience. Assuming no withdrawals,
the death benefit will be equal to the face amount of insurance plus the amount
(if any) by which the Contract Fund value exceeds the applicable "Tabular
Contract Fund value" for the Contract (subject to an exception described below
under which the death benefit is higher). Each Contract contains a table that
sets forth the Tabular Contract Fund value as of the end of each of the first 20
years of the Contract. Tabular Contract Fund values between Contract
anniversaries are determined by interpolation. The "Tabular Contract Fund value"
for each Contract year is an amount that is slightly less than the Contract Fund
value that would result as of the end of such year if only scheduled premiums
were paid, they were paid when due, the selected investment options earned a net
return at a uniform rate of 4% per year, full mortality charges based upon the
1980 CSO Table were deducted, maximum sales load and expense charges were
deducted, and there was no Contract debt.

Thus, for a Contract with no withdrawals, the death benefit will equal the face
amount if the Contract Fund equals the Tabular Contract Fund value. If, due to
investment results greater than a net return of 4%, or to payment of greater
than scheduled premiums, or to smaller than maximum charges, the Contract Fund
value is a given amount greater than the Tabular Contract Fund value, the death
benefit will be the face amount plus that excess amount. If, due to investment
results less favorable than a net return of 4%, the Contract Fund value is less
than the tabular Contract Fund value, the death benefit will not fall below the
initial face amount stated in the Contract; however, this unfavorable investment
experience must first be offset by favorable performance or additional payments
that bring the Contract Fund up to the tabular level before favorable investment
results or additional payments will increase the death benefit. Again, the death
benefit will reflect a deduction for the amount of any Contract debt. See
CONTRACT LOANS in the prospectus.

The Contract Fund could grow to the point where it is necessary to increase the
death benefit by a greater amount in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance. Thus, the
death benefit will always be the greatest of (1) the face amount plus the
Contract Fund minus the tabular Contract Fund value; (2) the guaranteed minimum
death benefit; and (3) the Contract Fund times the attained age factor that
applies.

WITHDRAWAL OF EXCESS CASH SURRENDER VALUE

Under certain circumstances, a Contract owner may withdraw a portion of the
Contract's cash surrender value without surrendering the Contract in whole or in
part. The amount that a Contract owner may withdraw is limited by the
requirement that the Contract Fund after withdrawal must not be less than the
Tabular Contract Fund value. (A Table of Tabular Contract Fund Values is
included in the Contract; the values increase with each year the Contract
remains in force.) But because the Contract Fund may be made up in part by an
outstanding Contract loan, there is a further limitation that the amount
withdrawn may not be larger than an amount sufficient to reduce the cash
surrender value to zero. The amount withdrawn must be at least $200. An owner
may make no more than four such withdrawals in each Contract year, and there is
an administrative processing fee equal to the lesser of $15 or 2% of the amount
withdrawn that is made in connection with each withdrawal. An amount withdrawn
may not be repaid except as a scheduled or unscheduled premium subject to the
applicable charges. Upon request, Pruco Life will tell a Contract owner how much
he or she may withdraw. Withdrawal of part of the cash surrender value may have
tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 3. A temporary
need for funds may also be met by making a loan and you should consult your
Pruco Life representative about how best to meet your needs.

When a withdrawal is made, the cash surrender value and Contract Fund value are
reduced by the amount of the withdrawal, and the death benefit is accordingly
reduced. Neither the face amount of insurance nor the amount of scheduled
premiums will be changed due to a withdrawal of excess cash surrender value. No
surrender charges will be assessed upon a withdrawal.

Withdrawal of part of the cash surrender value increases the risk that the
Contract Fund may be insufficient to provide for benefits under the Contract. If
such a withdrawal is followed by unfavorable investment experience, the Contract
may lapse even if scheduled premiums continue to be paid when due. This is
because, for purposes of determining whether a lapse has occurred, Pruco Life
treats withdrawals as a return of premium.

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TAX TREATMENT OF CONTRACT BENEFITS

Each prospective purchaser is urged to consult a qualified tax advisor. 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 Pruco Life believes the
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. The Contract 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 Contract satisfy diversification requirements set forth in Treasury
Regulations issued pursuant to Section 817(h) of the Code.

These diversification requirements must ordinarily be met within 1 year after
Contract owner funds are first allocated to the particular portfolio of the
Series Fund, and within 30 days after the end of each calendar quarter
thereafter. Each portfolio must meet one of two alternative tests. Under the
first test, no more than 55% of the portfolio's assets can be invested in any
one investment; no more than 70% of the assets can be invested in any two
investments; no more than 80% can be invested in any three investments; and no
more than 90% can be invested in any four investments. Under the second test,
the portfolio must meet the tax law diversification requirements for a regulated
investment company and no more than 55% of the value of the portfolio's assets
can be invested in cash, cash items, Government securities, and securities of
other regulated investment companies.

For purposes of determining whether a variable account is adequately
diversified, each United States Government agency or instrumentality is treated
as a separate issuer. Compliance with diversification requirements will
generally limit the amount of assets that may be invested in federally insured
certificates of deposit and all types of securities issued or guaranteed by each
United States Government agency or instrumentality.

Pruco Life believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as noted
below, the Contract owner should not be taxed on any part of the Contract Fund,
including additions attributable to interest, dividends or appreciation until
amounts are distributed under the Contract; and (2) the death benefit should be
excludible from the gross income of the beneficiary under section 101(a) of the
Code.

However, 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
relating to the definition of life insurance were issued in 1992. None of these
proposed regulations has yet been finalized. Additional regulations under
Section 7702 may also be promulgated in the future. Moreover, in connection with
the issuance of temporary regulations under Section 817(h), the Treasury
Department announced that such regulations do not provide guidance concerning
the extent to which Contract owners may direct their investments to particular
divisions of a separate account. Such guidance will be included in regulations
or rulings under Section 817(d) relating to the definition of a variable
contract.

Pruco Life intends to comply with final regulations issued under sections 7702
and 817. Therefore, it reserves the right to make such changes as it deems
necessary to assure that the Contract continues to qualify as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made only after advance written notice to affected Contract owners.

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

1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value
except for the amount, if any, that exceeds the gross premiums paid
less the untaxed portion of any prior withdrawals. The amount of any
unpaid Contract 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. The tax consequences of a surrender may differ if the
proceeds are received under any income payment settlement option.

A withdrawal generally is not taxable unless it exceeds total
premiums paid to the date of withdrawal less the untaxed portion of
any prior withdrawals. However, under certain limited circumstances,
in the first 15 Contract years all or a portion of a withdrawal may
be taxable if the Contract Fund exceeds the total premiums paid less
the untaxed portion of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid to date.

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Extra premiums for optional benefits and riders generally do not
count in computing gross premiums paid, which in turn determines the
extent to which a withdrawal might be taxed.

Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be
distributions subject to tax.

2. Some of the above rules are changed if the Contract is classified as
a Modified Endowment Contract under section 7702A of the Code. A
Contract may be classified as a Modified Endowment Contract under
various circumstances. For example, low face amount Contracts issued
on younger insureds may be classified as a Modified Endowment
Contract even though the Contract owner pays only the Scheduled
Premiums or even less than the Scheduled Premiums. Before purchasing
such a Contract, you should understand the tax treatment of pre-death
distributions and consider the purpose for which the Contract is
being purchased. More generally, a Contract may be classified as a
Modified Endowment Contract if premiums in excess of Scheduled
Premiums are paid or if a decrease in the face amount of insurance is
made (or a rider removed). Moreover, the addition of a rider after
the Contract date may have an impact on the Contract's status as a
Modified Endowment Contract. Contract owners contemplating any of
these steps should first consult a qualified tax advisor and their
Pruco Life representative.

If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are
includible in income to the extent that the Contract fund prior to
surrender charges exceeds the gross premiums paid for the Contract
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 2
year period prior to the Contract becoming a Modified Endowment
Contract.

In addition, pre-death distributions from such Contracts (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 nonnatural persons such as corporations.

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

WITHHOLDING. The taxable portions of any amounts received under the Contract
will be subject to withholding to meet federal income tax obligations if the
Contract owner fails to elect that no taxes be withheld or in certain other
circumstances. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. All recipients of such amounts may be subject to penalties under
the estimated tax rules if withholding and estimated tax payments are not
sufficient.

OTHER TAX CONSIDERATIONS. Transfer of the Contract to a new owner or assignment
of the Contract may have gift, estate and/or income tax consequences depending
on the circumstances. In the case of a transfer of the Contract for a 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 Contract to or the
designation of a beneficiary who is either 37 1/2 years younger than the
Contract owner or a grandchild of the Contract owner may have Generation
Skipping Transfer tax consequences under Section 2601 of the Code.

In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under section 163 of the Code as personal interest or
under section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.

Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. The Health Insurance Portability and Accountability Act of 1996
generally disallows tax deductions for interest on Contract debt on a
business-owned insurance policy effective (with certain transitional rules) for
interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
person. The Code also imposes an indirect tax upon additions to the Contract
fund or the receipt of death benefits under business-owned life insurance
policies under certain circumstances by way of the corporate alternative minimum
tax.

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

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SALE OF THE CONTRACT AND SALES COMMISSIONS

Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 751 Broad
Street, Newark, New Jersey 07102-3777. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and applicable law to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below. Where the
insured is less than 60 years of age, the representative will generally receive
a commission of no more than 50% of the scheduled premiums for the first year,
no more than 6% of the scheduled premiums for the second through tenth years,
and no more than 2% of the scheduled premiums thereafter. For insureds over 59
years of age, the commission will be lower. The representative may be required
to return all or part of the first year commission if the Contract is not
continued through the second year. Representatives with less than 3 years of
service may be paid on a different basis.

Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus, which may include amounts derived from the mortality
and expense risk charge and the guaranteed minimum death benefit risk charge
described in the prospectus under DAILY DEDUCTION FROM THE CONTRACT FUND and
item (d) under MONTHLY DEDUCTIONS FROM CONTRACT FUND.

RIDERS

The Contract owner may be able to obtain extra fixed benefits which may require
an additional premium. These optional insurance benefits will be described in
what is known as a "rider" to the Contract. Charges for the riders will be
deducted from the Contract Fund on each Monthly date. One rider pays an
additional amount if the insured dies in an accident. Another waives certain
premiums if the insured is disabled within the meaning of the provision (or, in
the case of a Contract issued on an insured under the age of 15, if the
applicant dies or becomes disabled within the meaning of the provision). Others
pay an additional amount if the insured dies within a stated number of years
after issue; similar benefits may be available if the insured's child should
die. The amounts of these benefits are fully guaranteed at issue; they do not
depend on the performance of the Account. Certain restrictions may apply; they
are clearly described in the applicable rider.

Any Pruco Life representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Pruco Life
upon written request.

OTHER STANDARD CONTRACT PROVISIONS.

BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.

INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date or, with respect to any change in
the Contract that requires Pruco Life's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
2 years from the effective date of the change, Pruco Life will not contest its
liability under the Contract in accordance with its terms.

MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life will
adjust the death benefits payable, as required by law, to reflect the correct
age and sex. Any death benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.

SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.

ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state, or local law or regulation. Generally, the Contract may not
be assigned to an employee benefit plan or program without Pruco Life's consent.
Pruco Life assumes no responsibility for the validity or sufficiency of any
assignment, and it will not be obligated to comply with any assignment unless it
has received a copy at one of its Home Offices.

SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.

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INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS

GENERAL

The Prudential Series Fund, Inc. (the "Series Fund") has fifteen separate
portfolios, two of which, the Conservative Balanced Portfolio and the Flexible
Managed Portfolio, are available to PRUVIDER Contract owners. The portfolios are
managed by The Prudential Insurance Company of America ("Prudential"), see
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 18.

Each of the portfolios seeks to achieve a different investment objective.
Accordingly, each portfolio can be expected to have different investment results
and to be subject to different financial and market risks. Financial risk refers
to the ability of an issuer of a debt security to pay principal and interest and
to the earnings stability and overall financial soundness of an issuer of an
equity security. Market risk refers to the degree to which the price of a
security will react to changes in conditions in securities markets in general,
and with particular reference to debt securities, to changes in the overall
level of interest rates.

The investment objectives of the Series Fund's portfolios that are available to
PRUVIDER Contract owners can be found under INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS in the prospectus.

CONVERTIBLE SECURITIES

The Conservative Balanced and Flexible Managed Portfolios may invest in
convertible securities. A convertible security is a fixed-income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without risk, investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

LOAN PARTICIPATIONS

The Conservative Balanced and Flexible Managed Portfolios may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations between
a corporate borrower and one or more financial institutions ("Lenders"). The
portfolios may invest in such Loans generally in the form of participations in
Loans ("Participations"). Participations typically will result in the Series
Fund having a contractual relationship only with the Lender, not with the
borrower. The Series Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Series Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Series Fund may not benefit directly from any
collateral supporting the Loan in which it has purchased the Participation. As a
result, the Series Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Series Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower.

WARRANTS

The Conservative Balanced and Flexible Managed Portfolios may invest in warrants
on common stocks. Warrants are options to buy a number of shares of stock at a
predetermined price during a specified period. The risk associated with the
purchase of a warrant is that the purchase price will be lost if the market
price of the stock does not reach a level that justifies the exercise or sale of
the warrant before it expires.

OPTIONS AND FUTURES

OPTIONS ON EQUITY SECURITIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write (i.e., sell) put and call options on equity
securities that are traded on securities exchanges or that are listed on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or that result from privately negotiated transactions with broker-dealers ("OTC
options"). A call option is a short-term contract pursuant to

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which the purchaser or holder, in return for a premium paid, has the right to
buy the equity security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying equity security against payment of the exercise price. A
put option is a similar contract which gives the purchaser or holder, in return
for a premium, the right to sell the underlying equity security at a specified
price during the term of the option. The writer of the put, who receives the
premium, has the obligation to buy the underlying security at the exercise price
upon exercise by the holder of the put.

The Conservative Balanced and Flexible Managed Portfolios may also purchase
"protective puts" (i.e., put options acquired for the purpose of protecting a
portfolio security from a decline in market value). In exchange for the premium
paid for the put option, the portfolio acquires the right to sell the underlying
security at the exercise price of the put regardless of the extent to which the
underlying security declines in value. The loss to the portfolio is limited to
the premium paid for, and transaction costs in connection with, the put plus the
initial excess, if any, of the market price of the underlying security over the
exercise price. However, if the market price of the security underlying the put
rises, the profit the portfolio realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount (net of
transaction costs) for which the put may be sold. Similar principles apply to
the purchase of puts on debt securities and stock indices, as described below
under OPTIONS ON DEBT SECURITIES, page 8 and OPTIONS ON STOCK INDICES, page 9.

The portfolios may purchase call options for hedging and investment purposes. No
portfolio intends to invest more than 5% of its net assets at any one time in
the purchase of call options on stocks. These portfolios may also purchase
putable and callable equity securities, which are securities coupled with a put
or a call option provided by the issuer.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an
exchange-traded option may liquidate his or her position by exercise of the
option or by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. A portfolio will realize a
profit from a closing transaction if the price of the transaction is less than
the premium received from writing the option or is more than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect to a call option
is likely to be offset in whole or in part by appreciation of the underlying
equity security owned by the portfolio. Unlike exchange-traded options, OTC
options generally do not have a continuous liquid market. Consequently, the
portfolio will generally be able to realize the value of an OTC option it has
purchased only by exercising it or reselling it to the dealer who issued it.
Similarly, when the portfolio writes an OTC option, it generally will be able to
close out the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the portfolio originally wrote the
OTC option. There is, in general, no guarantee that closing purchase or closing
sale transactions can be effected.

A portfolio's use of options on equity securities is subject to certain special
risks, in addition to the risk that the market value of the security will move
adversely to the portfolio's option position. An option position may be closed
out only on an exchange, board of trade or other trading facility which provides
a secondary market for an option of the same series. Although a portfolio will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in particular
options, with the result that the portfolio would have to exercise its options
in order to realize any profit and would incur brokerage commissions upon the
exercise of such options and upon the subsequent disposition of underlying

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securities acquired through the exercise of call options or upon the purchase of
underlying securities for the exercise of put options. If a portfolio as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, which might cause an exchange to institute special
procedures that might interfere with the timely execution of customers' orders.

The purchase and sale of OTC options will also be subject to certain risks.
Unlike exchange-traded options, OTC options generally do not have a continuous
liquid market. Consequently, a portfolio will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when a portfolio writes an OTC option, it
generally will be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
portfolio originally wrote the OTC option. While the portfolios will seek to
enter into OTC options only with dealers who agree to and which are expected to
be able to be capable of entering into closing transactions with the portfolio,
there can be no assurance that the portfolio will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. In the event of
insolvency of the other party, the portfolio may be unable to liquidate an OTC
option. Prudential monitors the creditworthiness of dealers with whom the Series
Fund enters into OTC option transactions under the general supervision of the
Series Fund's Board of Directors.

OPTIONS ON DEBT SECURITIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write (i.e., sell) put and call options on debt
securities (including U.S. Government debt securities) that are traded on U.S.
securities exchanges or that result from privately negotiated transactions with
primary U.S. Government securities dealers recognized by the Federal Reserve
Bank of New York ("over-the-counter" or "OTC" options). Options on debt are
similar to options on stock, except that the option holder has the right to take
or make delivery of a debt security, rather than stock.

The portfolios may also write straddles (i.e., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered "cover" for both the put and the call). In such
cases, the portfolio will also segregate or deposit for the benefit of the
portfolio's broker cash, U. S. Government securities or liquid unencumbered
assets equivalent to the amount, if any, by which the put is "in the money." It
is contemplated that each portfolio's use of straddles will be limited to 5% of
the portfolio's net assets (meaning that the securities used for cover or
segregated as described above will not exceed 5% of the portfolio's net assets
at the time the straddle is written). The writing of a call and a put on the
same security at the same strike price where the call and the put are covered by
different securities is not considered a straddle for purposes of this limit.

The portfolios may purchase "protective puts" in an effort to protect the value
of a security that it owns against a substantial decline in market value.
Protective puts are described above in OPTIONS ON EQUITY SECURITIES, page 6. A
portfolio may wish to protect certain portfolio securities against a decline in
market value at a time when put options on those particular securities are not
available for purchase. A portfolio may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its

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portfolio. While changes in the value of the put option should generally offset
changes in the value of the securities being hedged, the correlation between the
two values may not be as close in these transactions as in transactions in which
the portfolio purchases a put option on an underlying security it owns.

The portfolios may also purchase call options on debt securities for hedging or
investment purposes. No portfolio currently intends to invest more than 5% of
its net assets at any one time in the purchase of call options on debt
securities. A portfolio may also purchase putable and callable debt securities,
which are securities coupled with a put or call option provided by the issuer.

The use of debt options is subject to the same risks described above in
connection with stock options.

OPTIONS ON STOCK INDICES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and sell put and call options on stock indices traded on
securities exchanges or listed on NASDAQ or that result from privately
negotiated transactions with broker-dealers ("OTC options"). Options on stock
indices are similar to options on stock except that rather than the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the "multiplier"). The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

Options on different indices may have different multipliers.

The portfolios may purchase put and call options for hedging and investment
purposes. No portfolio intends to invest more than 5% of its net assets at any
one time in the purchase of puts and calls on stock indices. A portfolio may
effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.

A portfolio will write only "covered" options on stock indices. A call option is
covered if the portfolio holds a portfolio of stocks at least equal to the value
of the index times the multiplier times the number of contracts. When a
portfolio writes a call option on a broadly based stock market index, the
portfolio will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, cash equivalents or "qualified
securities" (defined below) with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. If a portfolio has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian or pledge to a broker as collateral for the option at least five
"qualified securities," all of which are stocks of issuers in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. Such stocks will include stocks which represent at least 50% of
the weighting of the industry or market segment index and will represent at
least 50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the portfolio
will so segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term obligations equal in value to the difference. In addition,
when a portfolio writes a call on an index which is in-the-money at the time the
call is written, the portfolio will segregate with its custodian or pledge to
the broker as collateral, cash or U.S. Government or other liquid unencumbered
assets equal in value to the amount by which the call is in-the-money times the
multiplier times the number of

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contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the portfolio's obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a securities
exchange or NASDAQ against which the portfolio has not written a stock call
option and which has not been hedged by the portfolio by the sale of stock index
futures. However, if the portfolio holds a call on the same index as the call
written where the exercise price of the call held is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the difference is maintained by the portfolio in cash, Treasury
bills or other high-grade short-term obligations in a segregated account with
its custodian, it will not be subject to the requirement described in this
paragraph.

A put option is covered if: (1) the portfolio holds in a segregated account
cash, Treasury bills or other high-grade short-term debt obligations of a value
equal to the strike price times the multiplier times the number of contracts; or
(2) the portfolio holds a put on the same index as the put written where the
strike price of the put held is equal to or greater than the strike price of the
put written or less than the strike price of the put written if the difference
is maintained by the portfolio in cash, Treasury bills or other liquid
unencumbered assets in a segregated account with its custodian. In instances
involving the purchase of futures contracts by a portfolio, an amount of cash
and cash equivalents, equal to the market value of the futures contracts, will
be deposited in a segregated account with the portfolio's custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged.

The purchase and sale of options on stock indices will be subject to the risks
described under OPTIONS ON EQUITY SECURITIES, page 6. In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options. Index prices may be distorted if trading of
certain stocks included in the index is interrupted. Trading in the index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of stocks included in the index. If this
occurred, a portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, might be
unable to exercise an option it holds, which could result in substantial losses
to the portfolio. It is the policy of the portfolios to purchase or write
options only on stock indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.

There are certain special risks associated with writing calls on stock indices.
Because exercises of index options are settled in cash, a call writer such as a
portfolio cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot precisely provide in advance
for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities. The portfolios, however, will follow the "cover"
procedures described above.

When a portfolio has written a call, there is also a risk that the market may
decline between the time the portfolio has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of the
exercise, and the time the portfolio is able to sell stocks in its portfolio. As
with stock options, a portfolio will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on stock
where the portfolio would be able to deliver the underlying securities in
settlement, the portfolio may have to sell part of its stock portfolio in order
to make settlement in cash, and the price of such stocks might decline before
they can be sold. This timing risk makes certain strategies involving more than
one option substantially more risky with options in stock indices than with
stock options. For example, even if an index call which a portfolio has written
is "covered" by an index call held by the portfolio with the same strike price,
the portfolio will bear the risk that the level of the index may decline between
the close of trading on the date the exercise notice is filed with the clearing
corporation and the close of trading on the date the portfolio exercises the
call it holds or the time the

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portfolio sells the call, which in either case would occur no earlier than the
day following the day the exercise notice was filed.

OPTIONS ON FOREIGN CURRENCIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade for hedging
purposes in a manner similar to that in which forward foreign currency exchange
contracts (see FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, page 15) and futures
contracts on foreign currencies (discussed under FUTURES CONTRACTS, below) will
be employed. Options on foreign currencies are similar to options on stock,
except that the option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.

If, on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the portfolio may purchase call options
on the foreign currency. The purchase of such options could offset, at least
partially, the effects of the adverse movements of the exchange rates.
Alternatively, a portfolio could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

A portfolio's successful use of currency exchange options on foreign currencies
depends upon the investment manager's ability to predict the direction of the
currency exchange markets and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally. For instance, if the currency being hedged has moved in a favorable
direction, the corresponding appreciation of the portfolio's securities
denominated in such currency would be partially offset by the premiums paid on
the options. Further, if the currency exchange rate does not change, the
portfolio net income would be less than if the portfolio had not hedged since
there are costs associated with options.

Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. In addition,
the quantities of currency underlying option contracts represent odd lots in a
market dominated by transactions between banks; this can mean extra transaction
costs upon exercise. Option markets may be closed while round-the-clock
interbank currency markets are open, and this can create price and rate
discrepancies.

FUTURES CONTRACTS. The Conservative Balanced and Flexible Managed Portfolios
may, to the extent permitted by applicable regulations, purchase and sell stock
index futures contracts. A stock index futures contract is an agreement between
the buyer and the seller of the contract to transfer an amount of cash equal to
the daily variation margin of the contract. No physical delivery of the
underlying stocks in the index is made.

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The Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell futures contracts on
interest-bearing securities (such as U.S. Treasury bonds and notes) or interest
rate indices (referred to collectively as "interest rate futures contracts").

The Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell futures contracts on
foreign currencies or groups of foreign currencies.

In addition, the hours of trading of futures contracts may not conform to the
hours during which the portfolio may trade the underlying securities and/or
currency. To the extent that the futures markets close before the securities or
currency markets, significant price and rate movements can take place in the
securities and/or currency markets that cannot be reflected in the futures
markets.

OPTIONS ON FUTURES CONTRACTS. To the extent permitted by applicable insurance
law and federal regulations, the Conservative Balanced and Flexible Managed
Portfolios may enter into certain transactions involving options on stock index
futures contracts, options on interest rate futures contracts, and options on
foreign currency futures contracts. An option on a futures contract gives the
purchaser or holder the right, but not the obligation, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified price at any time during the option
exercise period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accomplished by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
As an alternative to exercise, the holder or writer of an option may terminate a
position by selling or purchasing an option of the same series. There is no
guarantee that such closing transactions can be effected. The portfolios intend
to utilize options on futures contracts for the same purposes that they use the
underlying futures contracts.

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Options on futures contracts are subject to risks similar to those described
above with respect to option on securities, options on stock indices, and
futures contracts. These risks include the risk that the portfolio manager may
not correctly predict changes in the market, the risk of imperfect correlation
between the option and the securities being hedged, and the risk that there
might not be a liquid secondary market for the option. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, the portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If the portfolio were unable
to close out an option it had written on a futures contract, it would continue
to be required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was exercised
against the portfolio.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, the Conservative Balanced
and Flexible Managed Portfolios may purchase or sell securities on a when-issued
or delayed delivery basis, that is, delivery and payment can take place a month
or more after the date of the transaction. The portfolios will limit such
purchases to those in which the date for delivery and payment falls within 120
days of the date of the commitment. A portfolio will make commitments for such
when-issued transactions only with the intention of actually acquiring the
securities. A portfolio's custodian will maintain, in a separate account, cash,
U.S. Government securities or other liquid unencumbered assets having a value
equal to or greater than such commitments. If a portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio security, incur a gain or loss
due to market fluctuations.

In addition, the short-term portions of the portfolios may purchase money market
securities on a when-issued or delayed delivery basis on the terms set forth
under item 6 in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY
INVEST, page 22.

SHORT SALES

The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). To complete such a transaction, the portfolio will
borrow the security to make delivery to the buyer. The portfolio is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the portfolio. Until the security is
replaced, the portfolio is required to pay to the lender any interest which
accrues during the period of the loan. To borrow the security the portfolio may
be required to pay a fee which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker to the extent
necessary to meet margin requirements until the short position is closed out.
Until the portfolio replaces the borrowed security, it will (a) maintain in a
segregated account cash, U.S. Government securities or other liquid unencumbered
assets at such a level that the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current market value of
the security sold short and will not be less than the market value of the
security at the time it was sold short or (b) otherwise cover its short
position.

SHORT SALES AGAINST THE BOX

The portfolios may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the portfolio owns an
equal amount of such securities or securities convertible into or exchangeable,
with or without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a "short sale
against the box"); provided, that if further consideration is required in
connection with the conversion or exchange, cash, U.S. Government securities or
other liquid unencumbered assets in an amount equal to such consideration must
be put in a segregated account.

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INTEREST RATE SWAPS

The fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use interest rate swaps to increase or decrease a portfolio's
exposure to long- or short-term interest rates. No portfolio currently intends
to invest more than 5% of its net assets at any one time in interest rate swaps.

LOANS OF PORTFOLIO SECURITIES

The portfolios may from time to time lend the securities they hold to
broker-dealers, qualified banks and certain institutional investors provided
that such loans are made pursuant to written agreements and are continuously
secured by collateral in the form of cash, U.S. Government securities or
irrevocable standby letters of credit in an amount equal to at least the market
value at all times of the loaned securities plus the accrued interest and
dividends. During the time securities are on loan, the portfolio will continue
to receive the interest and dividends or amounts equivalent thereto on the
loaned securities while receiving a fee from the borrower or earning interest on
the investment of the cash collateral. The right to terminate the loan will be
given to either party subject to appropriate notice. Upon termination of the
loan, the borrower will return to the lender securities identical to the loaned
securities. The portfolio will not have the right to vote securities on loan,
but would terminate the loan and retain the right to vote if that were
considered important with respect to the investment.

The primary risk in lending securities is that the borrower may become insolvent
on a day on which the loaned security is rapidly advancing in price. In such
event, if the borrower fails to return the loaned securities, the existing
collateral might be insufficient to purchase back the full amount of the
security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage; but the portfolio
would be an unsecured creditor with respect to such shortage and might not be
able to recover all or any of it. However, this risk may be minimized by a
careful selection of borrowers and securities to be lent and by monitoring
collateral.

ILLIQUID SECURITIES

The portfolios may hold up to 15% of its net assets in illiquid securities.
Illiquid securities are those which may not be sold in the ordinary course of
business within seven days at approximately the value at which the portfolio has
valued them. Variable and floating rate instruments that cannot be disposed of
within seven days and repurchase agreements with a maturity of greater than
seven days are considered illiquid.

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quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades. A portfolio's treatment of
Rule 144A securities as liquid could have the effect of increasing the level of
portfolio illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing these securities. In addition, the
investment manager, acting under guidelines approved and monitored by the Board
of Directors, may conditionally determine, for purposed of the 15% test, that
certain commercial paper issued in reliance on the exemption from registration
in Section 4(2) of the Securities Act of 1933 will not be considered illiquid,
whether or not it may be resold under Rule 144A. To make that determination, the
following conditions must be met: (1) the security must not be traded flat or in
default as to principal or interest; (2) the security must be rated in one of
the two highest rating categories by at least two nationally recognized
statistical rating organizations ("NRSROs"), or if only one NRSRO rates the
security, by that NRSRO; if the security is unrated, the investment manager must
determine that the security is of equivalent quality; and (3) the investment
manager must consider the trading market for the specific security, taking into
account all relevant factors. The investment manager will continue to monitor
the liquidity of any Rule 144A security or any Section 4(2) commercial paper
which has been determined to be liquid and, if a security is no longer liquid
because of changed conditions, the holdings of illiquid securities will be
reviewed to determine if any steps are required to assure that the 15% test
continues to be satisfied.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

To the extent permitted by applicable insurance law, the Conservative Balanced
and Flexible Managed Portfolios may purchase securities denominated in foreign
currencies. To address the currency fluctuation risk that such investments
entail, these portfolios may enter into forward foreign currency exchange
contracts in several circumstances. When a portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, or when a
portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.

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forward prices decline during the period between the portfolio's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the portfolio will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The portfolios' dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the portfolios are not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of the portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedge currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

INVESTMENT RESTRICTIONS

Neither of the portfolios available to PRUVIDER Contract owners will:

3. Acquire securities for the purpose of exercising control or management of
any company except in connection with a merger, consolidation,
acquisition or reorganization.

4. Make short sales of securities or maintain a short position, except that
the Conservative Balanced and Flexible Managed Portfolios may sell
securities short up to 25% of their net assets and may make short sales
against the box. Collateral arrangements entered into with respect to
options, futures contracts and forward contracts are not deemed to be
short sales. Collateral arrangements entered into with respect to
interest rate swap agreements are not deemed to be short sales.

5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios may enter into reverse
repurchase agreements, dollar rolls and may purchase securities on a
when-issued and delayed delivery basis; except that the money market
portion of any portfolio may enter into reverse repurchase agreements and
may purchase securities on a when-issued and delayed delivery basis; and
except that the Conservative Balanced and Flexible Managed Portfolios may
purchase securities on a when-issued or a delayed delivery basis. The
Series Fund may also obtain such short-term credit as it needs for the
clearance of securities transactions and may borrow from a bank for the
account of any portfolio as a temporary measure to facilitate redemptions
(but not for leveraging or investment) or to exercise an option, an
amount that does not exceed 5% of the value of the portfolio's total
assets (including the amount owed as a result of the borrowing) at the
time the borrowing is made. Interest paid on borrowings will not be
available for investment. Collateral arrangements with respect to futures
contracts and options thereon and forward foreign currency exchange
contracts (as permitted by restriction no.1) are not deemed to be the
issuance of a senior security or the purchase of a security on margin.
Collateral arrangements with respect to the writing of options on debt
securities, equity securities, stock indices and foreign currencies by
the Conservative Balanced and Flexible Managed Portfolios

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are not deemed to be the issuance of a senior security or the purchase of
a security on margin. Collateral arrangements entered into by the
Conservative Balanced and Flexible Managed Portfolios with respect to
interest rate swap agreements are not deemed to be the issuance of a
senior security or the purchase of a security on margin.

6. Enter into reverse repurchase agreements if, as a result, the portfolio's
obligations with respect to reverse repurchase agreements would exceed
10% of the portfolio's net assets (defined to mean total assets at market
value less liabilities other than reverse repurchase agreements); except
that the fixed income portions of the Conservative Balanced and Flexible
Managed Portfolios may enter into reverse repurchase agreements and
dollar rolls provided that the portfolio's obligations with respect to
those instruments do not exceed 30% of the portfolio's net assets
(defined to mean total assets at market value less liabilities other than
reverse repurchase agreements and dollar rolls).

7. Pledge or mortgage assets, except that no more than 10% of the value of
any portfolio may be pledged (taken at the time the pledge is made) to
secure authorized borrowing and except that a portfolio may enter into
reverse repurchase agreements. Collateral arrangements entered into with
respect to futures and forward contracts and the writing of options are
not deemed to be the pledge of assets. Collateral arrangements entered
into with respect to interest rate swap agreements are not deemed to be
the pledge of assets.

8. Lend money, except that loans of up to 10% of the value of each portfolio
may be made through the purchase of privately placed bonds, debentures,
notes, and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible
into stock or accompanied by warrants or rights to acquire stock.
Repurchase agreements and the purchase of publicly traded debt
obligations are not considered to be "loans" for this purpose and may be
entered into or purchased by a portfolio in accordance with its
investment objectives and policies.

9. Underwrite the securities of other issuers, except where the Series Fund
may be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of portfolio
securities and with loans that a portfolio may make pursuant to item 8
above.

10. Make an investment unless, when considering all its other investments,
75% of the value of a portfolio's assets would consist of cash, cash
items, obligations of the United States Government, its agencies or
instrumentalities, and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not more
than 5% of the value of a portfolio's assets and to not more than 10% of
the issuer's outstanding voting securities held by the Series Fund as a
whole. Some uncertainty exists as to whether certain of the types of bank
obligations in which a portfolio may invest, such as certificates of
deposit and bankers' acceptances, should be classified as "cash items"
rather than "other securities" for purposes of this restriction, which is
a diversification requirement under the 1940 Act. Interpreting most bank
obligations as "other securities" limits the amount a portfolio may
invest in the obligations of any one bank to 5% of its total assets. If
there is an authoritative decision that any of these obligations are not
"securities" for purposes of this diversification test, this limitation
would not apply to the purchase of such obligations.

11. Purchase securities of a company in any industry if, as a result of the
purchase, a portfolio's holdings of securities issued by companies in
that industry would exceed 25% of the value of the portfolio, except that
this restriction does not apply to purchases of obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities or
issued by domestic banks. For purposes of this restriction, neither
finance companies as a group nor utility companies as a group are
considered to be a single industry and will be grouped instead according
to their services; for example, gas, electric, and telephone utilities
will each be considered a separate industry. For purposes of this
exception, domestic banks shall include all banks which are organized
under the laws of the United States or a state (as defined in the 1940
Act), U.S. branches of foreign banks that are subject to the same
regulations as U.S. banks and foreign branches of domestic banks (as
permitted by the SEC).

12. Invest more than 15% of its net assets in illiquid securities. For
purposes of this restriction, illiquid securities are those deemed
illiquid pursuant to SEC regulations and guidelines, as they may be
revised from time to time.

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will comply, without the approval of the shareholders, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
stand are, in summary form, as follows:

1. An Account may not purchase any evidence of indebtedness issued, assumed
or guaranteed by any institution created or existing under the laws of
the U.S., any U.S. state or territory, District of Columbia, Puerto Rico,
Canada or any Canadian province, if such evidence of indebtedness is in
default as to interest. "Institution" includes any corporation, joint
stock association, business trust, business joint venture, business
partnership, savings and loan association, credit union or other mutual
savings institution.

2. The stock of a corporation may not be purchased unless: (i) the
corporation has paid a cash dividend on the class of stock during each of
the past 5 years preceding the time of purchase; or (ii) during the
5-year period the corporation had aggregate earnings available for
dividends on such class of stock sufficient to pay average dividends of
4% per annum computed upon the par value of such stock or upon stated
value if the stock has no par value. This limitation does not apply to
any class of stock which is preferred as to dividends over a class of
stock whose purchase is not prohibited.

3. Any common stock purchased must be: (i) listed or admitted to trading on
a securities exchange in the United States or Canada; or (ii) included in
the National Association of Securities Dealers' national price listings
of "over-the-counter" securities; or (iii) determined by the Commissioner
of Insurance of New Jersey to be publicly held and traded and have market
quotations available.

4. Any security of a corporation may not be purchased if after the purchase
more than 10% of the market value of the assets of a portfolio would be
invested in the securities of such corporation.

Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the portfolios. For example, the Series Fund will generally invest no more
than 10% of its assets in the obligations of banks of the foreign countries
described in item 2 of SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST, page 22.

Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Series Fund and not the Contract owners, are
considered the owners of assets held in the Account for federal income tax
purposes. See TAX TREATMENT OF CONTRACT BENEFITS, page 3. Prudential intends to
maintain the assets of each portfolio pursuant to those diversification
requirements.

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES

The Series Fund and Prudential have entered into an Investment Advisory
Agreement under which Prudential will, subject to the direction of the Board of
Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio. As
noted in the prospectus, Prudential has also entered into a Service Agreement
with its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"),
which provides that PIC will furnish to Prudential such services as Prudential
may require in connection with Prudential's performance of its obligations under
the Investment Advisory Agreement.

The investment management fee for the Conservative Balanced Portfolio is equal
to an annual rate of 0.55% of the average daily net assets of each of the
portfolios. For the Flexible Managed Portfolio, the fee is equal to an annual
rate of 0.60% of the average daily net assets of the portfolio.

For the years 1997, 1996 and 1995, Prudential received a total of $25,757,735,
$23,052,572 and $20,327,574, respectively, in investment management fees for the
Conservative Balanced Portfolio and $31,740,440, $27,247,674 and $22,971,401,
respectively, for the Flexible Managed Portfolio.

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<PAGE>

The Investment Advisory Agreement requires Prudential to pay for maintaining any
Prudential staff and personnel who perform clerical, accounting, administrative,
and similar services for the Series Fund, other than investor services and any
daily Series Fund accounting services. It also requires Prudential to pay for
the equipment, office space and related facilities necessary to perform these
services and the fees or salaries of all officers and directors of the Series
Fund who are affiliated persons of Prudential or any subsidiary of Prudential.

Each portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Series Fund's general administrative expenses
allocated on the basis of the asset size of the respective portfolios. Expenses
that will be borne directly by the portfolios include redemption expenses,
expenses of portfolio transactions, shareholder servicing costs, interest,
certain taxes, charges of the custodian and transfer agent, and other expenses
attributable to a particular portfolio. Expenses that will be allocated among
all portfolios include legal expenses, state franchise taxes, auditing services,
costs of printing proxies, costs of stock certificates, SEC fees, accounting
costs, the fees and expenses of directors of the Series Fund who are not
affiliated persons of Prudential or any subsidiary of Prudential, and other
expenses properly payable by the entire Series Fund. If the Series Fund is sued,
litigation costs may be directly applicable to one or more portfolios or
allocated on the basis of the size of the respective portfolios, depending upon
the nature of the lawsuit. The Series Fund's Board of Directors has determined
that this is an appropriate method of allocating expenses.

Under the Investment Advisory Agreement, Prudential has agreed to refund to the
Conservative Balanced and Flexible Managed Portfolios the portion of the
investment management fee for that portfolio equal to the amount that the
aggregate annual ordinary operating expenses of that portfolio (excluding
interest, taxes, and brokerage fees and commissions but including investment
management fees) exceeds 0.75% of the portfolio's average daily net assets.

The Investment Advisory Agreement with Prudential was most recently approved by
the Series Fund's Board of Directors, including a majority of the Directors who
are not interested persons of Prudential, on May 19, 1997 with respect to the
Balanced Portfolios. The Investment Advisory Agreement was most recently
approved by shareholders in accordance with instructions from Contract owners at
their 1989 annual meeting with respect to the Balanced Portfolios. The Agreement
will continue in effect if approved annually by: (1) a majority of the non-
interested persons of the Series Fund's Board of Directors; and (2) by a
majority of the entire Board of Directors or by a majority vote of the
shareholders of each portfolio. The required shareholder approval of the
Agreement shall be effective with respect to any portfolio if a majority of the
voting shares of that portfolio vote to approve the Agreement, even if the
Agreement is not approved by a majority of the voting shares of any other
portfolio or by a majority of the voting shares of the entire Series Fund. The
Agreement provides that it may not be assigned by Prudential and that it may be
terminated upon 60 days' notice by the Series Fund's Board of Directors or by a
majority vote of its shareholders. Prudential may terminate the Agreement upon
90 days' notice.

The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Series Fund at their 1989 annual meeting with respect to the
Balanced Portfolios. The Service Agreement between Prudential and PIC will
continue in effect as to the Series Fund for a period of more than 2 years from
its execution, only so long as such continuance is specifically approved at
least annually in the same manner as the Investment Advisory Agreement between
Prudential and the Series Fund. The Service Agreement may be terminated by
either party upon not less than 30 days' prior written notice to the other
party, will terminate automatically in the event of its assignment, and will
terminate automatically as to the Series Fund in the event of the assignment or
termination of the Investment Advisory Agreement between Prudential and the
Series Fund. Prudential is not relieved of its responsibility for all investment
advisory services under the Investment Advisory Agreement. Under the Service
Agreement, Prudential pays PIC a portion of the fee it receives for providing
investment advisory services.

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<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

Prudential is responsible for decisions to buy and sell securities, options on
securities and indices, and futures and related options for the Series Fund.
Prudential is also responsible for the selection of brokers, dealers, and
futures commission merchants to effect the transactions and the negotiation of
brokerage commissions, if any. Broker- dealers may receive brokerage commissions
on Series Fund portfolio transactions, including options and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of Prudential.

Bonds, including convertible bonds, and equity securities traded in the
over-the-counter market are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments and U.S. Government agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. The Series Fund
will not deal with Prudential Securities Incorporated in any transaction in
which Prudential Securities Incorporated acts as principal. Thus, it will not
deal with Prudential Securities Incorporated if execution involves Prudential
Securities Incorporated's acting as principal with respect to any part of the
Series Fund's order.

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<PAGE>

Series Fund has expressly authorized the retention of such compensation in a
written contract executed by the Series Fund and Prudential Securities
Incorporated. Rule 11a2-2(T) provides that Prudential Securities Incorporated
must furnish to the Series Fund at least annually a statement setting forth the
total amount of all compensation retained by Prudential Securities Incorporated
from transactions effected for the Series Fund during the applicable period.
Brokerage and futures transactions with Prudential Securities Incorporated are
also subject to such fiduciary standards as may be imposed by applicable law.

For the years 1997, 1996 and 1995, the Conservative Balanced Portfolio paid
$3,338,897, $2,192,303 and $1,893,008, respectively, in brokerage commissions
and the Flexible Managed Portfolio paid $6,544,428, $5,760,972 and $5,252,363,
respectively, in brokerage commissions. Of those amounts, for 1997, 1996 and
1995, the Conservative Balanced Portfolio paid $256,752, $120,976 and $82,153,
respectively, to Prudential Securities Incorporated, and the Flexible Managed
Portfolio paid $428,008, $582,317 and $589,038, respectively, to Prudential
Securities Incorporated. For 1997, the percentage of commissions paid to
Prudential Securities Incorporated was 7.69% for the Conservative Balanced
Portfolio and 6.54% for the Flexible Managed Portfolio. For 1997, the percentage
of the aggregate dollar amount of transactions effected through Prudential
Securities Incorporated was 5.18% for the Conservative Balanced Portfolio and
6.92% for the Flexible Managed Portfolio.

DETERMINATION OF NET ASSET VALUE

Shares in the Series Fund are currently offered continuously, without sales
charge, at prices equal to the respective net asset values of the portfolios,
only to separate accounts to fund benefits payable under the Contracts described
in the variable life insurance and variable annuity prospectuses. The Series
Fund may at some later date also offer its shares to other separate accounts of
Prudential or other insurers. Currently, Pruco Securities Corporation
("Prusec"), an indirect wholly-owned subsidiary of Prudential, acts as the
principal underwriter of the Series Fund. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. Subject to Board approval,
during the second quarter of 1998 Prusec's responsibilities as principal
underwriter will be assigned to Prudential Investment Management Services LLC
("PIMS"). PIMS, also an indirect wholly-owned subsidiary of Prudential, is a
limited liability corporation organized under Delaware law in 1996. PIMS will
act as principal underwriter under substantially the same terms as Prusec does
currently. Both Prusec and PIMS are registered as broker-dealers under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. PIMS' principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777.

As noted in the prospectus, the net asset value of the shares of each portfolio
is determined once daily on each day the New York Stock Exchange ("NYSE") is
open for business. The NYSE is open for business Monday through Friday except
for the days on which the following holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In the event
the NYSE closes early on any business day, the net asset value of each portfolio
shall be determined at a time between such closing and 4:15 p.m. New York City
time.

In determining the net asset value of any intermediate or long-term fixed income
securities of the Conservative Balanced and Flexible Managed Portfolios (other
than debt obligations with remaining maturities of 12 months or less, which are
valued at amortized cost) will be valued utilizing an independent pricing
service to determine valuations for normal institutional size trading units of
securities. The pricing service considers such factors as security prices,
yields, maturities, call features, ratings, and developments relating to
specific securities in arriving at securities valuations.

All short-term debt obligations in the money market portions of the Conservative
Balanced and Flexible Managed Portfolios of 12 months remaining maturity or less
are valued on an amortized cost basis in accordance with an order obtained from
the SEC. This means that each obligation will be valued initially at its
purchase price and thereafter by amortizing any discount or premium uniformly to
maturity, regardless of the impact of fluctuating interest rates on the market
value of the obligation. This highly practical method of valuation is in
widespread use and almost always results in a value that is extremely close to
the actual market value. In order to continue to utilize the amortized cost
method of valuation, the money market portions of the Conservative Balanced and
Flexible Managed Portfolios may not purchase any security with a remaining
maturity of more than 12 months and must maintain a dollar-weighted average
portfolio maturity of 120 days or less. In the event of sizeable changes in
interest rates, however, the value determined by this method may be higher or
lower than the price that would be received if the obligation were sold. The
Series Fund's Board of Directors has established procedures to monitor whether
any material deviation occurs and, if so, will promptly consider what action, if
any, should be initiated to prevent unfair results to Contract owners. The
short-term portion of these portfolios may be invested only in high

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<PAGE>

quality instruments, as described in SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST, page 22.

The net asset value of the common stocks and convertible debt securities of the
portfolios will be determined in the following manner. NASDAQ National Market
System equity securities and securities for which the primary market is on an
exchange are generally valued at the last sale price on such system or exchange
on that day or, in the absence of recorded sales, at the mean between the most
recently quoted bid and asked prices on that day or at the bid price on such day
in the absence of an asked price. Other over-the-counter equity securities are
valued by an independent pricing agent or principal market maker. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by a principal market maker. Corporate bonds (other
than convertible debt securities) are valued on the same basis as intermediate
or long-term fixed income securities, as described above. Short-term debt
instruments which mature in less than 60 days are valued at amortized cost. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents.

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by Prudential under the direction of the
Board of Directors of the Series Fund.

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO
MAY CURRENTLY INVEST*

* Although the Money Market Portfolio is not available to PRUVIDER Contract
owners, any short-term portion of the Conservative Balanced and Flexible Managed
Portfolios may be invested in the types of securities described in this section.

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<PAGE>

instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
"Time deposits" are non-negotiable deposits in a bank for a fixed period of
time.

3. Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies, instrumentalities or political subdivisions, denominated in U.S.
dollars, and, at the date of investment, rated at least A or A-2 by Standard &
Poor's Ratings Services ("S&P"), A or Prime-2 by Moody's Investors Services,
Inc. ("Moody's") or, if not rated, issued by an entity having an outstanding
unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2 by Moody's.
For a description of corporate bond ratings, see DEBT RATINGS, page 24. If such
obligations are guaranteed or supported by a letter of credit issued by a bank,
such bank (including a foreign bank) must meet the requirements set forth in
paragraph 2 above. If such obligations are guaranteed or insured by an insurance
company or other non-bank entity, such insurance company or other non-bank
entity must represent a credit of high quality, as determined by the Series
Fund's investment adviser (which as noted above is currently Prudential) under
the supervision of the Series Fund's Board of Directors.

As stated above in paragraphs 2 and 3, the Money Market Portfolio and short-term
portions of the other portfolios may contain obligations of foreign branches of
domestic banks and domestic branches of foreign banks, as well as commercial
paper, bills, notes, and other obligations issued in the United States by
foreign issuers, including foreign governments, their agencies, and
instrumentalities. This involves certain additional risks. These risks include
future political and economic developments in the country of the issuer, the
possible imposition of withholding taxes on interest income payable on such
obligations held by the Series Fund, the possible seizure or nationalization of
foreign deposits, and the possible establishment of exchange controls or other
foreign governmental laws or restrictions which might affect adversely the
payment of principal and interest on such obligations held by the Series Fund.
In addition, there may be less publicly available information about a foreign
issuer than about a domestic one, and foreign issuers may not be subject to the
same accounting, auditing and financial recordkeeping standards and requirements
as domestics issuers. Securities issued by foreign issuers may be subject to
greater fluctuations in price than securities issued by U.S. entities. Finally,
in the event of default with respect to any such foreign debt obligations, it
may be more difficult for the Series Fund to obtain or to enforce a judgment
against the issuers of such securities.

4. Repurchase Agreements. When the Money Market Portfolio purchases money market
securities of the types described above, it may on occasion enter into a
repurchase agreement with the seller wherein the seller and the buyer agree at
the time of sale to repurchase of the security at a mutually agreed upon time
and price. The period of maturity is usually quite short, possibly overnight or
a few days, although it may extend over a number of months. The resale price is
in excess of the purchase price, reflecting an agreed-upon market rate effective
for the period of time the portfolio's money is invested in the security, and is
not related to the coupon rate of the purchased security. Repurchase agreements
may be considered loans of money to the seller of the underlying security, which
are collateralized by the securities underlying the repurchase agreement. The
Series Fund will not enter into repurchase agreements unless the agreement is
"fully collateralized" (i.e., the value of the securities is, and during the
entire term of the agreement remains, at least equal to the amount of the 'loan'
including accrued interest). The Series Fund will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Series Fund has adopted standards for the parties
with whom it will enter into repurchase agreements which it believes are
reasonably designed to assure that such a party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement. In the event that a seller defaults on a repurchase
agreement, the Series Fund may incur a loss in the market value of the
collateral, as well as disposition costs; and, if a party with whom the Series
Fund had entered into a repurchase agreement becomes involved in bankruptcy
proceedings, the Series Fund's ability to realize on the collateral may be
limited or delayed and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.

5. Reverse Repurchase Agreements. The Money Market Portfolio may use reverse
repurchase agreements, which are described under REVERSE REPURCHASE AGREEMENTS
AND DOLLAR ROLLS in the prospectus. No portfolio may obligate more than 10% of
its net assets in connection with reverse repurchase agreements, except that the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may obligate up to 30% of their net assets in connection with reverse
repurchase agreements and dollar rolls.

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on the securities are fixed on the transaction date. The securities so purchased
are subject to market fluctuation, and no interest accrues to the portfolio
until delivery and payment take place. At the time the portfolio makes the
commitment to purchase securities on a when-issued or delayed delivery basis, it
will record the transaction and thereafter reflect the value, each day, of such
securities in determining its net asset value. The portfolio will make
commitments for when-issued transactions only with the intention of actually
acquiring the securities and, to facilitate such acquisitions, the Series Fund's
custodian bank will maintain in a separate account securities of the portfolio
having a value equal to or greater than such commitments. On delivery dates for
such transactions, the portfolio will meet its obligations from maturities or
sales of the securities held in the separate account and/or from then available
cash flow. If the portfolio chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other obligation, incur a gain or loss due to market fluctuation. No
when-issued commitments will be made if, as a result, more than 15% of the
portfolio's net assets would be so committed.

The Board of Directors of the Series Fund has adopted policies for the Money
Market Portfolio to conform to amendments of an SEC rule applicable to money
market funds, like the portfolio. These policies do not apply to any other
portfolio. The policies are as follows: (1) The portfolio will not invest more
than 5% of its assets in the securities of any one issuer (except U.S.
Government securities); however, the portfolio may exceed the 5% limit with
respect to a single security rated in the highest rating category for up to
three business days after the purchase thereof; (2) To be eligible for
investment, a security must be a United States dollar-denominated instrument
that the Series Fund's Board has determined to present minimal credit risks and
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs") assigning a
rating to the security or issue, or if only one NRSRO has assigned a rating,
that NRSRO. An unrated security must be deemed to be of comparable quality as
determined by the Series Fund's Board. In other words, the portfolio will invest
in only first tier or second tier securities. First tier securities are
securities which are rated by at least two NRSROs, or by the only NRSRO that has
rated the security, in the highest short-term rating category, or unrated
securities of comparable quality as determined by the Series Fund's Board.
Second tier securities are eligible securities that are not first tier
securities; (3) The portfolio will not invest more than 5% of its total assets
in second tier securities; (4) The portfolio may not invest more than 1% of its
assets in second tier securities of any one issuer; (5) In the event a first
tier security held by the portfolio is downgraded and becomes a second tier
security, or in the case of an unrated security the Series Fund's Board
determines it is no longer of comparable quality to a first tier security, or in
the event Prudential becomes aware that an NRSRO has rated a second tier
security or an unrated portfolio security below its second highest rating, the
Board will reassess promptly whether the security presents minimal credit risks
and shall cause the portfolio to take such action as the Board determines is in
the best interests of the portfolio and its shareholders; (6) In the event of a
default or if because of a rating downgrade a security held in the portfolio is
no longer an eligible investment, the portfolio will sell the security as soon
as practicable unless the Series Fund's Board makes a specific finding that such
action would not be in the best interest of the portfolio; and (7) The
portfolio's dollar-weighted average maturity will be no more than 90 days. The
Series Fund's Board of Directors has adopted written procedures delegating to
the investment advisor under certain guidelines the responsibility to make
several of the above-described determinations, including certain credit quality
determinations.

DEBT RATINGS

Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:

Bonds:

Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.

A -- Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

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<PAGE>

Baa -- Bonds which are rated "Baa" are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.

Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C -- Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Commercial paper:

- --Leading market positions in well-established industries.

- --High rates of return of funds employed.

- --Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- --Well established access to a range of financial markets and assured sources of
alternate liquidity.

S&P describes its grades of corporate debt securities and its "A" commercial
paper as follows:

Bonds:

AAA Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.

A Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.

BBB Debt rated "BBB" is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.

BB-B-CCC-CC-C Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures
to adverse conditions.

25
<PAGE>

Commercial paper:

Commercial paper rated A by S&P has the following
characteristics: Liquidity ratios are better than the industry
average. Long term senior debt rating is "A" or better. In some
cases BBB credits may be acceptable. The issuer has access to at
least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowances made for unusual
circumstances. Typically, the issuer's industry is well
established, the issuer has a strong position within its
industry and the reliability and quality of management is
unquestioned. Issuers rated A are further referred to by use of
numbers 1, 2 and 3 to denote relative strength within this
classification.

POSSIBLE REPLACEMENT OF THE SERIES FUND

Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. 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.
Contract owners will be notified of such substitution.

In addition, although it is highly unlikely, it is conceivable that in the
future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual fund. Although neither the companies which invest in the Series Fund nor
the Series Fund currently foresees any such disadvantage, the Series Fund's
Board of Directors intends to monitor events in order to identify any material
conflict between variable life insurance and variable annuity contract owners
and to determine what action, if any, should be taken in response thereto.
Material conflicts could result from such things as: (1) changes in state
insurance law; (2) changes in federal income tax law; (3) changes in the
investment management of any portfolio of the Series Fund; or (4) difference
between voting instructions given by variable life insurance and variable
annuity contract owners. Prudential will bear the expense, if it does become
necessary, of remedying any material conflict including establishing a new
underlying investment company and segregating the assets held under variable
life insurance and variable annuity contracts.

OTHER INFORMATION CONCERNING THE SERIES FUND

INCORPORATION AND AUTHORIZED STOCK

The Series Fund was incorporated under Maryland law on November 15, 1982. As of
the date of this prospectus, the shares of Capital Stock are divided into
fifteen classes: MONEY MARKET PORTFOLIO Capital Stock, DIVERSIFIED BOND
PORTFOLIO Capital Stock, HIGH YIELD BOND PORTFOLIO Capital Stock, GOVERNMENT
INCOME PORTFOLIO Capital Stock, EQUITY PORTFOLIO Capital Stock, STOCK INDEX
PORTFOLIO Capital Stock, EQUITY INCOME PORTFOLIO Capital Stock, NATURAL
RESOURCES PORTFOLIO Capital Stock, GLOBAL PORTFOLIO Capital Stock, CONSERVATIVE
BALANCED PORTFOLIO Capital Stock, FLEXIBLE MANAGED PORTFOLIO Capital Stock, ZERO
COUPON BOND PORTFOLIO 2000 Capital Stock, ZERO COUPON BOND PORTFOLIO 2005
Capital Stock, PRUDENTIAL JENNISON PORTFOLIO Capital Stock, SMALL CAPITALIZATION
STOCK PORTFOLIO Capital Stock. The shares of each portfolio, when issued, will
be fully paid and non-assessable, will have no conversion, exchange or similar
rights, and will be freely transferable. Each share of stock will have a pro
rata interest in the assets of the portfolio to which the stock of that class
relates and will have no interest in the assets of any other portfolio.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Series Fund is qualified as a regulated investment company under Section 851
of the Internal Revenue Code and distributes substantially all of each
portfolio's net investment income and realized gains from securities
transactions to the respective subaccounts, which immediately reinvest it. For
each taxable year in which it and each of its portfolios so qualify, the Series
Fund will not be subject to tax on net investment income and realized gains from
securities transactions distributed to shareholders.

CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT

26
<PAGE>

custodians employs subcustodians, who were approved in accordance with
regulations of the SEC, for the purpose of providing custodial service for the
Series Fund's foreign assets held outside the United States.

YEAR 2000

The services provided to the Series Fund and its shareholders by Prudential,
PIC, Jennison, as well as the Series Fund's principal underwriter and its
custodians, depend on the smooth functioning of their computer systems and those
of their outside service providers. Many computer software systems in use today
cannot distinguish the year 2000 from the year 1900 because of the way dates are
encoded and calculated. Such event could have a negative impact on handling
securities trades, payments of interest and dividends, pricing and account
services. Although at this time, there can be no assurance that there will be no
adverse impact on the Series Fund, the Prudential, PIC, Jennison, as well as the
Series Fund's principal underwriter and its custodians, have advised the Series
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
their outside service providers, will be adapted in time for that event.

EXPERTS

The financial statements of the Series Fund included in this statement of
additional information and the FINANCIAL HIGHLIGHTS included in the prospectus
for 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.

LICENSE

27
<PAGE>

DIRECTORS AND OFFICERS OF PRUCO LIFE AND
MANAGEMENT OF THE SERIES FUND

DIRECTORS AND OFFICERS

The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.

DIRECTORS OF PRUCO LIFE

JAMES J. AVERY, JR., Chairman and Director. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.

WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.

IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.

MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; Prior to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services.

ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.

I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.

KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.

OFFICERS WHO ARE NOT DIRECTORS

SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.

C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.

JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.

CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.

FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.

EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.

JAMES M. SCHLOMANN, Vice President, Comptroller & Chief Accounting Officer. --
Vice President & Associate Comptroller, Prudential since 1997; Prior to 1997:
Senior Executive Vice President & CFO, USLife Corp.

SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.

JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.

The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.

Pruco Life directors and officers are elected annually.

<PAGE>

MANAGEMENT OF THE SERIES FUND

DIRECTORS OF THE SERIES FUND

SAUL K. FENSTER, 65, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.

JOSEPH WEBER, 74, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

OFFICERS WHO ARE NOT DIRECTORS

STEPHEN M. UNGERMAN, Assistant Treasurer--Vice President and Tax Director of
Prudential Investments since 1996; 1993 to 1996: First Vice President of
Prudential Mutual Fund Management, Inc.

29
<PAGE>

COMPENSATION TABLE
<TABLE>
<CAPTION>

Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation As Part of Series Benefits Upon Related to Funds
Name and Position From Series Fund Fund Expenses Retirement Managed by Prudential
- ----------------- ---------------- ------------- ---------- ---------------------
<S> <C> <C> <C> <C>
E. Michael Caulfield(1) -- -- -- --
Saul K. Fenster $14,400 None N/A $26,200(5)*
W. Scott McDonald, Jr. $14,400 None N/A $26,200(5)*
Mendel A. Melzer, CFA(1) -- -- -- --
Joseph Weber $14,400 None N/A $26,200(5)*
</TABLE>

(1) Directors who are "interested" do not receive compensation from Prudential
(including the Series Fund).

* Indicates number of funds (including the Series Fund) to which aggregate
compensation relates.

As of April 30, 1998, the Directors and officers of the Series Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Series
Fund capital stock.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 160,063,955 $ 139,211,865
Net realized gain on investments....................................................... 867,691,914 408,046,131
Net change in unrealized appreciation on investments................................... (163,603,096) 41,728,823
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 864,152,773 588,986,819
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (159,343,911) (142,089,785)
Distributions from net realized capital gains.......................................... (823,214,223) (458,909,559)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (982,558,134) (600,999,344)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,859,580 and 8,998,637 shares, respectively]...................... 92,765,042 166,455,957
Capital stock issued in reinvestment of dividends and distributions [56,453,647 and
34,012,173 shares, respectively]...................................................... 982,558,134 600,999,344
Capital stock repurchased [(18,791,325) and (6,420,074) shares, respectively].......... (363,698,408) (119,724,926)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 711,624,768 647,730,375
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 593,219,407 635,717,850
NET ASSETS:
Beginning of year...................................................................... 4,896,922,687 4,261,204,837
------------------ -------------------
End of year............................................................................ $ 5,490,142,094 $ 4,896,922,687
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
CONSERVATIVE BALANCED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.8%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
LONG-TERM BONDS -- 58.6% (NOTE 2)

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 $ 5,000 $ 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
Okobank, (Finland),
7.20%, 10/29/49............................... A3 9,000 9,101,250
7.20%, 10/29/49............................... A3 3,500 3,539,375
7.312%, 09/27/49.............................. A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (a)........................... Aa3 17,400 17,513,448
Siam Commercila, (Thailand),
7.50%, 03/15/06............................... A3 14,500 9,425,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,075,000
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (a)........................... Ba1 20,000 12,000,000
--------------
278,805,472
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.0%
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Baa3 5,545 5,889,455
Tele-Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 10,036,800
7.375%, 02/15/00.............................. Ba1 27,000 27,521,100
7.875%, 08/01/13.............................. Ba1 19,350 20,812,279
8.25%, 01/15/03............................... Ba1 2,000 2,135,780
9.25%, 04/15/02............................... Ba1 9,500 10,427,865
9.875%, 06/15/22.............................. Ba1 12,900 16,811,667
--------------
93,634,946
--------------
CONSULTING -- 0.7%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 12,500 12,513,250
6.375%, 11/30/01.............................. Baa1 21,500 21,500,000
--------------
34,013,250
--------------
CONSUMER SERVICES -- 0.1%
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 3,500 3,503,570
--------------
FINANCIAL SERVICES -- 15.4%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 15,000 14,400,000
7.25%, 08/16/99............................... Ba3 3,000 2,957,910
7.50%, 08/28/00............................... Ba3 35,000 34,053,250
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 9,471,600
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 20,120,800
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 $ 10,000 $ 10,000,000
Conseco, Inc.,
8.70%, 11/15/26 (a)........................... Ba2 32,313 36,126,991
8.796%, 04/01/27 (a).......................... Ba2 23,900 26,676,463
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,395,827
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 11,500 11,554,050
6.95%, 03/01/04............................... Baa2 27,500 28,050,000
7.00%, 06/15/00............................... Baa2 30,000 30,598,800
7.50%, 06/15/03............................... Baa2 5,000 5,261,900
8.75%, 12/15/99............................... Baa2 5,000 5,245,000
First Chicago NBD Corp.,
5.819%, 09/23/02.............................. A1 8,000 7,976,000
First Union Corp.,
9.45%, 06/15/99............................... A2 4,000 4,177,920
Great Western Financial,
8.206%, 02/01/27 (a).......................... A3 19,300 20,469,966
Industrial Finance Corp.,
7.75%, 08/04/07............................... Ba1 5,000 4,750,000
7.875%, 08/04/02.............................. Ba1 6,000 5,700,000
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 8,000 7,950,000
6.33%, 08/01/00............................... Baa1 30,000 30,039,600
6.40%, 08/30/00............................... Baa1 79,000 78,901,250
6.71%, 10/12/99............................... Baa1 6,000 6,056,640
6.89%, 10/10/00............................... Baa1 10,545 10,701,804
7.125%, 07/15/02.............................. Baa1 16,000 16,359,680
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 21,750 23,055,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 15,000 15,390,000
Merrill Lynch Pierce, Fenner & Smith,
5.935%, 11/14/00.............................. Aa3 10,000 9,966,250
Paine Webber Group, Inc.,
7.625%, 10/15/08 Sr. Note..................... Baa1 5,000 5,352,700
PT Alatief Freeport Financial Co., Sr. Notes,
(Netherlands),
9.75%, 04/15/01............................... Ba1 8,950 9,039,500
Salomon, Inc.,
6.25%, 10/01/99............................... A2 32,800 32,838,048
6.50%, 03/01/00 (a)........................... A2 38,500 38,701,740
6.59%, 02/21/01 (a)........................... A2 30,750 31,005,840
6.75%, 02/15/03............................... A2 5,000 5,057,850
7.25%, 05/01/01............................... A2 8,625 8,852,010
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 25,000 25,125,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,008,100
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 46,440 46,354,771
Union Planters Corp., Gtd. Notes,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
731,941,767
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOOD & BEVERAGE -- 0.5%
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 $ 5,000 $ 5,008,650
6.95%, 12/15/2097............................. Aa3 18,800 19,045,152
--------------
24,053,802
--------------
INDUSTRIAL -- 0.8%
Compania Sud Americana de Vapores, SA (Chile),
7.375%, 12/08/03.............................. NR 7,600 7,505,000
Reliance Industries Ltd.,
8.125%, 09/27/05.............................. Baa3 15,000 14,025,000
8.25%, 01/15/27............................... Baa3 19,000 17,005,000
--------------
38,535,000
--------------
LEISURE & TOURISM -- 0.1%
Royal Carribean Cruises Ltd.,
7.50%, 10/15/27............................... Baa3 5,750 5,855,455
--------------
MEDIA -- 5.7%
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,582,541
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,016,815
8.11%, 08/15/06............................... Ba1 7,250 7,848,850
8.18%, 08/15/07............................... Ba1 24,915 27,118,981
9.125%, 01/15/13.............................. Ba1 41,270 49,143,078
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 17,325 19,438,997
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 71,325 70,082,518
7.75%, 06/01/05............................... Ba2 60,025 61,050,827
--------------
268,282,607
--------------
OIL & GAS -- 1.6%
Apache Corp.,
7.95%, 04/15/26............................... Baa1 2,900 3,250,030
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,095,000
Gulf Canada Resources, Ltd., (Canada),
8.25%, 03/15/17............................... Ba1 4,500 5,006,295
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,304,320
Petroliam Nasional, (Malaysia),
6.625%, 10/18/01.............................. A2 12,000 11,662,680
Seagull Energy Corp.,
7.50%, 09/15/27............................... Ba1 17,000 17,606,730
Talisman Energy Inc.,
7.25%, 10/15/27............................... Baa1 30,000 30,829,800
--------------
75,754,855
--------------
PAPER & FOREST -- 0.5%
UPM-Kymmene Oyj,
7.45%, 11/26/27............................... Baa1 22,800 23,398,500
--------------
RAILROADS -- 0.5%
Norfolk Southern Corp.,
7.05%, 05/01/37............................... Baa1 25,000 26,218,750
--------------
REAL ESTATE INVESTMENT TRUST -- 0.2%
Falcor Suite Hotels, Inc.,
7.625%, 10/1/07............................... Ba1 8,000 8,006,400
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 2.8%
Federated Department Stores, Inc.,
8.125%, 10/15/02 Sr. Note (a)................. Baa2 $ 41,030 $ 43,861,070
8.50%, 06/15/03 (a)........................... Baa2 32,400 35,345,160
10.00%, 02/15/01 (a).......................... Baa2 46,115 50,791,061
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,081,250
--------------
135,078,541
--------------
TELECOMMUNICATIONS -- 3.6%
McLeod USA Inc., Sr. Notes,
9.25%, 07/15/07............................... B3 3,000 3,150,000
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 33,000 15,840,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 80,000 83,775,200
7.75%, 04/01/07............................... Ba1 25,000 26,847,250
7.75%, 04/01/27............................... Ba1 4,500 4,944,420
8.875%, 01/15/06.............................. Ba1 32,000 34,429,440
--------------
168,986,310
--------------
TOBACCO -- 3.0%
Philip Morris Co. Inc.,
6.375%, 02/01/06.............................. A2 17,675 17,359,501
7.20%, 02/01/07............................... A2 31,915 32,932,769
RJR Nabisco, Inc.,
7.625%, 09/15/03.............................. Baa3 10,500 10,732,260
8.25%, 07/01/04............................... Baa3 8,000 8,410,000
8.50%, 07/01/07............................... Baa3 11,000 11,726,550
8.75%, 04/15/04............................... Baa3 23,090 24,719,000
8.75%, 08/15/05............................... Baa3 19,000 20,499,670
9.25%, 08/15/13............................... Baa3 13,571 15,227,341
--------------
141,607,091
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.0%
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa2 500 527,645
--------------
UTILITIES -- 1.9%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,523,880
7.625%, 01/15/07.............................. Baa3 21,000 22,162,980
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 25,000 25,093,750
6.875%, 12/15/17.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 5,000 4,415,625
--------------
91,634,985
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.1%
United States Treasury Bond,
6.125%, 08/15/07.............................. 7,500 7,707,450
United States Treasury Notes,
5.875%, 01/31/99 (a).......................... 20,000 20,046,800
5.875%, 09/30/02.............................. 28,550 28,706,169
5.875%, 02/15/04.............................. 16,750 16,896,563
6.25%, 10/31/01............................... 9,500 9,661,785
6.375%, 03/31/01 (a).......................... 4,600 4,686,250
6.375%, 08/15/27.............................. 57,325 60,460,104
--------------
148,165,121
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS -- 4.2%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 $ 5,500 $ 5,492,850
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 15,592,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 25,000 22,500,000
Province of Quebec, (Canada),
6.238%, 06/15/99.............................. A2 3,000 3,007,969
Republic of Colombia, (Colombia),
7.625%, 02/15/07 (a).......................... Baa3 85,000 79,370,450
8.00%, 06/14/01............................... Baa3 2,250 2,257,875
8.75%, 10/06/99............................... Baa3 12,325 12,692,532
Republic of South Africa, (South Africa),
8.50%, 06/23/17............................... Baa3 37,950 36,242,250
Russian Ministry of Finance, (Russia),
10.00%, 06/26/07.............................. Ba2 7,800 7,226,700
United Mexican States, (Mexico),
11.50%, 05/15/26.............................. Ba2 6,900 8,176,500
--------------
198,183,376
--------------
TOTAL LONG-TERM BONDS
(cost $2,787,932,280).................................................... 2,779,026,495
--------------

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CHEMICALS -- 0.2%
Ferro Corp...................................... 137,100 $ 3,333,244
Millennium Chemicals, Inc....................... 148,927 3,509,092
OM Group, Inc................................... 64,400 2,358,650
--------------
9,200,986
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (b)............................... 373,700 12,845,937
--------------
COMPUTER SERVICES -- 1.5%
Autodesk, Inc................................... 671,600 24,849,200
BMC Software, Inc. (b).......................... 296,400 19,451,250
Cadence Design Systems, Inc. (b)................ 693,800 16,998,100
Microsoft Corp. (a)............................. 67,900 8,776,075
--------------
70,074,625
--------------
COMPUTERS -- 2.1%
3Com Corp. (b).................................. 519,600 18,153,525
Cisco Systems, Inc. (b)......................... 436,050 24,309,787
Compaq Computer Corp............................ 245,300 13,844,119
Digital Equipment Corp. (b)..................... 99,200 3,670,400
International Business Machines Corp............ 179,800 18,800,337
Sun Microsystems, Inc. (b)...................... 552,900 22,046,887
--------------
100,825,055
--------------
CONSTRUCTION -- 0.2%
Oakwood Homes Corp.............................. 141,600 4,699,350
Standard Pacific Corp........................... 156,600 2,466,450
Webb Corp....................................... 142,600 3,707,600
--------------
10,873,400
--------------
CONSUMER-APPLIANCES -- 0.3%
Sunbeam Corp.,.................................. 293,000 12,342,625
--------------
CONTAINERS -- 0.0%
Owens-Illinois, Inc. (b)........................ 58,300 2,211,756
--------------
COSMETICS & SOAPS -- 0.5%
Avon Products, Inc.............................. 425,600 26,121,200
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 289,800 12,914,212
General Electric Co............................. 408,600 29,981,025
Whitman Corp.................................... 135,000 3,518,437
--------------
46,413,674
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.8%
American Home Products Corp.,................... 315,500 24,135,750
Biogen, Inc. (b)................................ 532,500 19,369,687
Bristol-Myers Squibb Co......................... 308,700 29,210,737
Cardinal Health, Inc............................ 300,300 22,560,037
Guidant Corp.................................... 202,400 12,599,400
Medtronic, Inc.................................. 398,500 20,846,531
Novartis Corp., AG, ADR (Switzerland)........... 84,100 6,833,125
Pfizer, Inc..................................... 253,800 18,923,962
Warner-Lambert Co............................... 190,400 23,609,600
--------------
178,088,829
--------------
ELECTRICAL EQUIPMENT -- 0.0%
Belden, Inc..................................... 68,200 2,404,050
--------------
ELECTRONICS -- 0.5%
Intel Corp...................................... 79,600 5,591,900
National Semiconductor Corp. (b)................ 738,400 19,152,250
--------------
24,744,150
--------------
ENGINEERING & CONSTRUCTION -- 0.0%
Giant Cement Holdings, Inc. (b)................. 59,100 1,366,687
--------------
ENVIRONMENTAL SERVICES -- 0.5%
U.S.A. Waste Services, Inc. (b)................. 651,100 25,555,675
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
EXPLORATION & PRODUCTION -- 0.0%
Apex Silver Mines Ltd. (b)...................... 83,600 $ 1,065,900
--------------
FINANCIAL SERVICES -- 1.6%
Fannie Mae...................................... 24,900 1,420,856
Lehman Brothers Holdings, Inc................... 254,000 12,954,000
Merrill Lynch & Co., Inc........................ 59,200 4,317,900
Morgan Stanley, Dean Witter, Discover & Co.,.... 334,090 19,753,071
Schwab (Charles) Corp........................... 417,600 17,513,100
Travelers Group, Inc............................ 357,967 19,285,472
--------------
75,244,399
--------------
FOOD & BEVERAGES -- 1.3%
PepsiCo, Inc.................................... 740,500 26,981,969
Quaker Oats Co.................................. 317,300 16,737,575
Ralston-Ralston Purina Group.................... 205,600 19,107,950
--------------
62,827,494
--------------
FOREST PRODUCTS -- 0.3%
Boise Cascade Corp.,............................ 145,600 4,404,400
Champion International Corp..................... 96,200 4,359,062
Louisiana-Pacific Corp.......................... 100,400 1,907,600
Mead Corp....................................... 96,500 2,702,000
Willamette Industries, Inc...................... 70,300 2,262,781
--------------
15,635,843
--------------
HEALTHCARE -- 0.1%
A.O. Smith Corp................................. 71,500 3,020,875
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.,.................. 203,800 6,037,575
Healthsouth Corp. (b)........................... 779,300 21,625,575
--------------
27,663,150
--------------
HOUSEHOLD PRODUCTS -- 0.0%
Leggett & Platt, Inc............................ 58,300 2,441,312
--------------
HOUSING RELATED -- 0.2%
Hanson, PLC, ADR (United Kingdom)............... 260,962 6,018,436
Owens Corning................................... 100,100 3,415,912
--------------
9,434,348
--------------
INSURANCE -- 1.2%
Allstate Corp................................... 150,000 13,631,250
Berkley (WR) Corp............................... 43,100 1,891,012
Financial Security Assurance Holdings Ltd.,..... 34,600 1,669,450
Loews Corp...................................... 29,500 3,130,687
PennCorp Financial Group, Inc................... 81,600 2,912,100
Provident Companies, Inc........................ 54,300 2,097,337
Reinsurance Group of America, Inc............... 117,450 4,998,966
TIG Holdings, Inc............................... 86,900 2,883,994
Trenwick Group, Inc............................. 65,950 2,481,369
United Healthcare Corp.......................... 377,000 18,732,187
Western National Corp........................... 134,500 3,984,562
--------------
58,412,914
--------------
INSTRUMENTS-CONTROLS -- 0.0%
Flowserve Corp.................................. 40,186 1,122,696
--------------
LEISURE -- 0.5%
Carnival Corp. (Class "A" Stock)................ 398,800 22,083,550
--------------
MACHINERY -- 0.2%
Case Corp....................................... 88,400 5,342,675
DT Industries, Inc.............................. 36,400 1,237,600
Global Industrial
Technologies, Inc. (b)........................ 62,400 1,056,900
Paxar Corp. (b)................................. 233,725 3,462,052
--------------
11,099,227
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MANUFACTURING -- 1.0%
Illinois Tool Works, Inc. (b)................... 181,300 $ 10,900,663
Tyco International, Ltd......................... 802,800 36,176,175
--------------
47,076,838
--------------
MEDIA -- 0.2%
Central Newspapers, Inc. (Class "A" Stock)...... 50,800 3,756,025
Houghton Mifflin Co............................. 59,700 2,290,988
Knight-Ridder, Inc.............................. 59,200 3,078,400
Lee Enterprises, Inc............................ 51,700 1,528,381
--------------
10,653,794
--------------
MEDICAL INSTRUMENTS -- 0.3%
Arterial Vascular Engineering, Inc., (b)........ 198,200 12,883,000
--------------
METALS-FERROUS -- 0.2%
Bethlehem Steel Corp. (b)....................... 225,200 1,942,350
LTV Corp........................................ 208,300 2,030,925
Material Sciences Corp. (b)..................... 98,500 1,200,469
National Steel Corp. (Class "B" Stock) (b)...... 42,900 496,031
USX-U.S. Steel Group............................ 61,800 1,931,250
--------------
7,601,025
--------------
METALS-NON FERROUS -- 0.2%
Aluminum Company of America..................... 147,600 10,387,350
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.3%
Coltec Industries, Inc. (b)..................... 44,400 1,029,525
Donaldson, Co................................... 55,500 2,500,969
IDEX Corp....................................... 61,100 2,130,863
Mark IV Industries, Inc......................... 87,942 1,923,731
Trinity Industries, Inc......................... 53,100 2,369,588
Wolverine Tube, Inc. (b)........................ 37,600 1,165,600
York International Corp......................... 27,400 1,084,013
--------------
12,204,289
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.3%
Eastman Kodak Co................................ 29,200 1,775,725
Unilever N.V., ADR (United Kingdom)............. 237,000 14,797,688
--------------
16,573,413
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.2%
CBS Corp........................................ 207,400 6,105,338
Energy Group, PLC, ADR (United Kingdom)......... 49,862 2,225,092
--------------
8,330,430
--------------
OIL & GAS -- 1.3%
Basin Exploration, Inc. (b)..................... 17,700 314,175
Cabot Oil & Gas Corp. (Class "A" Stock)......... 90,100 1,751,319
Cross Timbers Oil Co............................ 296,300 7,388,981
Elf Aquitaine SA, ADR (France).................. 126,900 7,439,513
Enron Oil & Gas Co.............................. 49,200 1,042,425
Murphy Oil Corp................................. 28,100 1,522,669
Noble Affiliates, Inc.,......................... 196,700 6,933,675
Pioneer Natural Resources Co.................... 325,044 9,405,961
Seagull Energy Corp. (b)........................ 63,700 1,313,813
Total SA (Class "B" Stock) (France)............. 126,800 7,037,400
Unocal Corp..................................... 389,700 15,125,231
Western Gas Resources, Inc.,.................... 104,700 2,316,488
--------------
61,591,650
--------------
OIL & GAS SERVICES -- 1.5%
Apache Corp..................................... 498,500 17,478,656
Halliburton Co.................................. 595,200 30,913,200
J. Ray McDermott, SA (b)........................ 166,500 7,159,500
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
McDermott International, Inc.................... 307,700 $ 11,269,513
Oryx Energy Co. (b)............................. 125,500 3,200,250
--------------
70,021,119
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Crescent Operating, Inc. (b).................... 17,360 425,320
Crescent Real Estate Equities, Inc.............. 166,300 6,548,063
Equity Residential Properties Trust............. 14,600 738,213
--------------
7,711,596
--------------
RETAIL -- 4.2%
Bombay Company, Inc. (b)........................ 141,500 654,438
Borders Group, Inc. (b)......................... 656,000 20,541,000
Charming Shoppes, Inc. (b)...................... 824,800 3,866,250
Consolidated Stores Corp. (b)................... 466,900 20,514,419
Costco Companies, Inc. (b)...................... 373,200 16,654,050
CVS Corp........................................ 157,900 10,115,469
Designs, Inc. (b)............................... 52,800 158,400
Dillards, Inc. (Class "A" Stock)................ 32,200 1,135,050
Federated Department Stores, Inc. (b)........... 242,700 10,451,269
Home Depot, Inc................................. 276,050 16,252,444
Jan Bell Marketing, Inc. (b).................... 153,800 384,500
Kmart Corp. (b)................................. 619,600 7,164,125
Kroger Co. (b).................................. 407,400 15,048,338
Liz Claiborne, Inc.............................. 276,600 11,565,338
Rite Aid Corp................................... 241,700 14,184,769
Safeway, Inc. (b)............................... 407,800 25,793,350
Tandy Corp...................................... 47,500 1,831,719
The Limited, Inc................................ 215,300 5,490,150
The TJX Companies, Inc.......................... 449,600 15,455,000
Toys 'R' Us, Inc. (b)........................... 88,700 2,788,506
--------------
200,048,584
--------------
RUBBER -- 0.1%
Goodyear Tire & Rubber Co....................... 39,800 2,532,275
--------------
TELECOMMUNICATIONS -- 1.2%
Alcatel Alsthom, ADR (France)................... 127,000 3,214,688
Deutsche Telekom, ADR (Germany)................. 45,800 853,025
Nextel Communications, Inc. (Class "A" Stock)
(b)........................................... 871,500 22,659,000
Tellabs, Inc. (b)............................... 299,000 15,809,625
WorldCom, Inc................................... 410,800 12,426,700
--------------
54,963,038
--------------
TEXTILES -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (b)... 73,800 1,891,125
Pillowtex Corp.................................. 18,830 656,696
Tultex Corp. (b)................................ 89,800 364,813
--------------
2,912,634
--------------
TOBACCO -- 0.8%
Bat Industries, PLC, ADR (United Kingdom)....... 107,100 2,008,125
Phillip Morris Co. Inc.......................... 646,700 29,303,594
RJR Nabisco Holdings Corp....................... 125,800 4,717,500
--------------
36,029,219
--------------
TOYS -- 0.4%
Mattel, Inc..................................... 475,751 17,721,725
--------------
TRUCKING/SHIPPING -- 0.0%
Yellow Corp. (b)................................ 44,300 1,113,038
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc........................... 208,000 5,720,000
--------------
TOTAL COMMON STOCKS
(cost $1,331,959,806).......................................... 1,543,620,897
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS -- 0.7% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp.,.................. 225,900 $ 6,254,606
Central Hispano Corp.,.......................... 1,000,000 26,000,000
--------------
32,254,606
--------------
TOTAL PREFERRED STOCKS
(cost $31,236,594)............................................. 32,254,606
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,151,360,152).......................................... 4,354,901,998
--------------

MOODY'S PRINCIPAL
RATING AMOUNT
SHORT-TERM INVESTMENTS -- 7.2% (UNAUDITED) (000)
------------ ---------
ASSET-BACKED SECURITIES -- 0.3%
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 $ 1,000 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 4,600 4,560,857
Falcon Asset Securitization Corp.,
5.90%, 01/21/98............................... P1 1,000 996,886
Restructured Asset Securities Enhanced Return,
5.95875%, 08/28/98............................ P1 4,000 4,000,000
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 2,000 2,000,000
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 2,000 1,984,184
Wood Street Funding Corp.,
5.83%, 02/13/98............................... P1 1,000 993,198
--------------
15,526,574
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank--Michigan,
5.00%, 01/30/98............................... P1 2,000 1,998,356
US Bank, N.A.,
5.83094%, 10/21/98............................ P1 1,000 999,358
--------------
7,997,714
--------------
CERTIFICATES OF DEPOSIT-EURO -- 0.2%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 4,000 4,000,209
Westdeutsche Landesbank Girozentral, (Germany),
5.83%, 08/03/98............................... P1 6,000 5,997,462
--------------
9,997,671
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 1.1%
Canadian Imperial Bank of Commerce, (Canada),
5.95%, 06/29/98............................... P1 900 899,706
Corestates Bank, NA,
5.7825%, 01/23/98............................. P1 1,000 1,000,000
Credit Agricole Indosuez,
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 7,000 6,998,241
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Kansallis-Osake Pankki, N.Y., (Finland),
6.125%, 05/15/98.............................. A3 $ 6,160 $ 6,160,000
9.75%, 12/15/98............................... Baa1 16,950 17,472,908
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,775 2,802,750
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Swiss Bank Corp.,
5.77%, 01/30/98............................... P1 2,000 1,999,421
--------------
53,613,180
--------------
COMMERCIAL PAPER -- 3.4%
Aon Corp.,
5.79%, 03/12/98............................... P2 880 870,234
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,000 993,719
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 6,000 5,992,907
BP America,
6.90%, 01/02/98............................... P1 6,500 6,500,000
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,088,291
Coca-Cola Enterprises,
5.65%, 03/12/98............................... P2 3,000 2,967,512
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,498,000
6.09%, 11/09/98............................... Baa1 34,000 34,009,860
6.29%, 10/22/98............................... Baa1 5,000 5,009,900
6.689%, 05/22/98.............................. Baa1 9,000 9,024,300
Duke Capital Corp.,
5.90%, 01/23/98............................... P2 1,000 996,558
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
7.875%, 03/15/98 (b).......................... Baa2 9,925 9,961,921
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa3 3,000 3,045,750
Finova Capital Corp.,
5.75%, 02/04/98............................... P2 3,400 3,382,079
First USA Bank,
8.20%, 02/15/98............................... Baa3 11,500 11,521,275
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
Honeywell Inc.,
6.75%, 01/02/98............................... P1 4,250 4,250,000
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 2,000 1,970,981
5.74%, 04/28/98............................... P1 1,600 1,570,407
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Newell Co.,
6.80%, 01/02/98............................... P1 6,500 6,500,000
Old Line Funding Corp.,
5.90%, 01/21/98............................... A1+ 1,000 996,886
PHH Corp.,
6.75%, 01/02/98............................... P1 6,500 6,500,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 2,000 1,976,320
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 $ 1,000 $ 1,000,220
Xerox Capital (Europe) PLC
5.75%, 02/05/98............................... P1 3,000 2,983,708
5.79%, 02/12/98............................... P1 875 869,230
6.85%, 01/02/98............................... P1 2,610 2,610,000
--------------
156,055,189
--------------
MEDIUM TERM NOTES -- 0.2%
Ford Motor Credit Corp.,
9.00%, 03/25/98............................... P1 1,200 1,208,318
General Motors Acceptance Corp.,
5.76825%, 09/21/98............................ P1 3,000 2,997,564
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 4,000 3,998,626
Morgan Stanley Group, Inc.,
6.34%, 03/09/98............................... P1 1,000 1,000,606
Suntrust Banks, Inc.,
8.875%, 02/01/98.............................. P1 805 806,820
--------------
10,011,934
--------------
OTHER CORPORATE OBLIGATIONS -- 0.1%
Association Corp. of America,
6.125%, 02/01/98.............................. P1 2,040 2,039,976
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,700 2,709,664
--------------
4,749,640
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.0%
United States Treasury Bills,
5.045%, 03/19/98 (a).......................... 700 692,545
5.165%, 01/22/98 (a).......................... 300 299,139
5.29%, 03/19/98 (a)........................... 400 395,533
--------------
1,387,217
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... $ 81,783 $ 81,783,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $340,697,062)...................................................... 341,122,119
--------------
TOTAL INVESTMENTS -- 99.0%
(cost $4,491,825,742; Note 6)............................................ 4,696,024,117
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (c) -- (0.0%).................................................. (653,438)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.0%..................................................................... 48,861,360
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,744,232,039
--------------
--------------
</TABLE>

(a) Security segregated as collateral for futures contracts.

(b) Non-income producing security.

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
61 S&P 500 Index Mar 98 15,095,625 14,931,275 (164,350)
318 U.S. Treasury 5 Yr. Mar 98 34,423,500 34,542,750 119,250
166 U.S. Treasury 5 Yr. Mar 98 19,931,438 19,997,813 66,375
Short Position:
637 U.S. Treasury 5 Yr. Mar 98 75,803,000 76,738,594 (935,594)
365 U.S. Treasury 5 Yr. Mar 98 39,488,438 39,648,125 (159,687)
1181 U.S. Treasury 10 Yr. Mar 98 131,755,312 132,456,531 (701,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.8%
VALUE
COMMON STOCKS -- 57.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
AlliedSignal, Inc............................... 289,300 $ 11,264,619
GenCorp, Inc.................................... 428,200 10,705,000
Litton Industries, Inc. (a)..................... 324,400 18,653,000
Lockheed Martin Corp............................ 272,900 26,880,650
Raytheon Co. (Class "A" Stock).................. 30,252 1,491,826
--------------
68,995,095
--------------
AIRLINES -- 1.4%
AMR Corp. (a)................................... 346,000 44,461,000
USAir Group, Inc. (a)........................... 491,700 30,731,250
--------------
75,192,250
--------------
AUTOS - CARS & TRUCKS -- 1.5%
Chrysler Corp................................... 632,700 22,263,131
Ford Motor Co................................... 301,300 14,669,544
General Motors Corp............................. 474,400 28,760,500
Mascotech, Inc.................................. 411,300 7,557,637
Titan International, Inc........................ 440,700 8,841,544
--------------
82,092,356
--------------
BANKS AND SAVINGS & LOANS -- 1.8%
BankAmerica Corp................................ 243,900 17,804,700
Barnett Banks, Inc.............................. 254,200 18,270,625
Chase Manhattan Corp............................ 302,100 33,079,950
Citicorp........................................ 80,500 10,178,219
Fleet Financial Group, Inc...................... 235,100 17,617,806
--------------
96,951,300
--------------
CHEMICALS -- 0.7%
Ferro Corp...................................... 586,950 14,270,222
Millennium Chemicals, Inc....................... 637,700 15,025,806
OM Group, Inc................................... 275,900 10,104,837
--------------
39,400,865
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (a)............................... 529,500 18,201,562
--------------
COMPUTERS -- 2.2%
3Com Corp. (a).................................. 737,000 25,748,937
Compaq Computer Corp............................ 346,700 19,566,881
Digital Equipment Corp. (a)..................... 424,700 15,713,900
International Business Machines Corp............ 254,400 26,600,700
Sun Microsystems, Inc. (a)...................... 781,100 31,146,362
--------------
118,776,780
--------------
COMPUTER SERVICES -- 2.4%
Autodesk, Inc................................... 951,300 35,198,100
BMC Software, Inc. (a).......................... 419,800 27,549,375
Cadence Design Systems, Inc. (a)................ 979,500 23,997,750
Cisco Systems, Inc. (a)......................... 617,100 34,403,325
Microsoft Corp.................................. 95,800 12,382,150
--------------
133,530,700
--------------
CONSTRUCTION -- 0.8%
Oakwood Homes Corp.............................. 606,400 20,124,900
Standard Pacific Corp........................... 670,400 10,558,800
Webb Corp....................................... 611,100 15,888,600
--------------
46,572,300
--------------
CONTAINERS -- 0.2%
Owens-Illinois, Inc. (a)........................ 250,000 9,484,375
--------------
COSMETICS & SOAPS -- 0.7%
Avon Products, Inc.............................. 595,600 36,554,950
--------------
</TABLE>

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

PREFERRED STOCKS -- 0.5%
FINANCIAL SERVICES -- 0.5%
Central Hispano Corp............................ 1,000,000 26,000,000
--------------
(cost $25,440,000)
</TABLE>

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

B10

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Kansallis-Osake Pankki, (Finland),
8.65%, 12/01/49 (b)........................... A3 $ 9,000 $ 9,180,000
Key Bank N.A.
5.875%, 08/29/00.............................. Aa3 7,000 6,950,020
MBNA America Bank N.A.,
5.973%, 07/18/01.............................. Baa1 5,000 4,965,500
MBNA Corp.,
6.288%, 09/08/00.............................. Baa2 3,000 2,991,000
Merita Bank, Ltd.,
7.50%, 12/29/49 (b)........................... NR 12,000 12,312,000
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 8,700 8,700,000
6.60%, 12/10/07............................... A1 5,000 5,000,000
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 5,000 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
Norwest Corp.,
5.863%, 11/13/01.............................. Aa3 6,450 6,446,130
Okobank, (Finland),
7.20%, 10/29/49 (c)........................... A3 12,500 12,640,625
7.312%, 09/27/49 (b).......................... A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (b)........................... Aa3 5,000 5,032,600
Siam Commercila, (Thailand),
7.50%, 03/15/06 (b)........................... Ba1 14,500 9,425,000
Suntrust Bank, Inc.,
5.889%, 04/22/02.............................. A1 10,000 9,979,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49 (b).......................... A1 5,000 5,037,500
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (b)........................... Ba1 20,000 12,000,000
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
302,152,738
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.6%
Roger Cablesystems, Inc., (Canada)
10.00%, 03/15/05.............................. Ba3 2,000 2,200,000
Tele-Communications, Inc.,
6.656%, 12/20/00.............................. Ba1 5,000 5,012,500
7.375%, 02/15/00.............................. Ba1 6,000 6,115,800
7.875%, 08/01/13.............................. Ba1 43,750 47,056,187
8.25%, 01/15/03............................... Ba1 8,000 8,543,120
9.875%, 06/15/22.............................. Ba1 12,878 16,782,996
--------------
85,710,603
--------------
CHEMICALS -- 0.2%
Reliance Industries Ltd., (India),
9.375%, 06/24/26.............................. Baa3 12,000 12,045,000
--------------
</TABLE>
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CONSULTING -- 0.3%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 $ 12,500 $ 12,513,250
6.375%, 11/30/01.............................. Baa1 2,700 2,700,000
--------------
15,213,250
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 4,000 4,004,080
--------------
FINANCIAL SERVICES -- 5.3%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 10,000 9,600,000
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Caterpillar Financial Services,
5.829%, 04/10/00.............................. A2 5,000 5,011,850
Conseco, Inc.,
8.70%, 11/15/26 (c)........................... Baa3 32,538 36,378,552
8.796%, 04/01/27.............................. Ba2 29,000 32,368,930
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 20,700 20,797,290
6.95%, 03/01/04............................... Baa2 7,500 7,650,000
7.00%, 06/15/00............................... Baa3 13,500 13,769,460
Ford Credit Europe PLC,
6.086%, 12/20/99.............................. A1 10,000 10,010,000
General Motors Acceptance Corp., M.T.N.,
5.813%, 10/30/00.............................. A3 10,000 9,941,250
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 10,000 9,937,500
6.40%, 08/30/00 (c)........................... Baa1 93,250 93,133,437
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 23,100 24,486,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
--------------
290,489,844
--------------
FOOD & BEVERAGE -- 0.5%
Archer Daniels,
6.95%, 12/15/2097............................. Aa3 19,700 19,956,888
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 5,000 5,008,650
--------------
24,965,538
--------------
FOREST PRODUCTS -- 0.4%
UPM-Kymmene Corp.,
7.45%, 11/26/27............................... Baa1 23,400 24,014,250
--------------
INVESTMENT BANKING -- 1.9%
Merrill Lynch Pierce, Fenner & Smith, Inc.,
5.935%, 11/14/00.............................. A3 10,000 9,966,250
Morgan Stanley Group, Inc.,
5.869%, 12/19/01.............................. A1 5,000 4,987,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B11

<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 1.9%
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 $ 4,000 $ 1,920,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 57,000 59,689,830
7.75%, 04/01/07............................... Ba1 20,000 21,477,800
7.75%, 04/01/27............................... Ba1 6,000 6,592,560
8.875%, 01/15/06.............................. Ba1 16,000 17,214,720
--------------
106,894,910
--------------
TOBACCO -- 2.4%
Philip Morris Co. Inc.,
7.20%, 02/01/07............................... A2 10,000 10,318,900
7.50%, 04/01/04............................... A2 50,000 52,363,500
RJR Nabisco, Inc.,
8.50%, 07/01/07............................... Baa3 12,750 13,592,138
8.75%, 04/15/04............................... Baa3 5,000 5,352,750
8.75%, 08/15/05............................... Baa3 12,500 13,486,625
8.75%, 07/15/07............................... Baa3 25,000 27,110,750
9.25%, 08/15/13............................... Baa3 7,000 7,854,350
--------------
130,079,013
--------------
UTILITIES -- 1.4%
Cleveland Electric Illumination,
7.88%, 11/01/17............................... Ba1 27,000 28,503,900
Consolidated Edison,
5.998%, 06/15/02.............................. A1 7,000 7,014,420
Hyder PLC, (United Kingdom),
6.75%, 12/15/17............................... Baa1 5,000 5,018,750
6.875%, 12/15/07.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 6,250 5,519,531
Southern California Edison Co.,
6.38%, 09/25/08............................... Aaa 7,000 7,057,400
--------------
78,552,751
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19 (b)..................... 11,800 3,071,658
United States Treasury Bonds,
6.125%, 08/15/07.............................. 10,450 10,739,047
United States Treasury Notes,
5.875%, 09/30/02 (c).......................... 7,650 7,691,846
6.00%, 08/15/00............................... 2,750 2,769,773
6.375%, 08/15/27.............................. 37,910 39,983,298
--------------
64,255,622
--------------
FOREIGN GOVERNMENT BONDS -- 3.4%
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 13,600 12,716,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B12

<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 $ 2,135 $ 2,118,116
5.88%, 01/29/98............................... P1 1,000 995,590
5.98%, 01/21/98............................... P1 1,225 1,221,134
--------------
23,746,477
--------------
BANK ACCEPTANCE -- 0.1%
Bank of Montreal, (Canada),
5.68%, 02/17/98............................... P1 4,000 3,970,969
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank Michigan,
5.00%, 01/30/98............................... P1 3,000 2,997,534
US Bank, N.A.,
5.830%, 10/21/98.............................. P1 3,000 2,998,073
--------------
10,995,607
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.1%
Taubman Realty Group,
6.519%, 07/27/98.............................. P1 5,500 5,517,710
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 3,000 3,000,157
Westdeutsche Landesbank Girozentral, (Germany),
5.82%, 08/03/98............................... P1 2,000 1,999,096
5.83%, 08/03/98............................... P1 3,000 2,998,731
--------------
7,997,984
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.4%
Canadian Imperial Bank of Commerce, (Canada),
5.80%, 03/02/98............................... P1 1,000 999,485
5.95%, 06/29/98............................... P1 3,500 3,498,858
Credit Agricole Indosuez, (France),
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 5,000 4,998,743
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Societe Generale, (France),
6.19%, 05/06/98............................... P1 4,000 3,999,194
--------------
21,495,497
--------------
COMMERCIAL PAPER -- 1.4%
American General Finance Corp.,
5.72%, 03/13/98............................... P1 2,000 1,977,756
Aon Corp.,
5.79%, 03/13/98............................... P2 1,000 988,742
5.79%, 03/18/98............................... P2 1,048 1,035,358
Associates First Capital Corp.,
5.79%, 02/04/98............................... P1 1,000 994,692
Bank of New York,
5.75%, 02/06/98............................... P1 2,285 2,272,226
Barnett Bank, Inc.,
6.00%, 01/28/98............................... P1 3,000 2,987,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B13

<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co.,
6.34%, 03/09/98............................... P1 $ 1,000 $ 1,000,606
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 1,000 1,000,220
--------------
24,013,723
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bills,
4.95%, 01/15/98 (b)........................... 1,140 1,137,962
5.135%, 01/22/98 (b).......................... 3,000 2,991,442
5.19%, 01/22/98 (b)........................... 1,500 1,495,675
5.195%, 03/19/98 (c).......................... 370 365,942
5.275%, 01/22/98 (b).......................... 800 797,656
--------------
6,788,677
--------------
REPURCHASE AGREEMENT -- 2.5%
Joint Repurchase Agreement Account,
6.53%, 01/02/98
(Note 5).................................... 137,860 137,860,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $319,318,208)...................................................... 319,473,987
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,050,966,053; Note 6)............................................ 5,471,387,547
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (d)............................................................ (203,828)
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES -- 0.3%...................................................... 18,958,375
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,490,142,094
--------------
--------------
</TABLE>

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities -- $100,311,229.

(d) Open futures contracts as of December 31, 1997 are as follows:

<TABLE>
<C> <S> <C> <C> <C> <C>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
Long positions:
627 U.S. 5 yr T-Note Mar 98 $67,867,922 $68,107,875 $239,953
865 U.S. T-Bond Mar 98 $103,945,625 $104,205,469 $259,844
Short Position:
1,779 U.S. T-Bond Mar 98 $205,927,125 $207,989,344 $(2,062,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B14

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND THE FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only two Portfolios: Conservative Balanced
Portfolio and Flexible Managed Portfolio. Shares in the Series Fund are
currently sold only to certain separate accounts of The Prudential Insurance
Company of America ("The Prudential"), Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey (together referred to as the "Companies")
to fund benefits under certain variable life insurance and variable annuity
contracts ("contracts") issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the Portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.

NOTE 2: ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.

SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors. Short-term
securities are valued at amortized cost.

REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).

FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.

(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.

Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.

B15

<PAGE>

on security transactions, and the difference between the amounts of dividends,
interest and foreign taxes recorded on the Series Fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized currency
gains or losses from valuing foreign currency denominated assets and liabilities
(other than investments) at fiscal year end exchange rates are reflected as a
component of net unrealized appreciation (depreciation) on investments and
foreign currencies.

SHORT SALES: Conservative Balanced Portfolio and Flexible Managed Portfolio may
sell a security it does not own in anticipation of a decline in the market value
of that security (short sale). When a Portfolio makes a short sale, it must
borrow the security sold short and deliver it to the buyer. The proceeds of the
short sale will be retained by the broker-dealer through which it made the short
sale as collateral for its obligation to deliver the security upon conclusion of
the sale. The Portfolio may have to pay a fee to borrow the particular security
and may be obligated to remit any interest or dividends received on such
borrowed securities. A gain, limited to the price at which the Portfolio sold
the security short, or a loss, unlimited in magnitude, will be recognized upon
the termination of a short sale if the market price at termination is less than
or greater than, respectively, the proceeds originally received.

OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.

FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.

The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.

B16

<PAGE>

distributions annually. A portion of distributions received from REITs during
the period is estimated to be a return of capital and is recorded as a reduction
of their costs. During the year ended December 31, 1997, certain Portfolios
purchased securities from and sold securities to other Portfolios of the Series
Fund or other funds or accounts managed by The Prudential or its affiliates in
accordance with the provisions of Rule 17a-7 of the Investment Company Act of
1940. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.

CUSTODY FEE CREDITS: The Series Fund has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian. Such custody fee credits are presented as a reduction of gross
expenses in the accompanying Statement of Operations.

Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.

DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the
Portfolio. Each Portfolio will declare and distribute dividends from net
investment income, if any, quarterly and net capital gains, if any, at least
annually. Dividends and distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the fiscal year ended
December 31, 1997, the application of this statement increased (decreased)
paid-in capital in excess of par ("PC"), undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("GL") by the
following amounts:

<TABLE>
<CAPTION>
PC UNI G/L
-------- --------- ----------
<S> <C> <C> <C>
Conservative Balanced Portfolio........ $ 33,509 $ 48,752 $ (82,261)
Flexible Managed Portfolio............. -- 625,749 (625,749)
</TABLE>

Net investment income, net realized gains and net assets were not affected by
these reclassifications.

NOTE 3: AGREEMENTS

The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.

The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.

<TABLE>
<CAPTION>
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
<S> <C>
Conservative Balanced Portfolio........ 0.55%
Flexible Managed Portfolio............. 0.60
</TABLE>

B17

<PAGE>

The Prudential has agreed to refund to a Portfolio, the portion of the
investment advisory fee for that Portfolio equal to the amount that the
aggregate annual ordinary operating expenses (excluding interest, taxes and
brokerage commissions) exceeds 0.75% of the Portfolio's average daily net
assets. No refund was required for the fiscal year ended December 31, 1997.

PIC is an indirect, wholly-owned subsidiary of The Prudential.

The Series Fund entered into a credit agreement (the "Agreement") on October 28,
1997 with an unaffiliated lender. The maximum commitment under the Agreement is
$250,000,000. The Agreement expires on December 18, 1998. Interest on any such
borrowings will be at market rates. The purpose of the Agreement is to serve as
an alternative source of funding for capital share redemptions. The Series Fund
has not borrowed any amounts pursuant to the Agreement as of December 31, 1997.
The Series Fund pays a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly by the Series Fund.

NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES

For the fiscal year ended December 31, 1997, Prudential Securities Incorporated,
an indirect, wholly-owned subsidiary of The Prudential, earned $684,760 in
brokerage commissions from transactions executed on behalf of the Conservative
Balanced Portfolio and the Flexible Managed Portfolio as follows:

NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT

<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
--------------- ----------
<S> <C> <C>
Conservative Balanced Portfolio........ $ 81,783,000 7.88%
Flexible Managed Portfolio............. 137,860,000 13.28
All other portfolios (currently not
available to PRUvider)............... 818,876,000 78.84
--------------- ----------
$ 1,038,519,000 100.00%
</TABLE>

As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:

CIBC Oppenheimer, 6.10%, in the principal amount of $138,519,000, repurchase
price $138,566,045, due 1/2/98. The value of the collateral including accrued
interest was $141,862,492.

Salomon Smith Barney Inc., 6.75%, in the principal amount of $300,000,000,
repurchase price $300,112,500, due 1/2/98. The value of the collateral including
accrued interest was $306,560,575.

SBC Warburg Dillon Read Inc., 6.50%, in the principal amount of $300,000,000,
repurchase price $300,108,333, due 1/2/98. The value of the collateral including
accrued interest was $306,557,797.

UBS Securities Corp., 6.55%, in the principal amount of $300,000,000, repurchase
price $300,109,167, due 1/2/98. The value of the collateral including accrued
interest was $306,001,638.

B18

<PAGE>

NOTE 6: PORTFOLIO SECURITIES

The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1997 were
as follows:

Cost of Purchases:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Non-Government......................... $ 7,826,155,071 $ 8,194,217,051
Government............................. $ 5,017,442,019 $ 3,054,412,991
</TABLE>

Proceeds from Sales:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Non-Government......................... $ 7,823,232,061 $ 8,576,103,609
Government............................. $ 5,106,797,609 $ 3,018,431,969
</TABLE>

The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $ 311,261,405 $ 565,581,079
Gross Unrealized Depreciation.......... 111,299,483 149,894,627
Total Net Unrealized................... 199,961,922 415,686,452
Tax Basis.............................. 4,496,062,195 5,055,701,095
</TABLE>

B19

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.76 0.66 0.63 0.53 0.49
Net realized and unrealized gains
(losses) on investments.............. 1.26 1.24 1.78 (0.68) 1.23
-------- -------- -------- -------- --------
Total from investment operations... 2.02 1.90 2.41 (0.15) 1.72
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.66) (0.64) (0.51) (0.47)
Distributions from net realized
gains................................ (1.81) (1.03) (0.56) (0.15) (0.58)
-------- -------- -------- -------- --------
Total distributions................ (2.57) (1.69) (1.20) (0.66) (1.05)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 13.45% 12.63% 17.27% (0.97)% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2
Ratios to average net assets:
Expenses............................. 0.56% 0.59% 0.58% 0.61% 0.60%
Net investment income................ 4.48% 4.13% 4.19% 3.61% 3.22%
Portfolio turnover rate................ 295% 295% 201% 125% 79%
Average commission rate paid per
share................................ $0.0563 $0.0554 N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.59 0.57 0.56 0.47 0.57
Net realized and unrealized gains
(losses) on investments.............. 2.52 1.79 3.15 (1.02) 1.88
-------- -------- -------- -------- --------
Total from investment operations... 3.11 2.36 3.71 (0.55) 2.45
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.58) (0.58) (0.56) (0.45) (0.57)
Distributions from net realized
gains................................ (3.04) (1.85) (0.79) (0.46) (0.93)
-------- -------- -------- -------- --------
Total distributions................ (3.62) (2.43) (1.35) (0.91) (1.50)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 17.96% 13.64% 24.13% (3.16)% 15.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2
Ratios to average net assets:
Expenses............................. 0.62% 0.64% 0.63% 0.66% 0.66%
Net investment income................ 3.02% 3.07% 3.30% 2.90% 3.30%
Portfolio turnover rate................ 227% 233% 173% 124% 63%
Average commission rate paid per
share................................ $0.0569 $0.0563 N/A N/A N/A
</TABLE>

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B20

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Conservative Balanced and Flexible
Managed Portfolios (two of the fifteen portfolios that constitute The Prudential
Series Fund, Inc.; the "Portfolios") at December 31, 1997, the results of each
of their operations for the year then ended and the changes in each of their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial 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, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
The financial highlights for each of the three years in the period ended
December 31, 1995 for each of the Portfolios were audited by other independent
accountants whose report thereon dated February 15, 1996 expressed an
unqualified opinion on those financial highlights.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 13, 1998

B21

<PAGE>

TAX INFORMATION

<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
- ---------------------------------------------------------------------------------------
LONG-TERM CAPITAL GAINS
----------------------------
SHORT-TERM TOTAL
INCOME CAPITAL GAINS TAXED @ 28% TAXED @ 20% DIVIDENDS
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Conservative Balanced
Portfolio.................. $ 0.759 $ 0.585 $ 0.356 $ 0.874 $ 2.574
Flexible Managed Portfolio... 0.585 0.856 1.016 1.168 3.625
</TABLE>

B22

<PAGE>

BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.

<TABLE>
<S> <C> <C>
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., Ph.D. E. MICHAEL CAULFIELD
CHAIRMAN, PRINCIPAL, CEO,
THE PRUDENTIAL SERIES FUND, INC. KALUDIS CONSULTING GROUP PRUDENTIAL INVESTMENTS,
PRESIDENT, THE PRUDENTIAL SERIES
FUND, INC.
</TABLE>

SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)

B23

<PAGE>

PRUvider (sm)
Variable Appreciable Life (R)
Insurance

[LOGO] PRUDENTIAL

Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
SVAL-1SAI Ed. 5/98 CAT# 64M086G

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

PRUVIDER
VARIABLE

APPRECIABLE

LIFE(R)___________________

INSURANCE CONTRACTS

PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF

THE PRUDENTIAL SERIES
FUND, INC.

The Pruco Life Insurance Company of New Jersey, a stock life insurance company
that is an indirect wholly-owned subsidiary of the Prudential Insurance Company
of America, offers a variable life insurance contract called the PRUVIDER
Variable APPRECIABLE LIFE(R) Insurance Contract*. The Contract provides
whole-life insurance protection. The death benefit varies daily with investment
experience but will never be less than the "face amount" of insurance specified
in the Contract. The Contract also generally provides a cash surrender value
which also varies with investment experience. There is no guaranteed minimum
cash surrender value.

The assets held for the purpose of paying benefits under these contracts can be
invested in one or both of the two available subaccounts of the Pruco Life of
New Jersey Variable Appreciable Account. The assets invested in each subaccount
are in turn invested in a corresponding portfolio of The Prudential Series Fund,
Inc., a diversified, open-end management investment company (commonly known as a
mutual fund) that is intended to provide a range of investment alternatives to
variable contract owners. Each portfolio is, for investment purposes, in effect
a separate fund. The two available Series Fund portfolios are the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO. A separate class of
capital stock is issued for each portfolio. Shares of the Series Fund are
currently sold only to separate accounts of Pruco Life of New Jersey and certain
other insurers to fund the benefits under variable life insurance and variable
annuity contracts issued by those companies.

The PRUVIDER Variable APPRECIABLE LIFE(R) Insurance Contract owner may also
choose to invest in a fixed-rate option which is described in the prospectus of
The Pruco Life of New Jersey Variable Appreciable Account.

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

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUCO LIFE OF NEW JERSEY VARIABLE
APPRECIABLE ACCOUNT DATED MAY 1, 1998, WHICH IS AVAILABLE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, 213
WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992 OR BY TELEPHONING (800)
437-4016.

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

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.
SVAL-2SAI Ed 5-98
Catalog No. 64M087E

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

CONTENTS

PAGE

<S> <C>
MORE DETAILED INFORMATION ABOUT THE CONTRACT...................................................................................1
SALES LOAD UPON SURRENDER.............................................................................................1
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS......................................................1
PAYING PREMIUMS BY PAYROLL DEDUCTION..................................................................................1
UNISEX PREMIUMS AND BENEFITS..........................................................................................1
HOW THE DEATH BENEFIT WILL VARY.......................................................................................2
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE.............................................................................2
TAX TREATMENT OF CONTRACT BENEFITS....................................................................................3
TREATMENT AS LIFE INSURANCE..................................................................................3
PRE-DEATH DISTRIBUTIONS......................................................................................3
WITHHOLDING..................................................................................................4
OTHER TAX CONSIDERATIONS.....................................................................................4
SALE OF THE CONTRACT AND SALES COMMISSIONS............................................................................4
RIDERS .............................................................................................................5
OTHER STANDARD CONTRACT PROVISIONS....................................................................................5
BENEFICIARY..................................................................................................5
INCONTESTABILITY.............................................................................................5
MISSTATEMENT OF AGE OR SEX...................................................................................5
SUICIDE EXCLUSION............................................................................................5
ASSIGNMENT...................................................................................................5
SETTLEMENT OPTIONS...........................................................................................5

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS...........................................................................6
GENERAL .............................................................................................................6
CONVERTIBLE SECURITIES................................................................................................6
LOAN PARTICIPATIONS...................................................................................................6
WARRANTS .............................................................................................................6
OPTIONS AND FUTURES...................................................................................................6
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES..........................................................................13
SHORT SALES..........................................................................................................13
SHORT SALES AGAINST THE BOX..........................................................................................13
INTEREST RATE SWAPS..................................................................................................13
LOANS OF PORTFOLIO SECURITIES........................................................................................14
ILLIQUID SECURITIES..................................................................................................14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS..........................................................................15

INVESTMENT RESTRICTIONS.......................................................................................................16

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES...............................................................................18

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................................................................19

DETERMINATION OF NET ASSET VALUE..............................................................................................21

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST...........................................................22

DEBT RATINGS..................................................................................................................24

POSSIBLE REPLACEMENT OF THE SERIES FUND.......................................................................................26

OTHER INFORMATION CONCERNING THE SERIES FUND..................................................................................26
INCORPORATION AND AUTHORIZED STOCK...................................................................................26
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................................................................26
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT............................................................26
YEAR 2000............................................................................................................26
EXPERTS ............................................................................................................27
LICENSE ............................................................................................................27

DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY AND MANAGEMENT OF THE SERIES FUND..........................................28

FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. .................................................................... A1

THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS.................................................................... B1
</TABLE>

<PAGE>

MORE DETAILED INFORMATION ABOUT THE CONTRACT

SALES LOAD UPON SURRENDER

A contingent deferred sales load is assessed if the Contract lapses or is
surrendered during the first 10 Contract years. No such charge is applicable to
the death benefit, no matter when that may become payable. Subject to the
additional limitations described below, for Contracts that lapse or are
surrendered during the first 5 Contract years the charge will be equal to 50% of
the first year's primary annual premium. In the next 5 Contract years that
percentage is reduced uniformly on a daily basis until it reaches zero on the
tenth Contract anniversary. Thus, for Contracts surrendered at the end of the
sixth year, the maximum deferred sales charge will be 40% of the first year's
primary annual premium, for Contracts surrendered at the end of year 7, the
maximum deferred sales charge will be 30% of the first year's primary annual
premium, and so forth. We are currently allowing partial surrenders of the
Contract, but we reserve the right to cancel this administrative practice. If
the Contract is partially surrendered during the first 10 years, a proportionate
amount of the charge will be deducted from the Contract Fund. Surrender of all
or part of the Contract may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 3.

The limitation is based on a Guideline Annual Premium ("GAP") that is associated
with every Contract. The GAP is an amount determined actuarially in accordance
with a definition set forth in a regulation of the Securities and Exchange
Commission ("SEC"). The maximum aggregate sales load that Pruco Life of New
Jersey will charge (that is, the sum of the monthly sales load deduction and the
contingent deferred sales charge) will not be more than 30% of the premiums
actually paid until those premiums total one GAP plus no more than 9% of the
next premiums paid until total premiums are equal to 5 GAPS, plus no more than
6% of all subsequent premiums. If the sales charges described above would at any
time exceed this maximum amount then the charge, to the extent of any excess,
will not be made.

REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS

Pruco Life of New Jersey may reduce the sales charges and/or other charges on
individual Contracts sold to members of a class of associated individuals, or to
a trustee, employer or other entity representing such a class, where it is
expected that such multiple sales will result in savings of sales or
administrative expenses. Pruco Life of New Jersey determines both the
eligibility for such reduced charges, as well as the amount of such reductions,
by considering the following factors: (1) the number of individuals; (2) the
total amount of premium payments expected to be received from these Contracts;
(3) the nature of the association between these individuals, and the expected
persistency of the individual Contracts; (4) the purpose for which the
individual Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which Pruco Life of
New Jersey believes to be relevant in determining whether reduced sales or
administrative expenses may be expected. Some of the reductions in charges for
these sales may be contractually guaranteed; other reductions may be withdrawn
or modified by Pruco Life of New Jersey on a uniform basis. Pruco Life of New
Jersey's reductions in charges for these sales will not be unfairly
discriminatory to the interests of any individual Contract owners.

PAYING PREMIUMS BY PAYROLL DEDUCTION

In addition to the annual, semi-annual, quarterly and monthly premium payment
modes, a payroll budget method of paying premiums may also be available under
certain Contracts. The employer generally deducts the necessary amounts from
employee paychecks and sends premium payments to Pruco Life of New Jersey
monthly. Any Pruco Life of New Jersey representative authorized to sell this
Contract can provide further details concerning the payroll budget method of
paying premiums.

UNISEX PREMIUMS AND BENEFITS

<PAGE>

charges will be based on a blended unisex rate whether the insured is male or
female. In addition, employers and employee organizations considering purchase
of a Contract should consult their legal advisors to determine whether purchase
of a Contract based on sex-distinct actuarial tables is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law.

HOW THE DEATH BENEFIT WILL VARY

WITHDRAWAL OF EXCESS CASH SURRENDER VALUE

Under certain circumstances, a Contract owner may withdraw a portion of the
Contract's cash surrender value without surrendering the Contract in whole or in
part. The amount that a Contract owner may withdraw is limited by the
requirement that the Contract Fund after withdrawal must not be less than the
Tabular Contract Fund value. (A Table of Tabular Contract Fund Values is
included in the Contract; the values increase with each year the Contract
remains in force.) But because the Contract Fund may be made up in part by an
outstanding Contract loan, there is a further limitation that the amount
withdrawn may not be larger than an amount sufficient to reduce the cash
surrender value to zero. The amount withdrawn must be at least $200. An owner
may make no more than four such withdrawals in each Contract year, and there is
an administrative processing fee equal to the lesser of $15 or 2% of the amount
withdrawn that is made in connection with each withdrawal. An amount withdrawn
may not be repaid except as a scheduled or unscheduled premium subject to the
applicable charges. Upon request, Pruco Life of New Jersey will tell a Contract
owner how much he or she may withdraw. Withdrawal of part of the cash surrender
value may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 3.
A temporary need for funds may also be met by making a loan and you should
consult your Pruco Life of New Jersey representative about how best to meet your
needs.

<PAGE>

TAX TREATMENT OF CONTRACT BENEFITS

Each prospective purchaser is urged to consult a qualified tax advisor. 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 Pruco Life of New
Jersey believes the 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.

Pruco Life of New Jersey believes that it has taken adequate steps to cause the
Contract to be treated as life insurance for tax purposes. This means that: (1)
except as noted below, the Contract owner should not be taxed on any part of the
Contract Fund, including additions attributable to interest, dividends or
appreciation until amounts are distributed under the Contract; and (2) the death
benefit should be excludible from the gross income of the beneficiary under
section 101(a) of the Code.

Pruco Life of New Jersey intends to comply with final regulations issued under
sections 7702 and 817. Therefore, it reserves the right to make such changes as
it deems necessary to assure that the Contract continues to qualify as life
insurance for tax purposes. Any such changes will apply uniformly to affected
Contract owners and will be made only after advance written notice to affected
Contract owners.

1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value
except for the amount, if any, that exceeds the gross premiums paid
less the untaxed portion of any prior withdrawals. The amount of any
unpaid Contract 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.
The tax consequences of a surrender may differ if the proceeds are
received under any income payment settlement option.

A withdrawal generally is not taxable unless it exceeds total premiums
paid to the date of withdrawal less the untaxed portion of any prior
withdrawals. However, under certain limited circumstances, in the first
15 Contract years all or a portion of a withdrawal may be taxable if
the Contract Fund exceeds the total premiums paid less the untaxed
portion of any prior withdrawals, even if total withdrawals do not
exceed total premiums paid to date.

Extra premiums for optional benefits and riders generally do not count
in computing gross premiums paid, which in turn determines the extent
to which a withdrawal might be taxed.

<PAGE>

Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be
distributions subject to tax.

2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under section 7702A of the Code. A Contract
may be classified as a Modified Endowment Contract under various
circumstances. For example, low face amount Contracts issued on younger
insureds may be classified as a Modified Endowment Contract even though
the Contract owner pays only the Scheduled Premiums or even less than
the Scheduled Premiums. Before purchasing such a Contract, you should
understand the tax treatment of pre-death distributions and consider
the purpose for which the Contract is being purchased. More generally,
a Contract may be classified as a Modified Endowment Contract if
premiums in excess of Scheduled Premiums are paid or if a decrease in
the face amount of insurance is made (or a rider removed). Moreover,
the addition of a rider after the Contract date may have an impact on
the Contract's status as a Modified Endowment Contract. Contract owners
contemplating any of these steps should first consult a qualified tax
advisor and their Pruco Life of New Jersey representative.

If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are
includible in income to the extent that the Contract fund prior to
surrender charges exceeds the gross premiums paid for the Contract
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 2 year
period prior to the Contract becoming a Modified Endowment Contract.

In addition, pre-death distributions from such Contracts (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 nonnatural persons such as corporations.

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

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

SALE OF THE CONTRACT AND SALES COMMISSIONS

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Prusec's principal business address is 751 Broad Street, Newark, New Jersey
07102-3777. The Contract is sold by registered representatives of Prusec who are
also authorized by state insurance departments to do so. The Contract may also
be sold through other broker-dealers authorized by Prusec and applicable law to
do so. Registered representatives of such other broker-dealers may be paid on a
different basis than described below. Where the insured is less than 60 years of
age, the representative will generally receive a commission of no more than 50%
of the scheduled premiums for the first year, no more than 6% of the scheduled
premiums for the second through tenth years, and no more than 2% of the
scheduled premiums thereafter. For insureds over 59 years of age, the commission
will be lower. The representative may be required to return all or part of the
first year commission if the Contract is not continued through the second year.
Representatives with less than 3 years of service may be paid on a different
basis.

Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life of New Jersey expects to recover its total sales expenses over
the periods the Contracts are in effect. To the extent that the sales charges
are insufficient to cover total sales expenses, the sales expenses will be
recovered from Pruco Life of New Jersey's surplus, which may include amounts
derived from the mortality and expense risk charge and the guaranteed minimum
death benefit risk charge described in the prospectus under DAILY DEDUCTION FROM
THE CONTRACT FUND and item (d) under MONTHLY DEDUCTIONS FROM CONTRACT FUND.

RIDERS

Any Pruco Life of New Jersey representative authorized to sell the Contract can
explain these extra benefits further. Samples of the provisions are available
from Pruco Life of New Jersey upon written request.

OTHER STANDARD CONTRACT PROVISIONS

INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date or, with respect to any change in
the Contract that requires Pruco Life of New Jersey's approval and could
increase its liability, after the change has been in effect during the insured's
lifetime for 2 years from the effective date of the change, Pruco Life of New
Jersey will not contest its liability under the Contract in accordance with its
terms.

MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life of New
Jersey will adjust the death benefits payable, as required by law, to reflect
the correct age and sex. Any death benefit will be based on what the most recent
charge for mortality would have provided at the correct age and sex.

SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life of New Jersey will pay
no more under the Contract than the sum of the premiums paid.

ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state, or local law or regulation. Generally, the Contract may not
be assigned to an employee benefit plan or program without Pruco Life of New
Jersey's consent. Pruco Life of New Jersey assumes no responsibility for the
validity or sufficiency of any assignment, and it will not be obligated to
comply with any assignment unless it has received a copy at one of its Home
Offices.

SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life of New Jersey representative authorized to sell this
Contract can explain these options upon request.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES OF
THE PORTFOLIOS

GENERAL

The investment objectives of the Series Fund's portfolios that are available to
PRUVIDER Contract owners can be found under INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS in the prospectus.

CONVERTIBLE SECURITIES

LOAN PARTICIPATIONS

WARRANTS

OPTIONS AND FUTURES

<PAGE>

option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium, has the obligation,
upon exercise of the option, to deliver the underlying equity security against
payment of the exercise price. A put option is a similar contract which gives
the purchaser or holder, in return for a premium, the right to sell the
underlying equity security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security at the exercise price upon exercise by the holder of the
put.

<PAGE>

transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.

The portfolios may also write straddles (i.e., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered "cover" for both the put and the call). In such
cases, the portfolio will also segregate or deposit for the benefit of the
portfolio's broker cash, U.S. Government securities or liquid unencumbered
assets equivalent to the amount, if any, by which the put is "in the money." It
is contemplated that each portfolio's use of straddles will be limited to 5% of
the portfolio's net assets (meaning that the securities used for cover or
segregated as described above will not exceed 5% of the portfolio's net assets
at the time the straddle is written). The writing of a call and a put on the
same security at the same strike price where the call and the put are covered by
different securities is not considered a straddle for purposes of this limit.

<PAGE>

securities being hedged, the correlation between the two values may not be as
close in these transactions as in transactions in which the portfolio purchases
a put option on an underlying security it owns.

The use of debt options is subject to the same risks described above in
connection with stock options.

A portfolio will write only "covered" options on stock indices. A call option is
covered if the portfolio holds a portfolio of stocks at least equal to the value
of the index times the multiplier times the number of contracts. When a
portfolio writes a call option on a broadly based stock market index, the
portfolio will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, cash equivalents or "qualified
securities" (defined below) with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. If a portfolio has written an option on an
industry or market segment index, it will segregate or put into escrow with its
custodian or pledge to a broker as collateral for the option at least five
"qualified securities," all of which are stocks of issuers in such industry or
market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. Such stocks will include stocks which represent at least 50% of
the weighting of the industry or market segment index and will represent at
least 50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market index options or
25% of such amount in the case of industry or market segment index options. If
at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the portfolio
will so segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term obligations equal in value to the difference. In addition,
when a portfolio writes a call on an index which is in-the-money at the time the
call is written, the portfolio will segregate with its custodian or pledge to
the broker as collateral, cash, U.S. Government or other liquid unencumbered
assets equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the portfolio's obligation to

<PAGE>

segregate additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a securities exchange or NASDAQ against which the portfolio
has not written a stock call option and which has not been hedged by the
portfolio by the sale of stock index futures. However, if the portfolio holds a
call on the same index as the call written where the exercise price of the call
held is equal to or less than the exercise price of the call written or greater
than the exercise price of the call written if the difference is maintained by
the portfolio in cash, Treasury bills or other high-grade short-term obligations
in a segregated account with its custodian, it will not be subject to the
requirement described in this paragraph.

The purchase and sale of options on stock indices will be subject to the risks
described above under OPTIONS ON EQUITY SECURITIES, page 6. In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options. Index prices may be distorted if trading of
certain stocks included in the index is interrupted. Trading in the index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of stocks included in the index. If this
occurred, a portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, might be
unable to exercise an option it holds, which could result in substantial losses
to the portfolio. It is the policy of the portfolios to purchase or write
options only on stock indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.

There are certain special risks associated with writing calls on stock indices.
Because exercises of index options are settled in cash, a call writer such as a
portfolio cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot precisely provide in advance
for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities. The portfolios, however, will follow the "cover"
procedures described above.

<PAGE>

OPTIONS ON FOREIGN CURRENCIES. The Conservative Balanced and Flexible Managed
Portfolios may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade for hedging
purposes in a manner similar to that in which forward foreign currency exchange
contracts (see FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, page 15) and futures
contracts on foreign currencies (discussed under FUTURES CONTRACTS, page 11)
will be employed. Options on foreign currencies are similar to options on stock,
except that the option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.

If, on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the portfolio may purchase call options
on the foreign currency. The purchase of such options could offset, at least
partially, the effects of the adverse movements of the exchange rates.
Alternatively, a portfolio could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

<PAGE>

contract, it would continue to be required to maintain initial margin and make
variation margin payments with respect to the option position until the option
expired or was exercised against the portfolio.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

SHORT SALES

The Conservative Balanced and Flexible Managed Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). To complete such a transaction, the portfolio will
borrow the security to make delivery to the buyer. The portfolio is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the portfolio. Until the security is
replaced, the portfolio is required to pay to the lender any interest which
accrues during the period of the loan. To borrow the security the portfolio may
be required to pay a fee which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker to the extent
necessary to meet margin requirements until the short position is closed out.
Until the portfolio replaces the borrowed security, it will (a) maintain in a
segregated account cash, U.S. Government or other liquid unencumbered assets
securities at such a level that the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current market
value of the security sold short and will not be less than the market value of
the security at the time it was sold short or (b) otherwise cover its short
position.

SHORT SALES AGAINST THE BOX

INTEREST RATE SWAPS

<PAGE>

short-term interest rates. For example, a portfolio may enter into a swap
transaction to preserve a return or spread on a particular investment or a
portion of its portfolio or to protect against any increase in the price of
securities the portfolio anticipates purchasing at a later date.

LOANS OF PORTFOLIO SECURITIES

ILLIQUID SECURITIES

The portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the investment manager,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the investment manager will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
portfolio's treatment of Rule 144A securities as liquid could have the effect of
increasing the level of portfolio illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. In addition, the investment manager, acting under guidelines
approved and monitored by the Board of Directors, may conditionally determine,
for purposed of the 15% test, that certain commercial paper issued in reliance
on the exemption from registration in Section 4(2) of the Securities Act of 1933
will not be considered illiquid, whether or not it may be resold under Rule
144A. To make that determination, the following conditions must be met: (1) the
security must not be traded flat or in default as to principal or interest; (2)
the security must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"), or
if only one NRSRO rates the security, by that NRSRO; if the security is unrated,
the investment manager must determine that the security is of equivalent
quality;

<PAGE>

and (3) the investment manager must consider the trading market for the specific
security, taking into account all relevant factors. The investment manager will
continue to monitor the liquidity of any Rule 144A security or any Section 4(2)
commercial paper which has been determined to be liquid and, if a security is no
longer liquid because of changed conditions, the holdings of illiquid securities
will be reviewed to determine if any steps are required to assure that the 15%
test continues to be satisfied.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The portfolios' dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the portfolios are not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of the portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedge currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

<PAGE>

INVESTMENT RESTRICTIONS

Neither of the portfolios available to PRUVIDER Contract owners will:

3. Acquire securities for the purpose of exercising control or management of
any company except in connection with a merger, consolidation, acquisition
or reorganization.

4. Make short sales of securities or maintain a short position, except that
the Conservative Balanced and Flexible Managed Portfolios may sell
securities short up to 25% of their net assets and may make short sales
against the box. Collateral arrangements entered into with respect to
options, futures contracts and forward contracts are not deemed to be
short sales. Collateral arrangements entered into with respect to interest
rate swap agreements are not deemed to be short sales.

5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios may enter into reverse repurchase
agreements, dollar rolls and may purchase securities on a when-issued and
delayed delivery basis; except that the money market portion of any
portfolio may enter into reverse repurchase agreements and may purchase
securities on a when-issued and delayed delivery basis; and except that
the Conservative Balanced and Flexible Managed Portfolios may purchase
securities on a when-issued or a delayed delivery basis. The Series Fund
may also obtain such short-term credit as it needs for the clearance of
securities transactions and may borrow from a bank for the account of any
portfolio as a temporary measure to facilitate redemptions (but not for
leveraging or investment) or to exercise an option, an amount that does
not exceed 5% of the value of the portfolio's total assets (including the
amount owed as a result of the borrowing) at the time the borrowing is
made. Interest paid on borrowings will not be available for investment.
Collateral arrangements with respect to futures contracts and options
thereon and forward foreign currency exchange contracts (as permitted by
restriction no.1) are not deemed to be the issuance of a senior security
or the purchase of a security on margin. Collateral arrangements with
respect to the writing of options on debt securities, equity securities,
stock indices and foreign currencies by the Conservative Balanced and
Flexible Managed Portfolios are not deemed to be the issuance of a senior
security or the purchase of a security on margin. Collateral arrangements
entered into by the Conservative Balanced and Flexible Managed Portfolios
with respect to interest rate swap agreements are not deemed to be the
issuance of a senior security or the purchase of a security on margin.

6. Enter into reverse repurchase agreements if, as a result, the portfolio's
obligations with respect to reverse repurchase agreements would exceed 10%
of the portfolio's net assets (defined to mean total assets at market
value less liabilities other than reverse repurchase agreements); except
that the fixed income portions of the Conservative Balanced and Flexible
Managed Portfolios may enter into reverse repurchase agreements and dollar
rolls provided that the portfolio's obligations with respect to those
instruments do not exceed 30% of the portfolio's net assets (defined to
mean total assets at market value less liabilities other than reverse
repurchase agreements and dollar rolls).

<PAGE>

8. Lend money, except that loans of up to 10% of the value of each portfolio
may be made through the purchase of privately placed bonds, debentures,
notes, and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible
into stock or accompanied by warrants or rights to acquire stock.
Repurchase agreements and the purchase of publicly traded debt obligations
are not considered to be "loans" for this purpose and may be entered into
or purchased by a portfolio in accordance with its investment objectives
and policies.

11. Purchase securities of a company in any industry if, as a result of the
purchase, a portfolio's holdings of securities issued by companies in that
industry would exceed 25% of the value of the portfolio, except that this
restriction does not apply to purchases of obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities or
issued by domestic banks. For purposes of this restriction, neither
finance companies as a group nor utility companies as a group are
considered to be a single industry and will be grouped instead according
to their services; for example, gas, electric, and telephone utilities
will each be considered a separate industry. For purposes of this
exception, domestic banks shall include all banks which are organized
under the laws of the United States or a state (as defined in the 1940
Act), U.S. branches of foreign banks that are subject to the same
regulations as U.S. banks and foreign branches of domestic banks (as
permitted by the SEC).

1. An Account may not purchase any evidence of indebtedness issued, assumed
or guaranteed by any institution created or existing under the laws of the
U.S., any U.S. state or territory, District of Columbia, Puerto Rico,
Canada or any Canadian province, if such evidence of indebtedness is in
default as to interest. "Institution" includes any corporation, joint
stock association, business trust, business joint venture, business
partnership, savings and loan association, credit union or other mutual
savings institution.

2. The stock of a corporation may not be purchased unless: (i) the
corporation has paid a cash dividend on the class of stock during each of
the past 5 years preceding the time of purchase; or (ii) during the 5-year
period the corporation had aggregate earnings available for dividends on
such class of stock sufficient to pay average dividends of 4% per annum
computed upon the par value of such stock or upon stated value if the
stock has

<PAGE>

no par value. This limitation does not apply to any class of stock which
is preferred as to dividends over a class of stock whose purchase is not
prohibited.

3. Any common stock purchased must be: (i) listed or admitted to trading on a
securities exchange in the United States or Canada; or (ii) included in
the National Association of Securities Dealers' national price listings of
"over-the-counter" securities; or (iii) determined by the Commissioner of
Insurance of New Jersey to be publicly held and traded and have market
quotations available.

4. Any security of a corporation may not be purchased if after the purchase
more than 10% of the market value of the assets of a portfolio would be
invested in the securities of such corporation.

Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the portfolios. For example, the Series Fund will generally invest no more
than 10% of its assets in the obligations of banks of the foreign countries
described in item 2 of SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST, page 22.

Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Series Fund and not the Contract owners, are
considered the owners of assets held in the Account for federal income tax
purposes. See TAX TREATMENT OF CONTRACT BENEFITS, page 3. Prudential intends to
maintain the assets of each portfolio pursuant to those diversification
requirements.

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES

<PAGE>

fees, accounting costs, the fees and expenses of directors of the Series Fund
who are not affiliated persons of Prudential or any subsidiary of Prudential,
and other expenses properly payable by the entire Series Fund. If the Series
Fund is sued, litigation costs may be directly applicable to one or more
portfolios or allocated on the basis of the size of the respective portfolios,
depending upon the nature of the lawsuit. The Series Fund's Board of Directors
has determined that this is an appropriate method of allocating expenses.

The Investment Advisory Agreement with Prudential was most recently approved by
the Series Fund's Board of Directors, including a majority of the Directors who
are not interested persons of Prudential, on May 19, 1997 with respect to the
Conservative Balanced and Flexible Managed Portfolios. The Investment Advisory
Agreement was most recently approved by shareholders in accordance with
instructions from Contract owners at their 1989 annual meeting with respect to
the Conservative Balanced and Flexible Managed Portfolios. The Agreement will
continue in effect if approved annually by: (1) a majority of the non-interested
persons of the Series Fund's Board of Directors; and (2) by a majority of the
entire Board of Directors or by a majority vote of the shareholders of each
portfolio. The required shareholder approval of the Agreement shall be effective
with respect to any portfolio if a majority of the voting shares of that
portfolio vote to approve the Agreement, even if the Agreement is not approved
by a majority of the voting shares of any other portfolio or by a majority of
the voting shares of the entire Series Fund. The Agreement provides that it may
not be assigned by Prudential and that it may be terminated upon 60 days' notice
by the Series Fund's Board of Directors or by a majority vote of its
shareholders. Prudential may terminate the Agreement upon 90 days' notice.

The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Series Fund at their 1989 annual meeting with respect to the
Conservative Balanced and Flexible Managed Portfolios. The Service Agreement
between Prudential and PIC will continue in effect as to the Series Fund for a
period of more than 2 years from its execution, only so long as such continuance
is specifically approved at least annually in the same manner as the Investment
Advisory Agreement between Prudential and the Series Fund. The Service Agreement
may be terminated by either party upon not less than 30 days' prior written
notice to the other party, will terminate automatically in the event of its
assignment, and will terminate automatically as to the Series Fund in the event
of the assignment or termination of the Investment Advisory Agreement between
Prudential and the Series Fund. Prudential is not relieved of its responsibility
for all investment advisory services under the Investment Advisory Agreement.
Under the Service Agreement, Prudential pays PIC a portion of the fee it
receives for providing investment advisory services.

PORTFOLIO TRANSACTIONS AND BROKERAGE

<PAGE>

futures commission merchant including, to the extent and in the manner permitted
by applicable law, Prudential Securities Incorporated, an indirect wholly-owned
subsidiary of Prudential.

Subject to the above considerations, Prudential Securities Incorporated may act
as a securities broker or futures commission merchant for the Series Fund. In
order for Prudential Securities Incorporated to effect any portfolio
transactions for the Series Fund, the commissions received by Prudential
Securities Incorporated must be reasonable and fair compared to the commissions
received by other brokers in connection with comparable transac tions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow Prudential Securities
Incorporated to receive no more than the remuneration that would be expected to
be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Series Fund, including a majority of the non- interested directors, has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Prudential Securities
Incorporated are consistent with the foregoing standard. In accordance with Rule
11a2-2(T) under the Securities Exchange Act of 1934, Prudential Securities
Incorporated may not retain compensation for effecting transactions on a
securities exchange for the Series Fund unless the Series Fund has expressly
authorized the retention of such compensation in a written contract executed by
the Series Fund and Prudential Securities Incorporated. Rule 11a2-2(T) provides
that Prudential Securities Incorporated must furnish to the Series Fund at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities Incorporated from transactions effected for the Series
Fund during the applicable period. Brokerage and futures transactions with
Prudential Securities Incorporated are also subject to such fiduciary standards
as may be imposed by applicable law.

<PAGE>

1995, the Conservative Balanced Portfolio paid $256,752, $120,976 and $82,153,
respectively, to Prudential Securities Incorporated, and the Flexible Managed
Portfolio paid $428,008, $582,317 and $589,038, respectively, to Prudential
Securities Incorporated. For 1997, the percentage of commissions paid to
Prudential Securities Incorporated was 7.69% for the Conservative Balanced
Portfolio and 6.54% for the Flexible Managed Portfolio. For 1997, the percentage
of the aggregate dollar amount of transactions effected through Prudential
Securities Incorporated was 5.18% for the Conservative Balanced Portfolio and
6.92% for the Flexible Managed Portfolio.

DETERMINATION OF NET ASSET VALUE

In determining the net asset value of any intermediate or long-term fixed income
securities of the Conservative Balanced and Flexible Managed Portfolios (other
than debt obligations with remaining maturities 12 months or less, which are
valued at amortized cost) will be valued utilizing an independent pricing
service to determine valuations for normal institutional size trading units of
securities. The pricing service considers such factors as security prices,
yields, maturities, call features, ratings, and developments relating to
specific securities in arriving at securities valuations.

<PAGE>

intermediate or long-term fixed income securities, as described above.
Short-term debt instruments which mature in less than 60 days are valued at
amortized cost. For valuation purposes, quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents.

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by Prudential under the direction of the
Board of Directors of the Series Fund.

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO
MAY CURRENTLY INVEST*

3. Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies, instrumentalities or political subdivisions, denominated in U.S.
dollars, and, at the date of investment, rated at least A or A-2 by Standard &
Poor's Ratings Services ("S&P"), A or Prime-2 by Moody's Investors Services,
Inc. ("Moody's") or, if not rated, issued by an entity having an outstanding
unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2 by Moody's.
For a description of corporate bond ratings, see DEBT RATINGS page 24. If such
obligations are guaranteed or supported by a letter of credit issued by a bank,
such bank (including a foreign bank) must meet the requirements set forth in
paragraph 2 above. If such obligations are guaranteed or insured by an insurance
company or other non-bank

<PAGE>

entity, such insurance company or other non-bank entity must represent a credit
of high quality, as determined by the Series Fund's investment adviser (which as
noted above is currently Prudential) under the supervision of the Series Fund's
Board of Directors.

4. Repurchase Agreements. When the Money Market Portfolio purchases money market
securities of the types described above, it may on occasion enter into a
repurchase agreement with the seller wherein the seller and the buyer agree at
the time of sale to repurchase of the security at a mutually agreed upon time
and price. The period of maturity is usually quite short, possibly overnight or
a few days, although it may extend over a number of months. The resale price is
in excess of the purchase price, reflecting an agreed-upon market rate effective
for the period of time the portfolio's money is invested in the security, and is
not related to the coupon rate of the purchased security. Repurchase agreements
may be considered loans of money to the seller of the underlying security, which
are collateralized by the securities underlying the repurchase agreement. The
Series Fund will not enter into repurchase agreements unless the agreement is
"fully collateralized" (i.e., the value of the securities is, and during the
entire term of the agreement remains, at least equal to the amount of the 'loan'
including accrued interest). The Series Fund will take possession of the
securities underlying the agreement and will value them daily to assure that
this condition is met. The Series Fund has adopted standards for the parties
with whom it will enter into repurchase agreements which it believes are
reasonably designed to assure that such a party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement. In the event that a seller defaults on a repurchase
agreement, the Series Fund may incur a loss in the market value of the
collateral, as well as disposition costs; and, if a party with whom the Series
Fund had entered into a repurchase agreement becomes involved in bankruptcy
proceedings, the Series Fund's ability to realize on the collateral may be
limited or delayed and a loss may be incurred if the collateral securing the
repurchase agreement declines in value during the bankruptcy proceedings.

6. When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Money Market Portfolio may purchase securities
on a when-issued or delayed delivery basis (i.e., delivery and payment can take
place a month or more after the date of the transaction). The purchase price and
the interest rate payable on the securities are fixed on the transaction date.
The securities so purchased are subject to market fluctuation, and no interest
accrues to the portfolio until delivery and payment take place. At the time the
portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value. The
portfolio will make commitments for when-issued transactions only with the
intention of actually acquiring the securities and, to facilitate such
acquisitions, the Series Fund's custodian bank will maintain in a separate
account securities of the portfolio having a value equal to or greater than such
commitments. On delivery dates for such transactions, the portfolio will meet
its obligations from maturities or sales of the securities held in the separate
account and/or from then available cash flow. If the portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other obligation, incur a gain or loss
due to market fluctuation. No when-issued commitments will be made if, as a
result, more than 15% of the portfolio's net assets would be so committed.

<PAGE>

DEBT RATINGS

Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:

Bonds:

<PAGE>

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.

C -- Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Commercial paper:

- --Leading market positions in well-established industries.

- --High rates of return of funds employed.

- --Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- --Well established access to a range of financial markets and assured sources of
alternate liquidity.

S&P describes its grades of corporate debt securities and its "A" commercial
paper as follows:

Bonds:

AAA Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.

A Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.

BBB Debt rated "BBB" is regarded as having adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.

BB-B-CCC-CC-C

Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. BB indicates
the least degree of speculation and C the highest. While such
debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major exposures to adverse conditions.

Commercial paper:

Commercial paper rated A by S&P has the following
characteristics: Liquidity ratios are better than the industry
average. Long term senior debt rating is "A" or better. In
some cases BBB credits may be acceptable. The issuer has
access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowances
made for unusual circumstances. Typically, the issuer's
industry is well established, the issuer has a strong position
within its industry and the reliability and quality of
management is unquestioned. Issuers rated A are further
referred to by use of numbers 1, 2 and 3 to denote relative
strength within this classification.

<PAGE>

POSSIBLE REPLACEMENT OF THE SERIES FUND

OTHER INFORMATION CONCERNING THE SERIES FUND

INCORPORATION AND AUTHORIZED STOCK

DIVIDENDS, DISTRIBUTIONS AND TAXES

CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT

YEAR 2000

<PAGE>

those of their outside service providers. Many computer software systems in use
today cannot distinguish the year 2000 from the year 1900 because of the way
dates are encoded and calculated. Such event could have a negative impact on
handling securities trades, payments of interest and dividends, pricing and
account services. Although at this time, there can be no assurance that there
will be no adverse impact on the Series Fund, the Prudential, PIC, Jennison, as
well as the Series Fund's principal underwriter and its custodians, have advised
the Series Fund that they have been actively working on necessary changes to
their computer systems to prepare for the year 2000 and expect that their
systems, and those of their outside service providers, will be adapted in time
for that event.

EXPERTS

LICENSE

<PAGE>

DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY
AND MANAGEMENT OF THE SERIES FUND

DIRECTORS AND OFFICERS OF PRUCO LIFE OF NEW JERSEY

The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past 5 years, are shown below.

DIRECTORS OF PRUCO LIFE OF NEW JERSEY

JAMES J. AVERY, JR., Chairman and Director -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.

WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.

OFFICERS WHO ARE NOT DIRECTORS

SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.

C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.

CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.

EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.

SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.

JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.

The business address of all directors and officers of Pruco Life of New Jersey
is 213 Washington Street, Newark, New Jersey 07102-2992.

Pruco Life of New Jersey directors and officers are elected annually.

<PAGE>

MANAGEMENT OF THE SERIES FUND

DIRECTORS OF THE SERIES FUND

SAUL K. FENSTER, 65, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.

JOSEPH WEBER, 74, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

OFFICERS WHO ARE NOT DIRECTORS

STEPHEN M. UNGERMAN, Assistant Treasurer--Vice President and Tax Director of
Prudential Investments since 1996; 1993 to 1996: First Vice President of
Prudential Mutual Fund Management, Inc.

<PAGE>

COMPENSATION TABLE

Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation As Part of Series Benefits Upon Related to Funds
From Series Fund Fund Expenses Retirement Managed by Prudential
---------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Name and Position
- -----------------
E. Michael Caulfield(1) ................ -- -- -- --
Saul K. Fenster ........................ $14,400 None N/A $26,200(5)*
W. Scott McDonald, Jr. ................. $14,400 None N/A $26,200(5)*
Mendel A. Melzer, CFA(1) ............... -- -- -- --
Joseph Weber ........................... $14,400 None N/A $26,200(5)*
</TABLE>

(1) Directors who are "interested" do not receive compensation from Prudential
(including the Series Fund).

* Indicates number of funds (including the Series Fund) to which aggregate
compensation relates.

As of April 30, 1998, the Directors and officers of the Series Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Series
Fund capital stock.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME
Dividends (net of $187,480 foreign
withholding tax)......................... $ 19,377,627
Interest................................... 216,743,419
---------------
236,121,046
---------------
EXPENSES
Investment advisory fee.................... 25,757,735
Custodian expense.......................... 281,000
Shareholders' reports...................... 169,000
Accounting fees............................ 101,000
Audit fees................................. 67,000
Legal fees................................. 3,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 923
---------------
Total Expenses........................... 26,382,658
Less: Custodian fee credit................. (166,162)
---------------
Net Expenses............................. 26,216,496
---------------
NET INVESTMENT INCOME........................ 209,904,550
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 546,046,706
Futures contracts........................ (20,841,176)
Short sales.............................. (30,344)
---------------
525,175,186
---------------
Net change in unrealized appreciation on:
Investments.............................. (145,915,485)
Futures contracts........................ (1,775,225)
Short sales.............................. (1,139,560)
---------------
(148,830,270)
---------------
NET GAIN ON INVESTMENTS...................... 376,344,916
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 586,249,466
---------------
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A1
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME
Dividends (net of $810,090 foreign
withholding tax)......................... $ 35,833,891
Interest................................... 156,549,837
---------------
192,383,728
---------------
EXPENSES
Investment advisory fee.................... 31,740,440
Custodian expense.......................... 477,000
Shareholders' reports...................... 212,000
Accounting fees............................ 94,000
Audit fees................................. 72,000
Legal fees................................. 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 1,971
---------------
Total Expenses........................... 32,604,411
Less: Custodian fee credit................. (284,638)
---------------
Net Expenses............................. 32,319,773
---------------
NET INVESTMENT INCOME........................ 160,063,955
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 867,141,418
Futures contracts........................ (499,159)
Short sales.............................. 1,049,655
---------------
867,691,914
---------------
Net change in unrealized appreciation on:
Investments.............................. (160,872,103)
Futures contracts........................ (1,562,422)
Short sales.............................. (1,168,571)
---------------
(163,603,096)
---------------
NET GAIN ON INVESTMENTS...................... 704,088,818
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 864,152,773
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 160,063,955 $ 139,211,865
Net realized gain on investments....................................................... 867,691,914 408,046,131
Net change in unrealized appreciation on investments................................... (163,603,096) 41,728,823
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 864,152,773 588,986,819
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (159,343,911) (142,089,785)
Distributions from net realized capital gains.......................................... (823,214,223) (458,909,559)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (982,558,134) (600,999,344)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,859,580 and 8,998,637 shares, respectively]...................... 92,765,042 166,455,957
Capital stock issued in reinvestment of dividends and distributions [56,453,647 and
34,012,173 shares, respectively]...................................................... 982,558,134 600,999,344
Capital stock repurchased [(18,791,325) and (6,420,074) shares, respectively].......... (363,698,408) (119,724,926)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 711,624,768 647,730,375
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 593,219,407 635,717,850
NET ASSETS:
Beginning of year...................................................................... 4,896,922,687 4,261,204,837
------------------ -------------------
End of year............................................................................ $ 5,490,142,094 $ 4,896,922,687
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A2
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
CONSERVATIVE BALANCED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.8%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
LONG-TERM BONDS -- 58.6% (NOTE 2)

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 $ 5,000 $ 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
Okobank, (Finland),
7.20%, 10/29/49............................... A3 9,000 9,101,250
7.20%, 10/29/49............................... A3 3,500 3,539,375
7.312%, 09/27/49.............................. A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (a)........................... Aa3 17,400 17,513,448
Siam Commercila, (Thailand),
7.50%, 03/15/06............................... A3 14,500 9,425,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,075,000
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (a)........................... Ba1 20,000 12,000,000
--------------
278,805,472
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.0%
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Baa3 5,545 5,889,455
Tele-Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 10,036,800
7.375%, 02/15/00.............................. Ba1 27,000 27,521,100
7.875%, 08/01/13.............................. Ba1 19,350 20,812,279
8.25%, 01/15/03............................... Ba1 2,000 2,135,780
9.25%, 04/15/02............................... Ba1 9,500 10,427,865
9.875%, 06/15/22.............................. Ba1 12,900 16,811,667
--------------
93,634,946
--------------
CONSULTING -- 0.7%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 12,500 12,513,250
6.375%, 11/30/01.............................. Baa1 21,500 21,500,000
--------------
34,013,250
--------------
CONSUMER SERVICES -- 0.1%
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 3,500 3,503,570
--------------
FINANCIAL SERVICES -- 15.4%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 15,000 14,400,000
7.25%, 08/16/99............................... Ba3 3,000 2,957,910
7.50%, 08/28/00............................... Ba3 35,000 34,053,250
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 9,471,600
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 20,120,800
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B1
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 $ 10,000 $ 10,000,000
Conseco, Inc.,
8.70%, 11/15/26 (a)........................... Ba2 32,313 36,126,991
8.796%, 04/01/27 (a).......................... Ba2 23,900 26,676,463
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,395,827
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 11,500 11,554,050
6.95%, 03/01/04............................... Baa2 27,500 28,050,000
7.00%, 06/15/00............................... Baa2 30,000 30,598,800
7.50%, 06/15/03............................... Baa2 5,000 5,261,900
8.75%, 12/15/99............................... Baa2 5,000 5,245,000
First Chicago NBD Corp.,
5.819%, 09/23/02.............................. A1 8,000 7,976,000
First Union Corp.,
9.45%, 06/15/99............................... A2 4,000 4,177,920
Great Western Financial,
8.206%, 02/01/27 (a).......................... A3 19,300 20,469,966
Industrial Finance Corp.,
7.75%, 08/04/07............................... Ba1 5,000 4,750,000
7.875%, 08/04/02.............................. Ba1 6,000 5,700,000
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 8,000 7,950,000
6.33%, 08/01/00............................... Baa1 30,000 30,039,600
6.40%, 08/30/00............................... Baa1 79,000 78,901,250
6.71%, 10/12/99............................... Baa1 6,000 6,056,640
6.89%, 10/10/00............................... Baa1 10,545 10,701,804
7.125%, 07/15/02.............................. Baa1 16,000 16,359,680
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 21,750 23,055,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 15,000 15,390,000
Merrill Lynch Pierce, Fenner & Smith,
5.935%, 11/14/00.............................. Aa3 10,000 9,966,250
Paine Webber Group, Inc.,
7.625%, 10/15/08 Sr. Note..................... Baa1 5,000 5,352,700
PT Alatief Freeport Financial Co., Sr. Notes,
(Netherlands),
9.75%, 04/15/01............................... Ba1 8,950 9,039,500
Salomon, Inc.,
6.25%, 10/01/99............................... A2 32,800 32,838,048
6.50%, 03/01/00 (a)........................... A2 38,500 38,701,740
6.59%, 02/21/01 (a)........................... A2 30,750 31,005,840
6.75%, 02/15/03............................... A2 5,000 5,057,850
7.25%, 05/01/01............................... A2 8,625 8,852,010
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 25,000 25,125,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,008,100
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 46,440 46,354,771
Union Planters Corp., Gtd. Notes,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
731,941,767
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOOD & BEVERAGE -- 0.5%
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 $ 5,000 $ 5,008,650
6.95%, 12/15/2097............................. Aa3 18,800 19,045,152
--------------
24,053,802
--------------
INDUSTRIAL -- 0.8%
Compania Sud Americana de Vapores, SA (Chile),
7.375%, 12/08/03.............................. NR 7,600 7,505,000
Reliance Industries Ltd.,
8.125%, 09/27/05.............................. Baa3 15,000 14,025,000
8.25%, 01/15/27............................... Baa3 19,000 17,005,000
--------------
38,535,000
--------------
LEISURE & TOURISM -- 0.1%
Royal Carribean Cruises Ltd.,
7.50%, 10/15/27............................... Baa3 5,750 5,855,455
--------------
MEDIA -- 5.7%
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,582,541
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,016,815
8.11%, 08/15/06............................... Ba1 7,250 7,848,850
8.18%, 08/15/07............................... Ba1 24,915 27,118,981
9.125%, 01/15/13.............................. Ba1 41,270 49,143,078
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 17,325 19,438,997
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 71,325 70,082,518
7.75%, 06/01/05............................... Ba2 60,025 61,050,827
--------------
268,282,607
--------------
OIL & GAS -- 1.6%
Apache Corp.,
7.95%, 04/15/26............................... Baa1 2,900 3,250,030
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,095,000
Gulf Canada Resources, Ltd., (Canada),
8.25%, 03/15/17............................... Ba1 4,500 5,006,295
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,304,320
Petroliam Nasional, (Malaysia),
6.625%, 10/18/01.............................. A2 12,000 11,662,680
Seagull Energy Corp.,
7.50%, 09/15/27............................... Ba1 17,000 17,606,730
Talisman Energy Inc.,
7.25%, 10/15/27............................... Baa1 30,000 30,829,800
--------------
75,754,855
--------------
PAPER & FOREST -- 0.5%
UPM-Kymmene Oyj,
7.45%, 11/26/27............................... Baa1 22,800 23,398,500
--------------
RAILROADS -- 0.5%
Norfolk Southern Corp.,
7.05%, 05/01/37............................... Baa1 25,000 26,218,750
--------------
REAL ESTATE INVESTMENT TRUST -- 0.2%
Falcor Suite Hotels, Inc.,
7.625%, 10/1/07............................... Ba1 8,000 8,006,400
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B2
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 2.8%
Federated Department Stores, Inc.,
8.125%, 10/15/02 Sr. Note (a)................. Baa2 $ 41,030 $ 43,861,070
8.50%, 06/15/03 (a)........................... Baa2 32,400 35,345,160
10.00%, 02/15/01 (a).......................... Baa2 46,115 50,791,061
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,081,250
--------------
135,078,541
--------------
TELECOMMUNICATIONS -- 3.6%
McLeod USA Inc., Sr. Notes,
9.25%, 07/15/07............................... B3 3,000 3,150,000
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 33,000 15,840,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 80,000 83,775,200
7.75%, 04/01/07............................... Ba1 25,000 26,847,250
7.75%, 04/01/27............................... Ba1 4,500 4,944,420
8.875%, 01/15/06.............................. Ba1 32,000 34,429,440
--------------
168,986,310
--------------
TOBACCO -- 3.0%
Philip Morris Co. Inc.,
6.375%, 02/01/06.............................. A2 17,675 17,359,501
7.20%, 02/01/07............................... A2 31,915 32,932,769
RJR Nabisco, Inc.,
7.625%, 09/15/03.............................. Baa3 10,500 10,732,260
8.25%, 07/01/04............................... Baa3 8,000 8,410,000
8.50%, 07/01/07............................... Baa3 11,000 11,726,550
8.75%, 04/15/04............................... Baa3 23,090 24,719,000
8.75%, 08/15/05............................... Baa3 19,000 20,499,670
9.25%, 08/15/13............................... Baa3 13,571 15,227,341
--------------
141,607,091
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.0%
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa2 500 527,645
--------------
UTILITIES -- 1.9%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,523,880
7.625%, 01/15/07.............................. Baa3 21,000 22,162,980
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 25,000 25,093,750
6.875%, 12/15/17.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 5,000 4,415,625
--------------
91,634,985
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.1%
United States Treasury Bond,
6.125%, 08/15/07.............................. 7,500 7,707,450
United States Treasury Notes,
5.875%, 01/31/99 (a).......................... 20,000 20,046,800
5.875%, 09/30/02.............................. 28,550 28,706,169
5.875%, 02/15/04.............................. 16,750 16,896,563
6.25%, 10/31/01............................... 9,500 9,661,785
6.375%, 03/31/01 (a).......................... 4,600 4,686,250
6.375%, 08/15/27.............................. 57,325 60,460,104
--------------
148,165,121
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS -- 4.2%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 $ 5,500 $ 5,492,850
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 15,592,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 25,000 22,500,000
Province of Quebec, (Canada),
6.238%, 06/15/99.............................. A2 3,000 3,007,969
Republic of Colombia, (Colombia),
7.625%, 02/15/07 (a).......................... Baa3 85,000 79,370,450
8.00%, 06/14/01............................... Baa3 2,250 2,257,875
8.75%, 10/06/99............................... Baa3 12,325 12,692,532
Republic of South Africa, (South Africa),
8.50%, 06/23/17............................... Baa3 37,950 36,242,250
Russian Ministry of Finance, (Russia),
10.00%, 06/26/07.............................. Ba2 7,800 7,226,700
United Mexican States, (Mexico),
11.50%, 05/15/26.............................. Ba2 6,900 8,176,500
--------------
198,183,376
--------------
TOTAL LONG-TERM BONDS
(cost $2,787,932,280).................................................... 2,779,026,495
--------------

SEE NOTES TO FINANCIAL STATEMENTS.

B3
<PAGE>

SEE NOTES TO FINANCIAL STATEMENTS.

B4
<PAGE>

SEE NOTES TO FINANCIAL STATEMENTS.

B5
<PAGE>

MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 7.2% (UNAUDITED) (000) (NOTE 2)
----------- --------- --------
ASSET-BACKED SECURITIES -- 0.3%
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 $ 1,000 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 4,600 4,560,857
Falcon Asset Securitization Corp.,
5.90%, 01/21/98............................... P1 1,000 996,886
Restructured Asset Securities Enhanced Return,
5.95875%, 08/28/98............................ P1 4,000 4,000,000
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 2,000 2,000,000
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 2,000 1,984,184
Wood Street Funding Corp.,
5.83%, 02/13/98............................... P1 1,000 993,198
--------------
15,526,574
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank--Michigan,
5.00%, 01/30/98............................... P1 2,000 1,998,356
US Bank, N.A.,
5.83094%, 10/21/98............................ P1 1,000 999,358
--------------
7,997,714
--------------
CERTIFICATES OF DEPOSIT-EURO -- 0.2%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 4,000 4,000,209
Westdeutsche Landesbank Girozentral, (Germany),
5.83%, 08/03/98............................... P1 6,000 5,997,462
--------------
9,997,671
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 1.1%
Canadian Imperial Bank of Commerce, (Canada),
5.95%, 06/29/98............................... P1 900 899,706
Corestates Bank, NA,
5.7825%, 01/23/98............................. P1 1,000 1,000,000
Credit Agricole Indosuez,
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 7,000 6,998,241
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Kansallis-Osake Pankki, N.Y., (Finland),
6.125%, 05/15/98.............................. A3 $ 6,160 $ 6,160,000
9.75%, 12/15/98............................... Baa1 16,950 17,472,908
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,775 2,802,750
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Swiss Bank Corp.,
5.77%, 01/30/98............................... P1 2,000 1,999,421
--------------
53,613,180
--------------
COMMERCIAL PAPER -- 3.4%
Aon Corp.,
5.79%, 03/12/98............................... P2 880 870,234
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,000 993,719
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 6,000 5,992,907
BP America,
6.90%, 01/02/98............................... P1 6,500 6,500,000
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,088,291
Coca-Cola Enterprises,
5.65%, 03/12/98............................... P2 3,000 2,967,512
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,498,000
6.09%, 11/09/98............................... Baa1 34,000 34,009,860
6.29%, 10/22/98............................... Baa1 5,000 5,009,900
6.689%, 05/22/98.............................. Baa1 9,000 9,024,300
Duke Capital Corp.,
5.90%, 01/23/98............................... P2 1,000 996,558
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
7.875%, 03/15/98 (b).......................... Baa2 9,925 9,961,921
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa3 3,000 3,045,750
Finova Capital Corp.,
5.75%, 02/04/98............................... P2 3,400 3,382,079
First USA Bank,
8.20%, 02/15/98............................... Baa3 11,500 11,521,275
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
Honeywell Inc.,
6.75%, 01/02/98............................... P1 4,250 4,250,000
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 2,000 1,970,981
5.74%, 04/28/98............................... P1 1,600 1,570,407
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Newell Co.,
6.80%, 01/02/98............................... P1 6,500 6,500,000
Old Line Funding Corp.,
5.90%, 01/21/98............................... A1+ 1,000 996,886
PHH Corp.,
6.75%, 01/02/98............................... P1 6,500 6,500,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 2,000 1,976,320
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B6
<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 $ 1,000 $ 1,000,220
Xerox Capital (Europe) PLC
5.75%, 02/05/98............................... P1 3,000 2,983,708
5.79%, 02/12/98............................... P1 875 869,230
6.85%, 01/02/98............................... P1 2,610 2,610,000
--------------
156,055,189
--------------
MEDIUM TERM NOTES -- 0.2%
Ford Motor Credit Corp.,
9.00%, 03/25/98............................... P1 1,200 1,208,318
General Motors Acceptance Corp.,
5.76825%, 09/21/98............................ P1 3,000 2,997,564
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 4,000 3,998,626
Morgan Stanley Group, Inc.,
6.34%, 03/09/98............................... P1 1,000 1,000,606
Suntrust Banks, Inc.,
8.875%, 02/01/98.............................. P1 805 806,820
--------------
10,011,934
--------------
OTHER CORPORATE OBLIGATIONS -- 0.1%
Association Corp. of America,
6.125%, 02/01/98.............................. P1 2,040 2,039,976
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,700 2,709,664
--------------
4,749,640
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.0%
United States Treasury Bills,
5.045%, 03/19/98 (a).......................... 700 692,545
5.165%, 01/22/98 (a).......................... 300 299,139
5.29%, 03/19/98 (a)........................... 400 395,533
--------------
1,387,217
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... $ 81,783 $ 81,783,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $340,697,062)...................................................... 341,122,119
--------------
TOTAL INVESTMENTS -- 99.0%
(cost $4,491,825,742; Note 6)............................................ 4,696,024,117
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (c) -- (0.0%).................................................. (653,438)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.0%..................................................................... 48,861,360
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,744,232,039
--------------
--------------
</TABLE>

(a) Security segregated as collateral for futures contracts.

(b) Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B7
<PAGE>

FLEXIBLE MANAGED PORTFOLIO

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

B8
<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

B9
<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

PREFERRED STOCKS -- 0.5%
FINANCIAL SERVICES -- 0.5%
Central Hispano Corp............................ 1,000,000 26,000,000
--------------
(cost $25,440,000)
</TABLE>

DECEMBER 31, 1997

SEE NOTES TO FINANCIAL STATEMENTS.

B10
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CONSULTING -- 0.3%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 $ 12,500 $ 12,513,250
6.375%, 11/30/01.............................. Baa1 2,700 2,700,000
--------------
15,213,250
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 4,000 4,004,080
--------------
FINANCIAL SERVICES -- 5.3%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 10,000 9,600,000
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Caterpillar Financial Services,
5.829%, 04/10/00.............................. A2 5,000 5,011,850
Conseco, Inc.,
8.70%, 11/15/26 (c)........................... Baa3 32,538 36,378,552
8.796%, 04/01/27.............................. Ba2 29,000 32,368,930
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 20,700 20,797,290
6.95%, 03/01/04............................... Baa2 7,500 7,650,000
7.00%, 06/15/00............................... Baa3 13,500 13,769,460
Ford Credit Europe PLC,
6.086%, 12/20/99.............................. A1 10,000 10,010,000
General Motors Acceptance Corp., M.T.N.,
5.813%, 10/30/00.............................. A3 10,000 9,941,250
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 10,000 9,937,500
6.40%, 08/30/00 (c)........................... Baa1 93,250 93,133,437
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 23,100 24,486,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
--------------
290,489,844
--------------
FOOD & BEVERAGE -- 0.5%
Archer Daniels,
6.95%, 12/15/2097............................. Aa3 19,700 19,956,888
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 5,000 5,008,650
--------------
24,965,538
--------------
FOREST PRODUCTS -- 0.4%
UPM-Kymmene Corp.,
7.45%, 11/26/27............................... Baa1 23,400 24,014,250
--------------
INVESTMENT BANKING -- 1.9%
Merrill Lynch Pierce, Fenner & Smith, Inc.,
5.935%, 11/14/00.............................. A3 10,000 9,966,250
Morgan Stanley Group, Inc.,
5.869%, 12/19/01.............................. A1 5,000 4,987,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B11
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 1.9%
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 $ 4,000 $ 1,920,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 57,000 59,689,830
7.75%, 04/01/07............................... Ba1 20,000 21,477,800
7.75%, 04/01/27............................... Ba1 6,000 6,592,560
8.875%, 01/15/06.............................. Ba1 16,000 17,214,720
--------------
106,894,910
--------------
TOBACCO -- 2.4%
Philip Morris Co. Inc.,
7.20%, 02/01/07............................... A2 10,000 10,318,900
7.50%, 04/01/04............................... A2 50,000 52,363,500
RJR Nabisco, Inc.,
8.50%, 07/01/07............................... Baa3 12,750 13,592,138
8.75%, 04/15/04............................... Baa3 5,000 5,352,750
8.75%, 08/15/05............................... Baa3 12,500 13,486,625
8.75%, 07/15/07............................... Baa3 25,000 27,110,750
9.25%, 08/15/13............................... Baa3 7,000 7,854,350
--------------
130,079,013
--------------
UTILITIES -- 1.4%
Cleveland Electric Illumination,
7.88%, 11/01/17............................... Ba1 27,000 28,503,900
Consolidated Edison,
5.998%, 06/15/02.............................. A1 7,000 7,014,420
Hyder PLC, (United Kingdom),
6.75%, 12/15/17............................... Baa1 5,000 5,018,750
6.875%, 12/15/07.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 6,250 5,519,531
Southern California Edison Co.,
6.38%, 09/25/08............................... Aaa 7,000 7,057,400
--------------
78,552,751
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19 (b)..................... 11,800 3,071,658
United States Treasury Bonds,
6.125%, 08/15/07.............................. 10,450 10,739,047
United States Treasury Notes,
5.875%, 09/30/02 (c).......................... 7,650 7,691,846
6.00%, 08/15/00............................... 2,750 2,769,773
6.375%, 08/15/27.............................. 37,910 39,983,298
--------------
64,255,622
--------------
FOREIGN GOVERNMENT BONDS -- 3.4%
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 13,600 12,716,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B12
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 $ 2,135 $ 2,118,116
5.88%, 01/29/98............................... P1 1,000 995,590
5.98%, 01/21/98............................... P1 1,225 1,221,134
--------------
23,746,477
--------------
BANK ACCEPTANCE -- 0.1%
Bank of Montreal, (Canada),
5.68%, 02/17/98............................... P1 4,000 3,970,969
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank Michigan,
5.00%, 01/30/98............................... P1 3,000 2,997,534
US Bank, N.A.,
5.830%, 10/21/98.............................. P1 3,000 2,998,073
--------------
10,995,607
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.1%
Taubman Realty Group,
6.519%, 07/27/98.............................. P1 5,500 5,517,710
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 3,000 3,000,157
Westdeutsche Landesbank Girozentral, (Germany),
5.82%, 08/03/98............................... P1 2,000 1,999,096
5.83%, 08/03/98............................... P1 3,000 2,998,731
--------------
7,997,984
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.4%
Canadian Imperial Bank of Commerce, (Canada),
5.80%, 03/02/98............................... P1 1,000 999,485
5.95%, 06/29/98............................... P1 3,500 3,498,858
Credit Agricole Indosuez, (France),
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 5,000 4,998,743
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Societe Generale, (France),
6.19%, 05/06/98............................... P1 4,000 3,999,194
--------------
21,495,497
--------------
COMMERCIAL PAPER -- 1.4%
American General Finance Corp.,
5.72%, 03/13/98............................... P1 2,000 1,977,756
Aon Corp.,
5.79%, 03/13/98............................... P2 1,000 988,742
5.79%, 03/18/98............................... P2 1,048 1,035,358
Associates First Capital Corp.,
5.79%, 02/04/98............................... P1 1,000 994,692
Bank of New York,
5.75%, 02/06/98............................... P1 2,285 2,272,226
Barnett Bank, Inc.,
6.00%, 01/28/98............................... P1 3,000 2,987,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B13
<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co.,
6.34%, 03/09/98............................... P1 $ 1,000 $ 1,000,606
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 1,000 1,000,220
--------------
24,013,723
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bills,
4.95%, 01/15/98 (b)........................... 1,140 1,137,962
5.135%, 01/22/98 (b).......................... 3,000 2,991,442
5.19%, 01/22/98 (b)........................... 1,500 1,495,675
5.195%, 03/19/98 (c).......................... 370 365,942
5.275%, 01/22/98 (b).......................... 800 797,656
--------------
6,788,677
--------------
REPURCHASE AGREEMENT -- 2.5%
Joint Repurchase Agreement Account,
6.53%, 01/02/98
(Note 5).................................... 137,860 137,860,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $319,318,208)...................................................... 319,473,987
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,050,966,053; Note 6)............................................ 5,471,387,547
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (d)............................................................ (203,828)
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES -- 0.3%...................................................... 18,958,375
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,490,142,094
--------------
--------------
</TABLE>

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities -- $100,311,229.

(d) Open futures contracts as of December 31, 1997 are as follows:

SEE NOTES TO FINANCIAL STATEMENTS.

B14
<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND THE FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only two Portfolios: Conservative Balanced
Portfolio and Flexible Managed Portfolio. Shares in the Series Fund are
currently sold only to certain separate accounts of The Prudential Insurance
Company of America ("The Prudential"), Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey (together referred to as the "Companies")
to fund benefits under certain variable life insurance and variable annuity
contracts ("contracts") issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the Portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.

NOTE 2: ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.

FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.

(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.

B15
<PAGE>

B16
<PAGE>

Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the fiscal year ended
December 31, 1997, the application of this statement increased (decreased)
paid-in capital in excess of par ("PC"), undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("GL") by the
following amounts:

Net investment income, net realized gains and net assets were not affected by
these reclassifications.

NOTE 3: AGREEMENTS

The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.

B17
<PAGE>

PIC is an indirect, wholly-owned subsidiary of The Prudential.

The Series Fund entered into a credit agreement (the "Agreement") on October 28,
1997 with an unaffiliated lender. The maximum commitment under the Agreement is
$250,000,000. The Agreement expires on December 18, 1998. Interest on any such
borrowings will be at market rates. The purpose of the Agreement is to serve as
an alternative source of funding for capital share redemptions. The Series Fund
has not borrowed any amounts pursuant to the Agreement as of December 31, 1997.
The Series Fund pays a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly by the Series Fund.

NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES

NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT

As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:

CIBC Oppenheimer, 6.10%, in the principal amount of $138,519,000, repurchase
price $138,566,045, due 1/2/98. The value of the collateral including accrued
interest was $141,862,492.

Salomon Smith Barney Inc., 6.75%, in the principal amount of $300,000,000,
repurchase price $300,112,500, due 1/2/98. The value of the collateral including
accrued interest was $306,560,575.

SBC Warburg Dillon Read Inc., 6.50%, in the principal amount of $300,000,000,
repurchase price $300,108,333, due 1/2/98. The value of the collateral including
accrued interest was $306,557,797.

UBS Securities Corp., 6.55%, in the principal amount of $300,000,000, repurchase
price $300,109,167, due 1/2/98. The value of the collateral including accrued
interest was $306,001,638.

B18
<PAGE>

NOTE 6: PORTFOLIO SECURITIES

The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1997 were
as follows:

Cost of Purchases:

Proceeds from Sales:

The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1997 were as follows:

B19
<PAGE>

FINANCIAL HIGHLIGHTS

(a) Calculations are based on average month-end shares outstanding.

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B20
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Conservative Balanced and Flexible
Managed Portfolios (two of the fifteen portfolios that constitute The Prudential
Series Fund, Inc.; the "Portfolios") at December 31, 1997, the results of each
of their operations for the year then ended and the changes in each of their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial 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, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
The financial highlights for each of the three years in the period ended
December 31, 1995 for each of the Portfolios were audited by other independent
accountants whose report thereon dated February 15, 1996 expressed an
unqualified opinion on those financial highlights.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 13, 1998

B21
<PAGE>

TAX INFORMATION

B22
<PAGE>

BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.

SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)

B23

<PAGE>

PRUvider(sm)

Variable Appreciable Life(R)

Insurance

[logo] PRUDENTIAL

Pruco Life Insurance Company of New Jersey
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016

SVAL-2SAI Ed. 5/98 CAT# 64M087E

<PAGE>

PART C

OTHER INFORMATION

<PAGE>

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

Financial statements are filed herewith.

(b) Exhibits

(i) (1) Articles of Incorporation of The Incorporated by reference to
Prudential Series Fund, Inc. Post-Effective Amendment No. 33 to this
Registration Statement, filed April 28,
1997.

(2) Supplemental Investment Advisory Incorporated by reference to
Agreement between The Prudential Post-Effective Amendment No. 28 to this
Insurance Company of America and Registration Statement, filed February
The Prudential Series Fund, Inc. 1, 1995.

(3) Articles Supplementary to the Incorporated by reference to
Articles of Incorporation of The Post-Effective Amendment No. 33 to this
Prudential Series Fund, Inc. Registration Statement, filed April 28,
1997.

(4) Subadvisory Agreement between The Incorporated by reference to
Prudential Insurance Company of Post-Effective Amendment No. 28 to this
America and Jennison Associates Registration Statement, filed February
Capital Corp. 1, 1995.

(ii) By-laws of The Prudential Series Incorporated by reference to
Fund, Inc., as amended February 16, Post-Effective Amendment No. 33 to this
1990. Registration Statement, filed April 28,
1997.

(v) (1) Investment Advisory Agreement, as Incorporated by reference to
amended July 14, 1988 between The Post-Effective Amendment No. 33 to this
Prudential Insurance Company of Registration Statement, filed April 28,
America and The Prudential Series 1997.
Fund, Inc.

(2) Service Agreement between The Incorporated by reference to
Prudential Insurance Company of Post-Effective Amendment No. 33 to this
America and The Prudential Registration Statement, filed April 28,
Investment Corporation. 1997.

(vi) Distribution Agreement between The Incorporated by reference to
Prudential Series Fund, Inc. and Post-Effective Amendment No. 33 to this
Pruco Securities Corporation. Registration Statement, filed April 28,
1997.

(viii) (1) Custodian Agreement between Chase Incorporated by reference to
Manhattan Bank (formerly Chemical Post-Effective Amendment No. 33 to this
Bank and Manufacturers Hanover Registration Statement, filed April 28,
Trust Company) and The Prudential 1997.
Series Fund, Inc.

(1)(a) Addendum #2 to Custodian Contract Incorporated by reference to
Between Chase Manhattan Bank and Post-Effective Amendment No. 32 to this
The Prudential Series Fund, Inc. Registration Statement, filed February
28, 1997.

(2) Custodian Agreement between Brown Incorporated by reference to
Brothers Harriman & Co. and The Post-Effective Amendment No. 33 to this
Prudential Series Fund, Inc. Registration Statement, filed April 28,
1997.

(3) Form of Custodian Agreement between Filed herewith.
Investors Fiduciary Trust Company
and The Prudential Series Fund,
Inc.

(ix) (1) Indemnification Agreement Regarding Incorporated by reference to
Reg. No. 33-49994. Post-Effective Amendment No. 33 to this
Registration Statement, filed April 28,
1997.

</TABLE>

C-1

<PAGE>

(2) Indemnification Agreement Regarding Incorporated by reference to
Reg. No. 33-57186. Post-Effective Amendment No. 33 to this
Registration Statement, filed April 28,
1997.

(xi) Consent of Price Waterhouse LLP Filed herewith.
Independent accountants.

(xvii) Powers of Attorney: Filed herewith.
Messrs: Fenster, McDonald, Weber

27. Financial Data Schedule Filed herewith.
</TABLE>

C-2

<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

All of Registrant's outstanding securities are owned by the following separate
accounts which are registered as unit investment trusts under the Investment
Company Act of 1940 (the "Act"): The Prudential Variable Appreciable Account,
The Prudential Individual Variable Contract Account, The Prudential Variable
Contract Account GI-2, The Prudential Qualified Individual Variable Contract
Account, The Prudential Variable Contract Account-24, The Prudential Discovery
Select Group Variable Annuity Contract Account (separate accounts of
Prudential); the Pruco Life Flexible Premium Variable Annuity Account; the Pruco
Life PRUvider Variable Appreciable Account; the Pruco Life Variable Universal
Account, the Pruco Life Variable Insurance Account, the Pruco Life Variable
Appreciable Account, the Pruco Life Single Premium Variable Life Account, the
Pruco Life Single Premium Variable Annuity Account (separate accounts of Pruco
Life Insurance Company ["Pruco Life"]); the Pruco Life of New Jersey Flexible
Premium Variable Annuity Account; the Pruco Life of New Jersey Variable
Insurance Account, the Pruco Life of New Jersey Variable Appreciable Account,
the Pruco Life of New Jersey Single Premium Variable Life Account, and the Pruco
Life of New Jersey Single Premium Variable Annuity Account (separate accounts of
Pruco Life Insurance Company of New Jersey ["Pruco Life of New Jersey"]). Pruco
Life, a corporation organized under the laws of Arizona, is a direct
wholly-owned subsidiary of Prudential. Pruco Life of New Jersey, a corporation
organized under the laws of New Jersey, is a direct wholly-owned subsidiary of
Pruco Life, and an indirect wholly-owned subsidiary of Prudential.

Registrant's shares will be voted in proportion to the directions of persons
having interests in the above-referenced separate accounts. Registrant may
nonetheless be deemed to be controlled by such entities by virtue of the
presumption contained in Section 2(a)(9) of the Act, although Registrant
disclaims such control.

The subsidiaries of Prudential are set forth in Schedule D of Prudential's
Annual Statement as shown on the following pages. In addition to those
subsidiaries, Prudential holds all of the voting securities of Prudential's
Gibraltar Fund, Inc., a Maryland corporation, in three of its separate accounts.
The Gibraltar Fund is registered as an open-end, diversified, management
investment company under the Act. The separate accounts are registered as unit
investment trusts under the Act. Registrant may also be deemed to be under
common control with The Prudential Variable Contract Account-2, The Prudential
Variable Contract Account-10, The Prudential Variable Account Contract
Account-11, (separate accounts of Prudential which are registered as open-end,
diversified management investment companies) and The Prudential Variable
Contract Account-24 (separate account of Prudential which is registered as a
unit investment trust under the Act).

C-3

<PAGE>

ANNUAL STATEMENT FOR THE YEAR 1997 OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

SCHEDULE D - PART 6 - SECTION 1

Valuation of Shares of Subsidiary, Controlled or Affiliated Companies

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5
Do Insurer's
Admitted
Assets
NAIC Include
NAIC Valuation Intangible
Company Method (See Assets
Code or SVO Connected
Alien Purposes with Holding
Description Insurer and of Such If Yes,
CUSIP Name of Subsidiary, Controlled or Identification Procedures Company's Amount of Such
Identification Affiliated Company Number Manual) Stock? Intangible Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prudential of America Life Ins. Co
74429#-12-0 (Canada) Class A AA-1560018 3(f) No
Prudential of America Life Ins. Co
74429#-13-8 (Canada) Class B AA-1560018 3(f) No
Prudential of America Life Ins. Co
74429#-14-6 (Canada) Class C AA-1560018 3(f) No
- ------------------------------------------------------------------------------------------------------------------------------------
0499999 - Preferred Stock - Alien Insurer
- ------------------------------------------------------------------------------------------------------------------------------------
74438*-11-5 Prudential Timber Investments, Inc. 3(f) No
71953K-77-2 PIC Holdings Ltd. 3(f) No
- ------------------------------------------------------------------------------------------------------------------------------------
0799999 - Preferred Stock - Other Affiliates
- ------------------------------------------------------------------------------------------------------------------------------------
0899999 - Total Preferred Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
37465@-10-8 Gibraltar Casualty 35947 3(c) No
- ------------------------------------------------------------------------------------------------------------------------------------
1099999 - Common Stock - U S P&C Insurer
- ------------------------------------------------------------------------------------------------------------------------------------
74408#-10-9 Pruco Life Insurance Company 79227 3(c) No
Prudential Healthcare and Life Insurance
74445@-10-6 Co. of America 74020 3(c) No
- ------------------------------------------------------------------------------------------------------------------------------------
1199999 - Common Stock - U S LAH Insurer
- ------------------------------------------------------------------------------------------------------------------------------------
T7415#-10-9 PRICOA Vita S P A AA-1360003 3(g) Yes 233,595
Prudential of America Life Ins. (Canada)
74429#-10-4 Series 1 AA-1560018 3(g) No
Prudential of America Life Ins. (Canada)
74429#-11-2 Series 2 AA-1560018 3(g) No
The Prudential Life Insurance Company of
Y7443@-10-1 Korea Ltd AA-0130001 3(g) No
The Prudential Life Insurance Company,
J7443#-10-6 Ltd AA-1580001 3(g) No
- ------------------------------------------------------------------------------------------------------------------------------------
1299999 - Common Stock - Alien Insurer 233,595
- ------------------------------------------------------------------------------------------------------------------------------------
74408@-10-1 PRUCO Inc. 3(b) No
744400-10-2 Prudential Select Holdings, Inc. 3(b) Yes 1,070,769
- ------------------------------------------------------------------------------------------------------------------------------------
1399999 - Common Stock - Non-Insurer Which Controls Insurer 1,070,769
- ------------------------------------------------------------------------------------------------------------------------------------
BREE00-07-9 BREE Investors Inc. 3(b) No
42223@-10-1 Health Ventures Partner, Inc. 3(a) No
69337*-10-9 PIC Realty, Canada, Inc. 3(b) No
74430*-10-5 Prudential Mortgage Asset Corporation II 3(b) No
RE - - Prudential Realty Securities, Inc. 3(a) No
74390@-10-1 Prudential Realty Securities II, Inc. 3(a) No
GATWAY-00-5 Gateway Holdings, Inc. 3(a) No
74496P-L0-8 PruLease, Inc. 3(a) No
26244*-10-1 Dryden Holdings, Inc. 3(a) No
78487@-10-6 SVIIT Holdings, Inc. 3(a) No
78457#-10-0 SMP Holdings, Inc. 3(a) No
- ------------------------------------------------------------------------------------------------------------------------------------
1499999 - Common Stock - Investment Subsidiary
- ------------------------------------------------------------------------------------------------------------------------------------
47620*-10-1 Jennison Associates Capital Corporation 3(d) No
69332#-10-0 PGR Advisors I, Inc. 3(a) Yes 2,275,000
71953K-69-9 PIC Holdings, Ltd. 3(b) No
74408@-10-1 PRUCO, Inc. 3(b) No
744400-10-2 Prudential Select Holdings, Inc. 3(b) Yes 1,070,769
74445#-10-4 Prudential Direct Distributors, Inc. 3(a) No
744299-20-7 Prudential Global Funding 3(a) No
74440@-10-1 Prudential Homes Corporation 3(a) No
Prudential Private Placement Investors,
744442@-10-9 Inc. 3(a) No
744441#-10-8 Prudential Service Bureau, Inc. 3(a) No
74441@-10-0 PruServicos Participacoes, S A 3(g) No
76111#-10-2 Residential Services Corporation of America 3(d) No
74437#-10-4 The Prudential Investment Corporation 3(b) No
74390*-10-3 The Prudential Real Estate Affiliates, Inc. 3(b) No
91204*-10-3 U.S. High Yield Management Company 3(a) No
Prudential Assigned Settlement Services,
74446@-10-5 Inc. 3(a) No
- ------------------------------------------------------------------------------------------------------------------------------------
1599999 - Common Stock - Other Affiliates 3,345,769
- ------------------------------------------------------------------------------------------------------------------------------------
1699999 - Total Common Stocks 4,650,133
- ------------------------------------------------------------------------------------------------------------------------------------
1799999 Totals 4,650,133
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1 6 Stock of Such Company Owned
by Insurer on Statement Date
---------------------------------
7 8

Description
CUSIP Name of Subsidiary, Controlled or Statement Number % of
Identification Affiliated Company Value of Shares Outstanding
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential of America Life Ins. Co
74429#-12-0 (Canada) Class A 6,545,455 60,000.000 100.0
Prudential of America Life Ins. Co
74429#-13-8 (Canada) Class B 9,681,818 88,750.000 100.0
Prudential of America Life Ins. Co
74429#-14-6 (Canada) Class C 10,909,091 100,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
0499999 - Preferred Stock - Alien Insurer 27,136,364 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
74438*-11-5 Prudential Timber Investments, Inc. 875,461 7.000 100.0
71953K-77-2 PIC Holdings Ltd. 11,873,000 7,750,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
0799999 - Preferred Stock - Other Affiliates 12,748,461 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
0899999 - Total Preferred Stocks 39,884,825 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
37465@-10-8 Gibraltar Casualty 20,996,755 2,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1099999 - Common Stock - U S P&C Insurer 20,996,755 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
74408#-10-9 Pruco Life Insurance Company 958,007,757 250,000.000 100.0
Prudential Healthcare and Life Insurance
74445@-10-6 Co. of America 10,917,759 500,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1199999 - Common Stock - U S LAH Insurer 968,925,516 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
T7415#-10-9 PRICOA Vita S P A 8,100,076 20,000,000.000 100.0
Prudential of America Life Ins. (Canada)
74429#-10-4 Series 1 (5,560,689) 35,715.000 100.0
Prudential of America Life Ins. (Canada)
74429#-11-2 Series 2 (277,918) 1,785.000 50.0
The Prudential Life Insurance Company of
Y7443@-10-1 Korea Ltd 14,701,962 2,640,000.000 100.0
The Prudential Life Insurance Company,
J7443#-10-6 Ltd 196,123,673 100,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1299999 - Common Stock - Alien Insurer 213,087,104 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
74408@-10-1 PRUCO Inc. 1,222,220,402 94.000 100.0
744400-10-2 Prudential Select Holdings, Inc. 14,649,164 44,977.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1399999 - Common Stock - Non-Insurer Which Controls Insurer 1,236,869,566 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
BREE00-07-9 BREE Investors Inc. 3,077,568 1.000
42223@-10-1 Health Ventures Partner, Inc. 29,416,130 1,000.000 100.0
69337*-10-9 PIC Realty, Canada, Inc. 421,009 16,561,003.000 100.0
74430*-10-5 Prudential Mortgage Asset Corporation II 43,661 500.000 50.0
RE - - Prudential Realty Securities, Inc. 47,025,512 92.000 100.0
74390@-10-1 Prudential Realty Securities II, Inc. 130,387,058 115.000 87.0
GATWAY-00-5 Gateway Holdings, Inc. 94,313,410 1,000.000 100.0
74496P-L0-8 PruLease, Inc. 44,688,259 3,100.000 100.0
26244*-10-1 Dryden Holdings, Inc. 741,406,287 1,000.000 100.0
78487@-10-6 SVIIT Holdings, Inc. 145,527,011 1,000.000 100.0
78457#-10-0 SMP Holdings, Inc. 24,104,344 1,000.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1499999 - Common Stock - Investment Subsidiary 1,260,410,249 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
47620*-10-1 Jennison Associates Capital Corporation 33,078,500 913,497.000 100.0
69332#-10-0 PGR Advisors I, Inc. 4,380,195 100.000 100.0
71953K-69-9 PIC Holdings, Ltd. 68,687,296 30,717,585.000 100.0
74408@-10-1 PRUCO, Inc. 1,032,253,585 94.000 100.0
744400-10-2 Prudential Select Holdings, Inc. 5,277,893 44,977.000 100.0
74445#-10-4 Prudential Direct Distributors, Inc. 13,398 100.000 100.0
744299-20-7 Prudential Global Funding 12,472,659 100.000 100.0
74440@-10-1 Prudential Homes Corporation 10,391,686 1.000 100.0
Prudential Private Placement Investors,
744442@-10-9 Inc. 51,049 40,000.000 100.0
744441#-10-8 Prudential Service Bureau, Inc. 695,491 100.000 100.0
74441@-10-0 PruServicos Participacoes, S A 22,301,686 422,168.000 100.0
76111#-10-2 Residential Services Corporation of America 40,368,856 1,000.000 100.0
74437#-10-4 The Prudential Investment Corporation 46,118,752 84.000 100.0
74390*-10-3 The Prudential Real Estate Affiliates, Inc. 15,852,588 99.000 100.0
91204*-10-3 U.S. High Yield Management Company 1,000 100.000 100.0
Prudential Assigned Settlement Services,
74446@-10-5 Inc. 110,587 100.000 100.0
- ----------------------------------------------------------------------------------------------------------------------------
1599999 - Common Stock - Other Affiliates 1,292,055,221 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
1699999 - Total Common Stocks 4,992,344,411 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------
1799999 Totals 5,032,229,236 XXX XXX
- ----------------------------------------------------------------------------------------------------------------------------

Amount of insurer's capital and surplus from the prior year's annual statement $ 9,374,618,899
</TABLE>

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1 2

- -------------------------------------------------------------------------------------------------------------------------------
0199999 - Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------------
ML/MSB Acquisition Inc. Prudential Residential Services, L.P.
PRICOA Relocation Management Ltd. Prudential Residential Services, L.P.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 3 Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement
Date
Amount of Intangible ----------------------------------
Assets Included in 4 5
CUSIP Amount Shown in % of
Identification Name of Lower-tier company Column 5, Section 1 Number of Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Clivwell Securities, Ltd. 7,750,000.000 100.0
PRICOA Investment Company 84,000,000.000 100.0
PRICOA Mezzanine Investment Co. 4,282,789.000 100.0
Prudential Capital and Investment Services, Inc. 1.000 100.0
Prudential Securities Group, Inc.
Lapine Holding Company 7,499,999.000 100.0
Prudential Asia Investments Ltd. 0 5.000 50.0
0

- ------------------------------------------------------------------------------------------------------------------------------------
0199999 - Preferred Stock 0 xxx xxx
- ------------------------------------------------------------------------------------------------------------------------------------
ML/MSB Acquisition Inc. 1,000.000 100.0
PRICOA Relocation Management Ltd. 99.000 100.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

C-4

<PAGE>

ANNUAL STATEMENT FOR THE YEAR 1997 OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1 2

CUSIP Name of Company Listed in Section 1
Identification Name of Lower-tier company Which Controls Lower-tier Company
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prudential Community Interaction Consulting, Inc. Prudential Residential Services, L.P.
Prudential Relocation Canada Ltd. Prudential Residential Services, L.P.
Prudential Relocation Management Company of Canada Ltd. Prudential Residential Services, L.P.
The Relocation Funding Corporation of America Prudential Residential Services, L.P.
JACC Services Corp. Jennison Associates Capital Corp.
Clivwell Securities, Ltd. PIC Holdings, Ltd.
Industrial Properties (Gen Partner) II Ltd. PIC Holdings, Ltd.
PRICOA Capital Group, Ltd. PIC Holdings, Ltd.
PRICOA Funding, Ltd. PIC Holdings, Ltd.
PRICOA Investment Company PIC Holdings, Ltd.
PRICOA Property Investment Management Ltd. PIC Holdings, Ltd.
Northern Retail Properties (General Partner) Ltd. PIC Holdings, Ltd.
PRICOA P I M (Regulated) Ltd. PIC Holdings, Ltd.
South Downs (General Partner) Ltd. PIC Holdings, Ltd.
South Downs Trading (General Partner) Ltd. PIC Holdings, Ltd.
TransEuropean Properties (General Partner) Ltd. PIC Holdings, Ltd.
PRICOA Asset Management PIC Holdings, Ltd.
PRICOA Capital Management PIC Holdings, Ltd.
PRICOA General Partner Ltd. PIC Holdings, Ltd.
PRICOA Management Partner Ltd. PIC Holdings, Ltd.
PRICOA Mezzanine Funding, Ltd. PIC Holdings, Ltd.
PRICOA Mezzanine Investment Co. PIC Holdings, Ltd.
BREE Investments Ltd. PRUCO, Inc.
Capital Agricultural Property Services, Inc. PRUCO, Inc.
Flor-Ag Corporation PRUCO, Inc.
PIC Realty Corporation PRUCO, Inc.
Pruco Securities Corporation PRUCO, Inc.
Prudential Agricultural Credit, Inc. PRUCO, Inc.
Prudential Capital and Investment Services, Inc. PRUCO, Inc.
Prudential Securities Group Inc. - Series A PRUCO, Inc.
Prudential Securities Group Inc. - Series B PRUCO, Inc.
Bache Insurance Agency of Arkansas, Inc. PRUCO, Inc.
Bache Insurance Agency of Louisiana, Inc. PRUCO, Inc.
Prudential-Bache Securities (Germany) Inc. PRUCO, Inc.
Braeloch Successor Corporation PRUCO, Inc.
Braeloch Holdings, Inc. PRUCO, Inc.
Graham Resources, Inc. PRUCO, Inc.
Graham Depository Company II PRUCO, Inc.
Graham Energy, Ltd. PRUCO, Inc.
Graham Exploration, Ltd. PRUCO, Inc.
Graham Royalty, Ltd. PRUCO, Inc.
Prudential-Bache Global Markets PRUCO, Inc.
Prudential-Bache International (Hong Kong) Ltd. PRUCO, Inc.
Prudential-Bache Futures (Hong Kong) Ltd. PRUCO, Inc.
Prudential-Bache Nominees (Hong Kong) Ltd. PRUCO, Inc.
Prudential-Bache Securities (Hong Kong) Ltd. PRUCO, Inc.
PB Financial Services, Inc. PRUCO, Inc.
P-B Finance Ltd. PRUCO, Inc.
PGR Advisors, Inc. PRUCO, Inc.
PBML Custodian Ltd. PRUCO, Inc.
Prudential-Bache Capital Funding BV PRUCO, Inc.
Prudential-Bache Energy Corp. PRUCO, Inc.
Prudential-Bache Energy Production Inc. PRUCO, Inc.
Commodity Admin. Services, Inc. PRUCO, Inc.
Prudential Commodities de Mexico S, de RL de CV PRUCO, Inc.
Mexico Commodity Funding Corp. PRUCO, Inc.
Mexico Commodity Sourcing Corp. PRUCO, Inc.
Prudential Commodities de Mexico S, de RL de CV PRUCO, Inc.
PSI Partners Inc. PRUCO, Inc.
Prudential-Bache International Banking Corp. PRUCO, Inc.
Prudential-Bache International Bank Ltd. PRUCO, Inc.
Prudential-Bache International (U.K.) Ltd. PRUCO, Inc.
Prudential-Bache Capital Funding (Money Brokers) PRUCO, Inc.
Prudential-Bache International Ltd. PRUCO, Inc.
Circle (Nominees) Limited PRUCO, Inc.
Prudential-Bache Forex (U.K.) Ltd. PRUCO, Inc.
Prudential-Bache International S.A. PRUCO, Inc.
Prudential-Bache International Trust Co. (Cayman) PRUCO, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 3 Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement
Date
Amount of Intangible ----------------------------------
Assets Included in 4 5
CUSIP Amount Shown in % of
Identification Name of Lower-tier company Column 5, Section 1 Number of Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential Community Interaction Consulting, Inc. 1,000.000 100.0
Prudential Relocation Canada Ltd. 1,000.000 100.0
Prudential Relocation Management Company of Canada Ltd. 1,000.000 100.0
The Relocation Funding Corporation of America 1,000.000 100.0
JACC Services Corp. 100,000.000 100.0
Clivwell Securities, Ltd. 13,266,766.000 100.0
Industrial Properties (Gen Partner) II Ltd. 10,000.000 100.0
PRICOA Capital Group, Ltd. 3,713,050.000 100.0
PRICOA Funding, Ltd. 11,205,000.000 100.0
PRICOA Investment Company 15,000.000 100.0
PRICOA Property Investment Management Ltd. 1,499,532 2.000 100.0
Northern Retail Properties (General Partner) Ltd. 10,000.000 100.0
PRICOA P I M (Regulated) Ltd. 10,000.000 100.0
South Downs (General Partner) Ltd. 1.000 100.0
South Downs Trading (General Partner) Ltd. 1.000 100.0
TransEuropean Properties (General Partner) Ltd. 100,000.000 100.0
PRICOA Asset Management 1,250,000.000 100.0
PRICOA Capital Management 100,000.000 100.0
PRICOA General Partner Ltd. 1,000.000 100.0
PRICOA Management Partner Ltd. 1,000.000 100.0
PRICOA Mezzanine Funding, Ltd. 900,000.000 100.0
PRICOA Mezzanine Investment Co. 1,000.000 100.0
BREE Investments Ltd. 1.000 100.0
Capital Agricultural Property Services, Inc. 995.000 100.0
Flor-Ag Corporation 50.000 100.0
PIC Realty Corporation 236.000 100.0
Pruco Securities Corporation 995.000 100.0
Prudential Agricultural Credit, Inc. 999.000 100.0
Prudential Capital and Investment Services, Inc. 99.000 100.0
Prudential Securities Group Inc. - Series A 1.000 100.0
Prudential Securities Group Inc. - Series B 100.000 100.0
Bache Insurance Agency of Arkansas, Inc. 57.000 100.0
Bache Insurance Agency of Louisiana, Inc. 100.000 100.0
Prudential-Bache Securities (Germany) Inc. 100.000 100.0
Braeloch Successor Corporation 330,000.000 100.0
Braeloch Holdings, Inc. 7,758,803.000 100.0
Graham Resources, Inc. 7,734,234.000 100.0
Graham Depository Company 1,000.000 100.0
Graham Energy, Ltd. 90.000 100.0
Graham Exploration, Ltd. 130.000 100.0
Graham Royalty, Ltd. 20.000 100.0
Prudential-Bache Global Markets 100.000 100.0
Prudential-Bache International (Hong Kong) Ltd. 1,502.000 100.0
Prudential-Bache Futures (Hong Kong) Ltd. 1,499.000 100.0
Prudential-Bache Nominees (Hong Kong) Ltd. 1,750.000 100.0
Prudential-Bache Securities (Hong Kong) Ltd. 49,999.000 100.0
PB Financial Services, Inc. 50.000 100.0
P-B Finance Ltd. 3.000 100.0
PGR Advisors, Inc. 1,000.000 100.0
PBML Custodian Ltd. 5,000,000.000 100.0
Prudential-Bache Capital Funding BV 40,000.000 100.0
Prudential-Bache Energy Corp. 1.000 100.0
Prudential-Bache Energy Production Inc. 100.000 100.0
Commodity Admin. Services, Inc. 50.000 100.0
Prudential Commodities de Mexico S, de RL de CV 2,999.000 99.0
Mexico Commodity Funding Corp. 100.000 100.0
Mexico Commodity Sourcing Corp. 100.000 100.0
Prudential Commodities de Mexico S, de RL de CV 1.000 1.0
PSI Partners Inc. 1.000 100.0
Prudential-Bache International Banking Corp. 1,000.000 100.0
Prudential-Bache International Bank Ltd. 35,000,000.000 100.0
Prudential-Bache International (U.K.) Ltd. 41,400,211.000 100.0
Prudential-Bache Capital Funding (Money Brokers) 10,000,000.000 100.0
Prudential-Bache International Ltd. 7,500,000.000 100.0
Circle (Nominees) Limited 2.000 100.0
Prudential-Bache Forex (U.K.) Ltd. 3,000,000.000 100.0
Prudential-Bache International S.A. 839.000 100.0
Prudential-Bache International Trust Co. (Cayman) 500.000 100.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

C-5

<PAGE>

ANNUAL STATEMENT FOR THE YEAR 1997 OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1 2

CUSIP Name of Company Listed in Section 1
Identification Name of Lower-tier company Which Controls Lower-tier Company
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prudential-Bache Corp. Director Services, Inc. PRUCO, Inc.
Prudential-Bache Corp. Trustee Services, Inc. PRUCO, Inc.
Prudential-Bache Investor Services Inc. PRUCO, Inc.
Prudential-Bache Investor Services II, Inc. PRUCO, Inc.
Prudential-Bache Leasing Inc. PRUCO, Inc.
Prudential-Bache Program Services Inc. PRUCO, Inc.
Prudential-Bache Properties Inc. PRUCO, Inc.
Prudential-Bache Securities (Australia) Ltd. PRUCO, Inc.
Bache Nominees Ltd. PRUCO, Inc.
Corcarr Funds Management Limited PRUCO, Inc.
Corcarr Management Pty. Limited PRUCO, Inc.
Corcarr Nominees Pty. Limited PRUCO, Inc.
Prudential Bache Funds Management, Ltd. PRUCO, Inc.
Divsplit Nominees Pty. Limited PRUCO, Inc.
PruBache Nominees Pty. Limited PRUCO, Inc.
Prudential-Bache Trade Services Inc. PRUCO, Inc.
PB Trade Ltd. PRUCO, Inc.
Prudential-Bache Transfer Agent Services, Inc. PRUCO, Inc.
Prudential Securities Capmark Inc. PRUCO, Inc.
Prudential Securities Credit Corp. PRUCO, Inc.
Prudential Securities Municipal Derivatives, Inc. PRUCO, Inc.
Prudential Securities Secured Financing Corporation PRUCO, Inc.
Prudential Securities Structured Assets, Inc. PRUCO, Inc.
R & D Funding Corp. PRUCO, Inc.
Seaport Futures Management, Inc. PRUCO, Inc.
Prudential Securities Incorporated PRUCO, Inc.
Lapine Holding Company PRUCO, Inc.
Lapine Development Corporation PRUCO, Inc.
Lapine Technology Corporation PRUCO, Inc.
Prudential Investment Fund Management, L.L.C. PRUCO, Inc.
Bache & Co. (Lebanon) S.A.L. PRUCO, Inc.
Bache & Co. S.A. de C.V. (Mexico) PRUCO, Inc.
Bache Insurance Agency Inc. PRUCO, Inc.
P-B Holding Japan Inc. PRUCO, Inc.
Prudential Securities (Japan) Ltd. PRUCO, Inc.
Prudential-Bache Futures Asia Pacific Ltd. PRUCO, Inc.
Prudential-Bache Securities Agencia de Valores S.A. PRUCO, Inc.
Prudential-Bache Securities Asia Pacific Ltd. PRUCO, Inc.
Prudential-Bache Securities (Holland) Inc. PRUCO, Inc.
Prudential-Bache Securities (Holland) N.V. PRUCO, Inc.
Prudential-Bache Securities (Monaco) Inc. PRUCO, Inc.
Prudential-Bache Securities (Switzerland) Inc. PRUCO, Inc.
Prudential-Bache Securities (U.K.) Inc. PRUCO, Inc.
Prudential Mutual Fund Distributors, Inc. PRUCO, Inc.
Prudential Mutual Fund Services, L.L.C. PRUCO, Inc.
Prudential Securities (Brazil) LTDA PRUCO, Inc.
Prudential Securities (Chile) Inc. PRUCO, Inc.
Prudential Securities CMO Issuer Inc. PRUCO, Inc.
Prudential Securities Futures Management Inc. PRUCO, Inc.
Prudential Securities (South America) Inc. PRUCO, Inc.
Prudential Securities (Argentina) Inc. PRUCO, Inc.
Prudential Securities (Uruguay) S.A. PRUCO, Inc.
Wexford Clearing Services Corporation PRUCO, Inc.
Prudential Dental Maintenance Organization, Inc. PRUCO, Inc.
Prudential Direct, Inc. PRUCO, Inc.
Prudential Equity Investors, Inc. PRUCO, Inc.
Prudential Funding Corporation PRUCO, Inc.
Prudential Health and Dental Group Holdings, Inc. PRUCO, Inc.
Prudential Healthcare Group Inc. PRUCO, Inc.
Prudential Health Care Plan, Inc. PRUCO, Inc.
Prudential Health Care Plan of California, Inc. PRUCO, Inc.
Prudential Health Care Plan of Connecticut, Inc. PRUCO, Inc.
Prudential Health Care Plan of Georgia, Inc. PRUCO, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 3 Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement
Date
Amount of Intangible ----------------------------------
Assets Included in 4 5
CUSIP Amount Shown in % of
Identification Name of Lower-tier company Column 5, Section 1 Number of Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential-Bache Corp. Director Services, Inc. 1,000.000 100.0
Prudential-Bache Corp. Trustee Services, Inc. 1,000.000 100.0
Prudential-Bache Investor Services Inc. 100.000 100.0
Prudential-Bache Investor Services II, Inc. 100.000 100.0
Prudential-Bache Leasing Inc. 500.000 100.0
Prudential-Bache Program Services Inc. 100.000 100.0
Prudential-Bache Properties Inc. 1.000 100.0
Prudential-Bache Securities (Australia) Ltd. 10,000.000 100.0
Bache Nominees Ltd. 4.000 100.0
Corcarr Funds Management Limited 50,050.000 100.0
Corcarr Management Pty. Limited 2.000 100.0
Corcarr Nominees Pty. Limited 4.000 100.0
Prudential Bache Funds Management, Ltd. 4.000 100.0
Divsplit Nominees Pty. Limited 4.000 100.0
PruBache Nominees Pty. Limited 2.000 100.0
Prudential-Bache Trade Services Inc. 1,000.000 100.0
PB Trade Ltd. 100,000.000 100.0
Prudential-Bache Transfer Agent Services, Inc. 10,000.000 100.0
Prudential Securities Capmark Inc. 20.000 100.0
Prudential Securities Credit Corp. 100.000 100.0
Prudential Securities Municipal Derivatives, Inc. 100.000 100.0
Prudential Securities Secured Financing Corporation 100.000 100.0
Prudential Securities Structured Assets, Inc. 99.000 100.0
R & D Funding Corp. 100.000 100.0
Seaport Futures Management, Inc. 1,000.000 100.0
Prudential Securities Incorporated 864.000 100.0
Lapine Holding Company 12,499,999.000 71.0
Lapine Development Corporation 4,650,000.000 100.0
Lapine Technology Corporation 1.000 100.0
Prudential Investment Fund Management, L.L.C. 0.000 100.0
Bache & Co. (Lebanon) S.A.L. 2,000.000 100.0
Bache & Co. S.A. de C.V. (Mexico) 96.000 100.0
Bache Insurance Agency Inc. 100.000 100.0
P-B Holding Japan Inc. 1,000.000 100.0
Prudential Securities (Japan) Ltd. 200,000.000 100.0
Prudential-Bache Futures Asia Pacific Ltd. 100.000 100.0
Prudential-Bache Securities Agencia de Valores S.A. 150,000.000 100.0
Prudential-Bache Securities Asia Pacific Ltd. 100.000 100.0
Prudential-Bache Securities (Holland) Inc. 100.000 100.0
Prudential-Bache Securities (Holland) N.V. 40,000.000 100.0
Prudential-Bache Securities (Monaco) Inc. 100.000 100.0
Prudential-Bache Securities (Switzerland) Inc. 100.000 100.0
Prudential-Bache Securities (U.K.) Inc. 200.000 100.0
Prudential Mutual Fund Distributors, Inc. 100.000 100.0
Prudential Mutual Fund Services, L.L.C. 0.000 100.0
Prudential Securities (Brazil) LTDA 750,000.000 100.0
Prudential Securities (Chile) Inc. 100.000 100.0
Prudential Securities CMO Issuer Inc. 100.000 100.0
Prudential Securities Futures Management Inc. 100.000 100.0
Prudential Securities (South America) Inc. 100.000 100.0
Prudential Securities (Argentina) Inc. 100.000 100.0
Prudential Securities (Uruguay) S.A. 100.000 100.0
Wexford Clearing Services Corporation 100.000 100.0
Prudential Dental Maintenance Organization, Inc. 50.000 100.0
Prudential Direct, Inc. 150.000 100.0
Prudential Equity Investors, Inc. 1,000.000 100.0
Prudential Funding Corporation 100.000 100.0
Prudential Health and Dental Group Holdings, Inc. 100.000 100.0
Prudential Healthcare Group Inc. 1,000.000 100.0
Prudential Health Care Plan, Inc. 99.000 100.0
Prudential Health Care Plan of California, Inc. 1,000.000 100.0
Prudential Health Care Plan of Connecticut, Inc. 1,000.000 100.0
Prudential Health Care Plan of Georgia, Inc. 1,000.000 100.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

C-6

<PAGE>

ANNUAL STATEMENT FOR THE YEAR 1997 OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1 2

CUSIP Name of Company Listed in Section 1
Identification Name of Lower-tier company Which Controls Lower-tier Company
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prudential Health Care Plan of New York, Inc. PRUCO, Inc.
Prudential Holdings, Inc. PRUCO, Inc.
Prudential Human Resources Management Co., Inc. PRUCO, Inc.
Human Resource Finance Co., Inc. PRUCO, Inc.
Prudential Property and Casualty Insurance Company PRUCO, Inc.
Prudential Commercial Insurance Company PRUCO, Inc.
Prudential General Insurance Company PRUCO, Inc.
Prudential Insurance Brokerage, Inc. PRUCO, Inc.
The Prudential Property and Casualty
General Agency, Inc. PRUCO, Inc.
The Prudential Property and Casualty Insurance Co.
of New Jersey PRUCO, Inc.
Prudential Resources Management Asia, Limited PRUCO, Inc.
Prudential Realty Partnerships, Inc. PRUCO, Inc.
Prudential Realty Securities II, Inc. PRUCO, Inc.
Prudential Trust Company PRUCO, Inc.
PTC Services, Inc. PRUCO, Inc.
Prudential Uniformed Services Administrators, Inc. PRUCO, Inc.
The Prudential Bank and Trust Company PRUCO, Inc.
PBT Mortgage Corporation PRUCO, Inc.
The Prudential Savings Bank, F.S.B. PRUCO, Inc.
PBT Home Equity Holdings PRUCO, Inc.
Pruco Life Insurance Company of New Jersey Pruco Life Insurance Company
The Prudential Life Insurance Company of Arizona Pruco Life Insurance Company
Prudential Texas Residential Services Corporation Prudential Homes Corporation
Prudential Select Life Insurance Company of America Prudential Select Holdings, Inc.
Private Label Mortgage Services Corporation Residential Services Corp. of America
Residential Information Services, Inc. Residential Services Corp. of America
Securitized Asset Sales, Inc. Residential Services Corp. of America
PHMC Services Corporation Residential Services Corp. of America
The Prudential Home Mortgage Company, Inc. Residential Services Corp. of America
The Prudential Home Mortgage Securities Co., Inc. Residential Services Corp. of America
Gateway Holdings, S.A. The Prudential Investment Corporation
Amicus Investment Company The Prudential Investment Corporation
Global Income Fund Management Company, S.A. The Prudential Investment Corporation
Global Series Fund II Management Company, S.A. The Prudential Investment Corporation
Prudential Asset Sales and Syndications, Inc. The Prudential Investment Corporation
Prudential Home Building Investors, Inc. The Prudential Investment Corporation
The Prudential Asset Management Company, Inc. The Prudential Investment Corporation
Enhanced Investment Technologies, Inc. The Prudential Investment Corporation
PCM International, Inc. The Prudential Investment Corporation
Prudential Asia Investments Limited The Prudential Investment Corporation
Prudential Asia Fund Management Ltd. (BVI) The Prudential Investment Corporation
Prudential Asia Fund Management Ltd. The Prudential Investment Corporation
Prudential Asia Fund Managers (H.K.) Ltd. The Prudential Investment Corporation
Prudential Asset Management Asia Ltd. (BVI) The Prudential Investment Corporation
PAMA (Indonesia) Ltd. The Prudential Investment Corporation
PAMA (Singapore) Private Ltd. The Prudential Investment Corporation
Prudential Asset Management Asia H.K. Ltd. The Prudential Investment Corporation
PT PAMA Indonesia The Prudential Investment Corporation
Prudential Asia Infrastructure Investors Ltd. The Prudential Investment Corporation
Prudential Asia Infrastructure Investors
(H.K.) Ltd. The Prudential Investment Corporation
Prudential Timber Investments, Inc. The Prudential Investment Corporation
Texas Rio Grande Other Asset Group Company, Inc. The Prudential Investment Corporation
The Prudential Investment Advisory Company, Ltd. The Prudential Investment Corporation
The Prudential Property Co., Inc. The Prudential Investment Corporation
The Prudential Realty Advisors, Inc. The Prudential Investment Corporation
The Prudential Real Estate Financial Services
of America, Inc. Prudential Real Estate Affiliates, Inc.
Preferred Coastal Realty, Inc. Prudential Real Estate Affiliates, Inc.
Prudential Referral Services, Inc. Prudential Real Estate Affiliates, Inc.
Real Estate Connecticut, Inc. Prudential Real Estate Affiliates, Inc.
Referral Associates of Connecticut, Inc. Prudential Real Estate Affiliates, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
0399999 TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SCHEDULE D - PART 6 - SECTION 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 3 Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement
Date
Amount of Intangible ----------------------------------
Assets Included in 4 5
CUSIP Amount Shown in % of
Identification Name of Lower-tier company Column 5, Section 1 Number of Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential Health Care Plan of New York, Inc. 200.000 100.0
Prudential Holdings, Inc. 1,000.000 100.0
Prudential Human Resources Management Co., Inc. 1,000.000 100.0
Human Resource Finance Co., Inc. 100.000 100.0
Prudential Property and Casualty Insurance Company 800.000 100.0
Prudential Commercial Insurance Company 2,000.000 100.0
Prudential General Insurance Company 2,000.000 100.0
Prudential Insurance Brokerage, Inc. 25,000,000.000 100.0
The Prudential Property and Casualty
General Agency, Inc. 100.000 100.0
The Prudential Property and Casualty Insurance Co.
of New Jersey 400.000 100.0
Prudential Resources Management Asia, Limited 10,000.000 100.0
Prudential Realty Partnerships, Inc. 100.000 100.0
Prudential Realty Securities II, Inc. 17.000 100.0
Prudential Trust Company 300,000.000 100.0
PTC Services, Inc. 100.000 100.0
Prudential Uniformed Services Administrators, Inc. 500,000.000 100.0
The Prudential Bank and Trust Company 203,996.000 100.0
PBT Mortgage Corporation 2,250.000 100.0
The Prudential Savings Bank, F.S.B. 10,000.000 100.0
PBT Home Equity Holdings 4,000.000 100.0
Pruco Life Insurance Company of New Jersey 400,000.000 100.0
The Prudential Life Insurance Company of Arizona 200,000.000 100.0
Prudential Texas Residential Services Corporation 1,000.000 100.0
Prudential Select Life Insurance Company of America 2,500,000.000 100.0
Private Label Mortgage Services Corporation 1,000.000 100.0
Residential Information Services, Inc. 1,000.000 100.0
Securitized Asset Sales, Inc. 1,000.000 100.0
PHMC Services Corporation 1,000.000 100.0
The Prudential Home Mortgage Company, Inc. 100.000 100.0
The Prudential Home Mortgage Securities Co., Inc. 1,000.000 100.0
Gateway Holdings, S.A. 20,000.000 100.0
Amicus Investment Company 1,000.000 100.0
Global Income Fund Management Company, S.A. 5,000.000 100.0
Global Series Fund II Management Company, S.A. 1,400.000 100.0
Prudential Asset Sales and Syndications, Inc. 1,000.000 100.0
Prudential Home Building Investors, Inc. 100.000 100.0
The Prudential Asset Management Company, Inc. 85.000 100.0
Enhanced Investment Technologies, Inc. 100.000 100.0
PCM International, Inc. 100.000 100.0
Prudential Asia Investments Limited 3,000,000.000 100.0
Prudential Asia Fund Management Ltd. (BVI) 200,000.000 100.0
Prudential Asia Fund Management Ltd. 180.000 100.0
Prudential Asia Fund Managers (H.K.) Ltd. 20.000 100.0
Prudential Asset Management Asia Ltd. (BVI) 1,500.000 100.0
PAMA (Indonesia) Ltd. 7,500.000 100.0
PAMA (Singapore) Private Ltd. 1,000,000.000 100.0
Prudential Asset Management Asia H.K. Ltd. 100.000 100.0
PT PAMA Indonesia 650.000 65.0
Prudential Asia Infrastructure Investors Ltd. 100,000.000 100.0
Prudential Asia Infrastructure Investors
(H.K.) Ltd. 100.000 100.0
Prudential Timber Investments, Inc. 100.000 100.0
Texas Rio Grande Other Asset Group Company, Inc. 100.000 100.0
The Prudential Investment Advisory Company, Ltd. 5,000.000 100.0
The Prudential Property Co., Inc. 99.000 100.0
The Prudential Realty Advisors, Inc. 100.000 100.0
The Prudential Real Estate Financial Services
of America, Inc. 100.000 100.0
Preferred Coastal Realty, Inc. 290,356 80.000 80.0
Prudential Referral Services, Inc. 1,000.000 100.0
Real Estate Connecticut, Inc. 100.000 100.0
Referral Associates of Connecticut, Inc. 1,000.000 100.0
- ------------------------------------------------------------------------------------------------------------------------------------
0399999 TOTAL 1,789,888 xxx xxx
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

C-7

<PAGE>

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

TITLE OF CLASS NUMBER OF RECORD HOLDERS
- -------------- ------------------------

Money Market Portfolio
Capital Stock 14

Diversified Bond Portfolio
Capital Stock 15

High Yield Bond Portfolio
Capital Stock 14

Government Income Portfolio
Capital Stock 13

Equity Portfolio
Capital Stock 15

Stock Index Portfolio
Capital Stock 15

Equity Income Portfolio
Capital Stock 14

Natural Resources Portfolio
Capital Stock 12

Global Portfolio
Capital Stock 15

Conservative Balanced Portfolio
Capital Stock 15

Flexible Managed Portfolio
Capital Stock 15

Zero Coupon Bond 2000 Portfolio
Capital Stock 5

Zero Coupon Bond 2005 Portfolio
Capital Stock 5

Small Capitalization Stock Portfolio
Capital Stock 12

Prudential Jennison Portfolio 14
Capital Stock

C-8

<PAGE>

ITEM 27. INDEMNIFICATION

Article VI, paragraph (4) of Registrant's Articles of Incorporation provides
that "(e)ach director and each officer of the Corporation shall be indemnified
by the Corporation to the full extent permitted by the General Laws of the State
of Maryland and as provided in the by-laws of the Corporation." Article VIII of
the Registrant's Articles of Incorporation provides, in pertinent part, that
"(n)o provision of these Articles of Incorporation shall be effective to (a)
require a waiver of compliance with any provision of the Securities Act of 1933,
as amended, or the Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange Commission thereunder
or (b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise by subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office."

Paragraph 6 of both the Investment Advisory Agreement and the Supplemental
Investment Advisory Agreement between Registrant and Prudential provides that
"Prudential will not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, or gross negligence in the performance of its duties on behalf of the
Fund or from reckless disregard of its obligation and duties under this
Agreement."

The Registrant, in conjuction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Prudential Investment Corporation (PIC) is the investment unit of Prudential and
actively engages in the business of giving investment advice. The officers and
directors of Prudential and PIC who are engaged directly or indirectly in
activities relating to the registrant have no business, profession, vocation, or
employment of a substantial nature other than with Prudential and PIC, and have
not had such other connections during the past two years.

The business and other connections of Prudential's Directors are listed in the
statement of additional information in Post-Effective Amendment No. 10 to the
Registration Statement of The Prudential Variable Appreciable Account,
Registration No. 33-20000, filed on or about April 24, 1998, the text of which
is hereby incorporated by reference.

C-9

<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Pruco Securities Corporation also acts as principal underwriter of
Prudential's Gibraltar Fund, The Prudential Variable Appreciable Account, The
Prudential Individual Variable Contract Account, The Prudential Qualified
Individual Variable Contract Account, (separate accounts of Prudential); the
Pruco Life Flexible Premium Variable Annuity Account; the Pruco Life PRUvider
Variable Appreciable Account; the Pruco Life Variable Universal Account, the
Pruco Life Variable Insurance Account, the Pruco Life Variable Appreciable
Account, the Pruco Life Single Premium Variable Life Account, the Pruco Life
Single Premium Variable Annuity Account (separate accounts of Pruco Life
Insurance Company ["Pruco Life"]); the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account; the Pruco Life of New Jersey Variable Insurance
Account, the Pruco Life of New Jersey Variable Appreciable Account, the Pruco
Life of New Jersey Single Premium Variable Life Account, and the Pruco Life of
New Jersey Single Premium Variable Annuity Account (separate accounts of Pruco
Life Insurance Company of New Jersey ["Pruco Life of New Jersey"]). Pruco Life,
a corporation organized under the laws of Arizona, is a direct wholly-owned
subsidiary of Prudential. Pruco Life of New Jersey, a corporation organized
under the laws of New Jersey, is a direct wholly-owned subsidiary of Pruco Life,
and an indirect wholly-owned subsidiary of Prudential..

<TABLE>
<CAPTION>
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
James Avery Jr. ** Chairman of the Board None
R. Brock Armstrong * Director None
E. Michael Caulfield * Director President and Director
Joseph F. Mahoney Jr. ** Director None
Richard O. Painter ** Director None
James D. Price *** Director None
Richard A. Topp * Director and President None
Margaret M. Byrne* Vice President and Chief Auditor None
C. Edward Chaplin * Treasurer None
Kevin Frawley ** Vice President and Chief Compliance Officer None
Clifford E. Kirsch ** Chief Legal Officer and Secretary None
Charles A. McGee ** Comptroller and Chief Financial Officer None

</TABLE>

* Principal Business Address: 751 Broad Street, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102

*** Principal Business Address: 199 Water Street, New York, NY 10292

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books, or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant, 751 Broad Street, Newark, New Jersey 07102-3777; the Registrant's
Investment Advisor, The Prudential Insurance Company of America, 751 Broad
Street, Newark, New Jersey 07102-3777, the Registrant's Accounting Agent,
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO
64105-1716 or the Registrant's Custodians, Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, MO 64105-1716, and Brown Brothers Harriman &
Co., 40 Water Street, Boston, MA 02109.

ITEM 31. MANAGEMENT SERVICES

Not Applicable.

ITEM 32. UNDERTAKINGS

(c) The undersigned Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.

C-10

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
filing date of a Post-Effective Amendment filed under Rule 485(a) which has not
become effective and has caused this Post-Effective Amendment No. 34 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newark, State of New Jersey, on the 24th day of
April, 1998.

THE PRUDENTIAL SERIES FUND, INC.

By: /s/ Mendel A. Melzer
-------------------------------
Mendel A. Melzer
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 34 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------- ----

/s/ E. Michael Caulfield April 24, 1998
- --------------------------------------
E. Michael Caulfield
President and Director

/s/ Mendel A. Melzer April 24, 1998
- --------------------------------------
Mendel A. Melzer

Chairman of the Board of Directors and
Principal Executive Officer

/s/ Grace C. Torres April 24, 1998
- --------------------------------------
Grace C. Torres

Treasurer and Principal Financial and
Accounting Officer

/s/ * April 24, 1998 *By: /s/ Caren Cunningham
- -------------------------------------- --------------------
Saul K. Fenster Caren Cunningham
Director (Attorney-in-Fact)

/s/ * April 24, 1998

- --------------------------------------
W. Scott McDonald, Jr.
Director

/s/ * April 24, 1998
- --------------------------------------
Joseph Weber
Director

</TABLE>

C-11

<PAGE>

EXHIBIT INDEX

(viii)(3) Form of Custodian Agreement between Investors Page C-13
Fiduciary Trust Company and The Prudential Series
Fund, Inc.

(xi) Consent of Price Waterhouse LLP independent Page C-48
accountants.

(xvii) Powers of Attorney: Messrs: Fenster, McDonald, Page C-49
Weber

27 Financial Data Schedule. Page C-52

C-12

EXHIBIT (viii)(3)

FORM OF

CUSTODIAN AGREEMENT

Between

EACH OF THE PARTIES INDICATED ON APPENDIX A

and

INVESTORS FIDUCIARY TRUST COMPANY

C-13
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Employment of Custodian and Property to be Held by It..................................................-1-

2. Duties to the Custodian with Respect to Property of The Fund Held By the
Custodian in the United States........................................................................-2-
2.1 Holding Securities............................................................................-2-
2.2 Delivery of Securities........................................................................-2-
2.3 Registration of Securities....................................................................-5-
2.4 Bank Accounts.................................................................................-5-
2.5 Availability of Federal Funds.................................................................-6-
2.6 Collection of Income..........................................................................-6-
2.7 Payment of Fund Monies........................................................................-7-
2.8 Liability for Payment in Advance of Receipt of Securities Purchased...........................-8-
2.9 Appointment of Agents.........................................................................-9-
2.10 Deposit of Securities in Securities Systems...................................................-9-
2.10A Fund Assets Held in the Custodian's Direct Paper System......................................-10-
2.11 Segregated Account...........................................................................-11-
2.12 Ownership Certificates for Tax Purposes......................................................-12-
2.13 Proxies......................................................................................-12-
2.14 Communications Relating to Fund Portfolio Securities.........................................-13-
2.15 Reports to Fund by Independent Public Accountants............................................-13-

3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States..................................................................................-14-
3.1 Appointment of Foreign Sub-Custodians........................................................-14-
3.2 Assets to be Held............................................................................-14-
3.3 Foreign Securities Depositories..............................................................-14-
3.4 Segregation of Securities....................................................................-15-
3.5 Agreements with Foreign Banking Institutions.................................................-15-
3.6 Access of Independent Accountants of the Fund................................................-16-
3.7 Reports by Custodian.........................................................................-16-
3.8 Transactions in Foreign Custody Account......................................................-16-
3.9 Liability of Foreign Sub-Custodians..........................................................-17-
3.10 Liability of Custodian.......................................................................-17-
3.11 Reimbursements for Advances..................................................................-18-
3.12 Monitoring Responsibilities..................................................................-19-
3.13 Branches of U.S. Banks.......................................................................-19-
</TABLE>

-i-

C-14
<PAGE>

<TABLE>
<S> <C>
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund...............................-20-

5. Proper Instructions...................................................................................-20-

6. Actions Permitted without Express Authority...........................................................-21-

7. Evidence of Authority.................................................................................-22-

8. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset
Value and Net Income..................................................................................-22-

9. Records...............................................................................................-23-

10. Opinion of Fund's Independent Accountant..............................................................-23-

11. Compensation of Custodian.............................................................................-24-

12. Responsibility of Custodian...........................................................................-24-

13. Effective Period, Termination and Amendment...........................................................-26-

14. Successor Custodian...................................................................................-27-

15. Interpretative and Additional Provisions..............................................................-29-

16. Massachusetts Law to Apply............................................................................-29-

17. Prior Agreements......................................................................................-29-

18. The Parties...........................................................................................-29-

19. Limitation of Liability...............................................................................-30-
</TABLE>

-ii-

C-15
<PAGE>

CUSTODIAN AGREEMENT

This Agreement between Investors Fiduciary Trust Company, a Missouri trust
company, having its principal place of business at 127 West 10th Street, Kansas
City, Missouri 64105, hereinafter called the "Custodian," and each Fund listed
on Appendix A which evidences its agreement to be bound hereby by executing a
copy of this Agreement (each such Fund individually hereinafter referred to as
the "Fund").

WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/ Declaration of Trust. The Fund agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.

Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors/Trustees of the Fund,

C-16
<PAGE>

and provided that the Custodian shall have the same responsibility or liability
to the Fund on account of any actions or omissions of any sub-custodian so
employed as any such sub-custodian has to the Custodian, provided that the
custodian agreement with any such domestic sub-custodian shall impose on such
sub-custodian responsibilities and liabilities similar in nature and scope to
those imposed by this Agreement with respect to the functions to be performed by
such sub-custodian. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule A hereto but only in accordance
with the provisions of Article 3.

2. Duties of the Custodian with Respect to Property of The Fund Held By the
Custodian in the United States.

2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other than
(a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of Treasury, (collectively referred to herein
as "Securities System") and (b) commercial paper of an issuer for which the
Custodian or its affiliate, State Street Bank and Trust Company, acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10A.

2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a Securities
System account of the

-2-

C-17
<PAGE>

Custodian or in the Custodian's Direct Paper book-entry system account ("Direct
Paper System") only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:

(1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;

(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;

(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;

(4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;

(5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;

(6) To the issuer thereof, or its agent, for transfer into the name of the
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;

(7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;

(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for

-3-

C-18
<PAGE>

conversion contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;

(9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;

(10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any
loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Fund prior to the receipt of
such collateral;

(11) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, but only against receipt of
amounts borrowed;

(12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;

(13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;

(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from

-4-

C-19
<PAGE>

time to time in the Fund's currently effective prospectus
("prospectus") and/or statement of additional information in
satisfaction of requests by holders of Shares for repurchase or
redemption; and

(15) For any other proper business purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors/Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper business purpose, and naming the
person or persons to whom delivery of such securities shall be made.

2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund or in
the name of any nominees of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
Fund, or in the name or nominee name of any agent appointed pursuant to Section
2.9 or in the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of the Fund under
the terms of this Agreement shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain securities in
"street name," the Custodian shall utilize its best efforts to timely collect
income due the Fund on such securities and to notify the Fund on a best efforts
basis of relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.

2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject only
to draft or order by the

-5-

C-20
<PAGE>

Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for the Fund may be
deposited by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds be approved
by vote of a majority of the Board of Directors/Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.

2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of the Fund which are deposited into the Fund's account.

2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as

-6-

C-21
<PAGE>

collected, to the Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. Income due the
Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.

2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of the Fund in the following cases only:

(1) Upon the purchase of securities held domestically, options, futures
contracts or options on futures contracts for the account of the Fund
but only: (a) against the delivery of such securities, or evidence of
title to such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the name of
a nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase involving
the Direct Paper System, in accordance with the conditions set forth
in Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase
by the Fund of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities

-7-

C-22
<PAGE>

from the Fund; or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined in Article 5;

(2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;

(3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;

(4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;

(5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;

(6) For payment of the amount of dividends received in respect of
securities sold short;

(7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of Board of
Directors/Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.

2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Agreement, in any and every case
where payment for purchase of securities for the account of the Fund is made by
the Custodian in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund

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<PAGE>

to so pay in advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received by the
Custodian.

2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.

2.10 Deposit of Securities in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "Securities System"
in accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:

(1) The Custodian may keep domestic securities of the Fund in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;

(2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;

(3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account, and
(ii)

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<PAGE>

the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the Fund upon (i)
receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for the account
of the Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund in the form of a written advice or
notice and shall furnish promptly to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund;

(4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;

(5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 13 hereof;

(6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that the Fund has not been made whole
for any such loss or damage.

2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:

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<PAGE>

(1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;

(2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;

(3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;

(4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;

(5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund;

(6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from
time to time.

2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission

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<PAGE>

merchant registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or other liquid assets in connection
with options purchased, sold or written by the Fund or commodity futures
contracts or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes to be
proper corporate purposes.

2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of the Fund held by it and in connection with transfers of
such securities.

2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Fund or a nominee of the Fund, all

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<PAGE>

proxies, without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.

2.14 Communications Relating to Fund Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities held domestically and expirations of rights in
connection therewith and notices of exercise of call and put options written by
the Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Fund all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three business days
prior to the date of which the Custodian is to take such action.

2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with reports
by independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Agreement; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance

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<PAGE>

that any material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.

3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States

3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's securities
and other assets maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on Schedule A hereto
("foreign sub-custodians"). Upon receipt of "Proper Instructions," as defined in
Section 5 of this Agreement, together with a certified resolution of the Fund's
Board of Directors/Trustees, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian. Upon
receipt of Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody of the
Fund's assets.

3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Fund's foreign securities transactions.

3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking

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<PAGE>

institutions serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.

3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each foreign
sub-custodian. Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a custody
account for the Custodian on behalf of the Fund and physically segregate in that
account, securities and other assets of the Fund, and, in the event that such
institution deposits the Fund's securities in a foreign securities depository,
that it shall identify on its books as belonging to the Custodian, as agent for
the Fund, the securities so deposited.

3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement

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<PAGE>

with the Custodian; and (e) assets of the Fund held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its agents.

3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with the Custodian.

3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession of
such securities.

3.8 Transactions in Foreign Custody Account

(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Agreement shall apply, in
their entirety to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.

(b) Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of the Fund
and delivery of securities maintained for the account of the Fund may be
effected in accordance with the

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<PAGE>

customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefore (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.

(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Agreement, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.

3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian and each Fund from
and against any loss, damage, cost, expense, liability or claim arising out of
or in connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.

3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth with
respect to sub-custodians generally in this Agreement and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as

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<PAGE>

contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism or any loss
where the sub-custodian has otherwise exercised reasonable care. Notwithstanding
the foregoing provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such loss
as may result from (a) political risk (including, but not limited to, exchange
control restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses (excluding
a bankruptcy or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under circumstances
where the Custodian and State Street London Ltd. have exercised reasonable care.

3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominees shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund assets to the
extent necessary to obtain reimbursement.

3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June (or such other date as mutually agreed upon
by

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<PAGE>

the parties hereto), information concerning the foreign sub-custodians employed
by the Custodian. Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of this Agreement.
In addition, the Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial condition of a
foreign sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign sub-custodian
that there appears to be a substantial likelihood that its shareholders equity
will decline below $200 million (U.S. dollars or the equivalent thereof) or that
its shareholders equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).

3.13 Branches of U.S. Banks

(a) Except as otherwise set forth in this Agreement, the provisions of
Article 3 shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting
the qualification set forth in Section 26(a) of said Act. The appointment
of any such branch as a sub-custodian shall be governed by paragraph 1 of
this Agreement.

(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with State Street
London Ltd., an affiliate of the Custodian, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.

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<PAGE>

4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund.

From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of Directors/Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.

The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.

5. Proper Instructions.

Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each

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<PAGE>

such writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. It is understood and
agreed that the Board of Directors/Trustees has authorized the investment
manager (the "Manager") of the Fund, to deliver proper instructions with respect
to all matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager, with
respect to the person or persons authorized on behalf of the Manager, to sign,
initial or give proper instructions for the purpose of this Article 5. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Fund and the
Custodian are satisfied that such procedures afford adequate safeguards for the
Fund's assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.11.

6. Actions Permitted without Express Authority.

The Custodian may in its discretion, without express authority from the
Fund:

(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the
Fund;

(2) surrender securities in temporary form for securities in
definitive form;

(3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and

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<PAGE>

(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as otherwise
directed by the Board of Directors/Trustees of the Fund.

7. Evidence of Authority

The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/ Trustees pursuant to the Articles of
Incorporation/Declaration of Trust as described in such vote, and such vote may
be considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.

8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.

The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an office of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The

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<PAGE>

calculations of the net asset value per share and the daily income of the Fund
shall be made at the time or times described from time to time in the Fund's
currently effective prospectus.

9. Records

The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.

10. Opinion of Fund's Independent Accountant

The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's annual disclosure statement, Form N-SAR or
other periodic reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.

11. Compensation of Custodian

The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.

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<PAGE>

12. Responsibility of Custodian

So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.

The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.

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<PAGE>

If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose of assets identifying such assets and the
Fund shall have one business day from receipt of such notice to notify the
Custodian if the Fund wishes the Custodian to dispose of Fund assets of equal
value other than those identified in such notice.

13. Effective Period, Termination and Amendment

This Agreement shall become effective as of May 19, 1997, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in

-25-

C-40
<PAGE>

writing delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than sixty (60) days after the date of
such delivery or mailing; provided, however that the Custodian shall not act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Directors/Trustees of
the Fund has approved the initial use of a particular Securities System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors/Trustees has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors/Trustees has
approved the initial use of the Direct Paper System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Articles of Incorporation/Declaration of Trust, and
further, provided, that the Fund may at any time by action of its Board of
Directors/Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.

-26-

C-41
<PAGE>

Upon termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.

14. Successor Custodian

If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.

If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.

In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in New York, New York, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's

-27-

C-42
<PAGE>

securities held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Agreement.

In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Agreement relating to the duties and obligations of
the Custodian shall remain in full force and effect.

15. Interpretative and Additional Provisions

In connection with the operation of this Agreement, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretative or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/ Declaration of Trust of the Fund. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.

16. Governing Law

This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of New York, without regard to
its conflicts of law rules.

-28-

C-43
<PAGE>

17. Prior Agreements

This Agreement supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.

18. The Parties

All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Agreement were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a Massachusetts Business Trust, references to Board of Directors
and Articles of Incorporation shall be deemed a reference to Board of
Directors/Trustees and Articles of Incorporation/Declaration of Trust
respectively and reference to shares of capital stock shall be deemed a
reference to shares of beneficial interest.

19. Limitation of Liability

Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.

-29-

C-44
<PAGE>

ATTEST INVESTORS FIDUCIARY TRUST COMPANY

By
- ----------------------------- ----------------------------------
Assistant Secretary

ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A

By
- ----------------------------- ----------------------------------
Assistant Secretary

-30-

C-45
<PAGE>

Schedule A

Global Custody Network

-31-

C-46
<PAGE>

Appendix A
----------

FUNDS THAT ARE PARTY
TO CUSTODY AGREEMENT

The Prudential Series Fund, Inc.
(except the Global Portfolio)

Prudential's Gibraltar Fund, Inc.

-32-

C-47

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 34 to the registration
statement on Form N-1A (the "Registration Statement") of our three reports dated
February 13, 1998, relating to the financial statements and financial highlights
of the portfolios of The Prudential Series Fund, Inc., which appear in such
Statements of Additional Information.

We also consent to the references to us under the heading "Financial Highlights"
in the Prospectuses and "Experts" in the Statement of Additional Information.

/s/ PRICE WATERHOUSE LLP

New York, New York
April 24, 1998

C-48

EXHIBIT (xvii)

POWER OF ATTORNEY

Know all men by these presents:

That I, Saul Fenster, Member of the Board of The Prudential Series Fund, Inc.,
do hereby make, constitute and appoint as my true and lawful attorneys in fact
Caren Cunningham and Grace Torres, together or separately for me and in my name,
place and stead to sign registration statements on the appropriate forms
prescribed by the Securities and Exchange Commission for the registration under
the Investment Company Act of 1940 and the Securities Act of 1933, as
applicable, and any and all amendments thereto that may be filed with the
Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March, 1998.

/s/ Saul Fenster
-------------------------------
Saul Fenster

State of New Jersey )
) SS
County of Essex )

On this 11th day of March, 1998, before me personally appeared Saul
Fenster, to me known and known to me to be the person mentioned and described in
and who executed the foregoing instrument and duly acknowledged to me that he
executed same.

/s/ Floyd Hoelscher
-------------------------------
Floyd Hoelscher, Notary Public

C-49

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, W. Scott McDonald, Jr., Member of the Board of The Prudential
Series Fund, Inc., do hereby make, constitute and appoint as my true and lawful
attorneys in fact Caren Cunningham and Grace Torres, together or separately for
me and in my name, place and stead to sign registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission for the
registration under the Investment Company Act of 1940 and the Securities Act of
1933, as applicable, and any and all amendments thereto that may be filed with
the Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.

/s/ W. Scott McDonald, Jr.
-------------------------------
W. Scott McDonald, Jr.

State of New Jersey )
) SS
County of Essex )

On this 11th day of March, 1998, before me personally appeared W. Scott
McDonald, Jr., to me known and known to me to be the person mentioned and
described in and who executed the foregoing instrument and duly acknowledged to
me that he executed same.

/s/ Floyd Hoelscher
-------------------------------
Floyd Hoelscher, Notary Public

C-50

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Joseph Weber, Member of the Board of The Prudential Series Fund,
Inc., do hereby make, constitute and appoint as my true and lawful attorneys in
fact Caren Cunningham and Grace Torres, together or separately for me and in my
name, place and stead to sign registration statements on the appropriate forms
prescribed by the Securities and Exchange Commission for the registration under
the Investment Company Act of 1940 and the Securities Act of 1933, as
applicable, and any and all amendments thereto that may be filed with the
Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.

/s/ Joseph Weber
-------------------------------
Joseph Weber

State of New Jersey )
) SS
County of Essex )

On this 11th day of March, 1998, before me personally appeared Joseph
Weber, to me known and known to me to be the person mentioned and described in
and who executed the foregoing instrument and duly acknowledged to me that he
executed same.

/s/ Floyd Hoelscher
-------------------------------
Floyd Hoelscher, Notary Public

C-51

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (CONSERVATIVE BALANCED)
<NUMBER> 01

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,491,825,742
<INVESTMENTS-AT-VALUE> 4,696,024,117
<RECEIVABLES> 60,006,370
<ASSETS-OTHER> 2,749
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,756,033,236
<PAYABLE-FOR-SECURITIES> 3,573,515
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,227,682
<TOTAL-LIABILITIES> 11,801,197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,503,917,050
<SHARES-COMMON-STOCK> 316,911,160
<SHARES-COMMON-PRIOR> 286,965,697
<ACCUMULATED-NII-CURRENT> 949,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36,942,793
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 202,423,150
<NET-ASSETS> 4,744,232,039
<DIVIDEND-INCOME> 19,377,627
<INTEREST-INCOME> 216,743,419
<OTHER-INCOME> 0
<EXPENSES-NET> 26,216,496
<NET-INVESTMENT-INCOME> 209,904,550
<REALIZED-GAINS-CURRENT> 525,175,186
<APPREC-INCREASE-CURRENT> (148,830,270)
<NET-CHANGE-FROM-OPS> 586,249,466
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (209,004,256)
<DISTRIBUTIONS-OF-GAINS> (518,358,296)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74,015,405
<NUMBER-OF-SHARES-REDEEMED> (394,841,365)
<SHARES-REINVESTED> 727,362,552
<NET-CHANGE-IN-ASSETS> 265,423,506
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 30,208,164
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,757,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,050,334
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 15.52
<PER-SHARE-NII> 0.76
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> (0.76)
<PER-SHARE-DISTRIBUTIONS> (1.81)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.97
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (DIVERSIFIED BOND)
<NUMBER> 02

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 790,639,568
<INVESTMENTS-AT-VALUE> 803,286,169
<RECEIVABLES> 14,558,872
<ASSETS-OTHER> 880
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 817,845,921
<PAYABLE-FOR-SECURITIES> 797,254
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341,936
<TOTAL-LIABILITIES> 1,139,190
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 800,985,610
<SHARES-COMMON-STOCK> 74,098,859
<SHARES-COMMON-PRIOR> 65,925,849
<ACCUMULATED-NII-CURRENT> 229,159
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,308,830
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,183,132
<NET-ASSETS> 816,706,731
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56,691,387
<OTHER-INCOME> 0
<EXPENSES-NET> 3,159,892
<NET-INVESTMENT-INCOME> 53,531,495
<REALIZED-GAINS-CURRENT> 9,194,921
<APPREC-INCREASE-CURRENT> (2,230,780)
<NET-CHANGE-FROM-OPS> 60,495,636
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (55,359,529)
<DISTRIBUTIONS-OF-GAINS> (9,016,752)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127,691,138
<NUMBER-OF-SHARES-REDEEMED> (91,696,624)
<SHARES-REINVESTED> 64,376,281
<NET-CHANGE-IN-ASSETS> 96,490,150
<ACCUMULATED-NII-PRIOR> 2,057,193
<ACCUMULATED-GAINS-PRIOR> 3,130,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,981,884
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,115,378
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.07
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.83)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.02
<EXPENSE-RATIO> 0.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (EQUITY PORTFOLIO)
<NUMBER> 03

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,198,636,403
<INVESTMENTS-AT-VALUE> 6,025,444,474
<RECEIVABLES> 17,492,080
<ASSETS-OTHER> 77,594
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,043,014,148
<PAYABLE-FOR-SECURITIES> 18,547,697
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 486,420
<TOTAL-LIABILITIES> 19,034,117
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,165,198,019
<SHARES-COMMON-STOCK> 193,889,401
<SHARES-COMMON-PRIOR> 181,834,408
<ACCUMULATED-NII-CURRENT> 919,002
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,068,956
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,826,794,054
<NET-ASSETS> 6,023,980,031
<DIVIDEND-INCOME> 80,559,590
<INTEREST-INCOME> 70,049,162
<OTHER-INCOME> 0
<EXPENSES-NET> 25,282,557
<NET-INVESTMENT-INCOME> 125,326,195
<REALIZED-GAINS-CURRENT> 320,958,795
<APPREC-INCREASE-CURRENT> 744,788,889
<NET-CHANGE-FROM-OPS> 1,191,073,879
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (127,895,464)
<DISTRIBUTIONS-OF-GAINS> (322,171,256)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 381,942,219
<NUMBER-OF-SHARES-REDEEMED> (363,005,143)
<SHARES-REINVESTED> 450,066,720
<NET-CHANGE-IN-ASSETS> 1,210,010,955
<ACCUMULATED-NII-PRIOR> 3,240,354
<ACCUMULATED-GAINS-PRIOR> 32,529,334
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,840,379
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25,187,374
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 26.96
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 5.88
<PER-SHARE-DIVIDEND> (0.70)
<PER-SHARE-DISTRIBUTIONS> (1.76)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 31.07
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (EQUITY INCOME)
<NUMBER> 04

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,533,057,472
<INVESTMENTS-AT-VALUE> 2,032,553,684
<RECEIVABLES> 5,671,121
<ASSETS-OTHER> 1,153
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,038,225,958
<PAYABLE-FOR-SECURITIES> 6,349,449
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,120,620
<TOTAL-LIABILITIES> 8,470,069
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,490,385,385
<SHARES-COMMON-STOCK> 90,665,193
<SHARES-COMMON-PRIOR> 75,626,899
<ACCUMULATED-NII-CURRENT> 4,445,611
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35,428,681
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 499,496,212
<NET-ASSETS> 2,029,755,889
<DIVIDEND-INCOME> 48,458,837
<INTEREST-INCOME> 6,190,866
<OTHER-INCOME> 0
<EXPENSES-NET> 6,799,327
<NET-INVESTMENT-INCOME> 47,850,376
<REALIZED-GAINS-CURRENT> 209,283,667
<APPREC-INCREASE-CURRENT> 251,369,014
<NET-CHANGE-FROM-OPS> 508,503,057
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (43,537,704)
<DISTRIBUTIONS-OF-GAINS> (179,961,221)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 253,831,217
<NUMBER-OF-SHARES-REDEEMED> (96,053,000)
<SHARES-REINVESTED> 223,498,925
<NET-CHANGE-IN-ASSETS> 666,281,274
<ACCUMULATED-NII-PRIOR> 135,860
<ACCUMULATED-GAINS-PRIOR> 5,715,787
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,601,602
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,769,134
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 18.51
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 6.06
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> (2.22)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 22.39
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (FLEXIBLE MANAGED )
<NUMBER> 05

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,050,966,053
<INVESTMENTS-AT-VALUE> 5,471,387,547
<RECEIVABLES> 40,850,841
<ASSETS-OTHER> 15,631
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,512,254,019
<PAYABLE-FOR-SECURITIES> 12,760,562
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,351,363
<TOTAL-LIABILITIES> 22,111,925
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,988,066,464
<SHARES-COMMON-STOCK> 317,711,061
<SHARES-COMMON-PRIOR> 274,726,588
<ACCUMULATED-NII-CURRENT> 768,864
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 82,447,694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 418,859,072
<NET-ASSETS> 5,490,142,094
<DIVIDEND-INCOME> 35,833,891
<INTEREST-INCOME> 156,549,837
<OTHER-INCOME> 0
<EXPENSES-NET> 32,319,773
<NET-INVESTMENT-INCOME> 160,063,955
<REALIZED-GAINS-CURRENT> 867,691,914
<APPREC-INCREASE-CURRENT> (163,603,096)
<NET-CHANGE-FROM-OPS> 864,152,773
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (159,343,911)
<DISTRIBUTIONS-OF-GAINS> (823,214,223)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,630,584
<NUMBER-OF-SHARES-REDEEMED> (334,563,950)
<SHARES-REINVESTED> 982,558,134
<NET-CHANGE-IN-ASSETS> 593,219,407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 38,595,752
<OVERDISTRIB-NII-PRIOR> (576,929)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31,740,440
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32,035,135
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 17.79
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 2.52
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> (3.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.28
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (GLOBAL)
<NUMBER> 06

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 501,984,495
<INVESTMENTS-AT-VALUE> 618,110,214
<RECEIVABLES> 8,175,522
<ASSETS-OTHER> 18,047,771
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 644,333,507
<PAYABLE-FOR-SECURITIES> 4,413,779
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,518,376
<TOTAL-LIABILITIES> 5,932,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 523,423,082
<SHARES-COMMON-STOCK> 35,619,965
<SHARES-COMMON-PRIOR> 33,960,199
<ACCUMULATED-NII-CURRENT> 3,515,798
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,868,770)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 116,331,242
<NET-ASSETS> 638,401,352
<DIVIDEND-INCOME> 7,940,250
<INTEREST-INCOME> 622,794
<OTHER-INCOME> 0
<EXPENSES-NET> 5,502,427
<NET-INVESTMENT-INCOME> 3,060,617
<REALIZED-GAINS-CURRENT> 31,027,057
<APPREC-INCREASE-CURRENT> 5,107,643
<NET-CHANGE-FROM-OPS> 39,195,317
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,377,947)
<DISTRIBUTIONS-OF-GAINS> (30,337,530)
<DISTRIBUTIONS-OTHER> (3,434,778)
<NUMBER-OF-SHARES-SOLD> 111,692,563
<NUMBER-OF-SHARES-REDEEMED> (93,116,567)
<SHARES-REINVESTED> 38,150,255
<NET-CHANGE-IN-ASSETS> 57,771,313
<ACCUMULATED-NII-PRIOR> 1,317,330
<ACCUMULATED-GAINS-PRIOR> 489,279
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,836,302
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,502,427
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 17.85
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.11
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.90)
<RETURNS-OF-CAPITAL> (0.10)
<PER-SHARE-NAV-END> 17.92
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (GOVERNMENT INCOME)
<NUMBER> 07

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 411,381,627
<INVESTMENTS-AT-VALUE> 424,649,985
<RECEIVABLES> 5,592,164
<ASSETS-OTHER> 1,091
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 430,243,240
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 600,181
<TOTAL-LIABILITIES> 600,181
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 423,564,993
<SHARES-COMMON-STOCK> 37,286,113
<SHARES-COMMON-PRIOR> 37,876,334
<ACCUMULATED-NII-CURRENT> 77,253
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,194,513)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,195,326
<NET-ASSETS> 429,643,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,059,962
<OTHER-INCOME> 0
<EXPENSES-NET> 1,917,650
<NET-INVESTMENT-INCOME> 28,142,312
<REALIZED-GAINS-CURRENT> 722,778
<APPREC-INCREASE-CURRENT> 10,843,416
<NET-CHANGE-FROM-OPS> 39,708,506
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,098,226)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,261,175
<NUMBER-OF-SHARES-REDEEMED> (98,362,062)
<SHARES-REINVESTED> 28,098,226
<NET-CHANGE-IN-ASSETS> (52,392,381)
<ACCUMULATED-NII-PRIOR> 33,167
<ACCUMULATED-GAINS-PRIOR> (7,917,291)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,758,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,904,305
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.22
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> (0.75)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 0.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (HIGH YIELD BOND)
<NUMBER> 08

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 551,773,633
<INVESTMENTS-AT-VALUE> 562,701,784
<RECEIVABLES> 11,946,898
<ASSETS-OTHER> 9,588,705
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 584,237,387
<PAYABLE-FOR-SECURITIES> 14,754,249
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 808,060
<TOTAL-LIABILITIES> 15,562,309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 563,402,152
<SHARES-COMMON-STOCK> 69,819,106
<SHARES-COMMON-PRIOR> 59,164,363
<ACCUMULATED-NII-CURRENT> 735,254
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,390,479)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,928,151
<NET-ASSETS> 568,675,078
<DIVIDEND-INCOME> 2,026,846
<INTEREST-INCOME> 48,438,901
<OTHER-INCOME> 0
<EXPENSES-NET> 2,789,980
<NET-INVESTMENT-INCOME> 47,675,767
<REALIZED-GAINS-CURRENT> 15,354,840
<APPREC-INCREASE-CURRENT> (144,633)
<NET-CHANGE-FROM-OPS> 62,885,974
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,277,841)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 149,154,244
<NUMBER-OF-SHARES-REDEEMED> (76,232,015)
<SHARES-REINVESTED> 47,277,841
<NET-CHANGE-IN-ASSETS> 135,808,203
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (21,635,234)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,679,304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,725,453
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.87
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> (0.77)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.14
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (JENNISON)
<NUMBER> 09

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 426,967,254
<INVESTMENTS-AT-VALUE> 506,859,751
<RECEIVABLES> 385,246
<ASSETS-OTHER> 117,479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 507,362,476
<PAYABLE-FOR-SECURITIES> 10,696,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 729,183
<TOTAL-LIABILITIES> 11,425,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 413,083,911
<SHARES-COMMON-STOCK> 27,968,374
<SHARES-COMMON-PRIOR> 19,841,223
<ACCUMULATED-NII-CURRENT> 101,780
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,858,931
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79,892,497
<NET-ASSETS> 495,937,119
<DIVIDEND-INCOME> 2,459,372
<INTEREST-INCOME> 613,133
<OTHER-INCOME> 0
<EXPENSES-NET> 2,200,629
<NET-INVESTMENT-INCOME> 871,876
<REALIZED-GAINS-CURRENT> 33,000,406
<APPREC-INCREASE-CURRENT> 54,234,653
<NET-CHANGE-FROM-OPS> 88,106,935
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (832,883)
<DISTRIBUTIONS-OF-GAINS> (27,048,964)
<DISTRIBUTIONS-OTHER> (19,411,166)
<NUMBER-OF-SHARES-SOLD> 218,245,522
<NUMBER-OF-SHARES-REDEEMED> (17,547,320)
<SHARES-REINVESTED> 27,881,847
<NET-CHANGE-IN-ASSETS> 269,393,971
<ACCUMULATED-NII-PRIOR> 62,787
<ACCUMULATED-GAINS-PRIOR> (3,092,511)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,063,572
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,193,348
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 14.32
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 4.48
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (1.07)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.73
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (MONEY MARKET PORTFOLIO)
<NUMBER> 10

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 654,059,056
<INVESTMENTS-AT-VALUE> 654,059,056
<RECEIVABLES> 4,191,789
<ASSETS-OTHER> 13,970,702
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 672,221,547
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,759,407
<TOTAL-LIABILITIES> 14,759,407
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 657,462,140
<SHARES-COMMON-STOCK> 65,746,214
<SHARES-COMMON-PRIOR> 67,220,898
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 657,462,140
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,030,378
<OTHER-INCOME> 0
<EXPENSES-NET> 2,815,840
<NET-INVESTMENT-INCOME> 35,214,538
<REALIZED-GAINS-CURRENT> 13,511
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 35,228,049
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (35,214,538)
<DISTRIBUTIONS-OF-GAINS> (13,511)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 228,887,710
<NUMBER-OF-SHARES-REDEEMED> (275,421,740)
<SHARES-REINVESTED> 35,228,049
<NET-CHANGE-IN-ASSETS> (11,305,981)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,667,947
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,773,498
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (NATURAL RESOURCES)
<NUMBER> 11

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 379,415,418
<INVESTMENTS-AT-VALUE> 357,377,590
<RECEIVABLES> 630,539
<ASSETS-OTHER> 509,518
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 358,517,647
<PAYABLE-FOR-SECURITIES> 470,310
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95,924
<TOTAL-LIABILITIES> 566,234
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 363,241,128
<SHARES-COMMON-STOCK> 23,481,072
<SHARES-COMMON-PRIOR> 23,752,146
<ACCUMULATED-NII-CURRENT> 633,307
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,116,177
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (22,039,199)
<NET-ASSETS> 357,951,413
<DIVIDEND-INCOME> 4,325,040
<INTEREST-INCOME> 466,389
<OTHER-INCOME> 0
<EXPENSES-NET> 2,142,965
<NET-INVESTMENT-INCOME> 2,648,464
<REALIZED-GAINS-CURRENT> 50,655,442
<APPREC-INCREASE-CURRENT> (100,227,746)
<NET-CHANGE-FROM-OPS> (46,923,840)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,203,301)
<DISTRIBUTIONS-OF-GAINS> (46,135,203)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,041,015
<NUMBER-OF-SHARES-REDEEMED> (63,551,000)
<SHARES-REINVESTED> 48,338,504
<NET-CHANGE-IN-ASSETS> (80,433,825)
<ACCUMULATED-NII-PRIOR> 48,572
<ACCUMULATED-GAINS-PRIOR> 11,735,510
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,975,906
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,142,476
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 19.77
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (2.43)
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (2.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.24
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (SMALL CAPITALIZATION)
<NUMBER> 12

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 250,408,668
<INVESTMENTS-AT-VALUE> 290,466,394
<RECEIVABLES> 164,888
<ASSETS-OTHER> 238,025
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,869,307
<PAYABLE-FOR-SECURITIES> 283,977
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 275,416
<TOTAL-LIABILITIES> 559,393
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 247,103,428
<SHARES-COMMON-STOCK> 18,222,874
<SHARES-COMMON-PRIOR> 13,879,783
<ACCUMULATED-NII-CURRENT> 66,820
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,753,991
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,385,675
<NET-ASSETS> 290,309,914
<DIVIDEND-INCOME> 1,712,972
<INTEREST-INCOME> 881,900
<OTHER-INCOME> 0
<EXPENSES-NET> 1,087,226
<NET-INVESTMENT-INCOME> 1,507,646
<REALIZED-GAINS-CURRENT> 21,586,971
<APPREC-INCREASE-CURRENT> 25,139,005
<NET-CHANGE-FROM-OPS> 48,233,622
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,440,826)
<DISTRIBUTIONS-OF-GAINS> (19,469,768)
<DISTRIBUTIONS-OTHER> (18,602,031)
<NUMBER-OF-SHARES-SOLD> 128,260,999
<NUMBER-OF-SHARES-REDEEMED> (15,480,999)
<SHARES-REINVESTED> 20,910,594
<NET-CHANGE-IN-ASSETS> 142,411,591
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 636,788
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 867,687
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,084,501
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 13.79
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 3.32
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (1.18)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.93
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (STOCK INDEX)
<NUMBER> 13

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,467,986,080
<INVESTMENTS-AT-VALUE> 2,452,933,864
<RECEIVABLES> 3,731,689
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,456,665,553
<PAYABLE-FOR-SECURITIES> 6,152,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,321,529
<TOTAL-LIABILITIES> 8,474,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,456,556,711
<SHARES-COMMON-STOCK> 81,013,397
<SHARES-COMMON-PRIOR> 74,140,959
<ACCUMULATED-NII-CURRENT> 304,262
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,874,119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 985,456,134
<NET-ASSETS> 2,448,191,226
<DIVIDEND-INCOME> 34,578,154
<INTEREST-INCOME> 4,314,396
<OTHER-INCOME> 0
<EXPENSES-NET> 7,432,974
<NET-INVESTMENT-INCOME> 31,459,576
<REALIZED-GAINS-CURRENT> 74,021,385
<APPREC-INCREASE-CURRENT> 451,562,975
<NET-CHANGE-FROM-OPS> 557,043,936
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31,155,314)
<DISTRIBUTIONS-OF-GAINS> (67,389,823)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 484,303,403
<NUMBER-OF-SHARES-REDEEMED> (174,536,420)
<SHARES-REINVESTED> 98,545,137
<NET-CHANGE-IN-ASSETS> 866,810,919
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 533,893,159
<OVERDISTRIB-NII-PRIOR> (757,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,121,699
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,424,801
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 23.74
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 7.34
<PER-SHARE-DIVIDEND> (0.42)
<PER-SHARE-DISTRIBUTIONS> (0.87)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 30.22
<EXPENSE-RATIO> 0.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<SERIES>
<NAME> THE PRUDENTIAL SERIES FUND, INC. (ZERO COUPON BOND 2005)
<NUMBER> 14

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 27,861,234
<INVESTMENTS-AT-VALUE> 30,877,323
<RECEIVABLES> 162
<ASSETS-OTHER> 507
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,877,992
<PAYABLE-FOR-SECURITIES> 30,958
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,152
<TOTAL-LIABILITIES> 67,110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,751,345
<SHARES-COMMON-STOCK> 2,446,091
<SHARES-COMMON-PRIOR> 2,683,369
<ACCUMULATED-NII-CURRENT> 4,703
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,745
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,016,089
<NET-ASSETS> 30,810,882
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,990,828
<OTHER-INCOME> 0
<EXPENSES-NET> 227,172
<NET-INVESTMENT-INCOME> 1,763,656
<REALIZED-GAINS-CURRENT> 685,044
<APPREC-INCREASE-CURRENT> 1,108,451
<NET-CHANGE-FROM-OPS> 3,557,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,819,286)
<DISTRIBUTIONS-OF-GAINS> (646,299)
<DISTRIBUTIONS-OTHER> 0
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<NAME> THE PRUDENTIAL SERIES FUND, INC. (ZERO COUPON BOND 2000)
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