PRUDENTIAL SERIES FUND INC, 497, 1999-05-07

PRUDENTIAL SERIES FUND INC
497, 1999-05-07

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THE PRUDENTIAL SERIES FUND, INC.

CONSERVATIVE BALANCED PORTFOLIO

DIVERSIFIED BOND PORTFOLIO

EQUITY PORTFOLIO

EQUITY INCOME PORTFOLIO

FLEXIBLE MANAGED PORTFOLIO

GLOBAL PORTFOLIO

GOVERNMENT INCOME PORTFOLIO

HIGH YIELD BOND PORTFOLIO

MONEY MARKET PORTFOLIO

PRUDENTIAL JENNISON PORTFOLIO

STOCK INDEX PORTFOLIO

PROSPECTUS: May 1, 1999

As with all mutual funds, filing this prospectus
with the SEC does not mean that the SEC has
judged this Fund a good investment, nor has the
SEC determined that this prospectus is complete
or accurate. It is a criminal offense to state otherwise.

[Prudential Investments Logo]]

<PAGE>

- ---------------------------------------------------------
TABLE OF CONTENTS
- ---------------------------------------------------------

4 RISK/RETURN SUMMARY

Conservative Balanced Portfolio
--------------------------------
4 Investment Objective and Principal Strategies
4 Principal Risks
5 Evaluating Performance

Diversified Bond Portfolio
--------------------------
6 Investment Objective and Principal Strategies
6 Principal Risks
6 Evaluating Performance

Equity Portfolio
----------------
7 Investment Objective and Principal Strategies
7 Principal Risks
8 Evaluating Performance

Equity Income Portfolio
-----------------------
8 Investment Objective and Principal Strategies
9 Principal Risks
9 Evaluating Performance

Flexible Managed Portfolio
--------------------------
10 Investment Objective and Principal Strategies
10 Principal Risks
11 Evaluating Performance

Global Portfolio
----------------
11 Investment Objective and Principal Strategies
12 Principal Risks
12 Evaluating Performance

Government Income Portfolio
---------------------------
13 Investment Objective and Principal Strategies
13 Principal Risks
13 Evaluating Performance

High Yield Bond Portfolio
-------------------------
14 Investment Objective and Principal Strategies
14 Principal Risks
15 Evaluating Performance

Money Market Portfolio
----------------------
16 Investment Objective and Principal Strategies
16 Principal Risks

<PAGE>

17 Evaluating Performance

PRUDENTIAL JENNISON PORTFOLIO
-----------------------------
17 Investment Objective and Principal Strategies
17 Principal Risks
18 Evaluating Performance

STOCK INDEX PORTFOLIO
---------------------
18 Investment Objective and Principal Strategies
19 Principal Risks
19 Evaluating Performance

20 HOW THE PORTFOLIOS INVEST
20 Conservative Balanced Portfolio
22 Diversified Bond Portfolio
24 Equity Portfolio
26 Equity Income Portfolio
27 Flexible Managed Portfolio
30 Global Portfolio
31 Government Income Portfolio
33 High Yield Bond Portfolio
35 Money Market Portfolio
36 Prudential Jennison Portfolio
38 Stock Index Portfolio

47 HOW THE PORTFOLIOS ARE MANAGED
47 Investment Adviser
47 Investment Sub-Advisers
48 Portfolio Managers

49 HOW TO BUY AND SELL SHARES OF THE FUND
49 How to Buy and Sell Shares
50 Net Asset Value
51 Distributor

51 OTHER INFORMATION
51 Federal Income Taxes
51 Year 2000
51 Monitoring for Possible Conflicts

FINANCIAL HIGHLIGHTS

For More Information (Back Cover)

<PAGE>

RISK/RETURN SUMMARY

This prospectus is for use with the Discovery Select(TM) Group Variable Annuity
Contracts (the Contracts), group variable annuity contracts offered by The
Prudential Insurance Company of America (Prudential). This prospectus only
describes those portfolios of The Prudential Series Fund, Inc. (the Fund) that
are available for investment through the Contracts. This prospectus should be
read together with the current prospectus for the Discovery Select(TM) Group
Variable Annuity Contracts.

The Fund is a diversified, open-end investment management company - commonly
known as a mutual fund. Eleven of the Fund's seventeen portfolios (the
Portfolios) are available under the Discovery Select(TM) Group Annuity
Contracts:

CONSERVATIVE BALANCED PORTFOLIO GOVERNMENT INCOME PORTFOLIO
DIVERSIFIED BOND PORTFOLIO HIGH YIELD PORTFOLIO
EQUITY PORTFOLIO MONEY MARKET PORTFOLIO
EQUITY INCOME PORTFOLIO PRUDENTIAL JENNISON PORTFOLIO
FLEXIBLE MANAGED PORTFOLIO STOCK INDEX PORTFOLIO
GLOBAL PORTFOLIO

The following section highlights key information about each Portfolio.
Additional information follows this summary and is provided in the Fund's
Statement of Additional Information (SAI).

- --------------------------------------------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is A TOTAL INVESTMENT RETURN CONSISTENT WITH A
CONSERVATIVELY MANAGED DIVERSIFIED PORTFOLIO. This Portfolio may be appropriate
for an investor who wants diversification with a relatively lower risk of loss
than that associated with the Flexible Managed Portfolio (see below). To achieve
our objective, we invest in a mix of equity securities, debt obligations and
money market instruments. Up to 30% of the Portfolio's total assets may be
invested in foreign securities. In addition, we may invest a portion of the
Portfolio's assets in high yield/high risk debt securities. While we make every
effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities - such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiment turns gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop.

Since the Portfolio also invests in debt obligations, there is the risk that the
value of a particular obligation could decrease. Debt obligations may involve
CREDIT RISK - the risk that the borrower will not repay an obligation, and
MARKET RISK - the risk that interest rates may change and affect the value of
the obligation.

4
<PAGE>

High-yield debt securities - also known as "junk bonds" - have a higher risk of
default and tend to be less liquid.

The Portfolio's investment in foreign securities involves additional risks. For
example, foreign banks and companies generally are not subject to the same types
of regulatory requirements that U.S. banks and companies are. Foreign political
developments and changes in currency rates may adversely affect the value of
foreign securities.

There is also risk involved in the investment strategies we may use. Some of our
strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There is
always the risk that investments will not perform as we thought they would. Like
any mutual fund, an investment in the Portfolio could lose value, and you could
lose money. For more information about risk, see "Investment Risks."

EVALUATING PERFORMANCE

A number of factors - including risk - affect how the Portfolio performs. The
following bar chart and table show the Portfolio's performance for each full
calendar year of operation for the last 10 years. They demonstrate the risk of
investing in the Portfolio and how returns can change from year to year. Past
performance does not mean that the Portfolio will achieve similar results in the
future.

[GRAPHICAL REPRESENTATION OF GRAPH]

- --------------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- ------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16.99% 5.27% 19.07% 6.95% 12.20% -0.97% 17.27% 12.63% 13.45% 11.74%
- ------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 7.62% (2nd quarter of 1997) Worst Quarter: (3.17)% (3rd quarter of
1998)

*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES
WERE INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

- -----------------------------------------
Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 11.74% 10.65% 11.31% 10.86%
S&P 500** 28.60% 24.05% 19.19% 17.29%
Lipper Average*** 14.79% 13.73% 12.21% 8.94%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500) - AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES - GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.

*** THE LIPPER/VARIABLE INSURANCE PRODUCTS (VIP) BALANCED AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS
ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.

5
<PAGE>

- --------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is A HIGH LEVEL OF INCOME OVER A LONGER TERM WHILE
PROVIDING REASONABLE SAFETY OF CAPITAL. This means we look for investments that
we think will provide a high level of current income, but which are not expected
to involve a substantial risk of loss of capital through default. To achieve our
objective, we invest primarily in higher-grade debt obligations and high-quality
money market investments. We may also purchase U.S. dollar denominated
securities that are issued outside the U.S. by foreign or U.S. issuers. In
addition, we may invest a portion of the Portfolio's assets in high yield/high
risk debt securities. While we make every effort to achieve our objective, we
can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Since the
Portfolio invests primarily in debt obligations, there is the risk that the
value of a particular obligation could go down. Debt obligations may involve
CREDIT RISK - the risk that the borrower will not repay an obligation, and
MARKET RISK - the risk that interest rates may change and affect the value of
the obligation. High-yield debt securities - also known as "junk bonds" - have a
higher risk of default and tend to be less liquid. The Portfolio's investment in
U.S. dollar denominated foreign securities involves additional risks. For
example, foreign banks and companies generally are not subject to the same types
of regulatory requirements that U.S. banks and companies are. Foreign political
developments may adversely affect the value of foreign securities. The
Portfolio's foreign securities may also be affected by changes in currency
rates, though to a lesser extent than if the Portfolio invested in securities
denominated in a foreign currency.

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- -----------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13.49% 8.32% 16.44% 7.19% 10.13% -3.23% 20.73% 4.40% 8.57% 7.15%
- -----------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 7.94% (2nd quarter of 1989) Worst Quarter: (2.83)% (1st quarter of
1994)

*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

6
<PAGE>

- --------------------------------------------------------------------------------
Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 7.15% 7.25% 9.14% 9.25%
Lehman Aggregate Index** 8.69% 7.27% 9.26% 9.99%
Lipper Average*** 7.44% 7.13% 8.97% 8.94%
- --------------------------------------------------------------------------------

*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

**THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF MORE THAN 5,000 GOVERNMENT
AND CORPORATE BONDS. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES
CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF SALES
CHARGES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.

***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) CORPORATE DEBT AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is CAPITAL APPRECIATION. To achieve our objective, we
invest primarily in common stocks of major established corporations as well as
smaller companies that we believe offer attractive prospects of appreciation. In
addition, the Portfolio may invest up to 30% of its total assets in foreign
securities. While we make every effort to achieve our objective, we can't
guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities - such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiments turn gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop. Generally, the stock prices of
small-sized companies vary more than the prices of large company stocks and may
present above average risks.

7
<PAGE>

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
29.73% -5.21% 26.01% 14.17% 21.87% 2.78% 31.29% 18.52% 24.66% 9.34%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 19.13% (1st quarter of 1991) Worst Quarter: (15.59)% (3rd quarter
of 1990)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 9.34% 16.88% 16.74% 15.14%
S&P 500** 28.60% 24.05% 19.19% 17.29%
Lipper Average*** 24.94% 20.25% 17.83% 16.01%
- --------------------------------------------------------------------------------

*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

**THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500) - AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES - GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.

***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH FUND AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE EXPENSES. THE
"SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is BOTH CURRENT INCOME AND CAPITAL APPRECIATION. To
achieve our objective, we invest primarily in common stocks and convertible
securities that we believe provide good prospects for returns above those of the
Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) or the NYSE
Composite Index. In addition, the Portfolio may invest up to 30% of its total
assets in foreign securities. While we make every effort to achieve our
objective, we can't guarantee success.

8
<PAGE>

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities -such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiments turn gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop.

Since the Portfolio may also invest in debt obligations, there is the risk that
the value of a particular obligation could decrease. Debt obligations may
involve CREDIT RISK - the risk that the borrower will not repay an obligation,
and MARKET RISK - the risk that interest rates may change and affect the value
of the obligation.

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- -----------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
22.67% -3.73% 27.50% 10.14% 22.28% 1.44% 21.70% 21.74% 36.61% -2.38%
- -----------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 16.54% (2nd quarter of 1997) Worst Quarter: (18.14)% (3rd
quarter of 1998)

*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES
WERE INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

9
<PAGE>

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/19/88)
------ ------- -------- ---------
Class I shares (2.38)% 14.93% 15.06% 14.91%
S&P 500** 28.60% 24.05% 19.19% 18.31%
Lipper Average*** 16.21% 18.50% 15.23% 15.05%
- --------------------------------------------------------------------------------

*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500) - AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES - GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (2/29/88). SOURCE: LIPPER, INC.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) EQUITY INCOME AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(2/29/88). SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is A HIGH TOTAL RETURN CONSISTENT WITH AN AGGRESSIVELY
MANAGED DIVERSIFIED PORTFOLIO. This Portfolio may be appropriate for an investor
who wants diversification and is willing to accept a relatively high level of
loss in an effort to achieve greater appreciation. To achieve our objective, we
invest in a mix of equity securities, debt obligations and money market
instruments. The Portfolio may also invest in foreign securities. A portion of
the debt portion of the Portfolio may be invested in high-yield/high-risk debt
securities which have speculative characteristics and generally are riskier than
higher-rated securities. While we make every effort to achieve our objective, we
can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Since the
Portfolio invests in debt obligations, there is the risk that the value of a
particular obligation could decrease. Debt obligations may involve CREDIT RISK -
the risk that the borrower will not repay an obligation, and MARKET RISK - the
risk that interest rates may change and affect the value of the obligation.

A substantial portion of the Portfolio's assets may also be invested in equity
securities. Equity securities - such as common stocks - are subject to COMPANY
RISK. The price of the stock of a particular company can vary based on a variety
of factors, such as the company's financial performance, changes in management
and product trends, and the potential for takeover and acquisition. Common
stocks are also subject to MARKET RISK stemming from factors independent of any
particular security. Investment markets fluctuate. All markets go through cycles
and market risk involves being on the wrong side of a cycle. Factors affecting
market risk include political events, broad economic and social changes and the
mood of the investing public. If investor sentiments turn gloomy, the price of
all stocks may decline. It may not matter that a particular company has great
profits and its stock is selling at a relatively low price. If the overall
market is dropping, the value of all stocks are likely to drop.

10
<PAGE>

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- -------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21.77% 1.91% 25.43% 7.61% 15.58% -3.16% 24.13% 13.64% 17.96% 10.24%
- -------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 10.89% (2nd quarter of 1997) Worst Quarter: (8.50)% (3rd quarter
of 1998)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 10.24% 12.19% 13.15% 12.06%
S&P 500** 28.60% 24.05% 19.19% 17.29%
Lipper Average*** 13.50% 13.64% 14.00% 12.84%
- --------------------------------------------------------------------------------

*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) FLEXIBLE AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS
ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is LONG-TERM GROWTH OF CAPITAL. To achieve this
objective, we invest primarily in common stocks (and their equivalents) of
foreign and U.S. companies. Generally, we invest in at least three countries,
including the U.S., but we may invest up to 35% of the Portfolio's assets in
companies located in

11
<PAGE>

any one country other than the U.S. While we make every effort to achieve our
objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities - such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiments turn gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop.

Depending on market conditions, the Portfolio may be invested primarily in
foreign securities, which involve additional risks. For example, foreign banks
and companies generally are not subject to the same types of regulatory
requirements that U.S. banks and companies are. Foreign political developments
and changes in currency rates may adversely affect the value of foreign
securities.

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18.82% -12.91% 11.39% -3.42% 43.14% -4.89% 15.88% 19.97% 6.98% 25.08%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 22.17% (4th quarter of 1998) Worst Quarter: (14.21)% (3rd quarter
of 1998)

*These annual returns do not include contract charges. If contract charges were
included, the annual returns would be lower than those shown. See the
accompanying contract prospectus.

12
<PAGE>

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (9/19/88)
------ ------- -------- ---------
Class I shares 25.08% 12.04% 10.90% 11.47%
Morgan Stanley World Index** 24.80% 16.19% 11.21% 12.10%
Lipper Average*** 16.19% 12.31% 11.04% 11.10%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

**THE MORGAN STANLEY WORLD INDEX (MSWI) IS A WEIGHTED INDEX COMPRISED OF
APPROXIMATELY 1,500 COMPANIES LISTED ON THE STOCK EXCHANGES OF THE U.S.A.,
EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (9/30/88). SOURCE: LIPPER,
INC.

***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GLOBAL AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (9/30/88). SOURCE: LIPPER,
INC.
- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------

Investment Objective and Principal Strategies

Our investment objective is A HIGH LEVEL OF INCOME OVER THE LONG TERM CONSISTENT
WITH THE PRESERVATION OF CAPITAL. To achieve our objective, we invest primarily
in U.S. government securities, including intermediate and long term U.S.
Treasury securities and debt obligations issued by agencies or instrumentalities
established by the U.S. government. The Portfolio may also invest in
mortgage-related securities, collateralized mortgage obligations and corporate
debt securities. While we make every effort to achieve our objective, we can't
guarantee success.

- --------------------------------------------------------------------------------
An investment in the Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------

PRINCIPAL RISKS

The Portfolio invests primarily in U.S. government securities which are
considered among the most creditworthy of debt securities. Nevertheless, all
investments involve risk. All debt securities have the risk that the value of a
particular obligation could decrease. Debt obligations may involve CREDIT RISK -
the risk that the borrower will not repay an obligation, and MARKET RISK - the
risk that interest rates may change and affect the value of the obligation.

EVALUATING PERFORMANCE

A number of factors - including risk - affect how the Portfolio performs. The
following bar chart and table show the Portfolio's performance for each full
calendar year of operation for the last 9 years. They demonstrate the risk of
investing in the Portfolio and how returns can change from year to year. Past
performance does not mean that the Portfolio will achieve similar results in the
future.

13
<PAGE>

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- ---------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.34% 16.11% 5.85% 12.56% -5.16% 19.48% 2.22% 9.67% 9.09%
- ---------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 6.95% (3rd quarter of 1991) Worst Quarter: (3.93)% (1st quarter
of 1994)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (5/1/89)
------ ------- ---------
Class I shares 9.09% 6.74% 8.87%
Lehman Govt. Index** 9.85% 7.18% 9.14%
Lipper Average*** 8.14% 6.36% 8.66%

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

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

** THE LEHMAN GOVERNMENT INDEX IS A WEIGHTED INDEX COMPRISED OF SECURITIES
ISSUED OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH
A REMAINING MATURITY OF ONE TO 30 YEARS. THE "SINCE INCEPTION" RETURN REFLECTS
THE CLOSEST CALENDAR MONTH-END RETURN (4/30/89). SOURCE: LIPPER, INC.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GENERAL U.S. GOVERNMENT AVERAGE
IS CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/89). SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------

Investment Objective and Principal Strategies

Our investment objective is a HIGH TOTAL RETURN. In pursuing our objective, we
invest in high-yield/high-risk debt securities. Such securities have speculative
characteristics and generally are riskier than higher-rated securities. In
addition, the Portfolio may invest up to 20% of its total assets in foreign debt
obligations. While we make every effort to achieve our objective, we can't
guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. The Portfolio
invests in debt obligations which have CREDIT, MARKET and INTEREST RATE RISKS.
Credit risk is the possibility that an issuer of debt securities fails to pay
the Portfolio interest or principal. Market risk, which may affect an industry,
a sector or the entire market, is the possibility that the market value of an
investment may move up or down and that its movement may occur quickly or
unpredictably. Interest rate risk refers to the fact that the value of most
bonds will fall when interest rates rise. The longer the maturity and the lower
the credit quality of a bond, the more likely its value will decline. High-yield
debt securities - also known as "junk bonds" - have a higher risk of default and
tend to be less liquid.

<PAGE>

The Portfolio's investment in foreign securities involves additional risks. For
example, foreign banks and companies generally are not subject to the same types
of regulatory requirements that U.S. banks and companies are. In addition,
political developments and changes in currency rates may adversely affect the
value of foreign securities.

EVALUATING PERFORMANCE

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -2.05% -11.84% 38.99% 17.53% 19.27% -2.72% 17.56% 11.39% 13.78% -2.36%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 15.89% (1st quarter of 1991) Worst Quarter: (9.68)% (3rd quarter
of 1990)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/23/87)
------ ------- -------- ---------
Class I shares (2.36)% 7.20% 9.07% 8.26%
Lehman High Yield Index** 1.60% 8.52% 10.52% 9.81%
Lipper Average*** 0.10% 7.87% 9.92% 9.35%

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

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

** THE LEHMAN HIGH YIELD INDEX IS MADE UP OF OVER 700 NONINVESTMENT GRADE BONDS.
THE INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL INTEREST
BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES
ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. THE "SINCE INCEPTION" RETURN
REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (2/28/87). SOURCE: LIPPER, INC.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) HIGH CURRENT YIELD AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(2/28/87). SOURCE: LIPPER, INC.

<PAGE>

- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is MAXIMUM CURRENT INCOME CONSISTENT WITH THE STABILITY
OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. To achieve our objective, we invest
in high-quality short-term money market instruments issued by the U.S.
government or its agencies, as well as by corporations and banks, both domestic
and foreign. The Portfolio will invest only in instruments that mature in
thirteen months or less, and which are denominated in U.S. dollars. While we
make every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Since the
Portfolio invests only in money market instruments, there is not likely to be an
opportunity for capital appreciation. Debt obligations, including money market
instruments, also involve CREDIT RISK - the risk that the borrower will not
repay an obligation, and MARKET RISK - the risk that interest rates may change
and affect the value of the obligation.

The Portfolio's investment in foreign securities involves additional risks. For
example, foreign banks and companies generally are not subject to the same types
of regulatory requirements that U.S. banks and companies are. Even though
denominated in U.S. dollars, political developments and changes in currency
rates may adversely affect the value of foreign securities.

There is also risk involved in the investment strategies we may use. Some of our
strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There is
always the risk that investments will not perform as we thought they would. For
more information about risk, see "Investment Risks."

- --------------------------------------------------------------------------------
AN INVESTMENT IN THE PORTFOLIO IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO MAINTAIN A NET ASSET VALUE OF $10 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE PORTFOLIO.
- --------------------------------------------------------------------------------

EVALUATING THE PERFORMANCE

A number of factors - including risk - can affect how the Portfolio performs.
The following bar chart and table show the Portfolio's performance over the past
10 years and demonstrates how returns can change from year to year. Past
performance does not assure that the Portfolio will achieve similar results in
the future.

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.25% 8.16% 6.16% 3.79% 2.95% 4.05% 5.80% 5.22% 5.41% 5.39%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 2.37% (2nd quarter of 1989) Worst Quarter: 0.71% (2nd quarter of
1993)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

<PAGE>

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 5.39% 5.18% 5.61% 6.39%
Lipper Average** 5.10% 4.92% 5.32% 6.02%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) MONEY MARKET AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.

7-DAY YIELD* (AS OF 12/31/98)
- --------------------------------------------------------------------------------
Money Market Portfolio 4.96%

Average Money Market Fund** 4.53%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S YIELD IS AFTER DEDUCTION OF EXPENSES AND DOES NOT INCLUDE
CONTRACT CHARGES.

** SOURCE: IBC FINANCIAL DATA, INC. AS OF 12/29/98, BASED ON 303 FUNDS IN THE
IBC TAXABLE GENERAL PURPOSE, FIRST AND SECOND TIER MONEY MARKET FUND. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.

- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is to achieve LONG-TERM GROWTH OF CAPITAL. To achieve
our objective, we invest primarily in equity securities of major established
corporations that we believe offer above-average growth prospects. In addition,
the Portfolio may invest up to 30% of its total assets in foreign securities.
While we make every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities - such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiments turn gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop.

<PAGE>

investment in the Portfolio could lose value, and you could lose money. For more
information about risk, see "Investment Risks."

EVALUATING PERFORMANCE

A number of factors - including risk - affect how the Portfolio performs. The
following bar chart and table show the Portfolio's performance for each full
calendar year of operation for the last three years. They demonstrate the risk
of investing in the Portfolio and how returns can change from year to year. Past
performance does not mean that the Portfolio will achieve similar results in the
future.

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
14.41% 31.71% 37.46%
- --------------------------------------------------------------------------------
Best Quarter: 29.46% (4th quarter of 1998) Worst Quarter: (12.07)% (3rd quarter
of 1998)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR (4/25/95)
------ ---------
Class I shares 37.46% 29.60%
S&P 500** 28.60% 29.32%
Lipper Average*** 24.94% 25.38%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/95). SOURCE: LIPPER,
INC.

- --------------------------------------------------------------------------------
STOCK INDEX PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is INVESTMENT RESULTS THAT GENERALLY CORRESPOND TO THE
PERFORMANCE OF PUBLICLY-TRADED COMMON STOCKS. To achieve our objective, we
attempt to duplicate the price and yield of the Standard & Poor's 500 Stock
Index (S&P 500 Index). The S&P 500 Index represents more than 70% of the total
market value of all publicly-traded common stocks and is widely viewed as
representative of publicly-traded common stocks as a whole.

<PAGE>

The Portfolio is not "managed" in the traditional sense of using market and
economic analyses to select stocks. Rather, the portfolio manager purchases
stocks in proportion to their weighting in the S&P 500 Index. While we make
every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Equity
securities - such as common stocks - are subject to COMPANY RISK. The price of
the stock of a particular company can vary based on a variety of factors, such
as the company's financial performance, changes in management and product
trends, and the potential for takeover and acquisition. Common stocks are also
subject to MARKET RISK stemming from factors independent of any particular
security. Investment markets fluctuate. All markets go through cycles and market
risk involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiments turn gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop.

Like any mutual fund, an investment in the Portfolio could lose value, and you
could lose money. For more information about risk, see "Investment Risks."

EVALUATING PERFORMANCE

A number of factors - including risk - affect how the Portfolio performs. The
following bar chart and table show the Portfolio's performance for each full
calendar year of operation for the last 10 years. They demonstrate the risk of
investing in the Portfolio and how returns can change. Past performance does not
mean that the Portfolio will achieve similar results in the future.

[GRAPHICAL REPRESENTATION OF GRAPH]

Annual Returns* (Class I shares)
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30.93% -3.63% 29.72% 7.13% 9.66% 1.01% 37.06% 22.57% 32.83% 28.42%
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Best Quarter: 21.44% (4th quarter of 1998) Worst Quarter: (13.72)% (3rd quarter
of 1990)

* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.

Average Annual Returns* (as of 12/31/98)
- --------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS (10/19/87)
------ ------- -------- ----------
Class I shares 28.42% 23.70% 18.74% 18.82%
S&P 500** 28.60% 24.05% 19.19% 18.50%
Lipper Average*** 28.25% 23.58% 18.62% 18.04%

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

* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.

<PAGE>

MANAGEMENT EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
THESE EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR
MONTH-END RETURN (10/31/87). SOURCE: LIPPER, INC.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) S&P 500 INDEX AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(10/31/87). SOURCE: LIPPER, INC.

HOW THE PORTFOLIOS INVEST

While the Portfolios have some common attributes, each one has its own portfolio
managers, investment objective and policies, performance information, and risks.
Therefore, some sections of this prospectus deal with each Portfolio separately,
while other sections address two or more Portfolios at the same time. In
sections that concern one particular Portfolio as identified in the section
heading, "the Portfolio" refers to that particular Portfolio.

- --------------------------------------------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is to seek A TOTAL INVESTMENT RETURN
CONSISTENT WITH A CONSERVATIVELY MANAGED DIVERSIFIED PORTFOLIO. To achieve our
objective, we invest in a mix of equity and equity-related securities, debt
obligations and money market instruments. We adjust the percentage of Portfolio
assets in each category depending on our expectations regarding the different
markets. While we make every effort to achieve our objective, we can't guarantee
success.

We will vary how much of the Portfolio's assets are invested in a particular
type of security depending how we think the different markets will perform.
Under normal conditions, we intend to keep at least 25% of the Portfolio's total
assets invested in debt securities.

- ---------------------------------------------------
BALANCED PORTFOLIO
We invest in all three types of securities - equity, debt and money market - in
order to achieve diversification in a single portfolio. We seek to maintain a
conservative blend of investments that will have strong performance in a down
market and solid, but not necessarily outstanding, performance in up markets.
This Portfolio may be appropriate for an investor looking for diversification
with less risk than that of the Flexible Managed Portfolio, while recognizing
that this reduces the chances of greater appreciation.
- ---------------------------------------------------

In general, we will invest within the ranges shown below:

ASSET TYPE MINIMUM NORMAL MAXIMUM
- ----------------- ------- ------ -------
Stocks 15% 35% 75%
Debt obligations and money
market securities 25% 65% 85%

DEBT SECURITIES in general are basically written promises to repay a debt. There
are numerous types of debt securities which vary as to the terms of repayment
and the commitment of other parties to honor the obligations of the issuer. Most
of the securities in the debt portion of this Portfolio will be rated
"investment

<PAGE>

grade." This means major rating services, like Standard & Poor's Ratings Group
(S&P) or Moody's Investors Service, Inc. (Moody's), have rated the securities
within one of their four highest rating categories.

The Portfolio may also invest in lower-rated securities, which are riskier and
are considered speculative. These securities are sometimes referred to as "junk
bonds." We may also invest in instruments that are not rated, but which we
believe are of comparable quality to the instruments described above.

The Portfolio may also invest up to 30% of its total assets in FOREIGN EQUITY
and DEBT SECURITIES that are not denominated in the U.S. dollar. In addition, up
to 20% of the Portfolio's total assets may be invested in debt securities that
are issued outside the U.S. by foreign or U.S. issuers, but are denominated in
U.S. dollars. For these purposes, we do not consider American Depositary
Receipts (ADRs) as foreign securities. (ADRs are certificates representing the
right to receive foreign securities that have been deposited with a U.S. bank or
a foreign branch of a U.S. bank.)

The stock portion of the Portfolio will be invested mainly in EQUITY and
EQUITY-RELATED securities of major, established corporations which we believe
are in sound financial condition and offer better total returns than broad based
market indexes.

The money market portion of the Portfolio will be invested in high-quality money
market instruments. We manage this portion of the Portfolio to comply with
specific rules designed for money market mutual funds. We will not acquire any
security with a remaining maturity exceeding thirteen months, and we will
maintain a dollar-weighted average portfolio of 90 days or less. (Weighted
average maturity is calculated by adding the maturities of all the bonds in a
portfolio and dividing by the number of bonds on a weighted basis.)

In response to adverse market conditions or when restructuring the Portfolio, we
may temporarily invest up to 100% of the Portfolio's total assets in money
market instruments. Investing heavily in these securities limits our ability to
achieve our investment objective, but can help to preserve the value of the
Portfolio's assets when the markets are unstable.

We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS. In loan participations, the Portfolio will have a contractual
relationship with the lender but not with the borrower. This means the Portfolio
will only have rights to principal and interest received by the lender. It will
not be able to enforce compliance by the borrower with the terms of the loan and
may not have a right to any collateral securing the loan. If the lender becomes
insolvent, the Portfolio may be treated as a general creditor and not benefit
from any set-off between the lender and the borrower.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, market index, currency, interest rate or
some other benchmark - will go up or down at some future date. We may use
derivatives to try to reduce risk or to increase return consistent with the
Portfolio's overall investment objective.

We may: purchase and sell OPTIONS on equity securities, debt securities, stock
indexes and foreign currencies; purchase and sell stock index, interest rate and
foreign currency FUTURES CONTRACTS and options on those contracts; enter into
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and purchase securities on a
WHEN-ISSUED or DELAYED DELIVERY basis.

The Portfolio may also enter into SHORT SALES. In a short sale we sell a
security we do not own to take advantage of an anticipated decline in the
security's price. The Portfolio borrows the security for delivery and if it can
buy the security later at a lower price, a profit results. No more than 25% of
the Portfolio's net assets may be used as collateral or segregated for purposes
of securing a short sale obligation. The Portfolio may also enter into SHORT
SALES AGAINST-THE-BOX which means it owns securities identical to those sold
short.

<PAGE>

We may also use INTEREST RATE SWAPS in the management of the fixed-income
portion of the Portfolio. In an interest rate swap the Portfolio and another
party agree to exchange interest payments. For example, the Portfolio may wish
to exchange a floating rate of interest for a fixed rate. We would enter into
this type of a swap if we think interest rates are going down.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at an agreed upon price on a specified
date. This creates a fixed return for the Portfolio. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC. In a joint repurchase transaction,
uninvested cash balances of various Portfolios are added together and invested
in one or more repurchase agreements. Each of the participating Portfolios
receives a portion of the income earned in the joint account based on the
percentage of its investment.

We may also invest in REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS in the
management of the fixed-income portion of the Portfolio. In a reverse repurchase
transaction, the Portfolio sells a security it owns and agrees to buy it back at
set price and date. During the period the security is held by the other party,
the Portfolio may continue to receive principal and interest payments on the
security. Dollar rolls involve the sale by the Portfolio of a security for
delivery in the current month with a promise to repurchase from the buyer a
substantially similar - but not necessarily the same - security at a set price
and date in the future. During the "roll period," the Portfolio does not receive
any principal or interest on the security. Instead it is compensated by the
difference between the current sales price and the price of the future purchase,
as well as any interest earned on the cash proceeds from the original sale. The
Portfolio will not use more than 30% of its net assets in connection with
reverse repurchase transactions and dollar rolls.

We will consider other factors (such as cost) in deciding whether to employ any
particular strategy or use any particular instrument. Any derivatives we use may
not match the Portfolio's underlying holdings. For more information about these
strategies, see the SAI, "Investment Objectives and Policies of the Portfolios."

ADDITIONAL STRATEGIES

The Portfolio also follows certain policies when it BORROWS MONEY (the Portfolio
may borrow up to 5% of the value of its total assets); LENDS ITS SECURITIES; and
holds ILLIQUID SECURITIES (the Portfolio may hold up to 15% of its net assets in
illiquid securities, including securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than seven days). The Portfolio is subject to certain
investment restrictions that are fundamental policies, which means they cannot
be changed without shareholder approval. For more information about these
restrictions, see the SAI.

- --------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

Our investment objective is A HIGH LEVEL OF INCOME OVER A LONGER TERM WHILE
PROVIDING REASONABLE SAFETY OF CAPITAL. This means we look for investments that
we think will provide a high level of current income, but which are not expected
to involve a substantial risk of loss of capital through default. To achieve our
objective, we invest primarily in intermediate and long term debt obligations
that are rated investment grade and high quality money market investments. While
we make every effort to achieve our objective, we can't guarantee success.

Debt obligations, in general, are basically written promises to repay a debt.
The terms of repayment vary among the different types of debt obligations, as do
the

<PAGE>

commitments of other parties to honor the obligations of the issuer of the
security. The types of debt obligations in which we can invest include U.S.
government securities, mortgage-related securities and corporate bonds.

- -------------------------------------------------------
OUR STRATEGY
In general, the value of debt obligations moves in the opposite direction as
interest rates - if a bond is purchased and then interest rates go up, newer
bonds will be worth more because they will have a higher rate of interest. We
will adjust the mix of the Portfolio's short-term, intermediate and long term
debt obligations in an attempt to benefit from price appreciation when interest
rates go down and to incur smaller declines when rates go up.
- -------------------------------------------------------

Usually at least 80% of the Portfolio's total assets will be invested in debt
securities that are investment grade. The Portfolio may continue to hold a debt
obligation if it is downgraded below investment grade after it is purchased or
if it is no longer rated by a major rating service. We may also invest in lower
rated securities which are riskier and considered speculative. These securities
are sometimes referred to as "junk bonds." We may also invest in instruments
that are not rated, but which we believe are of comparable quality to the
instruments described above.

The Portfolio may invest without limit in DEBT OBLIGATIONS ISSUED OR GUARANTEED
BY THE U.S. GOVERNMENT AND GOVERNMENT-RELATED ENTITIES. An example of a debt
security that is backed by the full faith and credit of the U.S. government is
an obligation of the Government National Mortgage Association (Ginnie Mae). In
addition, we may invest in U.S. government securities issued by other government
entities, like the Federal National Mortgage Association (Fannie Mae) and the
Student Loan Marketing Association (Sallie Mae) which are not backed by the full
faith and credit of the U.S. Government. Instead, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. The Portfolio may
also invest in the debt securities of other government-related entities, like
the Farm Credit System, which depend entirely upon their own resources to repay
their debt.

We may also invest up to 20% of Portfolio's total assets in debt securities
issued outside the U.S. by U.S. or foreign issuers provided the securities are
denominated in U.S. dollars.

The Portfolio may also invest in CONVERTIBLE DEBT SECURITIES and CONVERTIBLE AND
NON-CONVERTIBLE PREFERRED STOCKS of any rating. The Portfolio will not acquire
any common stock except by converting a convertible debt security or exercising
a warrant. No more than 10% of the Portfolio's total assets will be held in
common stocks, and those will usually be sold as soon as a favorable opportunity
arises.

We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS. In loan participations, the Portfolio will have a contractual
relationship with the lender but not with the borrower. This means the Portfolio
will only have rights to principal and interest received by the lender. It will
not be able to enforce compliance by the borrower with the terms of the loan and
may not have a right to any collateral securing the loan. If the lender becomes
insolvent, the Portfolio may be treated as a general creditor and will not
benefit from any set-off between the lender and the borrower.

Under normal conditions, the Portfolio may invest a portion of its assets in
high-quality MONEY MARKET INSTRUMENTS. In response to adverse market conditions
or when restructuring the Portfolio, we may temporarily invest up to 100% of the
Portfolio's assets in money market instruments. Investing heavily in these
securities limits our ability to achieve our investment objective, but can help
to preserve the value of the Portfolio's assets when the markets are unstable.

DERIVATIVES AND OTHER STRATEGIES

<PAGE>

We may: purchase and sell OPTIONS on debt securities; purchase and sell interest
rate FUTURES CONTRACTS and options on those contracts; and purchase securities
on a WHEN-ISSUED or DELAYED DELIVERY basis.

We may also use INTEREST RATE SWAPS in the management of the Portfolio. In an
interest rate swap the Portfolio and another party agree to exchange interest
payments. For example, the Portfolio may wish to exchange a floating rate of
interest for a fixed rate. We would enter into this type of a swap if we think
interest rates are going down.

The Portfolio may also invest up to 30% of its net assets in REVERSE REPURCHASE
AGREEMENTS and DOLLAR ROLLS. In a reverse repurchase transaction, the Portfolio
sells a security it owns and agrees to buy it back at a set price and date.
During the period the security is held by the other party, the Portfolio may
continue to receive principal and interest payments on the security. Dollar
rolls involve the sale by the Portfolio of a security for delivery in the
current month with a promise to repurchase from the buyer a substantially
similar - but not necessarily the same - security at a set
price and date in the future. During the "roll period," the Portfolio does not
receive any principal or interest on the security. Instead it is compensated by
the difference between the current sales price and the price of the future
purchase, as well as any interest earned on the cash proceeds from the original
sale. The Portfolio will not use more than 30% of its net assets in connection
with reverse repurchase transactions and dollar rolls.

ADDITIONAL STRATEGIES

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is CAPITAL APPRECIATION. This means
we seek investments that we believe will provide investment returns above
broadly based market indexes. While we make every effort to achieve this
objective, we can't guarantee success.

<PAGE>

To achieve our investment objective, we invest primarily in common stocks of
major established corporations as well as smaller companies.

A portion of the Portfolio's assets may be invested in short, intermediate or
long term DEBT OBLIGATIONS, including convertible and nonconvertible PREFERRED
STOCK and OTHER EQUITY-RELATED SECURITIES. Up to 5% of these holdings may be
rated below investment grade. These securities are considered speculative and
are sometimes referred to as "junk bonds."

- ---------------------------------------------------
VALUE APPROACH
We use a value approach to investing which means we look for companies whose
stock is selling below the price that we believe reflects its true worth based
on earnings, book value and other financial measures.

To achieve our value investment strategy, we usually buy securities that are out
of favor and that many other investors are selling. We attempt to invest in
companies and industries before other investors recognize their true value.
- ---------------------------------------------------

Up to 30% of the Portfolio's total assets may be invested in FOREIGN SECURITIES,
including money market instruments, equity securities and debt obligations. For
these purposes, we do not consider American Depositary Receipts (ADRs) as
foreign securities. (ADRs are certificates representing the right to receive
foreign securities that have been deposited with a U.S. bank or a foreign branch
of a U.S. bank.)

Under normal circumstances, the Portfolio may invest a portion of its assets in
MONEY MARKET INSTRUMENTS. In addition, we may temporarily invest up to 100% of
the Portfolio's assets in money market instruments in response to adverse market
conditions or when we are restructuring the portfolio. Investing heavily in
these securities limits our ability to achieve our investment objective, but can
help to preserve the Portfolio's assets when the markets are unstable.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, market index, currency or some other
benchmark - will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with the Portfolio's overall
investment objective.

We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on these futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.

The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX. In a short sale
we sell a security we do not own to take advantage of an anticipated decline in
the stock's price. The Portfolio borrows the stock for delivery and if it can
buy the stock later at a lower price, a profit results. A short sale is
"against-the-box" when the Portfolio owns an equal amount of the securities sold
short or owns securities that can be converted into the securities sold.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

We will consider factors such as cost and volatility in deciding whether to
employ any particular strategy or use any particular instrument. Any derivatives
we use may not match the Portfolio's underlying holdings. For more information
about these strategies, see the SAI, "Investment Objectives and Policies of the
Portfolios."

<PAGE>

ADDITIONAL STRATEGIES

- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is to seek BOTH CURRENT INCOME AND
CAPITAL APPRECIATION. This means we seek investments whose price will increase
as well as pay dividends and other income. To achieve this objective, we look
for securities we believe will provide investment returns above those of the
Standard & Poor's 500 Composite Stock Price Index (the S&P 500 Index) or the
NYSE Composite Index. While we make every effort to achieve this objective, we
can't guarantee success.

We will normally invest at least 65% of the Portfolio's total assets in EQUITY
and EQUITY-RELATED SECURITIES. We buy common stock of companies of every size -
small, medium and large capitalization. When deciding which stocks to buy, we
look at a company's earnings, balance sheet and cash flow and then at how these
factors impact the stock's price and return. We also buy EQUITY-RELATED
SECURITIES - like bonds, corporate notes and preferred stock - that can be
converted into a company's common stock or other equity security.

Up to 35% of the Portfolio's total assets may be invested in other DEBT
OBLIGATIONS including non-convertible preferred stock.

- ---------------------------------------------------
CONTRARIAN APPROACH
To achieve our value investment strategy, we generally take a strong contrarian
approach to investing. In other words, we usually buy securities that are out of
favor and that many other investors are selling, and we attempt to invest in
companies and industries before other investors recognize their true value.
Using these guidelines, we focus on long-term performance, not short-term gain.
- ---------------------------------------------------

When acquiring these types of securities, we usually invest in obligations rated
A or better by Moody's or S&P. We may also invest in obligations rated as low as
CC by Moody's or Ca by S&P. These securities are considered speculative and are
sometimes referred to as "junk bonds." We may also invest in instruments that
are not rated, but which we believe are of comparable quality to the instruments
described above.

Under normal circumstances, the Portfolio may invest up to 35% of its total
assets in high-quality MONEY MARKET INSTRUMENTS. In response to adverse market
conditions or when we are restructuring the Portfolio, we may temporarily invest
up to 100% of the Portfolio's assets in money market instruments. Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Portfolio's assets when the markets are
unstable.

The Portfolio may also invest in REAL ESTATE INVESTMENT TRUSTS (REITs). A REIT
is a company that manages a portfolio of real estate to earn profits for its
shareholders. Some REITs acquire equity interests in real estate and then
receive income from rents and capital gains when the buildings are sold. Other
REITs lend money to

<PAGE>

real estate developers and receive interest income from the mortgages. Some
REITs invest in both types of interests.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, market index, currency or some other
benchmark - will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with the Portfolio's overall
investment objective.

The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX. In a short sale
we sell a security we do not own to take advantage of an anticipated decline in
the security's price. The Portfolio borrows the security for delivery and if it
can buy the security later at a lower price, a profit results. A short sale is
"against-the-box" when the Portfolio owns an equal amount of the securities sold
short or owns securities that can be converted into the securities sold.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

ADDITIONAL STRATEGIES

- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is to seek A HIGH TOTAL RETURN
CONSISTENT WITH AN AGGRESSIVELY MANAGED DIVERSIFIED PORTFOLIO. To achieve our
objective, we invest in a mix of equity and equity-related securities, debt
obligations and money market instruments. We adjust the percentage of Portfolio
assets in each category depending on our expectations regarding the different
markets. While we make every effort to achieve our objective, we can't guarantee
success.

- ------------------------------------------------------
BALANCED PORTFOLIO
We invest in all three types of securities - equity, debt and money market - in
order

<PAGE>

to achieve diversification in a single portfolio. We seek to maintain a
more aggressive mix of investments than the Conservative Balanced Portfolio.
This Portfolio may be appropriate for an investor looking for diversification
who is willing to accept a relatively high level of loss in an effort to achieve
greater appreciation.
- ------------------------------------------------------

Generally, we will invest within the ranges shown below:

ASSET TYPE MINIMUM NORMAL MAXIMUM
- ----------------- ------- ------ -------
Stocks 25% 60% 100%
Fixed income securities 0% 40% 75%
Money market securities 0% 0% 75%

The stock portion of the Portfolio will be invested in a broadly diversified
portfolio of stocks generally consisting of large and mid-size companies,
although it may also hold stocks of smaller companies. We will invest in
companies and industries that, in our judgment, will provide either attractive
long-term returns, or are desirable to hold in the Portfolio to manage risk.

Most of the securities in the fixed income portion of this Portfolio will be
investment grade, however, we may also invest up to 25% of this portion of the
Portfolio in debt securities rated as low as BB, Ba or lower by a major rating
service at the time they are purchased. These high-yield or "junk bonds" are
riskier than higher rated bonds and are considered speculative. We may also
invest in instruments that are not rated, but which we believe are of comparable
quality to the instruments described above.

The fixed income portion of the Portfolio may also include LOAN PARTICIPATIONS.
In loan participations, the Portfolio will have a contractual relationship with
the lender but not with the borrower. This means the Portfolio will only have
rights to principal and interest received by the lender. It will not be able to
enforce compliance by the borrower with the terms of the loan and may not have a
right to any collateral securing the loan. If the lender becomes insolvent, the
Portfolio may be treated as a general creditor and will not benefit from any
set-off between the lender and the borrower.

The Portfolio may also invest up to 30% of its total assets in FOREIGN EQUITY
and DEBT SECURITIES that are not denominated in the U.S. dollar. In addition, up
to 20% of the Portfolio's total assets may be invested in debt securities that
are issued outside of the U.S. by foreign or U.S. issuers provided the
securities are denominated in U.S. dollars. For these purposes, we do not
consider American Depositary Receipts (ADRs) as foreign securities. (ADRs are
certificates representing the right to receive foreign securities that have been
deposited with a U.S. bank or a foreign branch of a U.S. bank.)

The money market portion of the Portfolio will be invested in high-quality money
market instruments. In response to adverse market conditions or when we are
restructuring the Portfolio, we may temporarily invest up to 100% of the
Portfolio's assets in money market instruments. Investing heavily in these
securities limits our ability to achieve our investment objective, but can help
to preserve the Portfolio's assets when the markets are unstable.

DERIVATIVES AND OTHER STRATEGIES

<PAGE>

We may: purchase and sell OPTIONS on equity securities, debt securities, stock
indexes, and foreign currencies; purchase and sell stock index, interest rate
and foreign currency FUTURES CONTRACTS and options on those contracts; enter
into FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and purchase securities on a
WHEN-ISSUED or DELAYED DELIVERY basis.

We may also use INTEREST RATE SWAPS in the management of the fixed income
portion of the Portfolio. In an interest rate swap the Portfolio and another
party agree to exchange interest payments. For example, the Portfolio may wish
to exchange a floating rate of interest for a fixed rate. We would enter into
this type of a swap if we think interest rates are going down.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

We may also invest in REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS in the
management of the fixed-income portion of the Portfolio. In a reverse repurchase
transaction, the Portfolio sells a security it owns and agrees to buy it back at
set price and date. During the period the security is held by the other party,
the Portfolio may continue to receive principal and interest payments on the
security. Dollar rolls involve the sale by the Portfolio of a security for
delivery in the current month with a promise to repurchase from the buyer a
substantially similar - but not necessarily the same - security at a set price
and date. During the "roll period," the Portfolio does not receive any principal
or interest on the security. Instead it is compensated by the difference between
the current sales price and the price of the future purchase, as well as any
interest earned on the cash proceeds from the original sale. The Portfolio will
not use more than 30% of its net assets in connection with reverse repurchase
transactions and dollar rolls.

ADDITIONAL STRATEGIES

<PAGE>

- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is LONG TERM GROWTH OF CAPITAL. To
achieve this objective, we invest primarily in equity and equity-related
securities of foreign and U.S. companies. While we make every effort to achieve
this objective, we can't guarantee success.

When selecting stocks, we use a growth approach which means we look for
companies that have above-average growth prospects. In making our stock picks,
we look for companies that have had growth in earnings and sales, high returns
on equity and assets or other strong financial characteristics. Often, the
companies we chose have superior management, a unique market niche or a strong
new product.

The Portfolio may invest up to 100% of its assets in MONEY MARKET INSTRUMENTS in
response to adverse market conditions or when we are restructuring the
Portfolio. Investing heavily in these securities limits our ability to achieve
our investment objective, but can help to preserve the Portfolio's assets when
the markets are unstable.

- ---------------------------------------------------
GLOBAL INVESTING
This Portfolio is intended to provide investors with the opportunity to invest
in companies located throughout the world. Although we are not required to
invest in a minimum number of countries, we intend generally to invest in at
least three countries, including the U.S. However, in response to market
conditions, we can invest up to 35% of the Portfolio's total assets in any one
country other than the U.S.
- --------------------------------------------------

DERIVATIVES AND OTHER STRATEGIES

We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell FUTURES CONTRACTS on stock indexes, debt
securities, interest rate indexes and foreign currencies and options on these
futures contracts; enter into FORWARD FOREIGN CURRENCY EXCHANGE contracts; and
purchase securities on a WHEN-ISSUED or DELAYED DELIVERY basis.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

<PAGE>

ADDITIONAL STRATEGIES

- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is A HIGH LEVEL OF INCOME OVER THE
LONGER TERM CONSISTENT WITH THE PRESERVATION OF CAPITAL. In pursuing our
objective, we invest primarily in intermediate and long-term U.S. Treasury
securities and debt obligations issued by agencies or instrumentalities
established, sponsored or guaranteed by the U.S. government. While we make every
effort to achieve this objective, we can't guarantee success.

Normally, we will invest at least 65% of the Portfolio's total assets in U.S.
GOVERNMENT SECURITIES, which include TREASURY SECURITIES, OBLIGATIONS ISSUED OR
GUARANTEED BY U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES and
MORTGAGE-RELATED SECURITIES issued by U.S. government instrumentalities or
non-governmental corporations.

MORTGAGE-RELATED SECURITIES are usually pass-through instruments that pay
investors a share of all interest and principal payments from an underlying pool
of fixed or adjustable rate mortgages.

- --------------------------------------------------
U.S. GOVERNMENT SECURITIES
U.S. government securities are considered among the most creditworthy of debt
securities. Because they are generally considered less risky, their yields tend
to be lower than the yields from corporate debt. Like all debt securities, the
values of U.S. government securities will change as interest rates change.
- --------------------------------------------------

We may invest in mortgage-related securities issued and guaranteed by the U.S.
government or its agencies like the Federal National Mortgage Association
(Fannie Maes) and the Government National Mortgage Association (Ginnie Maes) and
debt securities issued (but not guaranteed) by the Federal Home Loan Mortgage
Company (Freddie Macs). Private mortgage-related securities that are not
guaranteed by U.S. governmental entities generally have one or more types of
credit enhancement to ensure timely receipt of payments and to protect against
default.

Mortgage-related securities include COLLATERALIZED MORTGAGE OBLIGATIONS,
MULTI-CLASS PASS THROUGH SECURITIES and STRIPPED MORTGAGE-BACKED SECURITIES. A
collateralized mortgage backed obligation (CMO) is a security backed by an
underlying portfolio of mortgages or mortgage-backed securities that may be
issued or guaranteed by entities such as banks, U.S. governmental entities or
broker-dealers. A multi-class pass-through security is an equity interest in a
trust composed of underlying mortgage assets. Payments of principal and interest
on the mortgage assets and any reinvestment income provide the money to pay debt
service on the CMO or to make scheduled distributions on the multi-class
pass-through security. A stripped mortgage-backed security (MBS strip) may be
issued by U.S. governmental entities or by private institutions. MBS strips take
the pieces of a debt security (principal and interest) and break them apart. The
resulting securities may be sold separately and may perform differently. MBS
strips are highly sensitive to changes in prepayment and interest rates.

The Portfolio may invest up to 35% of its total assets in MONEY MARKET
INSTRUMENTS, FOREIGN GOVERNMENT SECURITIES (including those issued by
supranational organizations) denominated in U.S. dollars, ASSET-BACKED
SECURITIES rated in one of the top two ratings categories by Moody's or S&P (or
if unrated, of comparable quality in our judgment) and SECURITIES OF ISSUERS
(INCLUDING FOREIGN GOVERNMENTS) OTHER THAN THE U.S. GOVERNMENT AND RELATED
ENTITIES, where the principal and interest are substantially guaranteed by U.S.

<PAGE>

government agencies whose guarantee is backed by the full faith and credit of
the U.S. and where an assurance of payment on the unguaranteed portion is
provided for in a comparable way.

The Portfolio may invest up to 100% of its assets in MONEY MARKET INSTRUMENTS in
response to adverse market conditions or when restructuring the Portfolio.
Investing heavily in these securities limits our ability to achieve capital
appreciation, but can help to preserve the Portfolio's assets when the markets
are unstable.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, interest rate or some other benchmark -
will go up or down at some future date. We may use derivatives to try to reduce
risk or to increase return consistent with the Portfolio's overall investment
objective.

We may: purchase and sell OPTIONS on debt securities; purchase and sell interest
rate FUTURES CONTRACTS and options on these futures contracts; and purchase
securities on a WHEN-ISSUED or DELAYED DELIVERY basis.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

The Portfolio may use up to 30% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS and DOLLAR ROLLS. In a reverse repurchase transaction, the
Portfolio sells a security it owns and agrees to buy it back at an agreed price
and date. During the period the security is held by the other party, the
Portfolio may continue to receive principal and interest payments on the
security. Dollar rolls involve the sale by the Portfolio of a security for
delivery in the current month with a promise to repurchase from the buyer a
substantially similar - but not necessarily the same - security at a set price
and date in the future. During the "roll period," the Portfolio does not receive
any principal or interest on the security. Instead it is compensated by the
difference between the current sales price and the price of the future purchase,
as well as any interest earned on the cash proceeds from the original sale.

<PAGE>

ADDITIONAL STRATEGIES

- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is A HIGH TOTAL RETURN. In pursuing
our objective, we invest in high yield/high risk debt securities. While we make
every effort to achieve this objective, we can't guarantee success.

Normally, we will invest at least 80% of the Portfolio's total assets in medium
to lower rated debt securities. These high-yield or "junk bonds" are riskier
than higher rated bonds and are considered speculative.

The Portfolio may also invest up to 20% of its total assets in U.S. dollar
denominated DEBT SECURITIES issued outside the U.S. by foreign and U.S. issuers.

The Portfolio may also acquire convertible and nonconvertible debt securities
and preferred stock. The Portfolio will not invest in common stocks, except when
they are included as part of a debt security.

- --------------------------------------------------
HIGH YIELD/HIGH RISK

Lower rated and comparable unrated securities tend to offer better yields than
higher rated securities with the same maturities because the issuer's past
financial condition may not have been as strong as that of higher rated issuers.
Changes in the perception of the creditworthiness of the issuers of lower rated
securities tend to occur more frequently and in a more pronounced manner than
for issuers of higher rated securities.
- --------------------------------------------------

We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS. In loan participations, the Portfolio will have a contractual
relationship with the lender but not with the borrower. This means the Portfolio
will only have rights to principal and interest received by the lender. It will
not be able to enforce compliance by the borrower with the terms of the loan and
may not have a right to any collateral securing the loan. If the lender becomes
insolvent, the Portfolio may be treated as a general creditor and will not
benefit from any set-off between the lender and the borrower.

Under normal circumstances, the Portfolio may invest in MONEY MARKET INSTRUMENTS
and COMMERCIAL PAPER OF DOMESTIC CORPORATIONS. In response to adverse market
conditions or when we are restructuring the Portfolio, we may temporarily invest
up to 100% of the Portfolio's assets in money market instruments. Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Portfolio's assets when the markets are
unstable.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, interest rate or some other benchmark -
will go up or down at some future date. We may use derivatives to try to reduce
risk or to increase return consistent with the Portfolio's overall investment
objective.

<PAGE>

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

The Portfolio may use up to 30% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS and DOLLAR ROLLS. In a reverse repurchase transaction, the
Portfolio sells a security it owns and agrees to buy it back at a set price and
date. During the period the security is held by the other party, the Portfolio
may continue to receive principal and interest payments on the security. Dollar
rolls involve the sale by the Portfolio of a security for delivery in the
current month with a promise to repurchase from the buyer a substantially
similar - but not necessarily the same - security at a set price and date in the
future. During the "roll period," the Portfolio does not receive any principal
or interest on the security. Instead it is compensated by the difference between
the current sales price and the price of the future purchase, as well as any
interest earned on the cash proceeds from the original sale.

ADDITIONAL STRATEGIES

<PAGE>

- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

The investment objective of this Portfolio is to SEEK THE MAXIMUM CURRENT INCOME
THAT IS CONSISTENT WITH STABILITY OF CAPITAL AND MAINTENANCE OF LIQUIDITY. This
means we seek investments that we think will provide a high level of current
income. While we make every effort to achieve our objective, we can't guarantee
success.

We invest in a diversified portfolio of short-term debt obligations issued by
the U.S. government, its agencies and instrumentalities, as will well as
commercial paper, asset backed securities, funding agreements, certificates of
deposit, floating and variable rate demand notes, notes and other obligations
issued by banks, corporations and other companies (including trust structures),
and obligations issued by foreign banks, companies or foreign governments.

- ---------------------------------------------------
STEADY NET ASSET VALUE
The net asset value for the Portfolio will ordinarily remain at $10 per share
because dividends are declared and reinvested daily. The price of each share
remains the same, but you will have more shares when dividends are declared.
- ---------------------------------------------------

We make investments that meet the requirements of specific rules designed for
money market mutual funds, such as the Investment Company Act Rule 2a-7. As
such, we will not acquire any security with a remaining maturity exceeding
thirteen months, and we will maintain a dollar-weighted average portfolio of 90
days or less. In addition, we will comply with the diversification, quality and
other requirements of Rule 2a-7. This means, generally, that the instruments
that we purchase present "minimal credit risk" and are of "eligible quality."
"Eligible quality" for this purpose means a security is: (i) rated in one of the
two highest short-term rating categories by at least two major rating services
(or if only one major rating service has rated the security, as rated by that
service); or (ii) if unrated, of comparable quality in our judgment. All
securities that we purchase will be denominated in U.S. dollars.

COMMERCIAL PAPER is short-term debt obligations of banks, corporations and other
borrowers. The obligations are usually issued by financially strong businesses
and often include a line of credit to protect purchasers of the obligations. An
ASSET-BACKED SECURITY is a loan or note that pays interest based upon the cash
flow of a pool of assets, such as mortgages, loans and credit card receivables.
FUNDING AGREEMENTS are contracts issued by insurance companies that guarantee a
return of principal, plus some amount of interest. When purchased by money
market funds, funding agreements will typically be short-term and will provide
an adjustable rate of interest. CERTIFICATES OF DEPOSIT, TIME DEPOSITS and
BANKERS' ACCEPTANCES are obligations issued by or through a bank. These
instruments depend upon the strength of the bank involved in the borrowing to
give investors comfort that the borrowing will be repaid when promised.

We may purchase DEBT SECURITIES that include DEMAND FEATURES, which allow us to
demand repayment of a debt obligation before the obligation is due or "matures."
This means that longer term securities can be purchased because of our
expectation that we can demand repayment of the obligation at a set price within
a relatively short period of time, in compliance with the rules applicable to
money market mutual funds.

The Portfolio may also purchase FLOATING RATE and VARIABLE RATE securities.
These securities pay interest at rates that change periodically to reflect
changes in market interest rates. Because these securities adjust the interest
they pay, they may be beneficial when interest rates are rising because of the
additional return the Portfolio will receive, and they may be detrimental when
interest rates are falling because of the reduction in interest payments to the
Portfolio.

The securities that we may purchase may change over time as new types of money
market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
money market mutual funds.

<PAGE>

- --------------------------------------------------------------------------------
AN INVESTMENT IN THE PORTFOLIO IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT
$10 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE PORTFOLIO.
- --------------------------------------------------------------------------------

OTHER STRATEGIES

We may also use alternative investment strategies to try to improve the
Portfolio's returns, protect its assets or for short-term cash management. There
is no guarantee that these strategies will work, that the instruments necessary
to implement these strategies will be available or that the Portfolio will not
lose money.

We may purchase securities on a WHEN-ISSUED or DELAYED DELIVERY basis.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

The Portfolio may use up to 10% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS. In a reverse repurchase transaction, the Portfolio sells
a security it owns and agrees to buy it back at an agreed price and date. During
the period the security is held by the other party, the Portfolio may continue
to receive principal and interest payments on the security.

We will consider other factors (such as cost) in deciding whether to employ any
particular strategy or use any particular instrument. For more information about
these strategies, see the SAI, "Investment Objectives and Policies of the
Portfolios."

The Portfolio also follows certain policies when it BORROWS MONEY (the Portfolio
may borrow up to 5% of the value of its total assets) and holds ILLIQUID
SECURITIES (the Portfolio may hold up to 10% of its net assets in illiquid
securities, including securities with legal or contractual restrictions on
resale, those without a readily available market and repurchase agreements with
maturities longer than seven days). The Portfolio is subject to certain
investment restrictions that are fundamental policies, which means they cannot
be changed without shareholder approval. For more information about these
restrictions, see the SAI.

- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is to achieve LONG TERM GROWTH OF
CAPITAL. This means we seek investments whose price will increase over several
years. While we make every effort to achieve this objective, we can't guarantee
success.

In pursuing our objective, we normally invest 65% of the Portfolio's total
assets in common stocks and preferred stocks of companies with capitalization in
excess of $1 billion.

For the balance of the Portfolio, we may invest in COMMON STOCKS, PREFERRED
STOCKS and OTHER EQUITY-RELATED SECURITIES of companies that are undergoing
changes in management, product and/or marketing dynamics which we believe have
not yet been reflected in reported earnings or recognized by investors.

<PAGE>

In addition, we may invest in DEBT SECURITIES and mortgage-related securities.
These securities may be rated as low as Baa by Moody's or BBB by S&P (or if
unrated, of comparable quality in our judgment).

- ---------------------------------------------------
INVESTMENT STRATEGY
We seek to invest in equity securities of established companies with
above-average growth prospects. We select stocks on a company-by-company basis
using fundamental analysis. In making our stock picks, we look for companies
that have had growth in earnings and sales, high returns on equity and assets or
other strong financial characteristics. Often, the companies we choose have
superior management, a unique market niche or a strong new product.
- ---------------------------------------------------

The Portfolio may also invest in OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES. In addition, up to 30% of the
Portfolio's assets may be invested in FOREIGN EQUITY and EQUITY-RELATED
SECURITIES. For these purposes, we do not consider American Depositary Receipts
(ADRs) as foreign securities. (ADRs are certificates representing the right to
receive foreign securities that have been deposited with a U.S. bank or a
foreign branch of a U.S. bank.)

In response to adverse market conditions or when restructuring the Portfolio, we
may invest up to 100% of the Portfolio's assets in MONEY MARKET INSTRUMENTS.
Investing heavily in these securities limits our ability to achieve our
investment objective, but can help to preserve the Portfolio's assets when the
markets are unstable.

DERIVATIVES AND OTHER STRATEGIES

We may also use alternative investment strategies - including DERIVATIVES - to
try to improve the Portfolio's returns, protect its assets or for short-term
cash management. There is no guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Portfolio will not lose money. With derivatives, we try to predict whether
the underlying investment - a security, market index, currency or some other
benchmark - will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with the Portfolio's overall
investment objective.

We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on those futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

ADDITIONAL STRATEGIES

The Portfolio also follows certain policies when it BORROWS money (the Portfolio
may borrow up to 5% of the value of its total assets); LENDS ITS SECURITIES; and
holds ILLIQUID SECURITIES (the Portfolio may hold up to 15% of its net assets in
illiquid securities, including securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than seven days). The

<PAGE>

Portfolio is subject to certain investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.

- --------------------------------------------------------------------------------
STOCK INDEX PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Portfolio is to achieve INVESTMENT RESULTS THAT
GENERALLY CORRESPOND TO THE PERFORMANCE OF PUBLICLY-TRADED COMMON STOCKS. To
achieve this goal, we attempt to duplicate the performance of the Standard &
Poor's 500 Stock Index (S&P 500 Index). While we make every effort to achieve
this objective, we can't guarantee success.

Under normal conditions, we attempt to invest in all 500 stocks represented in
the S&P 500 Index in proportion to their weighting in the Index. We will attempt
to remain as fully invested in the S&P 500 stocks as possible in light of cash
flow into and out of the Portfolio.

- -------------------------------------------------------
S&P 500 INDEX
We attempt to duplicate the performance of the S&P 500 Index, a market-weighted
index which represents more than 70% of the market value of all publicly-traded
common stocks.
- -------------------------------------------------------

To manage investments and redemptions in the Portfolio, we may temporarily hold
cash or invest in high-quality MONEY MARKET INSTRUMENTS. To the extent we do so,
the Portfolio's performance will differ from that of the Index. We attempt to
minimize differences in the performance of the Portfolio and the Index by using
stock index FUTURES contracts, OPTIONS on stock indexes and options on stock
index futures contracts. The Portfolio will not use these derivative securities
for speculative purposes or to hedge against a decline in the value of the
Portfolio's holdings.

ALTERNATIVE STRATEGIES

We may also use alternative investment strategies to try to improve the
Portfolio's returns or for short-term cash management. There is no guarantee
that these strategies will work, that the instruments necessary to implement
these strategies will be available or that the Portfolio will not lose money.

We may: purchase and sell OPTIONS on stock indexes and purchase and sell stock
index FUTURES contracts and options on those futures contracts.

The Portfolio may also enter into REPURCHASE AGREEMENTS. In a repurchase
transaction, the Portfolio agrees to purchase certain securities and the seller
agrees to repurchase the same securities at a set price on a specified date.
This creates a fixed return for the Portfolio. The Portfolio may participate
with certain other Portfolios of the Fund in a JOINT REPURCHASE ACCOUNT under an
order obtained from the SEC. In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.

We will consider factors such as cost and volatility in deciding whether to
employ any particular strategy or use any particular instrument. For more
information about these strategies, see the SAI, "Investment Objectives and
Policies of the Portfolios."

<PAGE>

ADDITIONAL STRATEGIES

- --------------------------------------------------------------------------------
A STOCK'S INCLUSION IN THE S&P 500 INDEX IN NO WAY IMPLIES S&P'S OPINION AS TO
THE STOCK'S ATTRACTIVENESS AS AN INVESTMENT. THE PORTFOLIO IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY S&P. S&P MAKES NO REPRESENTATIONS REGARDING THE
ADVISABILITY OF INVESTING IN THE PORTFOLIO. "STANDARD & POOR'S," "STANDARD &
POOR'S 500" AND "500" ARE TRADEMARKS OF MCGRAW HILL.
- --------------------------------------------------------------------------------

<PAGE>

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Portfolios is no
exception. This chart outlines the key risks and potential rewards of the
principal investments and certain other investments each Portfolio may make. See
also, "Investment Objectives and Policies of the Portfolios" in the SAI.

INVESTMENT
TYPE PORTFOLIO & % OF ASSETS RISKS POTENTIAL REWARDS
================= ================================= ============================================ ===================================
<S> <C> <C> <C>
HIGH-QUALITY ALL PORTFOLIOS o Credit risk - the risk that the borrower o Regular interest income
MONEY MARKET can't pay back the money borrowed
OBLIGATIONS OF (% VARIES)
ALL TYPES o Market risk - the risk that the o Generally more secure than
obligations may lose value because stocks since companies must pay
interest rates change or these is a lack their debts before they pay
of confidence in the borrower dividends

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
EQUITY AND EQUITY SECURITIES: o Individual stocks could lose value o Historically, stocks have
EQUITY-RELATED ALL PORTFOLIOS EXCEPT outperformed other investments
SECURITIES GOVERNMENT INCOME, o The equity markets could go down, over the long term
MONEY MARKET resulting in a decline in value of a
Portfolio's investments o Generally, economic growth
(% VARIES) means higher corporate profits,
o Companies that pay dividends may not do which leads to an increase in
so if they don't have profits or stock prices, known as capital
EQUITY-RELATED SECURITIES: adequate cash flow appreciation
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, EQUITY, o May be a source of
EQUITY INCOME, FLEXIBLE MANAGED, o Changes in economic or political dividend income
GLOBAL, HIGH YIELD BOND, conditions, both U.S. and international,
PRUDENTIAL JENNISON may result in a decline in the value of
a Portfolio's investments
(% VARIES)
o Small-cap companies are more likely to o Highly successful small-cap
reinvest earnings and not pay dividends companies can outperform larger
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
<S> <C> <C> <C>
o Changes in interest rates may affect the ones
companies securities of small- and
medium-sized more than the securities of
larger companies

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
INVESTMENT ALL PORTFOLIOS EXCEPT STOCK o A Portfolio's holdings, share price, and o Bonds have generally
GRADE DEBT INDEX total return may fluctuate in response outperformed money market
SECURITIES to bond market movements instruments over the long
(% VARIES) term with less risk than stocks
o Credit risk - the default of an issuer
would leave a Portfolio with unpaid o Most bonds will rise in value
interest or principal. The lower a when interest rates fall
bond's quality, the higher its potential
volatility o Regular interest income

o Market risk - the risk that the market o Investment grade bonds have a
value of an investment may move up or lower risk of default
down, sometimes rapidly or
unpredictably. Market risk may affect an o Generally more secure than
industry, sector, or the market as a stocks since companies must pay
whole their debts before they pay
dividends
o Interest rate risk - the value of most
bonds will fall when interest rates
rise; the longer a bond's maturity and
the lower its credit quality, the more
its value typically falls. It can lead
to price volatility

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
HIGH-YIELD CONSERVATIVE BALANCED, o Higher market risk o May offer higher interest
DEBT SECURITIES DIVERSIFIED BOND, EQUITY, income than higher quality
(JUNK BONDS) EQUITY INCOME, FLEXIBLE o Higher credit risk debt securities
MANAGED, HIGH YIELD BOND
o May be more illiquid (harder to value
(% VARIES) and sell), in which case valuation
would depend more on the investment
adviser's judgment than is generally the
case with higher rated securities
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
<S> <C> <C> <C>
FOREIGN CONSERVATIVE BALANCED, o Foreign markets, economies and political o Investors can participate in
SECURITIES DIVERSIFIED BOND, EQUITY, systems may not be as stable as in the the growth of foreign markets
EQUITY INCOME, FLEXIBLE U.S. and companies operating in
MANAGED, GLOBAL, GOVERNMENT those markets
INCOME, HIGH YIELD BOND, o Currency risk - changing values of
MONEY MARKET, PRUDENTIAL foreign currencies o Changing value of foreign
JENNISON currencies
o May be less liquid than U.S. stocks and
(% VARIES) bonds o Opportunities for
diversification
o Differences in foreign laws, accounting
standards, public information, custody
OPTIONS ON FOREIGN CURRENCIES: and settlement practices
CONSERVATIVE BALANCED,
EQUITY, EQUITY INCOME, o Year 2000 conversion may be more of a
FLEXIBLE MANAGED, GLOBAL, problem for some foreign issuers
PRUDENTIAL JENNISON

(% VARIES)

FUTURES ON FOREIGN CURRENCIES:
CONSERVATIVE BALANCED,
EQUITY, EQUITY INCOME,
FLEXIBLE MANAGED, GLOBAL,
PRUDENTIAL JENNISON

(% VARIES)

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
DERIVATIVES OPTIONS ON EQUITY SECURITIES: o Derivatives, such as futures, options o A Portfolio could make money
CONSERVATIVE BALANCED, and foreign currency forward contracts, and protect against losses if
EQUITY, EQUITY INCOME, may not fully offset the underlying the investment analysis proves
FLEXIBLE MANAGED, GLOBAL, positions and this could result in correct
PRUDENTIAL JENNISON, losses to a Portfolio that would not
STOCK INDEX have otherwise occurred o Derivatives that involve
leverage could generate
substantial gains at
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
<S> <C> <C> <C>
low cost
(% VARIES) o Derivatives used for risk management may
not have the intended effects and may o One way to manage a Portfolio's
result in losses or missed opportunities risk/return balance is to lock
in the value of an investment
OPTIONS ON DEBT SECURITIES: o The other party to a derivatives ahead of time
CONSERVATIVE BALANCED, contract could default
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GOVERNMENT INCOME, o Derivatives that involve leverage could
HIGH YIELD BOND magnify losses

(% VARIES)
o Certain types of derivatives involve
costs to a Portfolio that can reduce
returns
OPTIONS ON STOCK INDEXES:
CONSERVATIVE BALANCED,
EQUITY, EQUITY INCOME,
FLEXIBLE MANAGED, GLOBAL,
PRUDENTIAL JENNISON,
STOCK INDEX

(% VARIES)

FUTURES CONTRACTS ON STOCK
INDEXES:
CONSERVATIVE BALANCED,
EQUITY, EQUITY INCOME,
FLEXIBLE MANAGED, GLOBAL,
PRUDENTIAL JENNISON,
STOCK INDEX

(% VARIES)

FUTURES ON DEBT SECURITIES
AND INTEREST RATE INDEXES:
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GLOBAL,
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

(% VARIES)

INTEREST RATE SWAPS:
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GOVERNMENT INCOME,
HIGH YIELD BOND

(% VARIES)

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
MORTGAGE GOVERNMENT INCOME, o Prepayment risk - the risk that the o Regular interest income
BACKED & MONEY MARKET, underlying mortgage or other debt may be
ASSET BACKED PRUDENTIAL JENNISON prepaid partially or completely, o Pass-through instruments
SECURITIES generally, during periods of falling provide greater diversification
(% VARIES) interest rates, which could adversely than direct ownership of loans
affect yield to maturity and could
require a Portfolio to reinvest in o Certain mortgage-backed
lower-yielding securities securities may benefit from
security interest in real
o Credit risk - the risk that the estate collateral
underlying mortgages or receivables will
not be paid by debtors or by credit
insurers or guarantors of such
instruments and thus may involve greater
risk

o Market risk

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
REAL ESTATE CONSERVATIVE BALANCED, o Performance depends on the strength o Real estate holdings can
INVESTMENT EQUITY INCOME, of real estate markets, REIT management generate good returns from
TRUSTS FLEXIBLE MANAGED and property management which can be rents, rising market values,
(REITS) affected by many factors, including etc.
(% VARIES) national and regional economic
conditions o Greater diversification than
direct ownership
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
<S> <C> <C> <C>
ILLIQUID ALL PORTFOLIOS EXCEPT MONEY o May be difficult to value precisely o May offer a more attractive
SECURITIES MARKET (15% OF ITS NET ASSETS) yield than more widely traded
o May be difficult to sell at the time or securities
MONEY MARKET PORTFOLIO (10% OF price desired
ITS NET ASSETS)

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
LOAN CONSERVATIVE BALANCED, o Credit risk o May offer right to receive
PARTICIPATIONS DIVERSIFIED BOND, FLEXIBLE principal, interest and fees
MANAGED, HIGH YIELD BOND, o Market risk without as much risk as lender
MONEY MARKET
o A Portfolio has no rights against the
(% VARIES) borrower in the event the borrower does
not repay the loan

- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
WHEN-ISSUED WHEN-ISSUED AND DELAYED o Use of such instruments and strategies o Use of instruments may magnify
AND DELAYED DELIVERY SECURITIES: may magnify underlying investment underlying investment gains
DELIVERY CONSERVATIVE BALANCED, losses
SECURITIES, DIVERSIFIED BOND, EQUITY,
REVERSE EQUITY INCOME, FLEXIBLE o Investment costs may exceed potential
REPURCHASE MANAGED, GLOBAL, GOVERNMENT underlying investment gains
AGREEMENTS, INCOME, HIGH YIELD BOND,
DOLLAR ROLLS MONEY MARKET, PRUDENTIAL
AND SHORT JENNISON
SALES
(% VARIES)

REVERSE REPURCHASE AGREEMENTS:
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GOVERNMENT INCOME,
HIGH YIELD BOND, MONEY MARKET
AND THE
- ----------------- --------------------------------- -------------------------------------------- -----------------------------------
</TABLE>

<PAGE>

(% VARIES)

DOLLAR ROLLS:
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GOVERNMENT INCOME,
HIGH YIELD BOND

(% VARIES)

SHORT SALES:
CONSERVATIVE BALANCED,
DIVERSIFIED BOND, FLEXIBLE
MANAGED, GOVERNMENT INCOME,
HIGH YIELD BOND

(% VARIES)

SHORT SALES AGAINST THE BOX:
ALL PORTFOLIOS EXCEPT THE
MONEY MARKET PORTFOLIO

(% VARIES)
================= ================================= ============================================ ===================================
</TABLE>

<PAGE>

HOW THE PORTFOLIOS ARE MANAGED

- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------

Prudential serves as the overall investment adviser for the Fund. Founded in
1875, it is responsible for the management of the Fund and provides investment
advice and related services to each Portfolio. As of December 31, 1998,
Prudential had total assets under management of approximately $334 billion.
Prudential is located at 751 Broad Street, Newark, New Jersey 07102-3777.

Prudential is currently considering reorganizing itself into a publicly traded
stock company through a process known as "demutualization." On February 10,
1998, the Company's Board of Directors authorized management to take the
preliminary steps necessary to allow the Company to demutualize. On July 1,
1998, legislation was enacted in New Jersey that would permit this conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption of a
plan by the Company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval, all of which could take two or more years
to complete. Prudential's management and Board of Directors have not yet
determined to demutualize and it is possible that, after careful review,
Prudential could decide not to go public.

The following chart lists the total investment advisory fees paid in 1998 as a
percentage of the Portfolio's average net assets.

- --------------------------------------------- ---------------------------------
TOTAL ADVISORY FEES AS %
PORTFOLIO OF AVERAGE NET ASSETS
- --------------------------------------------- ---------------------------------

Conservative Balanced 0.55
Diversified Bond 0.40
Equity 0.45
Equity Income 0.40
Flexible Managed 0.60
Global 0.75
Government Income 0.40
High Yield Bond 0.55
Money Market 0.40
Prudential Jennison 0.60
Stock Index 0.35

- --------------------------------------------------------------------------------
INVESTMENT SUB-ADVISERS
- --------------------------------------------------------------------------------

For each Portfolio, a sub-adviser provides day-to-day investment management.
Prudential pays the sub-adviser out of the fee Prudential receives from the
Fund.

Prudential Investment Corporation (PIC), a wholly owned subsidiary of
Prudential, provides substantially all of the investment advisory services for
the Portfolios, except the services described below. PIC's address is 751 Broad
Street, Newark, New Jersey 07102-3777.

<PAGE>

Jennison Associates LLC (Jennison), a wholly owned subsidiary of Prudential,
provides substantially all of the investment advisory services for the
Prudential Jennison Portfolio. Jennison's address is 466 Lexington Avenue, New
York, New York 10017. As of December 31, 1998, Jennison had over $46 billion in
assets under management for institutional and mutual fund clients.

- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

Prudential's fixed-income group is organized by teams that specialize in sector.
The Fixed Income Investment Policy Committee, which is comprised of senior
investment staff from each sector team, provides guidance to the teams regarding
duration risk, asset allocations and general risk parameters. Each of the
portfolio managers of the fixed-income Portfolios (or the fixed income portion
of a Portfolio) contributes bottom-up securities selection within those
guidelines and is responsible for the day-to-day management of the Portfolio.

CONSERVATIVE BALANCED PORTFOLIO & FLEXIBLE MANAGED PORTFOLIO

These Portfolios are managed by a team of portfolio managers. Mark Stumpp,
Ph.D., Senior Managing Director of Prudential Investments, a division of
Prudential, has been the lead portfolio manager of the Portfolios since 1994 and
is responsible for the overall asset allocation decisions.

Warren Spitz, Managing Director of Prudential Investments, has been a portfolio
manager of the Portfolios since 1995 and manages a portion of each Portfolio's
equity holdings.

Jose Rodriguez, Managing Director of Prudential Investments, has been a
portfolio manager of the Portfolios since 1993 and is responsible for the debt
portion of the Portfolios. Mr. Rodriquez has been a portfolio manager for
Prudential Investments since 1988.

John Moschberger, CFA, Vice President of Prudential Investments, manages the
portions of each Portfolio designed to duplicate the performance of the S&P 500
Index. Mr. Moschberger joined Prudential in 1980 and has been a portfolio
manager since 1986.

DIVERSIFIED BOND PORTFOLIO AND GOVERNMENT INCOME PORTFOLIO

These Portfolios are managed by Ms. Barbara Kenworthy who has been the manager
of each since 1995. Ms. Kenworthy is a Managing Director of Prudential
Investments. Before joining Prudential in 1994, she served as president and
portfolio manager for several Dreyfus fixed-income funds. Ms. Kenworthy has over
30 years of investment experience and is a member of the Treasury Borrowing
Advisory Committee of the Public Securities Association.

EQUITY PORTFOLIO

Thomas Jackson, Managing Director of Prudential Investments, has managed this
Portfolio since 1990. Mr. Jackson, a Managing Director of PIC, joined PIC in
1990 and has over 30 years of professional equity investment management
experience. He was formerly co-chief investment officer of Red Oak Advisers and
Century Capital Associates, each a private money management firm, where he
managed pension and other accounts for institutions and individuals. Mr. Jackson
was also with The Dreyfus Corporation where he managed and served as president
of the Dreyfus Fund. Mr. Jackson began managing at Chase Manhattan Bank. He is a
member of the New York Society of Security Analysts.

EQUITY INCOME PORTFOLIO

Warren Spitz, Managing Director of Prudential Investments, has managed this
Portfolio since 1988. (See description under "Conservative Balanced Portfolio &
Flexible Managed Portfolio," above.)

GLOBAL PORTFOLIO

Daniel Duane, CFA, Managing Director of Prudential Investments, Ingrid Holm,
CFA, Vice President of Prudential Investments and Michelle Picker, CFA, Vice
President of Prudential Investments, have been co-

<PAGE>

managers of this Portfolio since 1997. Mr. Duane has managed the Portfolio since
1990. Ms. Holm has assisted in the management of Prudential mutual funds since
1994 and has managed 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 groups
since 1992 and has managed a portion of Prudential's general account.

HIGH YIELD BOND PORTFOLIO

George Edwards, CFA, Managing Director of Prudential Investments, has managed
this Portfolio since 1997. Mr. Edwards is a Managing Director of Prudential
Investments. Before joining the Prudential mutual fund group, Mr. Edwards worked
in Prudential's investment grade bond unit. He was previously an analyst at
McCarthy, Crisanti & Maffei (now MCM-Duff & Phelps).

MONEY MARKET PORTFOLIO

Manolita Brasil, Investment Manager of Prudential Investments, has managed this
Portfolio since 1996. She joined Prudential in 1981 and served as an assistant
portfolio manager for six years before she was appointed manager of the P-B
International Money Fund in 1994.

PRUDENTIAL JENNISON PORTFOLIO

Since 1999, this Portfolio has been managed by Spiros "Sig" Segalas, James N.
Kannry, CFA, and Kathleen A. McCarragher. Mr. Segalas is a founding member and
President and Chief Investment Officer of Jennison. He has been in the
investment business for over 35 years.

Mr. Kannry, a Director and Executive Vice President of Jennison, has been part
of the Jennison team since 1972. He spent more than a dozen years as part of
Jennison's research team before assuming portfolio management responsibilities
several years ago. He holds a Chartered Financial Analyst designation and is a
member of the New York Society of Security Analysts.

Ms. McCarragher, Director and Executive Vice President of Jennison, is also
Jennison's Growth Equity Investment Strategist, having joined Jennison last year
after a 20 year investment career, including positions with Weiss, Peck & Greer
(1992-1998) and State Street Research and Management Company, where she was a
member of the Investment Committee.

STOCK INDEX PORTFOLIO

John Moschberger, CFA, Vice President of Prudential Investments, has managed
this Portfolio since 1990. (See description under "Conservative Balanced
Portfolio & Flexible Managed Portfolio," above.)

HOW TO BUY AND SELL SHARES OF THE FUND

The Fund offers two classes of shares in each Portfolio: Class I and Class II.
Class I shares are sold only to separate accounts of Prudential as investment
options under variable life insurance and variable annuity contracts including
the Discovery Select(TM) Group Variable Annuity Contracts. (A separate account
is simply an accounting device used to keep the assets invested in certain
insurance contracts separate from the general assets and liabilities of the
insurance company.) Class II shares are offered only to separate accounts of
non-Prudential insurance companies for the same types of contracts.

HOW TO BUY AND SELL SHARES

The only way to invest in the Portfolios is through certain variable life
insurance and variable annuity contracts. Together with this prospectus, you
should have received a prospectus for the Discovery Select(TM) Group Variable
Annuity Contracts. You should refer to that prospectus for further information
on investing in the Portfolios.

Class I shares of a Portfolio are sold without any sales charge at the net asset
value of the Portfolio. Class I shares do not have a distribution or
administration fee.

<PAGE>

Shares are redeemed for cash within seven days of receipt of a proper notice of
redemption or sooner if required by law. There is no redemption charge. We may
suspend the right to redeem shares or receive payment when the New York Stock
Exchange is closed (other than weekends or holidays), when trading on the New
York Stock Exchange is restricted, or as permitted by the SEC.

NET ASSET VALUE

When you purchase or sell shares of a Portfolio the price you will pay or
receive, as the case may be, is based on the share's value. This is known as the
net asset value or NAV. The price at which a purchase or redemption is made is
based on the next calculation of the NAV after the order is placed. The NAV of
each share class of each Portfolio (except the Money Market Portfolio) is
determined once a day - at 4:15 p.m. New York Time - on each day the New York
Stock Exchange is open for business. If the New York Stock Exchange closes early
on a day, the Portfolios' NAVs will be calculated some time between the closing
time and 4:15 p.m. on that day. The NAV for the Money Market Portfolio is
determined at 12:00 p.m. on each day the New York Stock Exchange is open for
business.

The NAV for each of the Portfolios other than the Money Market Portfolio is
determined by a simple calculation. It's the total value of a Portfolio (assets
minus liabilities) divided by the total number of shares outstanding. The NAV
for the Money Market Portfolio will ordinarily remain at $10 per share because
dividends are declared and reinvested daily. (The price of each share remains
the same but you will have more shares when dividends are declared.)

To determine a Portfolio's NAV, its holdings are valued as follows:

EQUITY SECURITIES are generally valued at the last sale price on an exchange or
NASDAQ, or if there is not sale, at the mean between the most recent bid and
asked prices on that day. If there is no asked price, the security will be
valued at the bid price. Equity securities that are not sold on an exchange or
NASDAQ are generally valued by an independent pricing agent or principal market
maker.

A Portfolio may own securities that are primarily listed on foreign exchanges
that trade on weekends or other days when the Portfolios do not price their
shares. Therefore, the value of a Portfolio's assets may change on days when
shareholders cannot purchase or redeem Portfolio shares.

All SHORT-TERM DEBT SECURITIES held by the Money Market Portfolio are valued at
amortized cost. Short-term debt securities with remaining maturities of 12 month
or less held by the Conservative Balanced and Flexible Managed Portfolios are
valued on an amortized cost basis. For the other Portfolios, debt securities
with remaining maturities of 60 days or less are valued on an amortized cost
basis. This valuation method is widely used by mutual funds. It means that the
security is valued initially at its purchase price and then decreases in value
by equal amounts each day until the security matures. It almost always results
in a value that is extremely close to the actual market value. The Fund's Board
of Directors has established procedures to monitor whether any material
deviation between valuation and market value occurs and if so, will promptly
consider what action, if any, should be taken to prevent unfair results to
Contract owners.

OTHER DEBT SECURITIES -- those that are not valued on an amortized cost basis --
are valued using an independent pricing service.

OPTIONS ON STOCK AND STOCK INDEXES that are traded on a national securities
exchange are valued at the average of the bid and asked prices as of the close
of that exchange.

FUTURES CONTRACTS and OPTIONS ON FUTURES CONTRACTS are valued at the last sale
price at the close of the commodities exchange or board of trade on which they
are traded. If there has been no sale that day, the securities will be valued at
the mean between the most recently quoted bid and asked prices on that exchange
or board of trade.

SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE AVAILABLE will be valued at fair
value by Prudential under the direction of the Fund's Board of Directors.

<PAGE>

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. PIMS' principle business
address is 751 Broad Street, Newark, New Jersey 07102-3777.

OTHER INFORMATION

FEDERAL INCOME TAXES

If you own or are considering purchasing a variable contract, you should consult
the prospectus for the variable contract for tax information about that variable
contract. You should also consult with a qualified tax adviser for information
and advice.

The SAI provides information about certain tax laws applicable to the Fund.

YEAR 2000

The services provided to the Fund and the shareholders by the Fund's investment
adviser, sub-advisers, distributor, transfer agent and custodians depend on the
smooth functioning of their computer systems and those of 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 Fund, the Fund's investment adviser, sub-advisers, distributor,
transfer agent and custodians have advised the Fund that they have been actively
working on necessary changes to their computer systems to prepare for the year
2000. The Fund and its Directors receive and have received since mid-1998
satisfactory quarterly reports from the principal service providers as to their
preparations for year 2000 readiness, although there can be no assurance that
the service providers (or other securities market participants) will
successfully complete the necessary changes in a timely manner or that there
will be no adverse impact on the Fund. Moreover, the Fund at this time has not
considered retaining alternative service providers or directly undertaken
efforts to achieve year 2000 readiness, the latter of which would involve
substantial expenses without an assurance of success.

Additionally, issuers of securities generally as well as those purchased by the
Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and result in a decline in the value of the securities held
by the Fund.

MONITORING FOR POSSIBLE CONFLICTS

The Fund sells its shares to fund variable life insurance contracts and variable
annuity contracts and may offer its shares to qualified retirement plans.
Because of differences in tax treatment and other considerations, it is possible
that the interest of variable life insurance contract owners, variable annuity
contract owners and participants in qualified retirement plans could conflict.
The Fund will monitor the situation and in the event that a material conflict
did develop, the Fund would determine what action, if any, to take in response.

FINANCIAL HIGHLIGHTS

<PAGE>

reinvestment of all dividends and other distributions. The charts do not reflect
charges under any variable contract. The information is for Class I for the
periods indicated.

The information for the three years ended December 31, 1998, has been audited by
PricewaterhouseCoopers LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. The information
for the two years ended December 31, 1995, was audited by other independent
auditors whose report was also unqualified.

<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights will help you evaluate the financial performance of
each Portfolio. The total return in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.

The information for the THREE YEARS ENDED DECEMBER 31, 1998 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE TWO YEARS ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.66 0.76 0.66 0.63 0.53
Net realized and unrealized gains
(losses) on investments.............. 1.05 1.26 1.24 1.78 (0.68)
-------- -------- -------- -------- --------
Total from investment operations... 1.71 2.02 1.90 2.41 (0.15)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.66) (0.76) (0.66) (0.64) (0.51)
Distributions from net realized
gains................................ (0.94) (1.81) (1.03) (0.56) (0.15)
-------- -------- -------- -------- --------
Total distributions................ (1.60) (2.57) (1.69) (1.20) (0.66)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 11.74% 13.45% 12.63% 17.27% (0.97)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,796.0 $4,744.2 $4,478.8 $3,940.8 $3,501.1
Ratios to average net assets:
Expenses............................. 0.57% 0.56% 0.59% 0.58% 0.61%
Net investment income................ 4.19% 4.48% 4.13% 4.19% 3.61%
Portfolio turnover rate................ 167% 295% 295% 201% 125%
</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.

1-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.

<TABLE>
<CAPTION>
DIVERSIFIED BOND
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.69 0.80 0.76 0.76 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.08 0.11 (0.27) 1.29 (1.04 )
-------- -------- -------- -------- --------
Total from investment operations... 0.77 0.91 0.49 2.05 (0.36 )
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.69) (0.83) (0.73) (0.75 ) (0.68 )
Distributions from net realized
gains................................ (0.04) (0.13) -- (0.03 ) (0.02 )
-------- -------- -------- -------- --------
Total distributions................ (0.73) (0.96) (0.73) (0.78 ) (0.70 )
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 7.15% 8.57% 4.40% 20.73% (3.23 )%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,122.6 $816.7 $720.2 $655.8 $541.6
Ratios to average net assets:
Expenses............................. 0.42% 0.43% 0.45% 0.44% 0.45%
Net investment income................ 6.40% 7.18% 6.89% 7.00% 6.41%
Portfolio turnover rate................ 199% 224% 210% 199% 32%
</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.

2-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
EQUITY
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $21.49
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.60 0.69 0.71 0.55 0.51
Net realized and unrealized gains on
investments.......................... 2.21 5.88 3.88 5.89 0.05
--------- --------- --------- --------- --------
Total from investment operations... 2.81 6.57 4.59 6.44 0.56
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.60) (0.70) (0.67) (0.52) (0.49)
Distributions from net realized
gains................................ (3.64) (1.76) (2.60) (0.94) (0.90)
--------- --------- --------- --------- --------
Total distributions................ (4.24) (2.46) (3.27) (1.46) (1.39)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $20.66
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL INVESTMENT RETURN:(b)............ 9.34% 24.66% 18.52% 31.29% 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $6,247.0 $6,024.0 $4,814.0 $3,813.8 $2,617.8
Ratios to average net assets:
Expenses............................. 0.47% 0.46% 0.50% 0.48% 0.55%
Net investment income................ 1.81% 2.27% 2.54% 2.28% 2.39%
Portfolio turnover rate................ 25% 13% 20% 18% 7%
</TABLE>

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

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

3-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
EQUITY INCOME
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 22.39 $ 18.51 $ 16.27 $ 14.48 $ 15.66
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.56 0.61 0.58 0.64 0.66
Net realized and unrealized gains
(losses) on investments.............. (1.03) 6.06 2.88 2.50 (0.46)
-------- -------- -------- -------- --------
Total from investment operations... (0.47) 6.67 3.46 3.14 0.20
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.59) (0.57) (0.71) (0.62) (0.56)
Distributions from net realized
gains................................ (1.30) (2.22) (0.51) (0.73) (0.82)
-------- -------- -------- -------- --------
Total distributions................ (1.89) (2.79) (1.22) (1.35) (1.38)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ (2.38)% 36.61% 21.74% 21.70% 1.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,142.3 $2,029.8 $1,363.5 $1,110.0 $859.7
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.45% 0.43% 0.52%
Net investment income................ 2.54% 2.90% 3.36% 4.00% 3.92%
Portfolio turnover rate................ 20% 38% 21% 64% 63%
</TABLE>

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

4-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.58 0.59 0.57 0.56 0.47
Net realized and unrealized gains
(losses) on investments.............. 1.14 2.52 1.79 3.15 (1.02)
--------- --------- --------- --------- ---------
Total from investment operations... 1.72 3.11 2.36 3.71 (0.55)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.59) (0.58) (0.58) (0.56) (0.45)
Distributions from net realized
gains................................ (1.85) (3.04) (1.85) (0.79) (0.46)
--------- --------- --------- --------- ---------
Total distributions................ (2.44) (3.62) (2.43) (1.35) (0.91)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 10.24% 17.96% 13.64% 24.13% (3.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,410.0 $5,490.1 $4,896.9 $4,261.2 $3,481.5
Ratios to average net assets:
Expenses............................. 0.61% 0.62% 0.64% 0.63% 0.66%
Net investment income................ 3.21% 3.02% 3.07% 3.30% 2.90%
Portfolio turnover rate................ 138% 227% 233% 173% 124%
</TABLE>

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

5-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GLOBAL
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.07 0.09 0.11 0.06 0.02
Net realized and unrealized gains
(losses) on investments.............. 4.38 1.11 2.94 2.14 (0.74)
--------- --------- --------- --------- ---------
Total from investment operations... 4.45 1.20 3.05 2.20 (0.72)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.16) (0.13) (0.11) (0.24) (0.02)
Dividends in excess of net investment
income............................... (0.12) (0.10) -- -- --
Distributions from net realized
gains................................ (0.93) (0.90) (0.62) (0.31) (0.02)
--------- --------- --------- --------- ---------
Total distributions................ (1.21) (1.13) (0.73) (0.55) (0.04)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 25.08% 6.98% 19.97% 15.88% (4.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $844.5 $638.4 $580.6 $400.1 $345.7
Ratios to average net assets:
Expenses............................. 0.86% 0.85% 0.92% 1.06% 1.23%
Net investment income................ 0.29% 0.47% 0.64% 0.44% 0.20%
Portfolio turnover rate................ 73% 70% 41% 59% 37%
</TABLE>

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

6-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GOVERNMENT INCOME
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.52 $ 11.22 $ 11.72 $ 10.46 $ 11.78
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.75 0.75 0.74 0.70
Net realized and unrealized gains
(losses) on investments.............. 0.36 0.30 (0.51) 1.28 (1.31)
--------- --------- --------- --------- ---------
Total from investment operations... 1.03 1.05 0.24 2.02 (0.61)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.68) (0.75) (0.74) (0.76) (0.71)
Dividends in excess of net investment
income............................... --(c) -- -- -- --
--------- --------- --------- --------- ---------
Total distributions................ (0.68) (0.75) (0.74) (0.76) (0.71)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 9.09% 9.67% 2.22% 19.48% (5.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $443.2 $429.6 $482.0 $501.8 $487.6
Ratios to average net assets:
Expenses............................. 0.43% 0.44% 0.46% 0.45% 0.45%
Net investment income................ 5.71% 6.40% 6.38% 6.55% 6.30%
Portfolio turnover rate................ 109% 88% 95% 195% 34%
</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.

7-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
HIGH YIELD BOND
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.77 0.78 0.80 0.81 0.87
Net realized and unrealized gains
(losses) on investments.............. (0.94) 0.26 0.06 0.46 (1.10)
-------- -------- -------- -------- --------
Total from investment operations... (0.17) 1.04 0.86 1.27 (0.23)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.77) (0.78) (0.84) (0.81)
Dividends in excess of net investment
income............................... -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total distributions................ (0.76) (0.77) (0.79) (0.84) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ (2.36)% 13.78% 11.39% 17.56% (2.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $789.3 $568.7 $432.9 $367.9 $306.2
Ratios to average net assets:
Expenses............................. 0.58% 0.57% 0.63% 0.61% 0.65%
Net investment income................ 10.31% 9.78% 9.89% 10.34% 9.88%
Portfolio turnover rate................ 63% 106% 88% 139% 69%
</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.

8-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
MONEY MARKET
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and realized and
unrealized gains..................... 0.52 0.54 0.51 0.56 0.40
Dividends and distributions............ (0.52) (0.54) (0.51) (0.56) (0.40)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL INVESTMENT RETURN:(b)............ 5.39% 5.41% 5.22% 5.80% 4.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $920.2 $657.5 $668.8 $613.3 $583.3
Ratios to average net assets:
Expenses............................. 0.41% 0.43% 0.44% 0.44% 0.47%
Net investment income................ 5.20% 5.28% 5.10% 5.64% 4.02%
</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.

9-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
-----------------------------------------------------------
YEAR ENDED APRIL 25, 1995(d)
DECEMBER 31, TO
---------------------------------------- DECEMBER 31,
1998 1997 1996 1995(a)
------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.73 $ 14.32 $ 12.55 $ 10.00
------------- ----------- ----------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 6.56 4.48 1.78 2.54
------------- ----------- ----------- -------
Total from investment operations... 6.60 4.52 1.80 2.56
------------- ----------- ----------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (0.38) (1.07) -- --
------------- ----------- ----------- -------
Total distributions................ (0.42) (1.11) (0.03) (0.01)
------------- ----------- ----------- -------
Net Asset Value, end of period......... $ 23.91 $ 17.73 $ 14.32 $ 12.55
------------- ----------- ----------- -------
------------- ----------- ----------- -------
TOTAL INVESTMENT RETURN:(b)............ 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 54% 60% 46% 37%
</TABLE>

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

(d) Commencement of operations.

10-Series Fund
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
STOCK INDEX
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.42 0.43 0.40 0.40 0.38
Net realized and unrealized gains
(losses) on investments.............. 8.11 7.34 4.06 5.13 (0.23)
--------- --------- --------- --------- --------
Total from investment operations... 8.53 7.77 4.46 5.53 0.15
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.42) (0.42) (0.40) (0.38) (0.37)
Distributions from net realized
gains................................ (0.59) (0.87) (0.28) (0.15) (0.02)
--------- --------- --------- --------- --------
Total distributions................ (1.01) (1.29) (0.68) (0.53) (0.39)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL INVESTMENT RETURN:(B)............ 28.42% 32.83% 22.57% 37.06% 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $3,548.1 $2,448.2 $1,581.4 $1,031.3 $664.5
Ratios to average net assets:
Expenses............................. 0.37% 0.37% 0.40% 0.38% 0.42%
Net investment income................ 1.25% 1.55% 1.95% 2.27% 2.50%
Portfolio turnover rate................ 3% 5% 1% 1% 2%
</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.

11-Series Fund
<PAGE>

For More Information

Additional information about the Fund and each Portfolio
can be obtained upon request without charge and
can be found in the following documents:

Statement of Additional Information (SAI)
(incorporated by reference into this prospectus)

Annual Report

(including a discussion of market conditions and strategies that significantly
affected the Portfolios' performance during the previous year)

Semi-Annual Report

To obtain these documents or to ask any questions about the Fund:

- Call toll-free (800) 778-2255

- Write to Prudential Series Fund, 751 BROAD STREET,
NEWARK, NJ 07102-3777

You can also obtain copies of Fund documents from the
Securities and Exchange Commission as follows:

BY MAIL:

Securities and Exchange Commission

Public Reference Section

Washington, DC 20549-6009

(The SEC charges a fee to copy documents.)

IN PERSON:

Public Reference Room

IN WASHINGTON, DC

(For hours of operation, call 1(800) SEC-0330.)

VIA THE INTERNET:
http://www.sec.gov

SEC File No. 811-03623