PRUDENTIAL SERIES FUND INC, 497, 1998-05-04

PRUDENTIAL SERIES FUND INC
497, 1998-05-04

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PROSPECTUS

MAY 1, 1998

THE PRUDENTIAL
SERIES FUND, INC.

THIS PROSPECTUS IS FOR USE ONLY WITH THE PRUDENTIAL VARIABLE CONTRACT
ACCOUNT-24, AS IT DESCRIBES ONLY THE PORTFOLIOS AVAILABLE FOR INVESTMENT THROUGH
THAT ACCOUNT. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE CURRENT
PROSPECTUS FOR THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-24.

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. Seven of the Series Fund's Portfolios are currently available for
investment by Participants in Prudential's MEDLEY(SM) Program through
corresponding subaccounts of The Prudential Variable Contract Account-24. The
Portfolios are: the Diversified Bond Portfolio, the Government Income Portfolio,
the Conservative Balanced Portfolio, the Flexible Managed Portfolio, the Stock
Index Portfolio, the Equity Portfolio, and the Global 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.

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

THE INVESTMENT OBJECTIVES OF THE SEVEN 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 Insurance Company of America, c/o Prudential
Investments, 30 Scranton Office Park, Scranton, Pennsylvania 18507-1789, or by
telephoning 1 (800) 458-6333.

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

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-1A Ed 5-98

<PAGE>

INVESTMENT OBJECTIVES OF THE PORTFOLIOS ARE AS FOLLOWS:

FIXED INCOME PORTFOLIOS

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.

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.

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 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.

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.

There can be no assurance that the objectives of any portfolio will be realized.
See INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS, page 6. The Series
Fund may in the future establish other portfolios with different investment
objectives.

<PAGE>

CONTENTS

Page

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

PORTFOLIO RATES OF RETURN................................................... 5

THE SERIES FUND............................................................. 6

THE ACCOUNTS AND THE CONTRACTS.............................................. 6

INVESTMENT MANAGER.......................................................... 6

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS........................ 6
FIXED INCOME PORTFOLIOS............................................ 7
Diversified Bond Portfolio......................................... 7
Government Income Portfolio........................................ 7
BALANCED PORTFOLIOS................................................ 10
Conservative Balanced Portfolio.................................... 10
Flexible Managed Portfolio......................................... 11
DIVERSIFIED STOCK PORTFOLIOS....................................... 12
Stock Index Portfolio.............................................. 12
Equity Portfolio................................................... 14
Global Portfolio................................................... 14
CONVERTIBLE SECURITIES............................................. 15
LOAN PARTICIPATIONS................................................ 16
FOREIGN SECURITIES................................................. 16
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE..................................... 17
OPTIONS ON EQUITY SECURITIES....................................... 17
OPTIONS ON DEBT SECURITIES......................................... 18
OPTIONS ON STOCK INDICES........................................... 19
OPTIONS ON FOREIGN CURRENCIES...................................... 20
FUTURES CONTRACTS.................................................. 20
OPTIONS ON FUTURES CONTRACTS....................................... 21
REPURCHASE AGREEMENTS.............................................. 21
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS..................... 21
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES........................ 22
SHORT SALES........................................................ 22
SHORT SALES AGAINST THE BOX........................................ 23
INTEREST RATE SWAPS................................................ 23
LOANS OF PORTFOLIO SECURITIES...................................... 23

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS........................ 23

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES............................. 23

PURCHASE AND REDEMPTION OF SHARES........................................... 24

DETERMINATION OF NET ASSET VALUE............................................ 24

DIVIDENDS, DISTRIBUTIONS, AND TAXES......................................... 25

OTHER INFORMATION CONCERNING THE SERIES FUND................................ 26
INCORPORATION AND AUTHORIZED STOCK................................. 26
VOTING RIGHTS...................................................... 26
MONITORING FOR POSSIBLE CONFLICT................................... 26
PERIODIC REPORTS................................................... 27
PORTFOLIO BROKERAGE AND RELATED PRACTICES.......................... 27
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT....................... 27
YEAR 2000.......................................................... 27
ADDITIONAL INFORMATION............................................. 27

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.

<TABLE>
<CAPTION>
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>

<TABLE>
<CAPTION>
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>

- ----------

(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.

1 - 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.

2 - SERIES FUND

<PAGE>

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

<TABLE>
<CAPTION>
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
------------------------------------------------------------------------------------------------------------
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>

- ----------

(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.

3 - SERIES FUND

<PAGE>

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

<TABLE>
<CAPTION>
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
OPERATING
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>

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

(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.

4 - 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.

<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>
DIVERSIFIED BOND 5/83 8.57% 7.84% 9.24% 9.39%
GOVERNMENT INCOME 5/89 9.67% 7.41% N/A 8.85%
CONSERVATIVE BALANCED 5/83 13.45% 10.74% 11.15% 10.80%
FLEXIBLE MANAGED 5/83 17.96% 13.25% 13.41% 12.18%
STOCK INDEX 10/87 32.83% 19.84% 17.47% 17.92%
EQUITY 5/83 24.66% 19.43% 17.54% 15.55%
GLOBAL 9/88 6.98% 15.10% N/A 10.10%
</TABLE>

5 - 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 Prudential Variable Contract Account-24 may currently invest in
seven of the Series Fund's Portfolios: the Diversified Bond Portfolio, the
Government Income Portfolio, the Conservative Balanced Portfolio, the Flexible
Managed Portfolio, the Stock Index Portfolio, the Equity Portfolio, and the
Global 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 or Participant 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. The attached prospectus for the Contracts
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 or Participant 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. See INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 23.

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.

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 4. 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.

6 - Series Fund

<PAGE>

The following paragraphs describe the investment objectives and policies of each
portfolio available for investment by Participants in Prudential's MEDLEY
Program through corresponding subaccounts of the Prudential Variable Contract
Account-24. There is no guarantee that any of these objectives will be met.

FIXED INCOME PORTFOLIOS

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.

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 16.

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 18 through 23, 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

7 - Series Fund

<PAGE>

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 by the Money Market Portfolio, as described
in the Appendix to this prospectus; (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 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

8 - Series Fund

<PAGE>

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, 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 18 through 23, 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 27.

9 - Series Fund

<PAGE>

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.

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, also known as high risk securities. A description of corporate bond
ratings is contained in the Appendix to 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, 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
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 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
16.

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 17 through 23, 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

10 - Series Fund

<PAGE>

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 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 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, 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 Flexible Managed Portfolio may
invest, without limit, in high quality money market instruments of the kind held
by the Money Market Portfolio.

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

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<PAGE>

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.

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.

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.

12 - Series Fund

<PAGE>

- --------------------------------------------------------------------------------
*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 the types of money market instruments described in the appendix
to this prospectus, 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 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 19

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<PAGE>

through 21. 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 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, also
known as high risk securities. 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 16.

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 17 through 22, and further information about some of them is included in
the statement of additional information.

A portion of the portfolio may be invested in money market instruments of the
kind held by the Money Market Portfolio, as described in the Appendix to this
prospectus, 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.

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

14 - Series Fund

<PAGE>

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).

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 16.

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, as described in the Appendix to this prospectus.

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 17 through 22, 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.

CONVERTIBLE SECURITIES

The Conservative Balanced, Flexible Managed, Equity, and Global Portfolios may
invest in convertible securities and such securities may constitute a major part
of the holdings of the Global Portfolio. 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 the capital appreciation attendant upon a
market price advance in the convertible security's underlying common stock. The

15 - Series Fund

<PAGE>

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, 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.

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 Portfolio may invest up to 20%
of its 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 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. Further, to the
extent permitted by applicable insurance law, the Equity Portfolio may invest up
to 30% of its 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 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

16 - Series Fund

<PAGE>

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 20 through 21.

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

The Conservative Balanced, Flexible Managed, and Equity 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.

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.

OPTIONS ON EQUITY SECURITIES

The Conservative Balanced, Flexible Managed, Equity, and Global 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

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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, and Global 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 18 and OPTIONS ON STOCK
INDICES, page 19.

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.

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.

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, 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 ("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

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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 17. 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 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, and Global 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 Portfolio 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.

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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, and Global 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 16 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.

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.

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.

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, and Global
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, 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, and Global Portfolios may,
to the extent permitted by applicable regulations, purchase and sell futures
contracts on foreign currencies or groups of foreign currencies.

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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, and Global
Portfolios may enter into certain transactions involving options on stock index
futures contracts; the Diversified Bond, Government Income, Conservative
Balanced, Flexible Managed, and Global Portfolios may enter into certain
transactions involving options on interest rate futures contracts; and the
Conservative Balanced, Flexible Managed, Equity, and Global 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 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 Portfolio intends 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 and Government Income 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 portion
of any portfolio may use reverse repurchase agreements. Reverse repurchase
agreements involve

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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 and Government Income 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, Equity, and Global
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 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 any of the 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.

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SHORT SALES AGAINST THE BOX

All portfolios available to The Prudential Variable Contract Account-24 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 and Government Income 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 available to The Prudential Variable Contract Account-24
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.

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 6) of the persons participating in the
affected portfolio.

The investments of the various portfolios currently available to The Prudential
Variable Contract Account-24 are generally subject to certain additional
restrictions under state laws. In the event of future amendments to the
applicable statutes, each of these portfolios 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.

23 - Series Fund

<PAGE>

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, with respect to the
portfolios currently available to The Prudential Variable Contract Account-24,
are furnished 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. 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.

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. The
investment management fee for the Diversified Bond and Government Income
Portfolios is equal to an annual rate of 0.40% of the average daily net assets
of each of the portfolios. For the Equity Portfolio, the fee is equal to an
annual rate of 0.45% of the average daily net assets of the portfolio. The fee
for the Conservative Balanced Portfolio is equal to an annual rate of 0.55% of
the average daily net assets of the portfolio. 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. The fee for the Global Portfolio is equal 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 available to The Prudential
Variable Contract Account-24 is determined once daily, as of 4:15 p.m. New York
City time 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

24 - Series Fund

<PAGE>

p.m. New York City time. The net asset value per share of each such 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 and Government Income
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 the Stock Index, Equity, and Global 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. 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.

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.

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 available to The Prudential Variable
Contract Account-24 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). Dividends
from investment income of the 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 portfolios available to The Prudential Variable Contract
Account-24.

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

25 - Series Fund

<PAGE>

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 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 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
24.

VOTING RIGHTS

The voting rights of Contract owners or Participants, 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 or Participants 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 or Participants. 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.

26 - Series Fund

<PAGE>

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 and
Participants 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 Diversified Bond and
Government Income 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. 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.

27 - 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.

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

*Although the Money Market Portfolio is not available to The Prudential Variable
Contract Account-24, any short-term portion of the various portfolios available
through subaccounts of that Account may be invested in the types of securities
described in this Appendix.

A1 - Series Fund

<PAGE>

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 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 21 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 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>

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998

THE PRUDENTIAL
SERIES FUND, INC.

THIS STATEMENT OF ADDITIONAL INFORMATION IS FOR USE ONLY WITH THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-24.

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.

Unless otherwise indicated, this statement of additional information provides
information only with respect to the seven portfolios of the Series Fund
currently available to The Prudential Variable Contract Account-24.

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

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, that is for
use with The Prudential Variable Contract Account-24, which is available without
charge upon written request to The Prudential Insurance Company of America, c/o
Prudential Investments, 30 Scranton Office Park, Scranton, Pennsylvania
18507-1789, or by telephoning 1 (800) 458-6333.

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

CONTENTS

<TABLE>
<CAPTION>
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------

<S> <C> <C>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
GENERAL............................................................................... 1 6
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 17
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS........................................... 4 16
INTEREST RATE SWAPS................................................................... 5
ILLIQUID SECURITIES................................................................... 6

INVESTMENT RESTRICTIONS.................................................................. 6 23

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.......................................... 9 23

OTHER INFORMATION CONCERNING THE SERIES FUND
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 11 27
CUSTODIANS............................................................................ 13
EXPERTS............................................................................... 13
LICENSES.............................................................................. 13

MANAGEMENT OF THE SERIES FUND............................................................ 14 6

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

PSF-2A Ed 5-98

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS

GENERAL

The Prudential Variable Contract Account-24 may currently invest in seven
portfolios of The Prudential Series Fund, Inc. (the "Series Fund"): the
Diversified Bond Portfolio, the Government Income Portfolio, the Conservative
Balanced Portfolio, the Flexible Managed Portfolio, the Stock Index Portfolio,
the Equity Portfolio, and the Global Portfolio. The portfolios are managed by
The Prudential Insurance Company of America ("Prudential") as discussed in
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 9.

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 seven portfolios currently
available to The Prudential Variable Contract Account-24 can be found in
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS in the prospectus.

WARRANTS

The Conservative Balanced, Flexible Managed, Equity, and Global 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 Portfolio 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,
EQUITY, AND GLOBAL 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 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

<PAGE>

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 PORTFOLIO.

As explained in the prospectus, the Stock Index Portfolio seeks to duplicate the
performance of the S&P 500 Index. The portfolio will be as fully invested in the
S&P 500 Index 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 Index. When the portfolio does have short-term
investments, it may purchase stock index futures contracts in an effort to have
the portfolio better mimic the performance of a fully invested portfolio. When
the 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 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,

<PAGE>

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.

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
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 portfolio sells the call which in either case
would occur no earlier than the day following the day the exercise notice was
filed.

<PAGE>

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, and Global 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 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.

<PAGE>

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.

INTEREST RATE SWAPS

The Diversified Bond and Government Income 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

<PAGE>

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 available to The Prudential Variable Contract Account-24 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. 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.

None of the portfolios available to The Prudential Variable Contract Account-24
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 and Balanced Portfolios may purchase and sell stock
index futures contracts and related options; the Fixed Income 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 Government Income Portfolio) 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

<PAGE>

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, Government Income, Conservative Balanced and Flexible
Managed Portfolios may sell securities short up to 25% of their net assets
and except that the portfolios 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 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 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, 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 Portfolios other than the Stock Index Portfolio (options
on equity securities, stock indices, foreign currencies); Stock Index
Portfolio (options on stock indices); Balanced Portfolios (options on debt
securities, equity securities, stock indices, foreign currencies);
Diversified Bond Portfolio (options on debt securities, foreign
currencies); Government Income Portfolio (options on debt securities).
Collateral arrangements entered into by the Fixed Income 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 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).

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.

<PAGE>

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. 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 investments of the various portfolios currently available to The Prudential
Variable Contract Account-24 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 of these portfolios 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

<PAGE>

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.

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. 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
Diversified Bond and Government Income 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 Portfolio, the fee is equal to an annual rate of 0.45% of the average
daily net assets of the portfolio. The fee for the Conservative Balanced
Portfolio is equal to an annual rate of 0.55% of the average daily net assets of
the portfolio. 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. 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.

For the years ended December 31, 1997, 1996 and 1995, Prudential was paid the
following fees for providing investment management services to the portfolios
available to The Prudential Variable Contract Account-24:

INVESTMENT MANAGEMENT FEES
YEAR ENDED DECEMBER 31

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

<S> <C> <C> <C>
Diversified Bond Portfolio $ 2,981,884 $ 2,713,429 $ 2,337,700
Government Income Portfolio 1,758,870 1,957,623 1,913,517
Conservative Balanced Portfolio 25,757,735 23,052,572 20,327,574
Flexible Managed Portfolio 31,740,440 27,247,674 22,971,401
Stock Index Portfolio 7,121,699 4,488,042 2,904,883
Equity Portfolio 24,840,379 19,216,733 14,518,058
Global Portfolio 4,836,302 3,671,568 2,806,038
----------- ----------- -----------
Total $99,037,309 $82,347,641 $67,779,171
=========== =========== ===========
</TABLE>

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

<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 available to The Prudential Variable Contract Account-24. The
Investment Advisory Agreement was most recently approved by the shareholders in
accordance with instructions from Contract owners and Participants at their 1989
annual meeting with respect to all portfolios available to The Prudential
Variable Contract Account-24. 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 it 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 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 all
portfolios available to The Prudential Variable Contract Account- 24. 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 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.

<PAGE>

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.

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 transactions 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 directors who are not "interested"
persons, 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
national

<PAGE>

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 portfolios available
to The Prudential Variable Contract Account-24 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
- --------- ----------- ------------ ------------

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%
Stock Index Portfolio 200,865 -- --
Equity Portfolio 1,823,705 189,498 10.39%
Global Portfolio 2,055,319 7,621 0.37%
----------- --------
Total $14,023,048 $881,879
=========== ========

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
Stock Index Portfolio 190,060 --
Equity Portfolio 1,498,313 165,924
Global Portfolio 1,231,548 19,388
----------- --------
Total $10,873,196 $888,605
=========== ========

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
Stock Index Portfolio 90,504 --
Equity Portfolio 1,608,202 86,077
Global Portfolio -- --
---------- --------
Total $8,844,077 $757,268
========== ========

<PAGE>

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, 12.97% for the
Equity Portfolio, and 0.26% for the Global 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
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 which is determined, composed and calculated by S&P without regard to
the Series Fund or the Stock Index 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. S&P is not responsible
for and has not participated in the determination of the prices and 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
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 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 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.

15
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
Year Ended December 31, 1997

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>
<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.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997

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

STATEMENT OF OPERATIONS
December 31, 1997

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>
<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.

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
DIVERSIFIED BOND PORTFOLIO

DECEMBER 31, 1997

LONG-TERM INVESTMENTS -- 92.8% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<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
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<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>
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
--------------
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

DIVERSIFIED BOND PORTFOLIO (CONTINUED)

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.

<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.

<PAGE>

GOVERNMENT INCOME PORTFOLIO
DECEMBER 31, 1997

LONG-TERM INVESTMENTS -- 95.7% PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 95.7% RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<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.

NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
<S> <C> <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.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO

DECEMBER 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.8%

MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS -- 58.6% (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 -- 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.

<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.

<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
--------------

<CAPTION>
COMMON STOCKS -- 32.5% SHARES
-------------
<S> <C> <C>
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.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------ --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)

DECEMBER 31, 1997
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

<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.

B10

<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>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION

<S> <C> <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.

B11

<PAGE>

FLEXIBLE MANAGED PORTFOLIO

DECEMBER 31, 1997

LONG-TERM INVESTMENTS -- 93.8%
VALUE
COMMON STOCKS -- 57.6% SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------ --------------
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

SEE NOTES TO FINANCIAL STATEMENTS.

B12

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B13

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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) --------------

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.

B14

<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.

B15

<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>
PaineWebber Group, Inc.,
6.206%, 06/03/99.............................. Baa1 $ 5,000 $ 5,004,000
Salomon, Inc.,
6.25%, 10/01/99............................... Baa1 26,400 26,430,624
6.50%, 03/01/00............................... A2 19,000 19,099,560
6.59%, 02/21/01............................... A2 23,250 23,443,440
6.75%, 08/15/03............................... Baa1 5,000 5,059,400
7.25%, 05/01/01............................... A2 8,625 8,852,010
--------------
102,842,784
--------------
LEISURE & TOURISM -- 0.1%
Royal Carribean Cruises Ltd.,
7.50%, 10/15/27............................... Baa3 5,815 5,921,647
--------------
MEDIA -- 3.4%
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,323,132
Time Warner, Inc.,
8.11%, 08/15/06............................... Ba1 9,250 10,014,050
8.18%, 08/15/07............................... Ba1 8,000 8,707,680
9.125%, 01/15/13.............................. Ba1 39,690 47,261,661
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 18,275 20,504,916
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 23,350 22,943,243
7.75%, 06/01/05............................... Ba2 68,800 69,975,792
--------------
188,730,474
--------------
METALS & MINING -- 0.1%
PT Alatief Freeport Financial Co.,
(Netherlands),
9.75%, 04/15/01............................... Ba1 7,600 7,676,000
--------------
OIL & GAS -- 1.2%
Apache Corp.,
7.95%, 04/15/26............................... Baa1 3,000 3,362,100
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 4,095,000
Gulf Canada Resources, Ltd., (Canada),
8.25%, 03/15/17............................... Ba1 20,990 23,351,585
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,304,320
Talisman Energy Inc.,
7.25%, 10/15/27............................... Baa1 33,250 34,169,695
--------------
68,282,700
--------------
REAL ESTATE INVESTMENT TRUST -- 0.5%
Felcor Suites, L.P.,
7.375%, 10/01/04.............................. Ba1 25,000 24,937,500
--------------
RETAIL -- 1.3%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 3,600 3,848,400
8.50%, 06/15/03 (b)........................... Baa2 54,890 59,879,501
10.00%, 02/15/01.............................. Ba1 8,000 8,811,200
--------------
72,539,101
--------------
SHIPPING -- 0.1%
Compania Sud Americana de Vapores, SA (Chile),
7.375%, 12/08/03.............................. Baa1 5,650 5,579,375
--------------
</TABLE>

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.

B16

<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.

B17

<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:

NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION

<S> <C> <C> <C> <C> <C>
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.

B18

<PAGE>

STOCK INDEX PORTFOLIO

DECEMBER 31, 1997

LONG-TERM INVESTMENTS -- 96.0%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- -------------
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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------ --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B19

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------
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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B20

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
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

SEE NOTES TO FINANCIAL STATEMENTS.

B21

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- -------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B22

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B23

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
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
--------------

DECEMBER 31, 1997

PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 4.2% (000) (NOTE 2)
------------- --------------

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

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

<S> <C> <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.

B24

<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.

B25

<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
--------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 16.7% RATING (000)
------------ ---------
<S> <C> <C> <C>
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>

The following abbreviations are used in portfolio descriptions:

ADR -- American Depository Receipt.
PLC -- Public Limited Company (British Corporation).
SA -- Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation).

(a) Non-Income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B26

<PAGE>

GLOBAL PORTFOLIO

DECEMBER 31, 1997

LONG-TERM INVESTMENTS -- 93.1%
VALUE
COMMON STOCKS -- 92.1% SHARES (NOTE 2)
------------- --------------

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

DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------ --------------

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

SEE NOTES TO FINANCIAL STATEMENTS.

B27

<PAGE>

GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------

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

PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 3.7% (000)
-------------
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
--------------
--------------

DECEMBER 31, 1997

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.

VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT APPRECIATION
CONTRACTS DATE VALUE (DEPRECIATION)
- ---------------------------- ------------- ------------- ---------------
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

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:

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%
---------
---------

SEE NOTES TO FINANCIAL STATEMENTS.

B28

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
CERTAIN PORTFOLIOS 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 the seven Portfolios available for
investment by VCA-24: Diversified Bond Portfolio, Government Income
Portfolio, Conservative Balanced Portfolio, Flexible Managed Portfolio,
Stock Index Portfolio, Equity Portfolio and Global 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.

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 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

B29

<PAGE>

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.

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.

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.

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

B30

<PAGE>

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. 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:

PC UNI G/L
---------- ----------- ------------

Conservative Balanced Portfolio........ $ 33,509 $ 48,752 $ (82,261)
Flexible Managed Portfolio............. -- 625,749 (625,749)
Equity Portfolio....................... -- 247,917 (247,917)
Global Portfolio....................... (903,000) 6,950,576 (6,047,576)

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.

B31

<PAGE>

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:

Fund Investment Advisory Fee
--------------------------------------- ------------------------

Diversified Bond Portfolio............. 0.40%
Government Income Portfolio............ 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
Stock Index Portfolio.................. 0.35
Equity Portfolio....................... 0.45
Global Portfolio....................... 0.75

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 is an 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 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 $881,879 in brokerage commissions from transactions executed on
behalf of the following Portfolios:

Fund Commission
--------------------------------------- -----------

Conservative Balanced Portfolio........ $ 256,752
Flexible Managed Portfolio............. 428,008
Equity Portfolio....................... 189,498
Global Portfolio....................... 7,621
-----------
$ 881,879

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:

Principal Percentage
Amount Interest
--------------- ----------

Diversified Bond Portfolio............. $ 45,329,000 4.37%
Government Income Portfolio............ 13,337,000 1.28
Conservative Balanced Portfolio........ 81,783,000 7.88
Flexible Managed Portfolio............. 137,860,000 13.28
Stock Index Portfolio.................. 98,176,000 9.45
Equity Portfolio....................... 490,528,000 47.23
All other portfolios (currently not
available to VCA-24)................. 171,506,000 16.51
$ 1,038,519,000 100.00%

B32

<PAGE>

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.

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 Portfolios' investments as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized
Appreciation...... $ 30,167,647 $ 13,268,358 $ 311,261,405 $ 565,581,079 $1,004,558,128 $1,911,479,018 $ 144,895,851
Gross Unrealized
Depreciation...... 17,570,453 -- 111,299,483 149,894,627 20,055,024 84,670,946 28,770,132
Total Net
Unrealized........ 12,597,194 13,268,358 199,961,922 415,686,452 984,503,104 1,826,808,072 116,125,719
Tax Basis........... 790,688,975 411,381,627 4,496,062,195 5,055,701,095 1,468,430,760 4,198,636,403 501,984,495
</TABLE>

For federal income tax purposes, the following Portfolio had a capital
loss carryforward 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 amount:

<TABLE>
<CAPTION>
CAPITAL LOSSES CAPITAL LOSSES
CARRYFORWARDS CARRYFORWARDS
UTILIZED IN 1997 AVAILABLE EXPIRATION DATE
---------------- -------------- ----------------
<S> <C> <C> <C>
Government Income Portfolio............ $ 649,746 $ 7,267,545 12/31/2003
</TABLE>

B33

<PAGE>

FINANCIAL HIGHLIGHTS

<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>

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>

(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.

B34

<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.

B35

<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
-----------------------------------------------------
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>

(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.

B36

<PAGE>

FINANCIAL HIGHLIGHTS

<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 year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

B37

<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 the Diversified Bond, Government
Income, Conservative Balanced, Flexible Managed, Stock Index, Equity and Global
Portfolios (seven 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 America
New York, NY 10036
February 13, 1998

B38

<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
-----------------------
SHORT-TERM TOTAL
INCOME CAPITAL GAINS TAXED @ 28% TAXED @ 20% DIVIDENDS
------ ------------- ----------- ----------- ---------

<S> <C> <C> <C> <C> <C>
Diversified Bond Portfolio.............. $0.827 $ 0.079 $ 0.053 -- $ 0.959
Government Income Portfolio............. 0.750 -- -- -- 0.750
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
Stock Index Portfolio................... 0.422 0.068 0.024 0.771 1.285
Equity Portfolio........................ 0.704 0.150 0.682 0.930 2.466
Global Portfolio........................ 0.230 -- 0.301 0.595 1.126
</TABLE>

B39

<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)

B40

<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.