PRUDENTIAL SERIES FUND INC, 497, 1999-10-15

PRUDENTIAL SERIES FUND INC
497, 1999-10-15

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PORTFOLIOS*:
- ----------------------------------------
Diversified Bond, Diversified
Conservative Growth, Equity, Equity
Income, Global, High Yield Bond, Money
Market, Prudential Jennison, Small
Capitalization Stock, Stock Index, 20/20
Focus

INVESTMENT OBJECTIVE:
- ----------------------------------------
The Investment Objectives of these
Portfolios can be found within the
Series Fund Prospectus

THE PRUDENTIAL

SERIES FUND, INC.

- --------------------------------------------------------------------------------
PROSPECTUS: MAY 1, 1999

As supplemented October 15, 1999

* This prospectus is for use with the Dicovery Choice and Discovery Select(R)
Annuity Contracts, as it describes only those portfolios available for
investment through that contract. This prospectus should be read in
conjunction with the current prospectus for the Dicovery Choice and
Discovery Select(R) Annuity Contracts.

[LOGO]
Prudential
Investments

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

1
<PAGE>

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

RISK/RETURN SUMMARY
- -------------------
DIVERSIFIED BOND PORTFOLIO ................................................ 3
Investment Objective and Principal Strategies ............................. 3
Principal Risks ........................................................... 3
Evaluating Performance .................................................... 4
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO ................................. 4
Investment Objective and Principal Strategies ............................. 4
Principal Risks ........................................................... 5
Evaluating Performance .................................................... 5
EQUITY PORTFOLIO .......................................................... 5
Investment Objective and Principal Strategies ............................. 5
Principal Risks ........................................................... 6
Evaluating Performance .................................................... 6
EQUITY INCOME PORTFOLIO ................................................... 7
Investment Objective and Principal Strategies ............................. 7
Principal Risks ........................................................... 7
Evaluating Performance .................................................... 8
GLOBAL PORTFOLIO .......................................................... 9
Investment Objective and Principal Strategies ............................. 9
Principal Risks ........................................................... 9
Evaluating Performance .................................................... 9
HIGH YIELD BOND PORTFOLIO ................................................. 10
Investment Objective and Principal Strategies ............................. 10
Principal Risks ........................................................... 10
Evaluating Performance .................................................... 11
MONEY MARKET PORTFOLIO .................................................... 12
Investment Objective and Principal Strategies ............................. 12
Principal Risks ........................................................... 12
Evaluating Performance .................................................... 12
PRUDENTIAL JENNISON PORTFOLIO ............................................. 13
Investment Objective and Principal Strategies ............................. 13
Principal Risks ........................................................... 13
Evaluating Performance .................................................... 14
SMALL CAPITALIZATION STOCK PORTFOLIO ...................................... 15
Investment Objective and Principal Strategies ............................. 15
Principal Risks ........................................................... 15
Evaluating Performance .................................................... 15
STOCK INDEX PORTFOLIO ..................................................... 16
Investment Objective and Principal Strategies ............................. 16
Principal Risks ........................................................... 16
Evaluating Performance .................................................... 17
20/20 FOCUS PORTFOLIO ..................................................... 18
Investment Objective and Principal Strategies ............................. 18
Principal Risks ........................................................... 18
Evaluating Performance .................................................... 18

HOW THE PORTFOLIOS INVEST
- -------------------------
Diversified Bond Portfolio ............................................... 19
Diversified Conservative Growth Portfolio ................................ 22
Equity Portfolio ......................................................... 25
Equity Income Portfolio .................................................. 27
Global Portfolio ......................................................... 29
High Yield Bond Portfolio ................................................ 30
Money Market Portfolio ................................................... 32
Prudential Jennison Portfolio ............................................ 34
Small Capitalization Stock Portfolio ..................................... 36
Stock Index Portfolio .................................................... 37
20/20 Focus Portfolio .................................................... 39

HOW THE PORTFOLIOS ARE MANAGED
- ------------------------------
Investment Adviser ....................................................... 46
Investment Sub-Advisers .................................................. 46
Portfolio Managers ....................................................... 47

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

OTHER INFORMATION
- -----------------
Federal Income Taxes ..................................................... 52
Year 2000 ................................................................ 52
Monitoring for Possible Conflicts ........................................ 52

FINANCIAL HIGHLIGHTS
- --------------------
Diversified Bond Portfolio ............................................... 53
Equity Portfolio ......................................................... 54
Equity Income ............................................................ 55
Global Portfolio ......................................................... 56
High Yield Bond .......................................................... 57
Money Market Portfolio ................................................... 58
Prudential Jennison Portfolio ............................................ 59
Small Capitalization Stock Portfolio ..................................... 60
Stock Index Portfolio .................................................... 61

FOR MORE INFORMATION ........................................ (Back Cover)

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2
<PAGE>

RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

THIS PROSPECTUS IS FOR USE WITH THE DISCOVERY CHOICE AND DISCOVERY SELECT(R)
ANNUITY CONTRACTS AND DESCRIBES ONLY THOSE PORTFOLIOS OF THE PRUDENTIAL SERIES
FUND, INC. (THE FUND) THAT ARE AVAILABLE FOR INVESTMENT THROUGH THAT CONTRACT.
THIS PROSPECTUS SHOULD BE READ TOGETHER WITH THE CURRENT PROSPECTUS FOR THE
DISCOVERY CHOICE AND DISCOVERY SELECT(R) 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(R) Annuity
Contract: DIVERSIFIED BOND PORTFOLIO, DIVERSIFIED CONSERVATIVE GROWTH
PORTFOLIO, EQUITY PORTFOLIO, EQUITY INCOME PORTFOLIO, GLOBAL PORTFOLIO,
HIGH YIELD BOND PORTFOLIO, MONEY MARKET PORTFOLIO, PRUDENTIAL JENNISON
PORTFOLIO, SMALL CAPITALIZATION STOCK PORTFOLIO, STOCK INDEX PORTFOLIO,
20/20 FOCUS 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).

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.

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."

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

3
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

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.

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
13.49% 8.32% 16.44% 7.19% 10.13% -3.23% 20.73% 4.40% 8.57% 7.15%

- --------------------------------------------------------------------------------
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.

- ----------------------------------------
AVERAGE ANNUAL RETURNS* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
SINCE
INCEPTION
1 YR 5 YRS 10 YRS (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.

DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is to provide CURRENT INCOME AND A REASONABLE
LEVEL OF CAPITAL APPRECIATION. To achieve our objective, we will invest in
a diversified portfolio of debt and equity securities. Up to 35% of the
Portfolio's total assets may be invested in high-yield/high-risk debt
securities which have speculative characteristics and generally are riskier
than higher-rated securities. The Portfolio may also invest in foreign
securities including debt obligations of issuers in emerging markets. While
we make every effort to achieve our objective, we can't guarantee success.

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

4
<PAGE>

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

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Since a
majority of the Portfolio's assets are usually invested 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.

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 values of all stocks are likely to drop.

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. Investing in markets of developing
countries involves exposure to economies that are generally less diverse
and mature, and to political systems that can be expected to have less
stability than those of developed countries.

EVALUATING PERFORMANCE

The Portfolio commenced operations in 1999, so there is no performance
history to report.

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.

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

5
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

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.

EVALUATING PERFORMANCE

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------

================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
29.73% -5.21% 26.01% 14.17% 21.87% 2.78% 31.29% 18.52% 24.66% 9.34%

- --------------------------------------------------------------------------------
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.

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

6
<PAGE>

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

- ----------------------------------------
AVERAGE ANNUAL RETURNS* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
SINCE
INCEPTION
1 YR 5 YRS 10 YRS (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.

PRINCIPAL RISKS

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.

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

7
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

EVALUATING PERFORMANCE

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
22.67% -3.73% 27.50% 10.14% 22.28% 1.44% 21.70% 21.74% 36.61% -2.38%

- --------------------------------------------------------------------------------
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.

- ----------------------------------------
AVERAGE ANNUAL RETURNS* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
SINCE
INCEPTION
1 YR 5 YRS 10 YRS (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.

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

8
<PAGE>

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

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

PRINCIPAL RISKS

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

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

9
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
18.82% -12.91% 11.39% -3.42% 43.14% -4.89% 15.88% 19.97% 6.98% 25.08%

- --------------------------------------------------------------------------------
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.

- ----------------------------------------
AVERAGE ANNUAL RETURNS* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
SINCE
INCEPTION
1 YR 5 YRS 10 YRS (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.

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.

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

10
<PAGE>

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

EVALUATING PERFORMANCE

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
-2.05% -11.84% 38.99% 17.53% 19.27% -2.72% 17.56% 11.39% 13.78% -2.36%

- --------------------------------------------------------------------------------
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 YR 5 YRS 10 YRS (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.

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

11
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

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.

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. They demonstrate how returns can change
from year to year. Past performance does not assure that the Portfolio will
achieve similar results in the future.

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

12
<PAGE>

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

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
9.25% 8.16% 6.16% 3.79% 2.95% 4.05% 5.80% 5.22% 5.41% 5.39%

- --------------------------------------------------------------------------------
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.

- ----------------------------------------
AVERAGE ANNUAL RETURNS* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
SINCE
INCEPTION
1 YR 5 YRS 10 YRS (5/13/83)
- --------------------------------------------------------------------------------
Class I shares 5.39% 5.18% 5.61% 6.39%
- --------------------------------------------------------------------------------
Lipper Average** 5.10% 4.92% 5.32% 6.02%
- --------------------------------------------------------------------------------

- ----------------------------------------
7-DAY YIELD* (AS OF 12/31/98)
- ----------------------------------------
================================================================================
Money Market Portfolio 4.96%
- --------------------------------------------------------------------------------
Average Money Market Fund*** 4.53%
- --------------------------------------------------------------------------------

* THE PORTFOLIO'S RETURNS AND YIELD 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
RETURNS OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY
PRODUCTS. THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT
NOT PAID PRODUCT 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

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

13
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

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.

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.

- --------------------------------
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 YR (4/25/95)
- --------------------------------------------------------------------------------
Class I shares 37.46% 29.60%
- --------------------------------------------------------------------------------
S&P 500** 28.60% 9.32%
- --------------------------------------------------------------------------------
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.

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

14
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

SMALL CAPITALIZATION STOCK PORTFOLIO
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is to achieve LONG-TERM GROWTH OF CAPITAL. To
achieve this objective, we invest primarily in equity securities of
publicly-traded companies with small market capitalization. WE ATTEMPT TO
DUPLICATE THE PRICE AND YIELD PERFORMANCE OF THE STANDARD & POOR'S SMALL
CAPITALIZATION STOCK INDEX (THE S&P SMALLCAP INDEX). The market
capitalization of the companies that make up the S&P SmallCap Index may
change from time to time - as of February 28, 1999, the S&P SmallCap stocks
had market capitalizations of between $18 million and $3.4 billion.

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

PRINCIPAL RISKS

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 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.

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

15
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1996 1997 1998
- --------------------------------------------------------------------------------
19.77% 25.17% -0.76%

- --------------------------------------------------------------------------------
BEST QUARTER: 18.08% (4th quarter of 1998)
WORST QUARTER: (20.61)% (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 YR (4/25/95)
- --------------------------------------------------------------------------------
Class I shares (0.76)% 17.04%
- --------------------------------------------------------------------------------
S&P SmallCap 600 Index** (1.31)% 17.83%
- --------------------------------------------------------------------------------
Lipper Average*** 1.48% 16.61%
- --------------------------------------------------------------------------------

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

** THE S&P SMALLCAP 600 INDEX IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE
AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 600 SMALL COMPANY STOCKS.
THE S&P SMALLCAP 600 INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS 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 MONTH-END
RETURN (4/30/95). SOURCE: LIPPER, INC.

*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) SMALL CAP 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 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 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.

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

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

16
<PAGE>

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

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.

- --------------------------------
ANNUAL RETURNS* (CLASS I SHARES)
- --------------------------------
================================================================================
1989 1991 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
30.93% -3.63% 29.72% 7.13% 9.66% 1.01% 37.06% 22.57% 32.83 28.42%

- --------------------------------------------------------------------------------
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 YR 5 YRS 10 YRS (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.

*** 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.

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

17
<PAGE>

RISK/RETURN SUMMARY CONTINUED
- --------------------------------------------------------------------------------

20/20 FOCUS PORTFOLIO
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is LONG-TERM GROWTH OF CAPITAL. We seek to achieve
this goal by investing primarily in up to 40 equity securities of U.S.
companies that are selected by the Portfolio's two portfolio managers (up
to 20 by each) as having strong capital appreciation potential. One manager
will use a "value" approach which means he will attempt to identify strong
companies selling at a discount from their perceived true value. The other
manager will use a "growth" approach, which means he seeks companies that
exhibit higher-than-average earnings growth. Up to 20% of the Portfolio's
total assets may be invested in foreign securities. While we make every
effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Because our strategy for the Portfolio involves investing primarily in 40
or fewer securities, there is the risk that a loss resulting from the
decline in value of one security may represent a greater portion of the
total assets of the Portfolio than a portfolio that invests in a greater
number of securities. In addition, the Portfolio's investments may not be
as widely spread across sectors of the economy as a portfolio with a
greater number of securities. Thus, the Portfolio's performance may be more
sensitive to developments in a single sector of the economy than other
portfolios.

EVALUATING PERFORMANCE

The Portfolio commenced operations in 1999, so there is no performance
history to report.

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

18
<PAGE>

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.

DIVERSIFIED BOND PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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 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.

Usually at least 80% of the Portfolio's total assets will be invested in
debt securities that are "investment 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 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.

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

19
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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

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 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.

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.

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.

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

20
<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 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.

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.

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.

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

21
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
ASSET ALLOCATION

This Portfolio is designed for investors who want investment professionals
to make their asset allocation decisions for them and are seeking current
income and low to moderate capital appreciation.

We have contracted with four highly regarded sub-advisers who each
will manage a portion of the Portfolio's assets. In this way, the Portfolio
offers diversification not only of asset type, but also of investment
style. Investors in this Portfolio should have both sufficient time and
tolerance for risk to accept periodic declines in the value of their
investment.
---------------------------------------------------------------------------

Our investment objective is to provide CURRENT INCOME AND A REASONABLE
LEVEL OF CAPITAL APPRECIATION. We seek to achieve this objective by
investing in a diversified portfolio of debt and equity securities. While
we make every effort to achieve our objective, we can't guarantee success.

Under normal market conditions, we invest approximately 60% of the
Portfolio's total assets in debt securities of varying maturities with a
dollar-weighted average portfolio maturity of between 4 and 15 years. (The
maturity of a bond is the number of years until the principal is due and
payable. Weighted average maturity is calculated by adding the maturities
of all of the bonds in the Portfolio and dividing by the number of bonds on
a dollar-weighted basis.)

The types of debt securities in which we can invest include U.S. government
securities, corporate debt obligations, asset-backed securities,
inflation-indexed bonds of governments and corporations and commercial
paper. These debt securities will generally be investment grade. We may
also invest up to 35% of the Portfolio's total assets in lower rated
securities that are riskier and considered speculative. At the time these
high-yield or "junk bonds" are purchased they will have a minimum rating of
B by Moody's, S&P or another major rating service. We may also invest in
instruments that are not rated, but which we believe are of comparable
quality to the instruments described above.

Up to 25% of the Portfolio's total assets may be invested in debt
obligations issued or guaranteed by foreign governments, their agencies and
instrumentalities, supranational organizations, and foreign corporations or
financial institutions. Up to 10% of the Portfolio's total assets may be
invested in debt obligations of issuers in emerging markets.

The Portfolio will normally invest approximately 40% of its total assets in
equity and equity related securities issued by U.S. and foreign companies.
Up to 15% of the Portfolio's total assets may be invested in FOREIGN EQUITY
SECURITIES, including those of companies in emerging markets. 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.)

Generally, the Portfolio's assets will be allocated as shown in the table
below. However, we may rebalance the Portfolio's assets at any time or add
or eliminate portfolio segments, in accordance with the Portfolio's
investment objective and policies.

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

22
<PAGE>

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

<TABLE>
<CAPTION>
====================================================================================================================================
% OF ASSETS ASSET CLASS SUB-ADVISOR INSTRUCTMENT STYLE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40% FIXED INCOME Pacific Investment Management Company Mostly high-quality debt instruments
- ------------------------------------------------------------------------------------------------------------------------------------
20% FIXED INCOME The Prudential Investment Corporation High-yield debt, including junk bonds and
emerging market debt
- ------------------------------------------------------------------------------------------------------------------------------------
15% EQUITIES Jennison Associates LLC Growth-oriented, focusing on large-cap stocks
- ------------------------------------------------------------------------------------------------------------------------------------
15% EQUITIES The Prudential Investment Corporation Value-oriented, focusing on large-cap stocks
- ------------------------------------------------------------------------------------------------------------------------------------
5% EQUITIES The Dreyfus Corporation Value-oriented, focusing on small-cap and
mid-cap stocks
- ------------------------------------------------------------------------------------------------------------------------------------
5% EQUITIES Franklin Advisors, Inc. Growth-oriented, focusing on small-cap and
mid-cap stocks
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

We may also invest in MORTGAGE-RELATED SECURITIES. These 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. 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.

We may also invest in debt securities of the U.S. Treasury and corporations
that have been issued without interest coupons or that have been stripped
of their interest coupons, or have interest coupons that have been stripped
from the debt obligation. These are often called STRIPPED SECURITIES.

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.

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

23
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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
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, debt securities,
financial indexes, and U.S. government securities; engage in FOREIGN
CURRENCY EXCHANGE CONTRACTS and related options; purchase and write PUT and
CALL OPTIONS ON FOREIGN CURRENCIES; trade CURRENCIES FUTURE CONTRACTS and
options on those contracts; purchase and sell FUTURES CONTRACTS on debt
securities, U.S. government securities, financial indexes and interest
rates and related options; and invest in DELAYED DELIVERY and WHEN-ISSUED
securities.

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
5% 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.

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 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 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.

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

24
<PAGE>

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

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.

EQUITY PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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.

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."

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.

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

25
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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."

ADDITIONAL STRATEGIES

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

26
<PAGE>

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

EQUITY INCOME PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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 DEBT
OBLIGATIONS including non-convertible preferred stock. 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 real estate developers and receive interest
income from the mortgages. Some REITs invest in both types of interests.

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

27
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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 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

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

28
<PAGE>

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

GLOBAL PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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.

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 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.

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

29
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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

HIGH YIELD BOND PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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.

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

30
<PAGE>

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

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.

DERIVIATIVES 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 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.

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

31
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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.

MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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 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.

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 or
credit card receivables. FUNDING agreements are contracts issued by
insurance companies that guarantee a return of principal, plus some amount
of interest. When purchased

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

32
<PAGE>

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

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.

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.

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

33
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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

---------------------------------------------------------------------------
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 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. 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).

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.

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

34
<PAGE>

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

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

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

35
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

SMALL CAPITALIZATION STOCK PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
S&P SMALLCAP INDEX

We attempt to duplicate the performance of the Standard & Poor's Small
Capitalization Stock Index, a market-weighted index which consists of 600
smaller capitalization U.S. stocks.

The market capitalization of the companies that make up the S&P
SmallCap Index may change from time to time - as of February 28, 1999, the
S&P SmallCap stocks had market capitalizations of between $18 million and
$3.4 billion. They are selected for market size, liquidity and industry
group. The S&P SmallCap Index has above-average risk and may fluctuate more
than the S&P 500 Index.
---------------------------------------------------------------------------

The investment objective of this Portfolio is 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.

To achieve this objective, we attempt to duplicate the performance of the
S&P SmallCap Index. Normally we do this by investing in all or a
representative sample of the STOCKS in the S&P Small Cap Index. Thus, the
Portfolio is not "managed" in the traditional sense of using market and
economic analyses to select stocks.

The Portfolio may also hold CASH or CASH EQUIVALENTS, in which case its
performance will differ from the Index's. We attempt to minimize these
differences 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 equity securities and stock indexes;
purchase and sell stock index futures contracts and options on those
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.

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

36
<PAGE>

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

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."

ADDITIONAL STRATEGIES

For more information about these restrictions, see the SAI.

A STOCK'S INCLUSION IN THE S&P SMALL CAP 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 SMALL CAPITALIZATION STOCK INDEX"
AND "STANDARD & POOR'S SMALLCAP 600" ARE TRADEMARKS OF MCGRAW HILL.

STOCK INDEX PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

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 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.

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

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

37
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

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.

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.

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.

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

38
<PAGE>

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

20/20 FOCUS PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES

---------------------------------------------------------------------------
VALUE & GROWTH APPROACHES

Our strategy is to combine the efforts of two outstanding portfolio
managers, each with a different investment style, and to invest in only the
favorite stock picks of each manager.

One manager will invest using a value approach, which means he will
attempt to identify strong companies selling at a discount from their
perceived true value. The other manager will use a growth approach, which
means he seeks companies that exhibit higher-than-average earnings growth.
---------------------------------------------------------------------------

To achieve this objective, the Portfolio will invest primarily in up to 40
equity securities of U.S. companies that are selected by the Portfolio's
two portfolio managers as having strong capital appreciation potential.
Each portfolio manager will manage his own portion of the Portfolio's
assets, which will usually include a maximum of 20 securities. Because the
Portfolio will be investing in 40 or fewer securities, an investment in
this Portfolio may be riskier than an investment in a more widely
diversified fund. We intend to be fully invested, holding less than 5% in
cash, under normal market conditions.

Normally, the Portfolio will invest at least 80% of its total assets in
common stocks and equity-related securities such as PREFERRED STOCKS,
CONVERTIBLE STOCKS, and equity interests in PARTNERSHIPS, JOINT VENTURES
and OTHER NONCORPORATE ENTITIES. We may also invest in warrants and similar
rights that can be exercised for equity securities, but will not invest
more than 5% of the Portfolio's total assets in unattached warrants or
rights. The Portfolio may invest up to 20% of its total assets in CASH,
OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES and DERIVATIVES. Up to 20% of the Portfolio's total
assets may be invested in FOREIGN 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.)

We may invest in high quality MONEY MARKET INSTRUMENTS. 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

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

39
<PAGE>

HOW THE PORTFOLIOS INVEST CONTINUED
- --------------------------------------------------------------------------------

not lose money. With derivatives, we try to predict whether the underlying
investment - a 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 financial indexes that are traded on
U.S or foreign securities exchanges or in the over-the-counter market;
purchase and sell FUTURES contracts on stock indexes and foreign currencies
and options on those contracts; and purchase or sell 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
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. 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. We may also use up to 25% of
the Portfolio's net assets for SHORT SALES AGAINST-THE-BOX which means the
Portfolio owns securities identical to those sold short.

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

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.

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

40
<PAGE>

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

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

o Small-cap companies are
more likely to reinvest
earnings and not pay
dividends

o Changes in interest rates
may affect the securities
of small- and
medium-sized companies
more than the securities
of larger companies.

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

INVESTMENT GRADE ALL PORTFOLIOS EXCEPT: o A Portfolio's holdings, o Bonds have generally
DEBT SECURITIES SMALL CAPITALIZATION STOCK, share price, yield, and outperformed money market
STOCK INDEX, 20/20 FOCUS total return may instruments over the long
% VARIES fluctuate in response to term with less risk than
bond market movements stocks

o Credit risk - the default o Most bonds will rise in
of an issuer would leave value when interest rates
a Portfolio with unpaid fall
interest or principal.
The lower a bond's o Regular interest income
quality, the higher its
potential volatility

- ------------------------------------------------------------------------------------------------------------------------------------
THIS CHART CONTINUES ON THE NEXT PAGE
</TABLE>

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

41
<PAGE>

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

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

FOREIGN SECURITIES DIVERSIFIED BOND, DIVERSIFIED o Foreign markets, o Investors can participate
CONSERVATIVE GROWTH, EQUITY, economies and political in the growth of foreign
EQUITY INCOME, GLOBAL, HIGH systems may not be as markets and companies
YIELD BOND, MONEY MARKET, stable as in the U.S. operating in those
PRUDENTIAL JENNISON, 20/20 markets
FOCUS o Currency risk - changing
% VARIES values of foreign o Changing value of foreign
currencies currencies
OPTIONS ON FOREIGN
CURRENCIES: o May be less liquid than o Opportunities for
DIVERSIFIED CONSERVATIVE U.S. stocks and bonds diversification
GROWTH, EQUITY, EQUITY INCOME,
GLOBAL, PRUDENTIAL JENNISON o Differences in foreign
% VARIES laws, accounting
standards, public
information, custody and
FUTURES ON FOREIGN settlement practices
CURRENCIES:
DIVERSIFIED CONSERVATIVE o Year 2000 conversion may
GROWTH, EQUITY, EQUITY INCOME, be more of a problem for
GLOBAL, PRUDENTIAL JENNISON, some foreign issuers
20/20 FOCUS
% VARIES

- ------------------------------------------------------------------------------------------------------------------------------------
THIS CHART CONTINUES ON THE NEXT PAGE
</TABLE>

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

42
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------
PORTFOLIO AND % OF --------------------------------------------------------------------------------
INVESTMENT TYPE (CONT.) PORTFOLIO'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DERIVATIVES OPTIONS ON EQUITY o Derivatives, such as o A Portfolio could make
SECURITIES: futures, options and money and protect against
DIVERSIFIED CONSERVATIVE foreign currency forward losses if the investment
GROWTH, EQUITY, EQUITY INCOME, contracts, may not fully analysis proves correct
GLOBAL, PRUDENTIAL JENNISON, offset the underlying
SMALL CAPITALIZATION STOCK, positions and this could o Derivatives that involve
STOCK INDEX result in losses to a leverage could generate
% VARIES Portfolio that would not substantial gains at low
have otherwise occurred cost
OPTIONS ON DEBT SECURITIES:
DIVERSIFIED BOND, DIVERSIFIED o Derivatives used for risk o One way to manage a
CONSERVATIVE GROWTH, HIGH management may not have Portfolio's risk/return
YIELD BOND the intended effects and balance is to lock in the
% VARIES may result in losses or value of an investment
missed opportunities ahead of time
OPTIONS ON STOCK INDEXES:
o The other party to a
DIVERSIFIED CONSERVATIVE derivatives contract
GROWTH, EQUITY, EQUITY INCOME, could default
GLOBAL, PRUDENTIAL JENNISON,
SMALL CAPITALIZATION STOCK, o Derivatives that involve
STOCK INDEX, 20/20 FOCUS leverage could magnify
% VARIES losses

FUTURES CONTRACTS ON STOCK o Certain types of
INDEXES: derivatives involve costs
DIVERSIFIED CONSERVATIVE to a Portfolio that can
GROWTH, EQUITY, EQUITY INCOME, reduce returns
GLOBAL, PRUDENTIAL JENNISON,
SMALL CAPITALIZATION STOCK,
STOCK INDEX, 20/20 FOCUS
% VARIES

FUTURES ON DEBT SECURITIES AND
INTEREST RATE INDEXES:

DIVERSIFIED BOND, DIVERSIFIED
CONSERVATIVE GROWTH, HIGH
YIELD BOND
% VARIES

INTEREST RATE SWAPS:
DIVERSIFIED BOND, DIVERSIFIED
CONSERVATIVE GROWTH, HIGH
YIELD BOND
% VARIES

- ------------------------------------------------------------------------------------------------------------------------------------
THIS CHART CONTINUES ON THE NEXT PAGE
</TABLE>

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

43
<PAGE>

o Credit risk - the risk
that the 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

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

ZERO COUPON BONDS DIVERSIFIED CONSERVATIVE o Typically subject to o Value rises faster when
GROWTH greater volatility and interest rates fall
less liquidity in adverse
markets than other debt
securities

o Credit risk

o Market risk

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

REAL ESTATE EQUITY INCOME, 20/20 FOCUS o Performance depends on o Real estate holdings can
INVESTMENT TRUSTS % VARIES the strength of real generate good returns
(REITS) estate markets, REIT from rents, rising market
management and property values, etc.
management which can be
affected by many factors, o Greater diversification
including national and than direct ownership
regional economic
conditions

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

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

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

- ------------------------------------------------------------------------------------------------------------------------------------
THIS CHART CONTINUES ON THE NEXT PAGE
</TABLE>

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

44
<PAGE>

REVERSE REPURCHASE AGREEMENTS:
DIVERSIFIED BOND, DIVERSIFIED
CONSERVATIVE GROWTH, HIGH
YIELD BOND, MONEY MARKET AND
THE MONEY MARKET PORTION OF
ANY PORTFOLIO
% VARIES

DOLLAR ROLLS:
DIVERSIFIED BOND, DIVERSIFIED
CONSERVATIVE GROWTH, HIGH
YIELD BOND
% VARIES

SHORT SALES:
DIVERSIFIED BOND, DIVERSIFIED
CONSERVATIVE GROWTH, HIGH
YIELD BOND, 20/20 FOCUS
% VARIES

SHORT SALES AGAINST THE BOX:
ALL PORTFOLIOS EXCEPT THE
MONEY MARKET
% VARIES

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

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

45
<PAGE>

HOW THE PORTFOLIOS ARE MANAGED
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

The Prudential Life Insurance Company of America (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. For the two new
Portfolios, the following chart describes the fee arrangement.

<TABLE>
<CAPTION>
FEE ARRANGEMENT (1998)
- -------------------------------------------------------------------------------------------------
PORTFOLIO TOTAL ADVISORY FEES AND % OF AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------
<S> <C>
Diversified Bond 0.40
- -------------------------------------------------------------------------------------------------
Diversified Conservative Growth 0.75
- -------------------------------------------------------------------------------------------------
Equity 0.45
- -------------------------------------------------------------------------------------------------
Equity Income 0.40
- -------------------------------------------------------------------------------------------------
Global 0.75
- -------------------------------------------------------------------------------------------------
High Yield Bond 0.55
- -------------------------------------------------------------------------------------------------
Money Market 0.40
- -------------------------------------------------------------------------------------------------
Prudential Jennison 0.60
- -------------------------------------------------------------------------------------------------
Small Capitalization Stock 0.40
- -------------------------------------------------------------------------------------------------
Stock Index 0.35
- -------------------------------------------------------------------------------------------------
20/20 Focus 0.75
- -------------------------------------------------------------------------------------------------
</TABLE>

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 provided by the sub-advisers listed
below. PIC's address is 751 Broad Street, Newark, New Jersey 07102-3777.

Jennison Associates LLC (Jennison), a wholly owned subsidiary of
Prudential, provides substantially all of the investment advisory services
for the Prudential Jennison Portfolio and the growth equity portion of the
assets

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

46
<PAGE>

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

for the 20/20 Focus 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.

For the Diversified Conservative Growth Portfolio, Prudential serves as
overall investment manager and is responsible for selecting sub-advisers to
handle the day-to-day investment management and monitoring their
performance. With Board approval, Prudential is permitted to change or add
sub-advisers or enter into a new agreement with a current sub-adviser
without shareholder approval. The Fund will notify shareholders of any new
sub-adviser. Listed below are the current sub-advisers for the Diversified
Conservative Growth Portfolio:

o JENNISON. (See above.)

o PIC. (See above.)

o FRANKLIN ADVISERS, INC. (Franklin) is located at 777 Mariners Island
Blvd., San Mateo, California 94404 and is a wholly owned subsidiary of
Franklin Resources, Inc. As of December 31, 1998, Franklin and its
affiliates managed over $220 billion in assets.

o THE DREYFUS CORPORATION (Dreyfus) is located at 200 Park Avenue, New
York, New York, 10266 and is a subsidiary of Mellon Bank corporation.
As of December 31, 1998, Dreyfus managed over $111 billion in assets.

o PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO) is located at 840
Newport Center Drive, Newport Beach, California 92660 and is a
subsidiary of PIMCO Advisors L.P. As of December 31, 1998, PIMCO
managed over $157 million in assets.

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.

DIVERSIFIED BOND PORTFOLIO

This Portfolio is managed by MS. BARBARA KENWORTHY who has been the manager
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.

DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO

The equity portion of the Portfolio advised by Jennison is 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.
Segalas is one of the co-managers of the Prudential Jennison Portfolio and
the 20/20 Focus Portfolio.

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

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

47
<PAGE>

HOW THE PORTFOLIOS ARE MANAGED CONTINUED

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

responsibilities several years ago. He holds a Chartered Financial Analyst
designation and is a member of the New York Society of Security Analysts.
Mr. Kannry is also one of the co-managers of the Prudential Jennison
Portfolio.

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. Ms. McCarragher is also
one of the co-managers of the Prudential Jennison Portfolio.

THOMAS R. JACKSON manages the equity portion of the Portfolio assigned to
PIC. 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.

GEORGE EDWARDS, CFA, manages the fixed income portion of the Portfolio
assigned to PIC. 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).

EDWARD B. JAMIESON, MICHAEL MCCARTHY AND AIDAN O'CONNELL manage the portion
of the Portfolio assigned to Franklin. Mr. Jamieson is an Executive Vice
President of Franklin and Managing Director of Franklin's equity and high
yield groups. He has been with Franklin since 1987. Mr. McCarthy joined
Franklin in 1992 and is a vice president and portfolio manager specializing
in research analysis of several technology groups. Mr. O'Connell joined
Franklin in 1998 and is a research analyst specializing in research
analysis of the semiconductor and semiconductor capital equipment
industries. Prior to joining Franklin, Mr. O'Connell was a research
associate and corporate finance associate with Hambrecht & Quist.

WILLIAM R. RYDELL, CFA and Mark W. Sikorski, CFA, manage the portion of the
Portfolio assigned to Dreyfus. Mr. Rydell is a portfolio manager of Dreyfus
and is the President and Chief Executive Officer of Mellon Equity
Associates LLP. Mr. Rydell has been in the Mellon organization since 1973.
Mr. Sikorski is a portfolio manager of Dreyfus and a Vice President of
Mellon Equity Associates LLP. Mr. Sikorski has been in the Mellon
organization since 1996. Prior to joining Mellon, he managed various
corporation treasury projects for Northeast Utilities, including bond
refinancing and investment evaluations.

JOHN HAGUE manages the portion of the Portfolio assigned to PIMCO. Mr.
Hague is a Managing Director of PIMCO and has managed fixed income assets
for PIMCO and its predecessor since 1989.

EQUITY PORTFOLIO

THOMAS JACKSON, Managing Director of Prudential Investments, has managed
this Portfolio since 1990. (See description under "Diversified Conservative
Growth Portfolio," above.)

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

48
<PAGE>

PART IV VARIABLE INVESTMENT OPTIONS' PROSPECTUSES

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

EQUITY INCOME PORTFOLIO

WARREN SPITZ, Managing Director of Prudential Investments, has managed this
Portfolio since 1988.

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-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 group 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. (See description under "Diversified
Conservative Growth Portfolio," above).

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

This Portfolio is managed by by MESSRS. SEGALAS AND KANNRY AND MS.
MCCARRAGHER of Jennison since 1999. (See description under "Diversified
Conservative Growth Portfolio," above.)

SMALL CAPITALIZATION STOCK PORTFOLIO

WAI CHIANG, Vice President of Prudential Investments, has managed this
Portfolio since its inception in 1995. Mr. Chiang has been employed by
Prudential as a portfolio manager since 1986.

STOCK INDEX PORTFOLIO

JOHN MOSCHBERGER, CFA, Vice President of Prudential Investments, has
managed this Portfolio since 1990. Mr. Moschberger joined Prudential in
1980 and has been a portfolio manager since 1986.

20/20 FOCUS PORTFOLIO

THOMAS R. JACKSON, Managing Director of Prudential Investments, manages
approximately 50% of the Portfolio's assets. (See description under
"Diversified Conservative Growth Portfolio," above.) SPIROS SEGALAS,
Director, President and Chief Investment Officer of Jennison, manages
approximately 50% of the Portfolio's assets. (See description under
"Diversified Conservative Growth Portfolio," above.)

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

49
<PAGE>

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 CHOICE AND THE DISCOVERY SELECT(R) 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(R) Annuity
Contract. 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.

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 4:15p.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 is 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.)

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

50
<PAGE>

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

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 a 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.

The Portfolios 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. 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 an 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.

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.

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

51
<PAGE>

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.

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

52
<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>
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.

53
<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.

54
<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.

55
<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.

56
<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.

57
<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.

58
<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 PERIOD ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT AUDITORS
WHOSE REPORT WAS ALSO UNQUALIFIED.

<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.

59
<PAGE>

FINANCIAL HIGHLIGHTS

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 PERIOD ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT AUDITORS
WHOSE REPORT WAS ALSO UNQUALIFIED.

<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK
-----------------------------------------------------------
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... $ 15.93 $ 13.79 $ 11.83 $ 10.00
------------- ----------- ----------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.09 0.10 0.09 0.08
Net realized and unrealized gains
(losses) on investments.............. (0.25) 3.32 2.23 1.91
------------- ----------- ----------- -------
Total from investment operations... (0.16) 3.42 2.32 1.99
------------- ----------- ----------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.09) (0.10) (0.09) (0.04)
Distributions from net realized
gains................................ (0.97) (1.18) (0.27) (0.12)
------------- ----------- ----------- -------
Total distributions................ (1.06) (1.28) (0.36) (0.16)
------------- ----------- ----------- -------
Net Asset Value, end of period......... $ 14.71 $ 15.93 $ 13.79 $ 11.83
------------- ----------- ----------- -------
------------- ----------- ----------- -------
TOTAL INVESTMENT RETURN:(b)............ (0.76)% 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $360.4 $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses............................. 0.47% 0.50% 0.56% 0.60%(c)
Net investment income................ 0.57% 0.69% 0.87% 0.68%(c)
Portfolio turnover rate................ 26% 31% 13% 32%
</TABLE>

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

(d) Commencement of operations.

60
<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.

61
<PAGE>

[FOR MORE INFORMATION
- --------------------------------------------------------------------------------

Additional information about the Fund and each Portfolio can be obtained upon
request and 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 the market conditions and investment strategies
that significantly affected the Portfolio's 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:
The Prudential Series Fund, Inc.
751 Broad Street
Newark, NJ 07102-3377

<PAGE>

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

MF131A Printed on Recycled Paper

142