PRUDENTIAL SERIES FUND INC, 497, 2000-09-13

PRUDENTIAL SERIES FUND INC
497, 2000-09-13

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THE PRUDENTIAL SERIES FUND, INC.
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PRUDENTIAL GLOBAL PORTFOLIO PROSPECTUS
PRUDENTIAL JENNISON PORTFOLIO
PRUDENTIAL MONEY MARKET PORTFOLIO AUGUST 11, 2000
PRUDENTIAL STOCK INDEX PORTFOLIO
SP AGGRESSIVE GROWTH ASSET ALLOCATION PORTFOLIO
SP AIM AGGRESSIVE GROWTH PORTFOLIO
SP AIM GROWTH AND INCOME PORTFOLIO
SP ALLIANCE LARGE CAP GROWTH PORTFOLIO
SP ALLIANCE TECHNOLOGY PORTFOLIO
SP BALANCED ASSET ALLOCATION PORTFOLIO
SP CONSERVATIVE ASSET ALLOCATION PORTFOLIO
SP DAVIS VALUE PORTFOLIO
SP DEUTSCHE INTERNATIONAL EQUITY PORTFOLIO
SP GROWTH ASSET ALLOCATION PORTFOLIO
SP INVESCO SMALL COMPANY GROWTH PORTFOLIO
SP JENNISON INTERNATIONAL GROWTH PORTFOLIO
SP LARGE CAP VALUE PORTFOLIO
SP MFS CAPITAL OPPORTUNITIES PORTFOLIO
SP MFS MID-CAP GROWTH PORTFOLIO
SP PIMCO HIGH YIELD PORTFOLIO
SP PIMCO TOTAL RETURN PORTFOLIO
SP PRUDENTIAL U.S. EMERGING GROWTH PORTFOLIO
SP SMALL/MID CAP VALUE PORTFOLIO
SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO

AS WITH ALL MUTUAL FUNDS, THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE FUND'S SHARES NOR HAS THE SEC DETERMINED THAT THIS
PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.

[LOGO]

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TABLE OF CONTENTS

1 RISK/RETURN SUMMARY
1 Investment Objectives and Principal Strategies
10 Principal Risks
13 Evaluating Performance

17 HOW THE PORTFOLIOS INVEST

17 INVESTMENT OBJECTIVES AND POLICIES
17 Prudential Global Portfolio
17 Prudential Jennison Portfolio
18 Prudential Money Market Portfolio
19 Prudential Stock Index Portfolio
20 SP AIM Aggressive Growth Portfolio
20 SP AIM Growth and Income Portfolio
22 SP Alliance Large Cap Growth Portfolio
23 SP Alliance Technology Portfolio
24 SP Asset Allocation Portfolios
25 SP Aggressive Growth Asset Allocation Portfolio
25 SP Balanced Asset Allocation Portfolio 26 SP Conservative
Asset Allocation Portfolio
26 SP Growth Asset Allocation Portfolio
27 SP Davis Value Portfolio
28 SP Deutsche International Equity Portfolio
30 SP INVESCO Small Company Growth Portfolio
31 SP Jennison International Growth Portfolio
33 SP Large Cap Value Portfolio
34 S MFS Capital Opportunities Portfolio
34 SP MFS Mid-Cap Growth Portfolio
35 SP PIMCO High Yield Portfolio
36 SP PIMCO Total Return Portfolio
38 SP Prudential U.S. Emerging Growth Portfolio
40 SP Small/Mid Cap Value Portfolio
41 SP Strategic Partners Focused Growth Portfolio

44 OTHER INVESTMENTS AND STRATEGIES

44 ADRs
44 Convertible Debt and Convertible Preferred Stock
44 Derivatives
45 Dollar Rolls
45 Forward Foreign Currency Exchange Contracts
45 Futures
45 Interest Rate Swaps
45 Joint Repurchase Account
45 Loan Participations
45 Mortgage-related Securities
46 Options
46 Real Estate Investment Trusts
46 Repurchase Agreements
46 Reverse Repurchase Agreements
46 Short Sales
46 Short Sales Against-the-Box
46 When-issued and Delayed Delivery Securities

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47 HOW THE FUND IS MANAGED

47 Board of Directors
47 Investment Manager
48 Investment Sub-Advisers
49 Portfolio Managers

58 HOW TO BUY AND SELL SHARES OF THE FUND
59 Net Asset Value
60 Distributor

60 OTHER INFORMATION
60 Federal Income Taxes
60 European Monetary Union
60 Monitoring for Possible Conflicts

F-1 FINANCIAL HIGHLIGHTS

(For more information--see back cover)

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RISK/RETURN SUMMARY

This prospectus provides information about THE PRUDENTIAL SERIES FUND, INC. (the
Fund), which consists of thirty-seven separate portfolios (each, a Portfolio).

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 The Prudential Insurance
Company of America (Prudential) and affiliates as investment options under
variable life insurance and variable annuity contracts (the Contracts). (A
separate account keeps the assets supporting 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. Class I shares of each
Portfolio discussed in this prospectus are available under the Strategic
Partners(SM) Annuity One variable annuity.

This section highlights key information about each Portfolio available under the
Strategic Partners(SM) annuity. The initials "SP" that appear before the name of
several of these Portfolios are an allusion to "Strategic Partners," although
the official Portfolio names use the SP initials. Additional information follows
this summary and is also provided in the Fund's Statement of Additional
Information (SAI). Any percentage limitations on Portfolio investments are
generally applied at the time of purchase.

INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES

The following summarizes the investment objectives, principal strategies and
principal risks for each of the available Portfolios. We describe the terms
"company risk," "credit risk," "derivatives risk," "foreign investment risk,"
"high yield risk," "interest rate risk," "leveraging risk," "liquidity risk,"
"management risk," "market risk," and "mortgage risk" in the section on
Principal Risks, on page 10. While we make every effort to achieve the
investment objective for each Portfolio, we can't guarantee success.

PRUDENTIAL GLOBAL PORTFOLIO

The Portfolio's 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. Loss of money is a
risk of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

PRUDENTIAL JENNISON PORTFOLIO

The Portfolio's investment objective is TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
To achieve this objective, the Portfolio invests primarily in equity securities
of major, established corporations that it believes offer above-average growth
prospects. In addition, the Portfolio may invest up to 30% of its total assets
in foreign securities. While the Portfolio makes every effort to achieve its
objective, it can't guarantee success. Loss of money is a risk of investing in
this Portfolio.

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PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

PRUDENTIAL MONEY MARKET PORTFOLIO

The Portfolio's investment objective is MAXIMUM CURRENT INCOME CONSISTENT WITH
THE STABILITY OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. To achieve its
objective, the Portfolio invests 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 the Portfolio makes every effort to achieve
its objective, it can't guarantee success.

PRINCIPAL RISKS:
o CREDIT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o MANAGEMENT RISK

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An investment in the Money Market 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.
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PRUDENTIAL STOCK INDEX PORTFOLIO

The Portfolio's investment objective is INVESTMENT RESULTS THAT GENERALLY
CORRESPOND TO THE PERFORMANCE OF PUBLICLY-TRADED COMMON STOCKS. To achieve its
objective, the Portfolio attempts to duplicate the price and yield of the S&P
500. The S&P 500 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. While the Portfolio makes every effort to achieve its objective,
it can't guarantee success. Loss of money is a risk of investing in this
Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP AGGRESSIVE GROWTH ASSET ALLOCATION PORTFOLIO

The SP Aggressive Growth Asset Allocation Portfolio seeks capital
appreciation by investing in large cap equity Portfolios, international
Portfolios, and small/mid cap equity Portfolios. Pertinent risks are those
associated with each Portfolio in which this Portfolio invests. Loss of money is
a risk of investing in this Portfolio.

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The SP Aggressive Growth Asset Allocation Portfolio is composed of shares of the
following Fund Portfolios:

o a large capitalization equity component (approximately 40% of the
Portfolio, invested in shares of the SP Davis Value Portfolio (20% of
Portfolio), the SP Alliance Large Cap Growth Portfolio (10% of
Portfolio), and the Prudential Jennison Portfolio (10% of Portfolio));
and

o an international component (approximately 35% of the Portfolio,
invested in shares of the SP Jennison International Growth Portfolio
(17.5% of Portfolio) and the SP Deutsche International Equity
Portfolio (17.5% of Portfolio)); and

o a small/mid capitalization equity component (approximately 25% of the
Portfolio, invested in shares of the SP Small/Mid Cap Value Portfolio
(12.5% of Portfolio) and the SP Prudential U.S. Emerging Growth
Portfolio (12.5% of Portfolio)).

For more information on the following Portfolios, see the pages indicated: SP
Davis Value Portfolio (p.27), SP Alliance Large Cap Growth Portfolio (p.22),
Prudential Jennison Portfolio (p.17), SP Jennison International Growth Portfolio
(p. 31), SP Deutsche International Equity Portfolio (p.28), SP Small/Mid Cap
Value Portfolio (p. 40), SP Prudential U.S. Emerging Growth Portfolio (p.38).

SP AIM AGGRESSIVE GROWTH PORTFOLIO

The Portfolio's investment objective is to achieve LONG-TERM GROWTH OF CAPITAL.
The Portfolio seeks to meet this objective by investing primarily in the common
stocks of companies whose earnings the Portfolio's portfolio managers expect to
grow more than 15% per year. On behalf of the Portfolio, AIM Capital Management,
Inc. will invest in securities of small- and medium-sized growth companies and
may also invest up to 25% of its total assets in foreign securities. Loss of
money is a risk of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o FOREIGN INVESTMENT RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP AIM GROWTH AND INCOME PORTFOLIO

The Portfolio's primary investment objective is GROWTH OF CAPITAL WITH A
SECONDARY OBJECTIVE OF CURRENT INCOME. The Portfolio seeks to meet these
objectives by investing at least 65% of its total assets in securities of
established companies that have long-term above-average growth in earnings and
dividends, and growth companies that the portfolio managers believe have the
potential for above-average growth in earnings and dividends. AIM Capital
Management, Inc. considers whether to sell a particular security when they
believe the security no longer has that potential or the capacity to generate
income. The Portfolio may also invest up to 20% of its total assets in foreign
securities. Loss of money is a risk of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP ALLIANCE LARGE CAP GROWTH PORTFOLIO

The Portfolio's investment objective is GROWTH OF CAPITAL BY PURSUING
AGGRESSIVE INVESTMENT POLICIES. The Portfolio invests primarily in equity
securities of U.S. companies. Unlike most equity funds, the Portfolio focuses on
a relatively small number of intensively researched companies. Alliance Capital
Management L.P. selects the Portfolio's investments from a research universe of
more than 600 companies that have strong management,

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superior industry positions, excellent balance sheets, and superior earnings
growth prospects. "Alliance", "Alliance Capital" and their logos are registered
marks of Alliance Capital Management L.P. ("Alliance"). Loss of money is a risk
of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP ALLIANCE TECHNOLOGY PORTFOLIO

The Portfolio's objective is GROWTH OF CAPITAL. The Portfolio invests primarily
in securities of companies that use technology extensively in the development of
new or improved products or processes. Within this framework, the Portfolio may
invest in any company and industry and in any type of security with potential
for capital appreciation. It invests in well-known, established companies or in
new or unseasoned companies. The Portfolio also may invest in debt securities
and up to 10% of its total assets in foreign securities. Among the principal
risks of investing in the Portfolio is market risk. In addition, technology
stocks, especially those of smaller, less-seasoned companies, tend to be more
volatile than the overall stock market. To the extent the Portfolio invests in
debt and foreign securities, your investment has interest rate risk, credit
risk, foreign risk, and currency risk. Loss of money is a risk of investing in
this Portfolio. This Portfolio is advised by Alliance Capital Management, L.P.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP BALANCED ASSET ALLOCATION PORTFOLIO

The SP Balanced Asset Allocation Portfolio seeks to provide a balance between
current income and growth of capital by investing in fixed income Portfolios,
large cap equity Portfolios, small/mid cap equity Portfolios, and international
equity Portfolios. Pertinent risks are those associated with each Portfolio in
which this Portfolio invests. Loss of money is a risk of investing in this
Portfolio.

The SP Balanced Asset Allocation Portfolio is composed of shares of the
following Portfolios:

o a fixed income component (approximately 40% of the Portfolio, invested
in shares of the SP PIMCO Total Return Portfolio (25% of Portfolio)
and the SP PIMCO High Yield Portfolio (15% of Portfolio)); and

o a large capitalization equity component (approximately 35% of the
Portfolio, invested in shares of the SP Davis Value Portfolio (17.5%
of Portfolio), the SP Alliance Large Cap Growth Portfolio (8.75% of
Portfolio), and the Prudential Jennison Portfolio (8.75% of
Portfolio)); and

o a small/mid capitalization equity component (approximately 15% of the
Portfolio, invested in shares of the SP Small/Mid Cap Value Portfolio
(7.5% of Portfolio) and the SP Prudential U.S. Emerging Growth
Portfolio (7.5% of Portfolio)); and

o an international component (approximately 10% of the Portfolio,
invested in shares of the SP Jennison International Growth Portfolio
(5% of Portfolio) and the SP Deutsche International Equity Portfolio
(5% of Portfolio).

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For more information on the following Portfolios, see the pages indicated: SP
PIMCO Total Return Portfolio (p.36), SP PIMCO High Yield Portfolio (p.35), SP
Davis Value Portfolio (p.27), SP Alliance Large Cap Growth Portfolio (p.22),
Prudential Jennison Portfolio (p.17), SP Small/Mid Cap Value Portfolio (p.40),
SP Prudential U.S. Emerging Growth Portfolio (p.38), SP Jennison International
Growth Portfolio (p.31), SP Deutsche International Equity Portfolio (p.28).

SP CONSERVATIVE ASSET ALLOCATION PORTFOLIO

The SP Conservative Asset Allocation Portfolio seeks to provide current income
with low to moderate capital appreciation by investing in fixed income
Portfolios, large cap equity Portfolios, and small/mid cap equity Portfolios.
Pertinent risks are those associated with each Portfolio in which this Portfolio
invests. Loss of money is a risk of investing in this Portfolio.

The SP Conservative Asset Allocation Portfolio is composed of shares of the
following Portfolios:

o a fixed income component (approximately 60% of the Portfolio, invested
in shares of the SP PIMCO Total Return Portfolio (40% of Portfolio)
and the SP PIMCO High Yield Portfolio (20% of Portfolio)); and

o a large capitalization equity component (approximately 30% of the
Portfolio, invested in shares of the SP Davis Value Portfolio (15% of
Portfolio), the SP Alliance Large Cap Growth Portfolio (7.5% of
Portfolio), and the Prudential Jennison Portfolio (7.5% of
Portfolio)); and

o a small/mid capitalization equity component (approximately 10% of the
Portfolio, invested in shares of the SP Small/Mid Cap Value Portfolio
(5% of Portfolio) and the SP Prudential U.S. Emerging Growth Portfolio
(5% of Portfolio)).

SP DAVIS VALUE PORTFOLIO

SP Davis Value Portfolio's investment objective is GROWTH OF CAPITAL. The
Portfolio invests primarily in common stock of U.S. companies with market
capitalizations of at least $5 billion.

The portfolio managers use the investment philosophy of Davis Selected Advisors,
LP to select common stocks of quality, overlooked growth companies at value
prices and to hold them for the long-term. They look for companies with
sustainable growth rates selling at modest price-earnings multiples that they
hope will expand as other investors recognize the company's true worth. The
portfolio managers believe that if you combine a sustainable growth rate with a
gradually expanding multiple, these rates compound and can generate returns that
could exceed average returns earned by investing in large capitalization
domestic stocks. They consider selling a company if the company no longer
exhibits the characteristics that they believe foster sustainable long-term
growth, minimize risk and enhance the potential for superior long-term returns.
Loss of money is a risk of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP DEUTSCHE INTERNATIONAL EQUITY PORTFOLIO

The Portfolio's investment objective is to INVEST FOR LONG-TERM CAPITAL
APPRECIATION. The Portfolio invests primarily in the stocks and other equity
securities of companies in developed countries outside the United States. The
Portfolio seeks to achieve its goal by investing primarily in companies in
developed foreign countries. The

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companies are selected by an extensive tracking system plus the input of experts
from various financial disciplines. Loss of money is a risk of investing in this
Portfolio. This Portfolio is advised by Bankers Trust Company.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP GROWTH ASSET ALLOCATION PORTFOLIO

The SP Growth Asset Allocation Portfolio seeks to provide long-term growth of
capital with consideration also given to current income, by investing in large
cap equity Portfolios, fixed income Portfolios, international equity Portfolios,
and small/mid cap equity Portfolios. Pertinent risks are those associated with
each Portfolio in which this Portfolio invests. Loss of money is a risk of
investing in this Portfolio.

The Growth Asset Allocation Portfolio is composed of shares of the following
Portfolios:

o a large capitalization equity component (approximately 45% of the
Portfolio, invested in shares of the SP Davis Value Portfolio (22.5%
of Portfolio), the SP Alliance Large Cap Growth Portfolio (11.25% of
Portfolio), and the Prudential Jennison Portfolio (11.25% of
Portfolio)); and

o a fixed income component (approximately 20% of the Portfolio, invested
in shares of the SP PIMCO High Yield Portfolio (10% of Portfolio) and
the SP PIMCO Total Return Portfolio (10% of Portfolio)); and

o an international component (approximately 20% of the Portfolio,
invested in shares of the SP Jennison International Growth Portfolio
(10% of Portfolio) and the SP Deutsche International Equity Portfolio
(10% of Portfolio)); and

For more information on the following Portfolios, see the pages indicated: SP
Davis Value Portfolio (p.27), SP Alliance Large Cap Growth Portfolio (p.22),
Prudential Jennison Portfolio (p.17), SP PIMCO High Yield Portfolio (p.35), SP
PIMCO Total Return Portfolio (p.36), SP Jennison International Growth Portfolio
(p.31), SP Deutsche International Equity Portfolio (p.28), SP Small/Mid Cap
Value Portfolio (p.40), SP Prudential U.S. Emerging Growth Portfolio (p.38).

SP INVESCO SMALL COMPANY GROWTH PORTFOLIO

The Portfolio seeks LONG-TERM CAPITAL GROWTH. Most holdings are in
small-capitalization companies--those with market capitalizations under $2
billion at the time of purchase.

Investments in small, developing companies carry greater risk than investments
in larger, more established companies. Developing companies generally face
intense competition, and have a higher rate of failure than larger companies. On
the other hand, large companies were once small companies themselves, and the
growth opportunities of some small companies may be quite high. Loss of money is
a risk of investing in this Portfolio. This Portfolio is advised by INVESCO
Funds Group, Inc.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

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SP JENNISON INTERNATIONAL GROWTH PORTFOLIO

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. The
Portfolio seeks to achieve this objective by investing in equity-related
securities of foreign issuers. This means the Portfolio looks for investments
that Jennison thinks will increase in value over a period of years. To achieve
its objective, the Portfolio invests primarily in the common stock of large and
medium-sized foreign companies. Under normal circumstances, the Portfolio
invests at least 65% of its total assets in common stock of foreign companies
operating or based in at least five different countries. The Portfolio looks
primarily for stocks of companies whose earnings are growing at a faster rate
than other companies. These companies typically have characteristics such as
above average growth in earnings and cash flow, improving profitability, strong
balance sheets, management strength and strong market share for its products.
The Portfolio also tries to buy such stocks at attractive prices in relation to
their growth prospects. Loss of money is a risk of investing in this Portfolio.
This Portfolio is advised by Jennison Associates LLC.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK

SP LARGE CAP VALUE PORTFOLIO

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. The
portfolio's investment strategy includes investing at least 65% of total assets
in common stocks of companies with large market capitalizations (over $1 billion
at the time of investment). The Portfolio focuses on investing in securities of
companies that Fidelity Management & Research Company (FMR) believes are
undervalued in the marketplace in relation to factors such as assets, earnings
or growth potential (stocks of these companies are often called "value" stocks).
The Portfolio invests in domestic and foreign issuers. The Portfolio uses both
fundamental analysis of each issuer's financial condition, its industry position
and market and economic conditions, and statistical models to evaluate an
issuer's growth potential, valuation, liquidity and investment risk, to select
investments. An investment in this Portfolio, like any Portfolio, is not a
deposit of a bank, and is not insured by the Federal Deposit Insurance
Corporation or any other government agency. Loss of money is a risk of investing
in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK
o "VALUE" INVESTING

SP MFS CAPITAL OPPORTUNITIES PORTFOLIO

The Portfolio's investment objective is CAPITAL APPRECIATION. The Portfolio
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depository receipts for those securities. The Portfolio focuses
on companies which Massachusetts Financial Services Company (MFS) believes have
favorable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The Portfolio's investments may include
securities listed on a securities exchange or traded in the over-the-counter
markets. MFS uses a bottom-up, as opposed to a top-down, investment style in
managing the Portfolio. This means that securities are selected based upon
fundamental analysis (such as an analysis of earnings, cash flows, competitive
position and management's abilities) performed by the Portfolio's portfolio
manager and MFS's large group of equity research analysts. The Portfolio may
invest in foreign securities (including emerging market securities), through
which it may have exposure to foreign currencies. The Portfolio may engage in
active and frequent trading to achieve its principal investment strategies. Loss
of money is a risk of investing in this Portfolio. High portfolio turnover
results in higher transaction costs and can affect the Portfolio's performance.

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PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP MFS MID-CAP GROWTH PORTFOLIO

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. The
Portfolio invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stocks,
convertible securities and depository receipts for those securities. These
securities typically are of medium market capitalizations, which Massachusetts
Financial Services Company believes have above-average growth potential.

Medium market capitalization companies are defined by the Portfolio as companies
with market capitalizations equaling or exceeding $250 million but not exceeding
the top of the Russell Midcap(TM) Growth Index range at the time of the
Portfolio's investment. This Index is a widely recognized, unmanaged index of
mid-cap common stock prices. Companies whose market capitalizations fall below
$250 million or exceed the top of the Russell Midcap(TM) Growth Index range
after purchase continue to be considered medium-capitalization companies for
purposes of the Portfolio's 65% investment policy. The Portfolio's investments
may include securities listed on a securities exchange or traded in the
over-the-counter markets. MFS uses a bottom-up, as opposed to a top-down,
investment style in managing the Portfolio. This means that securities are
selected based upon fundamental analysis (such as an analysis of earnings, cash
flows, competitive position and management's abilities) performed by the
portfolio manager and MFS's large group of equity research analysts. The
Portfolio is a non-diversified mutual fund portfolio. This means that the
Portfolio may invest a relatively high percentage of its assets in a small
number of issuers. The Portfolio may invest in foreign securities (including
emerging markets securities) through which it may have exposure to foreign
currencies. The Portfolio is expected to engage in active and frequent trading
to achieve its principal investment strategies. Loss of money is a risk of
investing in this Portfolio. High portfolio turnover results in higher
transaction costs and can affect the Portfolio's performance.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP PIMCO HIGH YIELD PORTFOLIO

The investment objective of the Portfolio is to SEEK MAXIMUM TOTAL RETURN,
CONSISTENT WITH PRESERVATION OF CAPITAL AND PRUDENT INVESTMENT MANAGEMENT. The
Portfolio seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its assets in a diversified portfolio of high
yield securities ("junk bonds") rated below investment grade but rated at least
B by Moody's or S&P, or, if unrated, determined by Pacific Investment Management
Company (PIMCO) to be of comparable quality. The remainder of the Portfolio's
assets may be invested in investment grade fixed income instruments. The average
duration of the Portfolio normally varies within a two- to six-year time frame
based on PIMCO's forecast for interest rates. The Portfolio may invest without
limit in U.S. dollar-denominated securities of foreign issuers. The Portfolio
may invest up to 15% of its assets in euro-denominated securities. The Portfolio
normally will hedge at least 75% of its exposure to the euro to reduce the risk
of loss due to fluctuations in currency exchange rates. Loss of money is a risk
of investing in this Portfolio.

8
<PAGE>

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o HIGH YIELD RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK
o MORTGAGE RISK

SP PIMCO TOTAL RETURN PORTFOLIO

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK
o MORTGAGE RISK

SP PRUDENTIAL U.S. EMERGING GROWTH PORTFOLIO

The Portfolio's investment objective is LONG-TERM CAPITAL APPRECIATION, which
means that the Portfolio seeks investments whose price will increase over
several years. The Portfolio normally invests at least 65% of its total assets
in equity securities of small and medium-sized U.S. companies with the potential
for above-average growth. The Portfolio also may use derivatives for hedging or
to improve the Portfolio's returns. While the Portfolio makes every effort to
achieve its objective, it can't guarantee success. The Portfolio may actively
and frequently trade its portfolio securities. High portfolio turnover results
in higher transaction costs and can affect the Portfolio's performance. Loss of
money is a risk of investing in this Portfolio. This Portfolio is advised by
Jennison Associates LLC.

PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

SP SMALL/MID CAP VALUE PORTFOLIO

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. The
Portfolio's investment strategy includes normally investing at least 65% of
total assets in common stocks of companies with small to medium market

9
<PAGE>

capitalizations (those with market capitalizations similar to companies in the
Russell 2000 or the Russell Midcap at the time of investment). The Portfolio
focuses on investing in securities of companies that Fidelity Management &
Research Company believes are undervalued in the marketplace in relation to
factors such as assets, earnings or growth potential (stocks of these companies
are often called "value" stocks). The Portfolio invests in domestic and foreign
issuers. The Portfolio uses both fundamental analysis of each issuer's financial
condition, its industry position and market and economic conditions, and
statistical models to evaluate an issuer's growth potential, valuation,
liquidity and investment risk, to select investments. An investment in the
Portfolio, like any Portfolio, is not a deposit of a bank and is not insured by
the Federal Deposit Insurance Corporation or any other government agency. Loss
of money is a risk of investing in this Portfolio.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK
o SMALL CAP INVESTING
o "VALUE" INVESTING

SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. This means
the Portfolio seeks investments whose price will increase over several years.
The Portfolio normally invests at least 65% of its total assets in
equity-related securities of U.S. companies that the adviser believes to have
strong capital appreciation potential. The Portfolio's strategy is to combine
the efforts of two investment advisers and to invest in the favorite stock
selection ideas of three portfolio managers (two of whom invest as a team). Each
investment adviser to the Portfolio utilizes a growth style to select
approximately 20 securities. The portfolio managers build a portfolio with
stocks in which they have the highest confidence and may invest more than 5% of
the Portfolio's assets in any one issuer. The Portfolio is nondiversified,
meaning it can invest more than 5% of its assets in the securities of any one
issuer. Investing in a nondiversified portfolio, particularly a portfolio
investing in approximately 40 equity-related securities, involves greater risk
than investing in a diversified portfolio because a loss resulting from the
decline in the value of one security may represent a greater portion of the
total assets of a nondiversified portfolio. The Portfolio may actively and
frequently trade its portfolio securities. High portfolio turnover results in
higher transaction costs and can affect the Portfolio's performance. Loss of
money is a risk of investing in this Portfolio. This Portfolio is advised by
Jennison Associates LLC and Alliance Capital Management, L.P.

PRINCIPAL RISKS:
o COMPANY RISK
o DERIVATIVES RISK
o FOREIGN INVESTMENT RISK
o LEVERAGING RISK
o LIQUIDITY RISK
o MANAGEMENT RISK
o MARKET RISK

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Like any mutual
fund, an investment in a Portfolio could lose value, and you could lose money.
The following summarizes the principal risks of investing in the Portfolios.

COMPANY RISK. The price of the stock or debt security 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. This is especially true with respect to equity
securities of smaller companies, whose prices may go up and down more than
equity securities of larger, more established companies. Also, since equity
securities of smaller companies may not be traded as often as equity securities
of larger, more established

10
<PAGE>

companies, it may be difficult or impossible for a Portfolio to sell securities
at a desirable price. Foreign securities have additional risks, including
exchange rate changes, political and economic upheaval, the relative lack of
information about these companies, relatively low market liquidity and the
potential lack of strict financial and accounting controls and standards.

CREDIT RISK. Debt obligations are generally subject to the risk that the
issuer may be unable to make principal and interest payments when they are due.
There is also the risk that the securities could lose value because of a loss of
confidence in the ability of the borrower to pay back debt. Non-investment grade
debt - also known as "high-yield bonds" and "junk bonds" - have a higher risk of
default and tend to be less liquid than higher-rated securities.

DERIVATIVES RISK. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, interest rate or
index. The Portfolios typically use derivatives as a substitute for taking a
position in the underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as interest rate or currency risk. A Portfolio may
also use derivatives for leverage, in which case their use would involve
leveraging risk. A Portfolio's use of derivative instruments involves risks
different from, or possibly greater than, the risks associated with investing
directly in securities and other traditional investments. Derivatives are
subject to a number of risks described elsewhere, such as liquidity risk,
interest rate risk, market risk, credit risk and management risk. They also
involve the risk of mispricing or improper valuation and the risk that changes
in the value of the derivative may not correlate perfectly with the underlying
asset, rate or index. A Portfolio investing in a derivative instrument could
lose more than the principal amount invested. Also, suitable derivative
transactions may not be available in all circumstances.

FOREIGN INVESTMENT RISK. Investing in foreign securities generally involves
more risk than investing in securities of U.S. issuers. Foreign investment risk
is comprised of the specific risks described below.

CURRENCY RISK. Changes in currency exchange rates may affect the value of
foreign securities held by a Portfolio and the amount of income available for
distribution. If a foreign currency grows weaker relative to the U.S. dollar,
the value of securities denominated in that foreign currency generally decreases
in terms of U.S. dollars. If a Portfolio does not correctly anticipate changes
in exchange rates, its share price could decline as a result. In addition,
certain hedging activities may cause the Portfolio to lose money and could
reduce the amount of income available for distribution.

EMERGING MARKET RISK. To the extent that a Portfolio invests in emerging
markets to enhance overall returns, it may face higher political, information,
and stock market risks. In addition, profound social changes and business
practices that depart from norms in developed countries' economies have
sometimes hindered the orderly growth of emerging economies and their stock
markets in the past. High levels of debt may make emerging economies heavily
reliant on foreign capital and vulnerable to capital flight.

FOREIGN MARKET RISK. Foreign markets, especially those in developing
countries, tend to be more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those in the U.S. Because of
differences in accounting standards and custody and settlement practices,
investing in foreign securities generally involves more risk than investing in
securities of U.S. issuers.

INFORMATION RISK. Financial reporting standards for companies based in
foreign markets usually differ from those in the United States. Since the
"numbers" themselves sometimes mean different things, the sub-advisers devote
much of their research effort to understanding and assessing the impact of these
differences upon a company's financial conditions and prospects.

LIQUIDITY RISK. Stocks that trade less can be more difficult or more costly
to buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in some
instances can have a disproportionately large effect on the price and supply of
shares. In certain situations, it may become virtually impossible to sell a
stock in an orderly fashion at a price that approaches an estimate of its value.

POLITICAL DEVELOPMENTS. Political developments may adversely affect the
value of a Portfolio's foreign securities.

11
<PAGE>

POLITICAL RISK. Some foreign governments have limited the outflow of
profits to investors abroad, extended diplomatic disputes to include trade and
financial relations, and have imposed high taxes on corporate profits.

REGULATORY RISK. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

HIGH YIELD RISK. Portfolios that invest in high yield securities and
unrated securities of similar credit quality (commonly known as "junk bonds")
may be subject to greater levels of interest rate, credit and liquidity risk
than Portfolios that do not invest in such securities. High yield securities are
considered predominantly speculative with respect to the issuer's continuing
ability to make principal and interest payments. An economic downturn or period
of rising interest rates could adversely affect the market for high yield
securities and reduce a Portfolio's ability to sell its high yield securities
(liquidity risk).

INTEREST RATE RISK. Fixed income securities are subject to the risk that
the securities could lose value because of interest rate changes. For example,
bonds tend to decrease in value if interest rates rise. Debt obligations with
longer maturities typically offer higher yields, but are subject to greater
price shifts as a result of interest rate changes than debt obligations with
shorter maturities.

LEVERAGING RISK. Certain transactions may give rise to a form of leverage.
Such transactions may include, among others, reverse repurchase agreements,
loans of portfolio securities, and the use of when-issued, delayed delivery or
forward commitment contracts. The use of derivatives may also create leveraging
risks. To mitigate leveraging risk, a sub-adviser can segregate liquid assets or
otherwise cover the transactions that may give rise to such risk. The use of
leverage may cause a Portfolio to liquidate portfolio positions when it may not
be advantageous to do so to satisfy its obligations or to meet segregation
requirements. Leverage, including borrowing, may cause a Portfolio to be more
volatile than if the Portfolio had not been leveraged. This is because
leveraging tends to exaggerate the effect of any increase or decrease in the
value of a Portfolio's securities.

LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell. A Portfolio's investments in illiquid securities
may reduce the returns of the Portfolio because it may be unable to sell the
illiquid securities at an advantageous time or price. Portfolios with principal
investment strategies that involve foreign securities, derivatives or securities
with substantial market and/or credit risk tend to have the greatest exposure to
liquidity risk.

MANAGEMENT RISK. Each Portfolio is subject to management risk because it is
an actively managed investment portfolio. Each sub-adviser will apply investment
techniques and risk analyses in making investment decisions for the Portfolios,
but there can be no guarantee that these will produce the desired results.

MARKET RISK. Common stocks and fixed income securities are subject to
market risk stemming from factors independent of any particular security.
Investment markets fluctuate. All markets go through cycles and market risk
involves being on the wrong side of a cycle. Factors affecting market risk
include political events, broad economic and social changes, and the mood of the
investing public. You can see market risk in action during large drops in the
stock market. If investor sentiment turns gloomy, the price of all stocks may
decline. It may not matter that a particular company has great profits and its
stock is selling at a relatively low price. If the overall market is dropping,
the values of all stocks are likely to drop. Generally, the stock prices of
large companies are more stable than the stock prices of smaller companies, but
this is not always the case. Smaller companies often offer a smaller range of
products and services than large companies. They may also have limited financial
resources and may lack management depth. As a result, stocks issued by smaller
companies may fluctuate in value more than the stocks of larger, more
established companies.

MORTGAGE RISK. A Portfolio that purchases mortgage related securities is
subject to certain additional risks. Rising interest rates tend to extend the
duration of mortgage-related securities, making them more sensitive to changes
in interest rates. As a result, in a period of rising interest rates, a
Portfolio that holds mortgage-related securities may exhibit additional
volatility. This is known as extension risk. In addition, mortgage-related
securities are subject to prepayment risk. When interest rates decline,
borrowers may pay off their mortgages sooner than expected. This can reduce the
returns of a Portfolio because the Portfolio will have to reinvest that money at
the lower prevailing interest rates.

* * *

12
<PAGE>

EVALUATING PERFORMANCE

The SP Aggressive Growth Asset Allocation Portfolio, SP AIM Aggressive Growth
Portfolio, SP AIM Growth and Income Portfolio, SP Alliance Large Cap Growth
Portfolio, SP Alliance Technology Portfolio, SP Balanced Asset Allocation
Portfolio, SP Conservative Asset Allocation Portfolio, SP Davis Value Portfolio,
SP Deutsche International Equity Portfolio, SP Growth Asset Allocation
Portfolio, SP INVESCO Small Company Growth Portfolio, SP Jennison International
Growth Portfolio, SP Large Cap Value Portfolio, SP MFS Capital Opportunities
Portfolio, SP MFS Mid-Cap Growth Portfolio, SP PIMCO High Yield Portfolio, SP
PIMCO Total Return Portfolio, SP Prudential U.S. Emerging Growth Portfolio, SP
Small/Mid Cap Value Portfolio, and SP Strategic Partners Focused Growth
Portfolio are newly-created, and therefore do not have any performance history.

--------------------------------------------------------------------------------
PRUDENTIAL GLOBAL PORTFOLIO
--------------------------------------------------------------------------------

A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.

Annual Returns* (Class I shares)

--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

-12.91% 11.39% -3.42 43.14% -4.89% 15.88% 19.97% 6.98% 25.08% 48.27%
--------------------------------------------------------------------------------

Best Quarter: 31.04% (4th quarter of 1999) 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 12/31/99)
--------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (9/19/88)
------ ------- -------- ---------
Class I shares 48.27% 22.44% 13.38% 14.33%
Morgan Stanley World Index** 24.93% 19.76% 11.42% 12.67%
Lipper Average*** 44.18% 19.42% 11.73% 12.55%

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

* 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.

13
<PAGE>

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

Annual Returns* (Class I shares)
--------------------------------------------------------------------------------
1996 1997 1998 1999

14.41% 31.71% 37.46% 41.76%
--------------------------------------------------------------------------------

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 12/31/99)
--------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (4/25/95)
------ ---------
Class I shares 41.76% 32.11%
S&P 500** 21.03% 27.48%
Lipper Average*** 31.48% 25.81%
--------------------------------------------------------------------------------

* 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 (4/30/95). 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.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/95). SOURCE: LIPPER, INC.

14
<PAGE>

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

A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not assure that the Portfolio will
achieve similar results in the future.

Annual Returns* (Class I shares)
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

8.16% 6.16% 3.79% 2.95% 4.05% 5.80% 5.22% 5.41% 5.39% 4.97%
--------------------------------------------------------------------------------

Best Quarter: 2.00% (2nd quarter of 1990) 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 12/31/99)
--------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 4.97% 5.36% 5.18% 6.30%
Lipper Average** 4.75% 5.12% 4.88% 6.23%
--------------------------------------------------------------------------------

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

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

7-DAY YIELD* (AS OF 12/31/99)
================================================================================

Money Market Portfolio 5.65%

Average Money Market Fund** 5.16%

================================================================================

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

**SOURCE: IBC FINANCIAL DATA, INC. AS OF 12/28/99, BASED ON 311 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.

15
<PAGE>

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

Annual Return* (Class I shares)
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

-3.63% 29.72% 7.13% 9.66% 1.01% 37.06% 22.57% 32.83% 28.42% 20.54%
--------------------------------------------------------------------------------

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 12/31/99)
--------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (10/19/87)
------ ------- -------- ----------
Class I shares 20.54% 28.14% 17.75% 18.96%
S&P 500** 21.03% 28.54% 18.19% 18.71%
Lipper Average*** 20.48% 28.07% 17.74% 18.24%
--------------------------------------------------------------------------------

*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 (10/31/87). SOURCE: LIPPER, INC.

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

16
<PAGE>

HOW THE PORTFOLIOS INVEST

INVESTMENT OBJECTIVES AND POLICIES

We describe each Portfolio's investment objective and policies below. We
describe certain investment instruments that appear in bold lettering below in
the section entitled OTHER INVESTMENTS AND STRATEGIES. Although we make every
effort to achieve each Portfolio's objective, we can't guarantee success. The
Fund's Board of Directors can change a Portfolio's investment policy if that
policy is not fundamental.

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

--------------------------------------------------------------------------------
PRUDENTIAL GLOBAL PORTFOLIO
--------------------------------------------------------------------------------

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

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

When selecting stocks, the Portfolio uses a growth approach which means it looks
for companies that have above-average growth prospects. In making its stock
picks, the Portfolio looks for companies that have had growth in earnings and
sales, high returns on equity and assets or other strong financial
characteristics. Often, the companies it chooses 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 it is restructuring. Investing
heavily in these securities limits the Portfolio's ability to achieve its
investment objective, but can help to preserve the Portfolio's assets when the
markets are unstable.

The Portfolio may also use alternative investment strategies--including
DERIVATIVES--to try to improve its returns, protect its assets or for short-term
cash management.

The Portfolio 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.

The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.

The Portfolio is managed by Prudential.

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

The investment objective of this Portfolio is to achieve LONG-TERM GROWTH OF
CAPITAL. This means the Portfolio seeks investments whose price will increase
over several years. While the Portfolio makes every effort to achieve its
objective, it can't guarantee success.

17
<PAGE>

--------------------------------------------------------------------------------
The Portfolio seeks to invest in equity securities of established companies with
above-average growth prospects. The Portfolio selects stock on a company-by-
company basis using fundamental analysis. In making its stock picks, it looks
for companies that have had growth in earnings and sales, high returns on
equity and assets or other strong financial characteristics. Often, the
companies the Portfolio chooses have superior management, a unique market
niche or a strong new product
--------------------------------------------------------------------------------

In pursuing the Portfolio's objective, the Portfolio normally invests 65% or
more of its total assets in common stocks and preferred stocks of companies with
capitalization in excess of $1 billion.

For the balance of the Portfolio, the Portfolio 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 the
Portfolio believes have not yet been reflected in reported earnings or
recognized by investors.

In addition, the Portfolio 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 Depository Receipts
(ADRS) as foreign securities.

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

The Portfolio 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.

The Portfolio 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 short sales AGAINST-THE-BOX.

The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.

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

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 the Portfolio seeks investments that will provide a high level of current
income. While the Portfolio makes every effort to achieve its objective, it
can't guarantee success.

-------------------------------------------------------------------------------
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 Portfolio invests 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.

The Portfolio makes investments that meet the requirements of specific rules for
money market mutual funds, such as Investment Company Act Rule 2a-7. As such,
the Portfolio will not acquire any security with a remaining maturity exceeding
thirteen months, and the Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, the Portfolio will comply
with the diversification, quality and other requirements of Rule 2a-7. This

18
<PAGE>

means, generally, that the instruments that the Portfolio purchases 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 the
Portfolio purchases will be denominated in U.S. dollars.

Commercial paper is short-term debt obligations of banks, corporations and other
borrowers. The obligations are usually issued by financially strong businesses
and often include a line of credit to protect purchasers of the obligations. An
asset-backed security is a loan or note that pays interest based upon the cash
flow of a pool of assets, such as mortgages, loans and credit card receivables.
Funding agreements are contracts issued by insurance companies that guarantee a
return of principal, plus some amount of interest. When purchased by money
market funds, funding agreements will typically be short-term and will provide
an adjustable rate of interest. Certificates of deposit, time deposits and
bankers' acceptances are obligations issued by or through a bank. These
instruments depend upon the strength of the bank involved in the borrowing to
give investors comfort that the borrowing will be repaid when promised.

The Portfolio may purchase debt securities that include demand features, which
allow it 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
the Portfolio's expectation that it 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 the Portfolio may purchase may change over time as new types
of money market instruments are developed. The Portfolio will purchase these new
instruments, however, only if their characteristics and features follow the
rules governing money market mutual funds.

The Portfolio may also use alternative investment strategies to try to improve
its 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.

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

The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in A JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.

The Portfolio may use up to 10% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS.

The Portfolio is managed by Prudential.

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

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

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, the Portfolio attempts to duplicate the performance of the
S&P 500 Index. While the Portfolio makes every effort to achieve its objective,
it can't guarantee success.

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

Under normal conditions, the Portfolio attempts to invest in all 500 stocks
represented in the S&P 500 Index in proportion to their weighting in the 500
Index. The Portfolio 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.

19
<PAGE>

To manage investments and redemptions in the Portfolio, the Portfolio may
temporarily hold cash or invest in high-quality money market instruments. To the
extent it does so, the Portfolio's performance will differ from that of the 500
Index. The Portfolio attempts to minimize differences in the performance of the
Portfolio and the 500 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.

The Portfolio 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.

The Portfolio may: purchase and sell OPTIONS on stock indexes; purchase and sell
stock index FUTURES CONTRACTS and options on those futures contracts.

The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.

The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.

The Portfolio is managed by Prudential.

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

--------------------------------------------------------------------------------
SP AIM AGGRESSIVE GROWTH PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio's investment objective is to achieve LONG-TERM GROWTH OF CAPITAL.
The Portfolio seeks to meet this objective by investing principally in
securities of companies whose earnings the portfolio managers expect to grow
more than 15% per year. This investment objective is non-fundamental, meaning
that we can change the objective without seeking a vote of contractholders.

--------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK PORTFOLIO
The Portfolio invests primarily in the common stock of small and medium-sized
companies that are anticipated to have excellent prospects for long-term growth
of earnings.
--------------------------------------------------------------------------------

The Portfolio will invest in small- and medium-sized growth companies. The
portfolio managers focus on companies they believe are likely to benefit from
new or innovative products, services or processes as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.

The Portfolio may also invest up to 25% of its total assets in foreign
securities. In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, the Portfolio may
temporarily hold all or a portion of its assets in cash, money market
instruments, shares of affiliated money market funds, bonds or other debt
securities. As a result, the Portfolio may not achieve its investment objective.

The Portfolio is managed by A I M Capital Management, Inc.

--------------------------------------------------------------------------------
SP AIM GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio's investment objective is GROWTH OF CAPITAL with a secondary
objective of current income. This investment objective is non-fundamental,
meaning that we can change the objective without seeking a vote of
contractholders. The Portfolio seeks to meet this objective by investing at
least 65% of its total assets in securities of established companies

20
<PAGE>

that have long-term above-average growth in earnings and dividends, and growth
companies that the portfolio managers believe have the potential for
above-average growth in earnings and dividends.

--------------------------------------------------------------------------------
A GROWTH AND INCOME PORTFOLIO
This Portfolio invests in a wide variety of equity securities and debt
securities in an effort to achieve both capital appreciation as well as current
income.
--------------------------------------------------------------------------------
The Portfolio may invest in corporate debt securities. Corporations issue debt
securities of various types, including bonds and debentures (which are
long-term), notes (which may be short- or long-term), bankers acceptances
(indirectly secured borrowings to facilitate commercial transactions) and
commercial paper (short-term unsecured notes).

The Portfolio may also invest in convertible securities whose values will be
affected by market interest rates, the risk that the issuer may default on
interest or principal payments and the value of the underlying common stock into
which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if interest rates rise and rise if market interest rates fall. Additionally, an
issuer may have the right to buy back certain of the convertible securities at a
time and price that is unfavorable to the Portfolio.

The values of fixed rate income securities tend to vary inversely with changes
in interest rates, with longer-term securities generally being more volatile
than shorter-term securities. Corporate securities frequently are subject to
call provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a security
is called during a period of declining interest rates, the Portfolio may be
required to reinvest the proceeds in securities having a lower yield. In
addition, in the event that a security was purchased at a premium over the call
price, the Portfolio will experience a capital loss if the security is called.
Adjustable rate corporate debt securities may have interest rate caps and
floors.

The Portfolio may invest in securities issued or guaranteed by the United States
government or its agencies or instrumentalities. These include Treasury
securities (bills, notes, bonds and other debt securities) which differ only in
their interest rates, maturities and times of issuance. U.S. Government agency
and instrumentality securities include securities which are supported by the
full faith and credit of the U.S., securities that are supported by the right of
the agency to borrow from the U.S. Treasury, securities that are supported by
the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality and securities that are supported
only by the credit of such agencies. While the U.S. Government may provide
financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will do so. The U.S.
government, its agencies and instrumentalities do not guarantee the market value
of their securities. The values of such securities fluctuate inversely to
interest rates.

To the extent consistent with its investment objective and policies, the
Portfolio may invest in equity and/or debt securities issued by Real Estate
Investment Trusts ("REITs"). Such investments will not exceed 25% of the total
assets of the Portfolio.

To the extent that the Portfolio has the ability to invest in REITs, it could
conceivably own real estate directly as a result of a default on the securities
it owns. The Portfolio, therefore, may be subject to certain risks associated
with the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic condition, adverse change in the climate for real
estate, environmental liability risks, increases in property taxes and operating
expense, changes in zoning laws, casualty or condemnation losses, limitations on
rents, changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates.

The Portfolio may hold foreign securities. Such investments may include American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and other
securities representing underlying securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted.

The Portfolio has authority to deal in foreign exchange between currencies of
the different countries in which it will invest either for the settlement of
transactions or as a hedge against possible variations in the foreign exchange
rates between those currencies. This may be accomplished through direct
purchases or sales of foreign currency, purchases of futures

21
<PAGE>

contracts with respect to foreign currency (and options thereon), and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange-traded futures contracts. The Portfolio may purchase
and sell options on futures contracts or forward contracts which are denominated
in a particular foreign currency to hedge the risk of fluctuations in the value
of another currency.

For the purpose of realizing additional income, the Portfolio may make secured
loans of portfolio securities amounting to not more than 33-1/3% of its total
assets.

The Portfolio may invest in REVERSE REPURCHASE AGREEMENTS with banks. The
Portfolio may employ reverse repurchase agreements (i) for temporary emergency
purposes, such as to meet unanticipated net redemptions so as to avoid
liquidating other portfolio securities during unfavorable market conditions;
(ii) to cover short-term cash requirements resulting from the timing of trade
settlements; or (iii) to take advantage of market situations where the interest
income to be earned from the investment of the proceeds of the transaction is
greater than the interest expense of the transaction. At the time it enters into
a reverse repurchase agreement, the Portfolio will segregate liquid securities
having a dollar value equal to the repurchase price. Reverse repurchase
agreements are considered borrowings by the Portfolio under the Investment
Company Act.

The Portfolio may purchase securities of unseasoned issuers. Securities in such
issuers may provide opportunities for long term capital growth. Greater risks
are associated with investments in securities of unseasoned issuers than in the
securities of more established companies because unseasoned issuers have only a
brief operating history and may have more limited markets and financial
resources. As a result, securities of unseasoned issuers tend to be more
volatile than securities of more established companies.

The Portfolio may invest in other investment companies to the extent permitted
by the Investment Company Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC.

In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the Portfolio may temporarily
hold all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
Portfolio may not achieve its investment objective.

The Portfolio is managed by A I M Capital Management, Inc.

--------------------------------------------------------------------------------
SP ALLIANCE LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------

The investment objective of this Portfolio is GROWTH OF CAPITAL BY PURSUING
AGGRESSIVE INVESTMENT POLICIES.
--------------------------------------------------------------------------------
LARGE CAP GROWTH
The Portfolio usually invests in about 40-50 companies, with the 25 most highly
regarded of these companies generally constituting approximately 70% of the
Portfolio's net assets. Alliance seeks to gain positive returns in good markets
while providing some measure of protection in poor markets.
--------------------------------------------------------------------------------

During market declines, while adding to positions in favored stocks, the
Portfolio becomes somewhat more aggressive, gradually reducing the number of
companies represented in its portfolio. Conversely, in rising markets, while
reducing or eliminating fully-valued positions, the Portfolio becomes somewhat
more conservative, gradually increasing the number of companies represented in
the portfolio. Through this approach, Alliance seeks to gain positive returns in
good markets while providing some measure of protection in poor markets. The
Portfolio also may invest up to 20% of its net assets in CONVERTIBLE SECURITIES.

The Portfolio will invest in special situations from time to time. A special
situation arises when, in the opinion of Alliance, the securities of a
particular company will, within a reasonably estimable period of time, be
accorded market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company, and regardless
of general business conditions or movements of the market as a whole.
Developments creating special situations might include, among other,
liquidations, reorganizations, recapitalizations or mergers, material
litigation, technological breakthroughs and new management or management
policies. Although large and well-known companies may be involved, special
situations often involve much greater risk than is inherent in ordinary
investment securities.

Among the principal risks of investing in the Portfolio is market risk. Because
the Portfolio invests in a smaller number of securities than many other equity
funds, your investment has the risk that changes in the value of a single
security may have a more significant effect, either negative or positive, on the
Portfolio's net asset value.

22
<PAGE>

The Portfolio seeks long-term growth of capital by investing predominantly in
the equity securities of a limited number of large, carefully selected,
high-quality U.S. companies that are judged likely to achieve superior earnings
growth. As a matter of fundamental policy, the Portfolio normally invests at
least 85% of its total assets in the equity securities of U.S. companies. A U.S.
company is a company that is organized under United States law, has its
principal office in the United States and issues equity securities that are
traded principally in the United States. The Portfolio is thus atypical from
most equity mutual funds in its focus on a relatively small number of
intensively researched companies. The Portfolio is designed for those seeking to
accumulate capital over time with less volatility than that associated with
investment in smaller companies.

Alliance's investment strategy for the Portfolio emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more than
600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth prospects. An emphasis is
placed on identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.

In managing the Portfolio, Alliance seeks to utilize market volatility
judiciously (assuming no change in company fundamentals), striving to capitalize
on apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Portfolio
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes.

Alliance expects the average market capitalization of companies represented in
the Portfolio normally to be in the range, or in excess, of the average market
capitalization of companies included in the S&P 500 Index.

The Portfolio also may:
o invest up to 15% of its total assets in FOREIGN SECURITIES;

o purchase and sell exchange-traded index options and stock index
FUTURES CONTRACTS;

o write covered exchange-traded call OPTIONS on its securities of up to
15% of its total assets, and purchase and sell exchange-traded call
and put options on common stocks written by others of up to, for all
options, 10% of its total assets;

o make SHORT SALES "AGAINST-THE-BOX" of up to 15% of its net assets; and

o invest up to 10% of its total assets in ILLIQUID SECURITIES.

The Portfolio may invest in a wide variety of equity securities including large
cap stocks, convertible and preferred securities, warrants and rights. The
Portfolio may also invest in foreign securities, including foreign equity
securities, American Depository Receipts (ADRs) and other similar securities
that represent interests in foreign equity securities, such as European
Depository Receipts (EDRs) and Global Depository Receipts (GDRs). The Portfolio
may also invest in derivatives and in short term investments, including money
market securities, short term U.S. government obligations, repurchase
agreements, commercial paper, banker's acceptances and certificates of deposit.

The Portfolio is managed by Alliance Capital Management, L.P.

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

--------------------------------------------------------------------------------
SP ALLIANCE TECHNOLOGY PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio emphasizes GROWTH OF CAPITAL AND INVESTS FOR CAPITAL APPRECIATION.
Current income is only an incidental consideration.

--------------------------------------------------------------------------------
A TECHNOLOGY PORTFOLIO
This Portfolio normally invests at least 80% of its assets in technology.
--------------------------------------------------------------------------------

The Portfolio invests primarily in securities of companies expected to benefit
from technological advances and improvements (i.e., companies that use
technology extensively in the development of new or improved products or
processes). The Portfolio will normally have at least 80% of its assets invested
in the securities of these companies.

The Portfolio normally will have substantially all of its assets invested in
equity securities, but it also invests in debt securities offering an
opportunity for price appreciation. The Portfolio will invest in listed and
unlisted securities, in

23
<PAGE>

U.S. securities, and up to 10% of its total assets in foreign securities. The
Portfolio may seek income by writing listed call OPTIONS.

The Portfolio's policy is to invest in any company and industry and in any type
of security with potential for capital appreciation. It invests in well-known
and established companies and in new and unseasoned companies.

The Portfolio also may:

o write covered call OPTIONS on its securities of up to 15% of its total
assets and purchase exchange-listed call and put options, including
exchange-traded index put OPTIONS of up to, for all options, 10% of
its total assets;

o invest up to 10% of its total assets in WARRANTS;

o invest up to 15% of its net assets in ILLIQUID SECURITIES; and

o make LOANS OF PORTFOLIO SECURITIES of up to 30% of its total assets.

Because the Portfolio invests primarily in technology companies, factors
affecting those types of companies could have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio's investments in
technology stocks, especially those of small, less-seasoned companies, tend to
be more volatile than the overall market. The Portfolio's investments in debt
and foreign securities have credit risk and foreign risk.

The Portfolio may invest in listed and unlisted securities, in U.S. securities
and in foreign securities. The Portfolio may also write covered call options on
its securities and purchase exchange-listed call and put options, including
exchange-traded index put options. The Portfolio may also invest in warrants,
convertibles, preferred securities, and OTC options. In response to adverse
market conditions or when restructuring the Portfolio, Alliance may invest up to
100% of the Portfolio's assets in money market instruments. Investing heavily in
these securities limits the ability to achieve the investment objective, but can
help to preserve the Portfolio's assets when the markets are unstable.

The Portfolio is managed by Alliance Capital Management, L.P.

--------------------------------------------------------------------------------
SP ASSET ALLOCATION PORTFOLIOS
--------------------------------------------------------------------------------

There are four Asset Allocation Portfolios, entitled SP Aggressive Growth Asset
Allocation Portfolio, SP Balanced Asset Allocation Portfolio, SP Conservative
Asset Allocation Portfolio, and SP Growth Asset Allocation Portfolio. The
investment objective of each of the Portfolios is to OBTAIN THE HIGHEST
POTENTIAL TOTAL RETURN CONSISTENT WITH THE SPECIFIED LEVEL OF RISK TOLERANCE.
The definition of risk tolerance level is not a fundamental policy and,
therefore, can be changed by the Board at any time. The Asset Allocation

Portfolios are designed for:

o the investor who wants to maximize total return potential, but lacks
the time, or expertise to do so effectively;

o the investor who does not want to watch the financial markets in order
to make periodic exchanges among portfolios; and

o the investor who wants to take advantage of the risk management
features of an asset allocation program.

The investor chooses an Asset Allocation Portfolio by determining which risk
tolerance level most closely corresponds to the investor's individual planning
needs, objectives and comfort.

Each Asset Allocation Portfolio invests its assets in shares of other Portfolios
according to the target percentages indicated in the Portfolio descriptions
below. Periodically, we will rebalance each Asset Allocation Portfolio to bring
the Portfolio's holdings in line with those target percentages. The manager
expects that the rebalancing will occur on a monthly basis, although the
rebalancing may occur less frequently. In addition, the manager will review the
target percentages annually. Based on its evaluation the target percentages may
be adjusted. Such adjustments will be reflected in the annual update to this
prospectus. With respect to each of the four Asset Allocation Portfolios,
Prudential Investments Fund Management LLC reserves the right to alter the
percentage allocations indicated below and/or the other Fund Portfolios in which
the Asset Allocation Portfolio invests if market conditions warrant. Although we
will make every effort to meet each Asset Allocation Portfolio's investment
objective, we can't guarantee success.

Each Asset Allocation Portfolio is managed by Prudential Investments Fund
Management LLC.

24
<PAGE>

--------------------------------------------------------------------------------
SP AGGRESSIVE GROWTH ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
AN AGGRESSIVE GROWTH ASSET ALLOCATION PORTFOLIO
This Portfolio aggressively seeks capital appreciation by investing in large
cap equity Portfolios, international Portfolios, and small/mid cap equity
Portfolios.
--------------------------------------------------------------------------------

The SP Aggressive Growth Asset Allocation Portfolio is composed of shares of the
following Fund Portfolios:

For more information on the following Portfolios, see the pages indicated: SP
Davis Value Portfolio (p. 27), SP Alliance Large Cap Growth Portfolio (p. 22),
Prudential Jennison Portfolio (p. 17), SP Jennison International Growth
Portfolio (p. 31), SP Deutsche International Equity Portfolio (p. 28), SP
Small/Mid Cap Value Portfolio (p. 40), SP Prudential U.S. Emerging Growth
Portfolio (p. 38).

--------------------------------------------------------------------------------
SP BALANCED ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
A BALANCE BETWEEN CURRENT INCOME AND CAPITAL APPRECIATION
This Portfolio seeks to balance current income and growth of capital by
investing in fixed income Portfolios, large cap equity Portfolios, small/mid cap
equity Portfolios, and international equity Portfolios.
--------------------------------------------------------------------------------

The SP Balanced Asset Allocation Portfolio is composed of shares of the
following Portfolios:

o a large capitalization equity component (approximately 35% of the
Portfolio, invested in shares of the SP Davis Value Portfolio (17.5%
of Portfolio), the SP Alliance Large Cap Growth Portfolio (8.75% of
Portfolio, and the Prudential Jennison Portfolio (8.75% of
Portfolio)); and

For more information on the following Portfolios, see the pages indicated: SP
PIMCO Total Return Portfolio (p. 36), SP PIMCO High Yield Portfolio (p. 35), SP
Davis Value Portfolio (p. 27), SP Alliance Large Cap Growth Portfolio (p. 22),
Prudential Jennison Portfolio (p. 17), SP Small/Mid Cap Value Portfolio (p. 40),
SP Prudential U.S. Emerging Growth Portfolio (p. 38), SP Jennison International
Growth Portfolio (p. 31), SP Deutsche International Equity Portfolio (p. 28).

25
<PAGE>

--------------------------------------------------------------------------------
SP CONSERVATIVE ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
AN ASSET ALLOCATION PORTFOLIO INVESTING PRIMARILY IN FIXED INCOME FUNDS
This Portfolio is invested in fixed income, large cap equity, and small/mid cap
equity Portfolios.
--------------------------------------------------------------------------------

The SP Conservative Asset Allocation Portfolio is composed of shares of the
following Portfolios:

For more information on the following Portfolios, see the pages indicated: SP
PIMCO Total Return Portfolio (p. 36), SP PIMCO High Yield Portfolio (p. 35), SP
Davis Value Portfolio (p. 27), SP Alliance Large Cap Growth Portfolio (p. 22),
Prudential Jennison Portfolio (p. 17), SP Small/Mid Cap Value Portfolio (p. 40),
SP Prudential U.S. Emerging Growth Portfolio (p. 38).

--------------------------------------------------------------------------------
SP GROWTH ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
AN ASSET ALLOCATION PORTFOLIO INVESTING PRIMARILY IN GROWTH PORTFOLIOS
This Portfolio seeks to provide long-term growth of capital with consideration
also given to current income.
--------------------------------------------------------------------------------

The Growth Asset Allocation Portfolio is composed of shares of the following
Portfolios:

For more information on the following Portfolios, see the pages indicated: SP
Davis Value Portfolio (p. 27), SP Alliance Large Cap Growth Portfolio (p. 22),
Prudential Jennison Portfolio (p. 17), SP PIMCO High Yield Portfolio (p. 35), SP
PIMCO Total Return Portfolio (p. 36), SP Jennison International Growth Portfolio
(p. 31), SP Deutsche International Equity Portfolio (p. 28), SP Small/Mid Cap
Value Portfolio (p. 40), SP Prudential U.S. Emerging Growth Portfolio (p. 38).

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<PAGE>

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SP DAVIS VALUE PORTFOLIO
--------------------------------------------------------------------------------

SP Davis Value Portfolio's investment objective is GROWTH OF CAPITAL. In keeping
with the Davis investment philosophy, the portfolio managers select common
stocks that offer the potential for capital growth over the long-term.

--------------------------------------------------------------------------------
THE DAVIS BACK-TO-BASICS APPROACH
Under the Davis philosophy, Davis seeks to identify companies possessing ten
basic characteristics, which Davis believes will foster sustainable long-term
growth.
--------------------------------------------------------------------------------

The Portfolio invests primarily in common stocks of U.S. companies with market
capitalizations of at least $5 billion, but it may also invest in foreign
companies and U.S. companies with smaller capitalizations.

COMMON STOCKS

WHAT THEY ARE. Common stock represents ownership of a company.

HOW THEY PICK THEM. The Davis investment philosophy stresses a back-to-basics
approach: they use extensive research to buy growing companies at value prices
and hold on to them for the long-term. Over the years, Davis Selected Advisers
has developed a list of ten characteristics that they believe foster sustainable
long-term growth, minimize risk and enhance the potential for superior long-term
returns. While very few companies have all ten, Davis searches for those
possessing several of the characteristics that are listed below.

WHY THEY BUY THEM. SP Davis Value Portfolio buys common stock to take an
ownership position in companies with growth potential, and then holds that
position long enough to realize the benefits of growth.

The Portfolio may also invest in foreign securities, primarily as a way of
providing additional opportunities to invest in quality overlooked growth
stocks. Investment in foreign securities can also offer the Portfolio the
potential for economic diversification.

WHAT DAVIS LOOKS FOR IN A COMPANY

1. FIRST-CLASS MANAGEMENT. The Davis investment philosophy believes that great
companies are created by great managers. In visiting companies, they look for
managers with a record of doing what they say they are going to do.

2. MANAGEMENT OWNERSHIP. Just as they invest heavily in their own
Portfolios, they look for companies where individual managers own a significant
stake.

3. STRONG RETURNS ON CAPITAL. They want companies that invest their capital
wisely and reap superior returns on those investments.

4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to compete
better, especially in difficult times. A low cost structure sharply reduces the
risk of owning a company's shares.

5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.

6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs, it
is a good idea to own companies that can take advantage of attractive prices to
expand operations through inexpensive acquisitions.

7. STRONG BALANCE SHEET. Strong finances give a company staying power to weather
difficult economic cycles.

8. COMPETITIVE PRODUCTS OR SERVICES. Davis invests in companies with products
that are not vulnerable to obsolescence.

9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S. economic
cycle.

10. INNOVATION. The savvy use of technology in any business, from a food company
to an investment bank, can help reduce costs and increase sales.

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<PAGE>

OTHER SECURITIES AND INVESTMENT STRATEGIES

The Portfolio invests primarily in the common stock of large capitalization
domestic companies. There are other securities in which the Portfolio may
invest, and investment strategies which the Portfolio may employ, but they are
not principal investment strategies.

The Portfolio uses short-term investments to maintain flexibility while
evaluating long-term opportunities. The Portfolio also may use short-term
investments for temporary defensive purposes; in the event the portfolio
managers anticipate a decline in the market values of common stock of large
capitalization domestic companies, they may reduce the risk by investing in
short-term securities until market conditions improve. Unlike common stocks,
these investments will not appreciate in value when the market advances. In such
a circumstance, the short-term investments will not contribute to the
Portfolio's investment objective.

The Portfolio is managed by Davis Selected Advisers, L.P.

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SP DEUTSCHE INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio seeks LONG-TERM CAPITAL APPRECIATION. Under normal circumstances,
the Portfolio invests at least 65% of its total assets in the stocks and other
securities with equity characteristics of companies in developed countries
outside the United States.

--------------------------------------------------------------------------------
INTERNATIONAL EQUITIES FROM DEVELOPED COUNTRIES
The Portfolio invests primarily in the stocks of companies located in developed
foreign countries that make up the MSCI EAFE Index, plus Canada. The Portfolio
also may invest in emerging markets securities.
--------------------------------------------------------------------------------

The Portfolio invests for capital appreciation, not income; any dividend or
interest income is incidental to the pursuit of that goal. While the Portfolio
gives priority to capital appreciation, it cannot offer any assurance of
achieving this goal.

STRATEGY

The Portfolio invests for the long term. The Portfolio employs a strategy of
growth at a reasonable price. The Portfolio seeks to identify companies outside
the United States that combine strong potential for earnings growth with
reasonable investment value. Such companies typically exhibit increasing rates
of profitability and cash flow, yet their share prices compare favorably to
other stocks in a given market and to their global peers. In evaluating stocks,
the Portfolio considers factors such as sales, earnings, cash flow and
enterprise value. Enterprise value is a company's market capitalization plus the
value of its net debt. The Portfolio further considers the relationship between
these and other quantitative factors. Together, these indicators of growth and
value may identify companies with improving prospects before the market in
general has taken notice.

PRINCIPAL INVESTMENTS

Almost all the companies in which the Portfolio invests are based in the
developed foreign countries that make up the MSCI EAFE Index, plus Canada. The
Portfolio may also invest a portion of its assets in companies based in the
emerging markets of Latin America, the Middle East, Europe, Asia and Africa if
it believes that its return potential more than compensates for the extra risks
associated with these markets. Under normal market conditions investment in
emerging markets is not considered to be a central element of the Portfolio's
strategy. Typically, the Portfolio will not hold more than 15% of its net assets
in emerging markets. The Portfolio may invest in a variety of debt securities,
equity securities, and other instruments, including convertible securities,
warrants, foreign securities, options (on stock, debt, stock indices, foreign
currencies, and futures), futures, forward foreign currency exchange contracts,
interest rate swaps, loan participations, reverse repurchase agreements, dollar
rolls, when-issued and delayed delivery securities, short sales, and illiquid
securities. We explain each of these instruments in detail in the Statement of
Additional Information.

INVESTMENT PROCESS

Company research lies at the heart of Bankers Trust's investment process, as it
does with many stock mutual fund portfolios. Several thousand companies are
tracked to arrive at the approximately 100 stocks the Portfolio normally

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<PAGE>

holds. But the process brings an added dimension to this fundamental research.
It draws on the insight of experts from a range of financial
disciplines--regional stock market specialists, global industry specialists,
economists and quantitative analysts. They challenge, refine and amplify each
other's ideas. Their close collaboration is a critical element of the investment
process.

Temporary Defensive Position. The Portfolio may from time to time adopt a
temporary defensive position in response to extraordinary adverse political,
economic or stock market events. The Portfolio may invest up to 100% of its
assets in U.S. or foreign government money market investments, or other
short-term bonds that offer comparable safety, if the situation warranted. To
the extent the Portfolio might adopt such a position over the course of its
duration, the Portfolio may not meet its goal of long-term capital appreciation.

RISKS

Below are set forth some of the prominent risks associated with international
investing.

PRIMARY RISKS

Market Risk. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Stock Selection Risk. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. To
minimize this risk, Bankers Trust monitors each of the stocks in the Portfolio
according to three basic quantitative criteria. They subject a stock to
intensive review if:

o its rate of price appreciation begins to trail that of its national
stock index;

o the financial analysts who follow the stock, both within Bankers Trust
and outside, cut their estimates of the stock's future earnings; or

o the stock's price approaches the downside target set when they first
bought the stock (and may since have modified to reflect changes in
market and economic conditions).

In this review, Bankers Trust seeks to learn if the deteriorating performance
accurately reflects deteriorating prospects or if it merely reflects investor
overreaction to temporary circumstances.

Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons including:

o Political Risk. Some foreign governments have limited the outflow of
profits to investors abroad, extended diplomatic disputes to include
trade and financial relations, and imposed high taxes on corporate
profits. While these political risks have not occurred recently in the
major countries in which the Portfolio invests, Bankers Trust analyzes
countries and regions to try to anticipate these risks.

o Information Risk. Financial reporting standards for companies based in
foreign markets differ from those in the United States. Since the
"numbers" themselves sometimes mean different things, Bankers Trust
devotes much of its research effort to understanding and assessing the
impact of these differences upon a company's financial conditions and
prospects.

o Liquidity Risk. Stocks that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active stocks. This
liquidity risk is a factor of the trading volume of a particular stock,
as well as the size and liquidity of the entire local market. On the
whole, foreign exchanges are smaller and less liquid than the U.S.
market. This can make buying and selling certain shares more difficult
and costly. Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of shares. In
certain situations, it may become virtually impossible to sell a stock
in an orderly fashion at a price that approaches an estimate of its
value.

o Regulatory Risk. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly
established.

In an effort to reduce these foreign stock market risks, the Portfolio
diversifies its investments, just as you may spread your investments among a
range of securities so that a setback in one does not overwhelm your entire
strategy. In this way, a reversal in one market or stock need not undermine the
pursuit of long-term capital appreciation.

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<PAGE>

Currency Risk. The Portfolio invests in foreign securities denominated in
foreign currencies. This creates the possibility that changes in foreign
exchange rates will affect the value of foreign securities or the U.S. dollar
amount of income or gain received on these securities. Bankers Trust seeks to
minimize this risk by actively managing the currency exposure of the Portfolio.

Emerging Market Risk. To the extent that the Portfolio does invest in emerging
markets to enhance overall returns, it may face higher political, information,
and stock market risks. In addition, profound social changes and business
practices that depart from norms in developed countries' economies have hindered
the orderly growth of emerging economies and their stock markets in the past.
High levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. For all these reasons, the Portfolio
carefully limits and balances its commitment to these markets.

SECONDARY RISKS

Small Company Risk. Although the Portfolio generally invests in the shares of
large, well-established companies, it may occasionally take advantage of
exceptional opportunities presented by small companies. Such opportunities pose
unique risks. Small company stocks tend to experience steeper price
fluctuations--down as well as up--than the stocks of larger companies. A
shortage of reliable information--the same information gap that creates
opportunity in small company investing - can also pose added risk. Industrywide
reversals have had a greater impact on small companies, since they lack a large
company's financial resources. Finally, small company stocks are typically less
liquid than large company stocks; when things are going poorly, it is harder to
find a buyer for a small company's shares.

Pricing Risk. When price quotations for securities are not readily available,
they are valued by the method that most accurately reflects their current worth
in the judgment of the Board. This procedure implies an unavoidable risk, the
risk that our prices are higher or lower than the prices that the securities
might actually command if we sold them. The Portfolio is managed by Bankers
Trust Company.

--------------------------------------------------------------------------------
SP INVESCO SMALL COMPANY GROWTH PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio seeks LONG-TERM CAPITAL GROWTH. Most holdings are in
small-capitalization companies.

--------------------------------------------------------------------------------
A SMALL CAP STOCK PORTFOLIO
The Portfolio generally invests at least 65% of its total assets in the stocks
of small companies with market capitalizations under $2 billion at the time of
purchase. The Portfolio may invest up to 35% of its total assets in the stocks
of companies with market capitalizations in excess of $2 billion.
--------------------------------------------------------------------------------

INVESCO is primarily looking for companies in the accelerated developing stages
of their life cycles, which are currently priced below INVESCO's estimation of
their potential, have earnings which may be expected to grow faster than the
U.S. economy in general, and/or offer earnings growth of sales, new products,
management changes, or structural changes in the economy. The Portfolio may
invest up to 25% of its assets in securities of non-U.S. issuers. Securities of
Canadian issuers and American Depository Receipts are not subject to this 25%
limitation.

Most holdings are in small-capitalization companies--those with market
capitalizations under $2 billion at the time of purchase. Although not a
principal investment, the Portfolio may invest in DERIVATIVES. A derivative is a
financial instrument whose value is "derived," in some manner, from the price of
another security, index, asset or rate. Derivatives include options and futures
contracts, among a wide range of other instruments.

Although not a principal investment, the Portfolio may invest in OPTIONS AND
FUTURES. Options and futures are common types of derivatives that the Portfolio
may occasionally use to hedge its investments. An option is the right to buy or
sell a security or other instrument, index or commodity at a specific price on
or before a specific date. A future is an agreement to buy or sell a security or
other instrument, index or commodity at a specific price on a specific date.

Although not a principal investment, the Portfolio may invest in REPURCHASE
AGREEMENTS. In addition, the Portfolio may invest in debt securities, ADRs,
convertible securities, junk bonds, warrants, options (on stock, debt, stock
indices, currencies, and futures), forward foreign currency exchange contracts,
interest rate swaps, when-issued and delayed delivery securities, short sales
against-the-box, U.S. government securities, Brady Bonds, and illiquid
securities. In response to adverse market conditions or when restructuring the
Portfolio, INVESCO may invest up to 100% of the Portfolio's assets in money
market instruments. Investing heavily in these securities limits the ability to

30
<PAGE>

achieve the investment objective, but can help to preserve the Portfolio's
assets when the markets are unstable. The Portfolio may lend its portfolio
securities. We provide additional information on these types of securities in
the Statement of Additional Information.

The Portfolio is managed by INVESCO Funds Group, Inc.

--------------------------------------------------------------------------------
SP JENNISON INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------

The investment objective of the Portfolio is to SEEK LONG-TERM GROWTH OF
CAPITAL. The Portfolio seeks to achieve its objective through investment in
equity-related securities of foreign companies.

--------------------------------------------------------------------------------
A FOREIGN STOCK GROWTH PORTFOLIO
The Portfolio seeks long-term growth by investing in the common stock of
foreign companies The Portfolio generally invests in about 60 securities of
issuers located in at least five different foreign countries
--------------------------------------------------------------------------------

This means the Portfolio seeks investments--primarily the common stock of
foreign companies--that will increase in value over a period of years. A company
is considered to be a foreign company if it satisfies at least one of the
following criteria: its securities are traded principally on stock exchanges in
one or more foreign countries; it derives 50% or more of its total revenue from
goods produced, sales made or services performed in one or more foreign
countries; it maintains 50% or more of its assets in one or more foreign
countries; it is organized under the laws of a foreign country; or its principal
executive office is located in a foreign country.

The Portfolio invests in about 60 securities of primarily non U.S. growth
companies whose shares appear attractively valued on a relative and absolute
basis. The Portfolio looks for companies that have above-average actual and
potential earnings growth over the long term and strong financial and
operational characteristics. The Portfolio selects stocks on the basis of
individual company research. Thus, country, currency and industry weightings are
primarily the result of individual stock selections. Although the Portfolio may
invest in companies of all sizes, the Portfolio typically focuses on large and
medium sized companies. Under normal conditions, the Portfolio intends to invest
at least 65% of its total assets in the equity-related securities of foreign
companies in at least five foreign countries. The Portfolio may invest anywhere
in the world, including North America, Western Europe, the United Kingdom and
the Pacific Basin, but generally not the U.S.

The principal type of equity-related security in which the Portfolio invests is
common stock. In addition to common stock, the Portfolio may invest in other
equity-related securities that include, but are not limited to, preferred stock,
rights that can be exercised to obtain stock, warrants and debt securities or
preferred stock convertible or exchangeable for common or preferred stock and
master limited partnerships. The Portfolio may also invest in AMERICAN
DEPOSITORY RECEIPTS (ADRS). We consider ADRs to be equity-related securities.

HOW THE PORTFOLIO INVESTS

In deciding which stocks to purchase for the Portfolio, Jennison looks for
growth companies that have both strong fundamentals and appear to be
attractively valued relative to their growth potential. Jennison uses a
bottom-up approach in selecting securities for the Portfolio, which means that
they select stocks based on individual company research, rather than allocating
by country or sector. In researching which stocks to buy, they look at a
company's basic financial and operational characteristics as well as compare the
company's stock price to the price of stocks of other companies that are its
competitors, absolute historic valuation levels for that company's stock, its
earnings growth and the price of existing portfolio holdings. Another important
part of Jennison's research process is to have regular contact with management
of the companies that they purchase in order to confirm earnings expectations
and to assess management's ability to meet its stated goals. Although the
Portfolio may invest in companies of all sizes, it typically focuses on large
and medium sized companies.

Generally, Jennison looks for companies that have one or more of the following
characteristics: actual and potential growth in earnings and cash flow; actual
and improving profitability; strong balance sheets; management strength; and
strong market share for the company's products.

In addition, Jennison looks for companies whose securities appear to be
attractively valued relative to: each company's peer group; absolute historic
valuations; and existing holdings of the Portfolio. Generally, they consider
selling a security when there is an identifiable change in a company's
fundamentals or when expectations of future earnings growth become fully
reflected in the price of that security.

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OTHER INVESTMENTS AND STRATEGIES

MONEY MARKET INSTRUMENTS, BONDS AND OTHER FIXED-INCOME OBLIGATIONS

Money market instruments and bonds are known as fixed-income securities because
issuers of these securities are obligated to pay interest and principal.
Typically, FIXED-INCOME securities don't increase or decrease in value in
relation to an issuer's financial condition or business prospects as stocks may,
although their value does fluctuate inversely to changes in interest rates
generally and directly in relation to their perceived credit quality. The
Portfolio may buy obligations of companies, foreign countries or the U.S.
Government. Money market instruments include the commercial paper and short-term
obligations of foreign and domestic corporations, banks and governments and
their agencies.

Generally, the Portfolio will purchase only "Investment-Grade" commercial paper
and bonds. This means the commercial paper and bonds have received one of the
four highest quality ratings determined by Moody's Investors Service, Inc.
(Moody's), or Standard & Poor's Ratings Group (S&P), or one of the other
nationally recognized statistical rating organizations (NRSROs). Obligations
rated in the fourth category (Baa for Moody's or BBB for S&P) have speculative
characteristics and are subject to a greater risk of loss of principal and
interest. On occasion, the Portfolio may buy instruments that are not rated, but
that are of comparable quality to the investment-grade bonds described above.

TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, the Portfolio
may temporarily invest up to 100% of its assets in money market instruments or
in the stock and other equity-related securities of U.S. companies. Investing
heavily in money market instruments limits the ability to achieve capital
appreciation, but may help to preserve the Portfolio's assets when global or
international markets are unstable. When the Portfolio is temporarily invested
in equity-related securities of U.S. companies, the Portfolio may achieve
capital appreciation, although not through investment in foreign companies.

REPURCHASE AGREEMENTS

The Portfolio may also use REPURCHASE AGREEMENTS.

DERIVATIVE STRATEGIES

The Portfolio may use a number of alternative derivative strategies--including
derivatives--to try to improve its returns or protect its assets, although the
Portfolio cannot guarantee these strategies will work, that the instruments
necessary to implement these strategies will be available, or that the Portfolio
will not lose money.

OPTIONS

The Portfolio may purchase and sell put and call OPTIONS on equity securities,
stock indices and foreign currencies that are traded on U.S. or foreign
securities exchanges, on NASDAQ or in the over-the-counter market.

FUTURES CONTRACTS AND RELATED OPTIONS, FOREIGN CURRENCY FORWARD CONTRACTS. The
Portfolio may purchase and sell stock and bond index futures contracts and
related options on stock and bond index futures. The Portfolio also may purchase
and sell futures contracts on foreign currencies and related options on foreign
currency futures contracts.

OTHER STRATEGIES

The Portfolio follows certain policies when it borrows money (the Portfolio can
borrow up to 33-1/3% of the value of its total assets); lends its securities to
others (as an operating policy, which may be changed without stockholder
approval, the Portfolio will not lend more than 30% of the value of its total
assets, which for this purpose includes the value of any collateral received in
the transaction); and holds illiquid securities (the Portfolio may hold up to
15% of its net assets in illiquid securities, including restricted securities
with legal or contractual restrictions, those without a readily available market
and repurchase agreements with maturities longer than seven days).

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SP LARGE CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio is managed by Fidelity Management & Research Company (FMR). FMR
normally invests at least 65% of the Portfolio's total assets in common stocks
of companies with large market capitalizations.

--------------------------------------------------------------------------------
A LARGE CAP VALUE PORTFOLIO
The Portfolio normally invests at least 65% of its assets in stocks of companies
with large market capitalizations. The Portfolio invest in "value" stocks.
--------------------------------------------------------------------------------

FMR defines large market capitalization companies as companies with market
capitalizations equaling or exceeding $1 billion at the time of the Portfolio's
investment. Companies whose capitalizations no longer meet this definition after
purchase continue to be considered to have large market capitalizations for
purposes of the 65% policy.

PRINCIPAL INVESTMENT STRATEGIES

FMR focuses on securities of companies that it believes are undervalued in the
marketplace in relation to factors such as the company's assets, earnings, or
growth potential. The stocks of these companies are often called "value" stocks.

FMR may invest the Portfolio's assets in securities of foreign issuers in
addition to securities of domestic issuers.

In buying and selling securities for the Portfolio, FMR relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market factors.
Factors considered include growth potential, earnings estimates, and management.
These securities are then analyzed using statistical models to further evaluate
growth potential, valuation, liquidity and investment risk.

FMR may use various techniques, such as buying and selling futures contracts, to
increase or decrease the Portfolio's exposure to changing security prices or
other factors that affect security values. If FMR's strategies do not work as
intended, the Portfolio may not achieve its objective.

DESCRIPTION OF PRINCIPAL SECURITIES TYPES

Equity securities represent an ownership interest, or the right to acquire an
ownership interest, in an issuer. Different types of equity securities provide
different voting and dividend rights and priority in the event of the bankruptcy
of the issuer. Equity securities include common stocks, preferred stocks,
convertible securities, and warrants.

PRINCIPAL INVESTMENT RISKS

Many factors affect the Portfolio's performance. The Portfolio's share price
changes daily based on changes in market conditions and interest rates and in
response to other economic, political or financial developments. The Portfolio's
reaction to these developments will be affected by the types of the securities
in which the Portfolio invests, the financial condition, industry and economic
sector, and geographic location of an issuer, and the Portfolio's level of
investment in the securities of that issuer. When you sell units corresponding
to shares of the Portfolio, they could be worth more or less than what you paid
for them.

In addition to company risk, derivatives risk, foreign investment risk,
leveraging risk, liquidity risk, management risk, and market risk, the following
factor can significantly affect the Portfolio's performance:

"VALUE" INVESTING. "Value" stocks can react differently to issuer, political,
market and economic developments than the market as a whole and other types of
stocks. "Value" stocks tend to be inexpensive relative to their earnings or
assets compared to other types of stocks. However, "value" stocks can continue
to be inexpensive for long periods of time and may not ever realize their full
value.

In response to market, economic, political or other conditions, FMR may
temporarily use a different investment strategy for defensive purposes. If FMR
does so, different factors could affect the Portfolio's performance and the
Portfolio may not achieve its investment objective.

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<PAGE>

--------------------------------------------------------------------------------
SP MFS CAPITAL OPPORTUNITIES PORTFOLIO
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
CAPITAL OPPORTUNITIES IN BOTH U.S. AND FOREIGN STOCKS
The Portfolio invests primarily in stocks, convertible securities, and
depository receipts of companies in both the United States and in foreign
countries.
--------------------------------------------------------------------------------

The portfolio focuses on companies which Massachusetts Financial Services
Company (MFS) believes have favorable growth prospects and attractive valuations
based on current and expected earnings or cash flow. The Portfolio's investments
may include securities listed on a securities exchange or traded in the
over-the-counter markets.

MFS uses a bottom-up, as opposed to a top-down, investment style in managing the
Portfolio. This means that securities are selected based upon fundamental
analysis (such as an analysis of earnings, cash flows, competitive position and
management's abilities) performed by the Portfolio's portfolio manager and MFS's
large group of equity research analysts. The Portfolio may invest in foreign
securities (including emerging market securities), through which it may have
exposure to foreign currencies. The Portfolio may engage in active and frequent
trading to achieve its principal investment strategies. Generally, the SP MFS
Capital Opportunities Portfolio will invest no more than (i) 35% of its net
assets in foreign securities and (ii) 15% in lower rated bonds, and the
Portfolio will not lend more than 30% of the value of its securities.

The Portfolio can invest in a wide variety of debt and equity securities,
including corporate debt, lower-rated bonds, U.S. Government securities,
variable and floating rate obligations, zero coupon bonds, deferred interest
bonds, PIK bonds, Brady Bonds, depository receipts, forward contracts, futures
contracts, investment company securities, options (on currencies, futures,
securities and stock indices), repurchase agreements, reverse repurchase
agreements, dollar rolls, restricted securities, short sales, warrants, and
when-issued securities. The Portfolio may lend its securities and borrow from a
bank. The Portfolio also may assume a temporary defensive position. In response
to adverse market conditions or when restructuring the Portfolio, MFS may invest
up to 100% of the Portfolio's assets in money market instruments. Investing
heavily in these securities limits the ability to achieve the investment
objective, but can help to preserve the Portfolio's assets when the markets are
unstable.

The Portfolio is managed by Massachusetts Financial Services Company.

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SP MFS MID-CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL.

--------------------------------------------------------------------------------
A MID-CAP GROWTH STOCK PORTFOLIO
The Portfolio invests primarily in companies with market capitalizations
equaling or exceeding $250 million but not exceeding the top of the Russell
Midcap(TM) Growth Index range at the time of purchase.
--------------------------------------------------------------------------------

The Portfolio invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stocks,
convertible securities and depository receipts for those securities, of
companies with medium market capitalization which the Portfolio's investment
adviser believes have above-average growth potential.

The Portfolio is a non-diversified mutual fund portfolio. This means that the
Portfolio may invest a relatively high percentage of its assets in a small
number of issuers. The Portfolio may invest in foreign securities (including

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<PAGE>

emerging markets securities) through which it may have exposure to foreign
currencies. The Portfolio is expected to engage in active and frequent trading
to achieve its principal investment strategies. Generally, the Portfolio will
invest no more than (i) 20% of its net assets in foreign securities and (ii) 10%
in lower rated bonds, and the Portfolio will not lend more than 30% of the value
of its securities. The Portfolio may invest in a variety of debt securities,
equity securities, and other instruments, including corporate debt, lower-rated
bonds, U.S. government securities, variable and floating rate obligations, zero
coupon bonds, deferred interest bonds, PIK bonds, depository receipts, emerging
markets equity securities, forward contracts, futures contracts, investment
company securities, options (on currencies, futures, securities, and stock
indices), repurchase agreements, restricted securities, short sales, short sales
against-the-box, short-term debt, warrants, and when-issued securities. The
Portfolio may borrow for temporary purposes, assume a temporary defensive
position, and lend its portfolio securities.

The Portfolio is managed by Massachusetts Financial Services Company.

--------------------------------------------------------------------------------
SP PIMCO HIGH YIELD PORTFOLIO
--------------------------------------------------------------------------------

Under normal circumstances, the Portfolio invests AT LEAST 65% OF ITS ASSETS IN
JUNK BONDS.

--------------------------------------------------------------------------------
A HIGH-YIELD, HIGH-RISK BOND PORTFOLIO
The Portfolio invests primarily in high-yield, high-risk bonds, also known as
"junk bonds."
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The Portfolio may invest up to 15% of its assets in DERIVATIVE instruments,
such as options, futures contracts or swap agreements. The Portfolio may also
invest in mortgage- or asset-backed securities.

The Portfolio may seek to obtain market exposure to the securities in which it
primarily invests by entering into a series of purchase and sale contracts or by
using other investment techniques (such as buy backs or dollar rolls). The
"total return" sought by the Portfolio consists of income earned on the
Portfolio's investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates or improving credit fundamentals for a
particular sector or security.

In selecting securities for the Portfolio, PIMCO develops an outlook for
interest rates, currency exchange rates and the economy; analyzes credit and
call risks, and uses other security selection techniques. The proportion of a
Portfolio's assets committed to investment in securities with particular
characteristics (such as quality, sector, interest rate or maturity) varies
based on PIMCO's outlook for the U.S. economy and the economies of other
countries in the world, the financial markets and other factors.

PIMCO attempts to identify areas of the bond market that are undervalued
relative to the rest of the market. PIMCO identifies these areas by grouping
bonds into the following sectors: money markets, governments, corporates,
mortgages, asset-backed and international. Sophisticated proprietary software
then assists in evaluating sectors and pricing specific securities. Once
investment opportunities are identified, PIMCO will shift assets among sectors
depending upon changes in relative valuations and credit spreads. There is no
guarantee that PIMCO's security selection techniques will produce the desired
results.

The Portfolio may invest in Brady Bonds, which are described below in the
section on the PIMCO Total Return Portfolio.

Securities rated lower than Baa by Moody's Investors Service, Inc. (Moody's) or
lower than BBB by Standard & Poor's Ratings Services ("S&P") are sometimes
referred to as "high yield" or "junk" bonds. Investing in high yield securities
involves special risks in addition to the risks associated with investments in
higher-rated fixed income securities. While offering a greater potential
opportunity for capital appreciation and higher yields, high yield securities
typically entail greater potential price volatility and may be less liquid than
higher-rated securities. High yield securities may be regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. They may also be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher-rated
securities.

The Portfolio may invest in inflation-indexed bonds, which are described below
in the section on the PIMCO Total Return Portfolio.

The Portfolio may invest in CONVERTIBLE SECURITIES.

The Portfolio may invest in MORTGAGE- OR OTHER ASSET-BACKED SECURITIES.

The Portfolio may also enter into, or acquire participations in, delayed funding
loans and revolving credit facilities, which are described in the section on SP
PIMCO Total Return Portfolio.

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For the purpose of achieving income, each Portfolio may LEND ITS PORTFOLIO
SECURITIES to brokers, dealers, and other financial institutions provided a
number of conditions are satisfied, including that the loan is fully
collateralized.

The Portfolio may make SHORT SALES as part of its overall portfolio management
strategies or to offset a potential decline in value of a security.

The Portfolio may purchase securities which it is eligible to purchase on a
WHEN-ISSUED OR DELAYED DELIVERY BASIS, and may make contracts to purchase such
securities for a fixed price at a future date beyond normal settlement time
(forward commitments).

The Portfolio may enter into REPURCHASE AGREEMENTS.

The Portfolio may enter into REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS,
subject to a Portfolio's limitations on borrowings.

The Portfolio may invest in "event-linked bonds," which are described in the
section below on the SP PIMCO Total Return Portfolio.

The Portfolio may invest up to 15% of its net assets in ILLIQUID SECURITIES.

The Portfolio may invest up to 10% of its assets in securities of other
investment companies, such as closed-end management investment companies, or in
pooled accounts or other investment vehicles which invest in foreign markets. As
a shareholder of an investment company, a Portfolio may indirectly bear service
and other fees which are in addition to the fees the Portfolio pays its service
providers.

For temporary or defensive purposes, the Portfolio may invest without limit in
U.S. debt securities, including taxable securities and short-term money market
securities, when PIMCO deems it appropriate to do so. When the Portfolio engages
in such strategies, it may not achieve its investment objective.

The Portfolio is managed by Pacific Investment Management Company.

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SP PIMCO TOTAL RETURN PORTFOLIO
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The Portfolio invests primarily in investment grade debt securities. It may also
invest up to 10% of its assets in high yield securities ("junk bonds") rated B
or higher by Moody's or S&P or, if unrated, determined by PIMCO to be of
comparable quality.

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AN INVESTMENT GRADE BOND PORTFOLIO
The Portfolio invests primarily in investment grade debt securities, including
foreign debt securities, but may invest some of its assets in junk bonds.
--------------------------------------------------------------------------------

The Portfolio may invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S. dollar-denominated
securities of foreign issuers. The Portfolio will normally hedge at least 75% of
its exposure to foreign currency to reduce the risk of loss due to fluctuations
in currency exchange rates.

The Portfolio may invest all of its assets in DERIVATIVE INSTRUMENTS, such as
options, FUTURES contracts or swap agreements, or in mortgage- or asset-backed
securities. The Portfolio may LEND its portfolio securities to brokers, dealers
and other financial institutions to earn income. The Portfolio may seek to
obtain market exposure to the securities in which it primarily invests by
entering into a series of purchase and sale contracts or by using other
investment techniques (such as buy backs or dollar rolls). The "total return"
sought by the Portfolio consists of income earned on the Portfolio's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.

In selecting securities for a Portfolio, PIMCO develops an outlook for interest
rates, currency exchange rates and the economy; analyzes credit and call risks,
and uses other security selection techniques. The proportion of a Portfolio's
assets committed to investment in securities with particular characteristics
(such as quality, sector, interest rate or maturity) varies based on PIMCO's
outlook for the U.S. economy and the economies of other countries in the world,
the financial markets and other factors.

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<PAGE>

corporates, mortgages, asset-backed and international. Sophisticated proprietary
software then assists in evaluating sectors and pricing specific securities.
Once investment opportunities are identified, PIMCO will shift assets among
sectors depending upon changes in relative valuations and credit spreads. There
is no guarantee that PIMCO's security selection techniques will produce the
desired results.

The Portfolio may invest in Brady Bonds, which are securities created through
the exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with a debt restructuring. Investments in Brady Bonds
may be viewed as speculative. Brady Bonds acquired by the Portfolio may be
subject to restructuring arrangements or to requests for new credit, which may
cause the Portfolio to suffer a loss of interest or principal on any of its
holdings.

Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. If the index measuring
inflation falls, the principal value of inflation-indexed bonds will be adjusted
downward, and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not
provide a similar guarantee, the adjusted principal value of the bond repaid at
maturity may be less than the original principal. The value of inflation-indexed
bonds is expected to change in response to changes in real interest rates. Real
interest rates are tied to the relationship between nominal interest rates and
the rate of inflation. If nominal interest rates increase at a faster rate than
inflation, real interest rates may rise, leading to a decrease in value of
inflation-indexed bonds. Short-term increases in inflation may lead to a decline
in value. Any increase in the principal amount of an inflation-indexed bond will
be considered taxable ordinary income, even though investors do not receive
their principal until maturity.

The Portfolio may invest in CONVERTIBLE SECURITIES.

The Portfolio may invest in MORTGAGE- OR OTHER ASSET-BACKED SECURITIES.

The Portfolio may also enter into, or acquire participations in, delayed funding
loans and revolving credit facilities, in which a lender agrees to make loans up
to a maximum amount upon demand by the borrower during a specified term. These
commitments may have the effect of requiring a Portfolio to increase its
investment in a company at a time when it might not otherwise decide to do so
(including at a time when the company's financial condition makes it unlikely
that such amounts will be repaid). To the extent that a Portfolio is committed
to advance additional Portfolios, it will segregate assets determined to be
liquid by PIMCO in accordance with procedures established by the Board of
Directors in an amount sufficient to meet such commitments. Delayed loans and
revolving credit facilities are subject to credit, interest rate and liquidity
risk and the risks of being a lender.

The Portfolio may make SHORT SALES as part of its overall portfolio management
strategies or to offset a potential decline in value of a security.

The Portfolio may enter into REPURCHASE AGREEMENTS.

The Portfolio may enter into REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS,
subject to a Fund's limitations on borrowings.

The Portfolio may invest in "event-linked bonds," which are fixed income
securities for which the return of principal and payment of interest is
contingent on the non-occurrence of a specific "trigger" event, such as a
hurricane, earthquake, or other physical or weather-related phenomenon. If a
trigger event occurs, a Portfolio may lose a portion or all of its principal
invested in the bond. Event-linked bonds often provide for an extension of
maturity to process and audit loss claims where a trigger event has, or possibly
has, occurred. An extension of maturity may increase volatility. Event-linked
bonds may also expose the Portfolio to certain unanticipated risks including
credit risk, adverse regulatory or jurisdictional interpretations, and adverse
tax consequences. Event-linked bonds may also be subject to liquidity risk.

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<PAGE>

The Portfolio may invest up to 15% of its net assets in ILLIQUID SECURITIES.

The Portfolio may invest up to 10% of its assets in securities of other
investment companies, such as closed-end management investment companies, or in
pooled accounts or other investment vehicles which invest in foreign markets. As
a shareholder of an investment company, the Portfolio may indirectly bear
service and other fees which are in addition to the fees the Portfolio pays its
service providers.

The Portfolio is managed by Pacific Investment Management Company.

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SP PRUDENTIAL U.S. EMERGING GROWTH PORTFOLIO
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The Portfolio's investment objective is LONG-TERM CAPITAL APPRECIATION. This
means the Portfolio seeks investments whose price will increase over several
years. While the Portfolio makes every effort to achieve its objective, it can't
guarantee success.

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A SMALL/MEDIUM-SIZED STOCK PORTFOLIO
The Portfolio invests primarily in the stocks of small and medium-sized
companies with the potential for above-average growth.
--------------------------------------------------------------------------------

WE'RE GROWTH INVESTORS

In deciding which equities to buy, the Portfolio uses what is known as a growth
investment style. This means the Portfolio invests in companies that it believes
could experience superior sales or earnings growth. In pursuing this objective,
the Portfolio normally invests at least 65% of the Portfolio's total assets in
equity securities of small and medium-sized U.S. companies with the potential
for above-average growth.

The Portfolio considers small and medium-sized companies to be those with market
capitalizations beginning at $500 million. The upper capitalization limit is
300% of the dollar-weighted median market capitalization of the S&P 400 Mid-Cap
Index. As of December 31, 1999, this number was $9 billion. We use the market
capitalization measurements used by S&P at time of purchase.

In addition to buying equities, the Portfolio may invest in other equity-related
securities. Equity-related securities include AMERICAN DEPOSITORY RECEIPTS
(ADRs); common stocks; nonconvertible preferred stocks; WARRANTS and rights that
can be exercised to obtain stock; investments in various types of business
ventures, including partnerships and joint ventures; real estate investment
trusts (REITS); and similar securities.

The Portfolio also may buy CONVERTIBLE SECURITIES. These are securities--like
bonds, corporate notes and preferred stocks--that it can convert into the
company's common stock or some other equity security. The Portfolio will only
invest in investment-grade convertible securities. Generally, the Portfolio
considers selling a security when, in the opinion of the investment adviser, the
stock has experienced a fundamental disappointment in earnings; it has reached
an intermediate-term price objective and its outlook no longer seems
sufficiently promising; a relatively more attractive stock emerges; or the stock
has experienced adverse price movements.

OTHER INVESTMENTS AND STRATEGIES

In addition to the principal strategies, the Portfolio also may use the
following investment strategies to try to increase its returns or protect its
assets if market conditions warrant.

OTHER EQUITY SECURITIES

The Portfolio can invest up to 35% of total assets in equity securities of
companies with larger or smaller market capitalizations than previously noted.
The Portfolio may participate in the initial public offering (IPO) market. IPO
investments may increase the Portfolio's total returns. As the Portfolio's
assets grow, the impact of IPO investments will decline, which may reduce the
Portfolio's total returns.

FOREIGN SECURITIES

The Portfolio can invest up to 35% of total assets in FOREIGN SECURITIES,
including stocks and other equity-related securities, money market instruments
and other investment-grade fixed-income securities of foreign issuers,

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<PAGE>

including those in developing countries. For purposes of the 35% limit, the
Portfolio does not consider ADRs and other similar receipts or shares to be
foreign securities.

FIXED-INCOME OBLIGATIONS, INCLUDING BONDS AND MONEY MARKET INSTRUMENTS

Fixed-income obligations include bonds and notes. The Portfolio can invest up to
35% of total assets in investment-grade corporate or government obligations.
Investment-grade obligations are rated in one of the top four long-term quality
ratings by a major rating service (such as Baa/BBB or better by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group, respectively). The
Portfolio also may invest in obligations that are not rated, but which it
believes to be of comparable quality. Obligations rated in the fourth category
(Baa/BBB) have speculative characteristics. These lower-rated obligations are
subject to a greater risk of loss of principal and interest. Generally,
fixed-income securities provide a fixed rate of return, but provide less
opportunity for capital appreciation than investing in stocks. The Portfolio
will purchase money market instruments only in one of the two highest short-term
quality ratings of a major rating service.

TEMPORARY DEFENSIVE INVESTMENTS

In response to adverse market, economic or political conditions, the Portfolio
may temporarily invest up to 100% of the Portfolio's assets in cash or money
market instruments. Investing heavily in these securities limits the Portfolio's
ability to achieve capital appreciation, but can help to preserve its assets
when the equity markets are unstable.

REPURCHASE AGREEMENTS

The Portfolio may also use REPURCHASE AGREEMENTS.

FOREIGN CURRENCY FORWARD CONTRACTS

The Portfolio may enter into foreign currency forward contracts to protect the
value of its portfolio against future changes in the level of currency exchange
rates. The Portfolio may enter into such contracts on a spot, that is, cash,
basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.

DERIVATIVE STRATEGIES

The Portfolio may use various derivative strategies to try to improve its
returns or protect its assets.

The Portfolio cannot 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.

SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES

The Portfolio may invest in securities issued by agencies of the U.S. Government
or instrumentalities of the U.S. Government. These obligations, including those
which are guaranteed by Federal agencies or instrumentalities, may or may not be
backed by the full faith and credit of the United States. Obligations of the
Government National Mortgage Association (GNMA), the Farmers Home Administration
and the Small Business Administration are backed by the full faith and credit of
the United States. In the case of securities not backed by the full faith and
credit of the United States, the Portfolio must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Portfolio
may invest which are not backed by the full faith and credit of the United
States include obligations such as those issued by the Federal Home Loan Bank,
the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National
Mortgage Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.

MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES.

The Portfolio may invest in mortgage-backed securities, including those which
represent undivided ownership interests in pools of mortgages. The U.S.
Government or the issuing agency or instrumentality guarantees the

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<PAGE>

payment of interest on and principal of these securities. However, the
guarantees do not extend to the yield or value of the securities nor do the
guarantees extend to the yield or value of the Portfolio's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees.

OPTIONS TRANSACTIONS

The Portfolio may purchase and write (that is, sell) put and call options on
securities, stock indexes and currencies that are traded on U.S. or foreign
securities exchanges or in the over-the-counter market to seek to enhance return
or to protect against adverse price fluctuations in securities in the
Portfolio's portfolio. These options will be on equity securities, financial
indexes (for example, S&P 500 Stock Index) and foreign currencies. The Portfolio
may write put and call options to generate additional income through the receipt
of premiums, purchase put options in an effort to protect the value of
securities (or currencies) that it owns against a decline in market value and
purchase call options in an effort to protect against an increase in the price
of securities (or currencies) it intends to purchase.

FUTURES CONTRACTS AND OPTIONS THEREON

The Portfolio may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade to reduce
certain risks of its investments and to attempt to enhance return in accordance
with regulations of the Commodity Futures Trading Commission (CFTC).

ADDITIONAL STRATEGIES

The Portfolio also follows certain policies when it BORROWS MONEY (the Portfolio
can borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Portfolio can lend up to 331/3% of the value of its total assets,
including collateral received in the transaction); 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).

PORTFOLIO TURNOVER

As a result of the strategies described above, the Portfolio may have an annual
portfolio turnover rate of up to 200%. Portfolio turnover is generally the
percentage found by dividing the lesser of portfolio purchases or sales by the
monthly average value of the portfolio. High portfolio turnover (100% or more)
results in higher brokerage commissions and other transaction costs and can
affect the Portfolio's performance.

The Portfolio is managed by Prudential Investments Fund Management LLC.

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SP SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------

The Portfolio is managed by Fidelity Management & Research Company (FMR). FMR
normally invests at least 65% of the Portfolio's total assets in common stocks
of companies with small to medium market capitalizations.

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A SMALL/MID CAP VALUE PORTFOLIO
The Portfolio normally invests at least 65% of its total assets in companies
with small to medium market capitalizations. The Portfolio invests in "value"
stocks.
--------------------------------------------------------------------------------

Small to medium market capitalization companies are those companies with market
capitalizations similar to the market capitalization of companies in the Russell
2000 or the Russell MidCap at the time of the Portfolio's investment. Companies
whose capitalization no longer meets this definition after purchase continue to
be considered to have a small to medium market capitalization for purposes of
the 65% policy. The size of companies in the Russell 2000 and Russell MidCap
changes with market conditions and the composition of the index.

PRINCIPAL INVESTMENT STRATEGIES

FMR may invest the Portfolio's assets in securities of foreign issuers in
addition to securities of domestic issuers.

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<PAGE>

In buying and selling securities for the Portfolio, FMR relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market factors.
Factors considered include growth potential, earnings estimates and management.
These securities are then analyzed using statistical models to further evaluate
growth potential, valuation, liquidity and investment risk.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

EQUITY SECURITIES represent an ownership interest, or the right to acquire an
ownership interest, in an issuer. Different types of equity securities provide
different voting and dividend rights and priority in the event of the bankruptcy
of the issuer. Equity securities include common stocks, preferred stocks,
convertible securities, and warrants.

PRINCIPAL INVESTMENT RISKS

Many factors affect the Portfolio's performance. The Portfolio's share price
changes daily based on changes in market conditions and interest rates and in
response to other economic, political, or financial developments. The
Portfolio's reaction to these developments will be affected by the types of
securities in which the Portfolio invests, the financial condition, industry and
economic sector, and geographic location of an issuer, and the Portfolio's level
of investment in the securities of that issuer. When you sell units
corresponding to shares of the Portfolio, they could be worth more or less than
what you paid for them.

In addition to company risk, derivatives risk, foreign investment risk,
leveraging risk, liquidity risk, management risk, and market risk, the following
factors can significantly affect the Portfolio's performance:

SMALL CAP INVESTING. The value of securities of smaller, less well-known issuers
can be more volatile than that of larger issuers and can react differently to
issuer, political, market and economic developments than the market as a whole
and other types of stocks. Smaller issuers can have more limited product lines,
markets and financial resources.

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SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO
--------------------------------------------------------------------------------

In pursuing its objective of LONG-TERM GROWTH OF CAPITAL, the Portfolio normally
invests at least 65% of its total assets in equity-related securities of U.S.
companies that are believed to have strong capital appreciation potential.

--------------------------------------------------------------------------------
A GROWTH STOCK PORTFOLIO
The Portfolio normally invests at least 65% of its total assets in the
equity-related securities of U.S. companies that are believed to have strong
capital appreciation potential. The Portfolio is managed according to a growth
investment style.
--------------------------------------------------------------------------------

The Portfolio's strategy is to combine the efforts of two investment advisers
and to invest in the favorite stock selection ideas of three portfolio managers
(two of whom invest as a team). Each investment adviser to the Portfolio
utilizes a growth style to select approximately 20 securities. The portfolio
managers build a portfolio with stocks in which they have the highest confidence
and may invest more than 5% of the Portfolio's assets in any one issuer.

The Portfolio may actively and frequently trade its portfolio securities. The
Portfolio is nondiversified, meaning it can invest more than 5% of its assets in
the securities of any one issuer. Investing in a nondiversified mutual fund,
particularly a fund investing in approximately 40 equity-related securities,
involves greater risk than investing in a

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diversified fund because a loss resulting from the decline in the value of one
security may represent a greater portion of the total assets of a nondiversified
fund.

The primary equity-related securities in which the Portfolio invests are common
stocks. Generally, each investment adviser will consider selling or reducing a
stock position when, in their opinion, the stock has experienced a fundamental
disappointment in earnings; it has reached an intermediate-term price objective
and its outlook no longer seems sufficiently promising; a relatively more
attractive stock emerges; or the stock has experienced adverse price movement. A
price decline of a stock does not necessarily mean that an investment adviser
will sell the stock at that time. During market declines, either investment
adviser may add to positions in favored stocks, which can result in a somewhat
more aggressive strategy, with a gradual reduction of the number of companies in
which the adviser invests. Conversely, in rising markets, either investment
adviser may reduce or eliminate fully valued positions, which can result in a
more conservative investment strategy, with a gradual increase in the number of
companies represented in the adviser's portfolio segment.

WE'RE GROWTH INVESTORS

In deciding which stocks to buy, each investment adviser uses what is known as a
growth investment style. This means that each adviser will invest in stocks they
believe could experience superior sales or earnings growth.

In addition to common stocks in which the Portfolio primarily invests,
equity-related securities include nonconvertible preferred stocks; CONVERTIBLE
SECURITIES; American Depository Receipts (ADRS); warrants and rights that can be
exercised to obtain stock; investments in various types of business ventures,
including partnerships and joint ventures; real estate investment trusts
(REITS); and similar securities. Convertible securities are securities--like
bonds, corporate notes and preferred stocks--that can be converted into the
company's common stock or some other equity security.

The Portfolio may buy common stocks of companies of every size--small-,
medium-and large-capitalization-- although its investments are mostly in medium-
and large-capitalization stocks. The Portfolio intends to be fully invested,
holding less than 5% of its total assets in cash under normal market conditions.

DIVISION OF ASSETS

STRATEGY. Under normal conditions, there will be an approximately equal division
of the Portfolio's assets between the two investment advisers. All daily cash
inflows (that is, purchases and reinvested distributions) and outflows (that is,
redemptions and expense items) will usually be divided between the two
investment advisers as the portfolio manager deems appropriate. There will be a
periodic rebalancing of each segment's assets to take account of market
fluctuations in order to maintain the approximately equal allocation. As a
consequence, the manager may allocate assets from the portfolio segment that has
appreciated more to the other.

OUR GROWTH STYLE

Alliance Capital Management's portfolio manager, Alfred Harrison, utilizes the
fundamental analysis and research of Alliance's large internal research staff.
In selecting stocks for the Portfolio, he emphasizes stock selection and
investment in a limited number of companies that have strong management,
superior industry positions, excellent balance sheets and the ability to
demonstrate superior earnings growth.

Jennison Associates' portfolio managers, Spiros Segalas and Kathleen
McCarragher, invest in mid-size and large companies experiencing some or all of
the following: high sales growth, high unit growth, high or improving returns on
assets and equity and a strong balance sheet. These companies generally trade at
high prices relative to their current earnings.

RISKS. Reallocations may result in additional costs since sales of securities
may result in higher portfolio turnover. Also, because each investment adviser
selects portfolio securities independently, it is possible that a security held
by one portfolio segment may also be held by the other portfolio segment of the
Portfolio or that the two advisers may simultaneously favor the same industry.
Jennison Associates will monitor the overall portfolio to ensure that any such
overlaps do not create an unintended industry concentration. In addition, if one
investment adviser buys a security as the other adviser sells it, the net
position of the Portfolio in the security may be approximately the same as it
would have been with a single portfolio and no such sale and purchase, but the
Portfolio will have incurred additional costs. The portfolio manager will
consider these costs in determining the allocation of assets. The

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<PAGE>

portfolio manager will consider the timing of reallocation based upon the best
interests of the Portfolio and its shareholders. To maintain the Portfolio's
federal income tax status as a regulated investment company, Jennison Associates
also may have to sell securities on a periodic basis.

OTHER INVESTMENTS AND STRATEGIES

In addition to its principal strategies, the Portfolio also uses the following
investment strategies to try to increase its returns or protect its assets if
market conditions warrant.

FOREIGN SECURITIES

The Portfolio may invest up to 20% of its total assets in FOREIGN SECURITIES,
including stocks and other equity-related securities, money market instruments
and other fixed-income securities of foreign issuers. The Portfolio does not
consider ADRs and other similar receipts or shares to be foreign securities.

MONEY MARKET INSTRUMENTS

The Portfolio may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Portfolio shares or to meet ordinary daily cash needs subject to the policy
of normally investing at least 65% of the Portfolio's assets in equity-related
securities.

REPURCHASE AGREEMENTS

The Portfolio may use REPURCHASE AGREEMENTS.

TEMPORARY DEFENSIVE INVESTMENTS

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

OPTIONS ON SECURITIES INDEXES.

The Portfolio may purchase and write (that is, sell) put and call options on
securities indexes that are traded on U.S. or foreign securities exchanges or in
the over-the-counter market to try to enhance return or to hedge the Portfolio's
portfolio. The Portfolio may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. The Portfolio also
may purchase put and call options to offset previously written put and call
options of the same series. The Portfolio will write only "covered" options. The
Portfolio may purchase and sell stock index futures contracts and related
options on stock index futures. The Portfolio may purchase and sell futures
contracts on foreign currencies and related options on foreign currency futures
contracts.

U.S. GOVERNMENT SECURITIES

The Portfolio may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. government. Not all U.S.
government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency.

OPTIONS ON FUTURES CONTRACTS

The Portfolio will also enter into options on futures contracts for certain bona
fide hedging, return enhancement and risk management purposes. The Portfolio may
purchase put and call options and write (that is, sell) "covered" put and call
options on futures contracts that are traded on U.S. and foreign exchanges.

FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS THEREON

The Portfolio may buy and sell futures contracts on foreign currencies and
purchase and write options thereon.

SHORT SALES

The Portfolio may use SHORT SALES.

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<PAGE>

DERIVATIVE STRATEGIES

The Portfolio may use various DERIVATIVE STRATEGIES to try to improve the
Portfolio's returns. The Portfolio may use hedging techniques to try to protect
the Portfolio's assets. We cannot 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.

ADDITIONAL STRATEGIES

The Portfolio also follows certain policies when it BORROWS MONEY (the Portfolio
can borrow up to 33 1/3% of the value of its total assets); LENDS ITS SECURITIES
to others for cash management purposes (the Portfolio can lend up to 33 1/3% of
the value of its total assets including collateral received in the transaction);
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.

PORTFOLIO TURNOVER

It is not a principal strategy of the Portfolio to actively and frequently trade
its portfolio securities to achieve its investment objective. Nevertheless, the
Portfolio may have an annual portfolio turnover rate of up to 200%. Portfolio
turnover is generally the percentage found by dividing the lesser of portfolio
purchases and sales by the monthly average value of the portfolio. High
portfolio turnover (100% or more) results in higher brokerage commissions and
other costs and can affect the Portfolio's performance.

* * *

OTHER INVESTMENTS AND STRATEGIES

As indicated in the description of the Portfolios above, certain Portfolios may
use the following investment strategies to increase return or protect assets if
market conditions warrant.

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.

CONVERTIBLE DEBT AND CONVERTIBLE PREFERRED STOCK--A convertible security is a
security--for example, a bond or preferred stock--that may be converted into
common stock of the same or different issuer. The convertible security sets the
price, quantity of shares and time period in which it may be so converted.
Convertible stock is senior to a company's common stock but is usually
subordinated to debt obligations of the company. Convertible securities provide
a steady stream of income which is generally at a higher rate than the income on
the company's common stock but lower than the rate on the company's debt
obligations. At the same time, they offer--through their conversion
mechanism--the chance to participate in the capital appreciation of the
underlying common stock. The price of a convertible security tends to increase
and decrease with the market value of the underlying common stock.

DERIVATIVES--A derivative is an investment instrument that derives its price,
performance, value, or cash flow from one or more underlying securities or other
interests. Derivatives involve costs and can be volatile. With derivatives, the
investment adviser tries 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 a Portfolio's overall investment objective.
The investment adviser 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 fully offset a Portfolio's underlying positions and
this could result in losses to the Portfolio that would not otherwise have
occurred.

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<PAGE>

DOLLAR ROLLS--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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--A foreign currency forward contract
is an obligation to buy or sell a given currency on a future date at a set
price. When a Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when a Portfolio anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Portfolio may desire to "lock-in" the U.S. dollar price of
the security or the U.S. dollar equivalent of such dividend or interest payment,
as the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received. At the maturity of a forward contract, a Portfolio may either sell the
security and make delivery of the foreign currency or it may retain the security
and terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader obligating it
to purchase, on the same maturity date, the same amount of the foreign currency.

FUTURES--A futures contract is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. When a futures contract is entered into,
each party deposits with a futures commission merchant (or in a segregated
account) approximately 5% of the contract amount. This is known as the "initial
margin." Every day during the futures contract, either the buyer or the futures
commission merchant will make payments of "variation margin." In other words, if
the value of the underlying security, index or interest rate increases, then the
buyer will have to add to the margin account so that the account balance equals
approximately 5% of the value of the contract on that day. The next day, the
value of the underlying security, index or interest rate may decrease, in which
case the borrower would receive money from the account equal to the amount by
which the account balance exceeds 5% of the value of the contract on that day. A
stock index futures contract is an agreement between the buyer and the seller of
the contract to transfer an amount of cash equal to the daily variation margin
of the contract. No physical delivery of the underlying stocks in the index is
made.

INTEREST RATE SWAPS--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 that
type of a swap if we think interest rates are going down.

JOINT REPURCHASE ACCOUNT--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.

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.

MORTGAGE-RELATED SECURITIES are usually pass-through instruments that pay
investors a share of all interest and principal payments from an underlying pool
of fixed or adjustable rate mortgages. We may invest in mortgage-related
securities issued and guaranteed by the U.S. government or its agencies like the
Federal National Mortgage Association (Fannie Maes) and the Government National
Mortgage Association (Ginnie Maes) and debt securities issued (but not
guaranteed) by the Federal Home Loan Mortgage Company (Freddie Macs). Private
mortgage-related securities that are not guaranteed by U.S. governmental
entities generally have one or more types of credit enhancement to ensure timely
receipt of payments and to protect against default.

Mortgage-related securities include collateralized mortgage obligations,
multi-class pass through securities and stripped mortgage-backed securities. A
collateralized mortgage-backed obligation (CMO) is a security backed by an
underlying portfolio of mortgages or mortgage-backed securities that may be
issued or guaranteed by entities such

45
<PAGE>

as banks, U.S. governmental entities or broker-dealers. A multi-class
pass-through security is an equity interest in a trust composed of underlying
mortgage assets. Payments of principal and interest on the mortgage assets and
any reinvestment income provide the money to pay debt service on the CMO or to
make scheduled distributions on the multi-class pass-through security. A
stripped mortgage-backed security (MBS strip) may be issued by U.S. governmental
entities or by private institutions. MBS strips take the pieces of a debt
security (principal and interest) and break them apart. The resulting securities
may be sold separately and may perform differently. MBS strips are highly
sensitive to changes in prepayment and interest rates.

OPTIONS--A call option on stock is a short-term contract that gives the option
purchaser or "holder" the right to acquire a particular equity security for a
specified price at any time during a specified period. For this right, the
option purchaser pays the option seller a certain amount of money or "premium"
which is set before the option contract is entered into. The seller or "writer"
of the option is obligated to deliver the particular security if the option
purchaser exercises the option. A put option on stock is a similar contract. In
a put option, the option purchaser has the right to sell a particular security
to the option seller for a specified price at any time during a specified
period. In exchange for this right, the option purchaser pays the option seller
a premium. Options on debt securities are similar to stock options except that
the option holder has the right to acquire or sell a debt security rather than
an equity security. Options on stock indexes are similar to options on stocks,
except that instead of giving the option holder the right to receive or sell a
stock, it gives the holder the right to receive an amount of cash if the closing
level of the stock index is greater than (in the case of a call) or less than
(in the case of a put) the exercise price of the option. The amount of cash the
holder will receive is determined by multiplying the difference between the
index's closing price and the option's exercise price, expressed in dollars, by
a specified "multiplier". Unlike stock options, stock index options are always
settled in cash, and gain or loss depends on price movements in the stock market
generally (or a particular market segment, depending on the index) rather than
the price movement of an individual stock.

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.

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.

REVERSE REPURCHASE AGREEMENTS--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.

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.

SHORT SALES AGAINST-THE-BOX--A short sale against-the-box means the Portfolio
owns securities identical to those sold short.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--With when-issued or delayed
delivery securities, the delivery and payment can take place a month or more
after the date of the transaction. A Portfolio will make commitments for
when-issued transactions only with the intention of actually acquiring the
securities. A Portfolio's custodian will maintain in a segregated account,
liquid assets having a value equal to or greater than such commitments. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
security, incur a gain or loss.

* * *

Each Portfolio (other than the Money Market Portfolio) also follows certain
policies when it borrows money; lends its securities; and holds illiquid
securities (a 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

46
<PAGE>

repurchase agreements with maturities longer than seven days). If the Portfolio
were to exceed this limit, the investment adviser would take prompt action to
reduce a Portfolio's holdings in illiquid securities to no more than 15% of its
net assets, as required by applicable law.

The Prudential Money Market Portfolio 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). If the Portfolio were to exceed this
limit, the investment adviser would take prompt action to reduce the Portfolio's
holdings in illiquid securities to no more than 10% of its net assets, as
required by applicable law.

HOW THE FUND IS MANAGED

BOARD OF DIRECTORS

The Board of Directors oversees the actions of the investment manager and the
sub-advisers and decides on general policies. The Board also oversees the Fund's
officers who conduct and supervise the daily business operations of the Fund.

INVESTMENT MANAGER

Prudential serves as overall investment manager for the Prudential Global
Portfolio, the Prudential Jennison Portfolio, the Prudential Money Market
Portfolio and the Prudential Stock Index Portfolio. As explained in the next
section, Prudential has retained two affiliated sub-advisers--Prudential
Investment Corporation and Jennison Associates--to provide the day-to-day
investment management for these Portfolios. Prudential, not the Portfolios, pay
the fees of the sub-advisers.

Prudential Investments Fund Management LLC (PIFM) serves as overall investment
manager for all of the "SP" Portfolios. Prudential Investments Fund Management
LLC, located at 100 Mulberry Street, Newark, NJ is the investment adviser to the
SP Aggressive Growth Asset Allocation Portfolio, SP AIM Aggressive Growth
Portfolio, SP AIM Growth and Income Portfolio, SP Alliance Large Cap Growth
Portfolio, SP Alliance Technology Portfolio, SP Balanced Asset Allocation
Portfolio, SP Conservative Asset Allocation Portfolio, SP Davis Value Portfolio,
SP Deutsche International Equity Portfolio, SP Growth Asset Allocation
Portfolio, SP INVESCO Small Company Growth Portfolio, SP Jennison International
Growth Portfolio, SP Large Cap Value Portfolio, SP MFS Capital Opportunities
Portfolio, SP MFS Mid-Cap Growth Portfolio, SP PIMCO High Yield Portfolio, SP
PIMCO Total Return Portfolio, SP Prudential U.S. Emerging Growth Portfolio, SP
Small/Mid Cap Value Portfolio, and SP Strategic Partners Focused Growth
Portfolio.

For each of the "SP" Portfolios, PIFM is responsible for selecting and
monitoring one or more sub-advisors to handle the day-to-day investment
management of the Portfolio. For Portfolios with more than one sub-adviser, PIFM
is responsible for allocating assets among the sub-advisers. PIFM, not the
Portfolios, pay the fees of the sub-advisers. Pursuant to an order issued by the
SEC, each of these "SP" Portfolios may add or change sub-advisers, or change the
agreement with its sub-advisers, if PIFM and the Board of Directors concludes
that doing so is in the best interests of contract owners investing in the
Portfolio. The Portfolios can make these changes without contract owner
approval, but will notify contract owners investing in the Portfolio of any such
changes.

Prudential was founded in 1875, and as of December 31, 1999, it had total assets
under management of approximately $364 billion. Prudential's headquarters are
located at 751 Broad Street, Newark, NJ. PIFM is an indirect wholly-owned
subsidiary of Prudential. It and its predecessors have served as manager and
administrator to investment companies since 1987. As of December 31, 1999, PIFM
served as the manager to 42 mutual funds and as manager or administrator to 22
closed-end investment companies, with aggregate assets of approximately $75.6
billion. PIFM's headquarters are located at 100 Mulberry Street, Newark, NJ.

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<PAGE>

The following chart lists the total annualized investment advisory fees to
be paid in 2000 with respect to each of the Fund's Portfolios.

--------------------------------------------------------------------------------
TOTAL ADVISORY FEES AS % OF
PORTFOLIO AVERAGE NET ASSETS
--------------------------------------------------------------------------------
Prudential Global Portfolio 0.75
Prudential Jennison Portfolio 0.60
Prudential Money Market Portfolio 0.40
Prudential Stock Index Portfolio 0.35
SP Aggressive Growth Asset Allocation Portfolio 0.84*
SP AIM Aggressive Growth Portfolio 0.95
SP AIM Growth and Income Portfolio 0.85
SP Alliance Large Cap Growth Portfolio 0.90
SP Alliance Technology Portfolio 1.15
SP Balanced Asset Allocation Portfolio 0.75*
SP Conservative Asset Allocation Portfolio 0.71*
SP Davis Value Portfolio 0.75
SP Deutsche International Equity Portfolio 0.90
SP Growth Asset Allocation Portfolio 0.80*
SP INVESCO Small Company Growth Portfolio 0.95
SP Jennison International Growth Portfolio 0.85
SP Large Cap Value Portfolio 0.80
SP MFS Capital Opportunities Portfolio 0.75
SP MFS Mid-Cap Growth Portfolio 0.80
SP PIMCO High Yield Portfolio 0.60
SP PIMCO Total Return Portfolio 0.60
SP Prudential U.S. Emerging Growth Portfolio 0.60
SP Small/Mid Cap Value Portfolio 0.90
SP Strategic Partners Focused Growth Portfolio 0.90

* Each Asset Allocation Portfolio invests in shares of other Fund Portfolios.
The advisory fees for the Asset Allocation Portfolios depicted above are
the product of a blend of the advisory fees of those other Fund Portfolios,
plus a 0.05% annual advisory fee payable to PIFM.

INVESTMENT SUB-ADVISERS

JENNISON ASSOCIATES LLC, a Prudential subsidiary, serves as subadviser to the
Prudential Jennison Portfolio. Jennison's address is 466 Lexington Avenue, New
York, NY, and as of December 31, 1999, it had over $59 billion of assets under
management. Prudential Investment Corporation (PIC), also a Prudential
subsidiary, serves as subadviser to the Prudential Global Portfolio, the
Prudential Stock Index Portfolio and the Prudential Money Market Portfolio.
During 2000, it is expected that Jennison will replace PIC as the subadviser for
the Prudential Global Portfolio and the Prudential Stock Index Portfolio. PIC's
address is 751 Broad Street, Newark, NJ.

Jennison also provides subadvisory services to the SP Jennison International
Growth Portfolio, SP Prudential U.S. Emerging Growth Portfolio, and the SP
Strategic Partners Focused Growth Portfolio. Sub-advisers that are not
affiliated with Prudential provide subadvisory services to the other "SP"
Portfolios.

We provide more information below on the sub-advisers and their portfolio
managers.

A I M CAPITAL MANAGEMENT, INC. (A I M CAPITAL) (the sub-adviser) serves as
sub-adviser to the SP A I M Aggressive Growth Portfolio and the SP AIM Growth
and Income Portfolio. The firm is located at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. The sub-adviser provides investment advisory services
to each Portfolio by obtaining and evaluating economic, statistical and
financial information and formulating and implementing investment programs.
Today, A I M Capital, together with its affiliates, advises or manages over 125
investment portfolios, encompassing a broad range of investment objectives. A I
M Capital uses a team approach to investment management.

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<PAGE>

ALLIANCE CAPITAL MANAGEMENT, L.P. serves as the sub-adviser to the SP Alliance
Technology Portfolio, SP Alliance Large Cap Growth Portfolio and the SP
Strategic Partners Focused Growth Portfolio. The sub-adviser is located at 1345
Avenue of the Americas, New York, New York 10105. Alliance is a leading
international investment manager. Alliance's clients are primarily major
corporate employee benefit funds, public employee retirement systems, investment
companies, foundations and endowment funds.

BANKERS TRUST COMPANY (BANKERS TRUST), with headquarters at 130 Liberty Street,
New York, New York 10006, acts as the sub-adviser to the SP Deutsche
International Equity Portfolio. Bankers Trust is an indirect wholly-owned
subsidiary of Deutsche Bank AG. As of September 30, 1999, Bankers Trust had
total assets under management of approximately $285 billion. Bankers Trust is
dedicated to servicing the needs of corporations, governments, financial
institutions, and private clients, and has invested retirement assets on behalf
of the nation's largest corporations and institutions for more than 50 years.

DAVIS SELECTED ADVISERS, LP serves as the sub-adviser to the SP Davis Value
Portfolio. The sub-adviser is located at 124 East Elvira Street, Santa Fe, New
Mexico 87501.

FIDELITY--Fidelity Management & Research Company (FMR) is the sub-adviser to the
SP Large Cap Value Portfolio and the SP Small/Mid Cap Value Portfolio. As of
March 31, 2000, FMR had approximately $995 billion in discretionary assets under
management. The address of FMR is 82 Devonshire Street, Boston, MA 02109.

INVESCO FUNDS GROUP, INC. (INVESCO), located at 7800 East Union Avenue, Denver,
Colorado, is the sub-adviser of the SP INVESCO Small Company Growth Portfolio.
INVESCO was founded in 1932 and manages over $39.2 billion for more than
1,103,139 shareholders of 45 INVESCO mutual funds. INVESCO is a subsidiary of
AMVESCAP PLC, an international investment management company that manages more
than $392 billion in assets world-wide. AMVESCAP is based in London, with money
managers in Europe, North and South America and the Far East.

MASSACHUSETTS FINANCIAL SERVICES COMPANY (MFS), located at 500 Boylston Street,
Boston, MA, acts as the sub-adviser for the SP MFS Capital Opportunities
Portfolio and the SP MFS Mid-Cap Growth Portfolio. MFS and its predecessor
organizations have a history of money management dating from 1924. MFS is an
indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada.

PACIFIC INVESTMENT MANAGEMENT COMPANY LLC (PIMCO) acts as the sub-adviser for
the SP PIMCO Total Return Portfolio and the SP PIMCO High Yield Portfolio. 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, 1999, PIMCO managed over
$186 billion in assets.

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

We set out below descriptions of the portfolio managers and for certain
Portfolios, the past performance of a similarly-managed mutual fund. THOSE
PERFORMANCE FIGURES DO NOT REFLECT VARIABLE INSURANCE CONTRACT FEES WHICH, IF
DEDUCTED, WOULD REDUCE PERFORMANCE. MOREOVER, AS DISCLOSED IN THE PROSPECTUS FOR
YOUR VARIABLE INSURANCE CONTRACT, THE SP PORTFOLIOS OF THE FUND ARE SUBJECT TO
EXPENSE LIMITATIONS WHICH, IF TERMINATED, WOULD INCREASE EXPENSES AND BE A
FACTOR IN LOWERING PERFORMANCE.

PRUDENTIAL 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, Ms. Holm, and Ms. Picker are expected to become employees
of Jennison Associates LLC during 2000. 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.

PRUDENTIAL JENNISON PORTFOLIO

This Portfolio is managed by Messrs. Segalas and Del Balso and Ms. McCarragher
of Jennison Associates. Mr. Segalas is a founding member and President,
Director, and Chief Investment Officer of Jennison. He has been in

49
<PAGE>

the investment business for over 35 years. Mr. Segalas received a B.A. from
Princeton University and is a member of the New York Society of Security
Analysts. Mr. Del Balso, a Director and Executive Vice President of Jennison,
has been part of the Jennison team since 1972 when he joined the firm from
White, Weld & Company. Mr. Del Balso is a member of the New York Society of
Security Analysts. Ms. McCarragher, Director and Executive Vice President of
Jennison, is also Jennison's Growth Equity Investment Strategist, having joined
Jennison in 1998 after a 17 year investment career, including positions with
Weiss, Peck & Greer and State Street Research and Management Company, where she
was a member of the Investment Committee. She received B.B.A. from the
University of Wisconsin and an M.B.A. from Harvard Business School.

SP AIM AGGRESSIVE GROWTH PORTFOLIO

A I M Capital Management, Inc. (AIM Capital) uses a team approach to
investment management.

The individual members of the team who are primarily responsible for the
day-to-day management of the Portfolio, both of whom are officers of AIM
Capital, are--Ryan E. Crane, Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with AIM Capital and/or its affiliates
since 1994, and Robert M. Kippes, Senior Portfolio Manager, who has been
associated with AIM Capital and/or its affiliates since 1989.

SP AIM GROWTH AND INCOME PORTFOLIO

A I M Capital Management, Inc. (AIM Capital) uses a team approach to
investment management. The individual members of the team who are primarily
responsible for the day-to-day management of the Portfolio are:

Monika H. Degan, Portfolio Manager, has been associated with AIM Capital
and/or its affiliates since 1995.

Lanny H. Sachnowitz, Senior Portfolio Manager, has been associated with AIM
Capital and/or its affiliates since 1987.

We set out below performance information for the AIM CHARTER FUND, which is a
mutual fund managed by AIM Capital, according to investment objectives and
practices that are substantially similar to those governing the SP AIM Growth
and Income Portfolio. AIM Charter Fund and SP AIM Growth and Income
Portfolio are separate funds with different expense structures and portfolio
holdings and different purchase and redemption patterns, and the past
performance of AIM Charter Fund is not indicative of the future performance of
SP AIM Growth and Income Portfolio. If material differences between the
investment styles of the AIM Charter Fund and SP AIM Growth and Income
Portfolio should develop in the future, we will disclose such differences. PIFM
monitors the performance of SP AIM Growth and Income Portfolio, but not AIM
Charter Fund. In general, Portfolio returns are reduced by expenses under your
variable insurance contract.

<TABLE>
OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
AIM CHARTER FUND
<CAPTION>
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
Class A(1) 33.87% 28.00% 18.43% 15.11% 11/26/68
Russell 1000 Index(2) 20.91% 28.04% 18.13%
</TABLE>

(1) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.

(2) The Russell 1000 Index is an unmanaged index considered representative of
large-company stocks.

SP ALLIANCE LARGE CAP GROWTH PORTFOLIO

Alfred Harrison, Director and Vice Chairman of Alliance Capital Management
Corporation (ACMC) leads the team managing this Portfolio, with Syed Hasnain, a
Senior Portfolio Manager, also being directly involved.

Mr. Hasnain joined ACMC after working as a strategist with Merrill Lynch Capital
Markets. Previously he was an international economist with Citicorp and a
financial analyst at Goldman Sachs & Co. He holds a M. Phil in Finance

50
<PAGE>

from Cambridge University, and Sc.B. from Brown University, and studied towards
a doctorate at Stanford Business School. Investment experience: 9 years.

We set out below performance information for ALLIANCE PREMIER GROWTH FUND, which
is a mutual fund managed by ACMC according to investment objectives and
practices that are substantially similar to those governing the SP Alliance
Large Cap Growth Portfolio. Alliance Premier Growth Fund and SP Alliance Large
Cap Growth Portfolio are separate funds with different expense structures and
portfolio holdings and different purchase and redemption patterns, and the past
performance of Alliance Premier Growth Fund is not indicative of the future
performance of SP Alliance Large Cap Growth Portfolio. If material differences
between the investment styles of Alliance Premier Growth Fund and SP Alliance
Large Cap Growth Portfolio should develop in the future, we will disclose such
differences. PIFM monitors the performance of SP Alliance Large Cap Growth
Portfolio, but not Alliance Premier Growth Fund. In general, Portfolio returns
are reduced by expenses under your variable insurance contract.

<TABLE>
OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
ALLIANCE PREMIER GROWTH FUND
<CAPTION>
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Class A 23.51% 34.86% 25.01% 9/28/92
Russell 1000 Growth Index(1) 33.16% 32.41% 23.43%
</TABLE>

(1) The Russell 1000 Growth Index is a measure of the Russell 1000 companies
with higher price-to-book ratios and higher forecasted growth values.

SP ALLIANCE TECHNOLOGY PORTFOLIO

Peter Anastos and Gerald T. Malone manage the SP Alliance Technology Portfolio.
Both portfolio managers are Senior Vice Presidents of ACMC and have been
associated with ACMC for more than five years.

We set out below performance information for the ALLIANCE TECHNOLOGY FUND, which
is a mutual fund managed by ACMC according to investment objectives and
practices that are substantially similar to those governing the SP Alliance
Technology Portfolio. Alliance Technology Fund and SP Alliance Technology
Portfolio are separate funds with different expense structures and portfolio
holdings and different purchase and redemption patterns, and the past
performance of Alliance Technology Fund is not indicative of the future
performance of SP Alliance Technology Portfolio. If material differences between
the investment styles of the Alliance Technology Fund and SP Alliance Technology
Portfolio should develop in the future, we will disclose such differences. PIFM
monitors the performance of SP Alliance Technology Portfolio, but not Alliance
Technology Fund. In general, Portfolio returns are reduced by expenses under
your variable insurance contract.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
ALLIANCE TECHNOLOGY FUND
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS
Class A 64.47% 37.33% 29.42%
S&P 500(1) 21.03% 28.54% 18.19%

(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.

51
<PAGE>

SP ASSET ALLOCATION PORTFOLIOS

For the four Asset Allocation Portfolios, Prudential Investments invests in
shares of other Fund Portfolios within the product according to the percentage
allocations discussed in this prospectus.

SP DAVIS VALUE PORTFOLIO

The following individuals provide day-to-day management of the SP Davis Value
Portfolio.

CHRISTOPHER C. DAVIS

Responsibilities:

o Vice President of Davis New York Venture Fund, Inc.

o Also manages or co-manages other equity funds advised by Davis Selected
Advisers.

Other Experience:

o Portfolio Manager of Davis New York Venture Fund since October 1995.

o Assistant Portfolio Manager and research analyst working with Shelby M.C.
Davis from September 1989 to September 1995.

KENNETH CHARLES FEINBERG

Responsibilities:

o Co-Portfolio Manager of Davis New York Venture Fund with Christopher C.
Davis since May 1998.

o Also co-manages other equity funds advised by Davis Selected Advisers.

Other Experience:

o Research analyst at Davis Selected Advisers since December 1994.

o Assistant Vice President of Investor Relations for Continental Corp. from
1988 to 1994.

We set out below performance information for DAVIS NEW YORK VENTURE FUND, which
is a mutual fund managed by Davis Selected Advisers, LP according to investment
objectives and practices that are substantially similar to those governing the
SP Davis Value Portfolio. Davis New York Venture Fund and SP Davis Value
Portfolio are separate funds with different expense structures and portfolio
holdings and different purchase and redemption patterns, and the past
performance of Davis New York Venture Fund is not indicative of the future
performance of SP Davis Value Portfolio. If material differences between the
investment styles of Davis New York Venture Fund and SP Davis Value Portfolio
should develop in the future, we will disclose such differences. PIFM monitors
the performance of SP Davis Value Portfolio, but not Davis New York Venture
Fund. In general, Portfolio returns are reduced by expenses under your variable
insurance contract.

52
<PAGE>

<TABLE>
OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
DAVIS NEW YORK VENTURE FUND
<CAPTION>
(FOR THE PERIODS ENDED
DECEMBER 31, 1999) 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
Class A(1) 9.30% 20.57% 17.00% 14.86% 2/17/69
S&P 500(2) 21.04% 28.51% 18.17% 13.01%
</TABLE>

Average annual total returns earned by Class A shares of Davis New York Venture
Fund for the periods listed above, after adjusting for the maximum 4.75% sales
charge and with all distributions reinvested for the periods ended 12/31/99.

(1) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.

(2) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.

SP DEUTSCHE INTERNATIONAL EQUITY PORTFOLIO

The following portfolio managers are responsible for the day-to-day management
of the Portfolio's investments:

MICHAEL LEVY

Co-Lead Portfolio Manager.

International equity strategist, overseeing the design and implementation of the
firm's proprietary stock selection process.

28 years of business experience, 18 of them as an investment professional.

Degrees in mathematics and geophysics from the University of Michigan.

ROBERT REINER

Co-Lead Portfolio Manager.

Specializes in Japanese and European stock and market analysis.

Served as a Senior Financial Analyst at Scudder, Stevens & Clark from 1993 to
1994.

18 years of investment industry experience.

Degrees from the University of Southern California and Harvard University.

JULIE WANG

Co-Portfolio Manager.

Focuses on the Portfolio's Asia-Pacific investments and its emerging markets
exposure.

Served as Investment Manager for American International Group's Southeast Asia
portfolio from 1991 to 1994.

11 years of investment management experience.

BS in economics from Yale University, MBA from The Wharton School, University of
Pennsylvania.

We set out below performance information for DEUTSCHE INTERNATIONAL EQUITY FUND,
which is a mutual fund managed by Bankers Trust Company, an indirect
wholly-owned subsidiary of Deutsche Bank AG according to investment objectives
and practices that are substantially similar to those governing the SP Deutsche
International Equity Portfolio. Deutsche International Equity Fund and SP
Deutsche International Equity Portfolio are separate funds with different
expense structures and portfolio holdings and different purchase and redemption
patterns, and

53
<PAGE>

the past performance of Deutsche International Equity Fund is not indicative of
the future performance of SP Deutsche International Equity Portfolio. If
material differences between the investment styles of Deutsche International
Equity Fund and SP Deutsche International Equity Portfolio should develop in the
future, we will disclose such differences. PIFM monitors the performance of SP
Deutsche International Equity Portfolio, but not Deutsche International Equity
Fund. In general, Portfolio returns are reduced by expenses under your variable
insurance contract.

The following performance table compares the Deutsche International Equity Fund
performance to that of a broad-based securities market index.

<TABLE>
OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL RETURNS
DEUTSCHE INTERNATIONAL EQUITY FUND
<CAPTION>

(FOR THE PERIODS ENDED
JUNE 30, 2000) 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
DATE(1)
<S> <C> <C> <C> <C>
International Equity
Fund 23.37% 17.61% 16.82% 8/4/92
MSCI EAFE Index(1)(3) 17.16% 11.33% 12.33%
Lipper(2) 24.46% 13.15% 12.43%
International Funds
Average
</TABLE>

(1) The MSCI EAFE Index and Lipper International Funds Average are calculated
from July 31, 1992.

(2) Unweighted average annual return, net of fees and expenses, of all mutual
funds that invested primarily in stocks and other equity securities of
companies outside the United States during the periods covered.

(3) The MSCI EAFE Index of major markets in Europe, Australia and the Far East
is a widely accepted benchmark of international stock performance. It is a
model, not an actual portfolio. It tracks stocks in Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland and the United Kingdom.

SP INVESCO SMALL COMPANY GROWTH PORTFOLIO

The following individuals are primarily responsible for the day-to-day
management of the Portfolio's holdings:

Stacie Cowell - is the lead portfolio manager of the SP INVESCO Small Company
Growth Portfolio and a Chartered Financial Analyst (CFA) who joined INVESCO in
1997. She is also a vice president of INVESCO. Before joining the company, she
was senior equity analyst with Founders Asset Management and capital markets and
trading analyst with Chase Manhattan Bank in New York. She holds a B.A. in
Economics from Colgate University and an M.S from the University of Colorado
(Boulder).

Timothy J. Miller - is the leader of INVESCO's Growth Team and a CFA. He is also
a director, Chief Investment Officer and Senior Vice President of INVESCO.
Before joining INVESCO in 1992, Tim was a portfolio manager with Mississippi
Valley Advisors. He holds an M.B.A. from the University of Missouri - St. Louis
and a B.S.B.A. from St. Louis University.

Trent E. May - is also a senior vice president of INVESCO and a CFA. Before
joining INVESCO in 1996, he was a senior equity analyst with Munder Capital
Management and a research assistant with SunBank Capital Management. He holds an
M.B.A. from Rollins College and a B.S. in Engineering from Florida Institute of
Technology.

We set out below performance information for INVESCO SMALL COMPANY GROWTH FUND
(Investor Class), which is a mutual fund managed by INVESCO, according to
investment objectives and practices that are substantially similar to those
governing the SP INVESCO Small Company Growth Portfolio. INVESCO Small Company
Growth Fund and SP INVESCO Small Company Growth Portfolio are separate funds
with different expense structures and portfolio holdings and different purchase
and redemption patterns, and the past performance of INVESCO Small

54
<PAGE>

Company Growth Fund is not indicative of the future performance of SP INVESCO
Small Company Growth Portfolio. If material differences between the investment
styles of INVESCO Small Company Growth Fund and SP INVESCO Small Company Growth
Portfolio should develop in the future, we will disclose such differences. PIFM
monitors the performance of SP INVESCO Small Company Growth Portfolio, but not
INVESCO Small Company Growth Fund. In general, Portfolio returns are reduced by
expenses under your variable insurance contract.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
INVESCO SMALL COMPANY GROWTH FUND

(FOR THE PERIODS ENDED
JUNE 30, 2000) 1 YEAR 5 YEARS SINCE INCEPTION(2)
Investor Class shares(1) 69.07% 28.53% 23.40%
Russell 2000 Index(3) 14.32% 14.27% 13.57%

(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.

(2) The INVESCO Small Company Growth Fund commenced investment operations on
December 27, 1991.

(3) The Russell 2000 Index is an unmanaged index of small capitalization
stocks.

SP JENNISON INTERNATIONAL GROWTH PORTFOLIO

The Portfolio is co-managed by Howard Moss and Blair Boyer. Mr. Moss and Mr.
Boyer have worked together managing international equity portfolios since 1989.
Howard Moss has been an Executive Vice President and Director of Jennison since
1993. Mr. Moss has been in the investment business for 30 years. Mr. Moss
received a B.A. from the University of Liverpool. Blair Boyer is an Executive
Vice President and Director of Jennison and has been with Jennison since 1993.
Mr. Boyer received a B.A. from Bucknell University and an M.B.A. from New York
University.

SP LARGE CAP VALUE PORTFOLIO AND SP SMALL/MID CAP VALUE PORTFOLIO

Fidelity Management & Research Company is the Portfolios' sub-adviser. Jeff
Kerrigan is portfolio manager of the Small/Mid Cap Value Portfolio. Since
joining Fidelity in 1999, Mr. Kerrigan has worked as an analyst and manager.
Robert MacDonald is portfolio manager of the SP Large Cap Value Portfolio. Since
joining Fidelity in 1985, Mr. MacDonald has worked as an analyst and manager.

SP MFS CAPITAL OPPORTUNITIES PORTFOLIO

Maura A. Shaughnessy, a Senior Vice President of Massachusetts Financial
Services Company (MFS), has been employed in the investment management area of
MFS since 1991.

We set out below performance information for MFS CAPITAL OPPORTUNITIES FUND,
which is a mutual fund managed by MFS according to investment objectives and
practices that are substantially similar to those governing the SP MFS Capital
Opportunities Portfolio. MFS Capital Opportunities Fund and SP MFS Capital
Opportunities Portfolio are separate funds with different expense structures and
portfolio holdings and different purchase and redemption patterns, and the past
performance of MFS Capital Opportunities Fund is not indicative of the future
performance of SP MFS Capital Opportunities Portfolio. If material differences
between the investment styles of MFS Capital Opportunities Fund and SP MFS
Capital Opportunities Portfolio should develop in the future, we will disclose
such differences. PIFM monitors the performance of SP MFS Capital Opportunities
Portfolio, but not MFS Capital Opportunities Fund. In general, Portfolio returns
are reduced by expenses under your variable insurance contract.

55
<PAGE>

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
MFS CAPITAL OPPORTUNITIES FUND

(FOR THE PERIODS ENDED
JUNE 30, 2000) 1 YEAR 5 YEARS 10 YEARS
Class A(1) 27.25% 27.77% 20.27%
S&P 500(2) 7.24% 23.80% 15.05%

(1) The MFS Capital Opportunities Fund commenced investment operations on June
13, 1983. Performance results include any applicable expense subsidies and
waivers, which may cause results to be more favorable.

(2) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.

SP MFS MID-CAP GROWTH PORTFOLIO

Mark Regan, a Senior Vice President of MFS, has been employed in the investment
management area of MFS since 1989. David E. Sette-Ducati, a Vice President of
MFS, has been employed in the investment management area of MFS since 1995.

MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is an indirect wholly-owned subsidiary of Sun Life Assurance
Company of Canada.

We set out below performance information for MFS MID-CAP GROWTH FUND, which is a
mutual fund managed by MFS, according to investment objectives and practices
that are substantially similar to those governing the SP MFS Mid-Cap Growth
Portfolio. MFS Mid-Cap Growth Fund and SP MFS Mid-Cap Growth Portfolio are
separate funds with different expense structures and portfolio holdings and
different purchase and redemption patterns, and the past performance of MFS
Mid-Cap Growth Fund is not indicative of the future performance of SP MFS
Mid-Cap Growth Portfolio. If material differences between the investment styles
of MFS Mid-Cap Growth Fund and SP MFS Mid-Cap Growth Portfolio should develop in
the future, we will disclose such differences. PIFM monitors the performance of
SP MFS Mid-Cap Growth Portfolio, but not MFS Mid-Cap Growth Fund. In general,
Portfolio returns are reduced by expenses under your variable insurance
contract.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
MFS MID CAP GROWTH FUND
(FOR THE PERIODS ENDED
JUNE 30, 2000) 1 YEAR 5 YEARS SINCE INCEPTION
Class A(1) 70.00% 29.88% 25.41%
Russell Mid Cap Growth Index 12.64% 18.74%

(1) The MFS Mid Cap Growth Fund commenced investment operations on December 1,
1993 with the offering of Class A shares and Class B shares. Performance
results include any applicable expense subsidies and waivers, which may
cause the results to be more favorable.

SP PIMCO HIGH YIELD PORTFOLIO

Benjamin L. Trosky, Managing Director, joined PIMCO as a portfolio manager in
1990, and has managed fixed income accounts for various institutional clients
and funds since that time.

We set out below performance information for PIMCO HIGH YIELD FUND, which is a
mutual fund managed by PIMCO, according to investment objectives and practices
that are substantially similar to those governing the SP PIMCO High Yield
Portfolio. PIMCO High Yield Fund and SP PIMCO High Yield Portfolio are separate
funds with different expense structures and portfolio holdings and different
purchase and redemption patterns, and the past performance of PIMCO High Yield
Fund is not indicative of the future performance of SP PIMCO High Yield
Portfolio. If material differences between the investment styles of PIMCO High
Yield Fund and SP PIMCO High Yield Portfolio should develop in the future, we
will disclose such differences. PIFM monitors the performance of SP PIMCO High
Yield Portfolio, but not PIMCO High Yield Fund. In general, Portfolio returns
are reduced by expenses

56
<PAGE>

under your variable insurance contract. Expenses of the SP PIMCO High Yield
Portfolio are higher than the expenses of the PIMCO High Yield Fund. Higher
expenses are a factor in reducing investment performance.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED 6/30/00)
PIMCO HIGH YIELD FUND
FUND
INCEPTION
1 YEAR 5 YEARS (12/16/92)(3)
------ ------- ----------
Administrative Class 0.91% 8.02% 9.54%
Lehman Brothers BB
Intermediate Corporate Index (1) 2.68% 7.16% 8.39%
Lipper High Current Yield
Fund Avg. (2) (0.77)% 6.42% 7.68%

(1) The Lehman Brothers BB Intermediate Corporate Index is an unmanaged index
comprised of various fixed income securities rated BB. It is not possible
to invest directly in the index.

(2) The Lipper High Current Yield Fund Average is a total return performance
average of Funds tracked by Lipper Analytical Services, Inc. that aim at
high (relative) current yield from fixed income securities, have no quality
or maturity restrictions, and tend to invest in lower grade debt issues. It
does not take into account sales charges.

(3) The Fund began operations on 12/16/92. Index comparisons began on 12/31/92.

SP PIMCO TOTAL RETURN PORTFOLIO

William H. Gross, Managing Director, Chief Investment Officer and a founding
partner of PIMCO has managed comparable accounts since 1987. He leads a team
which manages several other PIMCO funds.

We set out below performance information for PIMCO TOTAL RETURN FUND, which is a
mutual fund managed by PIMCO, according to investment objectives and practices
that are substantially similar to those governing the SP PIMCO Total Return
Portfolio. PIMCO Total Return Fund and SP PIMCO Total Return Portfolio are
separate funds with different expense structures and portfolio holdings and
different purchase and redemption patterns, and the past performance of PIMCO
Total Return Fund is not indicative of the future performance of SP PIMCO Total
Return Portfolio. If material differences between the investment styles of PIMCO
Total Return Fund and SP PIMCO Total Return Portfolio should develop in the
future, we will disclose such differences. PIFM monitors the performance of SP
PIMCO Total Return Portfolio, but not PIMCO Total Return Fund. In general,
Portfolio returns are reduced by expenses under your variable insurance
contract. Expenses of the SP PIMCO Total Return Portfolio are higher than the
expenses of the PIMCO Total Return Fund. Higher expenses are a factor in
reducing investment performance.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED 6/30/00)
PIMCO TOTAL RETURN FUND

1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Administrative Class 4.72% 7.11% 8.76%
Lehman Aggregate Bond Index (1) 4.56% 6.25% 7.82%
Lipper Intermediate Investment
Grade Debt Portfolio Avg.(2) 3.42% 5.35% 7.27%

(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index of
investment grade U.S. dollar-denominated fixed income securities of
domestic issuers having a maturity greater than one year. It is not
possible to invest directly in the index.

(2) The Lipper Intermediate Investment Grade Debt Portfolio Average is a total
return performance average of Funds tracked by Lipper Analytical Services,
Inc. that invest at least 65% of their assets in investment-grade debt
issues (rated in the top four grades) with dollar weighted average
maturities of five to ten years. It does not take into account sales
charges.

57
<PAGE>

SP PRUDENTIAL U.S. EMERGING GROWTH PORTFOLIO

Susan Hirsch has managed the retail fund counterpart of this Portfolio since it
began. Ms. Hirsch joined Prudential Investments in July 1996, and is now
employed by Jennison Associates LLC. Before that she was employed by Lehman
Brothers Global Asset Management from 1988 to 1996 and Delphi Asset Management
in 1996. She managed growth stock portfolios at both firms. Ms. Hirsch holds a
B.S. from Brooklyn College and is a member of the Financial Analysts Federation
and the New York Society of Security Analysts.

We set out below performance information for Prudential U.S. Emerging Growth
Fund, which is a mutual fund managed by PIFM, according to investment objectives
and practices that are substantially similar to those governing the SP
Prudential U.S. Emerging Growth Portfolio. Prudential U.S. Emerging Growth Fund
and SP Prudential U.S. Emerging Growth Portfolio are separate funds with
different expense structures and portfolio holdings and different purchase and
redemption patterns, and the past performance of Prudential U.S. Emerging Growth
Fund is not indicative of the future performance of SP Prudential U.S. Emerging
Growth Portfolio. If material differences between the investment styles of
Prudential U.S. Emerging Growth Fund and SP Prudential U.S. Emerging Growth
Portfolio should develop in the future, we will disclose such differences. In
general, Portfolio returns are reduced by expenses under your variable insurance
contract.

OTHER FUND PERFORMANCE

SEC STANDARDIZED AVERAGE ANNUAL RETURNS (1) (AS OF 12-31-99)
PRUDENTIAL U.S. EMERGING GROWTH FUND

1 YEAR SINCE INCEPTION (12-31-96)
Class A shares 83.44% 39.88%
S&P 400 Mid-Cap Index (2) 14.72% 21.81%
Lipper Average (3) 72.56% 30.78%

1. The Fund's returns are after deduction of sales charges and expenses.
Without the distribution and service (12b-1) fee waiver for Class A shares,
the returns would have been lower.

2. The Standard & Poor's Mid-Cap 400 Stock Index (S&P 400 Mid-Cap Index)--an
unmanaged index of 400 domestic stocks chosen for market size, liquidity
and industry group representation-gives a broad look at how mid-cap stock
prices have performed. These returns do not include the effect of any sales
charges or operating expenses of a mutual fund portfolio. These returns
would be lower if they included the effect of sales charges and operating
expenses. The securities in the S&P 400 Mid-Cap Index may be very different
from those in the Portfolio. Source: Lipper Inc.

3. The Lipper Average is based on the average return of all mutual funds in
the Lipper Mid-Cap Growth Fund category and does not include the effect of
any sales charges. Again, these returns would be lower if they included the
effect of sales charges. Source: Lipper Inc.

SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO

Alfred Harrison is portfolio manager for the portion of the Portfolio's assets
advised by Alliance. Mr. Harrison joined Alliance in 1978 and is manager of the
firm's Minneapolis office. He is Vice Chairman of Alliance Capital Management
Corporation.

Spiros Segalas and Kathleen McCarragher are co-portfolio managers for the
portion of the Portfolio's assets advised by Jennison. (See descriptions above,
under "Prudential Jennison Portfolio").

HOW TO BUY AND SELL SHARES OF THE FUND

The Fund offers two classes of shares in each Portfolio - Class I and Class II.
Each Class participates in the same investments within a given Portfolio, but
the Classes differ as far as their charges. Class I shares are sold only to
separate accounts of Prudential as investment options under certain Contracts.
Class II is offered only to separate accounts of non-Prudential insurance
companies as investment options under certain of their Contracts. This
prospectus covers only Class I shares, which are available under the Strategic
Partners Variable Annuity contract.

58
<PAGE>

Together with this prospectus, you should have received a prospectus for the
Strategic Partners Variable Annuity contract. You should refer to that
prospectus for further information on investing in the Portfolios.

Shares of a Portfolio are sold without any sales charge at the net asset value
of the Portfolio.

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

Any purchase or sale of Portfolio shares is made at the net asset value, or NAV,
of such shares. The price at which a purchase or redemption is made is based on
the next calculation of the NAV after the order is received in good order. The
NAV of each share class of each Portfolio is determined once a day--at 4:00 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 4:00 p.m. on that day.

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

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

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

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

ALL SHORT-TERM DEBT SECURITIES held by the Prudential Money Market Portfolio are
valued at amortized cost. The amortized cost 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.

For each Portfolio, other than the Prudential Money Market Portfolio, short-term
debt securities, including bonds, notes, debentures and other debt securities,
and money market instruments such as certificates of deposit, commercial paper,
bankers' acceptances and obligations of domestic and foreign banks, with
remaining maturities of more than 60 days, for which market quotations are
readily available, are valued by an independent pricing agent or principal
market maker (if available, otherwise a primary market dealer).

Short-term debt securities with remaining maturities of 60 days or less are
valued at cost with interest accrued or discount amortized to the date of
maturity, unless such valuation, in the judgment of Prudential or a sub-adviser,
does not represent fair value.

CONVERTIBLE DEBT SECURITIES that are traded in the over-the-counter market,
including listed convertible debt securities for which the primary market is
believed by Prudential or a sub-adviser to be over-the-counter, are valued at
the mean between the last bid and asked prices provided by a principal market
maker (if available, otherwise a primary market dealer).

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

OPTIONS ON STOCK AND STOCK INDEXES that are traded on a national securities
exchange are valued at the last sale price on such exchange on the day of
valuation or, if there was no such sale on such day, at the mean between the
most recently quoted bid and asked prices on such exchange.

59
<PAGE>

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.

FORWARD CURRENCY EXCHANGE CONTRACTS are valued at the cost of covering or
offsetting such contracts calculated on the day of valuation. Securities which
are valued in accordance herewith in a currency other than U.S. dollars shall be
converted to U.S. dollar equivalents at a rate obtained from a recognized bank,
dealer or independent service on the day of valuation.

OVER-THE-COUNTER (OTC) OPTIONS are valued at the mean between bid and asked
prices provided by a dealer (which may be the counterparty). The sub-adviser
will monitor the market prices of the securities underlying the OTC options with
a view to determining the necessity of obtaining additional bid and asked
quotations from other dealers to assess the validity of the prices received from
the primary pricing dealer.

SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE AVAILABLE will be valued at fair
value 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' principal business
address is 751 Broad Street, Newark, New Jersey 07102-3777.

OTHER INFORMATION

FEDERAL INCOME TAXES

If you own or are considering purchasing a Strategic Partners Variable annuity
contract, you should consult the prospectus for that contract for tax
information. 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.

EUROPEAN MONETARY UNION

On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Fund will treat the euro
as a separate currency from that of any participating state. The conversion may
adversely affect the Fund if the euro does not take effect as planned; if a
participating state withdraws from the European Monetary Union; or if the
computing, accounting and trading systems used by the Fund's service providers,
or by entities with which the Fund or its service providers do business, are not
capable of recognizing the euro as a distinct currency at the time of, and
following, euro conversion. In addition, the conversion could cause markets to
become more volatile.

MONITORING FOR POSSIBLE CONFLICTS

The Fund sells its shares to fund variable life insurance contracts and variable
annuity contracts and is authorized to 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.

60
<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 FOUR YEARS ENDED DECEMBER 31, 1999 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 ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.

<TABLE>
<CAPTION>
GLOBAL
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.06 0.07 0.09 0.11 0.06
Net realized and unrealized gains
(losses) on investments.............. 10.04 4.38 1.11 2.94 2.14
-------- -------- -------- -------- --------
Total from investment operations... 10.10 4.45 1.20 3.05 2.20
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.16) (0.13) (0.11) (0.24)
Dividends in excess of net investment
income............................... (0.10) (0.12) (0.10) -- --
Distributions from net realized
gains................................ (0.18) (0.93) (0.90) (0.62) (0.31)
-------- -------- -------- -------- --------
Total distributions................ (0.28) (1.21) (1.13) (0.73) (0.55)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 30.98 $ 21.16 $ 17.92 $ 17.85 $ 15.53
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b) 48.27% 25.08% 6.98% 19.97% 15.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,298.3 $844.5 $638.4 $580.6 $400.1
Ratios to average net assets:
Expenses............................. 0.84% 0.86% 0.85% 0.92% 1.06%
Net investment income................ 0.21% 0.29% 0.47% 0.64% 0.44%
Portfolio turnover rate................ 76% 73% 70% 41% 59%
</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. Total investment returns for
less than a full year are not annualized.

F-1

<PAGE>

FINANCIAL HIGHLIGHTS

The information for the FOUR YEARS ENDED DECEMBER 31, 1999 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
DECEMBER 31, APRIL 25, 1995(d)(a)
---------------------------------------- TO
1999 1998 1997 1996 DECEMBER 31, 1995
--------- --------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 23.91 $ 17.73 $ 14.32 $ 12.55 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.05 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 9.88 6.56 4.48 1.78 2.54
-------- -------- ------- ------- -------
Total from investment operations... 9.93 6.60 4.52 1.80 2.56
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.05) (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (1.40) (0.38) (1.07) -- --
-------- -------- ------- ------- -------
Total distributions................ (1.45) (0.42) (1.11) (0.03) (0.01)
-------- -------- ------- ------- -------
Net Asset Value, end of period......... $ 32.39 $ 23.91 $ 17.73 $ 14.32 $ 12.55
======== ======== ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 41.76% 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $2,770.7 $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.17% 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 58% 54% 60% 46% 37%
</TABLE>

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

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

(d) Commencement of investment operations.

F-2

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
MONEY MARKET
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995(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..................... 0.49 0.52 0.54 0.51 0.56
Dividends and distributions............ (0.49) (0.52) (0.54) (0.51) (0.56)
-------- -------- -------- -------- -------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:(b)............ 4.97% 5.39% 5.41% 5.22% 5.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,335.5 $920.2 $657.5 $668.8 $613.3
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.43% 0.44% 0.44%
Net investment income................ 4.90% 5.20% 5.28% 5.10% 5.64%
</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.

F-3
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
STOCK INDEX
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.44 0.42 0.43 0.40 0.40
Net realized and unrealized gains
(losses) on investments.............. 7.23 8.11 7.34 4.06 5.13
-------- -------- -------- -------- --------
Total from investment operations... 7.67 8.53 7.77 4.46 5.53
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.43) (0.42) (0.42) (0.40) (0.38)
Distributions from net realized
gains................................ (0.53) (0.59) (0.87) (0.28) (0.15)
-------- -------- -------- -------- --------
Total distributions................ (0.96) (1.01) (1.29) (0.68) (0.53)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 20.54% 28.42% 32.83% 22.57% 37.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,655.0 $3,548.1 $2,448.2 $1,581.4 $1,031.3
Ratios to average net assets:
Expenses............................. 0.39% 0.37% 0.37% 0.40% 0.38%
Net investment income................ 1.09% 1.25% 1.55% 1.95% 2.27%
Portfolio turnover rate................ 2% 3% 5% 1% 1%
</TABLE>

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

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

F-4
<PAGE>

(This page intentionally left blank.)

61
<PAGE>

FOR MORE INFORMATION

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

(incorporated by reference into this prospectus)

ANNUAL REPORT

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

SEMI-ANNUAL REPORT

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

Call toll-free (800) 778-2255

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

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

By Mail:

Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

By Electronic Request:

[email protected]

(The SEC charges a fee to copy documents.)

In Person:

Public Reference Room
in Washington, DC
(For hours of operation, call 1-202-942-8090)

Via the Internet:

on the EDGAR Database at
http://www.sec.gov

SEC File No. 811-03623

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

AUGUST 11, 2000

THE PRUDENTIAL
SERIES FUND, INC.

The Prudential Series Fund, Inc. (the Fund) is a diversified, open-end
management investment company (commonly known as a mutual fund) that is intended
to provide a range of investment alternatives through its thirty-seven separate
Portfolios, each of which is, for investment purposes, in effect a separate fund
(the Portfolios).

The Fund offers two classes of shares of each Portfolio: Class I and Class II.
Class I shares are sold only to separate accounts of The Prudential Insurance
Company of America (Prudential) and its affiliated insurers as investment
options under variable life insurance and variable annuity contracts. Class II
shares are offered only to separate accounts of non-Prudential insurance
companies for the same types of contracts (collectively with the Prudential
contracts, the Contracts). These separate accounts invest in shares of the Fund
through subaccounts that correspond to the Portfolios. The separate accounts
will redeem shares of the Fund to the extent necessary to provide benefits under
the Contracts or for such other purposes as may be consistent with the
Contracts.

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

In order to sell shares to both Prudential and non-Prudential insurance
companies, the Fund has obtained an exemptive order (the Order) from the SEC.
The Fund and its Portfolios are managed in compliance with the terms and
conditions of that Order. This statement of additional information is not a
prospectus and should be read in conjunction with the Fund's prospectus dated
August 11, 2000, which is available without charge upon written request to The
Prudential Series Fund, Inc., 751 Broad Street, Newark, New Jersey 07102-3777 or
by telephoning (800) 778-2255.

THE PRUDENTIAL SERIES FUND, INC.
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (800) 778-2255

<PAGE>

PSF-2 Ed 8-00 Catalog No. 646674P

2
<PAGE>

CONTENTS

PAGE
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ...................... 1
GENERAL .................................................................. 1
CONVERTIBLE SECURITIES ..................................................... 1
WARRANTS ................................................................. 1
FOREIGN SECURITIES ....................................................... 2
OPTIONS ON STOCK AND DEBT SECURITIES ..................................... 3
OPTIONS ON STOCK INDEXES ................................................. 5
OPTIONS ON FOREIGN CURRENCIES ............................................ 7
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS ....................... 8
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS .............................. 10
INTEREST RATE SWAPS ...................................................... 11
LOAN PARTICIPATIONS ...................................................... 12
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS ........................... 12
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES .............................. 13
SHORT SALES .............................................................. 13
LOANS OF PORTFOLIO SECURITIES ............................................ 14
ILLIQUID SECURITIES ...................................................... 14
FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS ................ 15
U.S. GOVERNMENT SECURITIES ............................................... 16
BRADY BONDS .............................................................. 19
RISK FACTORS RELATING TO JUNK BONDS ...................................... 20
OTHER INVESTMENT PRACTICES OF PORTFOLIO .................................. 21

INVESTMENT RESTRICTIONS .................................................... 22

INVESTMENT MANAGEMENT AND DISTRIBUTION ARRANGEMENTS ........................ 29
INVESTMENT MANAGEMENT ARRANGEMENTS .................................... 29
DISTRIBUTION ARRANGEMENTS ............................................. 37
Code of Ethics ........................................................ 38

OTHER INFORMATION CONCERNING THE FUND ...................................... 38
INCORPORATION AND AUTHORIZED STOCK ....................................... 38
PORTFOLIO TRANSACTIONS AND BROKERAGE ..................................... 39
TAXATION OF THE FUND ..................................................... 42
CUSTODIAN AND TRANSFER AGENT ............................................. 43
EXPERTS .................................................................. 43
LICENSES ................................................................. 43

MANAGEMENT OF THE FUND ..................................................... 44

FUND PERFORMANCE ........................................................... 46

FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.

THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS

APPENDIX: DEBT RATINGS

3
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

I. GENERAL

This Statement of Additional Information provides information about the Fund,
which consists of thirty-seven separate portfolios--the Conservative Balanced
Portfolio, Diversified Bond Portfolio, Diversified Conservative Growth
Portfolio, Equity Portfolio, Equity Income Portfolio, Flexible Managed
Portfolio, Global Portfolio, Government Income Portfolio, high Yield Bond
Portfolio, Money Market Portfolio, Natural Resources Portfolio, Prudential
Jennison Portfolio, Small Capitalization Stock Portfolio, SP Aggressive Growth
Asset Allocation Portfolio, SP AIM Aggressive Growth Portfolio, SP AIM Growth
and Income Portfolio, SP Alliance Large Cap Growth Portfolio, SP Alliance
Technology Portfolio, SP Balanced Asset Allocation Portfolio, SP Conservative
Asset Allocation Portfolio, SP Davis Value Portfolio, SP Deutsche International
Equity Portfolio, SP Growth Asset Allocation Portfolio, SP INVESCO Small Company
Growth Portfolio, SP Jennison International Growth Portfolio, SP Large Cap Value
Portfolio, SP MFS Capital Opportunities Portfolio, SP MFS Mid Cap Growth
Portfolio, SP PIMCO High Yield Portfolio, SP PIMCO Total Return Portfolio, SP
Prudential U.S. Emerging Growth Portfolio, SP Small/Mid Cap Value Portfolio, SP
Strategic Partners Focused Growth Portfolio, Stock Index Portfolio, 20/20 Focus
Portfolio, Zero Coupon Bond Portfolio 2000 and Zero Coupon Bond Portfolio 2005.
Not every Portfolio is available under every Contract. The prospectus for each
Contract lists the Portfolios currently available under that particular
Contract. The Portfolios are managed by Prudential and Prudential Investments
Fund Management LLC (PIFM) as discussed under MANAGEMENT OF THE FUND.

Each of the thirty-seven Portfolios has a different investment objective. For
this reason, each Portfolio will have different investment results and be
subject to different financial and market risks. As discussed in the prospectus,
several of the Portfolios may invest in money market instruments and comparable
securities as part of assuming a temporary defensive position.

The investment objectives of the Portfolios can be found under RISK/RETURN
SUMMARY and HOW THE PORTFOLIOS INVEST in the prospectus.

A detailed discussion of the type of investment instruments in which the
Portfolios may invest follows.

II. CONVERTIBLE SECURITIES

The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity, Prudential Jennison, Small Capitalization Stock, 20/20 Focus, SP Large
Cap Value, and SP Small/Mid Cap Value Portfolios may invest in convertible
securities and a significant portion of the assets of the Equity Income, Global
and Natural Resources Portfolios may be invested in these types of securities.
Certain other PIFM-Advised Portfolios also may invest in this type of security.

A convertible security is a debt security--for example, a bond--that may be
converted into common stock of the same or different issuer. The convertible
security sets the price, quantity of shares and time period in which it may be
so converted. Convertible stock is senior to a company's common stock but is
usually subordinated to debt obligations of the company. Convertible securities
provide a steady stream of income which is generally at a higher rate than the
income on the issuer's common stock but lower than the rate on the issuer's debt
obligations. At the same time, they offer--through their conversion
mechanism--the chance to participate in the capital appreciation of the
underlying common stock. The price of a convertible security tends to increase
and decrease with the market value of the underlying common stock.

III. WARRANTS

The Conservative Balanced, Equity, Equity Income, Flexible Managed, Global,
Natural Resources,

4
<PAGE>

Prudential Jennison, Small Capitalization Stock, 20/20 Focus, SP Large Cap
Value, and SP Small/Mid Cap Value Portfolios may invest in warrants on common
stocks. Certain PIFM-Advised Portfolios also may invest in this type of
security. A warrant is a right to buy a number of shares of stock at a specified
price during a specified period of time. The risk associated with warrants is
that the market price of the underlying stock will stay below the exercise price
of the warrant during the exercise period. If this occurs, the warrant becomes
worthless and the investor loses the money he or she paid for the warrant.

From time to time, the Diversified Bond and the High Yield Bond Portfolios may
invest in debt securities that are offered together with warrants but only when
the debt security meets the Portfolio's investment criteria and the value of the
warrant is relatively very small. If the warrant later becomes valuable, it may
be sold or exercised.

IV. FOREIGN SECURITIES

The Global Portfolio may invest up to 100% of its total assets in common stock
and convertible securities denominated in a foreign currency and issued by
foreign or domestic issuers. The Diversified Bond and High Yield Bond Portfolios
may each invest up to 20% of their assets in U.S. currency denominated debt
securities issued outside the U.S. by foreign or U.S. issuers. In addition, the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may each invest up to 30% in such securities. The Conservative
Balanced, Equity Income and Flexible Managed Portfolios may invest up to 30% of
their total assets in debt and equity securities denominated in a foreign
currency and issued by foreign or U.S. issuers. The Equity, Natural Resources
and Prudential Jennison Portfolios may invest up to 30% of their total assets in
non-U.S. currency denominated common stock and fixed income securities
convertible into common stock of foreign and U.S. issuers. The Diversified
Conservative Growth Portfolio may invest up to 15% of its total assets in
foreign equity securities and up to 25% of its total assets in foreign debt
obligations (of which, 10% of the Portfolio's total assets may be invested in
debt obligations of issuers in emerging countries). The 20/20 Focus Portfolio
may invest up to 20% of its total assets in securities of foreign issuers. The
SP Large Cap Value and SP Small/Mid Cap Value Portfolios also may invest a
portion of their assets in securities of foreign issuers. Certain PIFM-Advised
Portfolios also may invest in this type of security.

American Depository Receipts (ADRs) are not considered "foreign securities" for
purposes of the percentage limitations set forth in the preceding paragraph.
ADRs are U.S. dollar-denominated certificates issued by a U.S. bank or trust
company. ADRs represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a U.S. bank and traded on a
U.S. exchange or in the over-the-counter (OTC) market. Investment in ADRs has
certain advantages over direct investments in the underlying foreign securities
because they are easily transferable, have readily available market quotations,
and the foreign issuers are usually subject to comparable auditing, accounting
and financial reporting standards as U.S. issuers.

Foreign securities (including ADRs) involve certain risks, which should be
considered carefully by an investor. These risks include political or economic
instability in the country of an issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and, in the case of securities not denominated in U.S. currency, the risk of
currency fluctuations. Foreign securities may be subject to greater movement in
price than U.S. securities and under certain market conditions, may be less
liquid than U.S securities. In addition, there may be less publicly available
information about a foreign company than a U.S company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. There is
generally less government regulation of securities exchanges, brokers and listed
companies abroad than in the U.S., and, with respect to certain foreign
countries, there is a possibility of expropriations, confiscatory taxation or
diplomatic developments which could affect investment in those countries.
Finally,

5
<PAGE>

in the event of a default of any foreign debt obligations, it may be more
difficult for a Portfolio to obtain or enforce a judgment against the issuers of
such securities.

If a security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between currencies. The Portfolios that
may invest in foreign securities may enter into forward foreign currency
exchange contracts for the purchase or sale of foreign currency for hedging
purposes, including: locking in the U.S. dollar price equivalent of interest or
dividends to be paid on such securities which are held by a Portfolio; and
protecting the U.S. dollar value of such securities which are held by the
Portfolio. A Portfolio will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. In addition, the Portfolios may, for hedging purposes, enter into
certain transactions involving options on foreign currencies, foreign currency
futures contracts and options on foreign currency futures contracts.

SPECIAL CONSIDERATIONS OF INVESTMENT IN EURO-DENOMINATED SECURITIES. On January
1, 1999, 11 of the 15 member states of the European Monetary Union introduced
the "euro" as a common currency. During a three-year transitional period, the
euro will coexist with each participating state's currency and, on July 1, 2002,
the euro is expected to become the sole currency of the participating states.
During the transition period, the Portfolios will treat the euro as a separate
currency from that of any participating state. The conversion may adversely
affect a Portfolio if the euro does not take effect as planned; if a
participating state withdraws from the European Monetary Union; or if the
computing, accounting and trading systems used by the Portfolio's service
providers, or by entities with which the Portfolio or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following euro conversion. In addition, the conversion could cause
markets to become more volatile. The overall effect of the transition of member
states' currencies to the euro is not known at this time. It is likely that more
general short- and long-term ramifications can be expected, such as changes in
the economic environment and change in the behavior of investors, which would
affect a Portfolio's investments and its net asset value. In addition, although
U.S. Treasury regulations generally provide that the euro conversion will not,
in itself, cause a U.S. taxpayer to realize gain or loss, other changes that may
occur at the time of the conversion, such as accrual periods, holiday
conventions, indexes, and other features may require the realization of a gain
or loss by a Portfolio as determined under existing tax law. The Portfolio
managers have taken steps: (1) that they believe will reasonably address
euro-related changes to enable the Portfolios and their service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Portfolios' other service providers to address the
conversion. The Portfolios have not borne any expense relating to these actions.

V. OPTIONS ON STOCK AND DEBT SECURITIES

A. OPTIONS ON STOCK

The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources, Prudential Jennison , Small
Capitalization Stock, SP Large Cap Value and SP Small/Mid Cap Value Portfolios
may purchase and "write" (that is, sell) put and call options on equity
securities that are traded on securities exchanges, listed on the National
Association of Securities Dealers Automated Quotation System (NASDAQ), or
privately negotiated with broker-dealers (OTC equity options). Certain other
PIFM-Advised Portfolios also may invest in this type of security.

A call option is a short-term contract that gives the option purchaser or
"holder" the right to acquire a

6
<PAGE>

particular equity security for a specified price at any time during a specified
period. For this right, the option purchaser pays the option seller a certain
amount of money or "premium" which is set before the option contract is entered
into. The seller or "writer" of the option is obligated to deliver the
particular security if the option purchaser exercises the option.

A put option is a similar contract. In a put option, the option purchaser has
the right to sell a particular security to the option seller for a specified
price at any time during a specified period. In exchange for this right, the
option purchaser pays the option seller a premium.

The Portfolios will write only "covered" options on stocks. A call option is
covered if:

(1) the Portfolio owns the security underlying the option;

(2) the Portfolio has an absolute right to acquire the security
immediately;

(3) the Portfolio has a call on the same security that underlies the
option which has an exercise price equal to or less than the exercise
price of the covered option (or, if the exercise price is greater, the
Portfolio sets aside in a segregated account liquid assets that are
equal to the difference).

A put option is covered if:

(1) the Portfolio sets aside in a segregated account liquid assets that
are equal to or greater than the exercise price of the option;

(2) the Portfolio holds a put on the same security that underlies the
option which has an exercise price equal to or greater than the
exercise price of the covered option (or, if the exercise price is
less, the Portfolio sets aside in a segregated account liquid assets
that are equal to the difference).

The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock, 20/20 Focus, SP Large Cap Value, and SP Small/Mid Cap
Value Portfolios can also purchase "protective puts" on equity securities. These
are acquired to protect a Portfolio's security from a decline in market value.
In a protective put, a Portfolio has the right to sell the underlying security
at the exercise price, regardless of how much the underlying security may
decline in value. In exchange for this right, the Portfolio pays the put seller
a premium.

The Portfolios may use options for both hedging and investment purposes. None of
the Portfolios intends to use more than 5% of its net assets to acquire call
options on stocks. The Portfolios may purchase equity securities that have a put
or call option provided by the issuer.

B. OPTIONS ON DEBT SECURITIES

The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, Government Income, High Yield Bond, SP Large Cap Value, and SP
Small/Mid Cap Value Portfolios may purchase and sell put and call options on
debt securities, including U.S. government debt securities, that are traded on a
U.S. securities exchange or privately negotiated with primary U.S. government
securities dealers that are recognized by the Federal Reserve Bank of New York
(OTC debt options). None of the Portfolios currently intends to invest more than
5% of its net assets at any one time in call options on debt securities. Certain
other PIFM-Advised Portfolios also may invest in this type of security.

Options on debt securities are similar to stock options (see above) except that
the option holder has the

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<PAGE>

right to acquire or sell a debt security rather than an equity security.

The Portfolios will write only covered options. Options on debt securities are
covered in much the same way as options on equity securities. One exception is
in the case of call options on U.S. Treasury Bills. With these options, a
Portfolio might own U.S. Treasury Bills of a different series from those
underlying the call option, but with a principal amount and value that matches
the option contract amount and a maturity date that is no later than the
maturity date of the securities underlying the option.

The above Portfolios may also write straddles--which are simply combinations of
a call and a put written on the same security at the same strike price and
maturity date. When a Portfolio writes a straddle, the same security is used to
"cover" both the put and the call. If the price of the underlying security is
below the strike price of the put, the Portfolio will set aside liquid assets as
additional cover equal to the difference. A Portfolio will not use more than 5%
of its net assets as cover for straddles.

The above Portfolios may also purchase protective puts to try to protect the
value of one of the securities it owns against a decline in market value, as
well as putable and callable debt securities.

C. RISKS OF TRANSACTIONS IN OPTIONS ON EQUITY AND DEBT SECURITIES.

A Portfolio's use of options on equity or debt securities is subject to certain
special risks, in addition to the risk that the market value of the security
will move opposite to the Portfolio's option position. An exchange-traded option
position may be closed out only on an exchange, board of trade or other trading
facility which provides a secondary market for an option of the same series.
Although the Portfolios will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange or otherwise may exist. In such event it
might not be possible to effect closing transactions in particular options, with
the result that the Portfolio would have to exercise its options in order to
realize any profit and would incur brokerage commissions upon the exercise of
such options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a Portfolio, as a covered call
option writer, is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: ( i ) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not be adequate at all times to handle the trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange would cease to exist, although outstanding options on that
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.

The purchase and sale of OTC options will also be subject to certain risks.
Unlike exchange-traded options, OTC options generally do not have a continuous
liquid market. Consequently, a Portfolio will

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<PAGE>

generally be able to realize the value of an OTC option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when a
Portfolio writes an OTC option, it generally will be able to close out the OTC
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the OTC
option. While the Portfolios will seek to enter into OTC options only with
dealers who agree to enter into closing transactions with the Portfolio, there
can be no assurance that a Portfolio will be able to liquidate an OTC option at
a favorable price at any time prior to expiration. In the event of insolvency of
the other party, a Portfolio may be unable to liquidate an OTC option.
Prudential monitors the creditworthiness of dealers with whom the Portfolios
enter into OTC option transactions under the Board of Directors' general
supervision.

VI. OPTIONS ON STOCK INDEXES

A. STOCK INDEX OPTIONS

The Conservative Balanced, Diversified Conservative Growth, Equity, Equity
Income, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock, Stock Index, 20/20 Focus, SP Large Cap Value, and SP
Small/Mid Cap Value Portfolios may purchase and sell put and call options on
stock indexes that are traded on securities exchanges, listed on NASDAQ or that
are privately-negotiated with broker-dealers (OTC options). Certain other
PIFM-Advised Portfolios also may invest in this type of security.

Options on stock indexes are similar to options on stocks, except that instead
of giving the option holder the right to receive or sell a stock, it gives the
holder the right to receive an amount of cash if the closing level of the stock
index is greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option. The amount of cash the holder will
receive is determined by multiplying the difference between the index's closing
price and the option's exercise price, expressed in dollars, by a specified
"multiplier". Unlike stock options, stock index options are always settled in
cash and gain or loss depends on price movements in the stock market generally
(or a particular market segment, depending on the index) rather than the price
movement of an individual stock.

A Portfolio will only sell or "write" covered options on stock indexes. A call
option is covered if the Portfolio holds stocks at least equal to the value of
the index times the multiplier times the number of contracts (the Option Value).
When a Portfolio writes a call option on a broadly based stock market index, the
Portfolio will set aside cash, cash equivalents or "qualified securities"
(defined below). The value of the assets to be segregated cannot be less than
100% of the Option Value as of the time the option is written.

If a Portfolio has written an option on an industry or market segment index, it
must set aside at least five "qualified securities," all of which are stocks of
issuers in that market segment, with a market value at the time the option is
written of not less than 100% of the Option Value. The qualified securities will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Portfolio's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so set aside in the case of broadly based stock market
index options or 25% of such amount in the case of options on a market segment
index. If at the close of business on any day the market value of the qualified
securities falls below 100% of the Option Value as of that date, the Portfolio
will set aside an amount in liquid unencumbered assets equal in value to the
difference. In addition, when a Portfolio writes a call on an index which is
"in-the-money" at the time the option is written--that is, the index's value is
above the strike price--the Portfolio will set aside liquid unencumbered assets
equal to the amount by which the call is in-the-money times the multiplier times
the number of contracts. Any amount so set aside may be applied to the
Portfolio's obligation to segregate additional amounts in the event that the
market value of the qualified securities falls below 100% of the current Option
Value. A "qualified security" is an equity security which is listed on a
securities exchange or

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<PAGE>

listed on NASDAQ against which the Portfolio has not written a stock call option
and which has not been hedged by the Portfolio by the sale of stock index
futures. However, the Portfolio will not be subject to the requirement described
in this paragraph if it holds a call on the same index as the call written and
the exercise price of the call held is equal to or less than the exercise price
of the call written or greater than the exercise price of the call written if
the difference is maintained by the Portfolio in liquid unencumbered assets in a
segregated account with its custodian.

A put index option is covered if: (1) the Portfolio sets aside in a segregated
account liquid unencumbered assets of a value equal to the strike price times
the multiplier times the number of contracts; or (2) the Portfolio holds a put
on the same index as the put written where the strike price of the put held is
equal to or greater than the strike price of the put written or less than the
strike price of the put written if the difference is maintained by the Portfolio
in liquid unencumbered assets in a segregated account.

B. RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEXES

A Portfolio's purchase and sale of options on stock indexes has the same risks
as stock options described in the previous section. In addition, the distinctive
characteristics of options on indexes create special risks. Index prices may be
distorted if trading of certain stocks included in the index is interrupted.
Trading in index options also may be interrupted in certain circumstances, such
as if trading were halted in a substantial number of stocks included in the
index. If this occurred, a Portfolio would not be able to close out options
which it had purchased or written and, if restrictions on exercise were imposed,
may be unable to exercise an option it holds, which could result in substantial
losses to the Portfolio. It is the policy of the Portfolios to purchase or write
options only on stock indexes which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.

The ability to establish and close out positions on stock index options are
subject to the existence of a liquid secondary market. A Portfolio will not
purchase or sell any index option contract unless and until, in the portfolio
manager's opinion, the market for such options has developed sufficiently that
the risk in connection with such transactions is no greater than the risk in
connection with options on stocks.

There are certain additional risks associated with writing calls on stock
indexes. Because exercises of index options are settled in cash, a call writer
such as a Portfolio cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot precisely provide in
advance for, or cover, its potential settlement obligations by acquiring and
holding the underlying securities. However, the Portfolios will follow the
"cover" procedures described above.

Price movements of a Portfolio's equity securities probably will not correlate
precisely with movements in the level of the index. Therefore, in writing a call
on a stock index a Portfolio bears the risk that the price of the securities
held by the Portfolio may not increase as much as the index. In that case, the
Portfolio would bear a loss on the call which may not be completely offset by
movement in the price of the Portfolio's equity securities. It is also possible
that the index may rise when the Portfolio's securities do not rise in value. If
this occurred, the Portfolio would experience a loss on the call which is not
offset by an increase in the value of its securities and might also experience a
loss in its securities. However, because the value of a diversified securities
portfolio will, over time, tend to move in the same direction as the market,
movements in the value of a Portfolio's securities in the opposite direction as
the market would be likely to occur for only a short period or to a small
degree.

When a Portfolio has written a stock index call, there is also a risk that the
market may decline between the time the Portfolio has a call exercised against
it, at a price which is fixed as of the closing level of the index on the date
of exercise, and the time the Portfolio is able to sell stocks in its portfolio.
As with stock options, a Portfolio will not learn that an index option has been
exercised until the day following the

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<PAGE>

exercise date but, unlike a call on stock where the Portfolio would be able to
deliver the underlying securities in settlement, the Portfolio may have to sell
part of its stock portfolio in order to make settlement in cash, and the price
of such stocks might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially more risky with
options in stock indexes than with stock options. For example, even if an index
call which a Portfolio has written is "covered" by an index call held by the
Portfolio with the same strike price, the Portfolio will bear the risk that the
level of the index may decline between the close of trading on the date the
exercise notice is filed with the clearing corporation and the close of trading
on the date the Portfolio exercises the call it holds or the time the Portfolio
sells the call which in either case would occur no earlier than the day
following the day the exercise notice was filed.

There are also certain special risks involved in purchasing put and call options
on stock indexes. If a Portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the Portfolio will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although the Portfolio may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
times for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.

VII. OPTIONS ON FOREIGN CURRENCIES

A. OPTIONS ON FOREIGN CURRENCY

The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources, Prudential Jennison, SP
Large Cap Value, and SP Small/Mid Cap Value Portfolios may purchase and write
put and call options on foreign currencies traded on U.S. or foreign securities
exchanges or boards of trade for hedging purposes in a manner similar to that in
which forward foreign currency exchange contracts and futures contracts on
foreign currencies are employed (see below). Certain other PIFM-Advised
Portfolios also may invest in this type of security.

Options on foreign currencies are similar to options on stocks, except that the
option holder has the right to take or make delivery of a specified amount of
foreign currency rather than stock.

A Portfolio may purchase and write options to hedge its securities denominated
in foreign currencies. If the U.S. dollar increases in value relative to a
foreign currency in which the Portfolio's securities are denominated, the value
of those securities will decline in U.S. dollar terms. To hedge against a
decline of a foreign currency a Portfolio may purchase put options on that
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, at least in part, the decline in the
value of the Portfolio's holdings denominated in that foreign currency.
Alternatively, a Portfolio may write a call option on a foreign currency. If the
foreign currency declines, the option would not be exercised and the decline in
the value of the Portfolio's securities denominated in that foreign currency
would be offset in part by the premium the Portfolio received for the option.

If on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in the foreign currency in which it is
denominated, the Portfolio may purchase call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
adverse movements of the exchange rates. Alternatively, the Portfolio could
write a put option on the currency and,

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<PAGE>

if the exchange rates move as anticipated, the option would expire unexercised.

B. RISKS OF TRANSACTIONS IN OPTIONS ON FOREIGN CURRENCY

A Portfolio's successful use of currency exchange options on foreign currencies
depends upon the portfolio manager's ability to predict the direction of the
currency exchange markets and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally. For instance, if the currency being hedged has moved in a favorable
direction, the corresponding appreciation of the Portfolio's securities
denominated in such currency would be partially offset by the premiums paid on
the options. If the currency exchange rate does not change, the Portfolio's net
income would be less than if the Portfolio had not hedged since there are costs
associated with options.

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

Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. In addition,
the quantities of currency underlying option contracts represent odd lots in a
market dominated by transactions between banks; this can mean extra transaction
costs upon exercise. Option markets may be closed while round-the-clock
interbank currency markets are open, and this can create price and rate
discrepancies.

VIII. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

A. FUTURES AND OPTIONS ON FUTURES

The Conservative Balanced, Diversified Conservative Growth, Equity, Equity
Income, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock, Stock Index, 20/20 Focus, SP Large Cap Value, and SP
Small/Mid Cap Value Portfolios may purchase and sell stock index futures
contracts. Certain other PIFM-Advised Portfolios also may invest in this type of
instrument.

A stock index futures contract is an agreement between the buyer and the seller
of the contract to transfer an amount of cash equal to the daily variation
margin of the contract. No physical delivery of the underlying stocks in the
index is made.

The Conservative Balanced, Diversified Bond, Flexible Managed, Global,
Government Income, High Yield Bond, SP Large Cap Value, and SP Small/Mid Cap
Value Portfolios may, to the extent permitted by applicable regulations,
purchase and sell futures contracts on interest-bearing securities or interest
rate indexes. The Diversified Conservative Growth, SP Large Cap Value, and SP
Small/Mid Cap Value Portfolios may, to the extent permitted by applicable
regulations, purchase and sell futures contracts on debt securities, aggregates
of debt securities, and U.S. government securities. Certain other PIFM-Advised
Portfolios also may invest in this type of instrument.

The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity Income, Equity, Prudential Jennison, Global, Natural Resources, 20/20
Focus, SP Large Cap Value, and SP Small/Mid

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<PAGE>

Cap Value Portfolios may purchase and sell futures contracts on foreign
currencies. Certain other PIFM-Advised Portfolios also may invest in this type
of instrument.

When a futures contract is entered into, each party deposits with a futures
commission merchant (or in a segregated account) approximately 5% of the
contract amount. This is known as the "initial margin." Every day during the
futures contract, either the buyer or the futures commission merchant will make
payments of "variation margin." In other words, if the value of the underlying
security, index or interest rate increases, then the buyer will have to add to
the margin account so that the account balance equals approximately 5% of the
value of the contract on that day. The next day, the value of the underlying
security, index or interest rate may decrease, in which case the buyer would
receive money from the account equal to the amount by which the account balance
exceeds 5% of the value of the contract on that day.

The above Portfolios may purchase or sell futures contracts without limit for
hedging purposes. This would be the case, for example, if a portfolio manager is
using a futures contract to reduce the risk of a particular position on a
security. The above Portfolios can also purchase or sell futures contract for
non-hedging purposes provided the initial margins and premiums associated with
the contracts do not exceed 5% of the fair market value of the Portfolio's
assets, taking into account unrealized profits or unrealized losses on any such
futures. This would be the case if a portfolio manager uses futures for
investment purposes, to increase income or to adjust the Portfolio's asset mix.

B. ADDITIONAL INFORMATION REGARDING THE USE OF FUTURES AND OPTIONS BY THE
STOCK INDEX AND SMALL CAPITALIZATION STOCK PORTFOLIOS

As explained in the prospectus, the Stock Index Portfolio seeks to duplicate the
performance of the Standard & Poor's 500 Stock Price Index (S&P 500 Index) and
the Small Capitalization Stock Portfolio seeks to duplicate the performance of
the Standard & Poor's Small Capitalization Stock Index (S&P SmallCap Index). The
Portfolios will be as fully invested in the S&P Indexes' stocks as is feasible
in light of cash flow patterns and the cash requirements for efficiently
investing in a unit of the basket of stocks comprising the S&P 500 and S&P
SmallCap Indexes, respectively. When the Portfolios do have short-term
investments, they may purchase stock index futures contracts in an effort to
have the Portfolio better follow the performance of a fully invested portfolio.
When a Portfolio purchases stock index futures contracts, an amount of cash and
cash equivalents, equal to the market value of the futures contracts, will be
deposited in a segregated account with the Portfolio's custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of futures is unleveraged.

As an alternative to the purchase of a stock index futures contract, a Portfolio
may construct synthetic positions involving options on stock indexes and options
on stock index futures that are equivalent to such a long futures position. In
particular, a Portfolio may utilize "put/call combinations" as synthetic long
stock index futures positions. A put/call combination is the purchase of a call
and the sale of a put at the same time with the same strike price and maturity.
It is equivalent to a forward position and, if settled every day, is equivalent
to a long futures position. When constructing put/call combinations, the
Portfolio will set aside cash or cash equivalents in a segregated account equal
to the market value of the Portfolio's forward position to collateralize the
position and ensure that it is unleveraged.

C. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks associated with a Portfolio's use of futures contracts.
When used for investment purposes (that is, non-hedging purposes), successful
use of futures contracts, like successful investment in securities, depends on
the ability of the portfolio manager to predict correctly movements in the
relevant markets, interest rates and/or currency exchange rates. When used for
hedging purposes, there is a risk of imperfect correlation between movements in
the price of the futures contract and the price of the securities

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<PAGE>

or currency that are the subject of the hedge. In the case of futures contracts
on stock or interest rate indexes, the correlation between the price of the
futures contract and movements in the index might not be perfect. To compensate
for differences in volatility, a Portfolio could purchase or sell futures
contracts with a greater or lesser value than the securities or currency it
wished to hedge or purchase. Other risks apply to use for both hedging and
investment purposes. Temporary price distortions in the futures market could be
caused by a variety of factors. Further, the ability of a Portfolio to close out
a futures position depends on a liquid secondary market. There is no assurance
that a liquid secondary market on an exchange will exist for any particular
futures contract at any particular time.

The hours of trading of futures contracts may not conform to the hours during
which a Portfolio may trade the underlying securities and/or currency. To the
extent that the futures markets close before the securities or currency markets,
significant price and rate movements can take place in the securities and/or
currency markets that cannot be reflected in the futures markets.

D. RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS

Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indexes, and
futures contracts. These risks include the risk that the portfolio manager may
not correctly predict changes in the market, the risk of imperfect correlation
between the option and the securities being hedged, and the risk that there
might not be a liquid secondary market for the option. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, a Portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If the Portfolio were unable
to close out an option it had written on a futures contract, it would continue
to be required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was exercised
against the Portfolio.

IX. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity Income, Equity, Prudential Jennison, Global, Natural Resources, 20/20
Focus, SP Large Cap Value, and SP Small/Mid Cap Value Portfolios may enter into
foreign currency exchange contracts to protect the value of their foreign
holdings against future changes in the level of currency exchange rates. Certain
other PIFM-Advised Portfolios also may invest in this type of security.

When a Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when a Portfolio anticipates the receipt
in a foreign currency of dividends or interest payments on a security which it
holds, the Portfolio may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.

Additionally, when a portfolio manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Portfolio may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of

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<PAGE>

securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. The above Portfolios will
not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate a Portfolio to
deliver an amount of foreign currency in excess of the value of the securities
or other assets denominated in that currency held by the Portfolio. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the long-term investment decisions made with regard to overall
diversification strategies. However, the Portfolios believe that it is important
to have the flexibility to enter into such forward contracts when it is
determined that the best interests of the Portfolios will thereby be served.

The Portfolios generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Portfolio may
either sell the security and make delivery of the foreign currency or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular security at the expiration of the contract. Accordingly, it may be
necessary for a Portfolio to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.

If a Portfolio retains the security and engages in an offsetting transaction,
the Portfolio will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. If forward
prices increase, the Portfolio will suffer a loss to the extent that the price
of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell.

The above Portfolios' dealing in forward foreign currency exchange contracts
will be limited to the transactions described above. Of course, the Portfolios
are not required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of a Portfolio's securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

Although the Portfolios value their assets daily in terms of U.S. dollars, they
do not intend physically to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

The High Yield Bond Portfolio may also invest up to 10% of its total assets in
foreign currency denominated debt securities of foreign or U.S. issuers. If the
Portfolio does engage in such investment

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activity, it may also enter into forward foreign currency exchange contracts.

X. INTEREST RATE SWAPS

The Diversified Bond, Diversified Conservative Growth, Government Income, High
Yield Bond, SP Large Cap Value, and SP Small/Mid Cap Value Portfolios and the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use interest rate swaps subject to the limitations set forth in
the prospectus. Certain other PIFM-AdvisedPortfolios also may invest in this
type of security.

Interest rate swaps, in their most basic form, involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest. For example, a Portfolio might exchange its right to receive certain
floating rate payments in exchange for another party's right to receive fixed
rate payments. Interest rate swaps can take a variety of other forms, such as
agreements to pay the net differences between two different indexes or rates,
even if the parties do not own the underlying instruments. Despite their
differences in form, the function of interest rate swaps is generally the
same--to increase or decrease a Portfolio's exposure to long or short-term
interest rates. For example, a Portfolio may enter into a swap transaction to
preserve a return or spread on a particular investment or a portion of its
portfolio or to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date.

The use of swap agreements is subject to certain risks. As with options and
futures, if the portfolio manager's prediction of interest rate movements is
incorrect, the Portfolio's total return will be less than if the Portfolio had
not used swaps. In addition, if the counterparty's creditworthiness declines,
the value of the swap would likely decline. Moreover, there is no guarantee that
a Portfolio could eliminate its exposure under an outstanding swap agreement by
entering into an offsetting swap agreement with the same or another party.

Each of the above Portfolios will set aside liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Portfolio enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Portfolio's
accrued obligations under the swap agreement over the accrued amount the
Portfolio is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Portfolio's accrued obligations under the
agreement.

XI. LOAN PARTICIPATIONS

The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, High Yield Bond, Money Market, SP Large Cap Value, and SP
Small/Mid Cap Value Portfolios may invest in fixed and floating rate loans that
are privately negotiated between a corporate borrower and one or more financial
institutions. The above Portfolios will generally invest in loans in the form of
"loan participations." Certain other PIFM-Advised Portfolios also may invest in
this type of security.

In the typical loan participation, the Portfolio will have a contractual
relationship with the lender but not the borrower. This means that the Portfolio
will not have any right to enforce the borrower's compliance with the terms of
the loan and may not benefit directly from any collateral supporting the loan.
As a result, the Portfolio will assume the credit risk of both the borrower and
the lender. In the event of the lender's insolvency, the Portfolio may be
treated as a general creditor of the lender and may not benefit from any set-off
between the lender and the borrower.

XII. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

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A. DESCRIPTION OF REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

The Diversified Bond, Diversified Conservative Growth, Government Income, High
Yield Bond , SP Large Cap Value, and SP Small/Mid Cap Value Portfolios and the
fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios, may use up to 30% of their net assets for reverse repurchase
agreements and dollar rolls. The Money Market Portfolio and the money market
portion of any Portfolio may use up to 10% of its net assets for reverse
repurchase agreements. Certain other PIFM-Advised Portfolios also may invest in
this type of security.

In a reverse repurchase transaction, a Portfolio sells one of its securities and
agrees to repurchase the same security at a set price on a specified date.
During the time the security is held by the other party, the Portfolio will
often continue to receive principal and interest payments on the security. The
terms of the reverse repurchase agreement reflect a rate of interest for use of
the money received by the Portfolio and thus, is similar to borrowing.

Dollar rolls involve the sale by the Portfolio of one of its securities for
delivery in the current month and a contract to repurchase substantially similar
securities (for example, with the same coupon) from the other party on a
specified date in the future at a specified amount. During the roll period, a
Portfolio does not receive any principal or interest earned on the security. The
Portfolio realizes a profit to the extent the current sale price is more than
the price specified for the future purchase, plus any interest earned on the
cash paid to the Portfolio on the initial sale.

A "covered roll" is a specific type of dollar roll where there is an offsetting
cash position or a cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction.

A Portfolio participating in reverse repurchase or dollar roll transactions will
set aside liquid assets in a segregated account which equal in value the
Portfolio's obligations under the reverse repurchase agreement or dollar roll,
respectively.

B. RISKS OF REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by a Portfolio may decline below the price of
the securities it has sold but is obligated to repurchase under the agreement.
If the other party in a reverse purchase or dollar roll transaction becomes
insolvent, a Portfolio's use of the proceeds of the agreement may be restricted
pending a determination by a third party of whether to enforce the Portfolio's
obligation to repurchase.

XIII. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Equity, Equity Income, Flexible Managed, Global, Government Income, High Yield
Bond, Natural Resources, Prudential Jennison, Small Capitalization Stock, 20/20
Focus, SP Large Cap Value, and SP Small/Mid Cap Value Portfolios may purchase or
sell securities on a when-issued or delayed delivery basis. Certain other
PIFM-Advised Portfolios also may invest in this type of security.

Purchasing a security on a when-issued or delayed delivery basis means that the
delivery and payment can take place a month or more after the date of the
transaction. A Portfolio will make commitments for when-issued transactions only
with the intention of actually acquiring the securities. A Portfolio's custodian
will maintain in a segregated account, liquid assets having a value equal to or
greater to such commitments. If the Portfolio chooses to dispose of the right to
acquire a when-issued security prior to its

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acquisition, it could, as with the disposition of any other security, incur a
gain or loss.

The Money Market Portfolio and the short-term portion of the other Portfolios
may purchase money market securities on a when-issued or delayed-delivery basis.

XIV. SHORT SALES

The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, Government Income, High Yield Bond, 20/20 Focus, SP Large Cap
Value (as limited by its investment restrictions), and SP Small/Mid Cap Value
Portfolios may enter into short sales. Certain other PIFM-Advised Portfolios
also may invest in this type of security.

In a short sale, a Portfolio sells a security it does not own in anticipation of
a decline in the market value of those securities. To complete the transaction,
the Portfolio will borrow the security to make delivery to the buyer. The
Portfolio is then obligated to replace the security it borrowed by purchasing it
at the market price at the time of replacement. The price at that time may be
more or less than the price at which the Portfolio sold it. Until the security
is replaced, the Portfolio is required to pay to the lender any interest which
accrues during the period of the loan. To borrow the security, the Portfolio may
be required to pay a fee which would increase the cost of the security sold.

Until a Portfolio replaces a borrowed security used in a short sale, it will set
aside liquid assets in a segregated account equal to the current market value of
the security sold short or otherwise cover the short position. No more than 25%
of any Portfolio's net assets will be, when added together: (1) deposited as
collateral for the obligation to replace securities borrowed in connection with
short sales and (2) segregated in accounts in connection with short sales.

A Portfolio incurs a loss in a short sale if the price of the security increases
between the date of the short sale and the date the Portfolio replaces the
borrowed security. On the other hand, a Portfolio will realize gain if the
security's price decreases between the date of the short sale and the date the
security is replaced.

XV. LOANS OF PORTFOLIO SECURITIES

A. DESCRIPTION OF SECURITIES LOANS

All of the Portfolios except the Money Market Portfolio may lend the securities
they hold to broker-dealers, qualified banks and certain institutional
investors. All securities loans will be made pursuant to a written agreement and
continuously secured by collateral in the form of cash, U.S. Government
securities or irrevocable standby letters of credit in an amount equal or
greater than the market value of the loaned securities plus the accrued interest
and dividends. While a security is loaned, the Portfolio will continue to
receive the interest and dividends on the loaned security while also receiving a
fee from the borrower or earning interest on the investment of the cash
collateral. Upon termination of the loan, the borrower will return to the
Portfolio a security identical to the loaned security. With respect to most of
the Portfolio, the Portfolio will not have the right to vote a security that is
on loan, but would be able to terminate the loan and retain the right to vote if
that were considered important with respect to the investment.

B. RISKS ASSOCIATED WITH LENDING SECURITIES

The primary risk in lending securities is that the borrower may become insolvent
on a day on which the

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loaned security is rapidly advancing in price. In this event, if the borrower
fails to return the loaned security, the existing collateral might be
insufficient to purchase back the full amount of the security loaned, and the
borrower would be unable to furnish additional collateral. The borrower would be
liable for any shortage but the Portfolio would be an unsecured creditor with
respect to any shortfall and might not be able to recover all or any of it.
However, this risk can be decreased by the careful selection of borrowers and
securities to be lent.

None of the Portfolios will lend securities to entities affiliated with
Prudential.

XVI. ILLIQUID SECURITIES

Each Portfolio, other than the Money Market Portfolio, may hold up to 15% of its
net assets in illiquid securities. The Money Market Portfolio may hold up to 10%
of its net assets in illiquid securities. Securities are "illiquid" if they
cannot be sold in the ordinary course of business within seven days at
approximately the value at which the Portfolio has them valued. Repurchase
agreements with a maturity of greater than seven days are considered illiquid.

The Portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. These securities will not be
considered illiquid so long as it is determined by the investment adviser,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the investment adviser will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
Portfolio's treatment of Rule 144A securities as liquid could have the effect of
increasing the level of portfolio illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. In addition, the investment adviser, acting under guidelines
approved and monitored by the Board of Directors, may conditionally determine,
for purposes of the 15% test, that certain commercial paper issued in reliance
on the exemption from registration in Section 4(2) of the Securities Act of 1933
will not be considered illiquid, whether or not it may be resold under Rule
144A. To make that determination, the following conditions must be met: (1) the
security must not be traded flat or in default as to principal or interest; (2)
the security must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"), or
if only one NRSRO rates the security, by that NRSRO (if the security is unrated,
the investment adviser must determine that the security is of equivalent
quality); and (3) the investment adviser must consider the trading market for
the specific security, taking into account all relevant factors. The investment
adviser will continue to monitor the liquidity of any Rule 144A security or any
Section 4(2) commercial paper which has been determined to be liquid and, if a
security is no longer liquid because of changed conditions, the holdings of
illiquid securities will be reviewed to determine if any steps are required to
assure that the 15% test (10% for the Money Market Portfolio) continues to be
satisfied.

XVII. FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS

As stated in the prospectus, the objective of Zero Coupon Bond Portfolios 2000
and 2005 is to achieve the highest predictable compounded investment return for
a specified period of time, consistent with the safety of invested capital. This
discussion provides a more detailed explanation of the investment policies that
will be employed to manage these Portfolios.

If each Zero Coupon Bond Portfolio held only stripped securities that were
obligations of the United States Government, maturing on the liquidation date,
the compounded yield of the Portfolio from the date of initial

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investment until the liquidation date could be calculated arithmetically to a
high degree of accuracy. By: (i) including stripped corporate obligations and
interest bearing debt securities; (ii) including securities with maturity dates
within 2 years of the liquidation date; and (iii) more actively managing the
Portfolio, the accuracy of the predicted yield is reduced somewhat with the
objective of achieving an increased yield. The reduction in accuracy is kept to
an acceptably small amount, however, by an investment technique known as
"immunization." By purchasing securities with maturity dates or with interest
payment dates prior to the liquidation date, a risk is incurred that the
payments received will not be able to be reinvested at interest rates as high as
or higher than the yield initially predicted. This is known as "reinvestment
risk." By including securities with maturity dates after the liquidation date, a
risk is incurred that, because interest rates have increased, the market value
of such securities will be lower than had been anticipated. This is known as
"market risk." It is also possible, conversely, that payments received prior to
the liquidation date can be reinvested at higher rates than the predicted yield
and that the value of unmatured securities on the liquidation date will be
greater than anticipated. Reinvestment risk and market risk are thus reciprocal
in that any change in the general level of interest rates has an opposite effect
on the two classes of securities described above.

The Portfolios' investment adviser seeks to balance these risks by making use of
the concept of "duration." A bond's duration is the average weighted period of
time until receipt of all scheduled cash payments under the bond (whether
principal or interest), where the weights are the present value of the amounts
to be received on each payment date. Unlike the concept of a bond's "term to
maturity," therefore, duration takes into account both the amount and timing of
a bond's interest payments, in addition to its maturity date and yield to
maturity. The duration of a zero coupon bond is the product of the face amount
of the bond and the time until maturity. As applied to a portfolio of bonds, a
portfolio's "duration" is the average weighted period of time until receipt of
all scheduled payments, whether principal or interest, from all bonds in the
portfolio.

When a Portfolio's duration is equal to the length of time remaining until its
liquidation date, fluctuations in the amount of income accumulated by the
Portfolio through reinvestment of coupon or principal payments received prior to
the liquidation date (that is, fluctuations caused by reinvestment risk) will,
over the period ending on the liquidation date, be approximately equal in
magnitude to, but opposite in direction from, fluctuations in the market value
on the liquidation date of the Portfolio's unmatured bonds (that is,
fluctuations caused by market risk). By maintaining each Portfolio's duration
within one year of the length of time remaining until its liquidation date, the
investment adviser believes that each Portfolio's value on its liquidation date,
and hence an investor's compounded investment return to that date, will largely
be immunized against changes in the general level of interest rates. The success
of this technique could be affected, however, by such factors as changes in the
relationship between long-term and short-term interest rates and changes in the
difference between the yield on corporate and Treasury securities.

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

As stated in the prospectus, as much as 30% of each Portfolio's assets may be
invested in zero coupon debt securities issued by United States corporations or
in high grade interest-bearing debt securities, provided that no more than 20%
of the assets of the Portfolio may be invested in interest-bearing securities.
The extent to which the Portfolio invests in interest-bearing securities may
rise above 20% as the Portfolio moves closer to its liquidation date since both
reinvestment risk and market risk become

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smaller as the period to the liquidation date decreases.

XVIII. U.S. GOVERNMENT SECURITIES

A. U.S. TREASURY SECURITIES.

Certain Portfolios may invest in U.S. Treasury securities, including bills,
notes, bonds and other debt securities issued by the U.S. Treasury. These
instruments are direct obligations of the U.S. government and, as such, are
backed by the "full faith and credit" of the United States. They differ
primarily in their interest rates, the lengths of their maturities and the dates
of their issuances.

B. OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES.

Certain Portfolios may invest in debt securities issued or guaranteed by
agencies or instrumentalities of the U.S. government, including but not limited
to, Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
securities. Obligations of GNMA, the Farmers Home Administration and the
Export-Import Bank are backed by the "full faith and credit" of the United
States. In the case of securities not backed by the "full faith and credit" of
the United States, a Portfolio must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such securities include
obligations issued by the Student Loan Marketing Association (SLMA), FNMA and
FHLMC, each of which may borrow from the U.S. Treasury to meet its obligations,
although the U.S. Treasury is under no obligation to lend to such entities.

Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by a Portfolio in the form of U.S. Treasury notes or
bonds. Such notes and bonds are held in custody by a bank on behalf of the
owners. These custodial receipts are commonly referred to as Treasury Strips.

Certain Portfolios may invest in component parts of U.S. government debt
securities, namely either the corpus (principal) of such obligations or one or
more of the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (1) obligations from which the interest coupons
have been stripped; (2) the interest coupons that are stripped; (3) book-entries
at a Federal Reserve member bank representing ownership of obligation
components; or (4) receipts evidencing the component parts (corpus or coupons)
of U.S. government obligations that have not actually been stripped. Such
receipts evidence ownership of component parts of U.S. government obligations
(corpus or coupons) purchased by a third party (typically an investment banking
firm) and held on behalf of the third party in physical or book-entry form by a
major commercial bank or trust company pursuant to a custody agreement with the
third party. The Fund may also invest in custodial receipts held by a third
party that are not U.S. Government securities.

SPECIAL CONSIDERATIONS.

U.S. government securities are considered among the most creditworthy of
fixed-income investments. The yields available from U.S. government securities
are generally lower than the yields available from corporate debt securities.
The values of U.S. government securities (like those of fixed-income securities
generally) will change as interest rates fluctuate.

During periods of falling U.S. interest rates, the values of outstanding
long-term U.S. government securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities

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generally decline. The magnitude of those fluctuations will generally be greater
for securities with longer maturities. Although changes in the value of U.S.
government securities will not affect investment income from those securities,
they will affect the net asset value (NAV) of a Portfolio.

At a time when a Portfolio has written call options on a portion of its U.S.
government securities, its ability to profit from declining interest rates will
be limited. Any appreciation in the value of the securities held in the
portfolio above the strike price would likely be partially or wholly offset by
unrealized losses on call options written by a Portfolio. The termination of
option positions under these conditions would generally result in the
realization of capital losses, which would reduce the Portfolio's capital gains
distributions. Accordingly, a Portfolio would generally seek to realize capital
gains to offset realized losses by selling portfolio securities. In such
circumstances, however, it is likely that the proceeds of such sales would be
reinvested in lower yielding securities.

C. MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES

Certain Portfolios may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., GNMA, FNMA and FHLMC Certificates where the U.S.
government or its agencies or instrumentalities guarantees the payment of
interest and principal of these securities. However, these guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates nor do these guarantees extend to the yield
or value of a Portfolio's shares. These certificates are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees.

In addition to GNMA, FNMA or FHLMC certificates through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the certificate, certain Portfolios may also invest in certain
mortgage pass-through securities issued by the U.S. government or its agencies
and instrumentalities commonly referred to as mortgage-backed security strips or
MBS strips. MBS strips are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yields to
maturity on IOs and POs are sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and principal
payments may have a material effect on yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Portfolio may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.

Certain Portfolios will invest in both Adjustable Rate Mortgage Securities
(ARMs), which are pass-through mortgage securities collateralized by adjustable
rate mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are
collateralized by fixed-rate mortgages.

FHLMC SECURITIES.

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FHLMC presently issues two types of mortgage pass-through securities, mortgage
participation certificates (PCs) and guaranteed mortgage certificates (GMCs).
PCs resemble GNMA Certificates in that each PC represents a pro rata share of
all interest and principal payments made and owed on the underlying pool. FHLMC
guarantees timely monthly payment of interest on PCs and the stated principal
amount.

ADJUSTABLE RATE MORTGAGE SECURITIES.

Generally, ARMs have a specified maturity date and amortize principal over their
life. In periods of declining interest rates, there is a reasonable likelihood
that ARMs will experience increased rates of prepayment of principal. However,
the major difference between ARMs and FRMs is that the interest rate and the
rate of amortization of principal of ARMs can and do change in accordance with
movements in a particular, pre-specified, published interest rate index. Because
the interest rate on ARMs generally moves in the same direction as market
interest rates, the market value of ARMs tends to be more stable than that of
long-term fixed-rate securities.

FIXED-RATE MORTGAGE SECURITIES.

Certain Portfolios may invest in high-coupon fixed-rate mortgage securities.
Such securities are collateralized by fixed-rate mortgages and tend to have high
prepayment rates when the level of prevailing interest rates declines
significantly below the interest rates on the mortgages. Thus, under those
circumstances, the securities are generally less sensitive to interest rate
movements than lower coupon FRMs.

COLLATERALIZED MORTGAGE OBLIGATIONS.

Collateralized mortgage obligations (CMOs) are debt instruments collateralized
by GNMA, FNMA or FHLMC Certificates, but also may be collateralized by whole
loans or private mortgage pass-through securities (such collateral collectively
hereinafter referred to as Mortgage Assets). Multi-class pass-through securities
are equity interests in a trust composed of Mortgage Assets. Payments of
principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multi-class pass-through securities. CMOs may be issued by
agencies or instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgage loans, including depository institutions, mortgage
banks, investment banks and special-purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (REMIC). All future references to CMOs include REMICs and
multi-class pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a CMO series in a number of different
ways.

SPECIAL CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES.

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The underlying mortgages which collateralize the ARMs, CMOs and REMICs in which
certain Portfolios may invest will frequently have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may change
up or down (1) per reset or adjustment interval and (2) over the life of the
loan. Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization. In addition, because of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate.

The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. However,
mortgage securities, while having comparable risk of decline during periods of
rising rates, usually have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. In addition, to the extent
such mortgage securities are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments generally will result in some loss of the
holders' principal to the extent of the premium paid. On the other hand, if such
mortgage securities are purchased at a discount, an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which when distributed to shareholders will be taxable as
ordinary income.

Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the average life of a particular issue of
pass-through certificates. Mortgage-backed securities are often subject to more
rapid prepayment than their stated maturity date would indicate as a result of
the pass-through of prepayments on the underlying mortgage obligations. During
periods of declining interest rates, prepayments of mortgages underlying
mortgage-backed securities can be expected to accelerate. When mortgage
obligations are prepaid, a Portfolio reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, a Portfolio's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium generally will result in capital
losses. During periods of rising interest rates, the rate of prepayment
mortgages underlying mortgage-backed securities can be expected to decline,
extending the projected average maturity of the mortgage-backed securities. This
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.

XIX. BRADY BONDS

Certain Portfolios may invest in debt obligations commonly known as "Brady
Bonds" which are created through the exchange of existing commercial bank loans
to foreign entities for new obligations in connection with debt restructurings
under a plan introduced by former U.S. Secretary of the Treasury, Nicholas F.
Brady (the Brady Plan). Brady Bonds have been issued in connection with the
restructuring of the bank loans, for example, of the governments of Mexico,
Venezuela and Argentina.

Brady Bonds have been issued only recently, and, accordingly, do not have a long
repayment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market.

Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero

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<PAGE>

coupon obligations which may have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to value recovery payments in certain circumstances, which in effect
constitute supplemental interest payments but generally are not collateralized.
Brady Bonds are often viewed as having three or four valuation components: (1)
the collateralized repayment of principal at final maturity; (2) the
collateralized interest payments; (3) the uncollateralized interest payments;
and (4) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the residual risk). In the event of a
default with respect to collateralized Brady Bonds as a result of which payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds which will continue to be
outstanding at the time the face amount of the collateral will equal the
principal payments which would have been due on the Brady Bonds in the normal
course. In addition, in light of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds are to be viewed as speculative.

XX. RISK FACTORS RELATING TO JUNK BONDS

Fixed-income securities are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated (that is, high yield or high
risk) securities (commonly referred to as junk bonds) are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. Fluctuations in the prices of portfolio securities subsequent to their
acquisition will not affect cash income from such securities but will be
reflected in a Portfolio's net asset value. The investment adviser considers
both credit risk and market risk in making investment decisions for a Portfolio.
Investors should carefully consider the relative risks of investing in
high-yield securities and understand that such securities are not generally
meant for short term investing.

The investment adviser will perform its own investment analysis and will not
rely principally on the ratings assigned by the rating services, although such
ratings will be considered by the investment adviser. The investment adviser
will consider, among other things, the financial history and condition, the
prospects and the management of an issuer in selecting securities for a
Portfolio.

Under adverse economic conditions, there is a risk that highly leveraged issuers
may be unable to service their debt obligations or to repay their obligations
upon maturity. During an economic downturn or recession, securities of highly
leveraged issuers are more likely to default than securities of higher rated
issuers. In addition to the risk of default, there are the related costs of
recovery on defaulted issues. In addition, the secondary market for high-yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities and, from time
to time, it may be more difficult to value high-yield securities than more
highly rated securities. Under adverse market or economic conditions, the
secondary market for high-yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the investment adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the

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<PAGE>

Fund's NAV.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the debt portion of the Portfolio's
portfolio and increasing the exposure of the Portfolio to the risks of
high-yield securities.

Ratings of fixed-income securities represent the rating agencies' opinions
regarding their credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates. Since investors generally perceive that there are
greater risks associated with the medium to lower rated securities of the type
in which a Portfolio may invest, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the fixed-income securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the fixed-income
securities which fluctuate in response to the general level of interest rates.

XXI. OTHER INVESTMENT PRACTICES OF PORTFOLIO.

BORROWING. The SP Large Cap Value and SP Small/Mid Cap Value Portfolios each may
borrow from banks or from other funds advised by FMR or its affiliates, or
through reverse repurchase agreements. If a Portfolio borrows money, its share
price may be subject to greater fluctuation until the borrowing is paid off. If
a Portfolio makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.

INDEXED SECURITIES are instruments whose prices are indexed to the prices of
other securities, securities indices, currencies, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic.

Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities. Currency-indexed securities may
be positively or negatively indexed; that is, their maturity value may increase
when the specified currency value increases, resulting in a security that
performs similarly to a foreign-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also

26
<PAGE>

subject to the credit risks associated with the issuer of the security, and
their values may decline substantially if the issuer's creditworthiness
deteriorates. Recent issuers of indexed securities have included banks,
corporations, and certain U.S. Government agencies. The SP Large Cap Value
Portfolio, SP Small/Mid Cap Value Portfolio, and certain other Portfolios may
invest in indexed securities.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are interests
in amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the purchaser in the event of
fraud or misrepresentation, or there may be a requirement that a Portfolio
supply additional cash to a borrower on demand.

Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of interest and repayment of
principal. If scheduled interest or principal payments are not made, the value
of the instrument may be adversely affected. Loans that are fully secured
provide more protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments. However, there is no assurance that
the liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral could be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a risk
that the governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.

Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks. For example, if a
loan is foreclosed, the purchaser could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, a purchaser could be held liable as a co-lender. Direct debt
instruments may also involve a risk of insolvency of the lending bank or other
intermediary.

A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the purchaser has direct recourse against the borrower, the
purchaser may have to rely on the agent to apply appropriate credit remedies
against a borrower. If assets held by the agent for the benefit of a purchaser
were determined to be subject to the claims of the agent's general creditors,
the purchaser might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or interest.

Direct indebtedness may include letters of credit, revolving credit facilities,
or other standby financing commitments that obligate purchasers to make
additional cash payments on demand. These commitments may have the effect of
requiring a purchaser to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid.

The SP Large Cap Value Portfolio and SP Small/Mid Cap Value Portfolio each
limits the amount of total assets that it will invest in any one issuer or in
issuers within the same industry (see each Portfolio's investment limitations).
For purposes of these limitations, a Portfolio generally will treat the borrower
as the "issuer" of indebtedness held by the Portfolio. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between a Portfolio and the borrower, if the participation does not
shift to the Portfolio the direct debtor-creditor relationship with the
borrower, SEC interpretations require a Portfolio, in appropriate circumstances,
to treat both the lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an issuer of
indebtedness may restrict a Portfolio's ability to invest in indebtedness
related to a single financial intermediary, or a group of intermediaries engaged
in the same industry, even if the underlying borrowers represent many different
companies and industries.

PREFERRED STOCK is a class of equity or ownership in an issuer that pays
dividends at a specified rate and that has precedence over common stock in the
payment of dividends. In the event an issuer is liquidated or declares
bankruptcy, the claims of owners of bonds take precedence over the claims of
those who own preferred and common

27
<PAGE>

stock.

REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts own real
estate properties, while mortgage real estate investment trusts make
construction, development, and long-term mortgage loans. Their value may be
affected by changes in the value of the underlying property of the trusts, the
creditworthiness of the issuer, property taxes, interest rates, and tax and
regulatory requirements, such as those relating to the environment. Both types
of trusts are dependent upon management skill, are not diversified, and are
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the 1940 Act.

RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to a
Portfolio. Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the holder of a registered security may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time it
decides to seek registration and the time it may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder might obtain a less favorable
price than prevailed when it decided to seek registration of the security.

TEMPORARY DEFENSIVE POLICIES. The SP Large Cap Value Portfolio and SP Small/Mid
Cap Value Portfolio each reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary, defensive
purposes.

INVESTMENT RESTRICTIONS

Set forth below are certain investment restrictions applicable to the
Portfolios. Restrictions 1, 3, 5, and 8 through 11 are fundamental and may not
be changed without shareholder approval as required by the 1940 Act.
Restrictions 2, 4, 6, 7, and 12 are not fundamental and may be changed by the
Board of Directors without shareholder approval.

With respect to each Portfolio (other than the SP Large Cap Value and SP
Small/Mid Cap Value Portfolios), none of the Portfolios will:

1. Buy or sell real estate and mortgages, although the Portfolios may buy
and sell securities that are secured by real estate and securities of
real estate investment trusts and of other issuers that engage in real
estate operation. Buy or sell commodities or commodities contracts,
except that the Diversified Stock, Balanced, and Specialized
Portfolios may purchase and sell stock index futures contracts and
related options; the Fixed Income Portfolios (other than the Money
Market and Zero Coupon Bond Portfolios), the Global Portfolio, and the
Balanced Portfolios may purchase and sell interest rate futures
contracts and related options; and all Portfolios (other than the
Money Market, Government Income, Zero Coupon Bond, and Small
Capitalization Stock Portfolios) may purchase and sell foreign
currency futures contracts and related options and forward foreign
currency exchange contracts.

2. No Portfolio will, except as part of a merger, consolidation,
acquisition, or reorganization, invest more than 5% of the value of
its total assets in the securities of any one investment company or
more than 10% of the value of its total assets, in the aggregate, in
the securities of two or more investment companies, or acquire more
than 3% of the total outstanding voting securities of any one
investment company. Provided, however, that any Portfolio may invest
in the securities of one or more investment companies to the extent
permitted by any order of exemption granted by the United States
Securities and Exchange Commission.

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<PAGE>

3. Acquire securities for the purpose of exercising control or management
of any company except in connection with a merger, consolidation,
acquisition or reorganization.

4. Make short sales of securities or maintain a short position, except
that the Diversified Bond, Diversified Conservative Growth, 20/20
Focus, High Yield Bond, Government Income, Conservative Balanced and
Flexible Managed Portfolios may sell securities short up to 25% of
their net assets and except that the Portfolios (other than the Money
Market and Zero Coupon Bond Portfolios) may make short sales against
the box. Collateral arrangements entered into with respect to options,
futures contracts and forward contracts are not deemed to be short
sales. Collateral arrangements entered into with respect to interest
rate swap agreements are not deemed to be short sales.

5. Purchase securities on margin or otherwise borrow money or issue
senior securities except that the Diversified Bond, Diversified
Conservative Growth, High Yield Bond and Government Income Portfolios,
as well as the fixed income portions of the Balanced Portfolios, may
enter into reverse repurchase agreements, dollar rolls and may
purchase securities on a when-issued and delayed delivery basis;
except that the Money Market Portfolio and the money market portion of
any Portfolio may enter into reverse repurchase agreements and may
purchase securities on a when-issued and delayed delivery basis; and
except that the Equity, Prudential Jennison, 20/20 Focus, Small
Capitalization Stock, Equity Income, Natural Resources and Global
Portfolios may purchase securities on a when-issued or a delayed
delivery basis. The Fund may also obtain such short-term credit as it
needs for the clearance of securities transactions and may borrow from
a bank for the account of any Portfolio as a temporary measure to
facilitate redemptions (but not for leveraging or investment) or to
exercise an option, an amount that does not exceed 5% of the value of
the Portfolio's total assets (including the amount owed as a result of
the borrowing) at the time the borrowing is made. Interest paid on
borrowings will not be available for investment. Collateral
arrangements with respect to futures contracts and options thereon and
forward foreign currency exchange contracts (as permitted by
restriction no. 1) are not deemed to be the issuance of a senior
security or the purchase of a security on margin. Collateral
arrangements with respect to the writing of the following options by
the following Portfolios are not deemed to be the issuance of a senior
security or the purchase of a security on margin: Diversified Stock
and Specialized Portfolios other than the Stock Index Portfolio
(options on equity securities, stock indexes, foreign currencies) and
the Small Capitalization Stock Portfolio (options on equity
securities, stock indexes); the Diversified Conservative Growth and
the Balanced Portfolios (options on debt securities, equity
securities, stock indexes, foreign currencies); Diversified Bond and
High Yield Bond Portfolios (options on debt securities, foreign
currencies); Government Income Portfolio (options on debt securities);
20/20 Focus Portfolio (options on stock indexes). Collateral
arrangements entered into by the Fixed Income Portfolios (other than
the Money Market and Zero Coupon Bond Portfolios), Diversified
Conservative Growth Portfolio and the Balanced Portfolios with respect
to interest rate swap agreements are not deemed to be the issuance of
a senior security or the purchase of a security on margin.

6. Enter into reverse repurchase agreements if, as a result, the
Portfolio's obligations with respect to reverse repurchase agreements
would exceed 10% of the Portfolio's net assets (defined to mean total
assets at market value less liabilities other than reverse repurchase
agreements); except that the Diversified Bond, Diversified
Conservative Growth, High Yield Bond, and Government Income
Portfolios, as well as the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios, may enter into reverse
repurchase agreements and dollar rolls provided that the Portfolio's
obligations with respect to those instruments do not exceed 30% of the
Portfolio's net assets (defined to mean total assets at market value
less liabilities other than reverse repurchase agreements and dollar
rolls).

7. Pledge or mortgage assets, except that no more than 10% of the value
of any Portfolio may be pledged (taken at the time the pledge is made)
to secure authorized borrowing and except that a

29
<PAGE>

Portfolio may enter into reverse repurchase agreements. Collateral
arrangements entered into with respect to futures and forward
contracts and the writing of options are not deemed to be the pledge
of assets. Collateral arrangements entered into with respect to
interest rate swap agreements are not deemed to be the pledge of
assets.

8. Lend money, except that loans of up to 10% of the value of each
Portfolio may be made through the purchase of privately placed bonds,
debentures, notes, and other evidences of indebtedness of a character
customarily acquired by institutional investors that may or may not be
convertible into stock or accompanied by warrants or rights to acquire
stock. Repurchase agreements and the purchase of publicly traded debt
obligations are not considered to be "loans" for this purpose and may
be entered into or purchased by a Portfolio in accordance with its
investment objectives and policies.

9. Underwrite the securities of other issuers, except where the Fund may
be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of Portfolio
securities and with loans that a Portfolio may make pursuant to item 8
above.

10. Make an investment unless, when considering all its other investments,
75% of the value of a Portfolio's assets would consist of cash, cash
items, obligations of the United States Government, its agencies or
instrumentalities, and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not
more than 5% of the value of a Portfolio's assets and to not more than
10% of the issuer's outstanding voting securities held by the Fund as
a whole. Some uncertainty exists as to whether certain of the types of
bank obligations in which a Portfolio may invest, such as certificates
of deposit and bankers' acceptances, should be classified as "cash
items" rather than "other securities" for purposes of this
restriction, which is a diversification requirement under the 1940
Act. Interpreting most bank obligations as "other securities" limits
the amount a Portfolio may invest in the obligations of any one bank
to 5% of its total assets. If there is an authoritative decision that
any of these obligations are not "securities" for purposes of this
diversification test, this limitation would not apply to the purchase
of such obligations.

11. Purchase securities of a company in any industry if, as a result of
the purchase, a Portfolio's holdings of securities issued by companies
in that industry would exceed 25% of the value of the Portfolio,
except that this restriction does not apply to purchases of
obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities or issued by domestic banks. For purposes of
this restriction, neither finance companies as a group nor utility
companies as a group are considered to be a single industry and will
be grouped instead according to their services; for example, gas,
electric, and telephone utilities will each be considered a separate
industry. For purposes of this exception, domestic banks shall include
all banks which are organized under the laws of the United States or a
state (as defined in the 1940 Act), U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and foreign
branches of domestic banks (as permitted by the Securities and
Exchange Commission ("SEC")).

12. Invest more than 15% of its net assets in illiquid securities. (The
Money Market Portfolio will not invest more than 10% of its net assets
in illiquid securities.) For purposes of this restriction, illiquid
securities are those deemed illiquid pursuant to SEC regulations and
guidelines, as they may be revised from time to time.

Consistent with item 5 above, the Fund has entered into a joint $1 billion
revolving credit facility with other Prudential mutual funds to facilitate
redemptions if necessary. This credit facility, which was entered into on March
13, 1999, is a syndicated arrangement with 12 different major banks.

The Natural Resources Portfolio will generally invest a substantial majority of
its total assets in securities of natural resource companies. With respect to
item 11 above, as it relates to the Natural Resources Portfolio, the following
categories will be considered separate and distinct industries: integrated

30
<PAGE>

oil/domestic, integrated oil/international, crude oil production, natural gas
production, gas pipeline, oil service, coal, forest products, paper, foods
(including corn and wheat), tobacco, fertilizers, aluminum, copper, iron and
steel, all other basic metals (for example, nickel, lead), gold, silver,
platinum, mining finance, plantations (for example, edible oils), mineral sands,
and diversified resources. A company will be deemed to be in a particular
industry if the majority of its revenues is derived from or the majority of its
assets is dedicated to one of the categories described in the preceding
sentence. The Board of Directors of the Fund will review these industry
classifications from time to time to determine whether they are reasonable under
the circumstances and may change such classifications, without shareholder
approval, to the extent necessary.

Certain additional non-fundamental investment policies are applicable only to
the Money Market Portfolio. That Portfolio will not:

1. Invest in oil and gas interests, common stock, preferred stock,
warrants or other equity securities.

2. Write or purchase any put or call option or combination of them,
except that it may purchase putable or callable securities.

3. Invest in any security with a remaining maturity in excess of 397
days, except that securities held pursuant to repurchase agreements
may have a remaining maturity of more than 397 days.

Certain additional non-fundamental investment policies are applicable only to
the High Yield Bond Portfolio. That Portfolio will not:

1. Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed income
securities, but not including preferred stock.

2. Invest more than 20% of the market or other fair value of its total
assets in United States currency denominated issues of foreign
governments and other foreign issuers; or invest more than 10% of the
market or other fair value of its total assets in securities which are
payable in currencies other than United States dollars. The Portfolio
will not engage in investment activity in non-U.S. dollar denominated
issues without first obtaining authorization to do so from the Fund's
Board of Directors. See INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS.

Current federal income tax laws require that the assets of each Portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Fund, as applicable, and not the Contract owners,
are considered the owners of assets held in the Accounts for federal income tax
purposes. Prudential intends to maintain the assets of each Portfolio pursuant
to those diversification requirements.

FUNDAMENTAL INVESTMENT RESTRICTIONS APPLICABLE ONLY TO SP LARGE CAP VALUE
PORTFOLIO AND SP SMALL/MID CAP VALUE PORTFOLIO

INVESTMENT LIMITATIONS OF SP LARGE CAP VALUE PORTFOLIO

The following are the Portfolio's fundamental investment limitations set
forth in their entirety. The Portfolio may not:

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<PAGE>

1. issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended;

2. borrow money, except that the Portfolio may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation;

3. Underwrite Securities Issued by Others, Except to the Extent That the
Portfolio May be Considered an Underwriter Within the Meaning of the
Securities Act of 1933 in the Disposition of Restricted Securities or
in Connection With Investments in Other Investment Companies.

4. Purchase the Securities of Any Issuer (Other Than Securities Issued or
Guaranteed by the U.S. Government or Any of Its Agencies or
Instrumentalities, or Securities of Other Investment Companies), If,
as a Result, More Than 25% of the Portfolio's Total Assets Would be
Invested in Companies Whose Principal Business Activities are in the
Same Industry;

5. Purchase or Sell Real Estate Unless Acquired as a Result of Ownership of
Securities or Other Instruments (But This Will Not Prevent the
Portfolio From Investing in Securities or Other Instruments Backed by
Real Estate or Securities of Companies Engaged in the Real Estate
Business);

6. Purchase or Sell Physical Commodities Unless Acquired as a Result of
Ownership of Securities or Other Instruments (But This Shall Not
Prevent the Fund From Purchasing or Selling Options and Futures
Contracts or From Investing in Securities or Other Instruments Backed
by Physical Commodities); and

7. Lend Any Security or Make Any Loan If, as a Result, More Than 33 1/3% of
Its Total Assets Would be Lent to Other Parties, But This Limitation
Does Not Apply to Purchases of Debt Securities or to Repurchase
Agreements.

8. The Portfolio May, Notwithstanding Any Other Fundamental Policy or
Limitation, Invest All of Its Assets in the Securities of a Single
Open-end Management Investment Company Managed by Fidelity Management
& Research Company or an Affiliate or Successor With Substantially the
Same Fundamental Investment Objective, Policies and Limitations as the
Portfolio.

The Following Investment Limitations Restrictions are Not Fundamental and
May be Changed Without Shareholder Approval.

(i) In Order to Qualify as a "Regulated Investment Company" Under Subchapter M
of the Internal Revenue Code of 1986, as Amended, the Portfolio
Currently Intends to Comply With Certain

32
<PAGE>

Diversification Limits Imposed by Subchapter M;

(ii) The Portfolio Does Not Currently Intend to Sell Securities Short, Unless
It Owns or has the Right to Obtain Securities Equivalent in Kind and
Amount to the Securities Sold Short, and Provided That Transactions in
Futures Contracts and Options are Not Deemed to Constitute Selling
Securities Short.

(iii) The Portfolio Does Not Currently Intend to Purchase Securities On Margin,
Except That the Fund May Obtain Such Short-term Credits as are
Necessary for the Clearance of Transactions, and Provided That Margin
Payments in Connection With Futures Contracts and Options On Futures
Contracts Shall Not Constitute Purchasing Securities On Margin.

(iv) The Portfolio May Borrow Money Only (a) From a Bank or From a Registered
Investment Company or Portfolio for Which Fidelity Management &
Research Company or an Affiliate Serves as Investment Adviser or (b)
by Engaging in Reverse Repurchase Agreements With Any Party (Reverse
Repurchase Agreements are Treated as Borrowings for Purposes of
Fundamental Investment Limitation (2)).

(v) The Portfolio Does Not Currently Intend to Purchase Any Security If, as a
Result, More Than 15% of Its Net Assets Would be Invested in
Securities That are Deemed to be Illiquid Because They are Subject to
Legal or Contractual Restrictions On Resale or Because They Cannot be
Sold or Disposed of in the Ordinary Course of Business at
Approximately the Prices at Which They are Valued.

(vi) The Portfolio Does Not Currently Intend to Lend Assets Other Than
Securities to Other Parties, Except by (A) Lending Money (Up to 15% of
the Portfolio's Net Assets) to a Registered Investment Company or
Portfolio for Which Fidelity Management & Research Company or an
Affiliate Serves as Investment Adviser or (B) Acquiring Loans, Loan
Participations, or Other Forms of Direct Debt Instruments And, in
Connection Therewith, Assuming Any Associated Unfunded Commitments of
the Sellers. (This Limitation Does Not Apply to Purchases of Debt
Securities or to Repurchase Agreements.)

For Purposes of Limitation (i), Subchapter M Generally Requires the
Portfolio to Invest No More Than 25% of Its Total Assets in Securities of
Any One Issuer and to Invest at Least 50% of Its Total Assets So That No
More Than 5% of the Portfolio's Total Assets are Invested in the
Securities of Any One Issuer. However, Subchapter M Allows Unlimited
Investments in Cash, Cash Items, Government Securities (As Defined by
Subchapter M) and Securities of Other Investment Companies. These Tax
Requirements are Generally Applied at the End of Each Quarter of the
Fund's Taxable Year.

With Respect to Limitation (v), If, Through a Change in Values, Net
Assets, or Other Circumstances, the Portfolio Were in a Position Where
More Than 15% of Its Net Assets was Invested in Illiquid Securities, It
Would Consider Appropriate Steps to Protect Liquidity.

For Purposes of Normally Investing at Least 65% of the Portfolio's Total
Assets in Common Stocks of Companies With Large Market Capitalizations,
FMR Interprets "Total Assets" to Exclude Collateral

33
<PAGE>

Received for Securities Lending Transactions.

34
<PAGE>

INVESTMENT LIMITATIONS OF SP SMALL/MID CAP VALUE PORTFOLIO

The following are the Portfolio's fundamental investment limitations set
forth in their entirety. The Portfolio may not:

1. issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended;

4. Purchase the Securities of Any Issuer (Other Than Securities Issued or
Guaranteed by the U.S. Government or Any of Its Agencies or
Instrumentalities, or Securities of Other Investment Companies). If,
as a Result, More Than 25% of the Portfolio's Total Assets Would be
Invested in Companies Whose Principal Business Activities are in the
Same Industry;

6. Purchase or Sell Physical Commodities Unless Acquired as a Result of
Ownership of Securities or Other Instruments (But This Shall Not
Prevent the Portfolio From Purchasing or Selling Options and Futures
Contracts or From Investing in Securities or Other Instruments Backed
by Physical Commodities); and

35
<PAGE>

The Following Investment Limitations Restrictions are Not Fundamental and
May be Changed Without Shareholder Approval.

(i) In Order to Qualify as a "Regulated Investment Company" Under Subchapter
M of the Internal Revenue Code of 1986, as Amended, the Portfolio
Currently Intends to Comply With Certain Diversification Limits
Imposed by Subchapter M.

(iii) The Portfolio Does Not Currently Intend to Purchase Securities On Margin,
Except That the Portfolio May Obtain Such Short-term Credits as are
Necessary for the Clearance of Transactions, and Provided That Margin
Payments in Connection With Futures Contracts and Options On Futures
Contracts Shall Not Constitute Purchasing Securities On Margin.

For Purposes of Limitation (i), Subchapter M Generally Requires the
Portfolio to Invest No More Than 25% of Its Total Assets in Securities of
Any One Issuer and to Invest at Least 50% of Its Total Assets So That No
More Than 5% of the Portfolio's Total Assets are Invested in Securities of
Any One Issuer. However, Subchapter M Allows Unlimited Investments in
Cash, Cash Items, Government Securities (As Defined by Subchapter M) and
Securities of Other Investment Companies. These Tax Requirements are
Generally Applied at the End of Each Quarter of the Fund's Taxable Year.

With Respect to Limitation (v), If, Through a Change in Values, Net
Assets, or Other Circumstances,

36
<PAGE>

The Portfolio Were in a Position Where More Than 15% of Its Net Assets was
Invested in Illiquid Securities, it Would Consider Appropriate Steps to
Protect Liquidity.

For Purposes of Normally Investing at Least 65% of the Portfolio's Total
Assets in Common Stocks of Companies With Medium Market Capitalizations,
FMR Interprets "Total Assets" to Exclude Collateral Received for Securities
Lending Transactions.

In addition, the SP Large-Cap Value Portfolio and the SP Small/Mid Cap Value
Portfolio will not: (a) sell futures contracts, purchase put options, or write
call options if, as a result, more than 25% of each Portfolio's total assets
would be hedged with futures and options under normal conditions; (b) purchase
futures contracts or write put options if, as a result, each Portfolio's total
obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of each Portfolio's total assets under
normal conditions; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by each Portfolio would
exceed 5% of each Portfolio's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features similar to
options.

INVESTMENT MANAGEMENT AND
DISTRIBUTION ARRANGEMENTS

I. INVESTMENT MANAGEMENT ARRANGEMENTS

Prudential-Advised Funds

With respect to the Conservative Balanced, Diversified Bond, Diversified
Conservative Growth, Equity, Equity Income, Flexible Managed, Global, Government
Income, High Yield Bond, Money Market, Natural Resources, Prudential Jennison,
Small Capitalization Stock, Stock Index, 20/20 Focus, Zero Coupon Bond Portfolio
2000, and Zero Coupon Bond 2005 Portfolios, Prudential serves as investment
adviser. With respect to those Portfolios, the Fund has entered into an
Investment Advisory Agreement with Prudential under which Prudential will,
subject to the direction of the Board of Directors of the Fund, be responsible
for the management of the Fund, and provide investment advice and related
services to each such Portfolio. Prudential has entered into a Service Agreement
with its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"),
which provides that PIC will furnish to Prudential such services as Prudential
may require in connection with Prudential's performance of its obligations under
advisory agreements with clients which are registered investment companies. In
addition, Prudential has entered into Subadvisory Agreements with Franklin
Advisers, Inc. ("Franklin"), The Dreyfus Corporation ("Dreyfus"), Pacific
Investment Management Company ("PIMCO") and Jennison Associates LLC ("Jennison")
under which these companies provide investment advisory services to the
Diversified Conservative Growth Portfolio. Prudential has also entered into
Subadvisory Agreements with Jennison under which Jennison furnishes investment
advisory services in connection with the management of the Prudential Jennison
and 20/20 Focus Portfolios. More detailed information about Prudential and its
role as investment adviser can be found in HOW THE PORTFOLIOS ARE MANAGED in the
prospectus.

Under the Investment Advisory Agreement, Prudential receives an investment
management fee as compensation for its services to the Fund. The fee is a daily
charge, payable quarterly, equal to an annual percentage of the average daily
net assets of each individual Portfolio.

The investment management fee for the Stock Index Portfolio is equal to an
annual rate of 0.35% of the average daily net assets of the Portfolio. For the
Money Market, Diversified Bond, Government Income, Zero Coupon Bond, Equity
Income, and Small Capitalization Stock Portfolios that fee is equal to an annual
rate of 0.40% of the average daily net assets of each of the Portfolios. For the
Equity and Natural Resources Portfolios, the fee is equal to an annual rate of
0.45% of the average daily net assets of each of the Portfolios. The fee for the
Conservative Balanced and High Yield Bond Portfolios is equal to an annual rate
of 0.55% of the average daily net assets of each of the Portfolios. For the
Flexible Managed and Prudential Jennison Portfolios, the fee is equal to an
annual rate of 0.60% of the average daily net assets of the Portfolio. The fee
for the Global, 20/20 Focus and Diversified Conservative Growth Portfolios is
equal to an annual rate of 0.75% of the average daily net assets of the
Portfolio. Under the Service

37
<PAGE>

Agreement, Prudential generally pays PIC one-half of the fee it receives for
providing investment management services. (PIC's fee is greater for small
capitalization stock portfolios.) For the Diversified Conservative Growth
Portfolio, Prudential pays Jennison 0.30 of 1% on the first $300 million of
average daily net assets under Jennison's management, and 0.25 of 1% with
respect to the average daily net assets under Jennison's management in excess of
$300 million. For the 20/20 Focus Portfolio, Prudential pays Jennison 0.30 of 1%
on the first $300 million of average daily net assets under Jennison's
management, and 0.25 of 1% with repesect to the average daily net assets under
Jennison's management in excess of $300 million. For the Prudential Jennison
Portfolio, Prudential pays Jennison 0.75% annually on the first $10,000,000 of
the Portfolio's average daily net assets, 0.50% on the next $30,000,000 of the
Portfolio's average daily net assets, 0.35% on the next $25,000,000 of the
Portfolio's average daily net assets, 0.25% on the next $335,000,000 of the
Portfolio's average daily net assets, 0.22% on the next $600,000,000 of the
Portfolio's average daily net assets, and 0.20% on the balance of the
Portfolio's average daily net assets.

For the years ended December 31, 1999, 1998 and 1997, Prudential was paid the
following fees for providing investment management services to the Portfolios:

INVESTMENT MANAGEMENT FEES
YEAR ENDED DECEMBER 31

<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Conservative Balanced Portfolio $ 25,195,056 $ 26,224,569 $ 25,757,735
Diversified Bond Portfolio 4,880,364 3,782,116 2,981,884
Diversified Conservative Growth Portfolio(1) 398,516 n/a n/a
Equity Income Portfolio 8,409,886 8,830,161 6,601,602
Equity Portfolio 28,188,640 28,389,539 24,840,379
Flexible Managed Portfolio 31,532,667 33,049,940 31,740,440
Global Portfolio 7,287,427 5,342,945 4,836,302
Government Income Portfolio 1,545,837 1,735,370 1,758,870
High Yield Bond Portfolio 4,421,391 3,782,134 2,679,304
Money Market Portfolio 4,400,851 3,246,494 2,667,947
Natural Resources Portfolio 1,182,863 1,349,743 1,975,906
Prudential Jennison Portfolio 11,126,560 4,662,187 2,063,572
Small Capitalization Stock Portfolio(1) 1,504,880 1,243,051 867,687
Stock Index Portfolio 14,259,131 10,279,903 7,121,699
20/20 Focus Portfolio(1) 151,794 n/a n/a
Zero Coupon Bond 2000 Portfolio 160,235 159,341 161,101
Zero Coupon Bond 2005 Portfolio 179,486 149,980 123,525
Total $144,825,584 $132,227,473 $116,177,953
============ ============ ============
</TABLE>

----------
(1) Portfolio commenced operations in May of 1999.

The Investment Advisory Agreement requires Prudential to pay for maintaining any
Prudential staff and personnel who perform clerical, accounting, administrative,
and similar services for the Fund, other than

38
<PAGE>

investor services and any daily Fund accounting services. It also requires
Prudential to pay for the equipment, office space and related facilities
necessary to perform these services and the fees or salaries of all officers and
directors of the Fund who are affiliated persons of Prudential or of any
subsidiary of Prudential.

Each Portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Fund's general administrative expenses allocated on
the basis of the asset size of the respective Portfolios. Expenses that will be
borne directly by the Portfolios include redemption expenses, expenses of
portfolio transactions, shareholder servicing costs, interest, certain taxes,
charges of the custodian and transfer agent, and other expenses attributable to
a particular Portfolio. Expenses that will be allocated among all Portfolios
include legal expenses, state franchise taxes, auditing services, costs of
printing proxies, prospectuses and statements of additional information, costs
of stock certificates, SEC fees, accounting costs, the fees and expenses of
directors of the Fund who are not affiliated persons of Prudential or any
subsidiary of Prudential, and other expenses properly payable by the entire
Fund. If the Fund is sued, litigation costs may be directly applicable to one or
more Portfolios or allocated on the basis of the size of the respective
Portfolios, depending upon the nature of the lawsuit. The Fund's Board of
Directors has determined that this is an appropriate method of allocating
expenses.

Under the Investment Advisory Agreement, Prudential has agreed to refund to a
Portfolio (except the Diversified Conservative Growth, Global and 20/20 Focus
Portfolios) the portion of the investment management fee for that Portfolio
equal to the amount that the aggregate annual ordinary operating expenses of
that Portfolio (excluding interest, taxes, and brokerage fees and commissions
but including investment management fees) exceeds 0.75% of the Portfolio's
average daily net assets. There is no expense limitation or reimbursement
provision for the Diversified Conservative Growth, Global or 20/20 Focus
Portfolios.

The Investment Advisory Agreement with Prudential was most recently approved by
the Fund's Board of Directors, including a majority of the Directors who are not
interested persons of Prudential, on May 23, 2000, and was most recently
approved by the shareholders in accordance with instructions from Contract
owners at their 1989 annual meeting with respect to all Portfolios except the
Prudential Jennison, Small Capitalization Stock, Diversified Conservative Growth
and 20/20 Focus Portfolios. A Supplemental Advisory Agreement regarding the
Prudential Jennison and Small Capitalization Stock Portfolios was approved by
the Fund's Board of Directors on December 20, 1994 and by the sole shareholder
of the Prudential Jennison and Small Capitalization Stock Portfolios on April 5,
1995. A Supplemental Advisory Agreement with the 20/20 Focus Portfolio and the
Diversified Conservative Growth Portfolio was approved by the Fund's Board of
Directors on February 25, 1999 and by the sole shareholder of those Portfolios
on April 5, 1999.

The Investment Advisory and Supplemental Investment Advisory Agreements will
continue in effect if approved annually by: (1) a majority of the non-interested
persons of the Fund's Board of Directors; and (2) by a majority of the entire
Board of Directors or by a majority vote of the shareholders of each Portfolio.
The required shareholder approval of the Agreements shall be effective with
respect to any Portfolio if a majority of the voting shares of that Portfolio
vote to approve the Agreements, even if the Agreements are not approved by a
majority of the voting shares of any other Portfolio or by a majority of the
voting shares of the entire Fund. The Agreements provide that they may not be
assigned by Prudential and that they may be terminated upon 60 days' notice by
the Fund's Board of Directors or by a majority vote of its shareholders.
Prudential may terminate the Agreements upon 90 days' notice.

The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Fund at their 1989 annual meeting with respect to all
Portfolios except for the Prudential Jennison, Small Capitalization Stock, 20/20
Focus and Diversified Conservative Growth Portfolios, which had not yet been
established. The Service Agreement with respect to the Prudential Jennison and
Small Capitalization

39
<PAGE>

Stock Portfolios and the Investment Subadvisory Agreement with Jennison for the
Prudential Jennison Portfolio were ratified by the sole shareholder of those
Portfolios on April 5, 1995. The Service Agreement with respect to the 20/20
Focus and Diversified Conservative Growth Portfolios were ratified by the sole
shareholder of those Portfolios on April 5, 1999. The Service Agreement between
Prudential and PIC will continue in effect as to the Fund for a period of more
than 2 years from its execution, only so long as such continuance is
specifically approved at least annually in the same manner as the Investment
Advisory Agreement between Prudential and the Fund. The Service Agreement may be
terminated by either party upon not less than 30 days prior written notice to
the other party, will terminate automatically in the event of its assignment,
and will terminate automatically as to the Fund in the event of the assignment
or termination of the Investment Advisory Agreement between Prudential and the
Fund. Prudential is not relieved of its responsibility for all investment
advisory services under the Investment Advisory Agreement.

The Fund has entered in a Sub-Advisory Agreement with Jennison in respect of its
20/20 Focus Portfolio. This Sub-Advisory Agreement was ratified by the sole
shareholder of the Portfolio on April 5, 1999. The Fund has also entered into
Sub-Advisory Agreements in respect of its Diversified Conservative Growth
Portfolio with Jennison, PIC, Franklin, Dreyfus and PIMCO. These Sub-Advisory
Agreements were ratified by the sole shareholder of the Portfolio on April 5,
1999. Under each Sub-Advisory Agreement, Prudential has agreed to pay the named
sub-adviser a portion of the fee it receives for providing investment management
services to the Diversified Conservative Growth Portfolio.

FRANKLIN ADVISERS, INC.

Franklin is a California corporation located at 777 Mariners Island Blvd., San
Mateo, Ca 94404. Franklin is a wholly-owned subsidiary of Franklin Resources
Inc., a publicly-owned company engaged in the financial services industry
through its subsidiaries. Franklin advises 97 domestic equity and fixed income
mutual funds in the Franklin Templeton Group of funds. As of December 31, 1999,
Franklin and its affiliates managed over $235 billion in assets. Franklin
Advisers, Inc. is subject to a Code of Ethics that permits personnel to invest
in securities, including securities that may be acquired by the Fund. However,
the Code imposes a variety of restrictions on such investing, such as blackout
periods. Prudential pays Franklin Advisers a subadvisory fee equal to 0.50%
annually of the assets under Franklin's management.

THE DREYFUS CORPORATION

Dreyfus has its headquarters at 200 Park Avenue, New York, NY 10166. Dreyfus is
a subsidiary of Mellon Bank corporation, a broad-based financial services
company with a bank at its core, and over $300 billion under management or
administration. As of December 31, 1999, Dreyfus managed over $129 billion in
assets. Dreyfus is subject to a Code of Ethics that permits personnel to invest
in securities, including securities that may be acquired by the Fund. However,
the Code imposes a variety of restrictions on such investing, such as blackout
periods. Prudential pays Dreyfus a subadvisory fee equal to 0.45% annually of
the assets under Dreyfus's management.

PACIFIC INVESTMENT MANAGEMENT COMPANY

PIMCO is a Delaware general partnership located at 840 Newport Center Drive,
Newport Beach, CA 92660. PIMCO is a subsidiary of PIMCO Advisors L.P. ("PIMCO
Advisors"), a controlling interest in which recently was acquired by Allianz AG.
PIMCO is registered as an investment advisor with the Commission and as a
commodity trading advisor with the CFTC. As of December 31, 1999, PIMCO had
approximately $186 million in assets. PIMCO is subject to a Code of Ethics that
permits personnel to invest in securities, including securities that may be
acquired by the Fund. However, the Code imposes a variety of restrictions on
such investing, such as blackout periods. Prudential pays PIMCO a subadvisory
fee equal to 0.25% annually of the assets under PIMCO's management.

40
<PAGE>

Prudential also serves as the investment adviser to several other investment
companies. When investment opportunities arise that may be appropriate for more
than one entity for which Prudential serves as investment adviser, Prudential
will not favor one over another and may allocate investments among them in an
impartial manner believed to be equitable to each entity involved. The
allocations will be based on each entity's investment objectives and its current
cash and investment positions. Because the various entities for which Prudential
acts as investment adviser have different investment objectives and positions,
Prudential may from time to time buy a particular security for one or more such
entities while at the same time it sells such securities for another.

Prudential is currently considering reorganizing itself into a 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 the 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. Prudential is working toward completing
this process in 2001 and currently expects adoption by the Board of Directors to
take place in the latter part of 2000. However, there is no certainty that the
demutualization will be completed in this timeframe or that the necessary
approvals will be obtained. Also it is possible that after careful review,
Prudential could decide not to demutualize or could decide to delay its plans.

PIFM-Advised Portfolios

Prudential Investments Fund Management LLC (PIFM) serves as adviser and manages
the business affairs of the following Portfolios of the Fund: SP AIM AGGRESSIVE
GROWTH PORTFOLIO, SP AIM GROWTH AND INCOME PORTFOLIO, SP AGGRESSIVE GROWTH ASSET
ALLOCATION PORTFOLIO, SP ALLIANCE LARGE CAP GROWTH PORTFOLIO, SP ALLIANCE
TECHNOLOGY PORTFOLIO, SP BALANCED ASSET ALLOCATION PORTFOLIO, SP CONSERVATIVE
ASSET ALLOCATION PORTFOLIO, SP DAVIS VALUE PORTFOLIO, SP DEUTSCHE INTERNATIONAL
EQUITY PORTFOLIO, SP LARGE CAP VALUE PORTFOLIO, SP SMALL/MID CAP VALUE
PORTFOLIO, SP GROWTH ASSET ALLOCATION PORTFOLIO, SP INVESCO SMALL COMPANY GROWTH
PORTFOLIO, SP JENNISON INTERNATIONAL GROWTH PORTFOLIO, SP MFS CAPITAL
OPPORTUNITIES PORTFOLIO, SP MFS MID-CAP GROWTH PORTFOLIO, SP PIMCO HIGH YIELD
PORTFOLIO, SP PIMCO TOTAL RETURN PORTFOLIO, SP PRUDENTIAL U.S. EMERGING GROWTH
PORTFOLIO, AND SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO (THE PIFM-ADVISED
PORTFOLIOS). PIFM has responsibility for investment advisory services to the
PIFM-Advised Portfolios, and supervises the subadviser that provides day-to-day
portfolio management of the PIFM-Advised Portfolios.

PIFM and its predecessors have served as manager or administrator to investment
companies since 1987. As of January 31, 2000, PIFM served as the manager to 43
mutual funds, and as manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $74.9 billion.

With respect to each PIFM-Advised Portfolio, PIFM currently charges the
following annual advisory fees: 0.84% for the SP Aggressive Growth Asset
Allocation Portfolio, 0.95% for the SP AIM Aggressive Growth Portfolio, 0.85%
for the SP AIM Growth and Income Portfolio, 0.90% for the SP Alliance Large Cap
Growth Portfolio, 1.15% for the SP Alliance Technology Portfolio, 0.75% for the
SP Balanced Asset Allocation Portfolio, 0.71% for the SP Conservative Asset
Allocation Portfolio, 0.75% for the SP Davis Value Portfolio, 0.90% for the SP
Deutsche International Equity Portfolio, 0.80% for the SP Growth Asset
Allocation Portfolio, 0.95% for the SP INVESCO Small Company Growth Portfolio,
0.85% for the SP

41
<PAGE>

Jennison International Growth Portfolio, 0.80% for the SP Large Cap Value
Portfolio, 0.75% for the SP MFS Capital Opportunities Portfolio, 0.80% for the
SP MFS Mid-Cap Growth Portfolio, 0.60% for the SP PIMCO High Yield Portfolio,
0.60% for the SP PIMCO Total Return Portfolio, 0.60% for the SP Prudential U.S.
Emerging Growth Portfolio, 0.90% for the SP Small/Mid Cap Value Portfolio, and
0.90% for the SP Strategic Partners Focused Growth Portfolio. For the Asset
Allocation Portfolios, the fees quoted above represent a blend of the fees
applicable to the constituent Portfolios, plus .05% payable to PIFM.

PIFM pays each subadviser to a PIFM-Advised Portfolio out of the advisory fee
that it collects from each PIFM-Advised Portfolio. A description of the
subadviser to each PIFM-Advised Portfolio, together with the subadvisory fee
that PIFM pays to such subadviser, follows.

PIFM has entered into sub-advisory agreements with the advisers described below.
Each sub-advisory agreement provides for the sub-advisor to provide investment
advisory services to the various Portfolios. Such advisory services include
managing the investment operations and composition of the Portfolios in
accordance with the Portfolios' investment objectives, supervising the
Portfolios' investments and determining what investments and securities will be
purchased, retained, sold or loaned and what portion of the assets will be
invested or held uninvested as cash, maintaining and preserving the books and
records with respect to transactions, providing the custodian with daily
transaction information concerning the Portfolios' assets, and reconciling its
records to those of the custodian at least once a month and providing
performance reporting.

The sub-advisory agreements may be terminated at any time by the Fund's
directors or by a vote of a majority of the outstanding voting securities of the
Portfolio, or by PIFM or the sub-advisor at any time on not more than 60 days
nor less than 30 days written notice to the parties. The sub-advisory agreements
terminate automatically in the event of assignment.

A I M Capital Management, Inc.

A I M Capital Management, Inc. (A I M Capital) serves as the sub-advisor to the
SP AIM Aggressive Growth and SP AIM Growth and Income Portfolios. A I M Capital
is a wholly owned subsidiary of A I M Management Group Inc.("A I M Management"),
a holding company that has been engaged in the financial services business since
1976. The address of A I M Capital is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. A I M Management is subject to a Code of Ethics that permits
personnel to invest in securities, including securities that may be acquired by
the Fund. However, the Code imposes a variety of restrictions on such investing,
such as blockout periods.

For the services performed, A I M Capital will be compensated by PIFM at the
annual percentage of the average daily net assets of the Portfolios as described
below:

Fee rate
--------

SP AIM Aggressive Growth Portfolio SP AIM Growth and Income Portfolio

.60% first $200 million .55% first $500 million
.55% over $200 million .50% over $500 million

This fee will be computed daily and paid quarterly.

42
<PAGE>

ALLIANCE CAPITAL MANAGEMENT L.P.

Alliance Capital Management L.P., a New York Stock Exchange listed company with
principal offices at 1345 Avenue of the Americas, New York, New York serves as
the sub-advisor to the SP Alliance Large Cap Growth, SP Alliance Technology
Portfolios and the SP Strategic Partners Focused Growth Portfolio. Alliance
Capital Management L.P. is subject to a Code of Ethics that permits personnel to
invest in securities, including securities that may be acquired by the Fund.
However, the Code imposes a variety of restrictions on such investing such as
blackout periods.

SP Alliance Large Cap Growth Portfolio

Asset Level Fee Rate
----------- --------

First $500 million .60%
Assets in excess of $500 million .50%

SP Strategic Partners Focused Growth Portfolio

Asset Level Fee Rate
----------- --------

First $ 1 billion .60%
Assets in excess of $1 billion .55%

SP Alliance Technology Portfolio: 0.75% of assets

These fees will be computed daily and paid quarterly.

DAVIS SELECTED ADVISERS, LP

Davis Selected Advisers, LP serves as the sub-advisor to the SP Davis Value
Portfolio. The sub-advisor is located at 2949 East Elvira Road, Tucson, Arizona
85706. Venture Advisers is the sub-adviser's sole general partner. Davis
Selected Advisers, L.P. is subject to a Code of Ethics that permits personnel to
invest in securities, including securities that may be acquired by the Fund.
However, the Code imposes a variety of restrictions on such investing, such a
blackout period.

PIFM compensates Davis Selected Advisers for the services provided and the
expenses assumed pursuant to the subadvisory agreement at an annual rate
expressed as a percent of the average daily net assets of the Portfolio as
follows:

Asset Level Fee rate
$0 to $100 million .45%
above $100 to $500 million .40%
above $500 million .35%

This fee will be computed daily and paid quarterly.

43
<PAGE>

BANKERS TRUST COMPANY

Bankers Trust Company, with headquarters at 130 Liberty Street, New York, New
York 10006, acts as the sub-advisor to the SP Deutsche International Equity
Portfolio. Bankers trust is an indirect wholly-owned subsidiary of Deutsche
International Bank AG. Deutsche Asset Management is subject to a Code of Ethics
that permits personnel to invest in securities, including securities that may be
acquired by the Fund. However, the Code imposes a variety of restrictions on
such investing, such as blackout periods.

Asset Level Fee Rate
----------- --------

First $500 million .55%
Assets exceeding $500 million .50%

These fees are computed daily and paid quarterly.

FIDELITY MANAGEMENT AND RESEARCH COMPANY

Fidelity Management & Research Company (FMR) is the sub-advisor to the SP Large
Cap Value and SP Small/Mid Cap Value Portfolios. The address of FMR is 82
Devonshire Street, Boston MA 02109. Fidelity Investments is subject to a Code of
Ethics that permits personnel to invest in securities, including securities that
may be acquired by the Fund. However, the Code imposes a variety of restrictions
on such investing, such as preclearance of any trade in a reportable security.

PIFM will compensate FMR for the services provided and the expenses assumed
pursuant to the subadvisory agreement at an annual rate expressed as a percent
of the average daily net assets of the Portfolios as follows:

Fee rate

<TABLE>
<CAPTION>
Asset Level SP Large Cap Value Portfolio SP Small/Mid Cap Value Portfolio

<S> <C> <C>
First $250 million .50% .55%
Next $500 million .45% .50%
Over $750 million .35% .40%
</TABLE>

This fee will be computed daily and paid quarterly.

INVESCO FUNDS GROUP, INC.

INVESCO Funds Group, Inc. (INVESCO), located at 7800 East Union Avenue, Denver,
Colorado, is the sub-advisor of the SP INVESCO Small Company Growth Portfolio.
INVESCO is a subsidiary of AMVESCAP PLC, an investment management company that
manages more than $392 billion in assets worldwide. AMVESCAP is based in London,
with money managers located in Europe, North and South America and the Far East.
INVESCO Funds Group, Inc. is subject to a Code of Ethics that permits personnel
to invest in securities, including securities that may be acquired by the Fund.
However, the Code imposes a variety of restrictions on such investing, such as
blackout periods.

PIFM will compensate INVESCO for the services provided and the expenses assumed
pursuant to the subadvisory agreement at an annual rate expressed as a percent
of the average daily net assets of the Portfolio as follows:

Asset Level Fee Rate
$0 to $250 million .55%
above $250 to $500 million .52%
above $500 million .47%

This fee will be computed daily and paid quarterly.

44
<PAGE>

JENNISON ASSOCIATES LLC

Jennison Associates LLC (Jennison), a wholly owned subsidiary of PIC, is the
sub-adviser to the SP Jennison International Growth Portfolio, the SP Strategic
Partners Focused Growth Portfolio, and the SP Prudential U.S. Emerging Growth
Portfolios. Jennison is located at 466 Lexington Avenue, New York, New York
10017. Jennison Associates LLC is subject to a Code of Ethics that permits
personnel to invest in securities, including securities that may be acquired by
the Fund. However, the Code imposes a variety of restrictions on such
investing, such as blackout periods.

PIFM compensates Jennison for the services provided and the expenses assumed
pursuant to the Subadvisory Agreement for the SP Jennison International Growth
Portfolio at an annual rate expressed as a percent of the average daily net
assets of the Portfolio as follows:

Asset level Fee rate
----------- --------

$0 to $300 million .60%
Above $300 million and up to $1.5 billion .50%
over $1.5 billion .45%

As sub-adviser to the SP Strategic Partners Focused Growth Portfolio, Jennison
will be compensated at an annual rate expressed as a percent of the average
daily net assets of the Portfolio as follows:

Assets Fee
----------- --------
$0 to $300 million .30%
above $300 million .25%

For the SP Prudential U.S. Emerging Growth Portfolio, PIFM will charge an
advisory fee of 0.60%, which it will split equally with Jennison.

These fees will be computed daily and paid quarterly. In 2000, Jennison is
expected to begin to subadvise Fund equity Portfolios that historically have
been subadvised by PIC. Generally, Jennison's subadvisory fee for those
Portfolios will equal one-half of the overall management fee.

MASSACHUSETTS FINANCIAL SERVICES COMPANY

MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), located at 500 Boylston
Street, Boston MA, acts as sub-adviser to the SP MFS Capital Opportunities and
SP MFS Mid-Cap Growth Portfolios. MFS is an indirect wholly owned subsidiary of
Sun Life Assurance Company of Canada Inc., a publicly owned insurance and
financial services company. MFS is subject to a Code of Ethics that permits
personnel to invest in securities, including securities that may be acquired by
the Fund. However, the Code imposes a variety of restrictions on such
investing, such as blackout periods.

PIFM compensates MFS for the services provided and the expenses assumed pursuant
to the Subadvisory Agreement at an annual rate expressed as a percent of the
average daily net assets of the Portfolios as follows:

Asset level Fee rate
----------- --------
$0 to $300 million .40%
above $300 to $600 million .375%
above $600 million to $900 million .350%

45
<PAGE>

above $900 million to $1.5 billion .325%
over $1.5 billion .250%

This fee will be computed daily and paid quarterly.

PACIFIC INVESTMENT MANAGEMENT COMPANY

Pacific Investment Management Company ("PIMCO") is the sub-advisor for the SP
PIMCO High Yield and SP PIMCO Total Return Portfolios. PIMCO is located at 840
Newport Center Drive, Suite 300, Newport Beach, California 92660 and is a
subsidiary of PIMCO Advisors L.P. PIMCO is subject to a Code of Ethics that
permits personnel to invest in securities, including securities that may be
acquired by the Fund. However, the Code imposes a variety of restrictions on
such investing, such as a preclearance requirement.

PIFM will compensate PIMCO for the services performed and the expenses assumed
at the annual rate of .25% of the average daily net assets of each Portfolio.
This fee will be computed daily and paid quarterly.

Fee Rate

PIMCO Total Return 0.25%

PIMCO High Yield 0.25%

All of these Portfolios are new. These sub-advisors have not yet been paid any
subadvisory fee.

II. DISTRIBUTION ARRANGEMENTS

Prudential Investment Management Services LLC ("PIMS"), a direct wholly-owned
subsidiary of Prudential, acts as the principal underwriter of the Fund by
distributing Fund shares on a continuous basis. PIMS is a limited liability
corporation organized under Delaware law in 1996. PIMS is a registered
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. PIMS' principal business
address is 751 Broad Street, Newark, New Jersey 07102-3777. Since the Fund's
shares do not carry any sales load, no part of any sales load is paid to PIMS
for its distribution services to the Fund.

The Fund has adopted a Distribution and Service Plan pursuant to Rule 12b-1 of
the Investment Company Act of 1940 (the Plan) in respect of Class II of each
Portfolio. The expenses incurred under the Plan include commissions and account
servicing fees paid to, or on account of, insurers or their agents who sell
Class II shares, advertising expenses, indirect and overhead costs of the Fund's
underwriter associated with the sale of Class II shares. Under the Plan, the
Fund pays PIMS 0.25 of 1% of the average net assets of the Class II shares.

The Class II Plan will continue in effect from year to year, upon annual
approval by a vote of the Fund's Board of Directors, including a majority vote
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "12b-1 Directors"). The Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Directors or by the vote of the holders of a majority of the outstanding
shares of Class II. The Plan may not be amended to materially increase the
amounts payable thereunder without shareholder approval.

46
<PAGE>

III. Code of Ethics

The Board of Directors of the Fund has adopted a Code of Ethics. In addition,
Prudential, PIC, PIMS, and Jennison have each adopted a Code of Ethics (the
"Codes"). The Codes permit personnel subject to the Codes to invest in
securities, including securities that may be purchased or held by the Fund.
However, the protective provisions of the Codes prohibit certain investments and
limit such personnel from making investments during periods when the Fund is
making such investments. The Codes of Ethics of each sub-adviser are discussed
above, under "PIFM--Advised Portfolios." The Codes are on public file with, and
are available from, the Commission.

OTHER INFORMATION CONCERNING THE FUND

I. INCORPORATION AND AUTHORIZED STOCK

The Fund was incorporated under Maryland law on November 15, 1982. As of the
date of this SAI, the shares of capital stock are divided into seventy-four
classes: Conservative Balanced Portfolio Capital Stock--Class I, Conservative
Balanced Portfolio Capital Stock--Class II, Diversified Bond Portfolio Capital
Stock--Class I, Diversified Bond Portfolio Capital Stock--Class II, Diversified
Conservative Growth Portfolio Capital Stock--Class I, Diversified Conservative
Growth Portfolio Capital Stock--Class II, Equity Portfolio Capital Stock--Class
I, Equity Portfolio Capital Stock--Class II, Equity Income Portfolio Capital
Stock--Class I, Equity Income Portfolio Capital Stock--Class II, Flexible
Managed Portfolio Capital Stock--Class I, Flexible Managed Portfolio Capital
Stock--Class II, Global Portfolio Capital Stock--Class I, Global Portfolio
Capital Stock--Class II, Government Income Portfolio Capital Stock--Class I,
Government Income Portfolio Capital Stock--Class II, High Yield Bond Portfolio
Capital Stock--Class I, High Yield Bond Portfolio Capital Stock--Class II, Money
Market Portfolio Capital Stock--Class I, Money Market Portfolio Capital
Stock--Class II, Natural Resources Portfolio Capital Stock--Class I, Natural
Resources Portfolio Capital Stock--Class II, Prudential Jennison Portfolio
Capital Stock--Class I, Prudential Jennison Portfolio Capital Stock--Class II,
Small Capitalization Stock Portfolio Capital Stock--Class I, Small
Capitalization Stock Portfolio Capital Stock--Class II, SP AGGRESSIVE GROWTH
ASSET ALLOCATION PORTFOLIO--CLASS I, SP AGGRESSIVE GROWTH ASSET ALLOCATION
PORTFOLIO--CLASS II, SP AIM AGGRESSIVE GROWTH PORTFOLIO--CLASS I, SP AIM
AGGRESSIVE GROWTH PORTFOLIO--CLASS II, SP AIM GROWTH AND INCOME PORTFOLIO--CLASS
I, SP AIM GROWTH AND INCOME PORTFOLIO -CLASS II, SP ALLIANCE LARGE CAP GROWTH
PORTFOLIO--CLASS I, SP ALLIANCE LARGE CAP GROWTH PORTFOLIO--CLASS II, SP
ALLIANCE TECHNOLOGY PORTFOLIO--CLASS I, SP ALLIANCE TECHNOLOGY PORTFOLIO--CLASS
II, SP BALANCED ASSET ALLOCATION PORTFOLIO--CLASS I, SP BALANCED ASSET
ALLOCATION PORTFOLIO--CLASS II, SP CONSERVATIVE ASSET ALLOCATION
PORTFOLIO--CLASS I, SP CONSERVATIVE ASSET ALLOCATION PORTFOLIO--CLASS II, SP
DAVIS VALUE PORTFOLIO--CLASS I, SP DAVIS VALUE PORTFOLIO--CLASS II, SP DEUTSCHE
INTERNATIONAL EQUITY PORTFOLIO--CLASS I, SP DEUTSCHE INTERNATIONAL EQUITY
PORTFOLIO--CLASS II, SP GROWTH ASSET ALLOCATION PORTFOLIO--CLASS I, SP GROWTH
ASSET ALLOCATION PORTFOLIO--CLASS II, SP INVESCO SMALL COMPANY GROWTH
PORTFOLIO--CLASS I, SP INVESCO SMALL COMPANY GROWTH PORTFOLIO--CLASS II, SP
JENNISON INTERNATIONAL GROWTH PORTFOLIO--CLASS I, SP JENNISON INTERNATIONAL
GROWTH PORTFOLIO--CLASS II, SP LARGE CAP VALUE PORTFOLIO--CLASS I, SP LARGE CAP
VALUE PORTFOLIO--CLASS II, SP MFS CAPITAL OPPORTUNITIES PORTFOLIO--CLASS I, SP
MFS CAPITAL OPPORTUNITIES PORTFOLIO--CLASS II, SP MFS MID-CAP GROWTH
PORTFOLIO--CLASS I, SP MFS MID CAP GROWTH PORTFOLIO--CLASS II, SP PIMCO HIGH
YIELD PORTFOLIO--CLASS I, SP PIMCO HIGH YIELD PORTFOLIO--CLASS II, SP PIMCO
TOTAL RETURN PORTFOLIO--CLASS I, SP PIMCO TOTAL RETURN PORTFOLIO--CLASS II, SP
PRUDENTIAL U.S. EMERGING GROWTH PORTFOLIO--CLASS I, SP PRUDENTIAL U.S. EMERGING
GROWTH PORTFOLIO--CLASS II, SP SMALL/MID CAP VALUE PORTFOLIO--CLASS I, SP
SMALL/MID CAP VALUE PORTFOLIO--CLASS II, SP STRATEGIC PARTNERS FOCUSED GROWTH
PORTFOLIO--CLASS I, SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO--CLASS II,
Stock Index Portfolio Capital Stock--Class I, Stock Index PortfoliO Capital
Stock--Class II, 20/20 Focus Portfolio Capital Stock--Class I, 20/20 Focus
Portfolio Capital Stock--Class II, Zero Coupon Bond 2000 Portfolio Capital
Stock--Class I,

47
<PAGE>

Zero Coupon Bond 2000 Portfolio Capital Stock--Class II, Zero Coupon Bond 2005
Portfolio Capital Stock--Class I and Zero Coupon Bond 2005 Portfolio Capital
Stock--Class II.

Each class of shares of each Portfolio represents an interest in the same assets
of the Portfolio and is identical in all respects except that: (1) Class II
shares are subject to distribution and administration fees whereas Class I
shares are not; (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interest of one class differs from the interests of any class; and (3) each
class is offered to a limited group of investors.

The shares of each class, when issued, will be fully paid and non-assessable,
will have no conversion or similar rights, and will be freely transferable. Each
share of each class is equal as to earnings, assets and voting privileges. Class
II bears the expenses related to the distribution of its shares. In the event of
liquidation, each share of a Portfolio is entitled to its portion of all of the
Portfolio's assets after all debts and expenses of the Portfolio have been paid.
Since Class II shares bear distribution and administration expenses, the
liquidation proceeds to Class II shareholders are likely to be lower than to
Class I shareholders, whose shares are not subject to any distribution or
administration fees.

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

II. PORTFOLIO TRANSACTIONS AND BROKERAGE

Prudential and PIFM, as the advisers to their respective Portfolios, are
responsible for overseeing decisions to buy and sell securities, options on
securities and indexes, and futures and related options for the Fund.
Broker-dealers may receive brokerage commissions on Portfolio transactions,
including options and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker or futures commission
merchant including, to the extent and in the manner permitted by applicable law,
Prudential Securities Incorporated, an indirect wholly-owned subsidiary of
Prudential (PSI).

Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with PSI in
any transaction in which PSI acts as principal. Thus, it will not deal with PSI
if execution involves PSI's acting as principal with respect to any part of the
Fund's order.

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which PSI, during the existence of the syndicate, is a principal
underwriter (as defined in the 1940 Act) except in accordance with rules of the
SEC. This limitation, in the opinion of the Fund, will not significantly affect
the Portfolios' current ability to pursue their respective investment
objectives. However, in the future it is possible that the Fund may under other
circumstances be at a disadvantage because of this limitation in comparison to
other funds not subject to such a limitation.

48
<PAGE>

In placing orders for portfolio securities of the Fund, Prudential's and PIFM's
overriding objective is to obtain the best possible combination of price and
execution. Prudential and PIFM seek to effect each transaction at a price and
commission that provides the most favorable total cost or proceeds reasonably
attainable in the circumstances. The factors that Prudential and PIFM may
consider in selecting a particular broker, dealer or futures commission merchant
firms are: knowledge of negotiated commission rates currently available and
other transaction costs; the nature of the portfolio transaction; the size of
the transaction; the desired timing of the trade; the activity existing and
expected in the market for the particular transaction; confidentiality; the
execution, clearance and settlement capabilities of the firms; the availability
of research and research related services provided through such firms; the
knowledge of the financial stability of the firms; the knowledge of actual or
apparent operational problems of firms; and the amount of capital, if any, that
would be contributed by firms executing the transaction. Given these factors,
the Fund may pay transaction costs in excess of that which another firm might
have charged for effecting the same transaction. The greater a Portfolio's
portfolio turnover (i.e., purchases or sales of securities), the greater the
Portfolio's "other expenses" are likely to be.

When Prudential and PIFM select a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer-software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of Prudential's and PIFM's investment activities;
some of such services, obtained in connection with the execution of transactions
for one investment account may be used in managing other accounts, and not all
of these services may be used in connection with the Fund.

PSI (or a broker-dealer affiliated with a subadviser of the Fund) may act as a
securities broker or futures commission merchant for the Fund. In order for PSI
or such other broker-dealer to effect any transactions for the Portfolios, the
commissions received by PSI or such other broker-dealer must be reasonable and
fair compared to the commissions received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. This standard would
allow PSI or such other broker-dealer to receive no more than the remuneration
that would be expected to be received by an unaffiliated broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore, the
Board of Directors of the Fund, including a majority of the directors who are
not "interested" persons, has adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to PSI or such
other broker-dealer are consistent with the foregoing standard.

For the years ended December 31, 1999, 1998, and 1997, the Portfolios paid the
following amounts in brokerage commissions:

COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1999

% OF
AGGREGATE COMMISSIONS COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
Conservative Balanced $ 280,871 $ 2,600 .93%
Equity 2,503,195 319,224 12.75%
Equity Income 1,751,497 69,381 3.96%
Flexible Managed 782,063 10,257 1.31%
High Yield 11,184 0 0.00%
Natural Resources 467,448 3,431 .73%
Prudential Jennison 1,843,765 188,075 10.20%
Small Cap Stock 258,130 0 0.00%
Stock Index 161,051 0 0.00%
Total $8,059,204 $592,968
========== ========

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<PAGE>
COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1998

% OF
AGGREGATE COMMISSION COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
Conservative Balanced $ 1,320,049 $ 32,490 2.46%
Equity 3,861,374 294,641 7.63%
Equity Income 1,808,503 160,840 8.89%
Flexible Managed 2,176,922 103,021 4.73%
Global 1,891,928 14,247 0.75%
High Yield Bond 6,770 0 0.00%
Natural Resources 331,482 1,800 0.54%
Prudential Jennison 936,449 56,980 6.08%
Small Cap Stock 249,010 0 0.00%
Stock Index 180,781 0 0.00%
Total $12,763,268 $664,019
=========== ========

COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1997

% OF
AGGREGATE COMMISSION COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
Diversified Bond $ 54,863 $ 0 0.00%
Government Income 4,971 0 0.00%
Conservative Balanced 3,338,897 256,752 7.69%
Flexible Managed 6,544,428 428,008 6.54%
High Yield Bond 47,273 0 0.00%
Stock Index 200,865 0 0.00%
Equity Income 2,241,887 198,726 8.86%
Equity 1,823,705 189.498 10.39%
Prudential Jennison 484,086 0 0.00%
Small Capitalization Stock 227,781 0 0.00%
Global 2,055,319 7,621 0.37%
Natural Resources 569,768 132 0.02%
Total $17,593,843 $1,080,737
=========== ==========

For 1999, the percentage of the aggregate dollar amount of transactions effected
through PSI on a Portfolio basis was:

PERCENTAGE OF AGGREGATE DOLLAR AMOUNT
PORTFOLIO OF TRANSACTIONS EFFECTED THROUGH PSI
--------- ------------------------------------
Conservative Balanced .13%
Equity .11%
Equity Income .18%
Flexible Managed .13%
Natural Resources .75%
Prudential Jennison .08%

III. TAXATION OF THE FUND

The Fund intends to qualify as regulated investment company under Subchapter M
of the Internal Code of 1986, as amended (the "Code"). The Fund generally will
not be subject to federal income tax to the extent it distributes to
shareholders its net investment income and net capital gains in the manner
required by the Code. There is a 4% excise tax on the undistributed income of a
regulated investment company if that company fails to distribute the required
percentage of its net investment income and net capital gains. The Fund intends
to employ practices that will eliminate or minimize this excise tax.

Federal tax law requires that the assets underlying variable contracts,
including the Fund, meet certain diversification requirements. Each Portfolio is
required to diversify its investments each quarter so that no more than 55% of
the value of its assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
Generally, securities of a single issuer are treated as one investment and
obligations of each U.S. Government agency and instrumentality (such as the
Government National Mortgage Association) are treated as issued by separate
issuers. In addition, any security issued, guaranteed or insured (to the extent
so guaranteed or insured) by the United States or an instrumentality of the U.S.
will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable.

Some foreign securities purchased by the Portfolios may be subject to foreign
taxes which could reduce the return on those securities.

This is a general and brief summary of the tax laws and regulations applicable
to the Fund. The law and regulations may change. You should consult a tax
adviser for complete information and advice.

IV. CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company (State Street), 127 West 10th Street, Kansas
City, MO 64105-1716, is the custodian of the assets held by all the Portfolios.
State Street is also the custodian of the assets held in connection with
repurchase agreements entered into by the Portfolios, and is authorized

50
<PAGE>

to use the facilities of the Depository Trust Company and the facilities of the
book-entry system of the Federal Reserve Bank with respect to securities held by
these Portfolios. State Street employs subcustodians, who were approved in
accordance with regulations of the SEC, for the purpose of providing custodial
service for the Fund's foreign assets held outside the United States. The
transfer agent is Prudential Mutual Fund Series LLC (PMFS), Raritan Plaza One,
Edison, NJ 08837. For performance by PMFS pursuant to the Transfer Agency and
Service Agreement, the Fund pays to PMFS an annual fee of $125,000 and certain
out-of-pocket expense including, but not limited to; postage, stationery,
printing, allocable communication costs, microfilm or microfiche, and expense
incurred at the specific direction of the Fund.

V. EXPERTS

The financial statements of the Fund as of December 31, 1999 included in this
statement of additional information have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP's principal business address is 1177 Avenue of the
Americas, New York, NY 10036.

VI. LICENSES

As part of the Investment Advisory Agreement, Prudential has granted the Fund a
royalty-free, non-exclusive license to use the words "The Prudential" and
"Prudential" and its registered service mark of a rock representing the Rock of
Gibraltar. However, Prudential may terminate this license if Prudential or a
company controlled by it ceases to be the Fund's investment adviser. Prudential
may also terminate the license for any other reason upon 60 days' written
notice; but, in this event, the Investment Advisory Agreement shall also
terminate 120 days following receipt by the Fund of such notice, unless a
majority of the outstanding voting securities of the Fund vote to continue the
Agreement notwithstanding termination of the license.

The Fund is not sponsored, endorsed, sold or promoted by Standard & Poors
("S&P"). S&P makes no representation or warranty, express or implied, to
Contract owners or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of
the S&P 500 Index or the S&P SmallCap 600 Index to track general stock market
performance. S&P's only relationship to the Fund is the licensing of certain
trademarks and trade names of S&P and the S&P 500 Index. The S&P 500 Index and
the S&P SmallCap 600 Index are determined, composed and calculated by S&P
without regard to the Fund, the Stock Index Portfolio or the Small
Capitalization Stock Portfolio. S&P has no obligation to take the needs of the
Fund or the Contract owners into consideration in determining, composing or
calculating the S&P 500 Index or the S&P SmallCap 600 Index. S&P is not
responsible for and has not participated in the determination of the prices and
amount of the Fund shares or the timing of the issuance or sale of those shares
or in the determination or calculation of the equation by which the shares are
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund shares.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS TO BE OBTAINED BY THE FUND,
CONTRACT OWNERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

MANAGEMENT OF THE FUND

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<PAGE>

The names of all directors and major officers of the Fund and the principal
occupation of each during the last 5 years are shown below. Unless otherwise
stated, the address of each director and officer is 751 Broad Street, Newark,
New Jersey 07102-3777.

DIRECTORS OF THE FUND

JOHN R. STRANGFELD*, 46, CHAIRMAN AND PRESIDENT--Executive Vice President,
Global Asset Management since 1998; Chief Executive Officer, Private Asset
Management Group (PAMG) from 1996 to 1998; President, PAMG, from 1994 to 1996.

SAUL K. FENSTER, 67, DIRECTOR--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King, Jr. Boulevard, Newark, New Jersey 07102.

W. SCOTT MCDONALD, JR., 63, DIRECTOR--Vice President, Kaludis Consulting Group
since 1997; 1995 to 1996: Principal, Scott McDonald & Associates. Address: 9
Zamrok Way, Morristown, New Jersey 07960.

JOSEPH WEBER, 76, DIRECTOR--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

OFFICERS WHO ARE NOT DIRECTORS

LEE D. AUGSBURGER, SECRETARY--Assistant General Counsel of Prudential since
1997; prior to 1997, Consultant with Price Waterhouse LLP.

ROBERT F. GUNIA, VICE PRESIDENT--Executive Vice President, Prudential
Investments, since 1999; Vice President, Prudential from 1997 to 1999; prior to
1997, Senior Vice President, Prudential Securities Incorporated.

WILLIAM V. HEALEY, ASSISTANT SECRETARY--Vice President and Associate General
Counsel of Prudential and Chief Legal Officer of Prudential Investments since
1998; Director, ICI Mutual Insurance Company since 1999; prior to 1998,
Associate General Counsel of The Dreyfus Corporation.

DAVID R. ODENATH, JR., VICE PRESIDENT--President, Chief Executive Officer and
Chief Operating Officer of Prudential Investments Fund Management LLC (PIFM)
since 1999; prior to 1999, Senior Vice President, PaineWebber Group, Inc.

C. CHRISTOPHER SPRAGUE, ASSISTANT SECRETARY--Assistant General Counsel of
Prudential since 1994.

GRACE C. TORRES, TREASURER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER--First
Vice President of PIFM since 1996; prior to 1996: First Vice President of
Prudential Securities Inc.

STEPHEN M. UNGERMAN, ASSISTANT TREASURER--Assistant General Counsel of
Prudential since 2000; prior to 2000, Vice President and Tax Director of
Prudential Investments; prior to 1996: First Vice President of Prudential Mutual
Fund Management, Inc.

----------
*This member of the Board is an interested person of Prudential, its affiliates
or the Fund as defined in the 1940 Act. Certain actions of the Board, including
the annual continuance of the Investment Advisory Agreement between the Fund and
Prudential, must be approved by a majority of the members of the Board who are
not interested persons of Prudential, its affiliates or the Fund. Mr.
Strangfeld, one of the four members of the Board, is an interested person of
Prudential and the Fund, as that term is defined in the 1940 Act, because he is
an officer and/or affiliated person of Prudential, the investment advisor to the

52
<PAGE>

Fund. Messrs. Fenster, McDonald, and Weber are not interested persons of
Prudential, its affiliates or the Fund. However, Mr. Fenster is President of the
New Jersey Institute of Technology. Prudential has issued a group annuity
contract to the Institute and provides group life insurance to its employees.

No director or officer of the Fund who is also an officer, director or employee
of Prudential or its affiliates is entitled to any remuneration from the Fund
for services as one of its directors or officers. A single annual retainer fee
of $35,000 is paid to each of the directors who is not an interested person of
the Fund for services rendered to five different Prudential mutual funds,
including this Fund. (The amount paid in respect of each fund is determined on
the basis of the funds' relative average net assets.) The directors who are not
interested persons of the Fund are also reimbursed for all expenses incurred in
connection with attendance at meetings.

The following table sets forth the aggregate compensation paid by the Fund to
the Directors who are not affiliated with Prudential for the fiscal year ended
December 31, 1999 and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Boards of any other investment companies
managed by Prudential for the calendar year ended December 31, 1999. Below are
listed all Directors who have served the Fund during its most recent fiscal
year.

53
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL RELATED
COMPENSATION ACCRUED AS BENEFITS TO FUNDS
FROM PART OF SERIES UPON MANAGED BY
NAME AND POSITION SERIES FUND FUND EXPENSES RETIREMENT PRUDENTIAL (**)
----------------- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
John R. Strangfeld* -- -- -- --
Saul K. Fenster $22,800 None N/A $35,000 (5/21)
W. Scott McDonald $22,800 None N/A $35,000 (5/21)
Joseph Weber $22,800 None N/A $35,000 (5/21)
</TABLE>

----------

* Directors who are "interested" do not receive compensation from Prudential
(including the Fund).

** Indicates number of funds and portfolios (including the Fund) to which
aggregate compensation relates.

As of April 1, 2000, the Directors and officers of the Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Fund's
capital stock.

FUND PERFORMANCE

Performance for each of the Portfolios is set out below. These performance
figures do not include the effect of charges imposed by variable insurance
contracts investing in the Fund which, when deducted, reduce performance.

For the seven days ended December 31, 1999, the yield and effective yield of
Class I shares of Money Market Portfolio were 5.59% and 5.16%, respectively.

For the 1 year, 5 year and 10 year periods ended on December 31, 1999, the
average annual return of Class I shares of each Portfolio is set out below.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE BALANCED DIVERSIFIED DIVERSIFIED CONSERVATIVE GROWTH*
-----------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.69% 12.30% 10.28% (0.74%) 7.80% 7.69% N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
EQUITY EQUITY INCOME FLEXIBLE MANAGED
-----------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
-----------------------------------------------------------------------------------------------------------------------------------
12.49% 18.99% 15.08% 12.52% 17.33% 14.06% 7.78% 14.60% 11.77%
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME HIGH YIELD MONEY MARKET
-----------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
-----------------------------------------------------------------------------------------------------------------------------------
48.27% 22.44% 13.38% (2.70%) 7.29% 7.09% 4.61% 8.76% 9.78% 4.97% 5.36% 5.18%
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCE PRUDENTIAL JENNISON SMALL CAPITALIZATION STOCK STOCK INDEX
-----------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
-----------------------------------------------------------------------------------------------------------------------------------
45.99% 12.19% 9.03% 41.76% N/A N/A 12.68% N/A N/A 20.54% 28.14% 17.75%
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
20/20 FOCUS ZERO COUPON BOND 2000 ZERO COUPON 2005
-----------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
-----------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A 2.18% 7.77% 8.00% (5.66%) 8.99% 8.73%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* The Diversified Conservative Growth and 20/20 Focus Portfolio commenced
operations on May 3, 1999, so there is not a full calendar year of
performance to report.

54
<PAGE>

AVERAGE AMOUNT TOTAL RETURN

The Fund may from time to time advertise its average annual total return.
Average annual total return is determined separately for each class.

A Portfolio's "average annual total return" is computed according to a formula
prescribed by the SEC expressed as follows:

P(1+T)n = ERV

Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years
ERV = Ending Redeemable Value (ERV) at the end of 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of 1-, 5-, or 10-year period.

AGGREGATE TOTAL RETURN

The Fund may also advertise its aggregate total return. Aggregate total return
is determined separately for each class.

A Portfolio's aggregate total return represents the cumulative change in the
value of an investment in the Portfolio for the specified period and is computed
by the following formula:

ERV-P/P

Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value (ERV) at the end of 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of 1-, 5-, or 10-year period
assuming reinvestment of all dividends and distributions..

The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period.

A Portfolio's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operation expenses.
Consequently, any given performance quotation should not be considered
representative of a Portfolio's performance for any specified period in the
future.

A Portfolio may include comparative performance information in advertising or
marketing the Portfolio's

55
<PAGE>

shares. Such performance information may include data
from Lipper Inc., Moningstar Publication, Inc. and other industry publications,
business periodicals and market indexes.

CALCULATION OF YIELD

The Money Market Portfolio may from time to time advertise a current quotation
of yield. The yield quoted will be the simple annualized yield for an identified
seven calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares, but excluding any capital
changes, divided by the value of the account at the beginning of the base
period. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the Portfolio and operating expenses. The
Portfolio also may prepare an effective annual yield computed by compounding the
unannualized seven-day period return as follows: by adding 1 to the unannualized
seven-day period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.

Effective yield = [(base period return + 1)365/7] - 1

Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., IBC Financial Data. Inc., The
Bank Rate Monitor, other industry publications, business periodicals and market
indices.

The Money Market Portfolio's yield fluctuates, and an annualized yield quotation
is not a representation by the Portfolio as to what an investment in the
Portfolio will actually yield for any given period. Actual yield will depend
upon not only changes in interest rates generally during the period in which the
investment in the Portfolio is held, but also on changes in the Portfolio's
expenses.

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS

<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$1,328,719,634).......................... $1,328,719,634
Cash....................................... 27,534
Receivable for capital stock sold.......... 855,542
Interest receivable........................ 10,419,510
--------------
Total Assets............................. 1,340,022,220
--------------
LIABILITIES
Payable for capital stock repurchased...... 3,156,075
Payable to investment adviser.............. 1,302,069
Accrued expenses........................... 89,854
--------------
Total Liabilities........................ 4,547,998
--------------
NET ASSETS................................... $1,335,474,222
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,335,474
Paid-in capital, in excess of par........ 1,334,138,748
--------------
Net assets................................. $1,335,474,222
==============
Net asset value and redemption price per
share, 133,547,422 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 10.00
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 58,660,531
---------------
EXPENSES
Investment advisory fee.................... 4,400,851
Shareholders' reports...................... 150,000
Accounting fees............................ 50,000
Custodian's fees and expenses.............. 36,000
Audit fee and expenses..................... 15,500
Transfer agent's fees and expenses......... 8,000
Legal fees and expenses.................... 5,000
Directors' fees............................ 4,000
Miscellaneous.............................. 7,850
---------------
Total expenses........................... 4,677,201
Less: custodian fee credit................. (22,116)
---------------
Net expenses............................. 4,655,085
---------------
NET INVESTMENT INCOME...................... 54,005,446
---------------

NET REALIZED GAIN ON INVESTMENTS............. 10,627
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 54,016,073
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 54,005,446 $ 42,343,388
Net realized gain on investments........................ 10,627 16,489
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 54,016,073 42,359,877
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (54,005,446) (42,343,388)
Distributions from net realized capital gains........... (10,627) (16,489)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (54,016,073) (42,359,877)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [122,718,909 and 76,618,642 shares,
respectively].......................................... 1,227,189,093 766,186,419
Capital stock issued in reinvestment of dividends and
distributions [5,401,607 and 4,235,988 shares,
respectively].......................................... 54,016,073 42,359,877
Capital stock repurchased [(86,592,293) and (54,581,645)
shares, respectively].................................. (865,922,932) (545,816,448)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 415,282,234 262,729,848
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 415,282,234 262,729,848
NET ASSETS:
Beginning of year....................................... 920,191,988 657,462,140
--------------- ---------------
End of year............................................. $ 1,335,474,222 $ 920,191,988
=============== ===============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$1,297,259,294).......................... $1,253,503,398
Cash....................................... 857
Interest receivable........................ 21,864,296
Receivable for capital stock sold.......... 84,272
--------------
Total Assets............................. 1,275,452,823
--------------
LIABILITIES
Payable for investments purchased.......... 19,689,306
Payable to investment adviser.............. 1,265,637
Payable for capital stock repurchased...... 506,980
Accrued expenses........................... 83,825
Due to broker -- variation margin.......... 75,125
--------------
Total Liabilities........................ 21,620,873
--------------
NET ASSETS................................... $1,253,831,950
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,145,550
Paid-in capital, in excess of par........ 1,248,882,163
--------------
1,250,027,713
Undistributed net investment income........ 76,304,703
Accumulated net realized loss on
investments.............................. (28,197,726)
Net unrealized depreciation on
investments.............................. (44,302,740)
--------------
Net assets, December 31, 1999.............. $1,253,831,950
==============
Net asset value and redemption price per
share, 114,554,992 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 10.95
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 81,500,023
---------------
EXPENSES
Investment advisory fee.................... 4,880,364
Shareholders' reports...................... 140,000
Accounting fees............................ 110,000
Custodian's fees and expenses.............. 50,000
Audit fee and expenses..................... 15,000
Transfer agent's fees and expenses......... 8,100
Legal fees and expenses.................... 6,000
Directors' fees............................ 4,000
Miscellaneous.............................. 23,769
---------------
Total expenses........................... 5,237,233
Less: custodian fee credit................. (41,913)
---------------
Net expenses............................. 5,195,320
---------------
NET INVESTMENT INCOME........................ 76,304,703
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. (26,270,908)
Futures.................................. 48,764
---------------
(26,222,144)
---------------
Net change in unrealized depreciation on:
Investments.............................. (58,177,006)
Futures.................................. (546,844)
---------------
(58,723,850)
---------------
NET LOSS ON INVESTMENTS...................... (84,945,994)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (8,641,291)
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 76,304,703 $ 60,710,670
Net realized gain (loss) on investments................. (26,222,144) 1,484,118
Net change in unrealized appreciation
(depreciation) on investments.......................... (58,723,850) 2,237,978
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (8,641,291) 64,432,766
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... -- (60,939,829)
Distributions from net realized capital gains........... (3,302,269) (3,466,261)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (3,302,269) (64,406,090)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [26,987,966 and 29,994,210 shares,
respectively].......................................... 296,061,460 334,707,738
Capital stock issued in reinvestment of dividends and
distributions [298,578 and 5,809,428 shares,
respectively].......................................... 3,302,269 64,406,090
Capital stock repurchased [(14,272,876) and (8,361,173)
shares, respectively].................................. (156,161,922) (93,273,532)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS.............................................. 143,201,807 305,840,296
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 131,258,247 305,866,972
NET ASSETS:
Beginning of year....................................... 1,122,573,703 816,706,731
--------------- ---------------
End of year(a).......................................... $ 1,253,831,950 $ 1,122,573,703
=============== ===============
(a) Includes undistributed net investment income of:.... $ 76,304,703 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value
(cost: $376,159,957)..................... $ 360,709,875
Cash....................................... 631
Interest receivable........................ 4,957,010
Due from broker -- variation margin........ 64,531
Receivable for capital stock sold.......... 11,818
Receivable for securities lending income... 30,220
--------------
Total Assets............................. 365,774,085
--------------
LIABILITIES
Payable for investments purchased.......... 29,528,375
Payable to investment adviser.............. 348,979
Payable for capital stock repurchased...... 342,218
Accrued expenses........................... 73,622
--------------
Total Liabilities........................ 30,293,194
--------------
NET ASSETS................................... $ 335,480,891
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 290,443
Paid-in capital, in excess of par........ 327,696,346
--------------
327,986,789
Undistributed net investment income........ 22,098,715
Accumulated net realized gain on
investments.............................. 569,297
Net unrealized depreciation on
investments.............................. (15,173,910)
--------------
Net assets, December 31, 1999.............. $ 335,480,891
==============
Net asset value and redemption price per
share, 29,044,347 outstanding shares of
common stock (authorized 65,000,000
shares).................................. $ 11.55
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 23,802,779
Income from securities loaned, net......... 2,510
---------------
23,805,289
---------------
EXPENSES
Investment advisory fee.................... 1,545,837
Accounting fees............................ 105,000
Shareholders' reports...................... 31,000
Audit fee and expenses..................... 10,000
Transfer agent's fees and expenses......... 6,100
Custodian's fees and expenses.............. 4,000
Directors' fees............................ 4,000
Legal fees and expenses.................... 2,000
Miscellaneous.............................. 1,043
---------------
Total expenses........................... 1,708,980
Less: custodian fee credit................. (2,406)
---------------
Net expenses............................. 1,706,574
---------------
NET INVESTMENT INCOME........................ 22,098,715
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 620,241
Futures.................................. (30,871)
Short sales.............................. 37,448
---------------
626,818
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (34,039,248)
Futures.................................. 276,172
---------------
(33,763,076)
---------------
NET LOSS ON INVESTMENTS...................... (33,136,258)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (11,037,543)
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 22,098,715 $ 24,850,570
Net realized gain on investments........................ 626,818 7,136,992
Net change in unrealized appreciation
(depreciation) on investments.......................... (33,763,076) 5,393,840
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (11,037,543) 37,381,402
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................... -- (24,927,823)
Distributions in excess of net investment income........ -- (64,303)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... -- (24,992,126)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,551,024 and 3,555,442 shares,
respectively].......................................... 18,087,112 42,216,640
Capital stock issued in reinvestment of dividends and
distributions [-0- and 2,122,659 shares,
respectively].......................................... -- 24,992,126
Capital stock repurchased [(9,860,838) and (5,610,053)
shares, respectively].................................. (114,780,632) (66,029,147)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. (96,693,520) 1,179,619
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (107,731,063) 13,568,895
NET ASSETS:
Beginning of year....................................... 443,211,954 429,643,059
--------------- ---------------
End of year(a).......................................... $ 335,480,891 $ 443,211,954
=============== ===============
(a) Includes undistributed net investment income of:.... $ 22,098,715 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2000 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$40,812,779)............................. $ 41,314,539
Cash....................................... 998
Interest receivable........................ 38
--------------
Total Assets............................. 41,315,575
--------------
LIABILITIES
Payable to investment adviser.............. 41,443
Accrued expenses........................... 21,625
Payable for capital stock repurchased...... 11,308
--------------
Total Liabilities........................ 74,376
--------------
NET ASSETS................................... $ 41,241,199
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 31,747
Paid-in capital, in excess of par........ 38,414,973
--------------
38,446,720
Undistributed net investment income........ 2,227,728
Accumulated net realized gain on
investments.............................. 64,991
Net unrealized appreciation on
investments.............................. 501,760
--------------
Net assets, December 31, 1999.............. $ 41,241,199
==============
Net asset value and redemption price per
share, 3,174,688 outstanding shares of
common stock (authorized 10,000,000
shares).................................. $ 12.99
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 2,461,922
---------------
EXPENSES
Investment advisory fee.................... 160,235
Accounting fees............................ 60,000
Shareholders' reports...................... 4,000
Directors' fees............................ 4,000
Audit fee and expenses..................... 3,400
Transfer agent's fees and expenses......... 2,000
Legal fees and expenses.................... 200
Miscellaneous.............................. 399
---------------
Total expenses........................... 234,234
Less: custodian fee credit................. (40)
---------------
Net expenses............................. 234,194
---------------
NET INVESTMENT INCOME........................ 2,227,728
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 64,991
Net change in unrealized depreciation on
investments.............................. (1,426,110)
---------------
NET LOSS ON INVESTMENTS...................... (1,361,119)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 866,609
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 2,227,728 $ 1,938,449
Net realized gain on investments........................ 64,991 613,189
Net change in unrealized appreciation
(depreciation) on investments.......................... (1,426,110) 344,539
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 866,609 2,896,177
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... -- (1,944,693)
Dividends from net realized capital gains............... (74,885) (538,304)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (74,885) (2,482,997)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [297,406 and 585,974 shares,
respectively].......................................... 3,825,409 7,538,056
Capital stock issued in reinvestment of dividends and
distributions [5,864 and 193,954 shares,
respectively].......................................... 74,885 2,482,997
Capital stock repurchased [(283,069) and (898,800)
shares, respectively].................................. (3,630,462) (11,521,310)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. 269,832 (1,500,257)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... 1,061,556 (1,087,077)
NET ASSETS:
Beginning of year....................................... 40,179,643 41,266,720
--------------- ---------------
End of year(a).......................................... $ 41,241,199 $ 40,179,643
=============== ===============
(a) Includes undistributed net investment income of:.... $ 2,227,728 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2005 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$46,003,252)............................. $ 45,477,722
Cash....................................... 489
Receivable for capital stock sold.......... 719
Interest receivable........................ 43
--------------
Total Assets............................. 45,478,973
--------------
LIABILITIES
Payable to investment adviser.............. 45,982
Accrued expenses........................... 22,967
Payable for capital stock repurchased...... 4,746
--------------
Total Liabilities........................ 73,695
--------------
NET ASSETS................................... $ 45,405,278
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 35,800
Paid-in capital, in excess of par........ 42,474,941
--------------
42,510,741
Undistributed net investment income........ 2,385,057
Accumulated net realized gain on
investments.............................. 1,035,010
Net unrealized depreciation on
investments.............................. (525,530)
--------------
Net assets, December 31, 1999.............. $ 45,405,278
==============
Net asset value and redemption price per
share, 3,579,888 outstanding shares of
common stock (authorized 10,000,000
shares).................................. $ 12.68
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 2,647,052
---------------
EXPENSES
Investment advisory fee.................... 179,486
Accounting fees............................ 67,000
Shareholders' reports...................... 5,000
Directors' fees............................ 4,000
Audit fee and expenses..................... 3,000
Transfer agent's fees and expenses......... 2,400
Custodian's fees and expenses.............. 2,000
Miscellaneous.............................. 84
---------------
Total expenses........................... 262,970
Less: custodian fee credit................. (975)
---------------
Net expenses............................. 261,995
---------------
NET INVESTMENT INCOME........................ 2,385,057
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 1,035,010
Net change in unrealized appreciation
(depreciation) on investments............ (6,039,140)
---------------
NET LOSS ON INVESTMENTS...................... (5,004,130)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (2,619,073)
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 2,385,057 $ 2,014,406
Net realized gain on investments........................ 1,035,010 --
Net change in unrealized appreciation (depreciation) on
investments............................................ (6,039,140) 2,497,521
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (2,619,073) 4,511,927
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... -- (2,019,716)
Distributions from net realized capital gains........... -- (38,745)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... -- (2,058,461)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [667,362 and 960,834 shares,
respectively].......................................... 8,629,539 12,526,521
Capital stock issued in reinvestment of dividends and
distributions [-0- and 156,052 shares, respectively]... -- 2,058,461
Capital stock repurchased [(472,837) and (177,614)
shares, respectively].................................. (6,108,622) (2,345,896)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 2,520,917 12,239,086
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (98,156) 14,692,552
NET ASSETS:
Beginning of year....................................... 45,503,434 30,810,882
--------------- ---------------
End of year(a).......................................... $ 45,405,278 $ 45,503,434
=============== ===============
(a) Includes undistributed net investment income of:.... $ 2,385,057 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A5
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$4,474,325,684).......................... $4,854,781,493
Cash....................................... 1,422,807
Receivable for securities lending,
income................................... 4,689,111
Interest and dividends receivable.......... 42,739,444
Receivable for investments sold............ 166,868
Receivable for capital stock sold.......... 39,860
--------------
Total Assets............................. 4,903,839,583
--------------
LIABILITIES
Collateral for securities on loan.......... 504,046,862
Payable to investment adviser.............. 6,028,201
Securities lending rebate payable.......... 2,965,737
Payable for investments purchased.......... 2,020,467
Payable for capital stock repurchased...... 1,222,854
Accrued expenses........................... 290,137
Due to broker -- variation margin.......... 125,094
--------------
Total Liabilities........................ 516,699,352
--------------
NET ASSETS................................... $4,387,140,231
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,856,249
Paid-in capital, in excess of par........ 4,013,577,042
--------------
4,016,433,291
Undistributed net investment income........ 392,041
Distributions in excess of net realized
gain on investments...................... (9,619,315)
Net unrealized appreciation on
investments.............................. 379,934,214
--------------
Net assets, December 31, 1999.............. $4,387,140,231
==============
Net asset value and redemption price per
share, 285,624,853 outstanding shares of
common stock (authorized 370,000,000
shares).................................. $ 15.36
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $286,950 foreign
withholding tax)......................... $ 27,413,849
Interest................................... 181,248,101
Income from securities loaned, net......... 1,820,729
---------------
210,482,679
---------------
EXPENSES
Investment advisory fee.................... 25,195,056
Shareholders' reports...................... 493,000
Accounting fees............................ 260,000
Custodian's fees and expenses.............. 210,000
Audit fee and expenses..................... 45,000
Legal fees and expenses.................... 21,200
Transfer agent's fees and expenses......... 8,000
Directors' fees............................ 4,000
Miscellaneous.............................. 94,076
---------------
Total expenses........................... 26,330,332
Less: custodian fee credit................. (80,190)
---------------
Net expenses............................. 26,250,142
---------------
NET INVESTMENT INCOME........................ 184,232,537
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 938,110
Futures.................................. (493,916)
---------------
444,194
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 114,039,471
Futures.................................. (3,001,308)
---------------
111,038,163
---------------
NET GAIN ON INVESTMENTS...................... 111,482,357
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 295,714,894
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 184,232,537 $ 200,201,254
Net realized gain on investments........................ 444,194 263,079,117
Net change in unrealized appreciation on investments.... 111,038,163 66,472,901
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 295,714,894 529,753,272
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (183,840,496) (201,150,300)
Distributions from net realized capital gains........... (16,406,123) (284,059,981)
Distributions in excess of net realized capital gains... (9,619,315) --
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (209,865,934) (485,210,281)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,595,334 and 4,155,780 shares,
respectively].......................................... 54,694,876 64,306,807
Capital stock issued in reinvestment of dividends and
distributions [13,845,674 and 32,017,520 shares,
respectively].......................................... 209,865,934 485,210,281
Capital stock repurchased [(49,920,477) and (34,980,138)
shares, respectively].................................. (759,229,309) (542,332,348)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. (494,668,499) 7,184,740
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (408,819,539) 51,727,731
NET ASSETS:
Beginning of year....................................... 4,795,959,770 4,744,232,039
--------------- ---------------
End of year (a)......................................... $ 4,387,140,231 $ 4,795,959,770
=============== ===============
(a) Includes undistributed net investment income of..... $ 392,041 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$5,219,625,332).......................... $5,631,103,413
Cash....................................... 2,947,562
Interest and dividends receivable.......... 36,766,337
Receivable for securities lending income... 3,251,757
Receivable for investments sold............ 488,542
Receivable for capital stock sold.......... 2,875
--------------
Total Assets............................. 5,674,560,486
--------------
LIABILITIES
Collateral for securities on loan.......... 526,881,461
Payable to investment adviser.............. 7,566,477
Payable for investments purchased.......... 5,161,402
Payable from broker........................ 4,214,978
Securities lending rebate payable.......... 2,877,006
Payable for capital stock repurchased...... 1,500,619
Due from broker -- variation margin........ 598,738
Accrued expenses........................... 495,510
--------------
Total Liabilities........................ 549,296,191
--------------
NET ASSETS................................... $5,125,264,295
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,904,882
Paid-in capital, in excess of par........ 4,494,235,963
--------------
4,497,140,845
Undistributed net investment income........ 168,078,194
Accumulated net realized gain on
investments.............................. 50,083,953
Net unrealized appreciation on
investments.............................. 409,961,303
--------------
Net assets................................. $5,125,264,295
==============
Net asset value and redemption price per
share, 290,488,231 outstanding shares of
common stock (authorized 370,000,000
shares).................................. $ 17.64
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $611,104 foreign
withholding tax)......................... $ 43,655,429
Income from securities loaned, net......... 1,727,448
Interest................................... 155,468,167
---------------
200,851,044
---------------
EXPENSES
Investment advisory fee.................... 31,532,667
Shareholders' reports...................... 577,000
Accounting fees............................ 240,000
Custodian's fees and expenses.............. 225,000
Audit fee and expenses..................... 47,000
Legal fees and expenses.................... 22,000
Transfer agent's fees and expenses......... 8,000
Directors' fees............................ 4,000
Miscellaneous.............................. 105,969
---------------
Total expenses........................... 32,761,636
Less: custodian fee credit................. (58,367)
---------------
Net expenses............................. 32,703,269
---------------
NET INVESTMENT INCOME........................ 168,147,775
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 45,313,528
Futures.................................. 21,714,794
---------------
67,028,322
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 174,886,106
Futures.................................. (16,638,716)
---------------
158,247,390
---------------
NET GAIN ON INVESTMENTS...................... 225,275,712
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 393,423,487
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 168,147,775 $ 177,588,088
Net realized gain on investments........................ 67,028,322 513,883,914
Net change in unrealized appreciation on investments.... 158,247,390 (167,145,159)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 393,423,487 524,326,843
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (240,137) (178,186,396)
Distributions from net realized capital gains........... (60,930,102) (552,345,875)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (61,170,239) (730,532,271)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,138,333 and 4,188,120 shares,
respectively].......................................... 53,348,688 74,668,669
Capital stock issued in reinvestment of dividends and
distributions [3,554,343 and 43,615,212 shares,
respectively].......................................... 61,170,239 730,532,271
Capital stock repurchased [(42,922,625) and (38,796,213)
shares, respectively].................................. (731,489,268) (679,156,218)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. (616,970,341) 126,044,722
--------------- ---------------
TOTAL DECREASE IN NET ASSETS.............................. (284,717,093) (80,160,706)
NET ASSETS:
Beginning of year....................................... 5,409,981,388 5,490,142,094
--------------- ---------------
End of year (a)......................................... $ 5,125,264,295 $ 5,409,981,388
=============== ===============
(a) Includes undistributed net investment income of:.... $ 168,078,194 $ 170,558
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A7
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$883,301,482)............................ $ 798,481,985
Cash....................................... 8,430
Interest and dividends receivable.......... 18,917,132
Receivable for security lending income..... 43,150
Receivable for capital stock sold.......... 71,219
Receivable for investments sold............ 71,175
--------------
Total Assets............................. 817,593,091
--------------
LIABILITIES
Collateral for securities on loan.......... 12,233,400
Payable for investments purchased.......... 1,650,248
Payable to investment adviser.............. 1,101,299
Payable for capital stock repurchased...... 191,678
Accrued expenses and other liabilities..... 117,195
Securities lending rebate payable.......... 98,721
Written options outstanding................ 3
--------------
Total Liabilities........................ 15,392,544
--------------
NET ASSETS................................... $ 802,200,547
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,067,107
Paid-in capital, in excess of par........ 853,033,328
--------------
854,100,435
Undistributed net investment income........ 84,257,678
Accumulated net realized loss on
investments.............................. (51,406,066)
Net unrealized depreciation on
investments.............................. (84,751,500)
--------------
Net assets, December 31, 1999.............. $ 802,200,547
==============
Net asset value and redemption price per
share, 106,710,720 outstanding shares of
common stock (authorized 195,000,000
shares).................................. $ 7.52
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Interest................................... $ 83,474,384
Dividends.................................. 5,444,639
Income from securities loaned, net......... 91,475
---------------
89,010,498
---------------
EXPENSES
Investment advisory fee.................... 4,421,391
Accounting fees............................ 160,000
Shareholders' reports...................... 88,000
Custodian's fees and expenses.............. 48,000
Audit fee and expenses..................... 24,000
Legal fees and expenses.................... 14,000
Transfer agent's fees and expenses......... 9,000
Directors' fees............................ 4,000
Miscellaneous.............................. 1,784
---------------
Total expenses........................... 4,770,175
Less: custodian fee credit................. (17,355)
---------------
Net expenses............................. 4,752,820
---------------
NET INVESTMENT INCOME........................ 84,257,678
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (42,984,475)
Net change in unrealized depreciation on
investments.............................. (5,307,921)
---------------
NET LOSS ON INVESTMENTS...................... (48,292,396)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 35,965,282
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 84,257,678 $ 71,160,362
Net realized loss on investments........................ (42,984,475) (2,031,112)
Net change in unrealized depreciation on investments.... (5,307,921) (90,371,730)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 35,965,282 (21,242,480)
--------------- ---------------
DIVIDENDS:
Dividends from net investment income.................... (2,179,668) (69,715,948)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [17,182,804 and 42,524,544 shares,
respectively].......................................... 127,100,943 336,104,252
Capital stock issued in reinvestment of dividends and
distributions [291,010 and 9,210,712 shares,
respectively].......................................... 2,179,668 69,715,948
Capital stock repurchased [(20,307,030) and (12,010,426)
shares, respectively].................................. (150,186,649) (94,215,879)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. (20,906,038) 311,604,321
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 12,879,576 220,645,893
NET ASSETS:
Beginning of year....................................... 789,320,971 568,675,078
--------------- ---------------
End of year(a).......................................... $ 802,200,547 $ 789,320,971
=============== ===============
(a) Includes undistributed net investment income of:.... $ 84,257,678 $ 2,179,668
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A8
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value
(cost: $2,345,486,363)................... $4,656,162,855
Cash....................................... 16,660
Interest and dividends receivable.......... 4,103,786
Receivable for capital stock sold.......... 1,023,504
Receivable for investments sold............ 583,564
Due from broker -- variation margin........ 145,000
--------------
Total Assets............................. 4,662,035,369
--------------
LIABILITIES
Payable to investment adviser.............. 3,371,376
Payable for investments purchased.......... 2,251,707
Payable for capital stock repurchased...... 1,099,090
Accrued expenses........................... 295,676
--------------
Total Liabilities........................ 7,017,849
--------------
NET ASSETS................................... $4,655,017,520
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,047,241
Paid-in capital, in excess of par........ 2,338,932,384
--------------
2,339,979,625
Undistributed net investment income........ 315,792
Accumulated net realized gain on
investments.............................. 1,621,348
Net unrealized appreciation on
investments.............................. 2,313,100,755
--------------
Net assets, December 31, 1999.............. $4,655,017,520
==============
Net asset value and redemption price per
share, 104,724,109 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 44.45
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $566,445 foreign
withholding tax)......................... $ 54,524,413
Interest................................... 5,110,430
---------------
59,634,843
---------------
EXPENSES
Investment advisory fee.................... 14,259,131
Shareholders' reports...................... 550,000
Custodian's fees and expenses.............. 140,000
Accounting fees............................ 131,000
Audit fee and expenses..................... 40,000
Legal fees and expenses.................... 20,000
Transfer agent's fees and expenses......... 8,500
Directors' fees............................ 4,000
Miscellaneous.............................. 78,482
---------------
Total expenses........................... 15,231,113
Less: custodian fee credit................. (4,650)
---------------
Net expenses............................. 15,226,463
---------------
NET INVESTMENT INCOME........................ 44,408,380
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 32,943,947
Futures.................................. 13,251,281
---------------
46,195,228
---------------
Net change in unrealized appreciation on:
Investments.............................. 685,134,062
Futures.................................. (2,181,112)
---------------
682,952,950
---------------
NET GAIN ON INVESTMENTS...................... 729,148,178
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 773,556,558
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 44,408,380 $ 36,771,654
Net realized gain on investments........................ 46,195,228 57,465,213
Net change in unrealized appreciation on investments.... 682,952,950 644,691,671
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 773,556,558 738,928,538
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................... (44,092,588) (37,075,916)
Distributions from net realized capital gains........... (54,347,010) (53,566,202)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (98,439,598) (90,642,118)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [19,061,602 and 21,945,962 shares,
respectively].......................................... 768,257,840 739,810,425
Capital stock issued in reinvestment of dividends and
distributions [2,357,499 and 2,541,175 shares,
respectively].......................................... 98,439,598 90,642,118
Capital stock repurchased [(10,712,263) and (11,483,263)
shares, respectively].................................. (434,885,868) (378,841,199)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 431,811,570 451,611,344
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 1,106,928,530 1,099,897,764
NET ASSETS:
Beginning of year....................................... 3,548,088,990 2,448,191,226
--------------- ---------------
End of year (a)......................................... $ 4,655,017,520 $ 3,548,088,990
=============== ===============
(a) Included undistributed net investment income of:.... $ 315,792 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A9
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$1,837,415,249).......................... $2,079,658,692
Cash....................................... 857
Interest and dividends receivable.......... 5,934,776
Receivable for securities lending income... 363,588
Receivable for capital stock sold.......... 72,990
--------------
Total Assets............................. 2,086,030,903
--------------
LIABILITIES
Collateral for securities on loan.......... 57,973,945
Payable to investment adviser.............. 1,941,452
Payable for capital stock repurchased...... 1,201,032
Securities lending rebate payable.......... 688,567
Accrued expenses........................... 186,547
--------------
Total Liabilities........................ 61,991,543
--------------
NET ASSETS................................... $2,024,039,360
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,036,951
Paid-in capital, in excess of par........ 1,774,194,608
--------------
1,775,231,559
Undistributed net investment income........ 3,322,069
Accumulated net realized gain on
investments.............................. 3,242,289
Net unrealized appreciation on
investments.............................. 242,243,443
--------------
Net assets, December 31, 1999.............. $2,024,039,360
==============
Net asset value and redemption price per
share, 103,695,100 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 19.52
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $742,260 foreign
withholding tax)......................... $ 55,616,065
Interest................................... 2,029,036
Income from securities loaned, net......... 432,635
---------------
58,077,736
---------------
EXPENSES
Investment advisory fee.................... 8,409,886
Shareholders' reports...................... 214,000
Accounting fees............................ 96,000
Custodian's fees and expenses.............. 80,000
Audit fee and expenses..................... 22,400
Transfer agent's fees and expenses......... 8,000
Legal fees and expenses.................... 8,000
Directors' fees............................ 4,000
Miscellaneous.............................. 42,368
---------------
Total expenses........................... 8,884,654
Less: custodian fee credit................. (4,606)
---------------
Net expenses............................. 8,880,048
---------------
NET INVESTMENT INCOME........................ 49,197,688
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments......... 196,991,597
Net change in unrealized appreciation on
investments............................ 1,676,194
---------------
NET GAIN ON INVESTMENTS...................... 198,667,791
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 247,865,479
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 49,197,688 $ 56,212,487
Net realized gain on investments........................ 196,991,597 129,490,381
Net change in unrealized appreciation on investments.... 1,676,194 (258,928,963)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 247,865,479 (73,226,095)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (47,863,180) (58,670,537)
Distributions from net realized capital gains........... (228,772,711) (129,895,659)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (276,635,891) (188,566,196)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [4,932,597 and 17,968,538
respectively].......................................... 106,031,268 414,994,376
Capital stock issued in reinvestment of dividends and
distributions [14,298,341 and 8,899,832 shares,
respectively].......................................... 276,635,891 188,566,196
Capital stock repurchased [(22,475,612) and (10,593,789)
shares, respectively].................................. (472,178,202) (229,203,355)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................. (89,511,043) 374,357,217
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (118,281,455) 112,564,926
NET ASSETS:
Beginning of year....................................... 2,142,320,815 2,029,755,889
--------------- ---------------
End of year(a).......................................... $ 2,024,039,360 $ 2,142,320,815
=============== ===============
(a) Includes undistributed net investment income of:.... $ 3,322,069 $ 1,987,561
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A10
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$4,885,331,050).......................... $6,235,357,940
Cash....................................... 58,953
Interest and dividends receivable.......... 11,253,951
Receivable for capital stock sold.......... 94,134
--------------
Total Assets............................. 6,246,764,978
--------------
LIABILITIES
Payable to investment adviser.............. 6,736,764
Payable for capital stock repurchased...... 2,845,468
Payable for investments purchased.......... 1,326,576
Accrued expenses........................... 421,231
Forward currency contracts - amount payable
to counterparties........................ 138,418
Distribution fee payable................... 174
Administration fee payable................. 105
--------------
Total Liabilities........................ 11,468,736
--------------
NET ASSETS................................... $6,235,296,242
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,157,333
Paid-in capital, in excess of par........ 4,743,333,540
--------------
4,745,490,873
Undistributed net investment income........ 2,943,614
Accumulated net realized gain on
investments.............................. 136,974,864
Net unrealized appreciation on investments
and foreign currencies................... 1,349,886,891
--------------
Net assets, December 31, 1999.............. $6,235,296,242
==============
CLASS I:
Net asset value and redemption price per
share,
$6,234,976,708 DIVIDED BY 215,722,265
outstanding shares of common stock
(authorized 295,000,000 shares).......... $ 28.90
==============
CLASS II:
Net asset value and redemption price per
share, $319,534 DIVIDED BY 11,050
outstanding shares of common stock
(authorized 5,000,000 shares)............ $ 28.92
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $844,442 foreign
withholding tax)......................... $ 112,553,009
Interest................................... 24,847,638
---------------
137,400,647
---------------
EXPENSES
Investment advisory fee.................... 28,188,640
Distribution fee - Class II................ 358
Administration fee - Class II.............. 215
Shareholders' reports...................... 694,000
Custodian's fees and expenses.............. 212,000
Accounting fees............................ 92,000
Audit fee and expenses..................... 50,000
Legal fees and expenses.................... 21,000
Transfer agent's fees and expenses......... 9,000
Directors' fees............................ 4,000
Miscellaneous.............................. 122,035
---------------
Total expenses........................... 29,393,248
Less: custodian fee credit................. (23,473)
---------------
Net expenses............................. 29,369,775
---------------
NET INVESTMENT INCOME........................ 108,030,872
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. 762,125,712
Foreign currencies....................... (2,464)
---------------
762,123,248
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (132,692,386)
Foreign currencies....................... (139,868)
---------------
(132,832,254)
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 629,290,994
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 737,321,866
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 108,030,872 $ 114,479,882
Net realized gain on investments and foreign
currencies............................................. 762,123,248 766,481,591
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies..................... (132,832,254) (344,074,909)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 737,321,866 536,886,564
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................... (105,056,328) (115,394,083)
Distributions from net realized capital gains........... (737,934,646) (684,800,016)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (842,990,974) (800,194,099)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [8,685,422 and 12,676,785 shares,
respectively].......................................... 269,993,500 418,548,498
Capital stock issued in reinvestment of dividends and
distributions [29,304,589 and 27,106,415 shares,
respectively].......................................... 842,990,974 800,194,099
Capital stock repurchased [(33,043,224) and (22,886,073)
shares, respectively].................................. (1,019,065,758) (732,368,459)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 93,918,716 486,374,138
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (11,750,392) 223,066,603
NET ASSETS:
Beginning of year....................................... 6,247,046,634 6,023,980,031
--------------- ---------------
End of year(a).......................................... $ 6,235,296,242 $ 6,247,046,634
=============== ===============
(a) Includes undistributed net investment income of:.... $ 2,943,614 $ 109,952
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A11
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value
(cost: $1,878,457,043)................... $2,770,755,886
Receivable for capital stock sold.......... 3,116,216
Interest and dividends receivable.......... 689,911
--------------
Total Assets............................. 2,774,562,013
--------------
LIABILITIES
Payable to investment adviser.............. 3,521,607
Accrued expenses........................... 189,370
Payable for capital stock repurchased...... 183,175
--------------
Total Liabilities........................ 3,894,152
--------------
NET ASSETS................................... $2,770,667,861
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 855,320
Paid-in capital, in excess of par........ 1,828,906,678
--------------
1,829,761,998
Accumulated net realized gain on
investments.............................. 48,607,020
Net unrealized appreciation on
investments.............................. 892,298,843
--------------
Net assets, December 31, 1999.............. $2,770,667,861
==============
Net asset value and redemption price per
share, 85,531,975 outstanding shares of
common stock (authorized 110,000,000
shares).................................. $ 32.39
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $51,404 foreign
withholding tax)......................... $ 10,620,507
Interest................................... 4,147,465
---------------
14,767,972
---------------
EXPENSES
Investment advisory fee.................... 11,126,560
Shareholders' reports...................... 323,000
Accounting fees............................ 83,000
Custodian's fees and expenses.............. 58,000
Audit fee and expenses..................... 32,000
Legal fees and expenses.................... 10,000
Transfer agent's fees and expenses......... 8,000
Directors' fees............................ 4,000
Miscellaneous expenses..................... 33,257
---------------
Total expenses........................... 11,677,817
Less: custodian fee credit................. (10,502)
---------------
Net expenses............................. 11,667,315
---------------
NET INVESTMENT INCOME........................ 3,100,657
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FUTURES
Net realized gain on:
Investments.............................. 147,436,610
Futures.................................. 98,386
---------------
147,534,996
Net change in unrealized appreciation on
investments.............................. 574,663,580
---------------
NET GAIN ON INVESTMENTS...................... 722,198,576
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 725,299,233
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 3,100,657 $ 1,528,070
Net realized gain on investments........................ 147,534,996 24,429,896
Net change in unrealized appreciation on investments.... 574,663,580 237,742,766
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 725,299,233 263,700,732
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (3,100,657) (1,629,850)
Distributions from net realized capital gains........... (109,146,897) (17,069,906)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (112,247,554) (18,699,756)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [46,076,803 and 30,113,536 shares,
respectively].......................................... 1,238,109,549 619,908,140
Capital stock issued in reinvestment of dividends and
distributions [3,815,423 and 849,914 shares,
respectively].......................................... 112,247,554 18,699,756
Capital stock repurchased [(14,500,046) and (8,792,029)
shares, respectively].................................. (391,470,256) (180,816,656)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 958,886,847 457,791,240
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 1,571,938,526 702,792,216
NET ASSETS:
Beginning of year....................................... 1,198,729,335 495,937,119
--------------- ---------------
End of year............................................. $ 2,770,667,861 $ 1,198,729,335
=============== ===============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A12
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
SMALL CAPITALIZATION STOCK PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$408,381,016)............................ $ 444,888,674
Cash....................................... 407,528
Receivable for capital stock sold.......... 280,209
Interest and dividends receivable.......... 217,466
Due from broker -- variation margin........ 145,400
Receivable for investments sold............ 22,612
Receivable for securities lending income... 11,340
--------------
Total Assets............................. 445,973,229
--------------
LIABILITIES
Collateral for Securities on loan.......... 7,616,100
Payable to investment adviser.............. 402,165
Payable for capital stock repurchased...... 347,885
Accrued expenses........................... 65,538
Securities lending rebate payable.......... 47,852
--------------
Total Liabilities........................ 8,479,540
--------------
NET ASSETS................................... $ 437,493,689
==============
Net assets were comprised of:
Common stock, at $.01 par value.......... $ 269,165
Paid-in capital, in excess of par........ 373,910,304
--------------
374,179,469
Undistributed net investment income........ 2,620,452
Accumulated net realized gain on
investments.............................. 23,381,460
Net unrealized appreciation on
investments.............................. 37,312,308
--------------
Net assets, December 31, 1999.............. $ 437,493,689
==============
Net asset value and redemption price per
share (26,916,478 outstanding shares of
common stock, authorized 70,000,000
shares).................................. $ 16.25
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $1,567 foreign
withholding tax)......................... $ 3,359,816
Interest................................... 839,685
Interest from securities loaned, net....... 98,182
---------------
4,297,683
---------------
EXPENSES
Investment advisory fee.................... 1,504,880
Accounting fees............................ 50,000
Shareholders' reports...................... 48,000
Audit fee and expenses..................... 15,000
Custodian's fees and expenses.............. 15,000
Transfer agent fees and expenses........... 7,000
Directors' fees............................ 4,000
Legal fees and expenses.................... 2,000
Miscellaneous.............................. 37,508
---------------
Total expenses........................... 1,683,388
Less: custodian fee credit................. (6,157)
---------------
Net expenses............................. 1,677,231
---------------
NET INVESTMENT INCOME........................ 2,620,452
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 24,523,343
Futures.................................. 1,700,340
---------------
26,223,683
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 22,969,802
Futures.................................. (1,225,300)
---------------
21,744,502
---------------
NET GAIN ON INVESTMENTS...................... 47,968,185
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 50,588,637
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 2,620,452 $ 1,764,439
Net realized gain on investments........................ 26,223,683 22,873,920
Net change in unrealized appreciation on investments.... 21,744,502 (24,817,869)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 50,588,637 (179,510)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... -- (1,831,259)
Distributions from net realized capital gains........... (6,897,212) (21,572,922)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (6,897,212) (23,404,181)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [8,615,063 and 7,528,693 shares,
respectively].......................................... 122,618,563 113,481,559
Capital stock issued in reinvestment of dividends and
distributions [506,032 and 1,637,984 shares,
respectively].......................................... 6,897,212 23,404,181
Capital stock repurchased [(6,702,620) and (2,891,548)
shares, respectively].................................. (96,099,149) (43,226,325)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 33,416,626 93,659,415
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 77,108,051 70,075,724
NET ASSETS:
Beginning of year....................................... 360,385,638 290,309,914
--------------- ---------------
End of year(a).......................................... $ 437,493,689 $ 360,385,638
=============== ===============
(a) Includes undistributed net investment income of:.... $ 2,620,452 $ --
--------------- ---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A13
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value
(cost: $724,163,895)..................... $1,275,662,478
Foreign currency, at value
(cost: $36,813,796)...................... 36,614,585
Cash....................................... 698
Unrealized appreciation on interest rate
swap..................................... 1,387,252
Dividends and interest receivable.......... 756,583
Receivable for capital stock sold.......... 405,725
--------------
Total Assets............................. 1,314,827,321
--------------
LIABILITIES
Payable to investment purchased............ 13,386,766
Payable for investments adviser............ 2,083,472
Payable for capital stock repurchased...... 753,737
Accrued expenses and other liabilities..... 289,258
--------------
Total Liabilities........................ 16,513,233
--------------
NET ASSETS................................... $1,298,314,088
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 419,131
Paid-in capital, in excess of par........ 651,981,706
--------------
652,400,837
Distributions in excess of net investment
income................................... (31,563)
Accumulated net realized gain on
investments.............................. 93,212,412
Net unrealized appreciation on investments
and foreign currencies................... 552,732,402
--------------
Net assets, December 31, 1999.............. $1,298,314,088
==============
Net asset value and redemption price per
share of 41,913,089 outstanding shares of
common stock (authorized 70,000,000
shares).................................. $ 30.98
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
December 31, 1999
INVESTMENT INCOME
Dividends (net of $656,976 foreign
witholding tax).......................... $ 8,629,752
Interest................................... 1,625,766
---------------
10,255,518
---------------
EXPENSES
Investment advisory fee.................... 7,287,427
Custodian's fees and expenses.............. 528,000
Accounting fees............................ 178,000
Shareholders' reports...................... 99,000
Audit fee and expenses..................... 26,000
Transfer agent's fees and expenses......... 8,000
Directors' fees............................ 4,000
Miscellaneous.............................. 3,240
---------------
Total expenses........................... 8,133,667
Less: custodian fee credit................. (3,727)
---------------
Net expenses............................. 8,129,940
---------------
NET INVESTMENT INCOME........................ 2,125,578
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. 107,213,072
Foreign currencies....................... (2,319,994)
Interest rate swaps...................... 996,575
---------------
105,889,653
---------------
Net change in unrealized appreciation on:
Investments.............................. 310,067,546
Foreign currencies....................... 5,188,274
---------------
315,255,820
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 421,145,473
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 423,271,051
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 2,125,578 $ 2,043,217
Net realized gain on investments and foreign
currencies............................................. 105,889,653 41,097,089
Net change in unrealized appreciation on investments and
foreign currencies..................................... 315,255,820 121,145,340
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 423,271,051 164,285,646
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... -- (5,559,015)
Distributions in excess of net investment income........ (4,140,269) (4,481,373)
Distributions from net realized capital gains........... (7,259,626) (35,181,433)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (11,399,895) (45,221,821)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,980,789 and 9,626,530 shares,
respectively].......................................... 303,934,195 191,039,953
Capital stock issued in reinvestment of dividends and
distributions [520,780 and 2,231,010 shares,
respectively].......................................... 11,399,895 45,221,821
Capital stock repurchased [(11,503,347) and (7,562,638)
shares, respectively].................................. (273,433,117) (149,184,992)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 41,900,973 87,076,782
--------------- ---------------
TOTAL INCREASE IN NET ASSETS.............................. 453,772,129 206,140,607
NET ASSETS:
Beginning of year....................................... 844,541,959 638,401,352
--------------- ---------------
End of year............................................. $ 1,298,314,088 $ 844,541,959
=============== ===============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A14
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
NATURAL RESOURCES PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
December 31, 1999
ASSETS
Investments, at value (cost:
$261,214,614)............................ $ 289,698,398
Interest and dividends receivable.......... 170,509
Receivable for capital stock sold.......... 82,832
Receivable for investments sold............ 38,477
--------------
Total Assets............................. 289,990,216
--------------
LIABILITIES
Bank overdraft............................. 44,577
Payable to investment adviser.............. 312,863
Payable for capital stock repurchased...... 118,353
Accrued expenses........................... 39,562
--------------
Total Liabilities........................ 515,355
--------------
NET ASSETS................................... $ 289,474,861
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 166,539
Paid-in capital, in excess of par........ 269,610,184
--------------
269,776,723
Undistributed net investment income........ 435,413
Accumulated net realized gain on
investments.............................. (9,221,272)
Net unrealized appreciation on investments
and foreign currencies................... 28,483,997
--------------
Net assets, December 31, 1999.............. $ 289,474,861
==============
Net asset value and redemption price per
share, 16,653,890 outstanding shares of
common stock (authorized 30,000,000
shares).................................. $ 17.38
==============
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $158,049 foreign
withholding tax)......................... $ 3,130,522
Interest................................... 43,680
---------------
3,174,202
---------------
EXPENSES
Investment advisory fee.................... 1,182,863
Accounting fees............................ 82,000
Custodian's fees and expenses.............. 33,000
Shareholders' reports...................... 20,000
Audit fee and expenses..................... 8,000
Transfer agent's fees and expenses......... 6,000
Directors' fees............................ 4,000
Legal fees and expenses.................... 1,000
Miscellaneous.............................. 870
---------------
Total expenses........................... 1,337,733
Less: custodian fee credit................. (670)
---------------
Net expenses............................. 1,337,063
---------------
NET INVESTMENT INCOME........................ 1,837,139
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. (2,020,650)
Foreign currencies....................... 83,024
---------------
(1,937,626)
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 97,567,635
Foreign currencies....................... (27)
---------------
97,567,608
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 95,629,982
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 97,467,121
===============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
<S> <C> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 1,837,139 $ 1,896,076
Net realized loss on investments and foreign
currencies............................................. (1,937,626) (6,912,168)
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies..................... 97,567,608 (47,044,412)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 97,467,121 (52,060,504)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (1,789,249) (2,234,825)
Distributions in excess of net investment income........ (18,078) --
Distributions from net realized capital gains........... -- (16,376,612)
Tax return of capital distributions..................... -- (222,068)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (1,807,327) (18,833,505)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,114,228 and 332,632 shares,
respectively].......................................... 17,179,636 4,416,142
Capital stock issued in reinvestment of dividends and
distributions [114,793 and 1,190,078 shares,
respectively].......................................... 1,807,327 18,833,505
Capital stock repurchased [(4,343,112) and (5,235,801)
shares, respectively].................................. (62,070,534) (73,408,413)
--------------- ---------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS........................................... (43,083,571) (50,158,766)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... 52,576,223 (121,052,775)
NET ASSETS:
Beginning of year....................................... 236,898,638 357,951,413
--------------- ---------------
End of year (a)......................................... $ 289,474,861 $ 236,898,638
=============== ===============
(a) Includes undistributed net investment income of:.... $ 435,413 $ --
=============== ===============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

A15
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1999

<TABLE>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
----- -------- --------- --------------
<S> <C> <C> <C> <C>
BANK NOTES -- 16.6%
Amex Centurion Bank ............................ 4.91% 03/08/00 $ 5,000 $ 5,000,000
Amex Centurion Bank(a).......................... 5.19% 07/10/00 6,000 6,000,000
Banc One Corp.(a)............................... 5.52% 08/17/00 3,100 3,100,000
Banc One Corp.(a)............................... 5.52% 08/21/00 10,000 10,000,000
Banc One Corp.(a)............................... 5.57% 10/06/00 14,000 14,003,348
Comerica Bank N.A.(a)........................... 5.00% 09/01/00 6,000 5,997,188
Commercial Bank of Detroit ..................... 5.00% 06/13/00 12,000 11,996,544
FCC National Bank .............................. 5.12% 02/23/00 10,000 9,999,511
FCC National Bank .............................. 5.14% 03/22/00 5,000 4,999,627
First Union National Bank ...................... 4.95% 03/10/00 20,000 20,000,000
First Union National Bank(a).................... 5.29% 07/21/00 24,000 24,000,000
Ford Motor Credit Corp.(a)...................... 5.44% 08/18/00 35,000 34,982,180
Ford Motor Credit Corp.(a)...................... 5.50% 10/02/00 28,000 27,979,453
Forstal Fund ................................... 6.09% 02/11/00 9,000 8,937,577
Keybank, N.A.(a)................................ 5.04% 06/14/00 8,000 7,997,870
Keybank, N.A.(a)................................ 5.05% 07/17/00 4,000 4,001,598
Keybank, N.A.(a)................................ 5.11% 06/26/00 1,000 999,763
U.S. Bank, N.A.(a).............................. 5.00% 06/21/00 8,000 7,997,405
U.S. Bank, N.A.(a).............................. 5.02% 06/26/00 14,000 13,996,664
--------------
221,988,728
--------------
CERTIFICATE OF DEPOSIT-DOMESTIC -- 1.2%
Morgan Guaranty Trust Co. ...................... 5.70% 07/19/00 16,000 16,000,000
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 13.8%
Bank of Scotland ............................... 6.02% 02/29/00 26,000 25,998,441
Barclays Bank PLC .............................. 5.16% 03/31/00 10,000 9,973,542
Deutsche Bank .................................. 4.98% 02/02/00 10,000 9,999,865
Deutsche Bank .................................. 5.01% 01/24/00 5,000 4,999,878
Deutsche Bank .................................. 5.06% 01/18/00 10,000 9,999,746
National Westminster ........................... 6.10% 11/27/00 50,000 49,905,505
Rabobank Nederland ............................. 5.66% 07/13/00 34,000 33,992,760
Royal Bank of Canada ........................... 4.99% 01/31/00 30,000 29,999,288
UBS, A.G. ...................................... 5.29% 05/19/00 10,000 9,997,803
--------------
184,866,828
--------------
COMMERCIAL PAPER -- 54.6%
Abbey National Treasury Series, PLC(a).......... 5.24% 07/24/00 20,000 19,993,412
Aon Corp. ...................................... 6.10% 02/11/00 10,000 9,930,528
Aristar, Inc. .................................. 6.13% 03/02/00 10,000 9,896,131
Aristar, Inc. .................................. 6.15% 01/27/00 7,000 6,968,908
Aristar, Inc. .................................. 6.25% 01/31/00 6,200 6,167,708
Asset Securitization Co. ....................... 7.00% 02/02/00 500 496,889
Associates First Capital Corp. ................. 5.90% 02/18/00 9,000 8,929,200
Association Corp. of North America(a)........... 5.10% 06/29/00 50,000 49,982,787
Barton Capital Corp. ........................... 6.20% 01/20/00 17,000 16,944,372
Barton Capital Corp. ........................... 6.50% 01/28/00 1,600 1,592,200
Barton Capital Corp. ........................... 6.50% 02/11/00 1,500 1,488,896
Barton Capital Corp. ........................... 7.05% 01/14/00 4,000 3,989,817
Blue Ridge Asset Fund. ......................... 6.95% 02/02/00 750 745,367
Cariplo Finance, Inc. .......................... 6.00% 02/24/00 15,000 14,865,000
Centric Capital Corp. .......................... 5.60% 01/28/00 4,000 3,983,200
Centric Capital Corp. .......................... 6.25% 01/11/00 13,300 13,276,910
Chrysler Financial Corp. ....................... 6.38% 01/28/00 9,000 9,008,633
Commercial Credit Co. .......................... 6.00% 04/15/00 10,000 10,020,536
Cregem North America ........................... 5.91% 03/30/00 15,000 14,780,838
Daimler Chrysler(a)............................. 5.06% 07/06/00 29,000 28,980,686
Daimler Chrysler ............................... 5.76% 03/20/00 17,000 16,785,120
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B1
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C>
----- -------- --------- --------------
Daimler Chrysler ............................... 6.00% 01/28/00 $ 9,511 $ 9,468,202
Delaware Funding Corp. ......................... 6.30% 02/24/00 4,000 3,962,200
Duke Capital Corp. ............................. 7.00% 01/25/00 5,000 4,976,667
Eaton Corp. .................................... 6.85% 01/28/00 29,650 29,497,673
Enterprise Funding Corp. ....................... 6.20% 02/11/00 4,549 4,516,879
Enterprise Funding Corp. ....................... 6.25% 02/17/00 15,782 15,653,223
Enterprise Funding Corp. ....................... 6.30% 02/10/00 4,038 4,009,734
Enterprise Funding Corp. ....................... 6.30% 02/11/00 1,386 1,376,056
Enterprise Funding Corp. ....................... 6.55% 02/03/00 917 911,494
Enterprise Funding Corp. ....................... 6.77% 01/26/00 2,242 2,231,460
Finova Capital Corp. ........................... 6.25% 03/10/00 14,000 13,832,292
General Electric Capital Corp. ................. 5.97% 03/10/00 44,000 43,496,530
General Motors Accept Corp. .................... 5.76% 02/29/00 30,000 29,716,800
General Motors Accept Corp. .................... 5.77% 03/03/00 30,000 29,701,883
General Motors Accept Corp. .................... 5.88% 02/10/00 4,000 3,973,867
General Motors Accept Corp. .................... 6.20% 02/14/00 806 799,892
GTE Funding, Inc. .............................. 6.35% 02/22/00 3,140 3,111,199
GTE Funding, Inc. .............................. 6.45% 02/24/00 1,000 990,325
Hartford Financial Service Group, Inc. ......... 6.60% 01/28/00 1,700 1,691,585
ING American Insurance Holdings ................ 5.90% 02/08/00 2,000 1,987,544
Intrepid Funding Master ........................ 6.05% 03/20/00 3,173 3,130,874
Intrepid Funding Master ........................ 6.10% 03/13/00 938 926,556
Morgan (J.P.) & Co., Inc. ...................... 6.10% 03/31/00 7,240 7,129,590
Morgan (J.P.) & Co., Inc. ...................... 6.20% 03/13/00 1,000 987,600
MCI Worldcom, Inc .............................. 7.10% 01/31/00 10,000 9,940,833
Merrill Lynch & Co., Inc ....................... 5.55% 01/28/00 3,249 3,235,476
Merrill Lynch & Co., Inc ....................... 5.95% 02/29/00 5,000 4,951,243
Morgan Stanley Dean Witter & Co. ............... 5.98% 02/25/00 21,360 21,164,853
National Australia Fund ........................ 6.25% 02/09/00 6,600 6,555,312
Nationwide Building Society .................... 6.00% 02/04/00 10,000 9,943,333
Nordbankedn N.A. ............................... 5.76% 02/24/00 17,060 16,912,602
Old Line Funding Corp. ......................... 6.20% 01/21/00 6,941 6,917,092
Old Line Funding Corp. ......................... 6.40% 01/25/00 12,000 11,948,800
Paribas Finance, Inc. .......................... 6.11% 02/22/00 10,000 9,911,744
PNC Funding Corp. .............................. 5.95% 03/13/00 1,000 988,100
PNC Student Loan Trust ......................... 5.91% 02/22/00 5,000 4,957,317
PNC Student Loan Trust ......................... 5.93% 02/18/00 4,000 3,968,373
Preferred Receivables Funding Corp. ............ 5.50% 01/20/00 2,500 2,492,743
Preferred Receivables Funding Corp. ............ 6.85% 01/27/00 12,490 12,428,209
Strategic MM Tr 99-B(a)......................... 5.00% 03/15/00 9,000 9,000,000
Strategic MM Tr 99-B(a)......................... 6.30% 09/13/00 27,000 27,000,000
Toronto Dominion Holdings ...................... 5.02% 02/04/00 5,000 4,999,865
Toronto Dominion Holdings ...................... 5.12% 02/18/00 10,000 9,999,557
Triple-A One Plus Funding ...................... 7.00% 01/19/00 1,778 1,771,777
Triple-A One Plus Funding ...................... 7.00% 01/20/00 2,795 2,784,674
Variable Funding Capital(a)..................... 5.50% 03/22/00 18,400 18,400,000
Wells Fargo & Co. .............................. 5.31% 03/31/00 5,000 4,991,934
Wells Fargo & Co. .............................. 5.75% 03/10/00 15,000 14,834,688
Wells Fargo & Co. .............................. 5.75% 03/14/00 40,000 39,533,611
Wood Street Funding Corp. ...................... 7.07% 01/13/00 2,000 1,995,287
--------------
728,534,686
--------------
MEDIUM TERM NOTE -- 0.2%
Citicorp(a)..................................... 5.21% 08/02/00 2,000 2,000,000
--------------
OTHER CORPORATE OBLIGATIONS -- 13.1%
Association Corp. of North America ............. 6.00% 06/15/00 5,000 4,998,933
Centex Home Mortgage(a)......................... 6.61% 10/20/00 5,000 5,000,000
Chase Manhattan Bank(a)......................... 4.83% 05/25/00 25,000 24,993,632
Commercial Credit Co. .......................... 5.75% 07/15/00 2,000 1,997,967
Conseco Financial, Inc.(a)...................... 6.62% 01/05/01 9,000 9,000,000
General Electric Capital Corp. ................. 6.09% 03/07/00 1,735 1,715,629
General Electric Capital Corp.(a)............... 4.95% 05/12/00 $ 20,000 $ 20,000,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B2
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C>
----- -------- --------- --------------
Goldman Sachs Group L.P. (a)(b) ................ 5.62% 01/18/00 30,000 30,000,000
Restructured Asset Securities Enhanced
Return(a)..................................... 5.46% 09/06/00 24,000 24,000,000
Restructured Asset Securities Enhanced
Return(a)..................................... 5.68% 01/21/00 16,000 16,000,000
Security Life Denver(a)(b)...................... 5.07% 04/12/00 2,000 2,000,000
Short Term Restructured Asset(a)................ 5.59% 08/18/00 12,000 12,000,000
Travelers Group, Inc.(a)(b)..................... 5.34% 07/06/00 4,000 4,000,000
Unifunding, Inc. ............................... 6.05% 01/25/00 5,385 5,363,280
U.S. Bancorp(a)................................. 5.48% 09/20/00 14,265 14,259,951
--------------
175,329,392
--------------
TOTAL INVESTMENTS -- 99.5%
(amortized cost $1,328,719,634; (c))......................................... 1,328,719,634
--------------
ASSETS IN EXCESS OF OTHER LIABILITIES -- 0.5%.................................. 6,754,588
--------------
TOTAL NET ASSETS -- 100.0%..................................................... $1,335,474,222
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British Corporation)

(a) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at December 31, 1999.

(b) Indicates a restricted security and deemed illiquid. The aggregate cost and
value of restricted securities is $36,000,000 and represents 2.7% of net
assets.

(c) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.

The industry classification of portfolio holdings and other assets in
excess of liabilities shown as a percentage of net assets as of
December 31, 1999 was as follows:

<TABLE>
<S> <C>
Commercial Banks 47.6%
Motor Vehicle Parts 14.1%
Asset Backed Securities 14.0%
Personal Credit 6.5%
Short-Term Business Credit 6.0%
Security Brokers & Dealers 4.5%
Bank Holding Company U.S. 3.9%
Phone Communications 1.0%
Accidental/Health Insurance 0.7%
Life Insurance 0.5%
Electrical Services 0.4%
Fire Insurance 0.3%
------
99.5%
Other assets in excess of liabilities 0.5%
------
100.0%
======
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B3
<PAGE>
DIVERSIFIED BOND PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 96.8% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 96.5% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 3.2%
Boeing Co. ..................................... Aa3 8.75% 08/15/21 $ 6,250 $ 6,884,938
Litton Industries, Inc. ........................ Baa2 8.00% 10/15/09 4,220 4,202,276
Northrop-Grumman Corp. ......................... Baa3 7.875% 03/01/26 3,400 3,189,472
Raytheon Co. ................................... Baa1 5.95% 03/15/01 6,500 6,394,245
Raytheon Co. ................................... Baa1 6.45% 08/15/02 5,000 4,864,050
Raytheon Co. ................................... Baa1 6.50% 07/15/05 4,200 3,977,232
Rockwell International Corp. ................... A1 5.20% 01/15/98 6,500 4,151,030
United Technologies Corp. ...................... A2 7.50% 09/15/29 6,000 5,895,000
--------------
39,558,243
--------------
AIRLINES -- 2.6%
Continental Airlines, Inc. ..................... Aa3 7.461% 04/01/15 5,205 5,012,417
Continental Airlines, Inc. ..................... Ba2 8.00% 12/15/05 4,785 4,376,648
Delta Air Lines, Inc. .......................... Baa3 7.90% 12/15/09 3,500 3,407,985
Delta Air Lines, Inc. .......................... Ba1 9.875% 05/15/00 6,000 6,062,280
United Airlines, Inc. .......................... Baa3 10.67% 05/01/04 7,000 7,665,910
United Airlines, Inc. .......................... Baa3 11.21% 05/01/14 5,000 6,065,550
--------------
32,590,790
--------------
ASSET-BACKED SECURITIES -- 2.4%
Advanta Mortgage Loan Trust, Series 1994-3 ..... Aaa 8.49% 01/25/26 8,134 8,209,939
California Infrastructure PG&E,
Series 1997-1 ................................ NR 6.32% 09/25/05 4,000 3,955,000
Chase Manhattan Credit Master Trust,
Series 1996-3 ................................ Aaa 7.04% 02/15/05 6,000 6,013,080
Citibank Credit Card Master Trust,
Series 1999-5 ................................ NR 6.10% 05/15/08 12,500 11,768,250
--------------
29,946,269
--------------
AUTO-CARS & TRUCKS -- 1.5%
Ford Motor Co. ................................. A1 6.375% 02/01/29 10,000 8,395,600
Ford Motor Co. ................................. A1 7.45% 07/16/31 2,300 2,212,692
Navistar International Corp. ................... Ba1 7.00% 02/01/03 3,500 3,351,250
Navistar International Corp. ................... Ba3 8.00% 02/01/08 4,500 4,275,000
--------------
18,234,542
--------------
AUTOMOTIVE PARTS -- 1.5%
Cooper Tire & Rubber, Inc. ..................... A3 7.75% 12/15/09 2,000 1,958,400
Lear Corp. ..................................... Ba1 7.96% 05/15/05 7,590 7,362,300
TRW, Inc. ...................................... Baa1 6.45% 06/15/01 9,200 9,090,750
United Rentals, Inc. ........................... B1 8.80% 08/15/08 920 857,900
--------------
19,269,350
--------------
BANKS AND SAVINGS & LOANS -- 6.0%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia) ........................... Baa3 8.625% 06/02/00 2,000 1,980,000
Barclays Bank PLC, (United Kingdom) ............ Aa3 7.40% 12/15/09 2,000 1,965,400
Bayerische Landesbank Girozentrale,
(Germany) .................................... Aaa 5.875% 12/01/08 7,800 6,994,728
Capital One Bank ............................... Baa3 7.08% 10/30/01 5,000 4,951,150
Chase Manhattan Corp. .......................... A1 7.00% 11/15/09 5,000 4,810,750
Compass Bancshares, Inc. ....................... A1 8.10% 08/15/09 4,800 4,787,040
Dresdner Funding Trust ......................... Aa2 8.151% 06/30/31 13,100 12,489,540
Hypovereinsbank ................................ Aa3 8.741% 06/30/31 1,500 1,498,050
International Bank for Reconstruction &
Development, (Supranational).................. Aaa 12.375% 10/15/02 750 855,772
Kansallis-Osake Pankki, (Finland) .............. Baa1 10.00% 05/01/02 5,000 5,279,550
KBC Bank Funding ............................... A1 9.86% 11/29/49 5,000 5,185,500
Keycorp Capital, Inc. .......................... A1 7.75% 07/15/29 2,800 2,604,000
National Australia Bank, (Australia) ........... A1 6.40% 12/10/07 3,700 3,687,790
Sanwa Finance Aruba A.E.C. ..................... A3 8.35% 07/15/09 4,640 4,675,264
Sovereign Bancorp .............................. Ba3 10.25% 05/15/04 1,325 1,335,467
Sovereign Bancorp .............................. Ba3 10.50% 11/15/06 2,295 2,340,900
Washington Mutual, Inc. ........................ A3 7.50% 08/15/06 10,000 9,892,500
--------------
75,333,401
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.8%
British Sky Broadcasting, Inc. ................. Baa2 6.875% 02/23/09 7,800 6,852,300
Cable & Wire Communications PLC (United
Kingdom) ..................................... Baa1 6.75% 12/01/08 1,650 1,624,029
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B4
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CABLE & PAY TELEVISION SYSTEMS (CONT'D.)
Cox Communications, Inc. ....................... Baa2 7.875% 08/15/09 $ 2,400 $ 2,432,880
Cox Enterprises, Inc. .......................... Baa1 6.625% 06/14/02 3,200 3,153,696
CSC Holdings, Inc. ............................. Ba2 7.25% 07/15/08 3,400 3,206,064
CSC Holdings, Inc. ............................. Ba2 7.875% 12/15/07 1,900 1,865,192
Rogers Cablesystems, Inc., (Canada) ............ Ba3 10.00% 03/15/05 4,000 4,280,000
Tele-Communications, Inc. ...................... Ba1 6.34% 02/01/02 3,500 3,466,190
Tele-Communications, Inc. ...................... Baa3 10.125% 04/15/22 6,300 7,850,934
--------------
34,731,285
--------------
CHEMICALS -- 0.6%
ICI Wilmington, Inc. ........................... Baa1 9.50% 11/15/00 3,500 3,567,655
Lyondell Chemical .............................. NR 9.625% 05/01/07 1,760 1,799,600
Rohm & Haas Co. ................................ A3 6.95% 07/15/04 2,800 2,764,356
--------------
8,131,611
--------------
COMPUTERS -- 0.9%
International Business Machine Corp. ........... A1 5.50% 01/15/09 5,000 4,422,000
International Business Machine Corp. ........... A1 5.625% 04/12/04 3,000 2,834,340
Unisys Corp. ................................... Ba1 12.00% 04/15/03 3,220 3,429,300
--------------
10,685,640
--------------
CONSUMER PRODUCTS -- 0.4%
Fortune Brands ................................. A2 7.125% 11/01/04 5,000 4,930,450
--------------
DIVERSIFIED CONSUMER PRODUCT -- 0.3%
Owens-Illinois, Inc. ........................... Ba1 7.50% 05/15/10 5,000 4,396,100
--------------
DIVERSIFIED OPERATIONS -- 1.1%
Tyco International Ltd. ........................ Baa1 6.875% 01/15/29 3,350 2,847,064
Tyco International Ltd. ........................ Baa1 7.00% 06/15/28 1,350 1,168,236
Xerox Cap Europe PLC ........................... A2 5.75% 05/15/02 10,000 9,655,000
--------------
13,670,300
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Mallinckrodt, Inc. ............................. Baa2 6.30% 03/15/01 3,500 3,421,250
--------------
FINANCIAL SERVICES -- 8.4%
Arkwright Corp. ................................ Baa3 9.625% 08/15/26 5,000 4,899,000
Bombardier Capital, Inc. M.T.N. ................ A3 7.30% 12/15/02 5,000 4,980,000
Calair Capital Corp. ........................... Ba2 8.125% 04/01/08 3,000 2,640,000
Capital One Financial Corp. .................... Ba1 7.25% 05/01/06 4,200 3,969,000
Chrysler Financial Corp. ....................... A1 5.25% 10/22/01 10,400 10,114,312
Comdisco, Inc. ................................. Baa1 6.32% 11/27/00 10,000 9,932,000
Ford Motor Credit Co. .......................... A1 5.75% 01/25/01 4,000 3,955,480
Ford Motor Credit Co. .......................... A1 7.375% 10/28/09 1,600 1,584,000
Gatx Capital Corp. ............................. Baa2 7.75% 12/01/06 5,000 4,955,350
General Motors Acceptance Corp. ................ A2 5.75% 11/10/03 10,000 9,521,600
Heller Financial, Inc. ......................... A3 6.00% 03/19/04 2,900 2,753,637
HVB Funding Trust .............................. Aa3 9.00% 10/22/31 6,000 6,153,000
International Lease Finance Corp. .............. A1 5.90% 03/12/03 16,000 15,393,600
MBNA Corp. ..................................... Aaa 5.90% 08/15/11 17,900 16,226,028
RBF Finance Co. ................................ Ba3 11.375% 03/15/09 450 483,750
The CIT Group, Inc. ............................ Aa3 5.50% 10/15/01 8,045 7,865,275
--------------
105,426,032
--------------
FOOD & BEVERAGE -- 0.8%
Archer-Daniels Midland Co. ..................... Aa3 6.625% 05/01/29 4,700 3,998,431
Coca-Cola Bottling Co. ......................... Baa2 6.375% 05/01/09 2,200 1,981,760
Coca-Cola Enterprises, Inc. .................... A2 7.125% 09/30/09 3,300 3,237,300
Embotelladora Andina S.A., (Chile) ............. Baa1 7.875% 10/01/97 1,250 961,131
--------------
10,178,622
--------------
FOREST PRODUCTS -- 1.8%
Abitibi-Consolidated, Inc. ..................... Baa3 8.50% 08/01/29 2,250 2,168,977
Fort James Corp. ............................... Baa3 6.234% 03/15/11 5,000 4,948,200
Georgia-Pacific Corp. .......................... Baa2 7.75% 11/15/29 895 852,881
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B5
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FOREST PRODUCTS (CONT'D.)
Scotia Pacific Co. ............................. NR 7.71% 01/20/14 $ 12,200 $ 9,150,000
Westvaco Corp. ................................. A1 9.75% 06/15/20 5,000 5,855,500
--------------
22,975,558
--------------
HOSPITAL MANAGEMENT -- 0.3%
Columbia/HCA Healthcare Corp. .................. Ba2 6.91% 06/15/05 2,435 2,228,025
Tenet Healthcare Corp. ......................... Ba1 7.875% 01/15/03 1,825 1,770,250
--------------
3,998,275
--------------
INDUSTRIAL -- 0.2%
Compania Sud Americana de Vapores, SA,
(Chile) ...................................... Baa 7.375% 12/08/03 2,000 1,905,140
--------------
INSURANCE -- 2.3%
Allstate Corp. ................................. A1 7.20% 12/01/09 900 874,971
Conseco, Inc. .................................. Ba1 8.50% 10/15/02 6,875 6,963,000
Conseco, Inc. .................................. Ba2 8.796% 04/01/27 10,100 9,167,669
Nationwide CSN Trust ........................... Aa3 9.875% 02/15/25 5,000 5,094,650
Reliastar Financial Corp. ...................... A3 6.625% 09/15/03 5,000 4,855,000
Royal & Sun Alliance Insurance Group PLC ....... A1 8.95% 10/15/29 2,300 2,349,680
--------------
29,304,970
--------------
INVESTMENT BANKERS -- 5.3%
Bear Stearns & Co. ............................. A2 7.625% 12/07/09 4,675 4,590,476
Goldman Sachs Group, Inc. ...................... A1 5.56% 01/11/01 4,750 4,693,760
Lehman Brothers Holdings, Inc. ................. Baa1 6.375% 03/15/01 1,150 1,140,282
Lehman Brothers Holdings, Inc. ................. Baa1 6.625% 04/01/04 13,245 12,821,690
Lehman Brothers Holdings, Inc. ................. Baa1 6.625% 02/05/06 4,585 4,331,725
Merrill Lynch, Pierce, Fenner & Smith, Inc. .... Aa3 5.665% 06/24/03 15,000 14,955,000
Morgan Stanley Dean Witter & Co. M.T.N. ........ Aa3 5.625% 04/12/02 5,450 5,276,690
Morgan Stanley Dean Witter & Co. ............... Aa3 7.125% 01/15/03 2,830 2,827,764
PaineWebber Group, Inc. ........................ Baa1 6.45% 12/01/03 5,000 4,807,400
Salomon, Inc., M.T.N. .......................... Aa3 6.59% 02/21/01 3,500 3,485,790
Salomon, Inc. .................................. Aa3 6.65% 07/15/01 7,000 6,961,360
Salomon, Inc., M.T.N. .......................... Aa3 7.25% 05/01/01 1,100 1,103,487
--------------
66,995,424
--------------
LEISURE -- 2.2%
Harrahs Operating Co., Inc. .................... Ba2 7.875% 12/15/05 290 282,750
HMH Properties ................................. Ba2 7.875% 08/01/05 1,970 1,817,325
ITT Corp. ...................................... Baa2 6.25% 11/15/00 4,250 4,167,252
ITT Corp. ...................................... Baa2 6.75% 11/15/03 7,000 6,511,610
Marriott International ......................... Baa1 7.875% 09/15/09 325 319,885
Park Place Entertainment ....................... Ba2 7.875% 12/15/05 2,265 2,163,075
Royal Caribbean Cruises Ltd. ................... Baa3 7.00% 10/15/07 8,000 7,527,200
Royal Caribbean Cruises Ltd. ................... Baa3 7.25% 08/15/06 5,000 4,820,450
--------------
27,609,547
--------------
MEDIA -- 4.9%
Liberty Media Group ............................ Baa3 7.875% 07/15/09 1,600 1,593,760
Liberty Media Group ............................ Baa3 8.50% 07/15/29 2,800 2,898,000
News America Holding, Inc. ..................... Baa3 6.703% 05/21/04 22,000 21,011,540
Paramount Communications, Inc. ................. Ba2 7.50% 01/15/02 5,000 5,010,850
Seagram (J.) & Sons ............................ Baa3 5.79% 04/15/01 11,500 11,249,300
Turner Broadcasting System, Inc. ............... Ba1 7.40% 02/01/04 13,500 13,409,010
United News & Media PLC ........................ Baa2 7.25% 07/01/04 2,000 1,920,800
United News & Media PLC ........................ Baa2 7.75% 07/01/09 1,000 961,880
World Color Press, Inc. ........................ B1 7.75% 02/15/09 2,075 1,981,625
World Color Press, Inc. ........................ B1 8.375% 11/15/08 1,000 977,500
--------------
61,014,265
--------------
OIL & GAS -- 2.7%
Amerada Hess Corp. ............................. Baa1 7.375% 10/01/09 600 585,546
Amerada Hess Corp. ............................. Baa1 7.875% 10/01/29 1,600 1,560,480
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B6
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
OIL & GAS (CONT'D.)
Atlantic Richfield Co. ......................... A2 5.55% 04/15/03 $ 3,700 $ 3,547,116
Atlantic Richfield Co. ......................... A2 5.90% 04/15/09 6,770 6,143,030
B.J. Services Co. .............................. Ba1 7.00% 02/01/06 5,000 4,731,700
EOTT Energy Partners, L.P. ..................... Ba2 11.00% 10/01/09 1,960 2,038,400
K N Energy, Inc., .............................. Baa2 6.30% 03/01/21 15,000 14,844,000
--------------
33,450,272
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.4%
Parker & Parsley Petroleum Co. ................. Ba2 8.875% 04/15/05 1,505 1,497,159
Seagull Energy Corp. ........................... Ba1 7.875% 08/01/03 1,830 1,788,825
Union Pacific Resources ........................ Baa3 7.95% 04/15/29 2,100 2,038,491
--------------
5,324,475
--------------
RAILROADS -- 1.2%
Burlington Northern Santa Fe Corp. ............. Baa2 6.05% 03/15/01 8,000 7,906,160
Norfolk Southern Corp. ......................... Baa1 6.875% 05/01/01 4,500 4,488,570
Norfolk Southern Corp. ......................... Baa1 6.95% 05/01/02 1,650 1,642,872
Union Pacific Corp. ............................ Baa3 7.375% 09/15/09 1,700 1,663,637
--------------
15,701,239
--------------
REAL ESTATE INVESTMENT TRUST -- 2.4%
Camden Property Trust .......................... Baa2 7.23% 10/30/00 5,000 4,981,500
Equity Residential Properties Trust ............ A3 6.15% 09/15/00 15,000 14,877,000
ERP Operating, L.P. ............................ A3 6.63% 04/13/05 3,900 3,654,846
ERP Operating, L.P. ............................ A3 7.10% 06/23/04 1,500 1,465,695
HRPT Properties Trust .......................... Baa2 7.426% 07/09/00 5,000 4,971,000
--------------
29,950,041
--------------
RETAIL -- 3.9%
Dayton-Hudson Corp. ............................ A3 6.40% 02/15/03 8,250 8,072,790
Federated Department Stores, Inc. .............. Ba1 8.125% 10/15/02 5,250 5,334,315
Federated Department Stores, Inc. .............. Ba1 8.50% 06/15/03 10,200 10,482,438
Kmart Corp. .................................... Ba2 9.78% 01/05/20 3,850 3,951,063
Kroger Co., (The) .............................. Baa3 6.34% 06/01/01 6,500 6,426,875
Kroger Co., (The) .............................. Baa3 6.375% 03/01/08 6,600 6,009,960
Kroger Co., (The) .............................. Baa3 7.25% 06/01/09 3,800 3,648,000
Kroger Co., (The) .............................. Baa3 7.70% 06/01/29 960 907,200
Saks, Inc. ..................................... Baa3 8.25% 11/15/08 3,625 3,526,763
--------------
48,359,404
--------------
TELECOMMUNICATIONS -- 7.6%
AT&T Canada, Inc., (Canada) .................... Baa3 7.65% 09/15/06 1,600 1,592,016
Electric Lightwave, Inc. ....................... A2 6.05% 05/15/04 3,300 3,114,672
Global Crossing Holdings, Ltd. ................. Ba2 9.125% 11/15/06 4,400 4,350,500
GTE Corp. ...................................... Baa1 9.375% 12/01/00 6,250 6,400,438
LCI International, Inc. ........................ Ba1 7.25% 06/15/07 10,125 9,734,884
Lucent Technologies, Inc. ...................... A2 6.45% 03/15/29 9,500 8,269,655
Qwest Communications International, Inc. ....... Ba1 7.50% 11/01/08 4,000 3,910,000
Rogers Cantel, Inc. ............................ Ba3 9.375% 06/01/08 2,350 2,444,000
Sprint Corp. ................................... Baa1 5.70% 11/15/03 17,000 16,130,450
Sprint Corp. ................................... Baa1 6.875% 11/15/28 2,500 2,221,775
Telecom De Puerto Rico ......................... Baa2 6.65% 05/15/06 6,800 6,451,772
Telecom De Puerto Rico ......................... Baa2 6.80% 05/15/09 5,700 5,198,001
US West, Inc. .................................. Baa1 6.875% 08/15/01 5,000 4,979,000
Williams Communications Group, Inc. ............ B2 10.70% 10/01/07 2,000 2,100,000
Williams Communications Group, Inc. ............ B2 10.875% 10/01/09 680 711,450
Worldcom, Inc. ................................. Baa2 6.125% 08/15/01 8,300 8,210,277
Worldcom, Inc. ................................. Baa2 6.95% 08/15/28 9,900 8,988,804
--------------
94,807,694
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B7
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
UTILITIES -- 10.8%
AES Corp. ...................................... Ba1 9.50% 06/01/09 $ 4,905 $ 5,003,100
Arkla, Inc., M.T.N. ............................ Ba2 9.32% 12/18/00 2,000 2,040,320
Calenergy Co., Inc. ............................ Ba1 6.96% 09/15/03 8,000 7,819,200
Calenergy Co., Inc. ............................ Ba1 7.23% 09/15/05 5,000 4,872,150
Calpine Corp. .................................. Ba1 10.50% 05/15/06 4,060 4,263,000
CMS Energy Corp. ............................... Ba3 6.75% 01/15/04 4,500 4,218,750
CMS Energy Corp. ............................... Ba3 8.00% 07/01/01 4,500 4,457,700
Cogentrix Energy, Inc. ......................... Ba1 8.75% 10/15/08 10,000 9,700,000
Commonwealth Edison Co. ........................ Baa3 7.625% 01/15/07 7,525 7,478,044
Connecticut Light & Power Company .............. Ba2 7.75% 06/01/02 5,685 5,754,698
Edison Mission Energy .......................... A3 7.73% 06/15/09 3,200 3,187,104
El Paso Electric Company ....................... Ba2 7.75% 05/01/01 5,850 5,876,384
El Paso Electric Company ....................... Ba3 9.40% 05/01/11 4,000 4,275,040
El Paso Energy Corp. ........................... Baa2 6.625% 07/15/01 3,800 3,769,866
Hydro-Quebec.................................... A2 7.50% 04/01/16 1,850 1,809,504
Illinois Power Co. ............................. Aaa 5.38% 06/25/07 15,000 14,015,550
Niagara Mohawk Power ........................... Ba3 6.875% 04/01/03 4,000 3,971,960
Niagara Mohawk Power ........................... Ba2 7.375% 08/01/03 8,000 8,000,800
Niagara Mohawk Power ........................... Baa2 8.00% 06/01/04 5,000 5,097,550
Osprey Trust ................................... Baa3 8.31% 01/15/03 12,000 11,937,000
PSEG Energy Holdings, Inc. ..................... Ba1 10.00% 10/01/09 2,230 2,202,125
Sonat, Inc. .................................... Baa1 7.625% 07/15/11 5,100 5,002,845
Texas Utilities ................................ Baa3 5.94% 10/15/01 10,000 9,830,200
Utilicorp United, Inc. ......................... Baa3 7.00% 07/15/04 1,280 1,236,147
--------------
135,819,037
--------------
WASTE MANAGEMENT -- 0.6%
Allied Waste Industries, Inc. .................. Ba2 7.625% 01/01/06 1,575 1,417,500
USA Waste Service .............................. Baa3 6.125% 07/15/01 7,000 6,662,250
--------------
8,079,750
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 10.1%
Resolution Funding Corp. ....................... Zero 10/15/15 17,100 5,693,958
Resolution Funding Corp. ....................... 8.125% 10/15/19 700 776,559
Resolution Funding Corp. ....................... 8.625% 01/15/21 200 233,500
United States Treasury Bond .................... 5.25% 02/15/29 1,000 826,870
United States Treasury Bond(b).................. 8.125% 08/15/21 66,700 76,496,229
United States Treasury Note .................... Zero 05/15/20 36,500 9,177,925
United States Treasury Note .................... 5.50% 01/31/03 2,500 2,442,575
United States Treasury Note .................... 6.00% 08/15/09 12,187 11,806,156
United States Treasury Note .................... 6.50% 05/15/05-10/15/06 9,965 9,952,734
United States Treasury Note .................... 6.75% 08/15/26 9,800 9,845,962
--------------
127,252,468
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 2.0%
Federal National Mortgage Association .......... 6.50% 01/01/15 20,000 19,400,000
Federal National Mortgage Association .......... 9.00% 10/01/16-09/01/21 267 275,901
Government National Mortgage Association ....... 7.50% 5/20/02-02/15/26 5,254 5,203,313
--------------
24,879,214
--------------
FOREIGN GOVERNMENT BONDS -- 5.0%
Junta De Andaluci, (Spain) ..................... Aa3 7.25% 10/01/29 540 514,728
Province of Saskatchewan, (Canada) ............. A2 9.125% 02/15/21 3,000 3,456,720
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B8
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT BONDS (CONT'D.)
Quebec Province, (Canada) ...................... A1 7.50% 07/15/23 $ 6,825 $ 6,654,716
Quebec Province, (Canada) ...................... NR 7.50% 09/15/29 2,500 2,459,000
Republic Of Argentina, (Argentina) ............. BBB Zero 10/15/01 5,000 4,187,500
Republic Of Columbia, (Columbia) ............... Baa3 9.75% 04/23/09 2,700 2,504,250
Republic of Mexico, (Mexico) ................... Ba2 6.836% 12/31/19 5,900 5,538,625
Republic of Mexico, (Mexico) ................... Ba2 6.933% 12/31/19 2,100 1,971,375
Republic of Mexico, (Mexico) ................... Ba2 6.943% 12/31/19 4,200 3,942,750
Republic of Panama, (Panama) ................... Ba1 4.25% 07/17/14 6,600 5,181,000
Republic of Panama, (Panama) ................... NR 7.875% 02/13/02 8,000 7,720,000
Republic Of Philippines, (Philippines) ......... Ba1 8.875% 04/15/08 3,200 3,120,000
Republic of Poland, (Poland) ................... Baa3 4.00% 10/27/24 7,500 4,950,000
United Mexican States, (Mexico) ................ NR 10.375% 02/17/09 9,500 10,070,000
--------------
62,270,664
--------------
TOTAL LONG-TERM BONDS
(cost $1,253,556,114)....................................................................... 1,210,201,322
--------------
SHARES
----------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK -- 0.3%
Centaur Funding (cost $4,323,180) .............................................. 27,000 3,922,074
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,257,879,294)....................................................................... 1,214,123,396
--------------
SHORT-TERM INVESTMENTS -- 3.1%
WARRANT -- 0.0% (A) UNITS
----------
<S> <C> <C> <C> <C> <C>
Mexico Vrr Debenture, expiring 06/30/03
(cost $0) .................................................................... 18,766,000 2
--------------
PRINCIPAL
AMOUNT
(000)
----------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.1%
Joint Repurchase Agreement Account (Note 5)................... 2.875% 01/03/00 $ 39,380 39,380,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $39,380,000).......................................................................... 39,380,002
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $1,297,259,294; Note 6)............................................................... 1,253,503,398
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- (C)............................................. (75,125)
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%................................................. 403,677
--------------
NET ASSETS -- 100.0%.......................................................................... $1,253,831,950
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonime (Spanish Corporation) or Societe Anonyme (French
Corp.)
NR Note Rated by Moody's or Standard & Poors

(a) Such represents less than 0.05%.

(b) Security, or a portion thereof, segregated as collateral for futures
contracts.

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1999 DEPRECIATION
<S> <C> <C> <C> <C> <C>
Long Position:
186 U.S. Treasury Bond Mar 00 $17,565,375 $16,914,375 $(651,000)
Short Position:
44 U.S. Treasury Notes Mar 00 4,321,969 4,217,813 104,156
---------
$(546,844)
=========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B9
<PAGE>
GOVERNMENT INCOME PORTFOLIO
DECEMBER 31, 1999

<TABLE>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM INVESTMENTS -- 97.8% RATE DATE (000) (NOTE 2)
------ -------------------- --------- --------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 3.0%
Team Fleet Financing Corp. ..................... 7.35% 05/15/03 $ 10,000 $ 9,965,000
--------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.4%
Westpac Securitisation Trust, Ser. 1998-1G
(Australia) .................................. 5.45% 07/19/29 4,709(a) 4,693,011
--------------
CORPORATE -- 2.4%
Merck & Co., Inc. .............................. 5.76% 05/03/37 8,000 8,023,750
--------------
MORTGAGE PASS-THROUGHS -- 18.2%
Federal National Mortgage Association .......... 7.50% 02/01/02 - 10/01/12 11,426 11,493,133
Federal National Mortgage Association .......... 8.00% 03/01/22 - 05/01/26 702 709,356
Federal National Mortgage Association .......... 9.00% 02/01/25 - 04/01/25 3,605 3,750,556
FNMA Pass Through .............................. 7.50% 01/01/30 11,000 10,876,250
FNMA Pass Through .............................. 7.00% 01/01/30 19,000 18,370,720
Government National Mortgage Association ....... 7.50% 12/15/25 - 02/15/26 11,230 11,120,741
Government National Mortgage Association ....... 8.00% 09/15/23 - 12/15/24 4,806 4,865,277
--------------
61,186,033
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 72.8%
Federal Farm Credit Bank ....................... 5.90% 01/10/05 5,000 4,780,450
Federal Home Loan Bank ......................... 5.75% 10/15/07 15,000 14,655,000
Federal National Mortgage Association .......... Zero 02/15/06 - 06/01/17 55,364 21,733,030
Federal Home Loan Mortgage Corp. ............... 7.36% 06/05/07 15,000 14,711,700
Federal National Mortgage Association .......... 6.06% 05/21/03 30,000 29,146,800
Israel AID ..................................... Zero 08/15/09 10,000 5,110,000
Resolution Funding Corp. ....................... 8.125% 10/15/19 4,200 4,659,354
Small Business Administration Participation
Certficates .................................. 6.00% 09/01/18 7,709 7,090,398
Small Business Administration Participation
Certificates ................................. 6.85% 07/01/17 4,511 4,342,543
Small Business Administration Participation
Certificates ................................. 7.15% 01/01/17 16,669 16,339,578
Small Business Administration Participation
Certificates ................................. 7.20% 10/01/16 17,468 17,154,195
United States Treasury Bonds(b) ................ 8.125% 08/15/19 44,000 50,139,320
United States Treasury Bonds ................... 10.00% 05/15/10 18,600 21,326,016
United States Treasury Bonds ................... 11.75% 02/15/10 19,050 23,157,561
United States Treasury Bonds ................... 12.50% 08/15/14 3,300 4,609,671
United States Treasury Strips .................. Zero 11/15/09 9,900 5,106,222
--------------
244,061,838
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $343,379,714)...................................................................... 327,929,632
--------------
SHORT-TERM INVESTMENTS -- 9.7%
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 5.9%
Blue Ridge Asset Funding ....................... 6.50% 01/19/00 3,400 3,388,950
Clipper Receivables Corp. ...................... 6.40% 01/19/00 3,400 3,389,120
CXC Inc. ....................................... 6.35% 01/19/00 3,400 3,389,205
Falcon Asset Securitization .................... 6.50% 01/18/00 3,000 2,990,792
Thunder Bay Funding, Inc. ...................... 6.40% 01/18/00 3,400 3,389,724
Variable Funding Cap ........................... 6.57% 01/18/00 3,400 3,389,452
--------------
19,937,243
--------------
REPURCHASE AGREEMENT -- 3.8%
Joint Repurchase Agreement Account (Note 5) .... 2.875% 01/03/00 12,843 12,843,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $32,780,243)....................................................................... 32,780,243
--------------
TOTAL INVESTMENTS -- 107.5%
(cost $376,159,957; Note 6).............................................................. 360,709,875
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(C).............................................. 64,531
LIABILITIES IN EXCESS OF OTHER ASSETS -- (7.5%)............................................ (25,293,515)
--------------
TOTAL NET ASSETS -- 100.0%................................................................. $ 335,480,891
==============
</TABLE>

The following abbreviation is used in portfolio descriptions:
AID Agency for International Development

(a) US $ Denominated Foreign Bonds
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1999 APPRECIATION
<S> <C> <C> <C> <C> <C>
Short Position:
47 U.S. T-Bond Mar 00 $4,382,750 $4,274,063 $108,687
25 U.S. Treasury 10yr Mar 00 $2,428,125 $2,396,484 $ 31,641
36 U.S. Treasury 10yr Mar 00 $3,536,156 $3,450,937 $ 85,219
40 U.S. Treasury 10yr Mar 00 $3,885,000 $3,834,375 $ 50,625
--------
$276,172
========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B10
<PAGE>
ZERO COUPON BOND 2000 PORTFOLIO
DECEMBER 31, 1999

<TABLE>

LONG-TERM INVESTMENTS -- 99.0% PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS RATE DATE (000) (NOTE 2)
----- -------- --------- --------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Federal National Mortgage Association .......... Zero 01/24/02 $ 7,477 $ 6,533,029
Federal National Mortgage Association .......... Zero 07/24/02 4,527 3,827,443
United States Treasury Bonds ................... Zero 11/15/00 28,425 27,015,404
United States Treasury Bonds ................... Zero 02/15/02 3,950 3,464,663
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $40,338,779)........................................................... 40,840,539
--------------

SHORT-TERM INVESTMENT-- 1.2%
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account (cost
$474,000; Note 5) ............................ 2.875% 01/03/00 474 474,000
--------------
TOTAL INVESTMENTS -- 100.2%
(cost $40,812,779; Note 6)................................................... 41,314,539
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%)................................ (73,340)
--------------
NET ASSETS -- 100.0%........................................................... $ 41,241,199
==============

ZERO COUPON BOND 2005 PORTFOLIO
DECEMBER 31, 1999

LONG-TERM INVESTMENTS -- 99.0%

LONG-TERM BONDS
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Federal National Mortgage Association .......... Zero 01/24/05 $ 1,400 $ 990,500
Federal National Mortgage Association .......... Zero 01/24/06 2,320 1,531,919
Financing Corp. ................................ Zero 03/07/04 3,350 2,504,326
Financing Corp. ................................ Zero 02/08/05 688 482,708
Financing Corp. ................................ Zero 11/11/05 425 283,301
Financing Corp. ................................ Zero 08/08/07 2,070 1,212,999
Resolution Funding Corp. ....................... Zero 07/15/07 4,350 2,605,780
United States Treasury Bond .................... Zero 11/15/04 6,600 4,812,126
United States Treasury Bond .................... Zero 05/15/05 17,640 12,440,963
United States Treasury Bond .................... Zero 08/15/05 18,475 12,787,102
United States Treasury Bond .................... Zero 02/15/06 7,900 5,289,998
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $45,467,252)........................................................... 44,941,722
--------------

SHORT-TERM INVESTMENT -- 1.2%
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account (cost
$536,000; Note 5) ............................ 2.875% 01/03/00 536 536,000
--------------
TOTAL INVESTMENTS -- 100.2%
(cost $46,003,252; Note 6)................................................... 45,477,722
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%)................................ (72,444)
--------------
TOTAL NET ASSETS -- 100.0%..................................................... $ 45,405,278
==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B11
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
DECEMBER 31, 1999

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

MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS -- 49.3% (UNAUDITED) (000) (000)
------------ --------- --------------
AEROSPACE -- 0.8%
Litton Industries, Inc.,
8.00%, 10/15/09 .............................. Baa2 $ 3,300 $ 3,286,140
Lockheed Martin Corp.,
6.85%, 05/15/01 .............................. A3 1,900 1,886,928
Northrop-Grumman Corp.,
7.875%, 03/01/26 ............................. Baa3 4,500 4,221,360
Raytheon Co.,
5.95%, 03/15/01 .............................. Baa1 26,900 26,462,337
--------------
35,856,765
--------------
AIRLINES -- 3.2%
Continental Airlines, Inc.,
7.461%, 04/01/15 ............................. Aa3 11,641 11,209,589
8.00%, 12/15/05 .............................. Ba2 4,530 4,143,410
Delta Air Lines, Inc.,
7.90%, 12/15/09(b) ........................... Baa3 47,300 46,056,483
8.30%, 12/15/29 .............................. Baa3 4,000 3,849,320
United Airlines, Inc.,
10.67%, 05/01/04 ............................. Baa3 46,865 51,323,267
11.21%, 05/01/14 ............................. Baa3 18,433 22,361,257
--------------
138,943,326
--------------
ASSET-BACKED SECURITIES -- 2.1%
California Infrastructure,
6.14%, 03/25/02 .............................. Aaa 1,091 1,080,166
6.17%, 03/25/03 .............................. Aaa 2,000 1,989,840
6.28%, 09/25/05 .............................. Aaa 7,000 6,861,960
Chase Manhattan Credit Master Trust, Series
1996-3,
7.04%, 02/15/05 .............................. Aaa 15,000 15,032,700
Citibank Credit Card Master Trust, Series
1999-5,
6.10%, 05/15/08 .............................. NR 56,500 53,192,490
Standard Credit Card Master Trust,
5.95%, 10/07/04 .............................. Aaa 4,650 4,482,879
Team Fleet Financing Corp.,
7.35%, 05/15/03 .............................. Aa2 11,000 10,961,500
--------------
93,601,535
--------------
AUTO-CARS & TRUCKS -- 1.5%
Ford Motor Co.,
6.375%, 02/01/29 ............................. A1 16,000 13,432,960
7.45%, 07/16/31(b) ........................... A1 2,900 2,789,916
Lear Corp.,
7.96%, 05/15/05 .............................. Ba1 10,325 10,015,250
8.25%, 02/01/02 .............................. B2 4,710 4,615,800
TRW, Inc.,
6.45%, 06/15/01 .............................. Baa1 35,300 34,880,812
United Rentals, Inc.,
8.80%, 08/15/08 .............................. B1 1,435 1,338,137
--------------
67,072,875
--------------
BANKS AND SAVINGS & LOANS -- 4.0%
Bank of Nova Scotia (Canada),
6.50%, 07/15/07 .............................. A1 7,200 7,083,000
Barclays Bank PLC, (United Kingdom),
7.40%, 12/15/09 .............................. Aa3 2,500 2,456,750
Bayerische Landesbank Girozentrale, (Germany),
5.875%, 12/01/08 ............................. Aaa 7,800 6,994,728
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
BANKS AND SAVINGS & LOANS (CONT'D.)
Capital One Bank,
<S> <C> <C> <C>
6.76%, 07/23/02 .............................. Baa2 $ 2,500 $ 2,441,200
6.97%, 02/04/02 .............................. Baa3 25,000 24,606,000
7.08%, 10/30/01 .............................. Baa3 19,000 18,814,370
Chase Manhattan Corp.,
7.00%, 11/15/09(b) ........................... A1 2,500 2,405,375
Compass Bancshares, Inc.,
8.10%, 08/15/09 .............................. A1 3,900 3,889,470
Dresdner Funding Trust,
8.151%, 06/30/31 ............................. Aa2 18,200 17,351,880
Hypovereinsbank,
8.741%, 06/30/31(b) .......................... Aa3 1,800 1,797,660
Key Bank NA,
5.80%, 04/01/04 .............................. Aa3 30,000 28,401,600
Keycorp Capital, Inc.,
7.75%, 07/15/29(b) ........................... A1 5,050 4,696,500
National Australia Bank,
6.40%, 12/10/07 .............................. A1 14,000 13,953,800
Sanwa Finance Aruba A.E.C.,
8.35%, 07/15/09 .............................. A3 9,600 9,672,960
Sovereign Bancorp,
10.25%, 05/15/04 ............................. Ba3 1,030 1,038,137
10.50%, 11/15/06 ............................. Ba3 1,780 1,815,600
Sovereign Bancorp, Sr. Notes,
6.625%, 03/15/01 ............................. Ba3 4,000 3,870,000
Washington Mutual, Inc.,
8.25%, 10/01/02 .............................. A3 7,800 7,944,066
Washington Mutual, Inc.,
7.50%, 08/15/06 .............................. A3 12,000 11,871,000
--------------
171,104,096
--------------
BUILDING PRODUCTS -- 0.4%
Hanson Overseas B.V.,
7.375%, 01/15/03 ............................. A3 16,751 16,801,085
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.6%
British Sky Broadcasting, Inc.,
6.875%, 02/23/09 ............................. Baa2 12,200 10,717,700
Cable & Wire Communications PLC (United
Kingdom),
6.75%, 12/01/08 .............................. Baa1 4,200 4,133,892
Cox Communications, Inc.,
6.94%, 10/01/01 .............................. Baa2 4,000 3,982,960
7.875%, 08/15/09 ............................. Baa2 5,000 5,068,500
CSC Holdings, Inc.,
7.25%, 07/15/08 .............................. Ba2 7,600 7,166,496
7.875%, 12/15/07 ............................. Ba2 4,240 4,162,323
Rogers Cablesystems Ltd., (Canada)
11.00%, 12/01/15 ............................. B2 4,010 4,541,325
Tele-Communications, Inc.,
6.34%, 02/01/02 .............................. Ba1 4,500 4,456,530
8.25%, 01/15/03 .............................. Baa3 2,000 2,069,580
9.25%, 04/15/02 .............................. Baa3 9,500 9,971,485
9.875%, 06/15/22 ............................. Baa3 12,900 15,743,676
--------------
72,014,467
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B12
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
CHEMICALS -- 0.1%
Lyondell Chemical,
9.625%, 05/01/07 ............................. Ba2 $ 2,745 $ 2,806,762
Monsanto Co.,
6.85%, 12/01/28 .............................. A2 1,500 1,322,355
--------------
4,129,117
--------------
CONSULTING -- 1.1%
Comdisco, Inc.,
6.00%, 01/30/02 .............................. Baa1 30,000 29,046,600
6.375%, 11/30/01 ............................. Baa1 21,500 21,083,545
--------------
50,130,145
--------------
CONTAINERS -- 0.3%
Owens-Illinois, Inc.,
7.15%, 05/15/05 .............................. Ba1 13,000 12,019,670
7.50%, 05/15/10 .............................. Ba1 800 703,376
--------------
12,723,046
--------------
DIVERSIFIED OPERATIONS -- 0.5%
Corning Inc,,
6.85%, 03/01/29 .............................. A3 2,180 1,899,456
Tyco International Group, SA,
6.125%, 06/15/01 ............................. Baa1 17,725 17,425,093
Tyco International Ltd.,
6.875%, 01/15/29(b) .......................... Baa1 2,800 2,379,636
7.00%, 06/15/28(b) ........................... Baa1 1,800 1,557,648
--------------
23,261,833
--------------
DRUGS & MEDICAL SUPPLIES -- 0.4%
Mallinckrodt, Inc.,
6.30%, 03/15/11 .............................. Baa2 16,780 16,402,450
--------------
FINANCIAL SERVICES -- 7.5%
Arkwright Corp.,
9.625%, 08/15/26 ............................. Baa3 8,000 7,838,400
AT&T Capital Corp.,
6.60%, 05/15/05 .............................. A1 9,000 8,655,120
Bch Financial Ser,
5.813%, 04/28/05 ............................. A3 10,000 9,999,000
Bombardier Capital, Inc. M.T.N.,
7.30%, 12/15/02 .............................. A3 10,000 9,960,000
Capital One Financial Corp.,
7.25%, 05/01/06 .............................. Ba1 9,300 8,788,500
CIT Group Inc.,
5.80%, 03/26/02 .............................. Aa3 16,000 15,592,640
CoMed Transitional Funding Trust,
5.44%, 03/25/07 .............................. Aaa 10,000 9,362,500
Enterprise Rent-A-Car USA Finance Co., M.T.N.
6.35%, 01/15/01 .............................. Baa3 9,000 8,908,200
6.95%, 03/01/04 .............................. Baa2 17,500 16,990,750
7.50%, 06/15/03 .............................. Baa3 5,000 4,958,000
Finova Capital Corp.,
6.125%, 03/15/04 ............................. Baa1 21,000 19,918,500
Ford Motor Credit Corp.,
7.375%, 10/28/09(b) .......................... A1 3,265 3,232,350
Gatx Capital Corp.,
7.75%, 12/01/06 .............................. Baa2 10,000 9,910,700
General Motors Acceptance Corp.,
5.95%, 03/14/03 .............................. A2 47,000 45,256,300
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
FINANCIAL SERVICES (CONT'D.)
Heller Financial, Inc.,
<S> <C> <C> <C>
6.00%, 03/19/04 .............................. A3 $ 2,500 $ 2,373,825
HVB Funding Trust,
9.00%, 10/22/31 .............................. Aa3 1,200 1,230,600
International Lease Finance Corp.,
5.90%, 03/12/03 .............................. A1 37,500 36,078,750
MBNA Corp.,
5.90%, 08/15/11 .............................. Aaa 41,400 37,528,354
MCN Investment Corp.,
6.30%, 04/02/11 .............................. Baa2 8,250 8,102,325
Osprey Trust,
8.31%, 01/15/03 .............................. Baa3 26,000 25,863,500
Pemex Finance Ltd, (Cayman Islands),
9.14%, 08/15/04 .............................. Baa1 10,000 9,961,000
Sears Roebuck Acceptance Corp.,
6.38%, 10/07/02 .............................. A2 21,000 20,325,270
Textron Financial Corp.,
6.05%, 03/16/09 .............................. Aaa 9,404 9,348,512
--------------
330,183,096
--------------
FOOD & BEVERAGE -- 0.3%
Archer-Daniels Midland Co.,
6.625%, 05/01/29 ............................. Aa3 8,100 6,890,913
Coca-Cola Bottling Co.,
6.375%, 05/01/09 ............................. Baa2 3,000 2,702,400
Coca-Cola Enterprises, Inc.,
7.125%, 09/30/09(b) .......................... A2 2,600 2,550,600
Embotelladora Andina S.A.,
7.875%, 10/01/97 ............................. Baa1 1,250 961,131
--------------
13,105,044
--------------
FOREST PRODUCTS -- 0.7%
Fort James Corp.,
6.234%, 03/15/11 ............................. Baa3 17,500 17,318,700
Georgia-Pacific Corp.,
7.75%, 11/15/29(b) ........................... Baa2 1,015 967,234
Scotia Pacific Co.,
7.71%, 01/20/14 .............................. NR 18,800 14,100,000
--------------
32,385,934
--------------
INDUSTRIAL -- 0.1%
Cendant Corp.,
7.75%, 12/01/03 .............................. Baa1 2,000 1,995,200
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03 ............................. Baa 4,600 4,381,822
--------------
6,377,022
--------------
INSURANCE -- 0.2%
Allstate Corp.,
7.20%, 12/01/09 .............................. A1 1,700 1,652,723
Conseco, Inc.,
8.50%, 10/15/02 .............................. Ba1 4,050 4,101,840
8.796%, 04/01/27 ............................. Ba2 2,170 1,969,687
--------------
7,724,250
--------------
INVESTMENT BANKERS -- 2.5%
Bear Stearns & Co.,
7.625%, 12/07/09 ............................. A2 1,300 1,276,496
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B13
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
INVESTMENT BANKERS (CONT'D.)
Donaldson Lufkin, & Jenrette
<S> <C> <C> <C>
Inc.,
5.625%, 02/15/16 ............................. Baa1 $ 5,480 $ 5,359,385
Goldman Sachs Gp,,
6.25%, 02/01/03 .............................. A1 4,000 3,882,760
Goldman Sachs Group, Inc.,
5.56%, 01/11/01 .............................. A1 6,800 6,719,488
7.80%, 07/15/02 .............................. A1 11,985 12,120,550
Lehman Brothers Holdings, Inc.,
6.375%, 03/15/01 ............................. Baa1 4,300 4,263,665
6.625%, 04/01/04 ............................. Baa1 26,890 26,030,596
6.625%, 02/05/06 ............................. Baa1 10,645 10,056,970
Morgan Stanley Dean Witter & Co.,
6.875%, 03/01/03 ............................. Aa3 3,000 2,969,940
7.125%, 01/15/03 ............................. A1 17,080 17,066,507
PaineWebber Group, Inc.,
7.015%, 02/10/04 ............................. Baa1 6,000 5,868,900
7.625%, 10/15/08 ............................. Baa1 5,000 4,904,900
Salomon, Inc.,
7.25%, 05/01/01 .............................. Baa1 2,165 2,171,863
Salomon, Inc.,
6.75%, 02/15/03 .............................. Baa1 5,000 4,936,550
--------------
107,628,570
--------------
LEISURE -- 0.5%
ITT Corp.,
6.75%, 11/15/03 .............................. Baa2 21,500 19,999,945
Marriott International,
7.875%, 09/15/09 ............................. Baa1 250 246,065
--------------
20,246,010
--------------
MEDIA -- 1.1%
Cox Enterprises, Inc.,
6.625%, 06/14/02 ............................. Baa1 7,200 7,095,816
Liberty Media Group,
7.875%, 07/15/09 ............................. Baa3 3,200 3,187,520
8.50%, 07/15/29 .............................. Baa3 3,600 3,726,000
Paramount Communications, Inc.,
7.50%, 01/15/02 .............................. Ba2 6,425 6,438,942
Seagram (J.) & Sons,
5.79%, 04/15/01 .............................. Baa3 22,800 22,302,960
Time Warner, Inc.,
8.11%, 08/15/06 .............................. Ba1 1,500 1,543,755
United News & Media PLC,
7.25%, 07/01/04 .............................. Baa2 4,680 4,494,672
World Color Press, Inc.,
8.375%, 11/15/08 ............................. B1 2,140 2,091,850
--------------
50,881,515
--------------
OIL & GAS -- 0.5%
Amerada Hess Corp.,
7.375%, 10/01/09 ............................. Baa1 500 487,955
7.875%, 10/01/29 ............................. Baa1 2,020 1,970,106
Atlantic Richfield Co.,
5.55%, 04/15/03 .............................. A2 11,300 10,833,084
5.90%, 04/15/09 .............................. A2 5,420 4,918,054
B.J. Services Co.,
7.00%, 02/01/06 .............................. Ba1 4,000 3,785,360
--------------
21,994,559
--------------
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Parker & Parsley Petroleum Co.,
8.875%, 04/15/05 ............................. Ba2 $ 2,340 $ 2,327,809
Union Pacific Resources,
7.95%, 04/15/29(b) ........................... Baa3 3,400 3,300,414
--------------
5,628,223
--------------
OIL & GAS SERVICES -- 1.0%
KN Energy, Inc.,
6.30%, 03/01/21 .............................. Baa2 27,550 27,263,480
6.45%, 11/30/01 .............................. Baa2 11,950 11,740,875
6.45%, 03/01/03 .............................. Baa2 6,050 5,881,024
--------------
44,885,379
--------------
RAILROADS -- 0.2%
Norfolk Southern Corp.,
6.875%, 05/01/01 ............................. Baa1 4,000 3,989,840
6.95%, 05/01/02 .............................. Baa1 1,300 1,294,384
Union Pacific Corp.,
7.375%, 09/15/09 ............................. Baa3 1,400 1,370,054
--------------
6,654,278
--------------
REAL ESTATE INVESTMENT TRUST -- 1.8%
Duke Realty L.P.,
7.30%, 06/30/03 .............................. Baa2 6,250 6,180,625
EOP Operating, L.P.,
6.375%, 01/15/02 ............................. Baa1 7,000 6,843,200
6.50%, 06/15/04 .............................. Baa1 6,000 5,698,200
6.625%, 02/15/05 ............................. Baa 17,938 16,919,122
ERP Operating, L.P.,
6.63%, 04/13/15 .............................. A3 13,400 12,557,676
7.10%, 06/23/04 .............................. A3 3,250 3,175,672
First Industrial, L.P.,
6.50%, 04/05/11 .............................. Baa2 9,000 8,804,340
HRPT Properties Trust,
7.426%, 07/09/07 ............................. Baa2 1,500 1,491,300
Simon Debartolo Group, Inc.,
6.75%, 06/15/05(b) ........................... Baa1 17,500 16,306,500
--------------
77,976,635
--------------
RETAIL -- 2.2%
Dayton-Hudson Corp.,
6.40%, 02/15/03 .............................. A3 8,250 8,072,790
Federated Department Stores, Inc.,
8.125%, 10/15/02 ............................. Ba1 25,850 26,265,151
8.50%, 06/15/03 .............................. Ba1 22,400 23,020,256
Kroger Co., (The),
6.34%, 06/01/01 .............................. Baa3 13,950 13,793,063
7.25%, 06/01/09 .............................. Baa3 8,200 7,872,000
7.70%, 06/01/29 .............................. Baa3 1,300 1,228,500
Safeway Stores Inc.,
6.05%, 11/15/03 .............................. Baa2 12,000 11,436,480
Saks, Inc.,
8.25%, 11/15/08 .............................. Baa3 5,000 4,864,500
--------------
96,552,740
--------------
TELECOMMUNICATIONS -- 3.6%
360 Communication Co.,
7.125%, 03/01/03(b) .......................... Ba2 22,550 22,425,524
7.60%, 04/01/09 .............................. Ba1 7,000 7,003,780
Airtouch Communications, Inc.,
7.00%, 10/01/03 .............................. Baa2 8,200 8,192,210
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B14
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
TELECOMMUNICATIONS (CONT'D.)
AT&T Canada, Inc.,
<S> <C> <C> <C>
(Canada),
7.65%, 09/15/06 .............................. Baa3 $ 3,250 $ 3,233,783
Electric Lightwave, Inc.,
6.05%, 05/15/04 .............................. A2 4,700 4,436,048
Global Crossing Holdings, Ltd.,
9.125%, 11/15/06 ............................. Ba2 3,000 2,966,250
MCI Worldcom Inc.,
6.125%, 04/15/12 ............................. Baa2 10,800 10,624,824
7.55%, 04/01/04(b) ........................... Ba1 9,535 9,646,941
Rogers Cantel Inc.,
9.375%, 06/01/08 ............................. Ba3 1,805 1,877,200
Sprint Capital Corp.,
6.125%, 11/15/08 ............................. Baa1 25,000 22,667,000
Sprint Corp.,
5.70%, 11/15/03 .............................. Baa1 11,000 10,437,350
Telecom De Puerto Rico,
6.65%, 05/15/06 .............................. Baa2 15,000 14,231,850
6.80%, 05/15/09 .............................. Baa2 12,500 11,399,125
US West, Inc.,
6.875%, 08/15/01 ............................. Baa1 19,000 18,920,200
Williams Communications Group, Inc.,
10.875%, 10/01/09 ............................ B2 2,470 2,584,238
Worldcom Inc.,
6.125%, 08/15/01 ............................. Baa2 8,700 8,605,953
--------------
159,252,276
--------------
UTILITIES -- 2.5%
CINergy Corp.,
6.125%, 04/15/04 ............................. Baa2 10,000 9,431,300
Cogentrix Energy, Inc.,
8.75%, 10/15/08 .............................. Ba1 5,000 4,850,000
Commonwealth Edison Co.,
7.375%, 01/15/04 ............................. Baa3 14,000 14,064,540
Edison Mission Energy,
7.73%, 06/15/09 .............................. A3 6,900 6,872,193
El Paso Energy Corp.,
6.625%, 07/15/01 ............................. Baa2 8,200 8,134,974
Hydro-Quebec,
7.50%, 04/01/16 .............................. A2 1,900 1,858,409
Niagara Mohawk Power,
7.375%, 08/01/03 ............................. Ba2 10,000 10,001,000
Peco Energy Transition Trust,
5.63%, 03/01/05 .............................. Aaa 28,000 27,149,360
5.80%, 03/01/07 .............................. Aaa 14,500 13,703,950
PSEG Energy Holdings, Inc.,
10.00%, 10/01/09 ............................. Ba1 3,465 3,421,688
Sonat, Inc.,
7.625%, 07/15/11(b) .......................... Baa1 9,200 9,024,740
--------------
108,512,154
--------------
WASTE MANAGEMENT -- 0.4%
Allied Waste Industries, Inc.,
7.625%, 01/01/06 ............................. Ba2 755 679,500
USA Waste Service,
6.125%, 07/15/01 ............................. Baa3 18,000 17,131,500
--------------
17,811,000
--------------
FOREIGN GOVERNMENT BONDS -- 1.4%
Junta De Andaluci, (Spain),
7.25%, 10/01/29 .............................. Aa3 720 686,304
Province of Saskatchewan, (Canada),
9.125%, 02/15/21 ............................. A2 1,800 2,074,032
Quebec Province, (Canada),
7.50%, 07/15/23 .............................. A1 7,075 6,898,479
7.50%, 09/15/29(b) ........................... A2 3,400 3,344,240
<CAPTION>
LONG-TERM MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) (000)
BONDS (CONTINUED) ------------ --------- --------------
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
FOREIGN GOVERNMENT BONDS (CONT'D.)
Republic Of Columbia,
<S> <C> <C> <C>
9.75%, 04/23/09(b) ........................... Baa3 $ 6,200 $ 5,750,500
Republic of Panama,
4.25%, 07/17/14 .............................. Ba1 12,500 9,812,500
Republic Of Philippines,
8.875%, 04/15/08 ............................. Ba1 7,600 7,410,000
Republic of Poland,
4.00%, 10/27/24 .............................. Baa3 8,500 5,610,000
United Mexican States,
10.375%, 02/17/09 ............................ Ba1 18,400 19,504,000
--------------
61,090,055
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 6.7%
United States Treasury Bond,
5.25%, 02/15/29(b) ........................... 57,660 47,677,324
6.375%, 08/15/27(b) .......................... 35,800 34,384,826
6.75%, 08/15/26(b) ........................... 31,450 31,597,501
8.125%, 05/15/21(b) .......................... 57,900 66,367,875
8.125%, 08/15/21(b) .......................... 28,800 33,029,856
United States Treasury Notes,
5.875%, 11/15/04(b) .......................... 7,325 7,181,943
6.00%, 08/15/04 .............................. 385 378,982
6.00%, 08/15/09(b) ........................... 55,099 53,377,156
6.50%, 05/15/05(b)(d) ........................ 1,120 1,120,347
6.50%, 10/15/06(b) ........................... 17,170 17,124,328
7.50%, 02/15/05(d) ........................... 185 192,949
--------------
292,433,087
--------------
TOTAL LONG-TERM BONDS
(cost $2,243,049,105).................................................... 2,163,362,567
--------------
</TABLE>

<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCKS -- 41.6% ------------- --------------
<S> <C> <C>
AEROSPACE -- 0.6%
Boeing Co. ..................................... 122,100 5,074,781
GenCorp, Inc. .................................. 98,400 971,700
General Dynamics Corp. ......................... 21,800 1,149,950
Goodrich (B.F.) Co. ............................ 10,600 291,500
Honeywell International, Inc. .................. 98,912 5,705,986
Litton Industries, Inc.(a) ..................... 77,600 3,870,300
Lockheed Martin Corp. .......................... 50,000 1,093,750
Northrop Grumman Corp. ......................... 8,000 432,500
Parker-Hannifin Corp. .......................... 56,825 2,915,833
Raytheon Co. (Class "B" Stock) ................. 42,900 1,139,531
United Technologies Corp. ...................... 60,200 3,913,000
--------------
26,558,831
--------------
AIRLINES -- 0.4%
AMR Corp. ...................................... 176,000 11,792,000
Delta Air Lines, Inc. .......................... 17,500 871,719
Southwest Airlines Co. ......................... 59,400 961,537
US Airways Group, Inc.(a) ...................... 122,300 3,921,244
--------------
17,546,500
--------------
APPAREL -- 0.0%
Nike, Inc. (Class "B" Stock) ................... 36,800 1,823,900
Reebok International Ltd. ...................... 8,800 72,050
--------------
1,895,950
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B15
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
AUTOS - CARS & TRUCKS -- 0.7%
Cummins Engine Co., Inc. ....................... 4,200 $ 202,912
Dana Corp. ..................................... 19,700 589,769
Delphi Automotive Systems Corp. ................ 132,252 2,082,969
Ford Motor Co. ................................. 196,400 10,495,125
General Motors Corp. ........................... 167,700 12,189,694
Genuine Parts Co.(b) ........................... 20,400 506,175
MascoTech, Inc. ................................ 94,400 1,197,700
Midas, Inc. .................................... 22,100 483,437
Navistar International Corp.(a) ................ 7,200 341,100
PACCAR, Inc. ................................... 9,400 416,537
Titan International, Inc. ...................... 101,250 658,125
TRW, Inc. ...................................... 14,500 753,094
--------------
29,916,637
--------------
BANKS AND SAVINGS & LOANS -- 1.6%
AmSouth Bancorporation ......................... 36,400 702,975
Banc One Corp. ................................. 148,172 4,750,765
Bank of New York Co., Inc. ..................... 92,500 3,700,000
BankAmerica Corp. .............................. 217,061 10,893,749
BB&T Corp. ..................................... 37,800 1,034,775
Chase Manhattan Corp. .......................... 104,800 8,141,650
Comerica, Inc. ................................. 20,000 933,750
First Union Corp. .............................. 118,500 3,888,281
Firstar Corp. .................................. 123,938 2,618,190
Golden West Financial Corp. .................... 21,900 733,650
Hanvit Bank, GDR, (South Korea) ................ 238,200 1,518,525
Huntington Bancshares, Inc. .................... 28,360 677,095
KeyCorp ........................................ 56,300 1,245,637
Mellon Financial Corp. ......................... 64,000 2,180,000
Morgan (J.P.) & Co., Inc. ...................... 22,100 2,798,412
National City Corp. ............................ 80,600 1,909,212
Northern Trust Corp. ........................... 27,200 1,441,600
Old Kent Financial Corp. ....................... 5,000 176,875
PNC Bank Corp. ................................. 37,400 1,664,300
Providian Financial Corp. ...................... 17,950 1,634,572
Regions Financial Corp. ........................ 27,300 685,912
Republic New York Corp. ........................ 12,500 900,000
SouthTrust Corp. ............................... 20,000 756,250
Summit Bancorp(b) .............................. 21,300 652,312
SunTrust Banks, Inc. ........................... 39,400 2,711,212
Synovus Financial Corp. ........................ 35,250 700,594
U.S. Bancorp ................................... 92,000 2,190,750
Union Planters Corp. ........................... 17,000 670,437
Wachovia Corp. ................................. 25,700 1,747,600
Wells Fargo & Co. .............................. 209,400 8,467,612
--------------
72,126,692
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc. .................................. 16,700 393,494
Lexmark International Group, Inc. .............. 12,833 1,161,386
Molex, Inc. .................................... 14,000 793,625
Omnicom Group, Inc.(b) ......................... 21,400 2,140,000
--------------
4,488,505
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
CHEMICALS -- 0.7%
Air Products & Chemicals, Inc. ................. 28,800 $ 966,600
Dow Chemical Co. ............................... 27,600 3,688,050
Du Pont (E.I.) de Nemours & Co. ................ 132,420 8,723,167
Eastman Chemical Co. ........................... 9,300 443,494
Engelhard Corp. ................................ 18,000 339,750
Ferro Corp. .................................... 134,900 2,967,800
FMC Corp.(a) ................................... 3,400 194,862
Grace (W.R.) & Co. ............................. 8,600 119,325
Great Lakes Chemical Corp. ..................... 6,400 244,400
Hercules, Inc. ................................. 12,500 348,437
Lyondell Chemical Co. .......................... 81,700 1,041,675
Millennium Chemicals, Inc. ..................... 146,527 2,893,908
Monsanto Co. ................................... 80,300 2,860,687
OM Group, Inc. ................................. 63,300 2,179,894
Omnova Solutions, Inc. ......................... 98,400 762,600
Praxair, Inc. .................................. 18,700 940,844
Rohm & Haas Co. ................................ 27,311 1,111,216
Sigma-Aldrich Corp. ............................ 12,700 381,794
Union Carbide Corp. ............................ 16,700 1,114,725
--------------
31,323,228
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp.(a) ............................... 96,500 2,563,281
Deluxe Corp. ................................... 8,600 235,962
Quintiles Transnational Corp. .................. 6,000 112,125
--------------
2,911,368
--------------
COMPUTER SERVICES -- 5.0%
3Com Corp.(a) .................................. 44,700 2,100,900
Adaptec, Inc.(a) ............................... 6,000 299,250
Adobe Systems, Inc. ............................ 14,600 981,850
America Online, Inc.(a) ........................ 275,800 20,805,662
Analog Devices, Inc. ........................... 18,000 1,674,000
Autodesk, Inc. ................................. 7,300 246,375
Automatic Data Processing, Inc. ................ 77,700 4,186,087
BMC Software, Inc.(a) .......................... 29,000 2,318,187
Cabletron Systems, Inc.(a) ..................... 20,800 540,800
Ceridian Corp.(a) .............................. 17,300 373,031
Cisco Systems, Inc.(a) ......................... 405,100 43,396,337
Citrix Systems, Inc. ........................... 8,800 1,082,400
Computer Associates International, Inc. ........ 68,700 4,804,706
Computer Sciences Corp.(a) ..................... 20,000 1,892,500
Compuware Corp.(a) ............................. 44,900 1,672,525
Comverse Technology, Inc.(a) ................... 7,300 1,056,675
Electronic Data Systems Corp. .................. 61,400 4,109,962
EMC Corp.(a)(b) ................................ 125,975 13,762,769
First Data Corp. ............................... 54,200 2,672,737
Microsoft Corp.(a) ............................. 635,100 74,147,925
Novell, Inc.(a) ................................ 41,900 1,673,381
Oracle Corp.(a)(b) ............................. 178,900 20,047,981
Parametric Technology Corp.(a) ................. 35,200 952,600
Peoplesoft, Inc. ............................... 30,000 641,250
Silicon Graphics, Inc.(a) ...................... 20,600 202,137
Unisys Corp. ................................... 32,100 1,025,194
Yahoo!, Inc. ................................... 30,600 13,240,237
--------------
219,907,458
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B16
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
COMPUTERS -- 1.9%
Apple Computer, Inc.(a)(b) ..................... 17,800 $ 1,830,062
Compaq Computer Corp. .......................... 215,789 5,839,790
Dell Computer Corp.(a)(b) ...................... 318,500 16,243,500
Gateway, Inc. .................................. 38,400 2,767,200
Hewlett-Packard Co. ............................ 127,500 14,527,031
International Business Machines Corp. .......... 224,800 24,278,400
Networking Appliance, Inc.(a) .................. 14,700 1,221,019
Seagate Technology, Inc.(a) .................... 29,700 1,382,906
Sun Microsystems, Inc.(a) ...................... 192,400 14,898,975
--------------
82,988,883
--------------
CONSTRUCTION -- 0.1%
Centex Corp. ................................... 6,700 165,406
Fluor Corp. .................................... 9,400 431,225
Foster Wheeler Corp. ........................... 6,400 56,800
Pulte Corp. .................................... 6,600 148,500
Standard Pacific Corp. ......................... 154,000 1,694,000
Webb (Del E.) Corp. ............................ 140,300 3,498,731
Vulcan Materials Co. ........................... 9,000 359,438
--------------
6,354,100
--------------
CONTAINERS -- 0.1%
Ball Corp. ..................................... 4,700 185,062
Bemis Co., Inc. ................................ 5,700 198,787
Crown Cork & Seal Co., Inc. .................... 15,100 337,862
Owens-Illinois, Inc.(a) ........................ 76,600 1,919,787
Pactiv Corp.(a) ................................ 22,000 233,750
Sealed Air Corp. ............................... 10,100 523,306
--------------
3,398,554
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock) ........... 5,900 152,294
Avon Products, Inc. ............................ 29,600 976,800
Colgate-Palmolive Co. .......................... 74,000 4,810,000
Gillette Co. ................................... 139,700 5,753,894
International Flavors & Fragrances, Inc. ....... 11,400 430,350
Procter & Gamble Co. ........................... 164,900 18,066,856
--------------
30,190,194
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
Eastman Kodak Co. .............................. 76,700 5,081,375
Philip Morris Co., Inc. ........................ 408,700 9,476,731
--------------
14,558,106
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Avery Dennison Corp. ........................... 14,700 1,071,262
Pitney Bowes, Inc. ............................. 35,600 1,719,925
Xerox Corp. .................................... 83,700 1,898,944
--------------
4,690,131
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS -- 1.5%
Fortune Brands, Inc. ........................... 22,300 $ 737,294
General Electric Capital Corp. ................. 407,200 63,014,200
Tomkins PLC, ADR ............................... 131,600 1,932,875
--------------
65,684,369
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.0%
Abbott Laboratories ............................ 192,200 6,979,262
Allergan, Inc. ................................. 17,000 845,750
ALZA Corp.(a) .................................. 11,500 398,187
American Home Products Corp. ................... 162,300 6,400,706
Amgen, Inc.(a) ................................. 127,300 7,645,956
Bard (C.R.), Inc. .............................. 5,700 302,100
Bausch & Lomb, Inc. ............................ 6,100 417,469
Baxter International, Inc. ..................... 35,700 2,242,406
Becton, Dickinson & Co. ........................ 30,400 813,200
Biomet, Inc. ................................... 13,700 548,000
Boston Scientific Corp.(a) ..................... 49,100 1,074,062
Bristol-Myers Squibb Co. ....................... 247,900 15,912,081
Cardinal Health, Inc.(b) ....................... 35,200 1,685,200
Guidant Corp. .................................. 37,900 1,781,300
Johnson & Johnson .............................. 167,800 15,626,375
Lilly (Eli) & Co. .............................. 136,700 9,090,550
Mallinckrodt, Inc. ............................. 8,600 273,587
Medtronic, Inc. ................................ 146,600 5,341,737
Merck & Co., Inc. .............................. 291,500 19,548,719
Pfizer, Inc. ................................... 484,600 15,719,212
Pharmacia & Upjohn, Inc. ....................... 64,200 2,889,000
Schering-Plough Corp.(b) ....................... 182,600 7,703,437
St. Jude Medical, Inc.(a) ...................... 9,400 288,462
Warner-Lambert Co. ............................. 106,900 8,759,119
Watson Pharmaceuticals, Inc.(a) ................ 11,000 393,937
--------------
132,679,814
--------------
ELECTRONICS -- 1.5%
Advanced Micro Devices, Inc.(a) ................ 16,400 474,575
Applied Materials, Inc.(a) ..................... 46,600 5,903,637
Belden, Inc. ................................... 67,100 1,409,100
Emerson Electric Co. ........................... 54,700 3,138,412
Grainger (W.W.), Inc. .......................... 12,300 588,094
Intel Corp.(b) ................................. 411,100 33,838,669
KLA-Tencor Corp.(a) ............................ 10,300 1,147,162
LSI Logic Corp.(a) ............................. 17,000 1,147,500
Micron Technology, Inc. ........................ 31,100 2,418,025
National Semiconductor Corp.(a) ................ 19,100 817,719
Rockwell International Corp. ................... 23,500 1,125,062
Solectron Corp. ................................ 33,200 3,158,150
Tektronix, Inc. ................................ 5,900 229,362
Teradyne, Inc. ................................. 16,000 1,056,000
Texas Instruments, Inc. ........................ 99,600 9,648,750
Thomas & Betts Corp. ........................... 6,500 207,187
Xilinx Inc.(a) ................................. 34,000 1,545,937
--------------
67,853,341
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B17
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 2.8%
American Express Co. ........................... 56,000 $ 9,310,000
Associates First Capital Corp. ................. 91,444 2,508,995
Bear Stearns Companies, Inc. ................... 14,516 620,559
Block (H.R.), Inc. ............................. 11,400 498,750
Capital One Financial Corp. .................... 25,200 1,214,325
Citigroup, Inc. ................................ 495,750 27,545,109
Countrywide Credit Industries, Inc. ............ 14,600 368,650
Dun & Bradstreet Corp. ......................... 19,800 584,100
Federal Home Loan Mortgage Corp. ............... 86,500 4,070,906
Federal National Mortgage Assoc. ............... 127,100 7,935,806
Fifth Third Bancorp ............................ 33,700 2,472,738
Fleet Boston Financial Corp. ................... 115,522 4,021,610
Franklin Resource, Inc. ........................ 32,900 1,054,856
Goldman Sachs Group, Inc.(a) ................... 13,200 1,243,275
Household International, Inc. .................. 59,852 2,229,487
Lehman Brothers Holdings, Inc. ................. 185,900 15,743,406
MBNA Corp. ..................................... 98,450 2,682,763
Merrill Lynch & Co., Inc. ...................... 103,900 8,675,650
Morgan Stanley Dean Witter & Co. ............... 124,590 17,785,223
PaineWebber Group, Inc. ........................ 15,300 593,831
Paychex, Inc. .................................. 31,300 1,252,000
Price (T. Rowe) Associates, Inc. ............... 8,000 295,500
Schwab (Charles) Corp.(a) ...................... 102,500 3,933,438
SLM Holding Corp. .............................. 21,400 904,150
State Street Corp. ............................. 20,200 1,475,863
Washington Mutual, Inc. ........................ 74,278 1,931,228
--------------
120,952,218
--------------
FOOD & BEVERAGE -- 1.4%
Anheuser-Busch Companies, Inc.(b) .............. 59,500 4,217,063
Archer-Daniels-Midland Co. ..................... 79,038 963,276
Bestfoods ...................................... 34,300 1,802,894
Brown-Forman Corp. (Class "B" Stock) ........... 8,700 498,075
Campbell Soup Co. .............................. 52,700 2,038,831
Coca Cola Enterprises, Inc.(b) ................. 53,800 1,082,725
Coca-Cola Co. .................................. 308,200 17,952,650
ConAgra, Inc. .................................. 61,300 1,383,081
Coors (Adolph) Co. (Class "B" Stock)............ 4,000 210,000
General Mills, Inc. ............................ 36,900 1,319,175
Heinz (H.J.) & Co. ............................. 44,400 1,767,675
Hershey Foods Corp. ............................ 16,600 788,500
Kellogg Co. .................................... 48,900 1,506,731
Nabisco Group Holdings Corp. ................... 319,400 3,393,625
PepsiCo, Inc. .................................. 185,500 6,538,875
Quaker Oats Co. ................................ 16,100 1,056,563
Ralston-Ralston Purina Group(b) ................ 40,000 1,115,000
Sara Lee Corp. ................................. 114,400 2,523,950
Seagram Co., Ltd. .............................. 52,800 2,372,700
Sysco Corp. .................................... 41,900 1,657,669
Unilever NV .................................... 71,018 3,866,035
Whitman Corp. .................................. 132,800 1,784,500
Wrigley (William) Jr. Co. ...................... 15,000 1,244,063
--------------
61,083,656
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 0.8%
Boise Cascade Corp. ............................ 149,900 $ 6,070,950
Champion International Corp. ................... 106,400 6,590,150
Fort James Corp. ............................... 28,200 771,975
Georgia-Pacific Corp. .......................... 97,800 4,963,350
International Paper Co. ........................ 52,221 2,947,223
Louisiana-Pacific Corp. ........................ 184,400 2,627,700
Mead Corp. ..................................... 107,900 4,686,906
Potlatch Corp. ................................. 3,500 156,187
Temple-Inland, Inc. ............................ 6,600 435,187
Westvaco Corp. ................................. 13,000 424,125
Weyerhaeuser Co. ............................... 24,900 1,788,131
Willamette Industries, Inc. .................... 82,700 3,840,381
--------------
35,302,265
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group .......................... 10,300 651,475
Consolidated Natural Gas Co. ................... 12,500 811,719
El Paso Energy Corp. ........................... 19,100 741,319
Peoples Energy Corp. ........................... 5,500 184,250
Sempra Energy .................................. 29,299 509,070
Williams Companies, Inc. ....................... 54,400 1,662,600
--------------
4,560,433
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.5%
Columbia/HCA Healthcare Corp. .................. 283,900 8,321,819
Healthsouth Corp.(a) ........................... 51,600 277,350
Humana, Inc.(a) ................................ 266,200 2,179,512
IMS Health, Inc. ............................... 39,400 1,071,187
LifePoint Hospitals, Inc.(a) ................... 10,552 124,645
Manor Care, Inc. ............................... 13,000 208,000
McKesson HBOC Inc. ............................. 32,430 731,702
Service Corp. International .................... 33,800 234,487
Shared Medical Systems Corp. ................... 2,300 117,156
Smith (A.O.) Corp. ............................. 105,450 2,306,719
Tenet Healthcare Corp.(a) ...................... 279,700 6,572,950
Triad Hospitals, Inc.(a) ....................... 10,552 159,599
Wellpoint Health Networks Inc. ................. 6,000 395,625
--------------
22,700,751
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co.(b) .................................. 27,800 1,400,425
Kimberly-Clark Corp. ........................... 68,200 4,450,050
Leggett & Platt, Inc. .......................... 125,700 2,694,694
--------------
8,545,169
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc. ............... 4,100 136,838
Fleetwood Enterprises, Inc. .................... 3,400 70,125
Hanson, PLC, ADR, (United Kingdom) ............. 309,562 12,517,913
Kaufman & Broad Home Corp. ..................... 6,100 147,544
Lowe's Companies, Inc. ......................... 46,500 2,778,375
Masco Corp. .................................... 46,900 1,190,088
Maytag Corp. ................................... 11,000 528,000
Newell Rubbermaid Inc.(b) ...................... 36,814 1,067,606
Owens Corning(b) ............................... 106,900 2,064,506
Stanley Works .................................. 11,000 331,375
Tupperware Corp. ............................... 9,600 162,600
Whirlpool Corp. ................................ 9,500 618,094
--------------
21,613,064
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B18
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
INSTRUMENT-CONTROLS -- 0.1%
Johnson Controls, Inc. ......................... 10,900 $ 619,937
PerkinElmer, Inc. .............................. 7,100 295,981
PE Corp-PE Biosystems Group. ................... 12,200 1,467,812
--------------
2,383,730
--------------
INSURANCE -- 1.5%
Aetna, Inc. .................................... 18,200 1,015,787
Allstate Corp. ................................. 99,700 2,392,800
American General Corp. ......................... 30,700 2,329,362
American International Group, Inc. ............. 193,553 20,927,918
Aon Corp.(b) ................................... 32,500 1,300,000
Berkley (W.R.) Corp. ........................... 42,400 885,100
Chubb Corp. .................................... 74,500 4,195,281
CIGNA Corp. .................................... 25,000 2,014,062
Cincinnati Financial Corp. ..................... 19,100 595,681
Conseco, Inc. .................................. 38,621 690,350
Financial Security Assurance Holdings Ltd. ..... 34,000 1,772,250
Hartford Financial Services Group, Inc. ........ 27,500 1,302,812
Jefferson-Pilot Corp. .......................... 13,100 894,075
Lincoln National Corp. ......................... 25,800 1,032,000
Loews Corp. .................................... 42,400 2,573,150
Marsh & McLennan Companies, Inc. ............... 33,100 3,167,256
MBIA, Inc. ..................................... 13,000 686,563
MGIC Investment Corp.(b) ....................... 13,900 836,606
Progressive Corp. .............................. 9,400 687,375
Reinsurance Group of America, Inc. ............. 173,325 4,809,769
SAFECO Corp. ................................... 100,600 2,502,425
St. Paul Companies, Inc. ....................... 28,600 963,463
Torchmark Corp. ................................ 118,400 3,441,000
Trenwick Group, Inc. ........................... 64,850 1,098,397
United Healthcare Corp. ........................ 22,000 1,168,750
UnumProvident Corp.(b) ......................... 29,110 933,339
--------------
64,215,571
--------------
LEISURE -- 0.3%
Brunswick Corp. ................................ 9,000 200,250
Carnival Corp. (Class "A" Stock) ............... 80,500 3,848,906
Disney (Walt) Co. .............................. 260,300 7,613,775
Harrah's Entertainment, Inc.(a) ................ 15,800 417,713
Hilton Hotels Corp. ............................ 30,300 291,638
Marriott International, Inc. (Class "A"
Stock) ....................................... 28,900 912,156
Mirage Resorts, Inc.(a) ........................ 23,600 361,375
--------------
13,645,813
--------------
MACHINERY -- 0.3%
Briggs & Stratton Corp. ........................ 2,200 117,975
Caterpillar, Inc. .............................. 44,300 2,084,869
Commercial Intertech Corp. ..................... 28,300 360,825
Cooper Industries, Inc. ........................ 12,800 517,600
Deere & Co. .................................... 28,000 1,214,500
Dover Corp. .................................... 25,700 1,166,138
Eaton Corp. .................................... 8,200 595,525
Flowserve Corp. ................................ 39,486 671,262
Ingersoll-Rand Co. ............................. 21,400 1,178,338
Milacron, Inc. ................................. 6,300 96,863
Paxar Corp. .................................... 229,925 1,939,992
Snap-On, Inc. .................................. 9,500 252,344
Timken Co. ..................................... 9,900 202,331
--------------
10,398,562
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
MANUFACTURING -- 0.3%
Hussmann International, Inc. ................... 122,100 $ 1,839,131
Illinois Tool Works, Inc.(b) ................... 32,000 2,162,000
Tyco International Ltd. ........................ 210,022 8,164,605
--------------
12,165,736
--------------
MEDIA -- 1.5%
CBS Corp.(a) ................................... 161,547 10,328,911
Central Newspapers, Inc.(Class "A" Stock) ...... 100,000 3,937,500
Clear Channel Communications, Inc.(a)(b) ....... 40,900 3,650,325
Comcast Corp. (Special Class "A" Stock)(b) ..... 93,800 4,713,450
Donnelley (R.R.) & Sons Co. .................... 15,700 389,556
Dow Jones & Co., Inc. .......................... 10,600 720,800
Gannett Co., Inc. .............................. 34,400 2,805,750
Houghton Mifflin Co. ........................... 58,700 2,476,406
Interpublic Group of Companies, Inc. ........... 35,600 2,053,675
Knight-Ridder, Inc.(b) ......................... 67,800 4,034,100
Lee Enterprises, Inc. .......................... 50,900 1,625,619
McGraw-Hill, Inc. .............................. 23,700 1,460,513
Mediaone Group, Inc.(b) ........................ 77,700 5,968,331
Meredith Corp. ................................. 5,500 229,281
New York Times Co. (Class "A" Stock)(b) ........ 22,900 1,124,963
Time Warner, Inc. .............................. 157,800 11,430,638
Times Mirror Co. (Class "A" Stock) ............. 8,900 596,300
Tribune Co. .................................... 30,000 1,651,875
Viacom, Inc. (Class "B" Stock)(a) .............. 87,600 5,294,325
--------------
64,492,318
--------------
METALS-FERROUS -- 0.2%
AK Steel Holding Corp. ......................... 146,900 2,772,738
Allegheny Technologies, Inc. ................... 12,200 273,738
Bethlehem Steel Corp.(a) ....................... 241,500 2,022,563
Material Sciences Corp.(a) ..................... 96,900 987,169
National Steel Corp. (Class "B" Stock)(a) ...... 36,000 267,750
Nucor Corp. .................................... 10,500 575,531
USX-U.S. Steel Group, Inc. ..................... 94,100 3,105,300
Worthington Industries, Inc. ................... 9,200 152,375
--------------
10,157,164
--------------
METALS-NON FERROUS -- 0.7%
Alcan Aluminum Ltd.(b) ......................... 26,700 1,099,706
Alcoa, Inc. .................................... 326,300 27,082,900
Inco Ltd. ...................................... 26,200 615,700
Reynolds Metals Co. ............................ 8,200 628,325
--------------
29,426,631
--------------
MINERAL RESOURCES -- 0.0%
Burlington Resources, Inc.(b) .................. 23,300 770,356
Homestake Mining Co. ........................... 33,100 258,594
Phelps Dodge Corp. ............................. 8,393 563,380
--------------
1,592,330
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B19
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
AES Corp. ...................................... 24,000 $ 1,794,000
Crane Co. ...................................... 10,800 214,650
Danaher Corp. .................................. 17,400 839,550
Donaldson Co., Inc. ............................ 109,200 2,627,625
Ecolab, Inc. ................................... 16,700 653,388
IDEX Corp.(b) .................................. 60,100 1,825,538
ITT Industries, Inc. ........................... 10,700 357,781
Mark IV Industries, Inc. ....................... 86,542 1,530,712
Millipore Corp. ................................ 6,800 262,650
NACCO Industries, Inc. (Class "A" Stock) ....... 1,300 72,231
Pall Corp. ..................................... 13,800 297,563
PPG Industries, Inc. ........................... 21,100 1,320,069
Textron, Inc. .................................. 19,300 1,480,069
Thermo Electron Corp.(a) ....................... 20,900 313,500
Trinity Industries, Inc. ....................... 52,200 1,484,438
Wolverine Tube, Inc.(a) ........................ 37,000 522,625
York International Corp. ....................... 59,100 1,621,556
--------------
17,217,945
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.2%
American Greetings Corp. (Class "A" Stock) ..... 8,200 193,725
Black & Decker Corp. ........................... 10,400 543,400
Corning, Inc. .................................. 30,200 3,893,913
Jostens, Inc. .................................. 6,100 148,306
Minnesota Mining & Manufacturing Co. ........... 50,000 4,893,750
Polaroid Corp. ................................. 7,000 131,688
--------------
9,804,782
--------------
OIL & GAS -- 1.9%
Amerada Hess Corp. ............................. 11,100 629,925
Anadarko Petroleum Corp. ....................... 15,100 515,288
Ashland, Inc. .................................. 9,400 309,613
Atlantic Richfield Co. ......................... 41,300 3,572,450
Basin Exploration, Inc.(a) ..................... 17,400 306,675
Cabot Oil & Gas Corp. (Class "A" Stock) ........ 88,600 1,423,138
Chevron Corp. .................................. 82,800 7,172,550
Coastal Corp. .................................. 26,100 924,919
Eastern Enterprises ............................ 3,200 183,800
Exxon Mobil Corp. .............................. 430,270 34,663,627
Kerr-McGee Corp. ............................... 10,525 652,550
Murphy Oil Corp. ............................... 27,600 1,583,550
NICOR, Inc. .................................... 4,900 159,250
Noble Affiliates, Inc. ......................... 50,900 1,091,169
Ocean Energy Inc ............................... 63,700 493,675
Phillips Petroleum Co. ......................... 32,600 1,532,200
Pioneer Natural Resources Co. .................. 435,944 3,896,250
Royal Dutch Petroleum Co. ...................... 267,500 16,167,031
Sunoco, Inc. ................................... 10,100 237,350
Texaco, Inc. ................................... 68,000 3,693,250
Unocal Corp. ................................... 30,900 1,037,081
USX-Marathon Group ............................. 36,900 910,969
Western Gas Resources, Inc. .................... 103,000 1,358,313
--------------
82,514,623
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Baker Hughes, Inc. ............................. 40,150 $ 845,659
Conoco, Inc (Class "B") ........................ 68,394 1,701,301
EOG Resources, Inc. ............................ 48,400 850,025
Occidental Petroleum Corp. ..................... 41,300 893,113
Transocean Sedco Forex, Inc. ................... 13,397 451,315
Union Pacific Resources Group, Inc. ............ 29,700 378,675
--------------
5,120,088
--------------
OIL & GAS SERVICES -- 0.5%
Apache Corp. ................................... 15,000 554,063
Enron Corp. .................................... 89,000 3,949,375
Halliburton Co. ................................ 55,500 2,233,875
Helmerich & Payne, Inc. ........................ 7,900 172,319
McDermott International, Inc. .................. 401,600 3,639,500
ONEOK, Inc. .................................... 4,900 123,113
Rowan Companies, Inc.(a) ....................... 9,600 208,200
Schlumberger Ltd.(b) ........................... 69,200 3,892,500
Tosco Corp. .................................... 9,000 244,688
Total SA (Class "B" Stock), (France) ........... 79,933 5,535,360
--------------
20,552,993
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. ......................... 82,200 981,263
Barrick Gold Corp. ............................. 50,600 894,988
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock) ....................................... 21,300 449,963
Newmont Mining Corp. ........................... 24,500 600,250
Placer Dome, Inc. .............................. 32,700 351,525
Stillwater Mining Co.(a) ....................... 75,000 2,390,625
--------------
5,668,614
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp. ............. 60,700 1,471,975
CSX Corp. ...................................... 27,600 865,950
Kansas City Southern Industries, Inc. .......... 13,300 992,513
Norfolk Southern Corp. ......................... 46,800 959,400
Union Pacific Corp. ............................ 30,800 1,343,650
--------------
5,633,488
--------------
REAL ESTATE INVESTMENT TRUST -- 0.3%
Crescent Real Estate Equities Co. .............. 336,700 6,186,863
Equity Residential Properties Trust ............ 37,700 1,609,319
Vornado Realty Trust ........................... 185,200 6,019,000
--------------
13,815,182
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc. ....................... 18,200 329,875
McDonald's Corp. ............................... 171,500 6,913,594
Tricon Global Restaurants, Inc.(a) ............. 19,000 733,875
Wendy's International, Inc. .................... 15,500 319,688
--------------
8,297,032
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B20
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
RETAIL -- 2.8%
Albertson's, Inc. .............................. 54,566 $ 1,759,754
AutoZone, Inc.(a) .............................. 19,800 639,788
Bed Bath & Beyond, Inc. ........................ 8,000 278,000
Best Buy Co., Inc.(a) .......................... 22,000 1,104,125
Charming Shoppes, Inc.(a) ...................... 811,300 5,374,863
Circuit City Stores, Inc. ...................... 25,800 1,162,613
Consolidated Stores Corp. ...................... 12,400 201,500
Costco Wholesale Corp.(b) ...................... 28,200 2,573,250
CVS Corp. ...................................... 48,400 1,932,975
Dayton-Hudson Corp. ............................ 55,200 4,053,750
Dillard's, Inc. ................................ 43,700 882,194
Dollar General Corporation ..................... 28,125 639,844
Federated Department Stores, Inc.(a) ........... 26,400 1,334,850
Great Atlantic & Pacific Tea Co., Inc. ......... 6,000 167,250
Harcourt General, Inc. ......................... 8,000 322,000
Home Depot, Inc. ............................... 280,350 19,221,497
Huttig Building Products, Inc. ................. 2,400 11,849
IKON Office Solutions, Inc. .................... 17,100 116,494
J.C. Penney Co., Inc. .......................... 33,100 659,931
Kmart Corp.(a) ................................. 638,100 6,420,881
Kohl's Corp.(a) ................................ 20,300 1,465,406
Kroger Co.(a) .................................. 107,946 2,037,481
Liz Claiborne, Inc. ............................ 10,500 395,063
Longs Drug Stores, Inc. ........................ 6,100 157,456
May Department Stores Co. ...................... 41,900 1,351,275
Nordstrom, Inc. ................................ 17,500 458,281
Office Depot, Inc. ............................. 34,500 377,344
Pep Boys - Manny, Moe & Jack ................... 6,927 63,209
Rite Aid Corp. ................................. 31,400 351,288
Safeway, Inc.(a) ............................... 62,900 2,236,881
Sears, Roebuck & Co. ........................... 48,900 1,488,394
Sherwin-Williams Co. ........................... 21,800 457,800
Staples, Inc.(a) ............................... 59,500 1,234,625
Supervalu, Inc. ................................ 13,000 260,000
Tandy Corp. .................................... 25,400 1,249,363
The Gap, Inc. .................................. 109,300 5,027,800
The Limited, Inc. .............................. 198,053 8,578,171
TJX Companies, Inc. ............................ 40,600 829,763
Toys 'R' Us, Inc.(a) ........................... 146,500 2,096,781
Wal-Mart Stores, Inc.(b) ....................... 553,100 38,233,038
Walgreen Co. ................................... 124,200 3,632,850
Winn-Dixie Stores, Inc. ........................ 17,500 418,906
--------------
121,258,583
--------------
RUBBER -- 0.0%
Cooper Tire & Rubber Co. ....................... 9,300 144,731
Goodyear Tire & Rubber Co. ..................... 59,400 1,674,338
--------------
1,819,069
--------------
<CAPTION>
COMMON
VALUE
SHARES (NOTE 2)
STOCKS (CONTINUED) ------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS -- 4.7%
ADC Telecommunications, Inc.(a) ................ 14,000 $ 1,015,875
AFLAC Inc. ..................................... 30,000 1,415,625
Alcatel Alsthom, ADR, (France)(b) .............. 124,900 5,620,500
Alltel Corp. ................................... 35,800 2,960,213
Andrew Corp.(a) ................................ 9,900 187,481
AT&T Corp.(b) .................................. 397,748 20,185,711
Bell Atlantic Corp. ............................ 194,900 11,998,531
BellSouth Corp. ................................ 235,600 11,029,025
CenturyTel, Inc. ............................... 15,400 729,575
General Instrument Corp. ....................... 21,000 1,785,000
Global Crossing Ltd.(a) ........................ 88,690 4,434,500
GTE Corp. ...................................... 122,800 8,665,075
Lucent Technologies, Inc. ...................... 383,755 28,709,671
MCI Worldcom, Inc. ............................. 350,421 18,594,214
Motorola, Inc. ................................. 77,100 11,352,975
Nextel Communications, Inc. (Class "A"
Stock)(a)(b) ................................. 42,300 4,362,188
Nortel Networks Corp.(b) ....................... 164,980 16,662,980
QUALCOMM, Inc.(b) .............................. 79,600 14,029,500
SBC Communications, Inc. ....................... 426,308 20,782,515
Scientific-Atlanta, Inc. ....................... 8,400 467,250
Sprint Corp.(b) ................................ 108,600 7,310,138
Sprint Corp. (PCS Group) ....................... 55,450 5,683,625
Tellabs, Inc.(a) ............................... 49,100 3,151,606
US West, Inc. .................................. 63,660 4,583,520
--------------
205,717,293
--------------
TEXTILES -- 0.0%
National Service Industries, Inc. .............. 4,000 118,000
Russell Corp. .................................. 5,700 95,475
Springs Industries, Inc. ....................... 3,200 127,800
VF Corp. ....................................... 15,600 468,000
--------------
809,275
--------------
TOBACCO -- 0.1%
R.J. Reynolds Tobacco Holdings, Inc. ........... 94,066 1,657,913
UST, Inc. ...................................... 22,700 571,756
--------------
2,229,669
--------------
TOYS -- 0.0%
Hasbro, Inc. ................................... 25,500 486,094
Mattel, Inc. ................................... 47,151 618,857
--------------
1,104,951
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp.(a) ....................... 36,400 1,490,125
Ryder System, Inc. ............................. 9,000 219,938
Yellow Corp.(a) ................................ 43,600 733,025
--------------
2,443,088
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B21
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (NOTE 2)
(CONTINUED) ------------- --------------
UTILITIES - ELECTRICAL & GAS -- 0.5%
<S> <C> <C>
Ameren Corp.(b) ................................ 17,700 $ 579,675
American Electric Power Co., Inc.(b) ........... 23,500 754,938
Carolina Power & Light Co. ..................... 20,000 608,750
Central & South West Corp.(b) .................. 27,600 552,000
CINergy Corp. .................................. 19,600 472,850
CMS Energy Corp. ............................... 13,000 405,438
Consolidated Edison, Inc.(b) ................... 28,100 969,450
Constellation Energy Group ..................... 18,400 533,600
Dominion Resources, Inc.(b) .................... 24,300 953,775
DTE Energy Co. ................................. 19,200 602,400
Duke Energy Corp. .............................. 46,200 2,315,775
Edison International ........................... 45,700 1,196,769
Entergy Corp. .................................. 29,800 767,350
FirstEnergy Corp.(a) ........................... 31,300 710,119
Florida Progress Corp. ......................... 7,000 296,188
FPL Group, Inc. ................................ 23,200 993,250
GPU, Inc. ...................................... 16,400 490,975
New Century Energies, Inc. ..................... 15,000 455,625
Niagara Mohawk Holdings Inc.(a) ................ 22,600 314,988
Northern States Power Co. ...................... 17,700 345,150
Pacific Gas & Electric, Co. .................... 47,200 967,600
PECO Energy Co. ................................ 23,200 806,200
Pinnacle West Capital Corp. .................... 3,000 91,688
PP&L Resources, Inc. ........................... 20,200 462,075
Public Service Enterprise Group, Inc............ 28,800 1,002,600
Reliant Energy, Inc. ........................... 39,100 894,413
Southern Co.(b) ................................ 89,400 2,100,900
Texas Utilities Co. ............................ 35,800 1,273,138
Unicom Corp. ................................... 27,400 917,900
--------------
22,835,579
--------------
WASTE MANAGEMENT -- 0.0%
Allied Waste Industries, Inc. .................. 10,000 88,125
Waste Management, Inc. ......................... 77,142 1,325,878
--------------
1,414,003
--------------
TOTAL COMMON STOCKS
(cost $1,366,247,177).......................................... 1,826,564,329
--------------
</TABLE>

<TABLE>
<CAPTION>
PREFERRED STOCKS -- 0.9%
COMMON STOCKS (NOTE 2)
(CONTINUED) ------------- --------------
UTILITIES - ELECTRICAL & GAS -- 0.5%
<S> <C> <C>
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp., ................. 1,225,900 30,798,669
--------------
TELECOMMUNICATIONS -- 0.2%
Telecomunicacoes Brasileiras S.A., ADR(b) ...... 50,200 6,450,700
--------------
TOTAL PREFERRED STOCKS
(cost $36,227,123)............................................. 37,249,369
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,645,523,405).......................................... 4,027,176,265
--------------
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM MOODY'S
RATING PRINCIPAL
(UNAUDITED) AMOUNT VALUE
------------ --------- --------------
INVESTMENTS -- 18.9% (000) (000)
<S> <C> <C> <C>
COMMERCIAL PAPER -- 11.5%
Baker Hughes, Inc.,
4.75%, 01/03/00 .............................. P1 1,000 999,736
Barton Capital Corp,
5.94%, 01/21/00(c) ........................... P1 20,000 19,940,600
6.20%, 01/20/00 .............................. P1 10,000 9,967,278
6.29%, 01/10/00 .............................. P1 500 499,214
6.00%, 01/14/00(c) ........................... P1 5,430 5,420,045
<CAPTION>
SHORT-TERM
INVESTMENTS MOODY'S
RATING PRINCIPAL
(UNAUDITED) AMOUNT VALUE
------------ --------- --------------
(CONTINUED) (000) (000)
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
COMMERCIAL PAPER (CONT'D.)
Bayerische Landesbank,
<S> <C> <C> <C>
5.98%, 02/23/00 .............................. P1 $ 570 $ 564,982
Bell Atlantic Corp.,
5.20%, 01/07/00 .............................. P1 1,016 1,015,120
BMW U.S. Capital,
5.00%, 01/04/00 .............................. P1 1,000 999,583
Central & SouthWest Corp.,
7.20%, 01/21/00(c) ........................... P2 25,000 24,910,000
Clipper Receivables Corp.,
6.12%, 01/24/00 .............................. P1 12,554 12,504,914
Coca Cola Enterprises,
5.25%, 01/03/00 .............................. NR 1,000 999,708
Comdisco, Inc.,
6.45%, 01/28/00(c) ........................... P2 10,000 9,955,208
6.55%, 01/28/00(c) ........................... P2 15,000 14,931,771
Cox Enterprises, Inc.,
6.85%, 01/21/00(c) ........................... P2 26,000 25,910,950
Duke Energy Corp,
5.00%, 01/03/00 .............................. P1 1,000 999,722
Falcon Asset Securitization Corp.,
6.00%, 01/11/00(c) ........................... P1 40,000 39,946,667
Ford Motor Credit Corp,
5.40%, 01/04/00 .............................. P1 1,000 999,550
GTE Funding, Inc.,
6.03%, 01/10/00(c) ........................... P1 25,000 24,970,688
Heller Financial, Inc.,
6.00%, 01/13/00(c) ........................... P2 12,500 12,479,167
6.05%, 01/14/00(c) ........................... P2 10,000 9,981,514
Kerr McGee Credit LLC,
6.45%, 01/14/00(c) ........................... P2 10,000 9,980,292
6.50%, 01/13/00(c) ........................... P2 33,000 32,940,417
Keyspan Corp.,
6.50%, 01/12/00(c) ........................... P2 43,000 42,930,125
Merrill Lynch & Co. Inc,
6.12%, 01/18/00 .............................. P1 1,000 997,110
Morgan (J.P.) & Co., Inc.,
5.96%, 03/13/00 .............................. P1 1,005 993,020
National Australia Fund,
5.00%, 01/04/00 .............................. P1 1,000 999,583
Novartis Financial Corp.,
5.50%, 01/05/00 .............................. P1 1,000 999,389
Old Line Funding Corp,
6.01%, 01/12/00(c) ........................... P1 22,990 22,955,458
6.33%, 01/12/00 .............................. P1 8,500 8,483,560
Svenska Handelsbank, Inc.,
6.07%, 01/14/00(c) ........................... P1 50,000 50,000,000
Thunder Bay Funding,
6.27%, 01/13/00 .............................. P1 1,100 1,097,701
Triple-A One Funding, Inc.,
6.01%, 01/12/00(c) ........................... NR 21,051 21,019,371
6.27%, 01/14/00 .............................. NR 33,373 33,297,438
6.34%, 01/19/00 .............................. NR 442 440,599
UBS Finance (Delaware),
4.50%, 01/04/00 .............................. NR 1,000 999,625
Windmill Funding Corp.,
6.38%, 01/07/00(c) ........................... NR 58,000 57,958,884
--------------
504,088,989
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B22
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS MOODY'S
RATING PRINCIPAL
(UNAUDITED) AMOUNT VALUE
------------ --------- --------------
(CONTINUED) (000) (000)
<S> <C> <C> <C>
OTHER CORPORATE OBLIGATIONS -- 3.6%
Advanta Corp.,
7.50%, 08/28/00 .............................. Ba2 $ 35,000 $ 34,638,100
Bear Stearns & Co.,
6.50%, 07/05/00 .............................. A2 20,000 19,976,000
Camden Property Trust,
7.23%, 10/30/00 .............................. Baa2 22,000 21,918,600
Carnival Corp.,
5.65%, 10/15/00 .............................. A2 5,000 4,953,450
Comdisco, Inc.,
5.94%, 04/13/00 .............................. Baa1 12,500 12,461,250
Equity Residential Properties Trust,
6.15%, 09/15/00 .............................. A3 45,000 44,631,000
ICI Wilmington Inc.,
9.50%, 11/15/00 .............................. Baa1 8,000 8,154,640
ITT Corp.,
6.25%, 11/15/00 .............................. Baa2 5,253 5,150,724
Safeway Stores Inc.,
5.75%, 11/15/00 .............................. Baa2 6,000 5,946,960
--------------
157,830,724
--------------
</TABLE>

<TABLE>
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.0%
Joint Repurchase Agreement Account,
2.875%, 01/03/00 (Note 5) .................... 87,560 87,560,000
--------------
</TABLE>

<TABLE>
<S> <C> <C> <C>
TIME DEPOSITS -- 1.7%
Abbey National Treasury Services,
9.50%, 01/04/00(c) ........................... P1 50,000 50,000,000
Banque Nationale de Paris,
2.00%, 01/03/00(c) ........................... P1 3,345 3,345,000
Chase Manhattan Corp.,
5.50%, 01/03/00(c) ........................... P1 10,000 10,000,000
Deutsche Bank,
5.00%, 01/03/00(c) ........................... P1 13,000 13,000,000
--------------
76,345,000
--------------
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS
PRINCIPAL
AMOUNT VALUE
--------- --------------
(CONTINUED) (000) (000)
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bill,
5.196%, 03/16/00(d) .......................... $ 1,800 $ 1,780,515
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $828,802,279)........................................ 827,605,228
--------------
TOTAL INVESTMENTS -- 110.7%
(cost $4,474,325,684: Note 6).............................. 4,854,781,493
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(E)................
(125,094)
LIABILITIES IN EXCESS OF OTHER ASSETS -- 10.7%............... (467,516,168)
--------------
TOTAL NET ASSETS -- 100%..................................... $4,387,140,231
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
ADR American Depository Receipt
GDR Global Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Aronime (Spanish Corporation) or Societe Aronyme (French
Corporation)

(a) Non-income producing security.

(b) Portion of securities on loan with an aggregate market value of
$481,860,900, cash collateral of $504,046,862 was received with which the
portfolio purchased securities.

(d) Security segregated as collateral for futures contracts.

(e) Open futures contracts as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
88 U.S. T-Bond Mar 00 $ 8,310,500 $ 8,002,500 $(308,000)
93 U.S. Treasury 10yr Mar 00 9,129,680 8,914,922 (214,758)
20 S&P 500 Index Mar 00 7,175,150 7,421,000 245,850
193 U.S. Treasury 5yr Mar 00 19,161,703 18,917,016 (244,687)
---------
$(521,595)
=========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B23
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
DECEMBER 31, 1999

<TABLE>

LONG-TERM INVESTMENTS -- 89.3%
VALUE
COMMON STOCKS -- 54.2% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.9%
Boeing Co. ..................................... 123,500 $ 5,132,969
GenCorp, Inc. .................................. 403,900 3,988,512
General Dynamics Corp. ......................... 22,200 1,171,050
Goodrich (B.F.) Co. ............................ 10,600 291,500
Honeywell International, Inc. .................. 99,912 5,763,673
Litton Industries, Inc. (a)..................... 306,000 15,261,750
Lockheed Martin Corp. .......................... 48,900 1,069,687
Northrop Grumman Corp. ......................... 8,500 459,531
Parker-Hannifin Corp. .......................... 189,500 9,723,719
Raytheon Co. (Class "B" Stock) ................. 44,100 1,171,406
United Technologies Corp. ...................... 61,600 4,004,000
--------------
48,037,797
--------------
AIRLINES -- 1.2%
AMR Corp. ...................................... 638,000 42,746,000
Delta Air Lines, Inc. .......................... 17,800 886,662
Southwest Airlines Co. ......................... 61,800 1,000,387
US Airways Group, Inc. (a)...................... 472,500 15,149,531
--------------
59,782,580
--------------
APPAREL -- 0.1%
Nike, Inc. (Class "B" Stock) ................... 37,900 1,878,419
Reebok International Ltd. ...................... 9,100 74,506
Titan International, Inc. ...................... 415,700 2,702,050
--------------
4,654,975
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Cummins Engine Co., Inc. ....................... 4,800 231,900
Dana Corp. ..................................... 21,350 639,166
Ford Motor Co. ................................. 314,400 16,800,750
General Motors Corp. ........................... 425,700 30,943,069
Genuine Parts Co. (b)........................... 21,500 533,469
Johnson Controls, Inc. ......................... 11,600 659,750
MascoTech, Inc. ................................ 388,000 4,922,750
Midas, Inc. .................................... 90,866 1,987,694
Navistar International Corp. (a)................ 6,100 288,987
PACCAR, Inc. ................................... 10,000 443,125
TRW, Inc. ...................................... 12,800 664,800
--------------
58,115,460
--------------
BANKS AND SAVINGS & LOANS -- 1.6%
AmSouth Bancorporation ......................... 34,500 666,281
Banc One Corp. ................................. 149,764 4,801,808
Bank of New York Co., Inc. ..................... 97,400 3,896,000
BankAmerica Corp. .............................. 219,241 11,003,158
BB&T Corp. ..................................... 39,500 1,081,312
Chase Manhattan Corp. .......................... 104,400 8,110,575
Comerica, Inc. ................................. 19,000 887,062
First Union Corp. .............................. 122,700 4,026,094
Firstar Corp. .................................. 127,247 2,688,093
Fleet Boston Financial Corp. ................... 117,551 4,092,244
Golden West Financial Corp. .................... 19,200 643,200
Hanvit Bank-GDR ................................ 976,500 6,225,187
Huntington Bancshares, Inc. .................... 29,392 701,734
KeyCorp. ....................................... 54,900 1,214,662
Mellon Financial Corp. ......................... 64,200 2,186,812
Morgan (J.P.) & Co., Inc. ...................... 22,900 2,899,712
National City Corp. ............................ 78,200 1,852,362
Northern Trust Corp. ........................... 27,000 1,431,000
PNC Bank Corp. ................................. 38,600 1,717,700
Providian Financial Corp. ...................... 17,900 1,630,019
Regions Financial Corp. ........................ 28,100 706,012
Republic New York Corp. ........................ 13,500 972,000
SouthTrust Corp. ............................... 19,000 718,437
Summit Bancorp (b).............................. 21,100 646,187
Suntrust Banks, Inc. ........................... 40,400 2,780,025
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Synovus Financial Corp. ........................ 35,100 $ 697,612
U.S. Bancorp. .................................. 91,500 2,178,844
Union Planters Corp. ........................... 18,000 709,875
Wachovia Corp. ................................. 25,200 1,713,600
Wells Fargo & Co. .............................. 207,300 8,382,694
--------------
81,260,301
--------------
BUSINESS SERVICES
Equifax, Inc. .................................. 17,100 402,919
Omnicom Group, Inc. (b)......................... 22,700 2,270,000
--------------
2,672,919
--------------
CHEMICALS -- 1.2%
Air Products & Chemicals, Inc. ................. 28,900 969,956
Dow Chemical Co. ............................... 27,900 3,728,137
Du Pont (E.I.) de Nemours & Co. ................ 134,149 8,837,065
Eastman Chemical Co. ........................... 9,800 467,337
Engelhard Corp. ................................ 15,600 294,450
Ferro Corp. .................................... 553,650 12,180,300
FMC Corp. (a)................................... 3,500 200,594
Grace (W.R.) & Co .............................. 8,000 111,000
Great Lakes Chemical Corp. ..................... 6,500 248,219
Hercules, Inc. ................................. 11,900 331,712
Lyondell Chemical Co. .......................... 329,000 4,194,750
Millennium Chemicals, Inc. ..................... 601,600 11,881,600
Monsanto Co. ................................... 79,300 2,825,062
OM Group, Inc. ................................. 260,300 8,964,081
Omnova Solutions, Inc. ......................... 403,900 3,130,225
Praxair, Inc. .................................. 19,800 996,187
Rohm & Haas Co. ................................ 27,158 1,104,991
Sigma-Aldrich Corp. ............................ 11,600 348,725
Union Carbide Corp. ............................ 15,600 1,041,300
--------------
61,855,691
--------------
CIRCUITS
Analog Devices, Inc. ........................... 19,000 1,767,000
--------------
COMMERCIAL SERVICES
Cendant Corp. (a)............................... 94,000 2,496,875
Deluxe Corp. ................................... 9,000 246,937
Quintiles Transnational Corp. .................. 6,000 112,125
--------------
2,855,937
--------------
COMPUTER SERVICES -- 4.3%
3Com Corp. (a).................................. 45,500 2,138,500
Adaptec, Inc. (a)............................... 7,000 349,125
Adobe Systems, Inc. ............................ 13,200 887,700
America Online, Inc. (a)(b)..................... 275,600 20,790,575
Autodesk, Inc. ................................. 7,600 256,500
Automatic Data Processing, Inc. ................ 80,600 4,342,325
BMC Software, Inc. (a).......................... 29,200 2,334,175
Cabletron Systems, Inc. (a)..................... 25,600 665,600
Ceridian Corp. (a).............................. 18,600 401,062
Cisco Systems, Inc. (a)......................... 409,100 43,824,837
Citrix Systems, Inc. ........................... 9,000 1,107,000
Computer Associates International, Inc. ........ 69,400 4,853,662
Computer Sciences Corp. (a)..................... 20,000 1,892,500
Compuware Corp. (a)............................. 48,000 1,788,000
Comverse Technology, Inc. (a)................... 7,300 1,056,675
Electronic Data Systems Corp. .................. 62,600 4,190,287
EMC Corp. (a)(b)................................ 127,168 13,893,104
First Data Corp. ............................... 54,600 2,692,462
Lexmark International Group, Inc. .............. 12,884 1,166,002
Microsoft Corp. (a)............................. 642,300 74,988,525
Novell, Inc. (a)................................ 43,500 1,737,281
Oracle Corp. (a)(b)............................. 180,550 20,232,884
Parametric Technology Corp. (a)................. 31,500 $ 852,469
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B24
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Peoplesoft, Inc. ............................... 30,000 641,250
Silicon Graphics, Inc. (a)...................... 23,400 229,612
Unisys Corp. ................................... 31,400 1,002,837
Yahoo!, Inc. (a)................................ 31,000 13,413,312
--------------
221,728,261
--------------
COMPUTERS -- 1.6%
Apple Computer, Inc. (a)(b)..................... 19,400 1,994,562
Compaq Computer Corp. .......................... 217,461 5,885,038
Dell Computer Corp. (a)......................... 321,600 16,401,600
Gateway, Inc. .................................. 40,400 2,911,325
Hewlett-Packard Co. ............................ 127,800 14,561,212
International Business Machines Corp. .......... 227,000 24,516,000
Networking Appliance, Inc. (a).................. 14,700 1,221,019
Seagate Technology, Inc. (a).................... 28,900 1,345,656
Sun Microsystems, Inc. (a)...................... 194,900 15,092,569
--------------
83,928,981
--------------
CONSTRUCTION -- 0.4%
Centex Corp. ................................... 7,000 172,812
Fluor Corp. .................................... 9,800 449,575
Foster Wheeler Corp. ........................... 6,600 58,575
Pulte Corp. .................................... 6,900 155,250
Standard Pacific Corp. ......................... 632,400 6,956,400
Vulcan Materials Co. ........................... 9,000 359,437
Webb (Del E.) Corp. ............................ 576,500 14,376,469
--------------
22,528,518
--------------
CONTAINERS -- 0.2%
Ball Corp. ..................................... 2,700 106,312
Bemis Co., Inc. ................................ 6,600 230,175
Crown Cork & Seal Co., Inc. .................... 15,600 349,050
Owens-Illinois, Inc. (a)........................ 255,700 6,408,481
Pactiv Corp. ................................... 21,500 228,437
Sealed Air Corp. ............................... 10,900 564,756
--------------
7,887,211
--------------
COSMETICS & SOAPS -- 0.6%
Alberto Culver Co. (Class "B" Stock) ........... 6,200 160,037
Avon Products, Inc. ............................ 31,400 1,036,200
Colgate-Palmolive Co. .......................... 75,100 4,881,500
Gillette Co. ................................... 136,100 5,605,619
International Flavors & Fragrances, Inc. ....... 13,100 494,525
Procter & Gamble Co. (b)........................ 166,600 18,253,112
--------------
30,430,993
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
Eastman Kodak Co. .............................. 184,400 12,216,500
Philip Morris Co., Inc. ........................ 750,800 17,409,175
--------------
29,625,675
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Avery Dennison Corp. ........................... 15,000 1,093,125
Pitney Bowes, Inc. ............................. 33,600 1,623,300
Xerox Corp. .................................... 84,900 1,926,169
--------------
4,642,594
--------------
DIVERSIFIED OPERATIONS -- 1.4%
Fortune Brands, Inc. ........................... 21,700 717,456
General Electric Capital Corp. ................. 410,900 63,586,775
Tomkins PLC, ADR (b)............................ 617,300 9,066,594
--------------
73,370,825
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS & MEDICAL SUPPLIES -- 2.7%
Abbott Laboratories ............................ 192,800 $ 7,001,050
Allergan, Inc. ................................. 17,600 875,600
ALZA Corp. (a).................................. 9,900 342,787
American Home Products Corp. ................... 163,900 6,463,806
Amgen, Inc. (a)................................. 127,400 7,651,962
Bard (C.R.), Inc. .............................. 5,900 312,700
Bausch & Lomb, Inc. ............................ 7,100 485,906
Baxter International, Inc. ..................... 36,700 2,305,219
Becton, Dickinson & Co. ........................ 31,500 842,625
Biomet, Inc. ................................... 14,500 580,000
Boston Scientific Corp. (a)..................... 51,800 1,133,125
Bristol-Myers Squibb Co. ....................... 250,200 16,059,712
Cardinal Health, Inc. (b)....................... 34,450 1,649,294
Guidant Corp. .................................. 37,700 1,771,900
Johnson & Johnson .............................. 170,500 15,877,812
Lilly (Eli) & Co. .............................. 138,100 9,183,650
Mallinckrodt, Inc. ............................. 7,500 238,594
Medtronic, Inc. ................................ 148,200 5,400,037
Merck & Co., Inc. .............................. 294,300 19,736,494
Pfizer, Inc. ................................... 489,200 15,868,425
Pharmacia & Upjohn, Inc. ....................... 65,800 2,961,000
Schering-Plough Corp. .......................... 184,400 7,779,375
St. Jude Medical, Inc. (a)...................... 8,900 273,119
Warner-Lambert Co. ............................. 108,300 8,873,831
Watson Pharmaceuticals, Inc. (a)................ 9,000 322,312
--------------
133,990,335
--------------
ELECTRONICS -- 1.7%
Advanced Micro Devices, Inc. (a)................ 17,000 491,937
Applied Materials, Inc. (a)..................... 47,800 6,055,662
Belden, Inc. ................................... 275,600 5,787,600
Emerson Electric Co. ........................... 55,000 3,155,625
Grainger (W.W.), Inc. .......................... 11,200 535,500
Intel Corp. (b)................................. 415,000 34,159,687
KLA-Tencor Corp. (a)............................ 10,900 1,213,987
LSI Logic Corp. (a)............................. 18,600 1,255,500
Micron Technology, Inc. ........................ 31,900 2,480,225
Molex, Inc. .................................... 14,000 793,625
Motorola, Inc. ................................. 78,100 11,500,225
National Semiconductor Corp. (a)................ 19,000 813,437
Rockwell International Corp. ................... 24,300 1,163,362
Solectron Corp. ................................ 33,500 3,186,687
Tektronix, Inc. ................................ 6,200 241,025
Teradyne, Inc., ................................ 16,000 1,056,000
Texas Instruments, Inc. ........................ 98,600 9,551,875
Thomas & Betts Corp. ........................... 5,800 184,875
Xilinx Inc. (a)................................. 34,000 1,545,937
--------------
85,172,771
--------------
EXPLORATION & PRODUCTION
Apex Silver Mines Ltd. ......................... 340,400 4,063,525
--------------
FINANCIAL SERVICES -- 4.4%
American Express Co. ........................... 56,500 9,393,125
Associates First Capital Corp. ................. 92,290 2,532,207
Bear Stearns Companies, Inc. ................... 14,358 613,804
Block (H.R.), Inc. ............................. 11,400 498,750
Capital One Financial Corp. .................... 24,900 1,199,869
Citigroup, Inc. ................................ 747,876 41,553,860
Countrywide Credit Industries, Inc. ............ 14,000 353,500
Dun & Bradstreet Corp. ......................... 20,100 592,950
Federal Home Loan Mortgage Corp. ............... 87,400 4,113,262
Federal National Mortgage Association .......... 131,300 8,198,044
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B25
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Fifth Third Bancorp ............................ 34,300 $ 2,516,762
Franklin Resource, Inc. ........................ 30,600 981,112
Goldman Sachs Group, Inc. ...................... 53,100 5,001,356
Household International, Inc. .................. 62,492 2,327,827
Lehman Brothers Holdings, Inc. ................. 719,100 60,898,781
MBNA Corp. ..................................... 101,300 2,760,425
Merrill Lynch & Co., Inc. ...................... 285,000 23,797,500
Morgan Stanley Dean Witter & Co. ............... 293,695 41,924,961
Old Kent Financial Corp. ....................... 7,000 247,625
PaineWebber Group, Inc. ........................ 14,000 543,375
Paychex, Inc. .................................. 29,850 1,194,000
Schwab (Charles) Corp. (a)...................... 102,700 3,941,112
SLM Holding Corp. .............................. 19,000 802,750
State Street Corp. ............................. 20,600 1,505,087
T. Rowe Price & Associates ..................... 8,000 295,500
Washington Mutual, Inc. ........................ 74,136 1,927,536
--------------
219,715,080
--------------
FOOD & BEVERAGES -- 1.4%
Anheuser-Busch Companies, Inc. (b).............. 60,300 4,273,762
Archer-Daniels-Midland Co. ..................... 76,560 933,075
Bestfoods ...................................... 35,700 1,876,481
Brown-Forman Corp. (Class "B" Stock) ........... 6,700 383,575
Campbell Soup Co. .............................. 54,800 2,120,075
Coca Cola Enterprises, Inc. (b)................. 54,500 1,096,812
Coca-Cola Co. .................................. 311,200 18,127,400
ConAgra, Inc. .................................. 60,900 1,374,056
Coors (Adolph) Co. (Class "B" Stock) ........... 2,900 152,250
General Mills, Inc. ............................ 37,800 1,351,350
Heinz (H.J.) & Co. ............................. 45,200 1,799,525
Hershey Foods Corp. ............................ 16,500 783,750
Kellogg Co. .................................... 50,900 1,568,356
Nabisco Group Holdings Corp. ................... 1,226,900 13,035,812
PepsiCo, Inc. .................................. 184,400 6,500,100
Quaker Oats Co. ................................ 16,000 1,050,000
Ralston-Ralston Purina Group (b)................ 42,200 1,176,325
Sara Lee Corp. ................................. 115,000 2,537,187
Seagram Co., Ltd. .............................. 52,600 2,363,712
Sysco Corp. .................................... 40,900 1,618,106
Whitman Corp. .................................. 545,200 7,326,125
Wrigley (William) Jr. Co. ...................... 15,200 1,260,650
--------------
72,708,484
--------------
FOREST PRODUCTS -- 2.3%
Boise Cascade Corp. ............................ 665,800 26,964,900
Champion International Corp. ................... 401,600 24,874,100
Fort James Corp. ............................... 27,100 741,862
Georgia-Pacific Corp. .......................... 327,000 16,595,250
International Paper Co. ........................ 52,682 2,973,240
Louisiana-Pacific Corp. ........................ 699,700 9,970,725
Mead Corp. ..................................... 403,000 17,505,312
Potlatch Corp. ................................. 3,700 165,112
Temple-Inland, Inc. ............................ 7,100 468,156
Westvaco Corp. ................................. 11,900 388,237
Weyerhaeuser Co. ............................... 25,400 1,824,037
Willamette Industries, Inc. .................... 299,200 13,894,100
--------------
116,365,031
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group .......................... 10,500 664,125
Consolidated Natural Gas Co. ................... 12,900 837,694
El Paso Energy Co .............................. 19,500 756,844
Peoples Energy Corp. ........................... 5,700 190,950
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Sempra Energy .................................. 30,253 $ 525,646
Williams Companies, Inc. ....................... 54,800 1,674,825
--------------
4,650,084
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 1.4%
Columbia/HCA Healthcare Corp. .................. 909,600 26,662,650
Healthsouth Corp. (a)........................... 55,000 295,625
Humana, Inc. (a)................................ 1,011,100 8,278,381
IMS Health, Inc. ............................... 40,900 1,111,969
LifePoint Hospitals, Inc. (a)................... 42,447 501,405
Manor Care, Inc. ............................... 13,300 212,800
McKesson HBOC, Inc. ............................ 34,381 775,721
Service Corp. International .................... 35,100 243,506
Shared Medical Systems Corp. ................... 3,200 163,000
Smith (A.O.) Corp. ............................. 433,350 9,479,531
Tenet Healthcare Corp. (a)...................... 1,015,800 23,871,300
Triad Hospitals, Inc. (a)....................... 42,447 642,011
Wellpoint Health Networks, Inc. ................ 6,000 395,625
--------------
72,633,524
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.3%
Clorox Co. ..................................... 28,400 1,430,650
Kimberly-Clark Corp. ........................... 71,100 4,639,275
Leggett & Platt, Inc. .......................... 481,800 10,328,587
--------------
16,398,512
--------------
HOUSING RELATED -- 1.3%
Armstrong World Industries, Inc. ............... 5,800 193,575
Fleetwood Enterprises, Inc. .................... 4,100 84,563
Hanson, PLC, ADR, (United Kingdom) ............. 1,221,100 49,378,231
Kaufman & Broad Home Corp. ..................... 6,400 154,800
Lowe's Companies, Inc. ......................... 46,900 2,802,275
Masco Corp. .................................... 48,000 1,218,000
Maytag Corp. ................................... 10,700 513,600
Newell Rubbermaid, Inc. (b)..................... 36,155 1,048,495
Owens Corning .................................. 410,500 7,927,781
Stanley Works .................................. 9,900 298,238
Tupperware Corp. ............................... 9,900 167,681
Whirlpool Corp. ................................ 9,900 644,119
--------------
64,431,358
--------------
INSTRUMENT-CONTROLS
PE Corp-PE Biosystems Group. ................... 13,000 1,564,063
Perkin Elmer, Inc. ............................. 4,300 179,256
--------------
1,743,319
--------------
INSURANCE -- 2.4%
Aetna, Inc. .................................... 18,900 1,054,856
Allstate Corp. ................................. 99,100 2,378,400
American General Corp. ......................... 30,900 2,344,538
American International Group, Inc. ............. 195,478 21,136,059
Aon Corp. (b)................................... 33,450 1,338,000
Berkley (W.R.) Corp. ........................... 175,850 3,670,869
Chubb Corp. .................................... 237,900 13,396,744
CIGNA Corp. .................................... 24,700 1,989,894
Cincinnati Financial Corp. ..................... 20,200 629,988
Conseco, Inc. .................................. 41,587 743,368
Financial Security Assurance Holdings Ltd. ..... 140,100 7,302,713
Hartford Financial Services Group, Inc. ........ 28,900 1,369,138
Jefferson-Pilot Corp. .......................... 13,400 914,550
Lincoln National Corp. ......................... 25,000 1,000,000
Loews Corp. .................................... 178,300 10,820,581
Marsh & McLennan Companies, Inc. ............... 33,600 $ 3,215,100
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B26
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
MBIA, Inc. ..................................... 12,100 639,031
MGIC Investment Corp. (b)....................... 13,300 800,494
Progressive Corp. .............................. 9,400 687,375
Reinsurance Group of America, Inc. ............. 711,900 19,755,225
SAFECO Corp. ................................... 356,300 8,862,963
St. Paul Companies, Inc. ....................... 29,100 980,306
Torchmark Corp. ................................ 421,600 12,252,750
Trenwick Group, Inc. ........................... 273,300 4,629,019
United Healthcare Corp. ........................ 22,400 1,190,000
UnumProvident Corp. (b)......................... 30,970 992,976
--------------
124,094,937
--------------
LEISURE -- 0.3%
Brunswick Corp. ................................ 11,200 249,200
Carnival Corp. (Class "A" Stock) ............... 79,600 3,805,875
Disney (Walt) Co. .............................. 261,100 7,637,175
Harrah's Entertainment, Inc. (a)................ 16,400 433,575
Hilton Hotels Corp. ............................ 30,800 296,450
Marriott International, Inc. (Class "A"
Stock) ....................................... 31,000 978,438
Mirage Resorts, Inc. (a)........................ 22,500 344,531
--------------
13,745,244
--------------
MACHINERY -- 0.5%
Briggs & Stratton Corp. ........................ 3,300 176,963
Caterpillar, Inc. .............................. 45,100 2,122,519
Commercial Intertech Corp. ..................... 115,300 1,470,075
Cooper Industries, Inc. ........................ 12,900 521,644
Deere & Co. .................................... 29,500 1,279,563
Delphi Automotive Systems Corp. ................ 347,454 5,472,401
Dover Corp. .................................... 25,800 1,170,675
Eaton Corp. .................................... 9,200 668,150
Flowserve Corp. ................................ 161,991 2,753,847
Ingersoll-Rand Co. ............................. 20,600 1,134,288
Milacron, Inc. ................................. 6,400 98,400
Paxar Corp. .................................... 954,575 8,054,227
Snap-On, Inc. .................................. 7,100 188,594
Timken Co. ..................................... 10,200 208,463
--------------
25,319,809
--------------
MANUFACTURING -- 0.4%
Hussmann International, Inc. ................... 491,500 7,403,219
Illinois Tool Works, Inc. (b)................... 31,800 2,148,488
Tyco International Ltd. ........................ 211,766 8,232,403
--------------
17,784,110
--------------
MEDIA -- 2.2%
CBS Corp. (a)................................... 359,799 23,004,649
Central Newspapers, Inc. (Class "A" Stock) ..... 410,600 16,167,375
Clear Channel Communications, Inc. (a)(b)....... 41,200 3,677,100
Comcast Corp. (Special Class "A" Stock) (b)..... 96,800 4,864,200
Donnelley (R.R.) & Sons Co. .................... 15,000 372,188
Dow Jones & Co., Inc. .......................... 10,700 727,600
Gannett Co., Inc. .............................. 35,500 2,895,469
Houghton Mifflin Co. ........................... 240,700 10,154,531
Interpublic Group of Companies, Inc. ........... 34,600 1,995,988
Knight-Ridder, Inc. (b)......................... 248,600 14,791,700
Lee Enterprises, Inc. .......................... 208,900 6,671,744
McGraw-Hill, Inc. .............................. 24,700 1,522,138
Mediaone Group, Inc. (b)........................ 77,900 $ 5,983,694
Meredith Corp. ................................. 4,600 191,763
New York Times Co. (Class "A" Stock) (b)........ 22,200 1,090,575
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Time Warner, Inc. .............................. 159,300 11,539,294
Times Mirror Co. (Class "A" Stock) ............. 8,600 576,200
Tribune Co. .................................... 29,600 1,629,850
Viacom, Inc. (Class "B" Stock) (a).............. 88,700 5,360,806
--------------
113,216,864
--------------
METALS-FERROUS -- 0.7%
AK Steel Holding Corp. ......................... 606,100 11,440,138
Allegheny Technologies, Inc. ................... 12,650 283,834
Bethlehem Steel Corp. (a)....................... 924,400 7,741,850
Material Sciences Corp. (a)..................... 397,900 4,053,606
National Steel Corp. (Class "B" Stock) (a)...... 147,300 1,095,544
Nucor Corp. .................................... 11,500 630,344
USX-U.S. Steel Group, Inc. ..................... 348,500 11,500,500
Worthington Industries, Inc. ................... 9,700 160,656
--------------
36,906,472
--------------
METALS-NON FERROUS -- 2.0%
Alcan Aluminum Ltd. (b)......................... 28,800 1,186,200
Alcoa, Inc. .................................... 1,200,500 99,641,500
Inco Ltd. ...................................... 27,000 634,500
Reynolds Metals Co. ............................ 8,900 681,963
--------------
102,144,163
--------------
MINERAL RESOURCES
Burlington Resources, Inc. (b).................. 21,800 720,763
Homestake Mining Co. ........................... 34,300 267,969
Phelps Dodge Corp. ............................. 8,653 580,833
--------------
1,569,565
--------------
MISCELLANEOUS-BASIC INDUSTRY -- 0.9%
AES Corp. ...................................... 25,000 1,868,750
Crane Co. ...................................... 7,300 145,088
Danaher Corp. .................................. 16,000 772,000
Donaldson Co., Inc. ............................ 448,600 10,794,438
Ecolab, Inc. ................................... 17,300 676,863
IDEX Corp. (b).................................. 246,700 7,493,513
ITT Industries, Inc. ........................... 11,100 371,156
Mark IV Industries, Inc. ....................... 355,500 6,287,906
Millipore Corp. ................................ 7,000 270,375
NACCO Industries, Inc. (Class "A" Stock) ....... 1,300 72,231
Pall Corp. ..................................... 17,200 370,875
PPG Industries, Inc. ........................... 20,400 1,276,275
Textron, Inc. .................................. 20,200 1,549,088
Thermo Electron Corp. (a)....................... 17,500 262,500
Trinity Industries, Inc. ....................... 214,100 6,088,469
Wolverine Tube, Inc. (a)........................ 155,300 2,193,613
York International Corp. ....................... 238,800 6,552,075
--------------
47,045,215
--------------
MISCELLANEOUS-CONSUMER GROWTH/STABLE -- 0.3%
American Greetings Corp.
(Class "A" Stock) ............................ 11,800 278,775
Black & Decker Corp. ........................... 10,800 564,300
Corning, Inc. .................................. 30,500 3,932,594
Jostens, Inc. .................................. 6,300 153,169
Minnesota Mining & Manufacturing Co. ........... 51,600 5,050,350
MISCELLANEOUS-CONSUMER GROWTH/STABLE (CONT'D)
Polaroid Corp. ................................. 5,700 $ 107,231
Unilever NV .................................... 70,942 3,861,905
--------------
13,948,324
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B27
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS -- 2.7%
Amerada Hess Corp. ............................. 10,500 595,875
Anadarko Petroleum Corp. ....................... 15,300 522,113
Ashland, Inc. .................................. 8,700 286,556
Atlantic Richfield Co. ......................... 42,200 3,650,300
Basin Exploration, Inc. (a)..................... 71,400 1,258,425
Cabot Oil & Gas Corp. (Class "A" Stock) ........ 363,800 5,843,538
Chevron Corp. .................................. 83,600 7,241,850
Coastal Corp. .................................. 27,900 988,706
Eastern Enterprises ............................ 3,300 189,544
Exxon Mobil Corp. .............................. 434,258 34,984,910
Kerr-McGee Corp. ............................... 10,609 657,758
Murphy Oil Corp. ............................... 114,000 6,540,750
NICOR, Inc. .................................... 5,000 162,500
Noble Affiliates, Inc. ......................... 208,900 4,478,294
Ocean Energy, Inc. ............................. 245,500 1,902,625
Phillips Petroleum Co. ......................... 31,600 1,485,200
Pioneer Natural Resources Co. .................. 1,755,631 15,690,952
Royal Dutch Petroleum Co. ...................... 270,100 16,324,169
Sunoco, Inc. ................................... 10,800 253,800
Texaco, Inc. ................................... 67,200 3,649,800
Total SA (Class "B" Stock), (France)............ 327,959 22,711,161
Transocean Sedco ............................... 14,036 472,838
Union Pacific Resources Group, Inc. ............ 32,200 410,550
Unocal Corp. ................................... 30,800 1,033,725
USX-Marathon Group ............................. 38,700 955,406
Western Gas Resources, Inc. .................... 423,100 5,579,631
--------------
137,870,976
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Conoco, Inc (Class "B") ........................ 69,624 1,731,897
Eog Resources, Inc. ............................ 198,700 3,489,669
Occidental Petroleum Corp. ..................... 44,400 960,150
--------------
6,181,716
--------------
OIL & GAS SERVICES -- 0.5%
Apache Corp. ................................... 10,900 402,619
Baker Hughes, Inc. ............................. 41,740 879,149
Enron Corp. .................................... 91,200 4,047,000
Halliburton Co. ................................ 55,300 2,225,825
Helmerich & Payne, Inc. ........................ 8,200 178,863
McDermott International, Inc. .................. 1,629,400 14,766,438
ONEOK, Inc. .................................... 5,000 125,625
Rowan Companies, Inc. (a)....................... 10,100 219,044
Schlumberger Ltd. (b)........................... 72,500 4,078,125
Tosco Corp ..................................... 9,000 244,688
--------------
27,167,376
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp. ............................. 52,400 926,825
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock) ....................................... 22,100 466,863
Newmont Mining Corp. ........................... 25,400 622,300
Placer Dome, Inc. .............................. 28,000 301,000
Stillwater Mining Co. (a)....................... 301,800 9,619,875
--------------
11,936,863
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp. ............. 60,500 1,467,125
CSX Corp. ...................................... 29,300 919,288
RAILROADS (CONT'D)
Kansas City Southern Industries, Inc............ 11,000 $ 820,875
Norfolk Southern Corp. ......................... 48,900 1,002,450
Union Pacific Corp. ............................ 31,800 1,387,275
--------------
5,597,013
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 1.1%
Crescent Real Estate Equities Co. .............. 1,377,600 25,313,400
Equity Residential Properties Trust ............ 150,900 6,441,544
Vornado Realty Trust ........................... 745,100 24,215,750
--------------
55,970,694
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc. ....................... 19,000 344,375
McDonald's Corp. ............................... 169,900 6,849,094
Tricon Global Restaurants, Inc. (a)............. 20,100 776,363
Wendy's International, Inc. .................... 15,700 323,813
--------------
8,293,645
--------------
RETAIL -- 3.6%
Albertson's, Inc. .............................. 53,861 1,737,017
AutoZone, Inc. (a).............................. 19,700 636,556
Bed Bath & Beyond, Inc. ........................ 8,000 278,000
Best Buy Co., Inc. (a).......................... 22,000 1,104,125
Charming Shoppes, Inc. (a)...................... 3,332,400 22,077,150
Circuit City Stores, Inc. ...................... 25,200 1,135,575
Consolidated Stores Corp. ...................... 13,100 212,875
Costco Wholesale Corp. (b)...................... 27,700 2,527,625
CVS Corp. ...................................... 49,900 1,992,881
Dayton-Hudson Corp. ............................ 56,600 4,156,563
Dillard's, Inc. ................................ 143,100 2,888,831
Dollar General Corporation ..................... 29,000 659,750
Federated Department Stores, Inc. (a)........... 25,700 1,299,456
Great Atlantic & Pacific Tea Co., Inc. ......... 5,200 144,950
Harcourt General, Inc. ......................... 8,100 326,025
Home Depot, Inc. ............................... 283,350 19,427,184
Huttig Building Products, Inc. ................. 1,622 8,009
IKON Office Solutions, Inc. .................... 21,800 148,513
J.C. Penney Co., Inc. .......................... 33,800 673,888
Kmart Corp. (a)................................. 2,422,300 24,374,394
Kohl's Corp. (a)................................ 20,800 1,501,500
Kroger Co. (a).................................. 103,500 1,953,563
Liz Claiborne, Inc. ............................ 10,900 410,113
Longs Drug Stores, Inc. ........................ 4,300 110,994
May Department Stores Co. ...................... 43,350 1,398,038
Nordstrom, Inc. ................................ 17,400 455,663
Office Depot, Inc. ............................. 36,500 399,219
Pep Boys - Manny, Moe & Jack ................... 6,327 57,734
Rite Aid Corp. ................................. 31,600 353,525
Safeway, Inc. (a)............................... 64,100 2,279,556
Sears, Roebuck & Co. ........................... 48,300 1,470,131
Sherwin-Williams Co. ........................... 22,500 472,500
Staples, Inc. (a)............................... 59,200 1,228,400
Supervalu, Inc. ................................ 15,300 306,000
Tandy Corp. .................................... 23,800 1,170,663
The Gap, Inc. .................................. 110,100 5,064,600
The Limited, Inc. .............................. 720,240 31,195,395
TJX Companies, Inc. ............................ 42,000 858,375
Toys "R" Us, Inc. (a)........................... 508,100 7,272,181
Wal-Mart Stores, Inc. (b)....................... 558,300 38,592,488
Walgreen Co. ................................... 129,400 3,784,950
Winn-Dixie Stores, Inc. ........................ 19,500 466,781
--------------
186,611,736
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co. ....................... 8,600 $ 133,838
Goodyear Tire & Rubber Co. ..................... 181,800 5,124,488
--------------
5,258,326
--------------
TELECOMMUNICATIONS -- 4.2%
ADC Telecommunications, Inc. (a)................ 15,000 1,088,438
AFLAC Inc. ..................................... 31,000 1,462,813
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B28
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Alcatel Alsthom, ADR, (France) (b).............. 513,000 23,085,000
Alltel Corp. ................................... 37,200 3,075,975
Andrew Corp. (a)................................ 11,600 219,675
AT&T Corp. ..................................... 401,672 20,384,854
Bell Atlantic Corp. ............................ 195,200 12,017,000
BellSouth Corp. ................................ 238,000 11,141,375
CenturyTel, Inc. ............................... 11,700 554,288
General Instrument Corp. ....................... 21,800 1,853,000
Global Crossing Ltd. ........................... 89,460 4,473,000
GTE Corp. ...................................... 121,800 8,594,513
Lucent Technologies, Inc. ...................... 387,430 28,984,607
MCI WorldCom, Inc. ............................. 351,855 18,670,306
Nextel Communications, Inc.
(Class "A" Stock) (a)(b)...................... 42,400 4,372,500
Nortel Networks Corp. (b)....................... 168,200 16,988,200
Qualcomm, Inc. (b).............................. 79,600 14,029,500
SBC Communications, Inc. ....................... 430,550 20,989,313
Scientific-Atlanta, Inc. ....................... 8,200 456,125
Sprint Corp. ................................... 111,900 7,532,269
Sprint Corp. (PCS Group) (b).................... 54,350 5,570,875
Tellabs, Inc. (a)............................... 50,000 3,209,375
US West, Inc. .................................. 65,641 4,726,152
--------------
213,479,153
--------------
TEXTILES
National Service Industries, Inc. .............. 4,900 144,550
Russell Corp. .................................. 5,900 98,825
Springs Industries, Inc. ....................... 3,300 131,794
VF Corp. ....................................... 16,700 501,000
--------------
876,169
--------------
TOBACCO -- 0.2%
R.J. Reynolds Tobacco Holdings, Inc. ........... 395,333 6,967,744
UST, Inc. ...................................... 24,100 607,019
--------------
7,574,763
--------------
TOYS
Hasbro, Inc. ................................... 27,500 524,219
Mattel, Inc. ................................... 44,300 581,438
--------------
1,105,657
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)(b).................... 36,100 1,477,844
Ryder System, Inc. ............................. 9,400 229,713
Yellow Corp. (a)................................ 178,700 3,004,394
--------------
4,711,951
--------------
UTILITY-ELECTRIC -- 0.5%
Ameren Corp. (b)................................ 18,400 602,600
American Electric Power Co., Inc. (b)........... 24,000 771,000
Carolina Power & Light Co. ..................... 18,400 560,050
Central & South West Corp. (b).................. 28,300 566,000
Cinergy Corp. .................................. 20,700 499,388
CMS Energy Corp. ............................... 11,000 343,063
Consolidated Edison, Inc. ...................... 28,900 997,050
Constellation Energy Group ..................... 18,800 545,200
Dominion Resources, Inc. (b).................... 25,000 981,250
DTE Energy Co. ................................. 19,900 624,363
UTILITY-ELECTRIC (CONT'D.)
Duke Energy Corp. .............................. 46,000 $ 2,305,750
Edison International ........................... 42,800 1,120,825
Entergy Corp. .................................. 31,100 800,825
FirstEnergy Corp. (a)........................... 29,000 657,938
Florida Progress Corp. ......................... 7,000 296,188
FPL Group, Inc. ................................ 22,100 946,156
GPU, Inc. ...................................... 16,900 505,944
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
New Century Energies, Inc. ..................... 15,000 455,625
Niagara Mohawk Holdings Inc. (a)................ 24,300 338,681
Northern States Power Co. ...................... 19,900 388,050
Pacific Gas & Electric, Co. .................... 48,600 996,300
PECO Energy Co. ................................ 24,700 858,325
Pinnacle West Capital Corp. .................... 3,000 91,688
PP&L Resources, Inc. ........................... 20,900 478,088
Public Service Enterprise Group, Inc. .......... 27,100 943,419
Reliant Energy, Inc. ........................... 37,400 855,525
Southern Co. (b)................................ 87,000 2,044,500
Texas Utilities Co. ............................ 37,100 1,319,369
Unicom Corp. ................................... 28,500 954,750
--------------
22,847,910
--------------
WASTE MANAGEMENT
Allied Waste Industries, Inc. .................. 10,000 88,125
Waste Management, Inc. ......................... 77,635 1,334,352
--------------
1,422,477
--------------
TOTAL COMMON STOCKS
(cost $2,303,776,139).......................................... 2,779,698,869
--------------
PREFERRED STOCKS -- 1.0%
<S> <C> <C>
FINANCIAL SERVICES -- 0.5%
BCH Eurocapital Limited ........................ 1,000,000 25,250,000
--------------
TELECOMMUNICATIONS -- 0.5%
Telecomunicacoes Brasileiras S.A., ADR (b)...... 201,800 25,931,300
--------------
TOTAL PREFERRED STOCKS
(cost $45,526,299)............................................. 51,181,300
--------------

WARRANTS UNITS
<S> <C> <C>
-------------
Mexico Debenture
(cost $0) .................................... 31,074 3
--------------
</TABLE>

<TABLE>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT
BONDS -- 34.1% (UNAUDITED) (000)
------------ ---------
<S> <C> <C> <C>
AEROSPACE
Lockheed Martin Corp.,
6.85%, 05/15/01 .............................. A3 $ 400 397,248
Rockwell International Corp.,
5.20%, 01/15/98 .............................. A1 2,000 1,277,240
--------------
1,674,488
--------------
AIRLINES -- 2.0%
Continental Airlines, Inc.,
8.00%, 12/15/05 .............................. Ba2 9,970 9,119,160
7.461%, 04/01/15 ............................. Aa3 8,423 8,111,002
Delta Airlines, Inc.,
7.90%, 12/15/09 .............................. Baa3 38,800 37,779,948
8.30%, 12/15/29 .............................. Baa3 4,000 3,849,320
AIRLINES (CONT'D)
United Airlines, Inc.,
10.67%, 05/01/04 ............................. Baa3 $ 19,500 $ 21,355,035
11.21%, 05/01/14 ............................. Baa3 17,500 21,229,425
--------------
101,443,890
--------------
ASSET-BACKED SECURITIES -- 0.4%
California Infrastructure,
6.17%, 03/25/03 .............................. Aaa 4,000 3,979,680
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B29
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Chase Manhattan Credit Master Trust, Series
1996-3,
7.04%, 02/15/05 .............................. Aaa 11,000 11,023,980
Standard Credit Card Master Trust, 5.95%,
10/07/04 ..................................... Aaa 4,500 4,338,270
--------------
19,341,930
--------------
AUTOMOTIVE PARTS
United Rentals, Inc.
8.80%, 08/15/08 .............................. B1 1,785 1,664,513
--------------
AUTO - CARS & TRUCKS -- 1.4%
Ford Motor Co.,
6.38%, 02/01/29 (b)........................... A1 17,500 14,692,300
7.45%, 07/16/31 (b)........................... A1 3,500 3,367,140
Lear Corp.,
7.96%, 05/15/05 .............................. Ba1 11,740 11,387,800
Navistar International Corp.,
7.00%, 02/01/03 .............................. Ba1 11,500 11,011,250
TRW, Inc.,
6.45%, 06/15/01 .............................. Baa1 32,800 32,410,500
--------------
72,868,990
--------------
BANKS & SAVINGS LOANS -- 1.3%
Bank of Nova Scotia, (Canada),
6.50%, 07/15/07 .............................. A1 5,400 5,312,250
Bayerische Landesbank Girozentrale, (Germany),
5.88%, 12/01/08 .............................. Aaa 9,700 8,698,572
Central Hispano Leasing,
6.71%, 04/28/05 .............................. A3 5,000 4,999,500
Hypovereinsbank
8.74%, 06/30/31 (b)........................... Aa3 2,100 2,097,270
Key Bank NA,
5.80%, 04/01/04 .............................. Aa3 20,000 18,934,400
Keycorp Capital, Inc.,
7.75%, 07/15/29 (b)........................... A1 4,400 4,092,000
National Australia Bank,
6.40%, 12/10/07 .............................. A1 8,700 8,671,290
6.60%, 12/10/07 .............................. A1 5,000 4,688,150
Sanwa Finance Aruba
8.35%, 07/15/09 .............................. A3 7,120 7,174,112
Sovereign Bancorp,
10.50%, 11/15/06 ............................. Ba3 4,675 4,768,500
10.25%, 05/15/04 ............................. Ba3 2,670 2,691,093
--------------
72,127,137
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.1%
British Sky Broadcasting, Inc., 6.88%,
02/23/09 ..................................... Baa2 12,500 10,981,250
Cable & Wire Communications PLC (United
Kingdom),
6.75%, 12/01/08 .............................. Baa1 3,050 3,001,993
Cox Communications, Inc.
6.94%, 10/01/01 .............................. Baa2 4,000 3,982,960
7.88%, 08/15/09 (b)........................... Baa2 3,700 3,750,690
CABLE & PAY TELEVISION SYSTEMS (CONT'D.)
CSC Holdings, Inc.,
7.25%, 07/15/08 .............................. Ba2 $ 5,500 $ 5,186,280
7.88%, 12/15/07 .............................. Ba2 3,025 2,969,582
Rogers Cablesystems, Inc., (Canada),
10.00%, 03/15/05 ............................. Ba3 2,000 2,140,000
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Tele-Communications, Inc.,
6.34%, 02/01/02 .............................. Ba1 8,500 8,417,890
9.88%, 06/15/22 .............................. Baa3 12,878 15,716,826
--------------
56,147,471
--------------
CHEMICALS -- 0.2%
Lyondell Chemical,
9.63%, 05/01/07 .............................. Ba3 3,625 3,706,563
Monsanto Corp.
6.85%, 12/01/28 .............................. A2 500 440,785
Rohm & Haas Co,
6.95%, 07/15/04 .............................. A3 4,400 4,343,988
--------------
8,491,336
--------------
COMPUTERS -- 0.2%
International Business Machine Corp.,
5.63%, 04/12/04 .............................. A1 3,500 3,306,730
Unisys Corp.,
12.00%, 04/15/03 ............................. Ba1 6,615 7,044,975
--------------
10,351,705
--------------
CONSULTING
Comdisco, Inc.,
6.375%, 11/30/01 ............................. Baa1 2,700 2,647,701
--------------
CONTAINERS -- 0.5%
Owens-Illinois, Inc.,
7.15%, 05/15/05 .............................. Ba1 26,250 24,270,488
--------------
DIVERSIFIED OPERATIONS -- 0.8%
Corning, Inc.,
6.85%, 03/01/29 .............................. A3 5,000 4,356,550
Cox Enterprises, Inc.,
6.625%, 06/14/02 ............................. Baa1 5,200 5,124,756
Seagram (J.) & Sons,
5.79%, 04/15/01 .............................. Baa3 20,000 19,564,000
Tyco International Group, Ltd.,
6.125%, 06/15/01 ............................. Baa1 5,000 4,915,400
6.875%, 01/15/29 ............................. Baa1 3,400 2,889,558
7.00%, 06/15/28 .............................. Baa1 2,100 1,817,256
--------------
38,667,520
--------------
DRUGS & MEDICAL SUPPLIES -- 0.2%
Mallinckrodt, Inc.,
6.30%, 03/15/11 .............................. Baa2 8,000 7,820,000
Tenet Healthcare Corp.,
7.875%, 01/15/03 ............................. BA1 3,805 3,690,850
--------------
11,510,850
--------------
FINANCIAL SERVICES -- 6.9%
AT&T Cap Corp.,
6.60%, 05/15/05 .............................. A1 16,000 15,386,880
Barclays Bank PLC, (United Kingdom)
7.40%, 12/15/09 .............................. Aa3 600 589,620
Bear Stearns & Co.,
7.625%, 12/07/09 ............................. A2 1,035 1,016,287
Calair Capital Corp.,
8.125%, 04/01/08 ............................. Ba2 6,000 5,280,000
FINANCIAL SERVICES (CONT'D.)
Capital One Bank,
6.76%, 07/23/02 .............................. Baa2 $ 7,500 $ 7,323,600
Capital One Financial Corp.,
7.25%, 05/01/06 .............................. Ba1 6,800 6,426,000
Citibank Credit Card Master Trust, 6.10%,
05/15/08 ..................................... Ba2 44,000 41,424,240
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B30
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Conseco, Inc.,
8.70%, 11/15/26 .............................. Ba2 7,000 6,248,060
8.796%, 04/01/27 ............................. Ba2 3,000 2,723,070
Donaldson Lufkin & Jenrette,
5.74%, 05/01/01 .............................. A3 10,000 9,871,600
Dresdner Funding Trust,
8.151%, 06/30/31 ............................. Aa2 20,800 19,830,720
Enterprise Rent-A-Car USA Finance Co.,
6.35%, 01/15/01 .............................. Baa3 21,000 20,785,800
6.95%, 03/01/04 .............................. Baa2 7,500 7,281,750
Ford Motor Credit Corp.
6.70%, 07/16/04 (b)........................... A1 10,000 9,787,500
7.375%, 10/28/09 ............................. A1 2,500 2,475,000
General Motors Acceptance Corp., 5.95%,
03/14/03 ..................................... A2 21,500 20,702,350
Goldman Sachs Group, Inc.,
5.56%, 01/11/01 .............................. A1 4,200 4,150,272
Heller Financial, Inc.,
6.00%, 03/19/04 .............................. A3 4,900 4,652,697
HVB Funding Trust,
9.00%, 10/22/31 .............................. 00 1,400 1,435,700
International Lease Finance Corp., 6.00%,
05/15/02 ..................................... A1 43,100 42,121,630
Lehman Brothers Holdings, Inc.,
6.625%, 04/01/04 ............................. Baa1 21,910 21,209,756
6.625%, 02/05/06 ............................. Baa1 7,710 7,284,100
6.375%, 03/15/01 ............................. Baa1 4,300 4,263,665
MBNA Corp.,
5.90%, 08/15/11 .............................. Aaa 29,800 27,013,163
MCN Investment Corp.,
6.30%, 04/02/11 .............................. Baa2 8,250 8,102,325
Morgan Stanley Dean Witter & Co., 7.125%,
01/15/03 (b).................................. A1 14,540 14,528,513
Osprey Trust,
8.31%, 01/15/03 .............................. Baa3 20,000 19,895,000
RBF Finance Co.,
11.375%, 03/15/09 ............................ Ba3 2,365 2,542,375
Salomon Smith Barney, Inc.,
7.25%, 05/01/01 .............................. Baa1 2,160 2,166,847
6.75%, 08/15/03 .............................. Baa1 5,000 4,918,350
Textron Financial Corp.,
6.05%, 03/16/09 .............................. Aaa 6,302 6,265,300
Washington Mutual, Inc.
7.50%, 08/15/06 .............................. A3 7,000 6,924,750
--------------
354,626,920
--------------
FOOD & BEVERAGE -- 0.3%
Archer-Daniels Midland Co.,
6.625%, 05/01/29 ............................. Aa3 8,900 7,571,497
Coca-Cola Bottling Co.,
6.375%, 05/01/09 ............................. Baa2 3,500 3,152,800
Coca-Cola Enterprises, Inc.,
7.125%, 09/30/09 (b).......................... A2 1,650 1,618,650
--------------
12,342,947
--------------
FOREST PRODUCTS -- 0.7%
Fort James Corp.,
6.234%, 03/15/11 ............................. Baa3 11,000 10,886,040
FOREST PRODUCTS (CONT'D.)
Georgia-Pacific Corp.,
7.75%, 11/15/29 (b)........................... Baa2 $ 1,200 $ 1,143,528
Scotia Pacific Co.,
7.71%, 01/20/14 .............................. Baa2 29,500 22,125,000
--------------
34,154,568
--------------
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
HOSPITAL MANAGEMENT -- 0.1%
Columbia/HCA Healthcare Corp., 6.91%,
06/15/05 ..................................... Baa2 4,990 4,565,850
--------------
INDUSTRIAL -- 0.2%
Allied Waste Industries, Inc.,
7.625%, 01/01/06 ............................. Ba2 4,700 4,230,000
Cendant Corp.,
7.75%, 12/01/03 .............................. Baa1 2,000 1,995,200
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03 ............................. Baa 3,650 3,476,880
--------------
9,702,080
--------------
INSURANCE -- 0.1%
Conseco, Inc.,
8.50%, 10/15/02 .............................. Ba1 1,500 1,519,200
Royal & Sun Alliance Insurance Group PLC,
8.95%, 10/15/29 .............................. A1 3,500 3,575,600
--------------
5,094,800
--------------
LEISURE & TOURISM -- 0.3%
Harrahs Operating Co., Inc.
7.875%, 12/15/05 ............................. Ba2 600 585,000
ITT Corp.,
6.75%, 11/15/03 .............................. Baa2 14,000 13,023,220
Marriott International,
7.875%, 09/15/09 ............................. Baa1 475 467,524
Park Place Entertainment,
7.875%, 12/15/05 ............................. Ba2 5,030 4,803,650
--------------
18,879,394
--------------
MEDIA -- 0.5%
Liberty Media Group,
7.875%, 07/15/09 ............................. Baa3 2,400 2,390,640
8.50%, 07/15/29 .............................. Baa3 4,200 4,347,000
Paramount Communications, Inc., 7.50%,
01/15/02 ..................................... Ba2 9,100 9,119,747
United News & Media PLC,
7.25%, 07/01/04 .............................. Baa2 3,180 3,054,072
World Color Press, Inc.
7.75%, 02/15/09 .............................. B1 4,960 4,736,800
8.375%, 11/15/08 ............................. B1 1,500 1,466,250
--------------
25,114,509
--------------
OIL & GAS -- 0.6%
Atlantic Richfield Co.,
5.55%, 04/15/03 .............................. A2 22,500 21,570,300
Amerada Hess Corp,
7.375%, 10/01/09 ............................. Baa1 900 878,319
7.875%, 10/01/29 ............................. Baa1 2,500 2,438,250
B.J. Services Co.,
7.00%, 02/01/06 .............................. Ba1 4,000 3,785,360
Eott Energy Partnership
11.00%, 10/01/09 ............................. Ba2 3,935 4,092,400
--------------
32,764,629
--------------
OIL & GAS SERVICES -- 0.5%
KN Energy, Inc.,
6.30%, 03/01/21 .............................. Baa2 20,000 19,792,000
OIL & GAS SERVICES (CONT'D.)
Northrop-Grumman Corp.,
7.875%, 03/01/26 ............................. Ba1 $ 5,300 $ 4,971,824
Seagull Energy Co.,
7.875%, 08/01/03 ............................. Ba1 3,750 3,665,625
--------------
28,429,449
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B31
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Parker & Parsley, Petroleum Co., 8.875%,
04/15/05 ..................................... Ba2 3,100 3,083,849
Union Pacific Resources,
7.95%, 04/15/29 (b)........................... Baa3 3,700 3,591,627
--------------
6,675,476
--------------
RAILROADS -- 0.2%
Norfolk Southern Corp.,
6.875%, 05/01/01 ............................. Baa1 7,200 7,181,712
6.95%, 05/01/02 .............................. Baa1 2,500 2,489,200
Union Pacific Corp.,
7.375%, 09/15/09 ............................. Baa3 550 538,236
--------------
10,209,148
--------------
REAL ESTATE INVESTMENT TRUST -- 2.2%
Duke Realty L.P.,
7.30%, 06/30/03 .............................. Baa2 4,350 4,301,715
EOP Operating, L.P.,
6.375%, 01/15/02 ............................. Baa1 5,000 4,888,000
6.50%, 06/15/04 .............................. Baa1 6,000 5,698,200
6.625%, 02/15/05 ............................. Baa 18,187 17,153,978
6.63%, 04/13/15 .............................. A3 9,200 8,621,688
7.10%, 06/23/04 .............................. A3 2,375 2,320,684
Felcor Suites, L.P.,
7.375%, 10/01/04 ............................. Ba1 25,000 23,000,000
Hanson Overseas B.V.,
7.375%, 01/15/03 ............................. A3 17,400 17,452,026
HMH Properties, Inc.
7.875%, 08/01/05 ............................. Ba2 6,560 6,051,600
HRPT Properties Trust
7.426%, 07/09/07 ............................. Baa2 2,000 1,988,400
Simon Debartolo Group, Inc.,
6.75%, 06/15/05 .............................. Baa1 17,500 16,306,500
--------------
107,782,791
--------------
RETAIL -- 1.2%
Federated Department Stores, Inc., 8.50%,
06/15/03 ..................................... Ba1 34,890 35,856,104
Kroger Co.
6.34%, 06/01/01 .............................. Baa3 10,450 10,332,438
7.70%, 06/01/29 .............................. Baa3 1,500 1,417,500
7.25%, 06/01/09 .............................. Baa3 6,000 5,760,000
Saks Inc.,
8.25%, 11/15/08 .............................. Baa3 3,000 2,918,700
--------------
56,284,742
--------------
TELECOMMUNICATIONS -- 3.7%
360 Communication Co.,
7.125%, 03/01/03 ............................. Ba2 23,776 23,644,756
7.60%, 04/01/09 .............................. Ba1 12,885 12,891,958
Airtouch Communications, Inc., 7.00%,
10/01/03 ..................................... Baa2 16,800 16,784,040
AT&T Canada, Inc., (Canada),
7.65%, 09/15/06 .............................. Baa3 2,400 2,388,024
Electric Lightwave, Inc.,
6.05%, 05/15/04 .............................. A2 5,300 5,002,352
Global Crossing Holdings, Ltd., 9.125%,
11/15/06 ..................................... Ba2 9,035 8,933,356
TELECOMMUNICATIONS (CONT'D.)
Lucent Technologies, Inc.,
6.45%, 03/15/29 .............................. A2 $ 17,500 $ 15,233,575
Qwest Communications International Inc.,
7.50%, 11/01/08 .............................. Ba1 31,200 30,498,000
Rogers Cantel, Inc.,
9.375%, 06/01/08 ............................. Ba3 4,830 5,023,200
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Sprint Corp.,
6.875%, 11/15/28 (b).......................... Baa1 13,000 11,553,230
Telecom De Puerto Rico,
6.15%, 05/15/02 .............................. Baa2 10,500 10,181,325
6.65%, 05/15/06 .............................. Baa2 10,700 10,152,053
6.80%, 05/15/09 .............................. Baa2 9,000 8,207,370
US West, Inc.,
6.875%, 08/15/01 ............................. Baa1 10,000 9,958,000
Williams Communications Group, Inc.
10.70%, 10/01/07 ............................. B2 4,100 4,305,000
10.875%, 10/01/09 ............................ B2 1,400 1,464,750
Worldcom, Inc.,
6.95%, 08/15/28 (b)........................... Baa2 17,700 16,070,892
--------------
192,291,881
--------------
UTILITIES -- 1.5%
AES Corp.
9.50%, 06/01/09 .............................. Ba1 10,000 10,200,000
Calenergy Co. Inc.,
6.96%, 09/15/03 .............................. Ba1 15,000 14,661,000
Calpine Corp.,
10.50%, 05/15/06 ............................. Ba1 8,330 8,746,500
CMS Energy Corp.,
8.00%, 07/01/11 .............................. Ba3 7,200 7,132,320
Cogentrix Energy, Inc.,
8.10%, 03/15/04 .............................. Ba1 5,775 5,542,499
Edison Mission Energy,
7.73%, 06/15/09 .............................. A3 5,000 4,979,850
El Paso Energy,
6.625%, 07/15/01 ............................. Baa2 6,000 5,952,420
Hydro-Quebec,
7.50%, 04/01/16 .............................. A2 2,075 2,029,578
PSEG Energy Holdings, Inc.,
10.00%, 10/01/09 ............................. Ba1 4,590 4,532,625
Sonat, Inc.
7.625%, 07/15/11 ............................. Baa1 7,800 7,651,410
Utilicorp United, Inc.,
7.00%, 07/15/04 .............................. Baa3 5,000 4,828,700
--------------
76,256,902
--------------
WASTE MANAGEMENT -- 0.3%
USA Waste Service,
6.125%, 07/15/01 ............................. Baa3 15,695 14,937,716
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 5.0%
Federal National Mortgage Association, Zero
Coupon,
10/09/19(b)................................... 11,800 2,907,638
United States Treasury Note,
5.875%, 11/15/04(b)........................... 4,980 4,882,741
6.00%, 08/15/09(b)............................ 2,555 2,475,156
6.75%, 08/15/26(b)............................ 70,200 70,529,238
6.375%, 08/15/27(b)........................... 61,400 58,972,858
United States Treasury Bond,
7.50%, 11/15/24(b)............................ 38,800 42,358,736
8.125%, 08/15/21(b)........................... 45,000 51,609,150
5.25%, 02/15/29(b)............................ 18,320 15,148,258
6.125%, 08/15/29(b)........................... 5,000 4,766,400
--------------
253,650,175
--------------
FOREIGN GOVERNMENT BONDS -- 1.6%
Junta De Andaluci, (Spain),
7.25%, 10/01/29 .............................. Aa3 $ 840 $ 800,688
Province of Saskatchewan, (Canada),
9.125%, 02/15/21 ............................. A2 2,300 2,650,152
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B32
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Quebec Province, (Canada),
7.50%, 09/15/29 (b)........................... A2 3,700 3,639,320
7.50%, 07/15/23 (b)........................... A1 7,500 7,312,875
Republic of Argentina
Zero Coupon, 10/15/01 ........................ BBB 7,625 6,385,938
Republic of Columbia,
9.75%, 04/23/09 (b)........................... Baa3 4,500 4,173,750
Republic of Mexico,
6.836%, 12/31/19 ............................. Ba2 9,750 9,152,810
6.932%, 12/31/19 ............................. Ba2 3,550 3,332,563
6.942%, 12/31/19 ............................. Ba2 6,900 6,477,375
Republic of Panama,
4.25%, 07/17/14 .............................. Ba1 10,600 8,321,000
Republic of Philippines,
8.875%, 04/15/08 ............................. Ba1 5,400 5,265,000
Republic of Poland,
4.00%, 10/27/24 .............................. Baa3 11,300 7,458,000
United Mexican States,
10.375%, 02/17/09 ............................ Ba1 15,500 16,430,000
--------------
81,399,471
--------------
TOTAL LONG-TERM BONDS
(cost $1,820,813,183).................................................... 1,746,371,467
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,170,115,621).................................................... 4,577,251,639
--------------

SHORT-TERM INVESTMENTS -- 20.6%
<S> <C> <C> <C>
CERTIFICATE OF DEPOSIT -- 1.0%
Bank of Montreal
5.96%, 1/14/00 (c)(d)......................... P1 50,000 50,000,000
--------------
CERTIFICATE OF DEPOSIT-YANKEE -- 1.0%
Svenska Handels Bank
6.07%, 1/14/00 (c)(d)......................... P1 50,000 50,000,000
--------------
COMMERCIAL PAPER -- 11.2%
Baker Hughes,
4.75%, 01/03/00 .............................. P1 1,000 999,736
Barton Capital Corp,
6.00%, 01/11/00 (c)(d)........................ P1 12,391 12,374,479
6.06%, 02/02/00 .............................. P1 7,138 7,099,550
6.10%, 02/03/00 .............................. P1 3,700 3,679,311
6.20%, 01/20/00 .............................. P1 30,000 29,901,833
6.56%, 02/11/00 (c)(d)........................ P1 4,000 3,971,573
6.75%, 02/01/00 (c)(d)........................ P1 6,275 6,240,880
Baus Funding LLC,
6.20%, 01/25/00 .............................. P1 10,000 9,958,668
6.20%, 01/31/00 .............................. P1 15,000 14,922,500
Bayerische Landesbank,
5.98%, 02/23/00 .............................. P3 1,000 991,196
BCI Funding Corp,
6.33%, 01/11/00 .............................. P1 1,500 1,497,363
Bell Atlantic Financial Services,
5.20%, 01/07/00 .............................. P3 1,012 1,011,123
COMMERCIAL PAPER (CONT'D.)
Central & Southwest Corp.,
7.20%, 01/21/00 (c)(d)........................ P1 $ 25,000 $ 24,910,000
Clipper Receivables Corp.,
6.12%, 01/24/00 .............................. P1 37,446 37,299,586
Coastal Corp.,
6.50%, 01/14/00 (c)(d)........................ P1 35,000 34,930,485
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
<S> <C> <C> <C>
------------ --------- --------------
Coca Cola Enterprises,
5.25%, 01/03/00 .............................. P1 1,000 999,709
Comdisco, Inc.,
6.45%, 01/31/00 (c)(d)........................ P1 25,000 24,874,580
Cox Enterprises, Inc.,
6.57%, 01/19/00 (c)(d)........................ P1 10,495 10,464,355
6.85%, 01/21/00 (c)(d)........................ P1 26,000 25,910,950
Cregem North America,
5.97%, 03/01/00 .............................. P1 949 939,557
CXC, Inc.,
6.00%, 01/21/00 .............................. P1 1,700 1,694,333
Deutche Bank Financial, Inc.,
6.10%, 02/02/00 .............................. P1 800 795,662
Duke Energy Corp.,
5.00%, 01/03/00 .............................. P1 950 949,736
Enterprise Funding Corp.,
6.38%, 01/14/00 .............................. P1 2,032 2,027,318
Falcon Asset Securitization,
6.24%, 01/21/00 .............................. P1 6,850 6,826,253
Ford Motor Credit Co.,
6.00%, 01/21/00 .............................. P1 1,153 1,149,157
General Electric Capital Corp.,
6.33%, 01/26/00 .............................. P1 650 647,143
General Motors Acceptance Corp.,
5.99%, 02/17/00 .............................. P1 1,000 992,180
Heller Financial, Inc.,
6.00%, 01/13/00 (c)(d)........................ P1 12,500 12,479,167
6.05%, 01/14/00 (c)(d)........................ P1 40,000 39,926,056
Kerr Mcgee Credit,
6.50%, 01/13/00 (c)(d)........................ P1 40,000 39,927,778
6.45%, 01/14/00 (c)(d)........................ P1 9,300 9,281,671
Keyspan Corp.,
6.50%, 01/12/00 (c)(d)........................ P1 49,000 48,920,375
Merrill Lynch & Co. Inc.,
6.12%, 01/18/00 .............................. P1 1,388 1,383,989
Novartis Finance Corp.,
5.50%, 01/05/00 .............................. P1 1,000 999,389
Old Line Funding Corp.,
6.30%, 01/19/00 .............................. P1 2,269 2,261,853
6.33%, 01/12/00 .............................. P1 8,500 8,483,560
PHH Corp.,
6.95%, 01/27/00 (c)(d)........................ P1 25,000 24,884,167
Sonoco Products,
6.05%, 02/03/00 .............................. P1 700 696,118
Thunder Bay Funding, Inc.,
6.06%, 02/04/00 .............................. P1 13,680 13,601,705
6.20%, 01/19/00 .............................. P1 14,827 14,781,036
Triple-A One Plus Funding,
6.20%, 01/20/00 .............................. P1 6,019 5,999,304
6.27%, 01/14/00 .............................. P1 46,000 45,895,849
COMMERCIAL PAPER (CONT'D.)
Variable Funding Corp.,
6.25%, 01/20/00 (c)(d)........................ P1 $ 20,000 $ 19,940,972
Windmill Funding Corp.,
6.38%, 01/07/00 (c)(d)........................ P1 17,000 16,987,949
--------------
574,510,154
--------------
EURO-TIME DEPOSIT -- 0.2%
Chase Manhattan Bank
5.50%, 01/03/00 (c)(d)........................ P1 10,000 10,000,000
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B33
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
OTHER CORPORATE OBLIGATIONS -- 2.4%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia),
8.625%, 06/02/00 ............................. P1 5,500 5,445,000
Carnival Corp.,
5.65%, 10/15/00 .............................. A2 5,000 4,953,450
Comdisco, Inc.,
5.94%, 04/13/00 .............................. Baa1 12,500 12,461,250
6.32%, 11/27/00 .............................. Baa1 19,000 18,870,800
Dayton Hudson Corp.,
5.95%, 06/15/00 .............................. A3 9,000 8,987,310
Equity Residential Properties Trust,
6.15%, 09/15/00 .............................. A3 25,000 24,795,000
GTE Corp.,
9.375%, 12/01/00 ............................. Baa1 11,000 11,264,770
ICI Wilmington, Inc.,
9.50%, 11/15/00 .............................. Baa1 6,500 6,625,646
ITT Corp.,
6.25%, 11/15/00 .............................. Baa2 5,183 5,082,088
Niagara Mohawk Power,
7.00%, 10/01/00 .............................. Ba3 18,902 18,892,994
Ryder System, Inc.,
7.51%, 03/24/00 .............................. Baa1 3,000 3,006,510
8.34%, 01/26/00 .............................. Baa1 5,000 5,006,846
--------------
125,391,664
--------------
TIME DEPOSIT -- 1.3%
Abbey National Treasury
9.50%, 01/04/00 (c)(d)........................ NR 50,000 50,000,000
Banque National
2.00%, 01/03/00 (c)(d)........................ NR 2,071 2,071,000
Deutche Bank
5.00%, 01/03/00 (c)(d)........................ NR 13,000 13,000,000
--------------
65,071,000
--------------

PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS (CONT'D) (000) (NOTE 2)
--------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.2%
Joint Repurchase Agreement Account,
2.875%, 01/03/00 (Note 5) .................... $ 164,437 $ 164,437,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 0.3%
United States Treasury Bill
5.19%, 03/16/00 .............................. 600 593,506
5.196%, 03/16/00 ............................. 14,000 13,848,450
--------------
14,441,956
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,049,509,711).................................................... 1,053,851,774
--------------
TOTAL INVESTMENTS -- 109.9%
(cost $5,219,625,332; Note 6)............................................ 5,631,103,413
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(E)..............................
(598,738)
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (9.9%)............................
(505,240,380)
--------------
TOTAL NET ASSETS -- 100%................................................... $5,125,264,295
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
GDR Global Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-Income producing security.

(b) Portion of securities on loan with an aggregate market value of
$503,764,431; cash collateral of $526,881,461 was received with which the
portfolio purchased securities.

(d) Security segregated as collateral for future contracts.

(e) Open Future Contracts as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
U.S. 5 yr Treasury
763 Note Mar 00 $1,812,125 $ 844,781 $ (967,344)
1,115 U.S. Treasury Bond Mar 00 6,695,155 3,073,281 (3,621,874)
232 S&P 500 Index Mar 00 1,437,163 4,509,603 3,072,440
-----------
$(1,516,778)
===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B34
<PAGE>
HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 92.7% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS -- 83.0% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.5%
BE Aerospace, Inc., Sr. Sub. Notes, AB ......... B1 9.50% 11/01/08 $ 1,000 $ 935,000
Compass Aerospace Corp., Sr. Sub. Notes ........ Caa1 10.125% 04/15/05 750 412,500
Stellex Industries, Inc., Sr. Sub. Notes ....... B3 9.50% 11/01/07 4,000 2,860,000
--------------
4,207,500
--------------
AUTOMOTIVE PARTS -- 1.9%
AM General Corp., Sr. Notes .................... B3 12.875% 05/01/02 3,375 3,003,750
Collins & Aikman Products, Gtd. Notes .......... B2 11.50% 04/15/06 470 464,125
Hayes Lemmerz International, Inc., Notes ....... B2 8.25% 12/15/08 800 736,000
Hayes Wheels Int'l, Inc., Sr. Sub. Notes ....... B2 9.125% 07/15/07 1,000 965,624
JPS Automotive Products Corp., L.P., Sr.
Notes ........................................ B2 11.125% 06/15/01 4,000 3,980,000
Paragon Corp. Holdings, Sr. Notes .............. B3 9.625% 04/01/08 2,000 600,000
Standyne Automotive Corp., Sr. Sub. Notes ...... Caa 10.25% 12/15/07 3,000 2,430,000
United Rentals, Inc., Gtd. Notes ............... B1 8.80% 08/15/08 1,370 1,277,525
Venture Holdings, Sr. Notes .................... NR 9.50% 07/01/05 2,270 2,065,700
--------------
15,522,724
--------------
BANKS -- 0.4%
Sovereign Bancorp, Sr. Notes ................... Ba3 6.625% 03/15/01 795 769,162
Sovereign Bancorp, Sr. Notes ................... Ba3 10.50% 11/15/06 2,500 2,550,000
--------------
3,319,162
--------------
BROADCASTING & OTHER MEDIA -- 4.5%
Ackerley Group, Sr. Sub. Notes ................. B2 9.00% 01/15/09 6,000 5,880,000
American Lawyer Media Holdings, Inc., Sr. Disc
Notes, Zero Coupon (until 12/15/02)........... B3 12.25% 12/15/08 3,000 2,077,500
Capstar Broadcasting Partners, Inc., Sr. Sub.
Notes ........................................ B2 9.25% 07/01/07 875 890,313
Chancellor Media Corp., Sr. Sub. Notes ......... B1 9.00% 10/01/08 2,025 2,106,000
Globo Communicacoes, Sr. Notes (Brazil) ........ B2 10.50% 12/20/06 1,300 1,079,000
Grupo Televisa SA, Sr. Disc. Notes, Zero Coupon
(until 05/15/01) (Mexico)..................... Ba2 13.25% 05/15/08 1,175 1,072,188
Imax Corp., Sr. Notes .......................... Ba2 7.875% 12/01/05 500 470,000
Liberty Group Publishing, Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ Caa1 11.625% 02/01/09 240 120,000
Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon
(until 03/01/03).............................. B3 10.00% 03/01/08 500 337,500
Mail-Well Corp., Sr. Sub. Notes ................ B1 8.75% 12/15/08 4,750 4,512,500
Radio Unica, Sr. Disc. Notes, Zero Coupon
(until 08/01/02).............................. NR 11.75% 08/01/06 2,750 1,794,375
SFX Entertainment, Sr. Sub. Notes .............. B3 9.125% 12/01/08 4,000(e) 3,820,000
Spectrasite Holdings, Inc., Sr. Disc. Notes,
Zero Coupon (until 04/15/04).................. NR 11.25% 04/15/09 900 477,000
Susquehanna Media Co., Sr. Sub. Notes .......... B1 8.50% 05/15/09 1,800 1,750,500
Transwestern Publishing, Sr. Disc. Notes, Zero
Coupon (until 11/15/02), PIK.................. B3 11.875% 11/15/08 3,650 2,628,000
TV Azteca SA de CV, Sr. Notes (Mexico) ......... NR 10.50% 02/15/07 2,850 2,465,250
TVN Enterainment Corp., Sr. Notes .............. NR 14.00% 08/01/08 3,750 1,312,500
World Color Press, Sr. Sub. Notes .............. B1 7.75% 02/15/09 2,375 2,268,125
World Color Press, Sr. Sub. Notes .............. B1 8.375% 11/15/08 875 855,313
--------------
35,916,064
--------------
BUILDING & RELATED INDUSTRIES -- 1.8%
Ainsworth Lumber Co., Ltd., Bonds, PIK ......... B3 12.50% 07/15/07 4,625 5,110,625
Engle Homes, Inc., Sr. Notes ................... B1 9.25% 02/01/08 2,300 2,058,500
Formica Corp., Sr. Sub. Notes .................. B3 10.875% 03/01/09 4,250 3,888,750
New Millenium Homes, Sr. Notes ................. NR 14.00% 09/03/04 3,000
2,610,000
Standard Pacific Corp., Sr. Notes .............. Ba2 8.50% 04/01/09 590 551,650
Webb (Del E.), Sr. Sub. Deb. ................... B2 9.375% 05/01/09 425 388,875
--------------
14,608,400
--------------
CABLE -- 7.2%
Adelphia Communications, Co., Sr. Notes, PIK ... B3 9.50% 02/15/04 43 43,206
Adelphia Communications, Corp., Sr. Notes ...... B2 10.50% 07/15/04 500 521,250
Avalon Cable Holding, Sr. Disc. Notes, Zero
Coupon (until 12/01/03)....................... Caa 11.875% 12/01/08 6,000 3,915,000
CD Radio, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/01/02).............................. Caa 15.00% 12/01/07 4,245 2,207,400
Charter Communications Holdings LLC, Sr. Disc.
Notes ........................................ B2 8.625% 04/01/09 2,000 1,865,000
Charter Communications Holdings LLC, Sr. Disc.
Notes, Zero Coupon (until 04/01/04)........... B2 9.92% 04/01/11 4,855 2,888,725
Classic Cable, Inc., Gtd. Notes ................ B3 9.375% 08/01/09 1,095 1,056,675
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B35
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C> <C>
------------ ----- -------- --------- --------------
Diamond Cable Communications, Sr. Disc. Notes,
Zero Coupon (until 2/15/02)
(United Kingdom).............................. NR 10.75% 02/15/07 $ 4,000 $ 3,190,000
Falcon Holding Group, Sr. Disc. Deb., Zero
Coupon (until 04/15/03)....................... B2 9.285% 04/15/10 3,500 2,625,000
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 04/15/00).................. B3 12.75% 04/15/05 6,100 6,100,000
Mediacom LLC, Sr. Notes ........................ Ba2 7.875% 02/15/11 2,000 1,760,000
Multicanal SA, Bonds ........................... Ba3 13.125% 04/15/09 2,400(e) 2,364,000
NTL, Inc., Sr. Notes, Zero Coupon
(until 04/01/03) ............................. B3 9.75% 04/01/08 2,000 1,380,000
NTL, Inc., Sr. Notes, Zero Coupon
(until 10/01/03) ............................. B3 12.375% 10/01/08 1,750 1,233,750
Rogers Cablesystems Ltd., Gtd. Notes ........... B2 11.00% 12/01/15 235 266,137
Rogers Cablesystems, Inc., Sr. Sec'd. Notes
(Canada) ..................................... Ba3 10.00% 03/15/05 1,000 1,070,000
Scott Cable Communications, Jr. Sub., PIK ...... NR 16.00% 07/18/02 108 27,000
Star Choice Communications, Inc., Sr. Notes,
(Canada) ..................................... NR 13.00% 12/15/05 3,000 3,052,500
Telewest Communications PLC, Sr. Disc. Deb.,
Zero Coupon (until 04/15/04)
(United Kingdom).............................. B1 9.25% 04/15/09 1,600 1,016,000
Telewest Communications PLC, Sr. Disc. Deb.,
Zero Coupon (until 10/01/00)
(United Kingdom).............................. B1 11.00% 10/01/07 2,850 2,657,625
Time Warner Telecommunications LLC, Sr.
Notes ........................................ B2 9.75% 07/15/08 2,450 2,511,250
United International Holdings, Sr. Disc. Notes,
Zero Coupon (until 02/15/03).................. B3 10.75% 02/15/08 9,750 6,240,000
United Pan-Europe Communication, Sr. Disc.
Notes ........................................ B2 10.875% 08/01/09 13,620 9,551,550
--------------
57,542,068
--------------
CHEMICALS -- 2.3%
Georgia Gulf Corp., Sr. Sub. Notes ............. B1 10.375% 11/01/07 235 245,281
GNI Group, Inc., Sr. Notes(b) (cost $4,000,000;
purchased 07/23/98)........................... B2 10.875% 07/15/05 4,000 1,720,000
Huntsman ICI Chemical, Sr. Sub. Notes .......... B2 10.125% 07/01/09 3,500 3,587,500
Lyondell Chemical Co., Sr. Sub. Notes .......... Ba3 10.875% 05/01/09 7,250 7,503,750
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes ........................................ B3 13.50% 08/15/06 1,575 1,181,250
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes ........................................ B3 12.375% 07/15/06 690 710,700
ZSC Specialty Chemical PLC, Sr. Notes .......... B2 11.00% 07/01/09 3,180 3,291,300
--------------
18,239,781
--------------
CONSUMER PRODUCTS -- 2.9%
Coinstar, Inc., Sr. Disc. Notes ................ NR 13.00% 10/01/06 3,275 3,373,250
Consumers International, Inc., Sr. Notes ....... Ba3 10.25% 04/01/05 3,125 2,500,000
Corning Consumer Products, Sr. Sub. Notes ...... B3 9.625% 05/01/08 4,250 3,336,250
Electronic Retailing Systems, Sr. Disc. Notes,
Zero Coupon (until 02/01/00).................. NR 13.25% 02/01/04 2,000 440,000
Hedstrom Corp., Sr. Sub. Notes ................. NR 10.00% 06/01/07 900 54,000
Hedstrom Holding, Inc., Sr. Disc. Notes, Zero
Coupon (until 06/01/02) ...................... NR 12.00% 06/01/09 400 4,000
Interact Systems, Inc., Sr. Disc. Notes, PIK ... NR 14.00% 08/01/03 2,200 1,188,393
La Petite Holdings, Sr. Notes .................. B3 10.00% 05/15/08 1,250 918,750
Packaging Resources Group, Sr. Notes, PIK ...... NR 13.00% 06/30/03 2,251 1,958,644
Radnor Holdings, Inc., Sr. Notes ............... B2 10.00% 12/01/03 1,750 1,750,000
Revlon Consumer Products Corp., Sr. Notes,
PIK .......................................... B2 9.00% 11/01/06 2,250 1,710,000
Sealy Mattress Co., Sr. Sub. Disc. Notes, Zero
Coupon (until 12/15/02)....................... B3 10.875% 12/15/07 470 329,000
Waste Systems International, Sr. Sub. Notes .... B2 11.50% 01/15/06 4,000 3,875,000
Windmere-Durable Holdings, Inc., Sr. Notes ..... B3 10.00% 07/31/08 2,000 1,950,000
--------------
23,387,287
--------------
CONTAINERS -- 0.1%
Ball Corp., Sr. Sub. Notes ..................... B1 8.25% 08/01/08 500 480,000
Owens-Illinois, Inc., Deb. Notes ............... Ba1 7.50% 05/15/10 340 298,935
--------------
778,935
--------------
DIVERSIFIED INDUSTRIES -- 0.4%
Gentek, Inc., Gtd. Notes ....................... B2 11.00% 08/01/09 1,620 1,684,800
SCG Holding & Semiconductor Co., Sr. Sub.
Notes ........................................ B2 12.00% 08/01/09 1,750 1,859,375
--------------
3,544,175
--------------
DRUGS & HEALTHCARE -- 2.4%
Columbia/HCA Healthcare Corp., Notes ........... Ba2 7.50% 11/15/2095 570 473,100
Concetra Operating Corp., Sr. Sub. Notes ....... B3 13.00% 08/15/09 1,935 1,760,850
Dade International, Inc., Sr. Sub Notes ........ B3 11.125% 05/01/06 5,050 4,949,000
Genesis Health Ventures, Sr. Sub. Notes ........ Caa1 9.875% 01/15/09 1,750 735,000
Harborside Healthcare Corp., Sr. Sub. Disc.
Notes, Zero Coupon (until 08/01/03)........... B3 11.00% 08/01/08 2,500 800,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B36
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C> <C>
------------ ----- -------- --------- --------------
Healthsouth Corp. Sr. Notes .................... Baa3 6.875% 06/15/05 $ 1,405 $ 1,216,449
ICN Pharmaceuticals, Inc., Sr. Sub. Notes ...... Ba3 8.75% 11/15/08 3,250 3,103,750
Integrated Health Services, Inc., Sr. Sub.
Notes(d)...................................... C 9.25% 01/15/08 3,250 268,125
Magellan Health Services, Sr. Sub. Notes ....... Caa1 9.00% 02/15/08 7,000 5,670,000
Mariner Post Acute Network, Inc., Sr. Sub. Disc.
Notes, Zero Coupon (until 11/01/02)........... B3 10.50% 11/01/07 5,520 27,600
--------------
19,003,874
--------------
DRUGS & MEDICAL SUPPLIES -- 1.0%
Lifepoint Hospitals Holdings, Sr. Sub. Notes ... B3 10.75% 05/15/09 675 702,000
Team Health, Inc., Sr. Sub. Notes .............. B3 12.00% 03/15/09 3,250(e) 3,168,750
Triad Hospitals Holding, Sr. Sub. Notes ........ B3 11.00% 05/15/09 4,285 4,456,400
--------------
8,327,150
--------------
ENERGY -- 4.3%
Anker Coal Group, Inc., Sr. Notes(b) PIK (cost
$2,491,676; purchased 10/01/99)............... B3 14.25% 09/01/07 2,400 1,752,000
Applied Power, Inc., Sr. Sub. Notes ............ B1 8.75% 04/01/09 1,450 1,417,375
Chesapeake Energy Corp., Sr. Notes ............. B1 9.625% 05/01/05 3,200 3,024,000
Clark USA, Inc., Sr. Notes ..................... B3 10.875% 12/01/05 1,250 562,500
CMS Energy Corp., Sr. Notes .................... Ba3 7.50% 01/15/09 1,125 1,035,000
Gothic Production Corp., Sr. Notes ............. B3 11.125% 05/01/05 550 462,000
Great Lakes Carbon Corp., Sr. Sub. Notes PIK ... B3 10.25% 05/15/08 2,000 1,900,000
Grey Wolf, Sr. Notes ........................... B1 8.875% 07/01/07 2,295 2,122,875
Nuevo Energy Co., Sr. Sub. Notes ............... B1 9.50% 06/01/08 625 625,000
P & L Coal Holdings, Sr. Notes ................. Ba3 8.875% 05/15/08 1,750 1,710,625
P & L Coal Holdings, Sr. Sub. Notes ............ B2 9.625% 05/15/08 1,245 1,210,762
Parker Drilling Corp., Sr. Sub. Notes .......... B1 9.75% 11/15/06 3,005 2,907,337
RBF Finance Co., Sr. Sec'd. Notes(b) (cost
$2,531,177; purchased on various dates:
8/23/99 through 10/06/99)..................... Ba3 11.00% 03/15/06 2,410 2,602,800
RBF Finance Co., Sr. Sec'd. Notes(b) (cost
$2,600,000; purchased 3/19/99)................ Ba3 11.375% 03/15/09 2,600 2,795,000
R&B Falcon Corp., Sr. Notes(b) (cost $952,809;
purchased 12/17/98)........................... NR 12.25% 03/15/06 935 1,033,175
Santa Fe Energy Resources, Gtd., Notes ......... B2 8.75% 06/15/07 1,000 995,000
Seven Seas Petroleum, Inc., Sr. Notes .......... Caa1 12.50% 05/15/05 1,500 630,000
Tesoro Petroleum Corp., Sr. Sub. Notes ......... B1 9.00% 07/01/08 3,000 2,857,500
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 02/15/03).................. B2 9.875% 02/15/08 1,750 1,085,000
Universial Compression Holdings, Sr. Disc.
Notes, Zero Coupon (until 02/15/03)........... B3 11.375% 02/15/09 700 378,000
York Power Funding, Sr. Sec'd. Notes (Cayman
Islands) ..................................... Ba3 12.00% 10/30/07 3,000 3,090,000
--------------
34,195,949
--------------
FINANCIAL SERVICES -- 1.8%
AmeriCredit Corp., Sr. Notes ................... B1 9.25% 02/01/04 1,350(e) 1,350,000
AmeriCredit Corp., Sr. Notes ................... Ba1 9.875% 04/15/06 3,000 3,030,000
Amresco, Inc., Sr. Sub. Notes .................. Caa3 10.00% 03/15/04 280 182,000
Amresco, Inc., Sr. Sub. Notes .................. B2 9.875% 03/15/05 3,975 2,623,500
BF Saul Corp., Sr. Notes ....................... B3 9.75% 04/01/08 1,750 1,592,500
Delta Financial Corp., Sr. Notes ............... B1 9.50% 08/01/04 1,075 698,750
Lodgian Financing Corp., Gtd. Notes ............ B3 12.25% 07/15/09 2,000(e) 1,990,000
Metris Companies, Inc., Gtd. Notes ............. Ba3 10.125% 07/15/06 3,000 2,850,000
--------------
14,316,750
--------------
FOOD & BEVERAGE -- 4.1%
Advantica Restaurant Group, Sr. Notes .......... NR 11.25% 01/15/08 4,762 3,595,665
Agrilink Foods, Inc., Gtd. Notes ............... B3 11.875% 11/01/08 1,760 1,777,600
Ameriking, Inc., Sr. Notes ..................... B3 10.75% 12/01/06 1,000 925,000
Ameriserv Food Distribution Co., Gtd. Notes .... B3 8.875% 10/15/06 3,000 1,650,000
Carrols Corp., Sr. Sub. Notes .................. B2 9.50% 12/01/08 2,885 2,625,350
CKE Restaurants, Inc., Gtd. Notes .............. B1 9.125% 05/01/09 2,250 1,710,000
Del Monte Foods Co., Sr. Disc. Notes, Zero
Coupon (until 12/05/02) ...................... Caa1 12.50% 12/15/07 210 162,750
Dominos, Inc., Notes ........................... B3 10.375% 01/15/09 500 480,000
Family Restaurant Corp., Sr. Disc. Notes ....... NR 15.00% 01/24/02 3,000 2,790,000
Fresh Foods, Inc., Bonds ....................... B3 10.75% 06/01/06 2,500 2,356,250
Grupo Azucarero, Sr. Notes (Mexico) ............ B3 11.50% 01/15/05 2,900 1,189,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B37
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C> <C>
------------ ----- -------- --------- --------------
Packaged Ice, Inc., Sr. Notes .................. B3 9.75% 02/01/05 $ 2,880 $ 2,635,200
Pilgrim's Pride Corp. Sr. Sub. Notes ........... B1 10.875% 08/01/03 420 423,150
Premium Standard Farms, Sr. Sec'd. Notes, PIK(b)
(cost $284,644; purchased 2/25/99)............ NR 11.00% 09/17/03 285 293,184
Purina Mills, Inc., Sr. Sub. Notes(b)(d) (cost
$3,489,351; purchased 1/07/99 and 1/08/99).... Ca 9.00% 03/15/10 3,500 875,000
Sbarro, Inc., Sr. Notes ........................ Ba3 11.00% 09/15/09 1,260 1,304,100
SFC New Holdings, Inc., Sr. Notes PIK .......... Caa1 11.25% 08/15/01 2,765 2,633,662
SFC New Holdings, Inc., Sr. Sub. Notes ......... NR 13.25% 08/15/03 1,853(e) 1,315,835
SFC Sub, Inc., Deb. Notes, Zero Coupon (until
06/15/05) .................................... NR 11.00% 12/15/09 465 46
Stater Brothers Holdings, Sr. Notes ............ B2 10.75% 08/15/06 3,030 3,060,300
Vlasic Foods Intl, Inc., Sr. Sub. Notes ........ B2 10.25% 07/01/09 1,610 1,533,525
--------------
33,335,617
--------------
GAMING -- 3.3%
Alliance Gaming Corp., Gtd. Notes .............. B3 10.00% 08/01/07 1,800 1,003,500
Aztar Corp., Sr. Sub. Notes .................... B1 8.875% 05/15/07 1,000 960,000
Casino Magic Finance Corp., First Mtge.
Bonds ........................................ B3 13.00% 08/15/03 3,750 4,125,000
Coast Hotels & Casino Co., Sub. Gtd. Notes ..... B3 9.50% 04/01/09 1,140 1,094,400
Colorado Gaming & Entertainment, Sr. Notes,
PIK .......................................... NR 12.00% 06/01/03 3,590 2,512,976
Fitzgeralds Gaming, Sr. Notes(b)(d) (cost
$2,375,000; purchased 12/22/97 and 8/07/98)... B3 12.25% 12/15/04 2,375 1,306,250
Hollywood Park, Inc., Gtd. Notes ............... B2 9.25% 02/15/07 3,500 3,473,750
Isle of Capri Black Hawk, LLC, First Mtge.
Notes ........................................ B3 13.00% 08/31/04 4,000 4,360,000
Mandalay Resort Group, Sr. Sub. Deb. ........... Baa3 6.70% 11/15/2096 1,030 961,309
Station Casinos, Inc., Sr. Sub. Notes .......... B2 10.125% 03/15/06 2,500 2,550,000
Trump Atlantic City Assoc., First Mtge.
Notes ........................................ B1 11.25% 05/01/06 1,150 931,500
Venetian Casino/LV Sands Co., Gtd. Notes ....... Caa1 12.25% 11/15/04 4,000 3,460,000
--------------
26,738,685
--------------
INDUSTRIAL -- 5.4%
Allied Waste Industries, Inc., Sr. Disc.
Notes ........................................ Ba2 7.625% 01/01/06 3,250 2,925,000
Allied Waste Industries, Inc., Sr. Disc.
Notes ........................................ Ba2 7.875% 01/01/09 5,250 4,620,000
Allied Waste Industries, Inc., Sr. Disc.
Notes ........................................ Ba2 10.00% 08/01/09 2,250 2,002,500
Clean Harbors, Inc., Sr. Notes ................. B2 12.50% 05/15/01 1,250 975,000
Continental Global Group, Sr. Notes ............ B2 11.00% 04/01/07 4,120 2,018,800
Eagle-Picher Industries, Sr. Sub. Notes ........ B3 9.375% 03/01/08 1,750 1,557,500
Iasis Healthcare Corp., Sr. Sub. Notes ......... B3 13.00% 10/15/09 1,750 1,802,500
ICF Kaiser International, Inc., Sr. Sub.
Notes ........................................ B3 13.00% 12/31/03 4,450 2,225,000
International Wireless Group, Sr. Sub. Notes ... NR 11.75% 06/01/05 3,000 3,097,500
Kaiser Aluminum & Chemical Corp., Sr. Sub.
Notes ........................................ B2 12.75% 02/01/03 4,000 4,000,000
Kasper Aluminum & Chemical Corp., Sr. Sub.
Notes ........................................ NR 12.75% 03/31/04 7,171 6,238,770
Motors & Gears, Inc., Sr. Notes ................ B3 10.75% 11/15/06 3,500 3,465,000
Neenah Corp., Sr. Sub. Notes ................... B3 11.125% 05/01/07 250 231,250
Thermadyne Holdings, Deb., Zero Coupon
(until 06/01/03) ............................. Caa1 12.50% 06/01/08 2,375 1,080,625
Thermadyne Manufacturing, Sr. Sub. Notes ....... B3 9.875% 06/01/08 2,500 2,100,000
UCAR Global Enterprises, Sr. Sub. Notes ........ B1 12.00% 01/15/05 2,600 2,697,500
Viasystems, Inc., Sr. Sub. Notes ............... B3 9.75% 06/01/07 4,000 2,200,000
--------------
43,236,945
--------------
LEISURE -- 0.9%
Bally Health & Tennis Corp., Sr. Sub. Notes .... B3 9.875% 10/15/07 5,000 4,837,500
Premier Cruise, Ltd., Sr. Notes, PIK(d) ........ B3 11.00% 03/15/08 1,000 0
Premier Parks, Inc., Sr. Notes ................. B3 9.75% 06/15/07 2,000 2,010,000
--------------
6,847,500
--------------
LODGING -- 0.6%
Hilton Hotels, Sr. Notes ....................... Baa1 7.50% 12/15/17 285 237,952
HMH Properties, Inc., Sr. Notes ................ Ba2 8.45% 12/01/08 2,850 2,629,125
La Quinta Inns, Sr. Notes ...................... Ba2 7.25% 03/15/04 2,000 1,600,200
--------------
4,467,277
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B38
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
MANUFACTURING -- 0.4%
Building Materials Corp. Sr. Notes ............. Ba3 7.75% 07/15/05 $ 265 $ 241,150
Tenneco, Inc., Sr. Sub. Notes .................. B2 11.625% 10/15/09 3,060 3,105,900
--------------
3,347,050
--------------
MISCELLANEOUS -- 1.7%
Alliance Atlantis Comm. Sr. Sub. Notes ......... B2 13.00% 12/15/09 1,670 1,670,000
Intersil Corp., Sr. Sub. Notes ................. B3 13.25% 08/15/09 835 910,150
It Group, Inc., Gtd. Notes ..................... B3 11.25% 04/01/09 2,080 2,028,000
Metromedia Fiber Network, Sr. Notes ............ B2 10.00% 12/15/09 2,960 3,026,600
MSX International, Inc., Gtd. Notes ............ B3 11.375% 01/15/08 1,750 1,627,500
Nebco Evans Sr. Notes, Zero Coupon (until
07/15/02) .................................... Caa 12.375% 07/15/07 1,500 195,000
Phoenix Color Corp., Gtd., Sr. Sub. Notes ...... B3 10.375% 02/01/09 4,000 3,840,000
Sun World International, Gtd. Notes ............ B2 11.25% 04/15/04 270 275,400
--------------
13,572,650
--------------
OIL & GAS -- 1.4%
Comstock Resources, Inc., Sr. Notes ............ B2 11.25% 05/01/07 4,500 4,635,000
Eott Energy Parters/Fin., Gtd. Notes ........... Ba2 11.00% 10/01/09 710 738,400
Gulf Canada Resources, Ltd., Sub. Deb .......... Ba1 8.35% 08/01/06 385 378,744
Gulf Canada Resources, Ltd., Sub. Deb. ......... Ba3 9.625% 07/01/05 615 630,375
Leviathan Gas, Sr. Sub. Notes .................. Ba2 10.375% 06/01/09 2,000 2,080,000
Plains Resources, Inc., Sr. Sub. Notes ......... B2 10.25% 03/15/06 870 848,250
Swift Energy Co., Sr. Sub. Notes ............... B2 10.25% 08/01/09 2,015 2,030,113
--------------
11,340,882
--------------
PAPER/PACKAGING -- 4.0%
AMM Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 07/01/03).............................. Caa1 13.50% 07/01/09 6,000 720,000
APP International, Sr. Sec'd. Notes(b) (cost
$2,794,324; purchased 2/11/97 and 2/20/97).... Ba3 11.75% 10/01/05 2,600(e) 2,184,000
Doman Industries Limited, Sr. Notes ............ Caa1 8.75% 03/15/04 1,805 1,552,300
Doman Industries Limited, Sr. Notes ............ Caa1 9.25% 11/15/07 100 80,000
Gaylord Container Corp., Sr. Notes ............. B 9.75% 06/15/07 2,100 1,974,000
Graham Packaging, Sr. Disc. Notes, Zero Coupon
(until 01/15/03).............................. Caa 10.75% 01/15/09 1,100 759,000
Maxxam Group Holdings, Inc., Sr. Notes ......... NR 12.00% 08/01/03 7,550 7,059,250
Repap New Brunswick, Inc., Sr. Sec'd. Notes .... B3 10.625% 04/15/05 2,840(e) 2,641,200
Riverwood International, Gtd. Notes ............ B3 10.25% 04/01/06 1,200(e) 1,218,000
Riverwood International Corp. Gtd. Notes ....... B3 10.625% 08/01/07 455 468,650
Riverwood International, Gtd. Notes ............ Caa1 10.875% 04/01/08 455 445,900
Silgan Holdings, Inc., Sub. Debs. PIK .......... NR 13.25% 07/15/06 3,149 3,463,900
Stone Container Corp., Sr. Sub. Deb. ........... B2 12.58% 08/01/16 250 266,250
Stone Container Corp., Sr. Sub. Notes .......... B3 12.25% 04/01/02 6,800 6,885,000
United Stationer Supply Co., Sr. Sub. Notes .... B3 12.75% 05/01/05 2,200 2,370,500
--------------
32,087,950
--------------
PUBLISHING -- 0.6%
Sullivan Graphics, Inc., Sr. Sub. Notes ........ Caa 12.75% 08/01/05 4,500 4,657,500
--------------
REAL ESTATE INVESTMENT TRUST -- 0.1%
Meditrust, Notes ............................... Ba2 7.82% 09/10/26 570 484,500
--------------
RETAIL -- 2.4%
Big 5 Holding Corp., Sr. Disc. Notes, Zero
Coupon (until 11/30/02) ...................... NR 13.45% 11/30/08 1,500 765,000
Duane Reade, Inc., Sr. Sub. Notes .............. B3 9.25% 02/15/08 270 263,925
Frank's Nursery & Crafts, Sr. Sub. Notes ....... B3 10.25% 03/01/08 2,100 1,428,000
French Fragrances, Inc., Sr. Notes, Ser. B ..... B2 10.375% 05/15/07 470 455,900
Merisel, Inc., Sr. Notes ....................... Ca 12.50% 12/31/04 5,250 4,738,125
Musicland Group, Inc., Gtd. Notes .............. B3 9.875% 03/15/08 110 99,550
Musicland Stores, Sr. Sub. Notes ............... B1 9.00% 06/15/03 4,600 4,439,000
Phar-Mor, Inc., Sr. Notes ...................... B3 11.72% 09/11/02 4,564 4,335,800
Phillips Van-Heusen Corp., Sr. Notes ........... B1 9.50% 05/01/08 1,250 1,162,500
Specialty Retailers, Inc., Gtd. Notes .......... B2 8.50% 07/15/05 1,615 1,195,100
--------------
18,882,900
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B39
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ----- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
STEEL & METAL -- 1.4%
Algoma Steel, Inc., First Mtge. Notes .......... B2 12.375% 07/15/05 $ 200 $ 187,500
California Steel Industry, Sr. Notes ........... Ba3 8.50% 04/01/09 540 514,350
LTV Corp. Sr. Notes ............................ Ba3 11.75% 11/15/09 1,200 1,260,000
National Steel Corp., Gtd. Sec'd. First Mtge.
Notes ........................................ Ba3 9.875% 03/01/09 1,000 1,020,000
Renco Steel Holdings, Sr. Notes ................ NR 10.875% 02/01/05 500 435,000
Sheffield Steel Corp., First Mtge. Notes ....... NR 11.50% 12/01/05 3,500 2,975,000
Wheeling-Pittsburgh Corp., Sr. Notes ........... B2 9.25% 11/15/07 2,600 2,457,000
WHX Corp., Sr. Notes ........................... B3 10.50% 04/15/05 2,350 2,303,000
--------------
11,151,850
--------------
SUPERMARKETS -- 1.2%
Homeland Stores, Inc., Notes ................... NR 10.00% 08/01/03 4,260 3,402,675
Pantry, Inc., Sr. Sub. Notes ................... NR 10.25% 10/15/07 3,500 3,412,500
Pathmark Stores, Sr. Sub. Notes ................ B2 9.625% 05/01/03 4,790 3,496,700
--------------
10,311,875
--------------
TECHNOLOGY -- 1.0%
Ampex, Sr. Notes ............................... NR 12.00% 03/15/03 5,000 5,025,000
Decision One Corp., Sr. Sub. Notes(d)........... B3 9.75% 08/01/07 4,000 15,000
Details Holdings Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02) ...................... NR 12.50% 11/15/07 1,080 561,600
Details, Inc., Sr. Sub. Notes .................. B3 10.00% 11/15/05 750 690,000
DII Group, Sr. Sub. Notes ...................... B1 8.50% 09/15/07 2,000 1,990,000
--------------
8,281,600
--------------
TELECOMMUNICATIONS -- 19.8%
21st Century Telecom Group, Inc., Sr. Disc.
Notes, Zero Coupon (until 02/15/03)........... NR 12.25% 02/15/08 1,500 1,005,000
Adelphia Business Solution, Sr. Notes .......... B3 12.25% 09/01/04 1,150 1,230,500
Adelphia Business Solution, Sr. Disc. Notes,
Zero Coupon (until 4/15/01)(b)
(cost $875,000; purchased on various dates:
4/07/99 through 9/22/99)...................... NR 13.00% 04/15/03 875 778,750
Allegiance Telecommunciations, Inc., Sr. Disc.
Notes, Zero Coupon (until 02/15/03)........... NR 11.75% 02/15/08 3,300 2,359,500
Allegiance Telecommunications, Inc., Sr.
Notes ........................................ NR 12.875% 05/15/08 1,750 1,960,000
American Communications Lines, Bonds ........... B1 10.25% 06/30/08 3,000 2,880,000
AMSC Acquisition Co., Inc., Sr. Notes .......... NR 12.25% 04/01/08 2,600 2,132,000
Arch Communication, Inc., Sr. Notes ............ B3 13.75% 04/15/08 1,000 810,000
Bestel SA, Sr. Disc. Notes, Zero Coupon
(until 05/15/01) ............................. NR 12.75% 05/15/05 2,500 1,575,000
Birch Telecommunications, Inc., Sr. Notes ...... NR 14.00% 06/15/08 2,500 2,525,000
Caprock Communications, Sr. Notes .............. Caa 12.00% 07/15/08 1,500 1,552,500
CB Richard Ellis Services, Inc., Bonds ......... Ba3 8.875% 06/01/06 1,600 1,424,000
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/01/02)(b) (cost
$3,680,000; purchased 01/26/99)............... NR 14.00% 10/01/07 3,680 404,800
Classic Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 08/01/03).................. Caa 13.25% 08/01/09 2,000 1,395,000
Coaxial Communications, Inc., Sr. Disc.
Notes ........................................ B3 10.00% 08/15/06 1,250 1,225,000
DTI Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 03/01/03).............................. NR 12.50% 03/01/08 1,000 360,000
Exodus Communications, Sr. Notes ............... NR 10.75% 12/15/09 1,680 1,705,200
First World Communications, Inc., Sr. Disc.
Notes, Zero Coupon (until 04/15/03)........... NR 13.00% 04/15/08 1,750 1,172,500
Geotek Communication, Inc., Sr. Disc. Notes,
Zero Coupon (until 7/15/00)(b)(d)
(cost $4,512,000; purchased 7/20/99).......... Caa 15.00% 07/15/05 4,512 1,895,040
Global Crossing Holdings, Ltd., Sr. Notes ...... Ba2 9.125% 11/15/06 1,020 1,008,525
Global Crossing Holdings, Ltd., Sr. Notes ...... Ba2 9.50% 11/15/09 1,985 1,962,669
Globix Corp., Sr. Notes ........................ NR 13.00% 05/01/05 1,250 1,262,500
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/00).................. NR 13.875% 12/15/05 6,380 4,973,375
ICG Holdings Inc., Sr. Sub. Notes, Zero Coupon
(until 9/15/00)............................... NR 13.50% 09/15/05 850 735,250
Impsat Corp., Gtd. Sr. Notes ................... B2 12.125% 07/15/03 2,235 2,100,900
Impsat Corp., Sr. Notes ........................ B2 12.375% 06/15/08 3,000 2,700,000
Intermedia Communication, Inc., Sr. Notes ...... B2 8.60% 06/01/08 230 212,175
Intermedia Communication, Inc., Sr. Notes ...... B2 8.875% 11/01/07 600 558,000
Intermedia Communication, Inc., Sr. Notes ...... B2 9.50% 03/01/09 370 355,200
IPC Information Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 05/01/01).................. B3 10.875% 05/01/08 2,250 1,687,500
Jordan Telecommunication Products, Inc., Sr.
Notes(d)...................................... NR 9.875% 08/01/07 3,400 3,672,000
Level 3 Communications, Sr. Disc. Notes, Zero
Coupon (until 12/01/03)....................... B3 10.50% 12/01/08 2,150 1,295,375
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B40
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C> <C>
------------ ----- -------- --------- --------------
Level 3 Communications, Sr. Notes .............. B3 9.125% 05/01/08 $ 1,665 $ 1,573,425
Long Distance International, Inc.,
Sr. Notes(b)(d) (cost $2,000,000; purchased
4/07/98)...................................... NR 12.25% 04/15/08 2,000 900,000
Mastec, Inc., Sr. Notes ........................ Ba3 7.75% 02/01/08 1,000 940,000
McCaw Int'l. Ltd., Sr. Disc. Notes, Zero Coupon
(until 4/15/02)............................... NR 13.00% 04/15/07 2,000 1,380,000
Mcleodusa, Inc., Sr. Sub. Notes, Zero Coupon
(until 03/01/02).............................. B2 10.50% 03/01/07 750 607,500
Microcell Telecommunications, Zero Coupon
(until 06/01/04) ............................. B3 12.00% 06/01/09 5,000 3,212,500
Netia Holdings, Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. B3 11.25% 11/01/07 3,000 1,875,000
Netia Holdings, Sr. Notes ...................... B 10.25% 11/01/07 2,350 1,974,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 09/15/02).................. B2 10.65% 09/15/07 845 631,638
Nextel Communications, Sr. Notes ............... B1 9.375% 11/15/09 13,250 13,018,125
Nextel Partners, Inc., Sr. Disc. Notes, Zero
Coupon (until 02/01/04)....................... B3 14.00% 02/01/09 5,900 3,864,500
Nextlink Communications, Sr. Disc. Notes ....... B2 10.75% 06/01/09 2,340 2,410,200
Nextlink Communications, Sr. Notes ............. B2 10.50% 12/01/09 2,140 2,172,100
Northeast Optic, Sr. Notes ..................... NR 12.75% 08/15/08 2,005 2,125,300
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Ser. H, Zero Coupon (until 02/01/00).......... NR 15.00% 02/01/05 5,805 5,093,888
Price Communications Wireless, Inc., Sr. Sub.
Notes ........................................ NR 11.75% 07/15/07 5,000 5,500,000
Primus Telecommunications Group, Sr. Notes ..... B3 12.75% 10/15/09 1,975 2,044,125
Psinet Inc., Sr. Notes ......................... NR 11.00% 08/01/09 5,785 5,944,088
PTC International Finance Corp., Gtd. Notes,
Zero Coupon (until 07/01/02).................. NR 10.75% 07/01/07 1,250 837,500
RCN Corp., Sr. Notes ........................... B3 10.00% 10/15/07 285 283,575
RCN Corp., Sr. Notes ........................... B3 10.125% 01/15/10 1,860 1,855,350
Rogers Cantel, Inc., Sr. Sub. Notes ............ B2 8.80% 10/01/07 1,250 1,250,000
RSL Communications PLC, Sr. Sec'd. Notes ....... B3 12.00% 11/01/08 1,000 1,007,500
RSL Communications Ltd, Sr. Notes .............. B2 12.25% 11/15/06 1,500 1,522,500
Splitrock Service, Inc., Sr. Notes ............. NR 11.75% 07/15/08 1,295 1,191,400
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/01/00)(d)............................ NR 10.50% 11/01/04 4,000 1,360,000
Tritel PCS, Inc., Sr. Disc. Notes, Zero Coupon
(until 05/15/04).............................. B3 12.75% 05/15/09 4,000 2,520,000
Triton PCS, Inc., Gtd., Zero Coupon (until
05/01/03) .................................... B3 11.00% 05/01/08 2,445 1,729,838
Unisite, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/15/00).............................. NR 13.00% 12/15/04 4,000 4,921,200
US Unwired, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/01/04) ............................. Caa1 13.375% 11/01/09 6,925 4,051,125
US Xchange LLC, Sr. Notes ...................... NR 15.00% 07/01/08 2,250 2,047,500
USA Mobile Communications, Sr. Notes ........... B2 9.50% 02/01/04 5,000 3,900,000
Versatel Telecommunications, Sr. Notes ......... Caa1 11.875% 07/15/09 625 637,500
Versatel Telecommunications, Sr. Notes ......... NR 13.25% 05/15/08 2,000 2,130,000
Verio, Inc., Sr. Notes ......................... B3 11.25% 12/01/08 210 220,500
Viatel, Inc., Sr. Disc. Notes, Zero Coupon
(until 04/15/03) ............................. NR 12.50% 04/15/08 1,100 704,000
Viatel, Inc., Sr. Notes ........................ Caa1 11.25% 04/15/08 1,500 1,492,500
Viatel, Inc., Sr. Notes ........................ B3 11.50% 03/15/09 2,401 2,401,000
VSTR Wire Co., Sr. Disc. Notes, Zero Coupon
(until 11/15/04) ............................. B2 11.875% 11/15/09 3,345 2,015,363
VSTR Wire Co., Sr. Notes ....................... B2 10.375% 11/15/09 3,080 3,172,400
WamNet, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/02) .............................. NR 13.25% 03/01/05 500 288,750
Williams Communciations Group, Inc., Sr.
Notes ........................................ B2 10.875% 10/01/09 5,080 5,314,950
Winstar Communications, Sr. Notes, Zero Coupon
(until 10/15/00) ............................. Caa1 14.00% 10/15/05 1,500(e) 1,455,000
Worldwide Fiber, Inc., Sr. Notes ............... B3 12.50% 12/15/05 4,000 4,180,000
--------------
158,669,099
--------------
TEXTILES -- 1.5%
Burlington Industries, Deb. .................... Ba1 7.25% 08/01/27 1,000 760,000
Cluett American Corp., Sr. Sub. Notes .......... NR 10.125% 05/15/08 3,060 2,172,600
Collins & Aikman Floorcove, Sr. Sub. Notes ..... B3 10.00% 01/15/07 500 492,500
Foamex, L.P., Sr. Sub. Notes ................... B3 9.875% 06/15/07 2,950 2,448,500
Simmons Co., Sr. Sub. Notes .................... B3 10.25% 03/15/09 4,000 3,790,000
Steel Heddle Manufacturing, Sr. Sub. Notes ..... B3 10.625% 06/01/08 2,000 800,000
Worldtex, Inc., Gtd. Notes ..................... B1 9.625% 12/15/07 2,000 1,620,000
--------------
12,083,600
--------------
TRANSPORTATION -- 1.0%
Continental Airlines, Inc., Sr. Notes .......... Ba2 8.00% 12/15/05 3,250 2,972,645
Holt Group, Sr. Notes .......................... Caa1 9.75% 01/15/06 800 500,000
Kitty Hawk, Inc., Sr. Notes .................... B1 9.95% 11/15/04 2,000 1,960,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B41
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
<S> <C> <C> <C> <C> <C>
------------ ----- -------- --------- --------------
Stena Line AB, Sr. Notes ....................... B1 10.625% 06/01/08 $ 365 $ 219,000
Us Airways, Inc., Sr. Notes .................... B3 9.625% 02/01/01 2,000 1,990,000
--------------
7,641,645
--------------
UTILITIES -- 0.6%
AES Corp., Sr. Notes ........................... Ba1 9.50% 06/01/09 5,000 5,100,000
--------------
TOTAL CORPORATE BONDS
(cost $742,829,501)........................................................................ 665,148,944
--------------

CONVERTIBLE BONDS -- 0.5%
<S> <C> <C> <C> <C> <C>
AUTOMOTIVE PARTS -- 0.2%
Exide Corp., Sr. Sub. Notes .................... B2 2.90% 12/15/05 3,083 1,618,575
--------------
OIL & GAS SERVICES -- 0.3%
Key Energy Group, Inc., Sub. Notes ............. NR 5.00% 09/15/04 3,500 2,467,500
--------------
TOTAL CONVERTIBLE BONDS
(cost $4,309,527).......................................................................... 4,086,075
--------------

FOREIGN GOVERNMENT BONDS -- 0.2%
<S> <C> <C> <C> <C> <C>
Republic of Brazil, Bonds
(cost $1,983,334) ............................ B2 11.625% 04/15/04 2,000 (e) 1,985,000
--------------
</TABLE>

<TABLE>
VALUE
COMMON STOCKS -- 0.6% SHARES (NOTE 2)
<S> <C> <C>
----------- -----------
Classic Communications, Inc., Sr. Disc.
Notes(a)...................................... 6,000 100,020
Dr. Pepper Bottling Holdings, Inc.,
(Class B)(a)(b) (cost $5,226;
purchased 10/21/88)........................... 5,807 145,175
Hedstrom Holding Co.(a)......................... 24,261 243
Intermedia Communications, PIK(a)............... 18,486 717,489
Premier Cruises, Ltd.(a)(b) (cost $0; purchased
9/15/99)...................................... 74,058 249,946
Samuels Jewelers, Inc.(a)....................... 37,500 225,000
Star Gas Partners, L.P. ........................ 2,561 33,933
Viatel, Inc.(a)................................. 10,575 567,084
Waste Systems International(a)(b)
(cost $1,970,169; purchased 02/01/99)......... 503,351 2,390,917
-----------
TOTAL COMMON STOCKS
(cost $3,156,548)............................................. 4,429,807
-----------

PREFERRED STOCKS -- 7.6%
<S> <C> <C>
21st Century Telecommunications Group, Inc.,
PIK .......................................... 506 430,166
Adelphia Communications, Inc., PIK ............. 65,250 6,854,899
Ameriking, Inc., Sr. Notes PIK ................. 25,802 464,436
California Federal Bancorp, Inc. ............... 100,000 2,256,250
Century Maintenance Supplies PIK ............... 48,369 4,256,504
Chesapeake Energy Corp.(a)...................... 20,000 525,000
Clark USA, Inc., PIK ........................... 592 177,660
Cluett American Corp. PIK ...................... 42,292 1,987,712
Contour Energy Co.(a)........................... 38,400 72,000
CSC Holdings, Inc., PIK ........................ 36,476 3,975,885
Dobson Communications PIK ...................... 4,528 4,935,052
Eagle-Picher Holdings, Inc.(a).................. 170 790,500
Fitzgerald Gaming, Inc.(a)...................... 50,000 87,500
Geneva Steel, Inc.(a)........................... 22,000 5,500
Global Crossing Holdings, Ltd. PIK ............. 16,250 1,625,000
GPA Group PLC(a)................................ 1,550,000 744,000
Harborside Healthcare Corp. PIK ................ 1,179 353,700
Interact Systems, Inc. ......................... 4,400 1,123,571
ICG Communications, Inc., PIK .................. 1,461 1,358,871
Intermedia Communications, Inc., PIK ........... 3,595 3,523,475
Intermedia Communications, Inc., PIK ........... 90,000 2,103,750
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B42
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
PREFERRED STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
----------- -----------
Intermedia Communications, Inc., Ser. D PIK .... 90,000 $ 3,791,250
IXC Communications, Inc. PIK ................... 9 10,153
Nextel Communications, Inc. PIK ................ 1,027 1,027,000
Packaging Corp. of America PIK ................. 42,324 4,634,451
Paxson Communications, Inc. PIK ................ 6,221 6,345,843
Primedia, Inc., Gtd., Notes .................... 34,668 3,345,462
R&B Falcon Corp. PIK ........................... 3,088 3,258,084
Rural Cellular Corp., PIK ...................... 12 12,240
Supermarkets General Holdings Corp., PIK(a)..... 25,000 106,250
Viasystems, Inc., PIK(a)........................ 47,804 286,822
-----------
TOTAL PREFERRED STOCKS
(cost $69,769,723)............................................ 60,468,986
-----------
</TABLE>

<TABLE>
EXPIRATION
WARRANTS (A) -- 0.8% DATE UNITS
<S> <C> <C> <C>
------------ ---------
21st Century Telecom Group, Inc. ............... 02/15/10 400 8,000
Allegiance Telecommunications, Inc. ............ 02/03/08 3,800 190,000
American Banknote Corp. ........................ 12/01/02 2,500 25
American Mobile Satellite Corp. ................ 04/01/08 2,600 104,000
Ampex Corp. .................................... 03/15/03 170,000 542,300
Anker Coal Group, Inc. ......................... N/A 56 84
Bell Technology Group, Ltd. .................... 01/23/01 1,250 31,250
Bestel SA ...................................... 01/01/04 2,500 12,500
Birch Telecomm, Inc. ........................... 06/15/00 2,500 13,750
Cellnet Data Systems, Inc. ..................... 01/01/49 7,010 0
Clearnet Communications, Inc. .................. 09/15/05 26,202 157,212
DTI Holdings, Inc. ............................. 01/01/04 5,000 50
Electronic Retailing Systems ................... 01/01/49 2,000 2,000
First World Communications ..................... 01/01/04 1,750 210,000
Globalstar Capital Co. ......................... 02/15/04 1,200 150,000
HF / Icon Health ............................... 07/15/02 18,093 45,232
Hyperion Telecommunications Corp. .............. 04/15/01 4,250 743,750
ICG Communications, Inc. ....................... 09/15/05 20,790 207,900
Interact Systems, Inc. ......................... 08/01/03 4,400 44
Interact Systems, Inc. ......................... 12/15/09 4,400 108,036
Intermedia Communications of Florida, Inc. ..... 06/01/00 3,000 336,000
Intersil WT, Notes ............................. 08/15/09 835 125,250
Long Distance Int'l. Inc., ..................... 05/01/05 2,000 0
McCaw Int'l. Ltd. .............................. 01/01/49 1,650 6,600
MGC Communications, Inc. ....................... 01/01/49 1,950 19,598
Pagemart, Inc. ................................. 11/01/03 9,200 23,000
Powertel, Inc. ................................. 02/01/06 6,720 40,320
Premium Standard Farms L.P.(b)(c) (cost
$374,377; purchased 9/17/96).................. N/A 22,025 242,275
Price Communications Cellular Holdings ......... 08/01/07 6,880 1,148,960
Primus Telecommunications Group ................ 08/01/07 1,500 75,000
R&B Falcon ..................................... 05/01/09 2,875 718,750
Splitrock Service, Inc. ........................ 07/15/08 1,750 164,500
Star Choice Communications, Inc. ............... 12/15/05 69,480 270,972
Sterling Chemical Holdings, Inc. ............... 08/15/08 560 8,960
TVN Entertainment Corp. ........................ 08/01/08 3,750 0
Unisite, Inc. .................................. 12/15/04 1,943 19
USN Communications, Inc. ....................... 01/01/49 10,590 106
Versatel Telecommunications .................... 05/15/08 2,000 800,000
WamNet, Inc. ................................... 08/01/08 3,000 68,250
Waste Systems International .................... 01/15/06 60,000 45,000
--------------
TOTAL WARRANTS
(cost $2,575,635)........................................................ 6,619,693
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $824,624,268)...................................................... 742,738,505
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B43
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>

SHORT-TERM INVESTMENTS -- 6.9% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS -- 0.5% RATING RATE DATE (000) (NOTE 2)
------------ ----- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
LODGING -- 0.3%
Santa Fe Hotel, Inc., First Mtge. Notes ........ Caa2 11.00% 12/15/00 $ 2,750 $ 2,667,500
--------------
TRANSPORTATION -- 0.2%
Aircraft Funding, Sr. Sub. Notes, PIK .......... NR 12.00% 07/15/00 1,074 901,764
Trism, Inc., Sr. Sub. Notes (d)................. B2 10.75% 12/15/00 3,750 900,000
--------------
1,801,764
--------------
TOTAL CORPORATE BONDS
(cost $7,393,214).......................................................................... 4,469,264
--------------

COMMERCIAL PAPER -- 1.1%
<S> <C> <C> <C> <C> <C>
Keyspan Corp. .................................. 6.50% 01/12/00 3,123(f) 3,117,925
Market Street Fund Corp. ....................... 5.00% 01/06/00 5,000(f) 4,997,917
Pfizer, Inc. ................................... 5.75% 02/02/00 548(f) 545,374
--------------
TOTAL COMMERCIAL PAPER
(cost $8,671,000).......................................................................... 8,661,216
--------------

TIME DEPOSIT -- 0.5%
<S> <C> <C> <C> <C> <C>
Banque Nationale De Paris ...................... 2.00% 01/03/00 629(f) 629,000
Deutsche Bank .................................. 5.00% 01/03/00 3,000(f) 3,000,000
--------------
TOTAL TIME DEPOSIT
(cost $3,629,000).......................................................................... 3,629,000
--------------
</TABLE>

<TABLE>
REPURCHASE AGREEMENT -- 4.8%
<S> <C> <C> <C> <C>
Joint Repurchase Agreement Account
(cost $38,984,000; Note 5) ................... 2.88% 01/03/00 38,984 38,984,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $58,677,214)........................................................... 55,743,480
--------------
TOTAL INVESTMENTS, BEFORE OUTSTANDING OPTIONS WRITTEN -- 99.6%
(cost $883,301,482; Note 6).................................................. 798,481,985
</TABLE>

<TABLE>
OUTSTANDING CALL OPTIONS WRITTEN(A) CONTRACTS
<S> <C> <C>
-----------
Jordan Telecommunications Products, Inc.,
expiring 3/20/00 @$111.63 (premium received
$68,000) ..................................... 34 (3)
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.4%................... 3,718,565
-----------
TOTAL NET ASSETS -- 100.0%...................................... $802,200,547
===========
</TABLE>

The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
L.P. Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities
PLC Public Limited Company

(a) Non-income producing security.
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $34,935,753. The aggregate value, $21,568,312 is
approximately 2.7% of net assets.
(c) Indicates a fair valued security. The aggregate value, $242,275 is
approximately .03% of net assets.
(d) Represents issuer in default on interest payments, non-income producing
security.
(e) Portion of securities on loan with an aggregate market value of
$12,073,216, cash collateral of $12,233,400 was received with which the
portfolio purchased securities.
(f) Represents security purchased with cash collateral received for securities
on loan.

SEE NOTES TO FINANCIAL STATEMENTS.

B44
<PAGE>
STOCK INDEX PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 98.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
Boeing Co. ..................................... 360,036 $ 14,963,996
General Dynamics Corp. ......................... 74,700 3,940,425
Goodrich (B.F.) Co. ............................ 38,600 1,061,500
Honeywell International, Inc. .................. 295,250 17,032,234
Lockheed Martin Corp. .......................... 148,298 3,244,019
Northrop Grumman Corp. ......................... 24,200 1,308,312
Parker-Hannifin Corp. .......................... 41,225 2,115,358
Raytheon Co. (Class "B" Stock) ................. 123,018 3,267,666
United Technologies Corp. ...................... 177,300 11,524,500
--------------
58,458,010
--------------
AIRLINES -- 0.2%
AMR Corp. ...................................... 64,800 4,341,600
Delta Air Lines, Inc. .......................... 53,200 2,650,025
Southwest Airlines Co. ......................... 181,725 2,941,673
US Airways Group, Inc.(a)....................... 34,900 1,118,981
--------------
11,052,279
--------------
APPAREL -- 0.1%
Nike, Inc. (Class "B" Stock) ................... 104,300 5,169,369
Reebok International Ltd. ...................... 19,000 155,562
--------------
5,324,931
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Cummins Engine Co., Inc. ....................... 14,400 695,700
Dana Corp. ..................................... 63,594 1,903,845
Ford Motor Co. ................................. 448,000 23,940,000
General Motors Corp. ........................... 242,100 17,597,644
Genuine Parts Co. .............................. 65,925 1,635,764
Johnson Controls, Inc. ......................... 32,000 1,820,000
Navistar International Corp.(a)................. 23,900 1,132,262
PACCAR, Inc. ................................... 29,160 1,292,152
TRW, Inc. ...................................... 46,300 2,404,706
--------------
52,422,073
--------------
BANKS AND SAVINGS & LOANS -- 4.8%
AmSouth Bancorporation ......................... 134,900 2,605,256
Banc One Corp. ................................. 437,445 14,025,580
Bank of New York Co., Inc. ..................... 282,300 11,292,000
BankAmerica Corp. .............................. 646,444 32,443,408
BB&T Corp. ..................................... 114,300 3,128,962
Chase Manhattan Corp. .......................... 314,494 24,432,253
Comerica, Inc. ................................. 58,450 2,728,884
First Union Corp. .............................. 362,978 11,910,216
Firstar Corp. .................................. 377,160 7,967,505
Fleet Boston Financial Corp. ................... 339,488 11,818,426
Golden West Financial Corp. .................... 66,900 2,241,150
Huntington Bancshares, Inc. .................... 85,250 2,035,344
KeyCorp ........................................ 169,700 3,754,612
Mellon Financial Corp. ......................... 193,800 6,601,312
Morgan (J.P.) & Co., Inc. ...................... 65,650 8,312,931
National City Corp. ............................ 242,400 5,741,850
Northern Trust Corp. ........................... 82,000 4,346,000
Old Kent Financial Corp. ....................... 25,000 884,375
PNC Bank Corp. ................................. 113,300 5,041,850
Providian Financial Corp. ...................... 52,550 4,785,334
Regions Financial Corp. ........................ 83,100 2,087,887
Republic New York Corp. ........................ 39,100 2,815,200
SouthTrust Corp. ............................... 59,400 2,246,062
Summit Bancorp ................................. 63,900 1,956,937
Suntrust Banks, Inc. ........................... 120,800 8,312,550
Synovus Financial Corp. ........................ 97,500 1,937,812
U.S. Bancorp ................................... 268,926 6,403,800
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Union Planters Corp. ........................... 53,200 2,098,075
Wachovia Corp. ................................. 74,200 $ 5,045,600
Wells Fargo & Co. .............................. 613,760 24,818,920
--------------
223,820,091
--------------
BUSINESS SERVICES -- 0.2%
Equifax, Inc. .................................. 52,300 1,232,319
Omnicom Group, Inc. ............................ 67,400 6,740,000
--------------
7,972,319
--------------
CHEMICALS -- 1.4%
Air Products & Chemicals, Inc. ................. 85,300 2,862,881
Dow Chemical Co. ............................... 82,300 10,997,337
Du Pont (E.I.) de Nemours & Co. ................ 396,091 26,092,495
Eastman Chemical Co. ........................... 27,600 1,316,175
Engelhard Corp. ................................ 49,875 941,391
FMC Corp.(a).................................... 12,300 704,944
Grace (W.R.) & Co(a)............................ 24,400 338,550
Great Lakes Chemical Corp. ..................... 20,600 786,662
Hercules, Inc. ................................. 37,400 1,042,525
Monsanto Co. ................................... 235,400 8,386,125
Praxair, Inc. .................................. 59,100 2,973,469
Rohm & Haas Co. ................................ 84,100 3,421,819
Sigma-Aldrich Corp. ............................ 38,000 1,142,375
Union Carbide Corp. ............................ 50,600 3,377,550
--------------
64,384,298
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp.(a)................................ 287,618 7,639,853
Deluxe Corp. ................................... 29,000 795,687
Quintiles Transnational Corp.(a)................ 25,000 467,187
--------------
8,902,727
--------------
COMPUTERS -- 5.4%
Apple Computer, Inc.(a)......................... 60,600 6,230,437
Compaq Computer Corp. .......................... 629,069 17,024,180
Dell Computer Corp.(a).......................... 947,200 48,307,200
Gateway, Inc.(a)................................ 114,800 8,272,775
Hewlett-Packard Co. ............................ 378,000 43,068,375
International Business Machines Corp. .......... 676,100 73,018,800
Networking Appliance, Inc.(a)................... 53,800 4,468,762
Seagate Technology, Inc.(a)..................... 88,100 4,102,156
Sun Microsystems, Inc.(a)....................... 575,400 44,557,537
--------------
249,050,222
--------------
COMPUTER SERVICES -- 14.2%
3Com Corp. ..................................... 137,900 6,481,300
Adaptec, Inc.(a)................................ 33,000 1,645,875
Adobe Systems, Inc. ............................ 47,200 3,174,200
America Online, Inc.(a)......................... 826,600 62,356,637
Autodesk, Inc. ................................. 19,800 668,250
Automatic Data Processing, Inc. ................ 232,900 12,547,487
BMC Software, Inc.(a)........................... 90,300 7,218,356
Cabletron Systems, Inc.(a)...................... 63,500 1,651,000
Ceridian Corp.(a)............................... 53,200 1,147,125
Cisco Systems, Inc.(a).......................... 1,212,800 129,921,200
Citrix Systems, Inc. ........................... 29,000 3,567,000
Computer Associates International, Inc. ........ 201,543 14,095,414
Computer Sciences Corp.(a)...................... 59,700 5,649,112
Compuware Corp.(a).............................. 133,600 4,976,600
Comverse Technology, Inc.(a).................... 24,800 3,589,800
Electronic Data Systems Corp. .................. 182,400 12,209,400
EMC Corp.(a).................................... 383,787 41,928,730
First Data Corp. ............................... 160,900 7,934,381
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B45
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Microsoft Corp. ................................ 1,917,500 $ 223,868,125
Novell, Inc.(a)................................. 126,100 5,036,119
Oracle Corp.(a)................................. 535,830 60,046,449
Parametric Technology Corp.(a).................. 97,000 2,625,062
Peoplesoft, Inc.(a)............................. 86,000 1,838,250
Silicon Graphics, Inc.(a)....................... 67,800 665,287
Unisys Corp.(a)................................. 111,000 3,545,062
Yahoo!, Inc.(a)................................. 96,200 41,624,537
--------------
660,010,758
--------------
CONSTRUCTION -- 0.1%
Centex Corp. ................................... 21,600 533,250
Fluor Corp. .................................... 28,300 1,298,263
Foster Wheeler Corp. ........................... 18,300 162,413
Pulte Corp. .................................... 14,500 326,250
Vulcan Materials Co. ........................... 40,800 1,629,450
--------------
3,949,626
--------------
CONTAINERS -- 0.1%
Ball Corp. ..................................... 10,900 429,187
Bemis Co., Inc. ................................ 18,100 631,237
Crown Cork & Seal Co., Inc. .................... 44,200 988,975
Owens-Illinois, Inc.(a)......................... 59,700 1,496,231
Pactiv Corp.(a)................................. 58,900 625,812
Sealed Air Corp.(a)............................. 32,910 1,705,149
--------------
5,876,591
--------------
COSMETICS & SOAPS -- 1.9%
Alberto Culver Co. (Class "B" Stock) ........... 19,100 493,019
Avon Products, Inc. ............................ 96,000 3,168,000
Colgate-Palmolive Co. .......................... 218,800 14,222,000
Gillette Co. ................................... 412,600 16,993,962
International Flavors & Fragrances, Inc. ....... 39,400 1,487,350
Procter & Gamble Co. ........................... 494,904 54,222,919
--------------
90,587,250
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
Eastman Kodak Co. .............................. 120,900 8,009,625
Philip Morris Co., Inc. ........................ 895,600 20,766,725
--------------
28,776,350
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.4%
Avery Dennison Corp. ........................... 43,900 3,199,212
Lexmark International Group, Inc.(a)............ 48,414 4,381,467
Pitney Bowes, Inc. ............................. 100,900 4,874,731
Xerox Corp. .................................... 245,792 5,576,406
--------------
18,031,816
--------------
DIVERSIFIED OPERATIONS -- 4.1%
Fortune Brands, Inc. ........................... 64,300 2,125,919
General Electric Capital Corp. ................. 1,222,200 189,135,450
--------------
191,261,369
--------------
DRUGS AND MEDICAL SUPPLIES -- 8.6%
Abbott Laboratories ............................ 567,500 20,607,344
Allergan, Inc. ................................. 50,600 2,517,350
ALZA Corp.(a)................................... 35,700 1,236,112
American Home Products Corp. ................... 488,600 19,269,162
Amgen, Inc.(a).................................. 381,000 22,883,812
Bard (C.R.), Inc. .............................. 19,000 1,007,000
Bausch & Lomb, Inc. ............................ 20,100 1,375,594
Baxter International, Inc. ..................... 109,500 6,877,969
Becton, Dickinson & Co. ........................ 93,100 2,490,425
Biomet, Inc. ................................... 42,100 $ 1,684,000
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Boston Scientific Corp.(a)...................... 151,800 3,320,625
Bristol-Myers Squibb Co. ....................... 742,560 47,663,070
Cardinal Health, Inc. .......................... 100,450 4,809,044
Guidant Corp.(a)................................ 113,100 5,315,700
Johnson & Johnson .............................. 511,400 47,624,125
Lilly (Eli) & Co. .............................. 408,500 27,165,250
Mallinckrodt, Inc. ............................. 25,800 820,762
Medtronic, Inc. ................................ 436,000 15,886,750
Merck & Co., Inc. .............................. 876,900 58,807,106
Pfizer, Inc. ................................... 1,444,000 46,839,750
Pharmacia & Upjohn, Inc. ....................... 188,825 8,497,125
Schering-Plough Corp. .......................... 546,800 23,068,125
St. Jude Medical, Inc. ......................... 30,300 929,831
Warner-Lambert Co. ............................. 318,600 26,105,287
Watson Pharmaceuticals, Inc.(a)................. 35,000 1,253,437
--------------
398,054,755
--------------
ELECTRONICS -- 4.5%
Advanced Micro Devices, Inc.(a)................. 54,100 1,565,519
Analog Devices, Inc.(a)......................... 62,800 5,840,400
Applied Materials, Inc.(a)...................... 139,800 17,710,912
Emerson Electric Co.(a)......................... 161,400 9,260,325
Grainger (W.W.), Inc. .......................... 33,400 1,596,937
Intel Corp. .................................... 1,238,700 101,960,494
KLA-Tencor Corp.(a)............................. 33,700 3,753,337
LSI Logic Corp.(a).............................. 55,400 3,739,500
Micron Technology, Inc.(a)...................... 93,600 7,277,400
Molex, Inc. .................................... 48,000 2,721,000
National Semiconductor Corp.(a)................. 62,000 2,654,375
Perkin Elmer, Inc. ............................. 18,000 750,375
Rockwell International Corp. ................... 71,900 3,442,212
Solectron Corp.(a).............................. 101,900 9,693,237
Tektronix, Inc. ................................ 17,500 680,312
Teradyne, Inc., (United States)(a).............. 61,000 4,026,000
Texas Instruments, Inc. ........................ 294,100 28,490,937
Thomas & Betts Corp. ........................... 19,800 631,125
Xilinx Inc.(a).................................. 110,600 5,028,844
--------------
210,823,241
--------------
FINANCIAL SERVICES -- 5.5%
American Express Co. ........................... 167,300 27,813,625
Associates First Capital Corp. ................. 274,266 7,525,173
Bear Stearns Companies, Inc. ................... 44,210 1,889,978
Block (H.R.), Inc. ............................. 36,700 1,605,625
Capital One Financial Corp. .................... 74,400 3,585,150
Citigroup, Inc. ................................ 1,262,113 70,126,154
Countrywide Credit Industries, Inc. ............ 40,800 1,030,200
Dun & Bradstreet Corp. ......................... 62,360 1,839,620
Federal Home Loan Mortgage Corp. ............... 260,400 12,255,075
Federal National Mortgage Association .......... 381,900 23,844,881
Fifth Third Bancorp ............................ 106,600 7,821,775
Franklin Resource, Inc. ........................ 92,400 2,962,575
Household International, Inc. .................. 180,458 6,722,061
Lehman Brothers Holdings, Inc. ................. 43,700 3,700,844
MBNA Corp. ..................................... 296,768 8,086,928
Merrill Lynch & Co., Inc. ...................... 139,300 11,631,550
Morgan Stanley Dean Witter & Co. ............... 210,605 30,063,864
PaineWebber Group, Inc. ........................ 54,000 2,095,875
Paychex, Inc. .................................. 91,500 3,660,000
Price (T. Rowe) Associates, Inc. ............... 36,000 1,329,750
Schwab (Charles) Corp. ......................... 307,900 $ 11,815,663
SLM Holding Corp. .............................. 59,600 2,518,100
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B46
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
State Street Corp. ............................. 58,800 4,296,075
Washington Mutual, Inc. ........................ 220,348 5,729,048
--------------
253,949,589
--------------
FOOD & BEVERAGE -- 3.6%
Anheuser-Busch Companies, Inc. ................. 177,300 12,566,138
Archer-Daniels-Midland Co. ..................... 225,931 2,753,534
Bestfoods ...................................... 104,800 5,508,550
Brown-Forman Corp. (Class "B" Stock) ........... 27,600 1,580,100
Campbell Soup Co. .............................. 164,100 6,348,619
Coca-Cola Co. .................................. 922,200 53,718,150
Coca Cola Enterprises, Inc. .................... 159,000 3,199,875
ConAgra, Inc. .................................. 179,100 4,040,944
Coors (Adolph) Co. (Class "B" Stock) ........... 12,800 672,000
General Mills, Inc. ............................ 113,800 4,068,350
Heinz (H.J.) & Co. ............................. 132,350 5,269,184
Hershey Foods Corp. ............................ 54,100 2,569,750
Kellogg Co. .................................... 148,900 4,587,981
Nabisco Group Holdings Corp. ................... 119,900 1,273,938
PepsiCo, Inc. .................................. 549,000 19,352,250
Quaker Oats Co. ................................ 51,100 3,353,438
Ralston-Ralston Purina Group ................... 123,620 3,445,908
Sara Lee Corp. ................................. 337,400 7,443,888
Seagram Co., Ltd. .............................. 158,000 7,100,125
Sysco Corp. .................................... 121,500 4,806,844
Unilever N.V., ADR, (United Kingdom) ........... 213,032 11,596,930
Wrigley (William) Jr. Co. ...................... 42,600 3,533,138
--------------
168,789,634
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp. ............................ 19,886 805,383
Champion International Corp. ................... 35,000 2,167,812
Fort James Corp. ............................... 81,000 2,217,375
Georgia-Pacific Corp. .......................... 66,800 3,390,100
International Paper Co. ........................ 155,212 8,759,777
Louisiana-Pacific Corp. ........................ 38,900 554,325
Mead Corp. ..................................... 37,400 1,624,562
Potlatch Corp. ................................. 10,000 446,250
Temple-Inland, Inc. ............................ 20,000 1,318,750
Westvaco Corp. ................................. 35,700 1,164,712
Weyerhaeuser Co. ............................... 87,100 6,254,869
Willamette Industries, Inc. .................... 44,200 2,052,537
--------------
30,756,452
--------------
GAS PIPELINES -- 0.2%
Columbia Energy Group .......................... 30,250 1,913,312
Consolidated Natural Gas Co. ................... 37,000 2,402,687
Peoples Energy Corp. ........................... 11,400 381,900
Sempra Energy .................................. 89,104 1,548,182
Williams Companies, Inc. ....................... 162,300 4,960,294
--------------
11,206,375
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.4%
Columbia/HCA Healthcare Corp. .................. 229,298 6,721,298
HEALTHSOUTH Corp.(a)............................ 154,500 830,437
Humana, Inc.(a)................................. 58,100 475,694
IMS Health, Inc. ............................... 119,120 3,238,575
Manor Care, Inc.(a)............................. 40,850 653,600
McKesson HBOC Inc. ............................. 101,107 2,281,227
Service Corp. International .................... 101,500 $ 704,156
Shared Medical Systems Corp. ................... 9,000 458,437
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Tenet Healthcare Corp.(a)....................... 111,100 2,610,850
Wellpoint Health Networks Inc.(a)............... 25,100 1,655,031
--------------
19,629,305
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co. ..................................... 89,600 4,513,600
Kimberly-Clark Corp. ........................... 200,788 13,101,417
Leggett & Platt, Inc. .......................... 64,000 1,372,000
--------------
18,987,017
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc. ............... 14,700 490,613
Fleetwood Enterprises, Inc.(a).................. 12,600 259,875
Huttig Building Products, Inc.(a)............... 5,694 28,114
Kaufman & Broad Home Corp. ..................... 16,166 391,015
Lowe's Companies, Inc. ......................... 143,000 8,544,250
Masco Corp. .................................... 161,200 4,090,450
Maytag Corp. ................................... 32,700 1,569,600
Newell Rubbermaid Inc. ......................... 107,049 3,104,421
Owens Corning .................................. 21,100 407,494
Stanley Works .................................. 32,300 973,038
Tupperware Corp. ............................... 22,300 377,706
Whirlpool Corp. ................................ 27,300 1,776,206
--------------
22,012,782
--------------
INSTRUMENT-CONTROLS -- 0.1%
PE Corp-PE Biosystems Group. ................... 38,200 4,595,937
--------------
INSURANCE -- 2.9%
Aetna, Inc. .................................... 53,312 2,975,476
Allstate Corp. ................................. 298,688 7,168,512
American General Corp. ......................... 92,286 7,002,200
American International Group, Inc. ............. 575,743 62,252,212
Aon Corp. ...................................... 94,125 3,765,000
Chubb Corp. .................................... 64,600 3,637,787
CIGNA Corp. .................................... 76,400 6,154,975
Cincinnati Financial Corp. ..................... 62,500 1,949,219
Conseco, Inc. .................................. 118,259 2,113,880
Hartford Financial Services Group, Inc. ........ 86,000 4,074,250
Jefferson-Pilot Corp. .......................... 39,912 2,723,994
Lincoln National Corp. ......................... 75,600 3,024,000
Loews Corp. .................................... 43,000 2,609,562
Marsh & McLennan Companies, Inc. ............... 98,000 9,377,375
MBIA, Inc. ..................................... 36,300 1,917,094
MGIC Investment Corp. .......................... 40,200 2,419,538
Progressive Corp. .............................. 27,000 1,974,375
SAFECO Corp. ................................... 48,300 1,201,463
St. Paul Companies, Inc. ....................... 86,410 2,910,937
Torchmark Corp. ................................ 51,000 1,482,188
United Healthcare Corp. ........................ 67,500 3,585,938
UnumProvident Corp. ............................ 86,656 2,778,408
--------------
137,098,383
--------------
LEISURE -- 0.9%
Brunswick Corp. ................................ 33,400 743,150
Carnival Corp. (Class "A" Stock) ............... 229,700 10,982,531
Disney (Walt) Co. .............................. 765,601 22,393,829
Harrah's Entertainment, Inc.(a)................. 46,350 1,225,378
Hilton Hotels Corp. ............................ 95,800 922,075
Marriott International, Inc. (Class "A"
Stock) ....................................... 93,200 $ 2,941,625
Mirage Resorts, Inc.(a)......................... 70,900 1,085,656
--------------
40,294,244
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B47
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MACHINERY -- 0.6%
Briggs & Stratton Corp. ........................ 7,800 418,275
Caterpillar, Inc. .............................. 134,300 6,320,494
Cooper Industries, Inc. ........................ 42,600 1,722,638
Deere & Co. .................................... 85,200 3,695,550
Delphi Automotive Systems Corp. ................ 206,044 3,245,193
Dover Corp. .................................... 80,100 3,634,538
Eaton Corp. .................................... 27,600 2,004,450
Ingersoll-Rand Co. ............................. 62,750 3,455,172
Milacron, Inc. ................................. 12,600 193,725
Snap-On, Inc. .................................. 22,800 605,625
Timken Co. ..................................... 21,500 439,406
--------------
25,735,066
--------------
MANUFACTURING -- 0.7%
Illinois Tool Works, Inc. ...................... 106,900 7,222,431
Tyco International Ltd. ........................ 623,114 24,223,557
--------------
31,445,988
--------------
MEDIA -- 3.2%
CBS Corp.(a).................................... 285,236 18,237,277
Clear Channel Communications, Inc.(a)........... 124,200 11,084,850
Comcast Corp. (Special Class "A" Stock) ........ 277,000 13,919,250
Donnelley (R.R.) & Sons Co. .................... 49,500 1,228,219
Dow Jones & Co., Inc. .......................... 36,000 2,448,000
Gannett Co., Inc. .............................. 103,500 8,441,719
Interpublic Group of Companies, Inc. ........... 107,900 6,224,481
Knight-Ridder, Inc. ............................ 31,100 1,850,450
McGraw-Hill, Inc. .............................. 72,900 4,492,463
Mediaone Group, Inc.(a)......................... 226,300 17,382,669
Meredith Corp. ................................. 17,800 742,038
New York Times Co. (Class "A" Stock) ........... 65,200 3,202,950
Time Warner, Inc. .............................. 482,680 34,964,133
Times Mirror Co. (Class "A" Stock) ............. 30,600 2,050,200
Tribune Co. .................................... 89,400 4,922,588
Viacom, Inc. (Class "B" Stock)(a)............... 259,634 15,691,630
--------------
146,882,917
--------------
METALS-FERROUS -- 0.1%
Allegheny Technologies, Inc. ................... 34,940 783,966
Bethlehem Steel Corp.(a)........................ 47,300 396,138
Nucor Corp. .................................... 34,100 1,869,106
USX-U.S. Steel Group, Inc. ..................... 31,540 1,040,820
Worthington Industries, Inc. ................... 34,000 563,125
--------------
4,653,155
--------------
METALS-NON FERROUS -- 0.4%
Alcan Aluminum Ltd. ............................ 83,350 3,432,978
Alcoa, Inc. .................................... 138,100 11,462,300
Inco Ltd.(a).................................... 67,200 1,579,200
Reynolds Metals Co. ............................ 25,600 1,961,600
--------------
18,436,078
--------------
MINERAL RESOURCES -- 0.1%
Burlington Resources, Inc. ..................... 70,817 $ 2,341,387
Homestake Mining Co. ........................... 93,700 732,031
Phelps Dodge Corp. ............................. 27,528 1,847,817
--------------
4,921,235
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY -- 0.5%
AES Corp.(a).................................... 75,200 5,621,200
Crane Co. ...................................... 25,625 509,297
Danaher Corp. .................................. 51,400 2,480,050
Ecolab, Inc. ................................... 48,000 1,878,000
ITT Industries, Inc. ........................... 41,900 1,401,031
Millipore Corp. ................................ 16,200 625,725
NACCO Industries, Inc. (Class "A" Stock) ....... 3,300 183,356
Pall Corp. ..................................... 44,000 948,750
PPG Industries, Inc. ........................... 65,800 4,116,613
Textron, Inc. .................................. 59,400 4,555,238
Thermo Electron Corp.(a)........................ 57,000 855,000
--------------
23,174,260
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6%
American Greetings Corp. (Class "A" Stock) ..... 24,800 585,900
Black & Decker Corp. ........................... 32,900 1,719,025
Corning, Inc. .................................. 88,700 11,436,756
Jostens, Inc. .................................. 12,400 301,475
Minnesota Mining & Manufacturing Co. ........... 151,100 14,788,913
Polaroid Corp. ................................. 15,400 289,713
--------------
29,121,782
--------------
OIL & GAS -- 4.7%
Amerada Hess Corp. ............................. 35,800 2,031,650
Anadarko Petroleum Corp. ....................... 47,600 1,624,350
Ashland, Inc. .................................. 26,600 876,138
Atlantic Richfield Co. ......................... 119,370 10,325,505
Chevron Corp. .................................. 245,800 21,292,425
Coastal Corp. .................................. 81,500 2,888,156
Eastern Enterprises ............................ 9,500 545,656
Exxon Mobil Corp. .............................. 1,291,435 104,041,232
Kerr-McGee Corp. ............................... 33,926 2,103,412
NICOR, Inc. .................................... 16,200 526,500
Phillips Petroleum Co. ......................... 94,400 4,436,800
Royal Dutch Petroleum Co. ...................... 800,600 48,386,263
Sunoco, Inc. ................................... 33,200 780,200
Texaco, Inc. ................................... 204,982 11,133,085
Union Pacific Resources Group, Inc. ............ 90,056 1,148,214
Unocal Corp. ................................... 90,600 3,040,763
USX-Marathon Group ............................. 116,500 2,876,094
--------------
218,056,443
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp. ..................... 130,000 2,811,250
--------------
OIL - EXPLORATION & PRODUCTION -- 0.1%
Conoco, Inc (Class "B") ........................ 233,957 5,819,680
--------------
OIL & GAS SERVICES -- 0.9%
Apache Corp. ................................... 42,100 1,555,069
Baker Hughes, Inc. ............................. 122,130 2,572,363
El Paso Energy Corp. ........................... 80,900 3,139,931
Enron Corp. .................................... 268,800 11,928,000
Halliburton Co. ................................ 164,100 6,605,025
Helmerich & Payne, Inc. ........................ 18,100 394,806
McDermott International, Inc. .................. 20,700 187,594
ONEOK, Inc. .................................... 13,000 $ 326,625
Rowan Companies, Inc.(a)........................ 28,700 622,431
Schlumberger Ltd. .............................. 207,300 11,660,625
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B48
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
Tosco Corp. .................................... 52,000 1,413,750
Transocean Sedco Forex, Inc. ................... 40,133 1,351,990
--------------
41,758,209
--------------
PRECIOUS METALS -- 0.1%
Barrick Gold Corp. ............................. 145,300 2,569,994
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock)(a)..................................... 66,200 1,398,475
Newmont Mining Corp. ........................... 61,503 1,506,824
Placer Dome, Inc. .............................. 121,000 1,300,750
--------------
6,776,043
--------------
RAILROADS -- 0.4%
Burlington Northern Santa Fe Corp. ............. 171,626 4,161,931
CSX Corp. ...................................... 80,612 2,529,202
Kansas City Southern Industries, Inc. .......... 41,600 3,104,400
Norfolk Southern Corp. ......................... 141,300 2,896,650
Union Pacific Corp. ............................ 92,100 4,017,863
--------------
16,710,046
--------------
RESTAURANTS -- 0.5%
Darden Restaurants, Inc. ....................... 50,300 911,688
McDonald's Corp. ............................... 507,100 20,442,469
Tricon Global Restaurants, Inc.(a).............. 56,650 2,188,106
Wendy's International, Inc. .................... 44,800 924,000
--------------
24,466,263
--------------
RETAIL -- 8.0%
Albertson's, Inc. .............................. 156,644 5,051,769
AutoZone, Inc.(a)............................... 51,900 1,677,019
Bed Bath & Beyond, Inc.(a)...................... 49,000 1,702,750
Bell Atlantic Corp. ............................ 581,390 35,791,822
BellSouth Corp. ................................ 708,100 33,147,931
Best Buy Co., Inc.(a)........................... 75,000 3,764,063
Circuit City Stores, Inc. ...................... 75,200 3,388,700
Consolidated Stores Corp.(a).................... 40,200 653,250
Costco Wholesale Corp.(a)....................... 83,266 7,598,023
CVS Corp. ...................................... 145,800 5,822,888
Dayton-Hudson Corp. ............................ 166,284 12,211,481
Dillard's, Inc. ................................ 37,750 762,078
Dollar General Corporation ..................... 82,843 1,884,678
Federated Department Stores, Inc.(a)............ 76,500 3,868,031
Great Atlantic & Pacific Tea Co., Inc. ......... 12,400 345,650
Harcourt General, Inc. ......................... 27,006 1,086,992
Home Depot, Inc. ............................... 848,619 58,183,440
IKON Office Solutions, Inc. .................... 52,476 357,493
J.C. Penney Co., Inc. .......................... 100,500 2,003,719
Kmart Corp.(a).................................. 181,400 1,825,338
Kohl's Corp.(a)................................. 60,800 4,389,000
Kroger Co.(a)................................... 308,000 5,813,500
Liz Claiborne, Inc. ............................ 23,400 880,425
Longs Drug Stores, Inc. ........................ 13,700 353,631
May Department Stores Co. ...................... 127,200 4,102,200
Nordstrom, Inc. ................................ 52,300 1,369,606
Office Depot, Inc.(a)........................... 139,000 1,520,313
Pep Boys - Manny, Moe & Jack ................... 19,656 179,361
Rite Aid Corp. ................................. 94,600 1,058,338
Safeway, Inc.(a)................................ 188,600 6,707,088
Sears, Roebuck & Co. ........................... 140,200 4,267,338
Sherwin-Williams Co. ........................... 64,700 $ 1,358,700
Staples, Inc.(a)................................ 171,200 3,552,400
Supervalu, Inc. ................................ 46,800 936,000
Tandy Corp. .................................... 74,860 3,682,176
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
The Gap, Inc. .................................. 316,987 14,581,402
The Limited, Inc. .............................. 82,048 3,553,704
TJX Companies, Inc. ............................ 116,400 2,378,925
Toys 'R' Us, Inc.(a)............................ 98,450 1,409,066
Wal-Mart Stores, Inc. .......................... 1,661,200 114,830,450
Walgreen Co. ................................... 373,000 10,910,250
Winn-Dixie Stores, Inc. ........................ 54,900 1,314,169
--------------
370,275,157
--------------
RUBBER -- 0.0%
Cooper Tire & Rubber Co. ....................... 28,800 448,200
Goodyear Tire & Rubber Co. ..................... 58,000 1,634,875
--------------
2,083,075
--------------
TELECOMMUNICATIONS -- 11.5%
ADC Telecommunications, Inc.(a)................. 56,700 4,114,294
AFLAC Inc. ..................................... 102,000 4,813,125
Alltel Corp. ................................... 114,000 9,426,375
Andrew Corp.(a)................................. 29,112 551,309
AT&T Corp. ..................................... 1,192,521 60,520,441
CenturyTel, Inc. ............................... 51,200 2,425,600
General Instrument Corp.(a)..................... 66,200 5,627,000
Global Crossing Ltd.(a)......................... 284,105 14,205,250
GTE Corp. ...................................... 365,020 25,756,724
Lucent Technologies, Inc. ...................... 1,159,805 86,767,912
MCI Worldcom, Inc.(a)........................... 1,049,958 55,713,396
Motorola, Inc. ................................. 226,800 33,396,300
Nextel Communications, Inc. (Class "A"
Stock)(a)..................................... 132,300 13,643,438
Nortel Networks Corp. .......................... 494,940 49,988,940
Qualcomm Inc(a)................................. 242,400 42,723,000
SBC Communications, Inc. ....................... 1,273,877 62,101,504
Scientific-Atlanta, Inc. ....................... 27,200 1,513,000
Sprint Corp. ................................... 327,700 22,058,306
Sprint Corp. (PCS Group)(a)..................... 163,450 16,753,625
Tellabs, Inc.(a)................................ 147,700 9,480,494
US West, Inc. .................................. 186,922 13,458,384
--------------
535,038,417
--------------
TEXTILES -- 0.0%
National Service Industries, Inc. .............. 14,700 433,650
Russell Corp. .................................. 12,700 212,725
Springs Industries, Inc. ....................... 8,700 347,456
VF Corp. ....................................... 42,836 1,285,080
--------------
2,278,911
--------------
TOBACCO -- 0.0%
UST, Inc. ...................................... 66,100 1,664,894
--------------
TOYS -- 0.1%
Hasbro, Inc. ................................... 73,550 1,402,047
Mattel, Inc. ................................... 152,381 2,000,001
--------------
3,402,048
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp.(a)........................ 106,640 4,365,575
Ryder System, Inc. ............................. 25,800 630,488
--------------
4,996,063
--------------
UTILITIES - ELECTRICAL & GAS -- 0.0%
Florida Progress Corp. ......................... 36,000 1,523,250
--------------
UTILITY - ELECTRIC -- 1.4%
Ameren Corp. ................................... 53,900 $ 1,765,225
American Electric Power Co., Inc. .............. 72,500 2,329,063
Carolina Power & Light Co. ..................... 59,900 1,823,206
Central & South West Corp. ..................... 77,400 1,548,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B49
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
------------- --------------
CINergy Corp. .................................. 58,739 1,417,078
CMS Energy Corp. ............................... 43,100 1,344,181
Consolidated Edison, Inc. ...................... 87,200 3,008,400
Constellation Energy Group ..................... 53,550 1,552,950
Dominion Resources, Inc. ....................... 71,950 2,824,038
DTE Energy Co. ................................. 53,600 1,681,700
Duke Energy Corp. .............................. 136,531 6,843,616
Edison International ........................... 129,800 3,399,138
Entergy Corp. .................................. 90,300 2,325,225
FirstEnergy Corp.(a)............................ 87,200 1,978,350
FPL Group, Inc. ................................ 68,100 2,915,531
GPU, Inc. ...................................... 46,200 1,383,113
New Century Energies, Inc. ..................... 40,900 1,242,338
Niagara Mohawk Holdings Inc.(a)................. 64,600 900,363
Northern States Power Co. ...................... 53,900 1,051,050
Pacific Gas & Electric, Co. .................... 140,000 2,870,000
PECO Energy Co. ................................ 80,500 2,797,375
Pinnacle West Capital Corp. .................... 29,000 886,313
PP&L Resources, Inc. ........................... 57,000 1,303,875
Public Service Enterprise Group, Inc. .......... 80,400 2,798,925
Reliant Energy, Inc. ........................... 107,410 2,457,004
Southern Co. ................................... 259,400 6,095,900
Texas Utilities Co. ............................ 103,506 3,680,932
Unicom Corp. ................................... 79,100 2,649,850
--------------
66,872,739
--------------
WASTE MANAGEMENT -- 0.1%
Allied Waste Industries, Inc.(a)................ 68,000 599,250
Waste Management, Inc. ......................... 230,230 3,957,078
--------------
4,556,328
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,278,861,725).......................................... 4,589,537,721
--------------
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS -- 1.4% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.3%
Joint Repurchase Agreement Account,
2.875%, 01/03/00 (Note 5) .................... $ 60,195 $ 60,195,000
--------------
U.S. GOVERNMENT OBLIGATION -- .1%
United States Treasury Bill,
5.196%, 03/16/00(b)........................... 6,500 6,430,134
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $66,624,638)............................................. 66,625,134
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $2,345,486,363; Note 6) 4,656,162,855
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS(C)................................................... 145,000
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.0%)............................................... (1,290,335)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,655,017,520
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31,
CONTRACTS TYPE DATE TRADE DATE 1999 APPRECIATION
171 S&P 500 Index Mar 00 $61,025,287 $63,449,550 $2,424,263
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B50
<PAGE>
EQUITY INCOME PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 98.0%
VALUE
COMMON STOCKS -- 92.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AIRLINES -- 3.5%
AMR Corp.(a).................................... 956,200 $ 64,065,400
US Airways Group, Inc. ......................... 233,000 7,470,562
--------------
71,535,962
--------------
AUTOS - CARS & TRUCKS -- 3.3%
Delphi Automotive Systems Corp. ................ 459,895 7,243,346
Ford Motor Co. ................................. 382,900 20,461,219
General Motors Corp. ........................... 527,300 38,328,119
--------------
66,032,684
--------------
BANKS AND SAVINGS & LOANS -- 0.5%
Hanvit Bank, GDR, (South Korea) ................ 1,521,900 9,702,112
--------------
CHEMICALS -- 6.4%
Dow Chemical Co. ............................... 800,000 106,900,000
Lyondell Chemical Co. .......................... 518,100 6,605,775
Millennium Chemicals, Inc. ..................... 849,698 16,781,535
--------------
130,287,310
--------------
CONTAINERS -- 0.1%
Pactiv Corp.(a)................................. 234,500 2,491,562
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 2.0%
Eastman Kodak Co. .............................. 224,400 14,866,500
Gibson Greetings, Inc.(a)....................... 509,100 4,565,991
Philip Morris Co., Inc. ........................ 944,100 21,891,319
--------------
41,323,810
--------------
DIVERSIFIED OPERATIONS -- 0.6%
Tomkins PLC, ADR, (United Kingdom) ............. 819,700(b) 12,039,344
--------------
ELECTRONICS -- 0.3%
Esterline Technologies Corp.(a)................. 567,900 6,566,344
--------------
FINANCIAL SERVICES -- 12.0%
A.G. Edwards, Inc. ............................. 326,000 10,452,375
Bear Stearns Companies, Inc. ................... 1,054,134 45,064,228
Lehman Brothers Holdings, Inc. ................. 1,611,700 136,490,844
PaineWebber Group, Inc. ........................ 1,307,400 50,743,462
--------------
242,750,909
--------------
FOOD & BEVERAGE -- 1.4%
Nabisco Group Holdings Corp. ................... 2,603,280 27,659,850
--------------
FOREST PRODUCTS -- 6.0%
Georgia-Pacific Corp. .......................... 794,600 40,325,950
Longview Fibre Co. ............................. 1,358,900 19,364,325
Louisiana-Pacific Corp. ........................ 1,324,700 18,876,975
Potlatch Corp. ................................. 211,400 9,433,725
Rayonier, Inc. ................................. 408,600 19,740,487
Weyerhaeuser Co. ............................... 202,000 14,506,125
--------------
122,247,587
--------------
GAS DISTRIBUTION -- 0.4%
TransCanada Pipelines, Ltd. .................... 980,444(b) 8,578,885
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 4.1%
Columbia/HCA Healthcare Corp. .................. 1,239,100 36,321,119
Humana Inc.(a).................................. 1,547,700 12,671,794
Lifepoint Hospitals, Inc.(a).................... 56,984 673,124
PhyCor, Inc.(a)................................. 2,019,600 3,786,750
Tenet Healthcare Corp.(a)....................... 1,221,200 28,698,200
Triad Hospitals, Inc.(a)........................ 56,984 861,883
--------------
83,012,870
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSING RELATED -- 5.8%
Hanson, PLC, ADR, (United Kingdom) ............. 2,056,950 83,177,916
Kaufman & Broad Home Corp. ..................... 708,300 17,132,006
Ryland Group, Inc. ............................. 725,000 16,720,313
--------------
117,030,235
--------------
HOUSING RELATED (CONT'D.)
INSURANCE -- 2.0%
Marsh & McLennan Companies, Inc. ............... 121,700 $ 11,645,169
Ohio Casualty Corp. ............................ 782,400(b) 12,567,300
SAFECO Corp. ................................... 409,400 10,183,825
Selective Insurance Group, Inc. ................ 409,600 7,040,000
--------------
41,436,294
--------------
MACHINERY -- 3.0%
Cascade Corp. .................................. 14,700 135,056
Commerical Intertech Corp. ..................... 179,900 2,293,725
Flowserve Corp. ................................ 1,165,500 19,813,500
Graco Inc. ..................................... 200,000 7,175,000
Regal-Beloit Corp. ............................. 150,000 3,093,750
Snap-On, Inc. .................................. 596,000 15,831,250
United Dominion Industries, Ltd. ............... 600,000 11,962,500
--------------
60,304,781
--------------
METALS-FERROUS -- 4.4%
AK Steel Holding Corp. ......................... 951,100 17,952,013
USX-U.S. Steel Group ........................... 2,168,100 71,547,300
--------------
89,499,313
--------------
METALS-NON FERROUS -- 12.5%
ALCOA, Inc. .................................... 2,034,600 168,871,800
Reynolds Metals Co. ............................ 1,094,786 83,887,977
--------------
252,759,777
--------------
OIL & GAS -- 3.6%
Noble Affiliates, Inc. ......................... 735,800 15,773,713
Pioneer Natural Resources Co. .................. 2,631,817 23,521,864
Total Fina SA, (Class "B" Stock), ADR,
(France) ..................................... 406,144 28,125,472
USX-Marathon Group ............................. 237,500 5,863,281
--------------
73,284,330
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 1.2%
Crestar Energy, Inc., ADR, (Canada)(a).......... 206,000 2,830,806
Occidental Petroleum Corp. ..................... 1,030,000 22,273,750
--------------
25,104,556
--------------
OIL & GAS SERVICES -- 2.0%
McDermott International, Inc. .................. 2,994,100 27,134,031
Pennzoil-Quaker State Co. ...................... 1,196,208 12,186,369
--------------
39,320,400
--------------
PRECIOUS METALS -- 0.8%
Stillwater Mining Co.(a)........................ 501,000 15,969,375
--------------
REAL ESTATE DEVELOPMENT -- 10.9%
Capital Automotive ............................. 595,800 7,261,313
Center Trust, Inc. ............................. 432,600 4,190,813
Crescent Real Estate Equities Co. .............. 2,796,500 51,385,688
Crown American Realty Trust .................... 1,140,100 6,270,550
Equity Office Properties Trust ................. 560,678 13,806,696
Equity Residential Properties Trust ............ 1,619,900 69,149,481
Gables Residential Trust ....................... 430,100 10,322,400
Glimcher Realty Trust .......................... 527,900 6,796,713
Manufactured Home Communities, Inc. ............ 421,900 10,257,444
Vornado Realty Trust ........................... 1,272,400 41,353,000
--------------
220,794,098
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B51
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL -- 2.3%
Heilig-Meyers Co. .............................. 2,055,200 5,651,800
The Limited, Inc. .............................. 830,916 35,989,049
Toys 'R' Us, Inc.(a)............................ 358,800 5,135,325
--------------
46,776,174
--------------
RETAIL (CONT'D.)
TELECOMMUNICATIONS -- 1.2%
Telefonos de Mexico SA (Class "L" Stock), ADR,
(Mexico) ..................................... 213,600(b) $ 24,030,000
--------------
TEXTILES -- 0.7%
Kellwood Co. ................................... 745,200 14,484,825
--------------
TOBACCO -- 0.8%
R.J. Reynolds Tobacco Holdings, Inc. ........... 867,760 15,294,270
--------------
TRUCKING/SHIPPING -- 0.5%
Yellow Corp.(a)................................. 566,500 9,524,281
--------------
UTILITY-ELECTRIC -- 0.3%
Pacific Gas & Electric, Co. .................... 247,200 5,067,600
--------------
TOTAL COMMON STOCKS
(cost $1,621,129,265).......................................... 1,874,909,538
--------------

PREFERRED STOCKS -- 4.6%
<S> <C> <C>
METALS-FERROUS -- 0.7%
Bethlehem Steel Corp. (Cum. Conv.), $3.50 ...... 261,400 7,842,000
Rouge Steel, 7.25% ............................. 273,100 2,065,319
USX Capital Trust (Cum. Conv.), 6.75% .......... 119,200 5,095,800
--------------
15,003,119
--------------
METALS-NON FERROUS -- 0.1%
Hecla Mining Co. (Cum. Conv.), 7.00%, Series
B ............................................ 61,800 1,475,475
--------------
VALUE
PREFERRED STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 0.5%
Union Pacific Capital Trust, 6.25% ............. 246,400 10,102,400
--------------
RETAIL -- 1.3%
Kmart Corp. (Cum. Conv.), 7.75% ................ 629,300 27,531,875
--------------
TELECOMMUNICATIONS -- 2.0%
Telecomunicacoes Brasileiras SA, Series B, ADR,
(Brazil) ..................................... 309,900(b) 39,822,150
--------------
TOTAL PREFERRED STOCKS
(cost $105,218,668)............................................ 93,935,019
--------------
</TABLE>

<TABLE>
MOODY'S PRINCIPAL
RATING AMOUNT
CONVERTIBLE BONDS -- 0.8% (UNAUDITED) (000)
------------ ---------
<S> <C> <C> <C>
OIL & GAS SERVICES -- 0.2%
Baker Hughes, Inc.,
Zero Coupon, 05/05/08 ........................ A2 $ 6,000 4,176,120
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Malan Realty Investors, Inc.,
9.50%, 07/15/04 .............................. B3 2,969 2,649,832
--------------
RETAIL -- 0.4%
Charming Shoppes, Inc.,
7.50%, 07/15/06 .............................. B2 8,079 8,280,975
--------------
TOTAL CONVERTIBLE BONDS
(cost $15,360,108)....................................................... 15,106,927
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,741,708,041).................................................... 1,983,951,484
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B52
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
MOODY'S PRINCIPAL
SHORT-TERM RATING AMOUNT VALUE
INVESTMENTS -- 4.7% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 2.4%
Coastal Corp.,
6.50%, 01/14/00 .............................. P2 $ 15,000(c) $ 14,970,208
Countrywide Home Loans, Inc.,
5.25%, 01/03/00 .............................. P2 4,800(c) 4,800,000
Heller Financial, Inc.,
6.05%, 01/12/00 .............................. P2 10,000(c) 9,984,875
Keyspan Corp.,
6.50%, 01/12/00 .............................. P2 19,000(c) 18,969,125
--------------
48,724,208
--------------
TIME DEPOSIT -- 0.5%
Banque Nationale de Paris,
2.00%, 01/03/00 .............................. P1 1,631(c) 1,631,000
Chase Manhattan Corp.,
5.50%, 01/03/00 .............................. P1 5,000(c) 5,000,000
Deutsche Bank AG,
5.00%, 01/03/00 .............................. P1 3,000(c) 3,000,000
--------------
9,631,000
--------------
REPURCHASE AGREEMENT -- 1.8%
Joint Repurchase Agreement Account,
2.875%, 01/03/00
(Note 5) ................................... 37,352 37,352,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $95,707,208)....................................................... 95,707,208
--------------
TOTAL INVESTMENTS -- 102.7%
(cost $1,837,415,249; Note 6)............................................ 2,079,658,692
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.7%)............................
(55,619,332)
--------------
TOTAL NET ASSETS -- 100.0%................................................. $2,024,039,360
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
GDR Global Depository Receipt
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.

(b) Portion of securities on loan with an aggregate market value of
$56,036,738; cash collateral of $57,973,945 was received with which the
portfolio purchased securities.

SEE NOTES TO FINANCIAL STATEMENTS.

B53
<PAGE>
EQUITY PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 89.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co. ................................... 44,639 $ 1,107,605
--------------
APPAREL -- 0.3%
Jones Apparel Group, Inc. ...................... 716,973 19,447,893
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Delphi Automotive Systems Corp. ................ 440,325 6,935,119
General Motors Corp. ........................... 630,000 45,793,125
Navistar International Corp.(a)................. 395,200 18,722,600
PACCAR Inc. .................................... 279,400 12,380,912
--------------
83,831,756
--------------
BANKS AND SAVINGS & LOANS -- 5.0%
Bank of New York Co., Inc. ..................... 2,400,000 96,000,000
Bank of America Corp. .......................... 1,789,856 89,828,398
Chase Manhattan Corp. .......................... 376,900 29,280,419
Mellon Financial Corp. ......................... 540,200 18,400,562
Mercantile Bankshares Corp. .................... 419,400 13,394,587
Morgan (J.P.) & Co., Inc. ...................... 232,100 29,389,662
National City Corp. ............................ 123,120 2,916,405
Republic New York Corp. ........................ 450,000 32,400,000
--------------
311,610,033
--------------
CHEMICALS -- 1.3%
Eastman Chemical Co. ........................... 941,550 44,900,166
Potash Corp. of Saskatchewan Inc., (Canada) .... 380,000 18,311,250
Wellman, Inc. .................................. 798,200 14,866,475
--------------
78,077,891
--------------
COMPUTER -- 5.9%
Compaq Computer Corp. .......................... 3,302,350 89,369,847
Gerber Scientific, Inc. ........................ 419,800 9,209,362
Hewlett-Packard Co. ............................ 1,100,000 125,331,250
NCR Corp.(a) ................................... 100,000 3,787,500
Seagate Technology, Inc.(a) .................... 2,975,800 138,560,687
--------------
366,258,646
--------------
CONSTRUCTION & HOUSING -- 1.3%
American Standard Co., Inc.(a) ................. 1,050,000 48,168,750
Centex Corp. ................................... 1,200,000 29,625,000
--------------
77,793,750
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 4.0%
Eastman Kodak Co. .............................. 2,969,300 196,716,125
Gibson Greeting, Inc.(a)........................ 750,000 6,726,562
Philip Morris Co., Inc. ........................ 2,025,000 46,954,687
--------------
250,397,374
--------------
ELECTRONICS -- 4.5%
Arrow Electronics, Inc.(a) ..................... 2,145,500 54,442,062
Avnet, Inc. .................................... 887,600 53,699,800
Harris Corp. ................................... 2,884,000 76,966,750
Hitachi Ltd. ADR, (Japan) ...................... 515,000 83,365,625
Lanier Worldwide, Inc.(a) ...................... 2,884,000 11,175,500
--------------
279,649,737
--------------
FINANCIAL SERVICES -- 3.3%
Citigroup, Inc. ................................ 1,400,401 77,809,781
Lehman Brothers Holdings, Inc. ................. 764,800 64,769,000
Morgan Stanley Dean Witter & Co. ............... 452,800 64,637,200
--------------
207,215,981
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOOD & BEVERAGE 1.5%
Nabisco Group Holdings Corp. ................... 3,710,000 $ 39,418,750
Sara Lee Corp. ................................. 2,497,500 55,101,094
--------------
94,519,844
--------------
FOREST PRODUCTS -- 12.3%
Fort James Corp. ............................... 664,000 18,177,000
Georgia-Pacific Corp. .......................... 3,406,300 172,869,725
Georgia-Pacific Timber Group ................... 1,158,000 28,515,750
International Paper Co. ........................ 1,820,000 102,716,250
Mead Corp. ..................................... 2,306,000 100,166,875
Rayonier Inc. .................................. 830,400 40,118,700
Temple-Inland, Inc. ............................ 1,240,500 81,795,469
Weyerhaeuser Co. ............................... 1,522,500 109,334,531
Willamette Industries, Inc. .................... 2,500,000 116,093,750
--------------
769,788,050
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 10.9%
Columbia/HCA Healthcare Corp. .................. 5,790,100 169,722,306
Foundation Health Systems, Inc.(a) ............. 4,724,610 46,950,812
HEALTHSOUTH Corp.(a) ........................... 5,376,800 28,900,300
LifePoint Hospitals, Inc.(a).................... 304,742 3,599,765
PacifiCare Health Systems, Inc.(a) ............. 1,143,900 60,626,700
Service Corp. International(a) ................. 3,686,500 25,575,094
Tenet Healthcare Corp.(a)....................... 7,321,732 172,060,702
Triad Hospitals, Inc.(a)........................ 304,742 4,609,223
Wellpoint Health Networks Inc.(a) .............. 2,570,900 169,518,719
--------------
681,563,621
--------------
INSURANCE -- 11.1%
American Financial Group, Inc. ................. 552,700 14,577,462
American General Corp. ......................... 879,704 66,747,541
AXA Financial Inc. ............................. 2,323,800 78,718,725
Chubb Corp. .................................... 2,206,400 124,247,900
Loews Corp. .................................... 1,775,000 107,720,312
Old Republic International Corp. ............... 3,198,327 43,577,205
SAFECO Corp. ................................... 2,855,800 71,038,025
St. Paul Companies, Inc. ....................... 1,320,100 44,470,869
Tokio Marine & Fire Insurance Co. Ltd. (The) ADR
(Japan) ...................................... 656,400 38,809,650
United HealthCare Corp. ........................ 1,914,900 101,729,063
--------------
691,636,752
--------------
LEISURE -- 0.8%
Hilton Hotels Corp. ............................ 3,470,600 33,404,525
Park Place Entertainment Corp.(a) .............. 1,078,300 13,478,750
--------------
46,883,275
--------------
METALS-FERROUS -- 0.2%
Birmingham Steel Corp.(a) ...................... 1,492,400 7,928,375
Carpenter Technology Corp. ..................... 100,000 2,743,750
--------------
10,672,125
--------------
METALS-NON FERROUS -- 2.5%
Alcoa, Inc. .................................... 1,882,000 156,206,000
--------------
MINERAL RESOURCES -- 0.5%
Phelps Dodge Corp. ............................. 488,600 32,797,275
--------------
OIL & GAS -- 5.6%
Amerada Hess Corp. ............................. 325,000 18,443,750
Atlantic Richfield Co. ......................... 1,100,000 95,150,000
Kerr-McGee Corp. ............................... 590,400 36,604,800
KeySpan Corp. .................................. 1,356,432 31,452,267
Occidental Petroleum Corp. ..................... 1,100,000 23,787,500
Total SA, ADR, (France) ........................ 2,075,275 143,712,794
--------------
349,151,111
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B53
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PRECIOUS METALS -- 2.5%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A")(a) ...................................... 3,853,300 $ 71,526,881
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock)(a) .................................... 319,600 6,751,550
Kinross Gold Corp.(a) .......................... 105,126 197,111
Newmont Mining Corp. ........................... 3,057,000 74,896,500
--------------
153,372,042
--------------
RESTAURANTS -- 2.5%
CKE Restaurants, Inc. .......................... 1,933,700 11,360,488
Darden Restaurants, Inc. ....................... 7,922,700 143,598,938
--------------
154,959,426
--------------
RETAIL -- 6.1%
Consolidated Stores Corp.(a) ................... 2,023,800 32,886,750
Dillard's, Inc. ................................ 3,649,000 73,664,188
IKON Office Solutions, Inc. .................... 5,193,000 35,377,313
Kmart Corp.(a) ................................. 6,500,000 65,406,250
Pep Boys - Manny, Moe & Jack ................... 1,594,900 14,553,463
Sears, Roebuck and Co. ......................... 690,000 21,001,875
Tandy Corp. .................................... 2,166,900 106,584,394
Toys 'R' Us, Inc.(a) ........................... 2,350,000 33,634,375
--------------
383,108,608
--------------
TELECOMMUNICATIONS -- 3.9%
ALLTEL Corp. ................................... 1,129,588 93,402,808
AT&T Corp. ..................................... 1,734,400 88,020,800
Loral Corp.(a) ................................. 2,600,000 63,212,500
--------------
244,636,108
--------------
TEXTILES
Worldtex, Inc.(a) .............................. 107,199 167,498
--------------
TOBACCO -- 0.3%
R.J. Reynolds Tobacco Holdings, Inc. ........... 1,236,666 21,796,238
--------------
UTILITY - ELECTRIC -- 1.3%
American Electric Power Company, Inc. .......... 180,000 5,782,500
GPU, Inc. ...................................... 500,000 14,968,750
Reliant Energy, Inc. ........................... 974,519 22,292,122
Unicom Corp. ................................... 1,112,900 37,282,150
--------------
80,325,522
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc. ................. 270,000 5,737,500
--------------
WASTE MANAGEMENT -- 0.5%
Waste Management, Inc. ......................... 1,882,292 32,351,894
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,235,036,665).......................................... 5,585,063,555
--------------
</TABLE>

<TABLE>
MOODY'S PRINCIPAL
RATING AMOUNT
SHORT-TERM INVESTMENTS -- 10.4% (UNAUDITED) (000)
------------ ---------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 8.7%
Barton Capital Corp,
6.09%, 02/01/00 .............................. P1 $ 20,844 20,734,691
6.18%, 02/03/00 .............................. P1 12,000 11,932,900
Baus Funding LLC,
6.20%, 01/31/00 .............................. P1 60,000 59,690,000
BBV Finance (Delaware) Inc,
6.27%, 01/10/00 .............................. P1 25,000 24,960,812
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>

COMMERCIAL PAPER -- 8.7% (CONT'D.)
BBL North America,
6.27%, 01/26/00 .............................. P1 $ 40,000 $ 39,825,833
Blue Ridge Asset Fund,
6.70%, 01/18/00 .............................. P1 19,000 18,939,886
Carolina Power & Light,
6.55%, 01/28/00 .............................. P1 11,306 11,250,459
Corporate Asset Funding,
6.10%, 01/27/00 .............................. P1 9,695 9,652,288
Edison Asset Securitization LLC,
6.65%, 01/31/00 .............................. P1 9,592 9,538,844
7.00%, 01/21/00 .............................. P1 16,597 16,532,456
Enterprise Funding Corp.,
6.18%, 01/27/00 .............................. P1 9,588 9,545,206
Falcon Asset Securitization Corp.,
5.99%, 01/13/00 .............................. P1 60,000 59,880,200
Fleet Funding Corp.,
6.10%, 02/04/00 .............................. P1 7,773 7,728,219
Old Line Funding Corp.,
6.25%, 01/20/00 .............................. P1 20,000 19,934,028
6.30%, 01/19/00 .............................. P1 34,420 34,311,577
Salomon Smith Barney Holding,
6.10%, 01/25/00 .............................. P1 28,000 27,886,133
Thunder Bay Funding,
6.75%, 01/28/00 .............................. P1 6,513 6,480,028
Triple-A One Plus Funding,
6.26%, 01/12/00 .............................. P1 10,590 10,569,744
6.26%, 01/14/00 .............................. P1 29,000 28,934,444
6.66%, 01/20/00 .............................. P1 12,000 11,957,820
6.70%, 01/18/00 .............................. P1 8,539 8,511,984
Unifunding Inc.,
6.50%, 01/25/00 .............................. P1 35,000 34,848,333
Windmill Funding Corp.,
6.10%, 01/28/00 .............................. P1 60,000 59,725,500
--------------
543,371,385
--------------
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase Agreement Account,
2.875%, 01/03/00 (Note 5) .................... 106,923 106,923,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $650,294,385)...................................................... 650,294,385
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $4,885,331,050; Note 6)............................................ 6,235,357,940
FORWARD CURRENCY CONTRACTS -- AMOUNT PAYABLE TO COUNTERPARTIES (B).........
(138,418)
--------------
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES................................ 76,720
--------------
TOTAL NET ASSETS -- 100.0%................................................. $6,235,296,242
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
LLC Limited Liability Company.
SA Societe Anonyme (French Corporation).

(a) Non-income producing security.
(b) Outstanding forward currency contract as of December 31, 1999 was as
follows:

<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE DEPRECIATION
---------------- ----------- ---------- ------------
<C> <S> <C> <C>
Sold:
Japanese Yen,
expiring 3/30/00 $43,111,992 $42,973,574 $(138,418)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B54
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.6%
VALUE
COMMON STOCKS -- 95.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS -- 1.6%
Chase Manhattan Corp. .......................... 554,100 $ 43,046,644
--------------
BUSINESS SERVICES -- 1.6%
Omnicom Group, Inc. ............................ 434,000 43,400,000
--------------
COMPUTER SERVICES -- 13.8%
America Online, Inc. (a) ....................... 583,900 44,047,956
Cisco Systems, Inc. (a) ........................ 1,082,450 115,957,456
EMC Corp. (a) .................................. 487,600 53,270,300
Juniper Networks, Inc. ......................... 53,100 18,054,000
Microsoft Corp. (a) ............................ 1,164,500 135,955,375
VERITAS Software Corp. (a) ..................... 109,800 15,715,125
--------------
383,000,212
--------------
COMPUTERS -- 6.6%
Dell Computer Corp. (a) ........................ 782,900 39,927,900
Equant NV (Netherlands) ........................ 315,200 35,302,400
Hewlett-Packard Co. ............................ 619,200 70,550,100
Sun Microsystems, Inc. (a) ..................... 467,500 36,202,031
--------------
181,982,431
--------------
COSMETICS & SOAPS -- 0.8%
Estee Lauder Companies (Class "A" Stock) ....... 433,600 21,869,700
--------------
DIVERSIFIED OPERATIONS -- 3.5%
General Electric Co. ........................... 624,400 96,625,900
--------------
DRUGS AND MEDICAL SUPPLIES -- 9.9%
American Home Products Corp. ................... 1,024,600 40,407,662
Amgen, Inc. (a) ................................ 563,100 33,821,194
Bristol-Myers Squibb Co. ....................... 401,500 25,771,281
Genentech, Inc. (a) ............................ 201,500 27,101,750
Glaxo Wellcome PLC, ADR (United Kingdom) ....... 509,500 28,468,312
Johnson & Johnson .............................. 362,300 33,739,187
Schering-Plough Corp. .......................... 346,900 14,634,844
Warner-Lambert Co. ............................. 857,800 70,285,987
--------------
274,230,217
--------------
ELECTRONICS -- 10.6%
Applied Materials, Inc. (a) .................... 371,800 47,102,412
Broadcom Corp. Class A ......................... 102,000 27,782,250
Intel Corp. .................................... 799,600 65,817,075
KLA-Tencor Corp. (a) ........................... 275,400 30,672,675
Motorola, Inc. ................................. 342,300 50,403,675
Texas Instruments, Inc. ........................ 742,500 71,929,687
--------------
293,707,774
--------------
FINANCIAL SERVICES -- 6.4%
American Express Co. ........................... 189,900 31,570,875
Citigroup, Inc. ................................ 1,537,200 85,410,675
Morgan Stanley Dean Witter & Co. ............... 423,720 60,486,030
--------------
177,467,580
--------------
INSURANCE -- 2.7%
American International Group, Inc. ............. 694,125 75,052,266
--------------
MEDIA -- 8.0%
AT&T Corp-Liberty Media Group (Class "A"
Stock) ....................................... 839,000 47,613,250
CBS Corp. (a) .................................. 1,381,400 88,323,263
Clear Channel Communications, Inc. (a) ......... 627,800 56,031,150
Univision Communications Inc. (a) .............. 302,700 30,932,156
--------------
222,899,819
--------------
RESTAURANTS -- 1.2%
McDonald's Corp. ............................... 861,000 34,709,063
--------------

<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>

RETAIL -- 10.2%
Home Depot, Inc. ............................... 1,531,500 $ 105,003,469
Kohl's Corp. (a) ............................... 579,800 41,854,313
The Gap, Inc. .................................. 1,083,450 49,838,700
Tiffany & Co. .................................. 439,900 39,261,075
Wal-Mart Stores, Inc. .......................... 694,100 47,979,663
--------------
283,937,220
--------------
TELECOMMUNICATIONS -- 18.7%
Allegiance Telecom, Inc. ....................... 286,200 26,401,950
JDS Uniphase Corp. (a) ......................... 229,600 37,037,350
Level 3 Communications, Inc. (a) ............... 235,200 19,257,000
Lucent Technologies, Inc. ...................... 443,350 33,168,122
MCI WordCom, Inc. (a) .......................... 903,000 47,915,438
Metromedia Fiber Network, Inc. (a) ............. 355,800 17,056,163
Nextlink Communications - A .................... 280,100 23,265,806
Nokia Corp., ADR (Finland) ..................... 477,500 90,725,000
NTL Inc. (a) ................................... 437,900 54,628,025
Qwest Communications International Inc. (a) .... 1,591,800 68,447,400
Tellabs, Inc. (a) .............................. 576,300 36,991,256
Vodafone AirTouch PLC, ADR (United Kingdom) .... 1,270,900 62,909,550
--------------
517,803,060
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,757,433,043).......................................... 2,649,731,886
--------------
PRINCIPAL
SHORT-TERM AMOUNT
INVESTMENT -- 4.4% (000)
-------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
2.875%, 01/03/00
(cost $121,024,000; Note 5) ................ $ 121,024 121,024,000
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $1,878,457,043; Note 6).................................. 2,770,755,886
LIABILITIES IN EXCESS OF OTHER ASSETS (b)........................ (88,025)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $2,770,667,861
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
NV Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)

(a) Non-income producing security.

(b) Represents less than 0.05%.

SEE NOTES TO FINANCIAL STATEMENTS.

B55
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 94.5%
VALUE
COMMON STOCKS -- 94.5% SHARES (NOTE 2)
---------- --------------
<S> <C> <C>
ADVERTISING -- 1.1%
Cyrk, Inc. (a).................................. 17,600 $ 209,000
HA-LO Industries, Inc. ......................... 55,800 418,500
Snyder Communications, Inc. (a)................. 82,500(c) 1,588,125
True North Communications, Inc. ................ 53,700 2,399,719
--------------
4,615,344
--------------
AEROSPACE -- 0.8%
Alliant Techsystems Inc. (a).................... 11,500 716,594
BE Aerospace, Inc. (a).......................... 27,700 233,719
GenCorp Inc. ................................... 46,900 463,137
Kaman Corp. (Class "A" Stock) .................. 26,400 339,900
Orbital Sciences Corp. (a)...................... 42,000 779,625
Trimble Navigation, Ltd. (a).................... 25,300 547,112
Watkins-Johnson Co. ............................ 7,400 296,000
--------------
3,376,087
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.3%
Agribrands International, Inc. (a).............. 11,800 542,800
Delta & Pine Land Co. .......................... 43,200 750,600
--------------
1,293,400
--------------
AIRLINES -- 0.5%
Atlantic Coast Airlines Holdings, Inc. (a)...... 21,000 498,750
Aviation Sales Co. ............................. 16,800(c) 277,200
Mesa Air Group, Inc. (a)........................ 38,000 180,500
Midwest Express Holdings, Inc. (a).............. 15,900 506,812
SkyWest, Inc. .................................. 27,600 772,800
--------------
2,236,062
--------------
APPAREL -- 1.1%
Ann Taylor Stores Corp. ........................ 35,500 1,222,531
K-Swiss, Inc. (Class "A" Stock) ................ 12,600 234,084
Pacific Sunwear of California, Inc. ............ 34,700 1,116,906
Phillips-Van Heusen Corp. ...................... 30,600 254,362
Quiksilver, Inc. ............................... 25,000 387,500
Timberland Co. (Class "A" Stock) (a)............ 23,800 1,258,425
Wolverine World Wide, Inc. ..................... 46,312 506,538
--------------
4,980,346
--------------
AUTOS - CARS & TRUCKS -- 0.9%
Action Performance Cos., Inc. .................. 19,000(c) 218,500
MascoTech, Inc. ................................ 50,200 636,912
Myers Industries, Inc. ......................... 22,694 357,430
Simpson Industries, Inc. ....................... 20,200 227,250
Spartan Motors, Inc. ........................... 14,000 61,250
Standard Motor Products, Inc. .................. 14,800 238,650
TBC Corp. (a)................................... 23,700 148,125
Tenneco Automotive Inc. ........................ 38,300 356,669
Titan International, Inc. ...................... 23,200 150,800
Tower Automotive, Inc. ......................... 52,500 810,469
Wabash National Corp. .......................... 25,800 387,000
Wynn's International, Inc. ..................... 21,025 296,978
--------------
3,890,033
--------------
BANKS AND SAVINGS & LOANS -- 4.5%
Anchor Bancorp Wisconsin, Inc. ................. 28,500 431,062
Banknorth Group, Inc. .......................... 26,100 698,175
Carolina First Corp. ........................... 28,800 525,600
Centura Banks, Inc. ............................ 32,000 1,412,000
Chittenden Corp. ............................... 31,700 939,112
Commercial Federal Corp. (a).................... 68,025 1,211,695
Community First Bankshares, Inc. ............... 56,800 894,600
Cullen/Frost Bankers, Inc. ..................... 60,100 1,547,575
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Downey Financial Corp. ......................... 31,644 638,813
First Bancorp/Puerto Rico ...................... 32,600 $ 676,450
First Midwest Bancorp, Inc. .................... 46,800 1,240,200
Investors Financial Services Corp. ............. 16,400 754,400
JSB Financial, Inc. ............................ 10,500 544,687
Premier Bancshares, Inc. ....................... 32,300 440,087
Provident Bankshares Corp. ..................... 28,725 497,302
Queens County Bancorp, Inc. .................... 24,050 652,356
Riggs National Corp. (a)........................ 31,800 419,362
Silicon Valley Bancshares ...................... 23,400 1,158,300
Susquehanna Bancshares, Inc. ................... 41,500 658,812
TrustCo Bank Corp. ............................. 60,420 800,565
United Bankshares, Inc. ........................ 48,600 1,160,325
UST Corp. ...................................... 48,100 1,527,175
Whitney Holding Corp. .......................... 25,700 952,506
--------------
19,781,159
--------------
CHEMICALS -- 1.8%
Cambrex Corp. .................................. 27,600 950,475
Chemed Corp. ................................... 11,700 334,913
Chemfirst, Inc. (a)............................. 20,300 444,062
Geon Co. ....................................... 26,700 867,750
Lilly Industries, Inc. (Class "A" Stock)........ 26,100 350,719
MacDermid, Inc. ................................ 28,300 1,162,069
McWhorter Technologies, Inc. (a)................ 11,300 180,800
Mississippi Chemical Corp. (a).................. 29,272 181,120
OM Group, Inc. ................................. 26,700 919,481
Omnova Solutions Inc. .......................... 46,900 363,475
Penford Corp. .................................. 8,300 143,175
Quaker Chemical Corp. .......................... 10,000 142,500
Scotts Co. (Class "A" Stock) (a)................ 20,600 829,150
TETRA Technologies, Inc. ....................... 42,850 658,819
WD-40 Co. ...................................... 17,500 387,188
--------------
7,915,696
--------------
COLLECTIBLES & GIFTS -- 0.1%
Department 56, Inc. ............................ 19,500 441,188
Enesco Group, Inc. ............................. 15,500 171,469
--------------
612,657
--------------
COMMERCIAL SERVICES -- 4.3%
AAR Corp. ...................................... 30,850 553,372
ABM Industries, Inc. ........................... 24,900 507,337
ADVO, Inc. ..................................... 23,800 565,250
Billing Information Concepts Corp. ............. 41,900 272,350
Bowne & Company, Inc. .......................... 41,400 558,900
CDI Corp. (a)................................... 21,400 516,275
Central Parking Corp. .......................... 41,250(c) 788,906
ChoicePoint Inc. (a)............................ 33,100 1,369,512
Consolidated Graphics, Inc. .................... 17,700 264,394
CPI Corp. ...................................... 11,100 250,444
DBT Online Inc. ................................ 22,500 548,437
Dentrite International, Inc. ................... 43,550 1,475,256
Franklin Covey Co. ............................. 22,800 171,000
Hadco Corp. .................................... 15,300 780,300
Hooper Holmes, Inc. ............................ 32,400 834,300
Information Resources, Inc. (a)................. 31,500 291,375
Insurance Auto Auction, Inc. (a)................ 12,800 201,600
Interim Services, Inc. (a)...................... 73,500 1,819,125
John H. Harland Co. ............................ 34,800 637,275
Labor Ready Inc. ............................... 48,050 582,606
Lason Inc. ..................................... 21,100 232,100
MAXIMUS, Inc. (a)............................... 23,600 800,925
NFO Worldwide, Inc. ............................ 24,975 558,816
PAREXEL International Corp. (a)................. 28,200 333,113
Pre-Paid Legal Services, Inc. .................. 25,800 619,200
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B56
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Primark Corp. (a)............................... 23,020 $ 640,244
Profit Recovery Group Int'l., Inc. ............. 53,300 1,415,781
Quebecor Printing Inc. ......................... 20,296 451,586
Rural/Metro Corp. .............................. 16,300 69,784
StaffMark, Inc. (a)............................. 32,900 248,806
Thomas Nelson, Inc. ............................ 15,950 147,537
Volt Information Sciences, Inc. ................ 16,900 403,487
--------------
18,909,393
--------------
COMPUTER SERVICES -- 8.9%
American Management Systems, Inc. (a)........... 47,250 1,482,469
Analysts International Corp. ................... 25,300 316,250
Aspen Technology, Inc. ......................... 28,000 740,250
Auspex Systems, Inc. (a)........................ 29,500 302,375
Avid Technology ................................ 26,600 347,462
BISYS Group, Inc. (a)........................... 30,300 1,977,075
Black Box Corp. (a)............................. 19,900 1,333,300
Cerner Corp. (a)................................ 37,800 744,187
Ciber, Inc. .................................... 65,700(c) 1,806,750
Computer Task Group, Inc. ...................... 23,400 346,612
Epicor Software Corp. .......................... 45,800 231,862
Factset Research Systems, Inc. ................. 17,600 1,401,400
Fair Issac & Company, Inc. ..................... 15,800 837,400
FileNet Corp. (a)............................... 36,200 923,100
Harbinger Corp. ................................ 43,300 1,377,481
Henry (Jack) & Associates, Inc. ................ 22,550 1,210,653
Hutchinson Technology, Inc. (a)................. 27,800 590,750
Inacom Corp. ................................... 51,116 373,786
Insight Enterprises Inc. ....................... 28,900 1,174,062
Inter-Tel, Inc. ................................ 29,000 725,000
Komag, Inc. (a)................................. 60,500 189,062
Kroll O'gara Company ........................... 24,900 410,850
Midway Games, Inc. ............................. 42,730 1,022,849
National Computer Systems, Inc. ................ 35,600 1,339,450
National Data Corp. ............................ 38,025 1,290,473
Peoplesoft, Inc. ............................... 25,080 536,085
Progress Software Corp. (a)..................... 19,050 1,081,087
QRS Corp. (a)................................... 15,100 1,575,119
Read-Rite Corp. (a)............................. 55,800 265,050
RSA Security Inc. (a)........................... 43,700 3,386,750
Standard Microsystems Corp. (a)................. 17,500 189,219
Technology Solutions Co. ....................... 47,100 1,542,525
Telxon Corp. ................................... 18,100 289,600
Whittman-Hart, Inc. ............................ 60,900 3,265,762
Xircom, Inc. (a)................................ 31,700 2,377,500
Zebra Technologies Corp. (Class "A" Stock)
(a)........................................... 35,200 2,059,200
--------------
39,062,805
--------------
COMPUTERS -- 0.8%
Apex Inc. (a)................................... 23,200 748,200
Cybex Computer Products Corp. (a)............... 14,300 579,150
Exabyte Corp. .................................. 25,000 187,500
Gerber Scientific, Inc. ........................ 24,900 546,244
MICROS Systems, Inc. ........................... 18,200 1,346,800
--------------
3,407,894
--------------
CONSTRUCTION -- 1.5%
Butler Manufacturing Co. ....................... 8,000 178,500
Coachmen Industries, Inc. ...................... 18,700 282,837
Dycom Industries, Inc. ......................... 28,700 1,264,594
Elcor Corp. .................................... 21,900 659,737
Florida Rock Industries, Inc. .................. 21,200 $ 730,075
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Insituform Technologies, Inc.
(Class "A" Stock) (a)......................... 28,500 805,125
M.D.C. Holdings, Inc. .......................... 25,000 392,187
Morrison Knudsen Corp. (a)...................... 59,100 461,719
Oakwood Homes Corp. ............................ 52,900 168,619
Republic Group, Inc. ........................... 13,170 199,196
Simpson Manufacturing Co, Inc. ................. 13,400 586,250
Southern Energy Homes, Inc. (a)................. 13,612 31,903
Standard Pacific Corp. ......................... 33,250 365,750
Stone & Webster, Inc. .......................... 14,600 245,462
--------------
6,371,954
--------------
CONTAINERS -- 0.4%
Aptar Group, Inc. .............................. 41,000 1,030,125
Shorewood Packaging Corp. (a)................... 30,950 586,116
--------------
1,616,241
--------------
COSMETICS & SOAPS -- (E)
Nature's Sunshine Products, Inc. ............... 19,600 156,800
USA Detergent, Inc.(a).......................... 15,500 42,625
--------------
199,425
--------------
DIVERSIFIED CONSUMER PRODUCTS -- (E)
Gibson Greetings, Inc. (a)...................... 16,900 151,572
--------------
DIVERSIFIED MANUFACTURING OPERATIONS -- 1.3%
Barnes Group Inc. .............................. 21,700 353,981
CLARCOR, Inc. .................................. 26,900 484,200
Griffon Corp. (a)............................... 34,100 266,406
Insteel Industries, Inc. ....................... 9,500 86,094
Intermet Corp. ................................. 27,100 315,038
Justin Industries, Inc. ........................ 28,600 425,425
Lydall, Inc. ................................... 17,600 116,600
Mueller Industries, Inc. (a).................... 40,300 1,460,875
SPS Technologies, Inc. (a)...................... 14,200 453,513
Standex International Corp. .................... 14,400 301,500
Tredegar Corp. ................................. 41,750 863,703
Valmont Industries, Inc. ....................... 27,200 436,900
--------------
5,564,235
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Nashua Corp. ................................... 6,600 49,500
New England Business Service, Inc. ............. 16,100 393,444
--------------
442,944
--------------
DRUGS AND MEDICAL SUPPLIES -- 8.4%
ADAC Laboratories .............................. 23,000 247,250
Advanced Tissue Sciences, Inc. (a).............. 58,900(c) 147,250
Alliance Pharmaceutical Corp. .................. 48,800 359,900
Alpharma, Inc. (Class "A" Stock) ............... 33,200(c) 1,020,900
Barr Laboratories, Inc. ........................ 25,600 803,200
Bindley Western Industries, Inc. ............... 37,866 570,357
Cephalon, Inc. (a).............................. 34,600(c) 1,195,862
Coherent, Inc. (a).............................. 27,000 722,250
COR Therapeutics, Inc. (a)...................... 27,700 744,437
Cygnus, Inc. (a)................................ 27,100 494,575
Diagnostic Products ............................ 15,400 377,300
Dura Pharmaceuticals, Inc. ..................... 49,500 689,906
Enzo Biochem, Inc. (a).......................... 28,018 1,262,561
Hanger Orthopedic Group, Inc. .................. 21,100 211,000
Hologic, Inc. (a)............................... 17,100 98,325
IDEC Pharmaceuticals Corp. ..................... 46,600 4,578,450
IDEXX Laboratories, Inc. (a).................... 44,400 715,950
Incyte Pharmacueticals, Inc. ................... 31,500 1,890,000
Invacare Corp. ................................. 32,100 $ 644,006
Jones Medical Industries, Inc. ................. 48,700 2,115,406
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B57
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Laser Vision Centers, Inc. (a).................. 28,100 296,806
Liposome Company, Inc. (a)...................... 43,700 533,277
Medicis Pharmaceutical Corp.
(Class "A" Stock) (a)......................... 32,200 1,370,512
Mentor Corp. ................................... 27,400 707,262
NBTY, Inc. (a).................................. 75,300 870,656
North American Vaccine, Inc. (a)................ 36,900(c) 166,050
Noven Pharmaceuticals, Inc. (a)................. 24,100 436,812
Organogenesis Inc. ............................. 34,200(c) 297,112
Osteotech, Inc. (a)............................. 15,900 212,662
Owens & Minor, Inc. ............................ 36,700 328,006
Patterson Dental Co. (a)........................ 37,800 1,611,225
Priority Healthcare Corp. B .................... 24,566 710,879
Protein Design Labs, Inc. (a)................... 21,000 1,470,000
Regeneron Pharmaceuticals, Inc. (a)............. 35,100 447,525
Resmed Inc. (a)................................. 16,700 697,225
Respironics, Inc. (a)........................... 34,300 273,328
Safeskin Corp. (a).............................. 62,300 755,387
Shire Pharmaceuticals Group PLC (a)............. 13,138 382,645
SpaceLabs Medical, Inc. (a)..................... 10,600 196,762
Summit Technology, Inc. (a)..................... 52,300 611,256
Sunrise Medical, Inc. (a)....................... 24,900 154,069
Syncor International Corp. (a).................. 13,200 384,450
Techne Corp. (a)................................ 22,700 1,249,919
The Immune Response Corp. (a)................... 27,900(c) 121,191
Theragenics Corp. (a)........................... 33,100 299,969
Varian Medical Systems, Inc. ................... 34,300 1,022,569
Vertex Pharmaceuticals, Inc. (a)................ 28,700 1,004,500
Vital Signs, Inc. .............................. 13,800 315,675
Wesley Jessen Visioncare ....................... 19,400 734,775
--------------
36,551,389
--------------
ELECTRICAL EQUIPMENT -- 3.3%
Anixter International, Inc. (a)................. 40,400 833,250
Baldor Electric Co. ............................ 40,666 737,071
C&D Technologies Inc. .......................... 14,400 612,000
C-Cube Microsystems, Inc. ...................... 44,900 2,795,025
Gentex Corp. (a)................................ 82,300 2,283,825
Harmon Industries, Inc. ........................ 12,400 150,350
KEMET Corp. (a)................................. 44,200 1,991,762
Kent Electronics Corp. (a)...................... 31,400 714,350
Kulicke & Soffa Industries, Inc. ............... 26,400 1,123,650
SLI, Inc. ...................................... 40,100 543,856
Valence Technology, Inc. (a).................... 31,100 590,900
Vicor Corp. (a)................................. 46,500 1,883,250
--------------
14,259,289
--------------
ELECTRONICS -- 6.8%
Alpha Industries, Inc. ......................... 21,800 1,249,412
Analogic Corp. ................................. 14,300 471,900
Artesyn Technologies, Inc. (a).................. 42,100 884,100
Belden, Inc. ................................... 27,400 575,400
Benchmark Electronics, Inc. (a)................. 18,200 417,462
BMC Industries, Inc. ........................... 30,700 149,662
Burr-Brown Corp. (a)............................ 62,250 2,248,781
C-COR Electronics, Inc. (a)..................... 16,800 1,287,300
Cable Design Technologies ...................... 31,600 726,800
Checkpoint Systems, Inc. (a).................... 33,800 344,337
CTS Corp. ...................................... 31,000 2,336,625
Dionex Corp. (a)................................ 25,100 1,033,806
Electro Scientific Industries, Inc. ............ 14,700 1,073,100
Electroglas, Inc. .............................. 22,200 $ 563,325
Esterline Technologies Corp. (a)................ 19,400 224,312
Etec Sysytems, Inc. ............................ 24,100 1,081,487
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Helix Technology Corp. ......................... 25,100 1,124,794
Innovex, Inc. .................................. 16,600 155,625
Intermagnetics General Corp. (a)................ 13,783 120,601
International Rectifier Corp. (a)............... 58,100 1,510,600
Itron, Inc. (a)................................. 16,700(c) 102,287
Methode Electronics, Inc.
(Class "A" Stock) ............................ 39,900 1,281,787
Micrel, Inc. ................................... 46,100 2,624,819
Oak Industries, Inc. (a)........................ 20,600 2,186,175
Park Electrochemical Corp. ..................... 11,700 310,781
Photronics, Inc. (a)............................ 26,800 767,150
Picturetel Corp. (a)............................ 45,400 195,787
Pioneer Standard Electronics, Inc. ............. 30,400(c) 438,900
Plexus Corp. (a)................................ 19,700 866,800
S3, Inc. (a).................................... 81,000 936,562
Silicon Valley Group, Inc. ..................... 37,100 658,525
Technitrol, Inc. ............................... 18,200 809,900
Three-Five Systems, Inc. (a).................... 14,100 578,100
Ultratech Stepper, Inc. (a)..................... 24,000 387,000
X-Rite, Inc. ................................... 23,800 148,750
--------------
29,872,752
--------------
ENGINEERING -- 0.1%
URS Corp. ...................................... 17,500 379,531
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Eagle Geophysical, Inc. ........................ 1,651 17
Ionics, Inc. (a)................................ 18,100 509,062
Tetra Tech, Inc. (a)............................ 15,100 109,475
--------------
618,554
--------------
FINANCIAL SERVICES -- 3.5%
AmeriCredit Corp. .............................. 80,900 1,496,650
AMRESCO, Inc. (a)............................... 54,800 77,062
Commerce Bancorp, Inc. ......................... 31,233 1,262,984
Dain Rauscher Corp. ............................ 14,000 651,000
Eaton Vance Corp. .............................. 40,300 1,531,400
Hudson United Bancorp. ......................... 56,802 1,452,001
Jefferies Group, Inc. .......................... 26,900 591,800
Legg Mason, Inc. ............................... 32 1,160
MAF Bancorp, Inc. .............................. 27,100 567,406
Pioneer Group, Inc. ............................ 29,700 467,775
Radian Group, Inc. ............................. 41,600 1,986,400
Raymond James Financial, Inc. .................. 53,218 994,511
SEI Corp. ...................................... 19,900 2,368,411
U.S. Trust Corp. ............................... 20,700 1,659,881
--------------
15,108,441
--------------
FOOD & BEVERAGES -- 1.8%
Canandaigua Wine Co. ........................... 20,200 1,030,200
Chiquita Brands International, Inc. ............ 73,875 350,906
Coca-Cola Bottling Co. ......................... 9,800 464,275
Corn Products International, Inc. .............. 41,900 1,372,225
Earthgrains Co. ................................ 48,000 774,000
Fleming Companies, Inc. ........................ 43,600 446,900
J & J Snack Foods Corp. (a)..................... 10,100 207,050
Micheal Foods Inc. ............................. 22,700 558,987
Nash-Finch Co. ................................. 12,700 80,962
Performance Food Group Co. (a).................. 15,500 377,812
Ralcorp Holdings, Inc. ......................... 34,400 685,850
Smithfield Foods, Inc. (a)...................... 47,000 $ 1,128,000
United Natural Foods, Inc. (a).................. 20,500 246,000
--------------
7,723,167
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B58
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
---------- --------------
<S> <C> <C>
FURNITURE -- 0.9%
Aaron Rents, Inc. .............................. 22,500 399,375
Bassett Furniture Industries, Inc. ............. 14,000 224,000
Ethan Allen Interiors, Inc. (a)................. 45,950 1,473,272
Interface, Inc. (Class "A" Stock) .............. 59,800 343,850
La-Z-Boy Chair Co. ............................. 58,700 986,894
Thomas Industries, Inc. ........................ 17,750 362,766
--------------
3,790,157
--------------
HEALTHCARE -- 1.7%
Bio-Technology General Corp. ................... 59,000 899,750
Biomatrix, Inc. ................................ 25,800(c) 496,650
Cooper Companies, Inc. (The) ................... 15,600 469,950
Coventry Corp. ................................. 66,300 447,525
Datascope Corp. ................................ 17,100 684,000
MedQuist, Inc. ................................. 40,300 1,040,244
NCS Healthcare, Inc. (Class "A" Stock) ......... 22,700 54,622
Pharmaceutical Product Development, Inc. ....... 27,600 327,750
Renal Care Group, Inc. ......................... 50,050 1,169,919
Sierra Health Services, Inc. (a)................ 30,025 200,792
Smith (A.O.) Corp. ............................. 26,100 570,938
Sola International, Inc. (a).................... 27,900 387,113
US Oncology Inc. ............................... 96,000 474,000
--------------
7,223,253
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 0.7%
Advance Paradigm, Inc. (a)...................... 23,800 513,187
Curative Health Services, Inc. ................. 11,300 87,575
Genesis Health Ventures, Inc. (a)............... 54,600 112,613
Magellan Health Services, Inc. (a).............. 35,700 225,356
Orthodontic Centers of America, Inc............. 54,000 644,625
Pediatrix Medical Group, Inc. .................. 17,400(c) 121,800
Universal Health Services, Inc. (Class "B"
Stock) (a).................................... 35,575 1,280,700
--------------
2,985,856
--------------
HOUSING RELATED -- 1.1%
Champion Enterprises, Inc. (a).................. 54,300 464,944
D.R. Horton, Inc. .............................. 72,125 996,227
Fedders Corp. .................................. 40,400 222,200
National Presto Industries, Inc. ............... 8,300 294,650
Ryland Group, Inc. ............................. 16,725 385,720
Service Experts, Inc. (a)....................... 19,800 115,088
Skyline Corp. .................................. 10,100 237,350
TJ International, Inc. ......................... 17,400 730,800
Toll Brothers, Inc. (a)......................... 41,100 765,488
U.S. Home Corp. (a)............................. 15,100 385,994
--------------
4,598,461
--------------
INSURANCE -- 1.9%
ACE Ltd. ....................................... 26,650 444,722
Arthur J. Gallagher & Co. ...................... 20,500 1,327,375
Delphi Financial Group, Inc. ................... 23,179 695,370
E.W. Blanch Holdings, Inc. ..................... 14,700 900,375
Enhance Financial Services Group, Inc........... 42,700 693,875
Fidelity National Financial, Inc. .............. 34,161 491,064
First American Financial Corp. ................. 73,200 910,425
Fremont General Corp. .......................... 78,740 580,708
Frontier Insurance Group, Inc. ................. 38,952 $ 133,898
Hilb, Rogal and Hamilton Co. ................... 14,700 415,275
Mutual Risk Management, Ltd. ................... 48,900 822,131
Selective Insurance Group, Inc. ................ 31,200 536,250
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Trenwick Group, Inc. ........................... 10,050 170,222
Zenith National Insurance Corp. ................ 19,300 398,063
--------------
8,519,753
--------------
LEISURE -- 1.4%
Anchor Gaming .................................. 13,400 582,063
Aztar Corp. (a)................................. 50,000 543,750
Carmike Cinemas, Inc.
(Class "A" Stock) (a)......................... 12,700 99,219
GC Companies, Inc. (a).......................... 8,800 227,700
Hollywood Park, Inc. (a)........................ 29,300 657,419
Huffy Corp. .................................... 11,400 59,850
K2, Inc. (a).................................... 20,100 153,263
Marcus Corp. ................................... 33,525 450,492
Monaco Coach Corp. (a).......................... 21,100 539,369
Players International, Inc. (a)................. 36,000 295,875
Polaris Industries, Inc. ....................... 28,100 1,018,625
Prime Hospitality Corp. (a)..................... 58,000 511,125
Sturm Ruger & Company, Inc. .................... 30,200 268,025
Thor Industries, Inc. .......................... 13,600 413,950
Winnebago Industries, Inc. ..................... 24,900 499,556
--------------
6,320,281
--------------
MACHINERY -- 3.0%
Applied Industrial Technologies, Inc. .......... 23,800 395,675
Applied Power, Inc.
(Class "A" Stock) ............................ 43,795 1,609,466
Astec Industries, Inc. (a)...................... 21,500 404,469
CNH Global NV .................................. 100 1,331
Cognex Corp. (a)................................ 46,100 1,797,900
Dril-Quip, Inc. (a)............................. 19,400 589,275
Flow International Corp. (a).................... 16,000 182,000
Gardner Denver Machinery, Inc. (a).............. 16,700 278,681
Graco, Inc. .................................... 22,900 821,538
IDEX Corp. ..................................... 33,200 1,008,450
JLG Industries, Inc. ........................... 49,500 788,906
Lindsay Manufacturing Co. (a)................... 14,112 257,544
Manitowoc Company, Inc. ........................ 29,212 993,208
Paxar Corp. .................................... 52,252 440,876
Regal Beloit Corp. ............................. 23,600 486,750
Robbins & Myers, Inc. .......................... 12,300 278,288
Roper Industries, Inc. ......................... 34,100 1,289,406
Royal Appliance Manufacturing Co. (a)........... 20,300 98,963
Specialty Equipment Co. (a)..................... 20,900 500,294
Speedfam-Ipec, Inc. ............................ 32,800 424,350
Toro Co. ....................................... 14,500 541,031
--------------
13,188,401
--------------
MEDIA -- 0.8%
Catalina Marketing Corp. (a).................... 20,800 2,407,600
Harman International ........................... 19,900 1,116,887
--------------
3,524,487
--------------
METALS-FERROUS -- 0.5%
Birmingham Steel Corp. ......................... 24,600 130,688
Commercial Metals Co. .......................... 16,400 556,575
Material Sciences Corp. (a)..................... 17,125 174,461
Quanex Corp. ................................... 16,025 408,638
Reliance Steel & Aluminum Co. .................. 31,200 731,250
Steel Technologies, Inc. ....................... 12,500 $ 181,250
WHX Corp. (a)................................... 16,100(c) 144,900
--------------
2,327,762
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B59
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
---------- --------------
<S> <C> <C>
METALS-NON FERROUS -- 0.5%
Amcast Industrial Corp. ........................ 10,200 167,025
AMCOL International Corp. ...................... 30,050 484,556
Brush Wellman, Inc. ............................ 18,300 307,669
Castle (A.M.) & Co. ............................ 15,700 186,438
Commonwealth Industries, Inc. .................. 17,900 232,700
Hecla Mining Co. (a)............................ 74,900 117,031
IMCO Recycling, Inc. (a)........................ 18,500 233,563
RTI International Metals, Inc. ................. 23,300 174,750
Wolverine Tube, Inc. (a)........................ 14,900 210,463
--------------
2,114,195
--------------
MINERAL RESOURCES -- 0.4%
Kronos, Inc. (a)................................ 14,200 852,000
Seacor Holdings (a)............................. 13,600 703,800
--------------
1,555,800
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.1%
Apogee Enterprises, Inc. ....................... 31,200 157,950
Brightpoint, Inc. .............................. 59,900(c) 786,188
Cross (A.T.) Co. (Class "A" Stock) (a).......... 17,900 80,550
Fossil, Inc. (a)................................ 35,900 830,188
Lawson Products, Inc. .......................... 11,600 268,250
Libbey Inc. .................................... 18,300 526,125
Scott Technologies, Inc. ....................... 20,400 385,050
Texas Industries, Inc. ......................... 23,600 1,004,475
Watsco, Inc. ................................... 32,200 372,313
Watts Industries, Inc.
(Class "A" Stock) ............................ 29,700 438,075
--------------
4,849,164
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0%
Hughes Supply, Inc. ............................ 26,350 568,172
Philadelphia Suburban Corp. .................... 45,931 950,198
Valassis Communications, Inc. (a)............... 63,300 2,674,425
--------------
4,192,795
--------------
OIL & GAS -- 1.4%
Benton Oil & Gas Co. (a)........................ 33,200 64,325
Cabot Oil & Gas Corp.
(Class "A" Stock) ............................ 27,800 446,538
Cascade Natural Gas Corp. ...................... 12,422 200,305
Cross Timbers Oil Co. .......................... 54,775 496,398
Newfield Exploration Co. (a).................... 46,650 1,247,887
Northwest Natural Gas Co. ...................... 28,100 616,444
Piedmont Natural Gas Company, Inc............... 34,900 1,055,725
Remington Oil & Gas Corp. ...................... 23,900 92,613
Southern Union Co. (a).......................... 19,239 367,946
Southwest Gas Corp. ............................ 34,500 793,500
Vintage Petroleum, Inc. ........................ 70,000 844,375
--------------
6,226,056
--------------
OIL & GAS SERVICES -- 2.8%
Atmos Energy Corp. ............................. 34,900 713,269
Barrett Resources Corp. (a)..................... 36,510 1,074,763
Cal Dive International, Inc. (a)................ 17,400 576,375
Connecticut Energy Corp. ....................... 11,700 454,838
Energen Corp. .................................. 33,500 605,094
Friede Goldman Halter, Inc. (a)................. 44,713 310,196
HS Resources, Inc. (a).......................... 21,100 363,975
Input/Output, Inc. (a).......................... 56,700 $ 287,044
KCS Energy, Inc. ............................... 900 731
New Jersey Resources Corp. ..................... 20,000 781,250
Oceaneering International, Inc. (a)............. 25,200 376,425
Offshore Logistics, Inc. (a).................... 23,700 222,188
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Plains Resources, Inc. (a)...................... 19,000 237,500
Pogo Producing Co. ............................. 45,100 924,550
Pride Petroleum Services, Inc. ................. 63,100 922,838
Public Service Company of North Carolina,
Inc. ......................................... 23,175 748,842
Seitel, Inc. (a)................................ 27,194 183,560
Southwestern Energy Co. ........................ 28,000 183,750
St. Mary Land & Exploration Co. ................ 12,500 309,375
Stone Energy Corp. ............................. 20,600 733,875
Tuboscope Vetco Int'l., Inc. (a)................ 49,800 790,575
WICOR, Inc. .................................... 42,200 1,231,713
--------------
12,032,726
--------------
PAPER & FOREST -- 0.7%
Buckeye Technologies, Inc. ..................... 39,700 590,538
Caraustar Industries, Inc. ..................... 28,100 674,400
Pope & Talbot, Inc. ............................ 16,825 269,200
Schweitzer-Mauduit Int'l., Inc. ................ 17,700 237,844
Universal Forest Products, Inc. ................ 23,300 343,675
W.H. Brady Co. ................................. 25,300 858,619
--------------
2,974,276
--------------
PRECIOUS METALS -- 0.3%
Coeur D'Alene Mines Corp. ...................... 24,600(c) 84,563
Stillwater Mining Co. (a)....................... 42,400 1,351,500
--------------
1,436,063
--------------
RAILROADS -- (E)
RailTex, Inc. (a)............................... 10,400 185,900
--------------
RESTAURANTS -- 1.6%
Applebee's Int'l., Inc. ........................ 32,100 946,950
CEC Entertainment, Inc. ........................ 30,575 867,566
Cheesecake Factory (a).......................... 22,650 792,750
CKE Restaurants, Inc. .......................... 58,412 343,171
IHOP Corp. (a).................................. 22,400 373,800
Jack in the Box Inc. (a)........................ 43,000 889,563
Landry's Seafood Restaurants, Inc. ............. 28,800 250,200
Luby's Cafeterias, Inc. ........................ 25,100 285,513
Ruby Tuesday, Inc. ............................. 35,900 652,931
Ryan's Family Steak Houses, Inc. (a)............ 41,600 353,600
Sonic Corp. (a)................................. 21,025 599,213
Taco Cabana (Class "A" Stock) (a)............... 15,000 121,875
TCBY Enterprises, Inc. ......................... 25,700 97,981
Triarc Companies, Inc.
(Class "A" Stock) (a)......................... 28,700 527,363
--------------
7,102,476
--------------
RETAIL -- 4.8%
Ames Dept Stores, Inc. ......................... 32,100 924,881
Arctic Cat, Inc. ............................... 28,900 289,000
Bombay Company, Inc. (a)........................ 41,100 184,950
Books-A-Million, Inc. (a)....................... 20,200(c) 167,913
Brown Shoe Company, Inc. ....................... 20,450 288,856
Building Materials Holding Corp. ............... 14,200 145,550
Casey's General Stores, Inc. ................... 59,200 617,900
Cash America International, Inc. ............... 28,743 280,244
RETAIL (CONT'D.)
Cato Corp. (Class "A" Stock) ................... 29,700 $ 374,963
Consolidated Products, Inc. .................... 32,882 332,933
Copart, Inc. (a)................................ 30,000 1,305,000
Cost Plus, Inc. ................................ 23,000 819,375
Damark International, Inc. (a).................. 6,700 105,525
Discount Auto Parts, Inc. (a)................... 18,700 337,769
Dress Barn, Inc. (a)............................ 22,300 370,738
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B60
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
Footstar, Inc. ................................. 24,100 735,050
Goody's Family Clothing Inc. ................... 37,400 201,025
Gottschalks, Inc. (a)........................... 14,100 104,869
Group 1 Automotive, Inc. (a).................... 23,800 331,713
Gymboree Corp. ................................. 27,200 153,000
J. Baker, Inc. ................................. 15,800 94,800
Jan Bell Marketing, Inc. (a).................... 27,600 79,350
Jo-Ann Stores, Inc.(Class "A" Stock) ........... 20,500 230,625
Just For Feet, Inc. ............................ 34,000(c) 42,500
Lillian Vernon Corp. ........................... 10,300 114,588
Linens 'n Things, Inc. ......................... 44,400 1,315,350
Michaels Stores, Inc. (a)....................... 32,300 920,550
MicroAge, Inc. (a).............................. 23,000 80,500
O'Reilly Automotive, Inc. (a)................... 56,900 1,223,350
Oshkosh B' Gosh, Inc.
(Class "A" Stock) ............................ 17,200 362,275
Panera Bread Company- CL A ..................... 13,600 105,400
Pier 1 Imports, Inc. ........................... 108,450 691,369
Regis Corp. .................................... 43,400 819,175
Russ Berrie & Company, Inc. .................... 23,400 614,250
Shopko Stores, Inc. ............................ 33,400 768,200
Sports Authority, Inc. ......................... 35,850 71,700
Stein Mart, Inc. (a)............................ 50,300 286,081
Stride Rite Corp. .............................. 52,100 338,650
Swiss Army Brands, Inc. (a)..................... 8,800 62,700
The Men's Wearhouse, Inc. ...................... 47,050 1,382,094
Wet Seal, Inc. (a).............................. 15,500 189,875
Whole Foods Market, Inc. (a).................... 29,500 1,368,063
Zale Corp. ..................................... 40,900 1,978,538
--------------
21,211,237
--------------
SEMICONDUCTORS -- 1.3%
American Xtal Technology, Inc. (a).............. 21,000(c) 366,187
Dallas Semiconductor Corp. ..................... 32,500 2,094,219
General Semiconductor, Inc. .................... 41,300 585,944
Lattice Semiconductor Corp. (a)................. 53,400 2,516,475
--------------
5,562,825
--------------
SOFTWARE -- 6.1%
BARRA, Inc. (a)................................. 15,900 504,825
Clarify, Inc (a)................................ 26,100 3,288,600
Concord Communications, Inc. (a)................ 16,100 714,437
HNC Software, Inc. ............................. 27,200 2,876,400
Hyperion Solutions Corp. ....................... 34,570 1,503,795
Macromedia Inc. ................................ 54,000 3,948,750
Mercury Interactive Corp. ...................... 42,700 4,608,931
National Instruments Corp. ..................... 56,000 2,142,000
Project Software &
Development, Inc. (a)......................... 23,800 1,320,900
Remedy Corp. (a)................................ 32,600 1,544,425
THQ Inc. (a).................................... 20,750 481,141
Verity, Inc. (a)................................ 33,700 1,434,356
Visio Corp. (a)................................. 33,900 1,610,250
Zixit Corp. .................................... 17,200 681,550
--------------
26,660,360
--------------
TELECOMMUNICATIONS -- 3.5%
Adaptive Broadband Corp. ....................... 16,700 $ 1,232,669
Allen Telecom, Inc. ............................ 31,000 358,438
Aspect Telecommunications Corp. (a)............. 53,400 2,089,275
Centigram Communications Corp. (a).............. 6,700 112,225
CommScope, Inc. ................................ 57,000 2,297,813
Digi International, Inc. (a).................... 16,700 174,306
Digital Microwave Corp. (a)..................... 71,800 1,682,813
General Communication, Inc. .................... 56,500 247,188
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
<S> <C> <C>
---------- --------------
InterVoice, Inc. (a)............................ 35,900 834,675
Network Equipment Technologies,
Inc. (a)...................................... 23,900 282,319
P-COM, Inc. .................................... 72,200 638,519
Plantronics, Inc. .............................. 18,800 1,345,375
Powerwave Technologoies, Inc. .................. 22,500 1,313,438
Proxim, Inc. (a)................................ 12,900 1,419,000
Symmetricom, Inc. (a)........................... 16,800 166,950
Talk.com ....................................... 68,900 1,222,975
--------------
15,417,978
--------------
TEXTILES -- 0.7%
Angelica Corp. ................................. 9,700 94,575
Ashworth, Inc. (a).............................. 15,800 65,175
Cone Mills Corp. (a)............................ 28,600 128,700
Delta Woodside Industries, Inc. ................ 26,600 49,875
Dixie Group, Inc. .............................. 12,800 94,400
G & K Services, Inc.
(Class "A" Stock) ............................ 23,100 747,863
Guilford Mills, Inc. ........................... 24,837 180,068
Haggar Corp. ................................... 8,000 91,000
Hancock Fabrics ................................ 21,400 66,875
Hartmarx Corp. (a).............................. 34,300 139,344
Kellwood Co. ................................... 31,175 605,964
Nautica Enterprises, Inc. (a)................... 38,800 438,925
Oxford Industries, Inc. ........................ 9,000 178,313
Pillowtex Corp. (a)............................. 15,909(c) 98,437
--------------
2,979,514
--------------
TOBACCO -- (E)
DIMON, Inc. .................................... 49,975(c) 162,419
--------------
TRUCKING/SHIPPING -- 2.6%
Air Express International Corp. ................ 37,700 1,218,181
American Freightways, Inc. ..................... 35,800 579,513
Arkansas Best Corp. ............................ 22,100 265,200
Eagle USA Airfreight, Inc. (a).................. 17,000 733,125
Expeditors International of Washington, Inc. ... 56,400 2,471,025
Fritz Companies, Inc. (a)....................... 40,900 429,450
Frozen Food Express Industries, Inc. ........... 18,200 70,525
Heartland Express, Inc. (a)..................... 33,649 529,972
Kirby Corp. (a)................................. 27,500 563,750
Landstar Systems, Inc. (a)...................... 11,200 479,500
M.S. Carriers, Inc. (a)......................... 13,800 329,475
Pittston Burlington Group ...................... 23,375 248,359
Rollins Truck Leasing Corp. .................... 64,400 768,775
USFreightways Corp. ............................ 29,700 1,421,888
Werner Enterprises, Inc. ....................... 53,212 748,294
Yellow Corp. (a)................................ 27,900 469,069
--------------
11,326,101
--------------
UTILITY - ELECTRIC -- 0.8%
Bangor Hydro-Electric Co. ...................... 8,275 134,986
Central Hudson Gas & Electric .................. 18,900 623,700
Central Vermont Public Service ................. 12,800 136,000
UTILITY - ELECTRIC (CONT'D.)
Eastern Utilities Associates ................... 23,000 $ 697,188
Green Mountain Power Corp. ..................... 5,900 43,881
NorthWestern Corp. ............................. 26,000 572,000
TNP Enterprises, Inc. .......................... 15,100 622,875
United Illuminating Co. ........................ 16,125 828,422
--------------
3,659,052
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B61
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1999

<TABLE>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
---------- --------------
<S> <C> <C>
UTILITY - WATER -- 0.5%
American States Water Co. ...................... 10,100 363,600
Aquarion Co. ................................... 12,875 476,375
United Water Resources, Inc. ................... 43,600 1,490,575
--------------
2,330,550
--------------
TOTAL COMMON STOCKS
(cost $376,890,610)............................................ 413,398,268
--------------

RIGHTS -- (E)
<S> <C> <C>
Talk.com (a)
(cost $0) .................................... 3,205 -0-
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $376,890,610)............................................ 413,398,268
--------------
</TABLE>

<TABLE>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 7.2% (000)
------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 1.1%
Market Street Fund,
5.00%, 01/06/00 (d)........................... $ 5,000 4,997,917
--------------
REPURCHASE AGREEMENT -- 5.1%
Joint Repurchase Agreement Account
2.875%, 01/03/00, (Note 5) ................... 22,496 22,496,000
--------------
TIME DEPOSITS -- 0.7%
Banque Nationale de Paris,
2.00%, 01/03/00 (d)........................... 2,661 2,661,000
--------------

MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D.) (UNAUDITED) (000) (NOTE 2)
------------ ---------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 0.3%
United States Treasury Bills,
5.196%, 03/16/00(b)........................... NR $ 1,350 $ 1,335,489
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $31,490,406)........................................................ 31,490,406
--------------
TOTAL INVESTMENTS -- 101.7%
(cost $408,381,016; Note 6)...............................................
444,888,674
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (F)............................................................. 145,400
LIABILITIES IN EXCESS OF OTHER ASSETS -- 1.7%............................... (7,540,385)
--------------
TOTAL NET ASSETS -- 100.0%.................................................. $ 437,493,689
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
NR -- Not Rated by Moody's or Standard & Poor's
NV -- Naamloze Vennootschap (Dutch Corporation)
PLC -- Public Limited Company (British Corporation)

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

(c) Portion or all of securities on loan with an aggregate market value of
$7,228,728; Cash collateral of $7,616,100 was received with which the
portfolio purchased securities.

(d) Represents security purchased with cash collateral received for securities
on loan.

(e) Represents less than 0.05%.

(f) Open futures contracts as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1998 APPRECIATION
<C> <S> <C> <C> <C> <C>
Long Positions:
97 MidCap 400 Index Mar 00 $21,006,325 $21,783,775 $ 777,450
Russell 2000
2 Index Mar 00 482,750 509,950 27,200
----------
$ 804,650
==========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B62
<PAGE>
GLOBAL PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 94.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 3.2%
Brambles Industries, Ltd. ...................... 329,600 $ 9,121,618
Broken Hill Proprietary Co., Ltd. .............. 1,367,850 17,982,536
Commonwealth Bank of Australia ................. 827,800 14,265,568
--------------
41,369,722
--------------
FINLAND -- 2.7%
Nokia Corp.(a).................................. 190,700 34,583,439
--------------
FRANCE -- 6.6%
Carrefour SA ................................... 38,400 7,083,771
Havas Advertising SA ........................... 4,400 1,875,159
Lafarge SA ..................................... 98,231 11,440,668
Legrand SA ..................................... 61,600 14,665,248
Publicis SA .................................... 4,984 1,883,017
Suez Lyonnaise des Eaux(a)...................... 69,500 11,140,379
Thomson Multimedia ............................. 267,148 14,399,609
Total SA ....................................... 173,090 23,106,429
--------------
85,594,280
--------------
FEDERAL REPUBLIC OF GERMANY -- 3.7%
Deutsche Telekom Ag ............................ 187,550 13,359,231
Mannesmann Ag .................................. 99,400 23,984,843
Siemens Ag ..................................... 80,800 10,281,576
--------------
47,625,650
--------------
IRELAND -- 0.3%
Bank of Ireland ................................ 582,200 4,633,875
--------------
ITALY -- 1.3%
Unicredito Italiano SpA ........................ 3,589,200 17,646,658
--------------
JAPAN -- 18.3%
CSK Corporation ................................ 193,000 31,329,945
Fuji Bank ...................................... 1,326,000 12,876,179
Fujitsu Limited ................................ 828,000 37,732,057
Honda Motor Co., Ltd. .......................... 260,000 9,661,647
Nippon Telegraph & Telephone Corp.(a)........... 1,204 20,604,343
NTT Data Corp .................................. 1,031 23,693,038
NTT Mobile Communication Network, Inc. ......... 904 34,742,032
Softbank Corp. ................................. 42,000 40,168,201
Sony Corp. ..................................... 66,600 19,733,817
Sony Corp., (ADR) .............................. 27,100 7,716,725
--------------
238,257,984
--------------
MEXICO -- 1.1%
Telefonos de Mexico, SA (ADR) (Class L
Shares) ...................................... 128,100 14,411,250
--------------
NETHERLANDS -- 2.1%
ING Groep N.V. ................................. 267,500 16,154,202
Vendex KBB N.V. ................................ 410,600 10,921,137
--------------
27,075,339
--------------
SINGAPORE -- 0.7%
Development Bank of Singapore Ltd .............. 678,800 5,135,322
Singapore Airlines Ltd ......................... 340,000 3,858,301
--------------
8,993,623
--------------
SPAIN -- 3.3%
Banco Santander SA ............................. 1,530,100 17,327,309
Telefonica SA .................................. 969,408 24,221,624
Terra Networks SA .............................. 26,800 1,464,804
--------------
43,013,737
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SWEDEN -- 3.8%
Hennes & Mauritz AB ............................ 839,400 $ 28,111,850
Nordbanken Holding AB .......................... 1,292,800 7,595,860
Skanska AB (Class "B" Shares) .................. 354,000 13,186,760
--------------
48,894,470
--------------
UNITED KINGDOM -- 9.7%
Alliance and Leicester PLC ..................... 581,400 7,573,142
Bank of Scotland ............................... 1,144,600 13,316,431
Canary Wharf Group PLC ......................... 1,302,200 8,112,293
GKN PLC ........................................ 973,300 15,969,447
Glaxo Wellcome PLC ............................. 503,900 14,301,420
Hays PLC(a)..................................... 1,717,500 27,457,367
Siebe PLC(a).................................... 2,511,500 13,301,409
Vodafone AirTouch PLC .......................... 5,209,000 26,010,063
--------------
126,041,572
--------------
UNITED STATES -- 37.8%
Agency.com Limited ............................. 9,400 479,400
Alcoa Inc. ..................................... 94,000 7,802,000
AT&T Corp. ..................................... 186,200 9,449,650
Atmel Corp.(a).................................. 719,800 21,279,087
Citigroup Inc. ................................. 388,200 21,569,362
Electronic Arts, Inc.(a)........................ 323,400 27,165,600
Fox Entertainment Group, Inc. (Class "A"
Stock)(a)..................................... 459,400 11,456,288
Freemarkets, Inc. .............................. 100 34,131
Intertrust Technologies Corp. .................. 34,000 3,999,250
MCI WorldCom, Inc.(a)........................... 327,900 17,399,194
Mead Corp. ..................................... 290,200 12,605,562
Mediaone Group, Inc.(a)......................... 87,500 6,721,094
Microsoft Corp.(a).............................. 118,200 13,799,850
Omnicom Group, Inc. ............................ 114,600 11,460,000
Ondisplay, Inc. ................................ 62,700 5,697,863
OpenTV Corp .................................... 17,200 1,380,300
Oracle Systems Corp.(a)......................... 405,200 45,407,725
PMC-Sierra, Inc.(a)............................. 336,900 54,009,281
Portal Software, Inc. .......................... 84,300 8,672,363
Priceline.com Inc.(a)........................... 30,700 1,454,413
Quest Software Inc. ............................ 36,400 3,712,800
Red Hat Inc. ................................... 38,900 8,217,625
SCI Systems, Inc.(a)............................ 198,700 16,330,656
Seagate Technology, Inc.(a)..................... 322,800 15,030,375
Solectron Corp.(a).............................. 356,500 33,912,062
Texas Instruments, Inc. ........................ 292,200 28,306,875
The Williams Companies, Inc. ................... 135,900 4,153,444
Time Warner, Inc. .............................. 402,700 29,170,581
United Parcel Service, Inc. (Class B) .......... 124,500 8,590,500
UnitedGlobalCom, Inc. (Class A) ................ 96,900 6,843,563
USA Networks, Inc.(a)........................... 468,400 25,879,100
USWeb Corp. .................................... 125,500 5,576,906
Wells Fargo & Co. .............................. 410,100 16,583,419
Wendys International, Inc. ..................... 301,800 6,224,625
--------------
490,374,944
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $677,017,960)............................................ 1,228,516,543
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B63
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
<TABLE>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 3.7% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
U. S. GOVERNMENT SECURITIES -- 1.3%
UNITED STATES TREASURY BILLS,
5.59%, 08/17/00 .............................. $ 5,310 $ 5,122,028
5.61%, 08/17/00 .............................. 11,800 11,378,907
--------------
16,500,935
--------------
TOTAL U. S. GOVERNMENT SECURITIES
(cost $16,500,935)............................................. 16,500,935
--------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account, 2.875%,
01/03/00 (cost $30,645,000; Note 5)........... 30,645 30,645,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $47,145,935)............................................. 47,145,935
--------------
TOTAL INVESTMENTS -- 98.3%
(cost $724,163,895; Note 6).................................... 1,275,662,478

ASSETS IN EXCESS OF OTHER
LIABILITIES -- 1.7%............................................ 22,651,610
--------------
TOTAL NET ASSETS -- 100.0%....................................... $1,298,314,088
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.

The industry classification of portfolio of holdings and other assets in excess
of liabilities shown as a percentage of net assets as of December 31, 1999 were
as follows:

<TABLE>
<S> <C>
Computer Software & Services 17.0%
Telecommunications 16.5%
Electronics 15.1%
Commercial Banking 10.0%
Media 6.1%
Diversified Operations 5.4%
Retail 4.2%
Oil & Gas Services 2.1%
Telephones 2.1%
Automobiles & Manufacturing 2.0%
Banks 1.9%
Machinery 1.9%
Advertising 1.1%
Electrical Equipment 1.1%
Pharmaceuticals 1.1%
Construction 1.0%
Paper 1.0%
Building Materials & Components 0.9%
Diversified Manufacturing 0.8%
Commercial Services 0.7%
Transportation 0.7%
Aluminum 0.6%
Real Estate-Development 0.6%
Professional Services 0.4%
Airlines 0.3%
Repurchase Agreement 2.4%
U.S. Government Securities 1.3%
------
98.3%
Other assets in excess of liabilities 1.7%
------
100.0%
======
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B64
<PAGE>
NATURAL RESOURCES PORTFOLIO
DECEMBER 31, 1999

<TABLE>
LONG-TERM INVESTMENTS -- 98.7%
VALUE
COMMON STOCKS -- 98.5% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ALUMINUM -- 1.4%
Comalco Ltd., ADR (Australia) .................. 134,900 $ 3,928,032
--------------
CHEMICALS
Agrium, Inc. ................................... 503 3,900
--------------
EXPLORATION & PRODUCTION -- 11.0%
Big Bear Exploration, Ltd. (a) ................. 520,500 46,843
Brigham Exploration Co. (a) .................... 93,200 142,712
Fx Energy, Inc. (a) ............................ 112,000 602,000
Miller Exploration Co. (a) ..................... 102,200 111,781
Newfield Exploration Co. (a) ................... 370,900 9,921,575
Nuevo Energy Co. (a) ........................... 363,100 6,808,125
Pennaco Energy, Inc. (a) ....................... 74,500 596,000
Pioneer Natural Resources Co. .................. 387,360 3,462,030
Ranger Oil, Ltd. ............................... 646,946 2,015,408
Swift Energy Co. (a) ........................... 123,400 1,419,100
Talisman Energy, Inc. (a) ...................... 150,440 3,858,908
Tom Brown, Inc. (a) ............................ 210,300 2,812,762
--------------
31,797,244
--------------
FOREST PRODUCTS -- 5.6%
Boise Cascade Corp. ............................ 149,000 6,034,500
Champion International Corp. ................... 130,200 8,064,262
Fletcher Challenge, Ltd., ADR (New Zealand) .... 317,000 1,188,750
Timberwest Forest Corp. ........................ 146,300 962,167
--------------
16,249,679
--------------
GOLD -- 12.9%
Agnico-Eagle Mines, Ltd. ....................... 339,300 2,502,337
Anglogold Ltd., ADR (Canada) ................... 167,276 4,296,902
Avgold, Ltd. (a), ADR (South Africa) ........... 138,700 950,095
Battle Mountain Gold Corp. ..................... 116,800 240,900
Bema Gold Corp. (a) ............................ 514,700 321,687
Cambior, Inc. .................................. 499,000 696,184
Coeur d'Alene Mines Corp. (a)................... 68,525 235,555
Durban Roodeport Deep, ADR (South Africa) ...... 127,700 227,466
Francisco Gold Corp. (a) ....................... 84,000 340,187
Gold Fields, (South Africa) .................... 150,343 725,407
Golden Star Resources (a) ...................... 248,600 233,062
Greenstone Resources, Ltd. (a) ................. 353,500 25,696
Harmony Gold Mining, ADR (South Africa) ........ 517,900 3,253,059
Iamgold International Mining (a), (South
Africa) ...................................... 731,500 1,645,812
International Pursuit Corp. (a) ................ 264,000 32,897
Kinross Gold Corp. ............................. 732,700 1,359,388
Meridian Gold, Inc. (a) ........................ 538,300 3,652,018
Newmont Mining Corp. ........................... 564,507 13,830,422
Repadre Capital Corp. (a) ...................... 1,341,700 1,811,225
TVX Gold, Inc. (a) ............................. 419,100 340,519
Western Areas Gold Mining Co., Ltd. (a), ADR
(South Africa) ............................... 152,100 562,770
--------------
37,283,588
--------------
METALS-NON FERROUS -- 9.4%
Anaconda Nickel Ltd. (a) ....................... 781,000 1,354,629
Apex Silver Mines, Ltd. (a) .................... 502,500 5,998,594
Atna Resources, Ltd. (a) ....................... 255,000 114,746
Cameco Corp. ................................... 219,400 3,336,137
Freeport-McMoRan Copper & Gold, Inc. (a), (Class
"A" Stock) ................................... 375,400 6,968,363
Inco Ltd. ...................................... 175,200 4,117,200
Kaiser Aluminum Corp. .......................... 704,600 5,416,613
Rio Tinto Ltd., ADR (Australia) ................ 1 86
--------------
27,306,368
--------------
MINERAL RESOURCES -- 0.9%
Burlington Resources, Inc. ..................... 78,250 2,587,141
--------------
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS EXPLORATION & PRODUCTION -- 17.2%
Alberta Energy Co., Ltd., ADR (Canada) ......... 325,300 $ 10,165,927
Beau Canada Exploration, Ltd. (a), (Class "A"
Stock), (Canada) ............................. 754,800 888,307
Crester Energy, Inc. (a), ADR (Canada)(b)....... 434,800 5,974,926
Cross Timbers Oil Co. .......................... 300,200 2,720,563
Dynegy, Inc. ................................... 368,545 8,960,250
Maverick Tube Corp. (a) ........................ 294,000 7,258,125
Noble Affiliates, Inc. ......................... 113,500 2,433,156
Rio Alto Exploration, Ltd. (a), (Canada) ....... 250,400 3,536,282
Western Gas Resources, Inc. .................... 600,200 7,915,138
--------------
49,852,674
--------------
OIL & GAS SERVICES -- 15.9%
B.J. Services Co. (a) .......................... 273,600 11,439,900
Bouyges Offshore, SA, ADR (France) ............. 159,500 2,930,813
Devon Energy Corp. ............................. 148,900 4,895,088
Kinder Morgan, Inc. ............................ 374,400 7,558,200
Marine Drilling Co., Inc. (a) .................. 121,300 2,721,669
Smith International, Inc. (a) .................. 226,300 11,244,281
Stolt Comex Seaway (a), SA ..................... 31,700 350,681
Tesco Corp. (a) ................................ 210,600 1,341,308
Transcoastal Marine Svcs. (a) .................. 230,800 663,550
Weatherford International (a) .................. 73,600 2,939,400
--------------
46,084,890
--------------
PLATINUM -- 24.2%
Anglo American Platinum, Ltd., ADR (South
Africa) ...................................... 576,569 17,556,526
Impala Platinum Holdings, Ltd. ................. 607,600 24,607,800
Stillwater Mining Co. (a) ...................... 876,450 27,936,844
--------------
70,101,170
--------------
TOTAL COMMON STOCKS
(cost $256,303,474)............................................ 285,194,686
--------------
PREFERRED STOCK -- 0.2%
<S> <C> <C>
GOLD
Hecla Mining Co. (Cum. Conv.) 7.0% Series B
(cost $806,140) .............................. 16,700 398,712
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $257,109,614)............................................ 285,593,398
--------------
</TABLE>

<TABLE>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 1.4% (000) (NOTE 2)
--------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement
Account 2.875%, 01/03/00
(cost $4,105,000; Note 5)..................... $ 4,105 4,105,000
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $261,214,614; Note 6).............................................. 289,698,398
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)......................................................... (223,537)
--------------
TOTAL NET ASSETS -- 100.0%................................................. $ 289,474,861
==============
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS.

B65
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of seventeen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only fifteen Portfolios: Money Market
Portfolio, Diversified Bond Portfolio, Government Income Portfolio, Zero Coupon
Bond 2000 Portfolio, Zero Coupon Bond 2005 Portfolio, Conservative Balanced
Portfolio, Flexible Managed Portfolio, High Yield Bond Portfolio, Stock Index
Portfolio, Equity Income Portfolio, Equity Portfolio, Prudential Jennison
Portfolio, Small Capitalization Stock Portfolio, Global Portfolio and Natural
Resources Portfolio. The ability of the issuers of the securities held by the
Money Market Portfolio to meet their obligations may be affected by economic
developments in a specific industry or region.

NOTE 2: ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Series Fund and the Portfolios in preparation of its financial statements.

SECURITIES VALUATION: Equity securities traded on an exchange or NASDAQ
(whether domestic or foreign) are valued at the last reported sales price on the
primary exchange on which they are traded, or if there is not a sale, at the
mean of the last reported bid and asked prices or at the bid price on such day
in the absence of an asked price. Equity securities that are not sold on an
exchange or NASDAQ are valued by an independent pricing agent or a principal
market maker. Debt securities, in general, are valued using an independent
pricing service or a principal market maker. Options on stock or stock indices
are valued at the average of the last reported bid and asked prices on the
exchange on which they are traded. Futures contracts and options on futures
contracts are valued at the last reported sale price, or if there is not a sale,
at the mean between the last reported bid and asked prices on the commodity
exchange or the board of trade on which they are traded. Any security for which
a reliable market quotation is unavailable is valued at fair value by The
Prudential Insurance Company of America ("The Prudential") under the direction
of the Series Fund's Board of Directors.

The Money Market, Conservative Balanced and Flexible Managed Portfolios use
amortized cost to value short-term securities. Short-term securities that are
held in the other Portfolios which mature in more than 60 days are valued at
current market quotations and those short-term securities which mature in 60
days or less are valued at amortized cost.

The High Yield Bond Portfolio may hold up to 15% of its net assets in illiquid
securities, including those which are restricted as to disposition under
securities law ("restricted securities"). Certain issues of restricted securites
held by the High Yield Bond Portfolio at December 31, 1999 include registration
rights, none of which are currently under contract to be registered. Restricted
securities, sometimes referred to as private placements, are valued pursuant to
the valuation procedures noted above.

REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited.

FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investment securities, other assets and liabilities - at the
current rates of exchange.

(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.

Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a

C1
<PAGE>
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities held at the end of the fiscal
year. Similarly, the Series Fund does not isolate the effect of changes in
foreign exchange rates from the fluctuations arising from changes in the market
prices of long-term portfolio securities sold during the fiscal year.
Accordingly, these realized and unrealized foreign currency gains (losses) are
included in the reported net realized gains (losses) on investment transactions.

Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.

FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Certain portfolios of the Series Fund may enter into forward currency
contracts in order to hedge their exposure to changes in foreign currency
exchange rates on their foreign portfolio holdings or on specific receivables
and payables denominated in a foreign currency. The contracts are valued daily
at current exchange rates and any unrealized gain or loss is included in net
unrealized appreciation or depreciation on investments and foreign currencies.
Gain or loss is realized on the settlement date of the contract equal to the
difference between the settlement value of the original and renegotiated forward
contracts. This gain or loss, if any, is included in net realized gain (loss) on
foreign currencies. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.

SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When a Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the buyer. The proceeds of the short sale will be
retained by the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Portfolio may have to pay a fee to borrow the particular security and may be
obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.

OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.

The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.

FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures

C2
<PAGE>
contract, the Series Fund is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin". Subsequent payments, known as
"variation margin", are made or received by the Series Fund each day, depending
on the daily fluctuations in the value of the underlying security. Such
variation margin is recorded for financial statement purposes on a daily basis
as unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.

The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.

SECURITIES LENDING: The Series Fund (excluding the Money Market Portfolio) may
lend its portfolio securities to broker-dealers, qualified banks and certain
institutional investors. The loans are secured by collateral in an amount equal
to at least the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are on loan, the
Series Fund will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from the
borrower or earning interest on the investment of the cash collateral. Loans are
subject to termination at the option of the borrower or the Series Fund. Upon
termination of the loan, the borrower will return to the lender securities
identical to the loaned securities. The Series Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities
and may share the interest earned on the collateral with the borrower. The
Series Fund bears the risk of delay in recovery of , or even loss of rights in,
the securities loaned should the borrower of the securities fail financially.
Prudential Securities Incorporated ("PSI") is the securities lending agent for
the Series Fund. PSI is an indirect, wholly owned subsidiary of The Prudential.
For the year ended December 31, 1999 PSI has been compensated by the following
amounts:

<TABLE>
<S> <C>
Government Income Portfolio............ $ 758
Conservative Balanced Portfolio........ 485,395
Flexible Managed Portfolio............. 468,004
High Yield Portfolio................... 25,258
Equity Income Portfolio................ 119,198
Small Capitalization Stock Portfolio... 26,445
-----------
$ 1,125,058
</TABLE>

SWAPS: Certain portfolios of the Series Fund may enter into swap agreements. A
swap agreement is an agreement between two parties to exchange a series of cash
flows at specified intervals. Based on a notional amount, each party pays an
interest rate or the change in the value of a security. Dividends and interest
on the securities in the swap are included in the value of the exchange. The
swaps are valued daily at current market value and any unrealized gain or loss
is included in net unrealized appreciation or depreciation on investments. Gain
or loss is realized on the termination date of the swap and is equal to the
difference between a Portfolio's basis in the swap and the proceeds of the
closing transaction, including any fees. During the period that the swap
agreement is open, the Portfolio may be subject to risk from the potential
inability of the counterparty to meet the terms of the agreement.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
costs. These estimates are adjusted when the actual amounts are known. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management. The Series Fund expenses are allocated to the respective
Portfolios on the basis of relative net assets except for Portfolio specific
expenses which are attributable directly at a Portfolio or Class level.

For Portfolios with multiple classes and shares, net investment income, other
than administration and distribution fees, and unrealized and realized gains or
losses are allocated daily to each class of shares based upon the relative
proportion of net assets of each class at the beginning of the day.

C3
<PAGE>
CUSTODY FEE CREDITS: The Series Fund has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian. Such custody fee credits are presented as a reduction of gross
expenses in the accompanying statement of operations.

TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of each Portfolio of
the Series Fund to continue to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
net income to shareholders. Therefore, no federal income tax provision is
required.

Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.

DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the same
Portfolio. The Money Market Portfolio will declare and reinvest dividends from
net investment income and net realized capital gain (loss) daily. The
Conservative Balanced, Stock Index, Equity Income, Equity, Prudential Jennison
and Natural Resources Portfolios will declare and distribute dividends from net
investment income, if any, quarterly and distributions from net capital gains,
if any, at least annually. The Diversified Bond, Government Income, Zero Coupon
Bond 2000, Zero Coupon Bond 2005, Flexible Managed, High Yield, Small
Capitalization Stock and Global Portfolios will declare and distribute dividends
from net investment income and distributions from net capital gains, if any, at
least annually. Dividends and distributions are recorded on the ex-dividend
date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the year ended
December 31, 1999 the application of this statement increased (decreased)
undistributed net investment income ("UNI") and accumulated net realized gains
(losses) on investments ("G/L") by the following amounts:

<TABLE>
<CAPTION>
UNI G/L
------------ -------------
<S> <C> <C>
Equity Portfolio (a)................... $ (140,882) $ 140,882
Global Portfolio (a)(b)................ 10,630,256 (10,630,256)
Natural Resources Portfolio (b)........ 453,491 (453,491)
</TABLE>

(a) Reclassification of net foreign currency gain (loss).

(b) Reclassification of passive foreign investment companies' gains.

Net investment income, net realized gains and net assets were not affected by
these reclassifications.

NOTE 3: AGREEMENTS

The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Associates LLC ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. The Prudential pays for the cost of PIC's and
Jennison's services, compensation of officers of the Series Fund, occupancy and
certain clerical and administrative expenses of the Series Fund. The Series Fund
bears all other costs and expenses.

C4
<PAGE>
The investment advisory fee paid to The Prudential is computed daily and payable
quarterly, at the annual rates specified below, of the value of each of the
Portfolio's average daily net assets.

<TABLE>
<CAPTION>
Fund Investment Advisory Fee
---- -----------------------
<S> <C>
Money Market Porfolio.................. 0.40%
Diversified Bond Portfolio............. 0.40
Government Income Portfolio............ 0.40
Zero Coupon Bond 2000 Portfolio........ 0.40
Zero Coupon Bond 2005 Portfolio........ 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
High Yield Bond Portfolio.............. 0.55
Stock Index Portfolio.................. 0.35
Equity Income Portfolio................ 0.40
Equity Portfolio....................... 0.45
Prudential Jennison Portfolio.......... 0.60
Small Capitalization Stock Portfolio... 0.40
Global Portfolio....................... 0.75
Natural Resources Portfolio............ 0.45
</TABLE>

The Prudential compensates Jennison for its services as follows: 0.75% on the
first $10 million of the Prudential Jennison Portfolio's average daily net
assets, 0.50% on the next $30 million, 0.35% on the next $25 million, 0.25% on
the next $335 million, 0.22% on the next $600 million and 0.20% thereafter.

The Series Fund has a distribution agreement with Prudential Investment
Management Services LLC ("PIMS") which acts as the distributor of the Class I
and Class II shares of the Series Fund. The Series Fund compensates PIMS for
distributing and servicing the Series Fund's Class II shares pursuant to a plan
of distribution (the "Class II Plan"), regardless of expenses actually incurred
by PIMS. The distribution fees are accrued daily and payable quarterly. No
distribution or service fees are paid to PIMS as distributor for Class I shares
of the Series Fund. Pursuant to the Class II Plan, the Class II shares of each
Portfolio compensates PIMS for distribution-related activities at an annual rate
of .25% of the average daily net assets of the Class II shares.

The Series Fund has an administration agreement with Prudential Investments Fund
Management LLC ("PIFM") which acts as the administrator of the Class II shares
of the Series Fund. The administration fee paid to PIFM is accrued daily and
payable quarterly, at the annual rate of .15% of the average daily net assets of
the Class II shares.

The Prudential has agreed to reimburse each Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No reimbursement was required for the year ended
December 31, 1999.

PIC, PIMS, PIFM and Jennison are wholly-owned subsidiaries of The Prudential.

As of March 11, 1999, the Series Fund, along with other affiliated registered
investment companies (the "Funds"), has a syndicated credit agreement ("SCA")
with an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
The Funds pays a commitment fee at an annual rate of .065 of 1% on the unused
portion of the credit facility, which is accrued and paid on a pro rata basis by
the Funds. Interest on any such borrowings outstanding will be at market rates.
The SCA expires on March 9, 2000. Prior to March 11, 1999, the Series Fund had a
credit agreement with a maximum commitment of $250,000,000. The commitment fee
was .055 of 1% on the unused portion of the facility. The Series Fund did not
borrow any amounts pursuant to either agreement during the year ended December
31, 1999 The purpose of the agreements is to serve as an alternative source of
funding for capital share redemptions.

NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
began serving as the Series Fund's transfer agent on March 14, 1999. Transfer
agent fees and expenses in the statements of operations include certain
out-of-pocket expense paid to nonaffiliates. During the period March 14, 1999

C5
<PAGE>
through December 31, 1999, the Series Fund incurred fees for the services of
PMFS and as of December 31, 1999 fees were due to PMFS as follows:

<TABLE>
<CAPTION>
Amount Incurred
for the Amount Due
Year Ended as of
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Money Market Porfolio.................. $ 8,000 $ 800
Diversified Bond Portfolio............. 8,100 800
Government Income Portfolio............ 6,100 600
Zero Coupon Bond 2000 Portfolio........ 1,700 200
Zero Coupon Bond 2005 Portfolio........ 2,300 200
Conservative Balanced Portfolio........ 7,700 700
Flexible Managed Portfolio............. 8,000 800
High Yield Bond Portfolio.............. 8,000 800
Stock Index Portfolio.................. 8,200 800
Equity Income Portfolio................ 7,800 800
Equity Portfolio....................... 8,400 800
Prudential Jennison Portfolio.......... 7,800 800
Small Capitalization Stock Portfolio... 6,800 600
Global Portfolio....................... 7,800 800
Natural Resources Portfolio............ 5,800 600
-------- -------
$102,500 $10,100
</TABLE>

For the year ended December 31, 1999, PSI earned $592,968 in brokerage
commissions from transactions executed on behalf of the Series Fund as follows:

<TABLE>
<CAPTION>
Fund Commission
---- ----------
<S> <C>
Conservative Balanced Portfolio........ $ 2,600
Flexible Managed Portfolio............. 10,257
Equity Income Portfolio................ 69,381
Equity Portfolio....................... 319,224
Prudential Jennison Portfolio.......... 188,075
Natural Resources Portfolio............ 3,431
--------
$592,968
</TABLE>

NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT

The Series Fund may transfer uninvested cash balances into a single joint
repurchase agreement account, the daily aggregate balance of which is invested
in one or more repurchase agreements collateralized by U.S. Government
obligations. The Series Fund's undivided interest in the joint repurchase
agreement account represented $744,612,000 as of December 31, 1999. The
Portfolios of the Series Fund with cash invested in the joint accounts had the
following principal amounts and percentage participation in the account:

<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
------------- ----------
<S> <C> <C>
Diversified Bond Portfolio............. $ 39,380,000 5.29%
Government Income Portfolio............ 12,843,000 1.73
Zero Coupon Bond 2000 Portfolio........ 474,000 0.06
Zero Coupon Bond 2005 Portfolio........ 536,000 0.07
Conservative Balanced Portfolio........ 87,560,000 11.76
Flexible Managed Portfolio............. 164,437,000 22.08
High Yield Bond Portfolio.............. 38,984,000 5.24
Stock Index Portfolio.................. 60,195,000 8.08
Equity Income Portfolio................ 37,352,000 5.02
Equity Portfolio....................... 106,923,000 14.36
Prudential Jennison Portfolio.......... 121,024,000 16.25
Small Capitalization Stock Portfolio... 22,496,000 3.02
Global Portfolio....................... 30,645,000 4.12
Natural Resources Portfolio............ 4,105,000 0.55
All Other Portfolios................... 17,658,000 2.37
------------ ------
$744,612,000 100.00%
</TABLE>

As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:

C6
<PAGE>
ABN AMRO, Inc., 2.75%, in the principal amount of $210,000,000, repurchase price
$210,048,125, due 1/3/00. The value of the collateral including accrued interest
was $214,200,332.

Bear, Stearns & Co., Inc., 2.75%, in the principal amount of $210,000,000,
repurchase price $210,048,125, due 1/3/00. The value of the collateral including
accrued interest was $214,345,594.

Lehman Brothers, Inc., 2.50%, in the principal amount of $100,000,000,
repurchase price $100,020,833, due 1/3/00. The value of the collateral including
accrued interest was $101,984,334.

Morgan (J.P.) Securities, Inc., 4.50%, in the principal amount of $114,612,000,
repurchase price $114,654,980, due 1/3/00. The value of the collateral including
accrued interest was $117,037,615.

Salomon Smith Barney, Inc., 2.00%, in the principal amount of $110,000,000,
repurchase price $110,018,333, due 1/3/00. The value of the collateral including
accrued interest was $112,554,452.

NOTE 6: PORTFOLIO SECURITIES

The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the year ended December 31, 1999 were as
follows:

Cost of Purchases:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON
BOND INCOME 2000 2005
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Government Securities.................. $ 1,032,602,727 $ 400,681,926 $ 1,453,048 $ 8,394,422
Non-Government Securities.............. $ 1,163,102,559 0 0 0

<CAPTION>
HIGH
CONSERVATIVE FLEXIBLE YIELD
BALANCED MANAGED BOND
--------------- --------------- ---------------
<S> <C> <C> <C>
Government Securities.................. $ 2,149,354,256 $ 1,633,799,829 0
Non-Government Securities.............. $ 2,569,102,770 $ 1,933,267,104 $ 475,211,435
</TABLE>
<TABLE>
<CAPTION>

STOCK EQUITY PRUDENTIAL
INDEX INCOME EQUITY JENNISON
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Government Securities.................. 0 0 0 0
Non-Government Securities.............. $ 503,214,225 $ 329,424,255 $ 520,771,256 $ 1,802,534,059

<CAPTION>
SMALL
CAPITALIZATION NATURAL
STOCK GLOBAL RESOURCES
--------------- --------------- ---------------
<S> <C> <C> <C>
Government Securities.................. 0 $ 74,089,245 0
Non-Government Securities.............. $ 144,673,665 $ 644,610,288 $ 67,006,395
</TABLE>

Proceeds from Sales:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON
BOND INCOME 2000 2005
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Government Securities.................. $ 1,023,069,086 $ 456,891,636 $ 1,834,832 $ 6,599,853
Non-Government Securities.............. $ 945,723,708 0 0 0

<CAPTION>
HIGH
CONSERVATIVE FLEXIBLE YIELD
BALANCED MANAGED BOND
--------------- --------------- ---------------
<S> <C> <C> <C>
Government Securities.................. $ 2,058,784,264 $ 1,439,490,453 0
Non-Government Securities.............. $ 3,179,565,912 $ 2,423,290,053 $ 436,350,631
</TABLE>
<TABLE>
<CAPTION>

STOCK EQUITY PRUDENTIAL
INDEX INCOME EQUITY JENNISON
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Government Securities.................. 0 0 0 0
Non-Government Securities.............. $ 75,111,780 $ 614,171,048 $ 1,308,865,108 $ 1,035,995,886

<CAPTION>
SMALL
CAPITALIZATION NATURAL
STOCK GLOBAL RESOURCES
--------------- --------------- ---------------
<S> <C> <C> <C>
Government Securities.................. 0 $ 74,099,000 0
Non-Government Securities.............. $ 113,875,470 $ 623,485,896 $ 112,570,992
</TABLE>

The High Yield Portfolio entered into written call options as follows:

<TABLE>
<CAPTION>
Contracts Premiums
--------- ---------
<S> <C> <C>
Balance as of December 31, 1998........ 0 $ 0
Options written........................ 34 68,000
-- -------
Balance as of December 31, 1999........ 34 $68,000
</TABLE>

The Global Portfolio entered into 3 swap agreements with Merrill Lynch
International. The Portfolio receives the change in the market value of shares
of Taiwan Semiconductor including dividends and the Portfolio pays 3 month LIBOR
plus 0.75% based on the value of the shares of Taiwan Semiconductor on the date
the contract was entered into. In addition, the Portfolio will pay a fee at
termination of the swap equal to the number of shares of Taiwan Semiconductor
times the market price on termination date times 0.0075. Details of the swap
agreements are as follows:

<TABLE>
<CAPTION>
Open Date Termination Date Shares Current Value Current Basis Appreciation
--------- ---------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
8/16/99... 8/18/00 1,464,601 $ 7,652,912 $ 7,011,838 $ 641,074
11/16/99.. 8/18/00 979,400 5,172,329 4,796,416 375,913
12/23/99.. 8/18/00 1,068,669 5,680,268 5,310,003 370,265
----------- ----------- ----------
$18,505,509 $17,118,258 $1,387,252
</TABLE>

C7
<PAGE>
The federal income tax basis and unrealized appreciation (depreciation) of the
Series Fund's investments as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
ZERO ZERO
DIVERSIFIED GOVERNMENT COUPON COUPON
BOND INCOME 2000 2005
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 4,539,643 $ 544,588 $ 511,157 $ 724,778
Gross Unrealized Depreciation.......... 48,433,942 15,994,670 9,397 1,250,308
Total Net Unrealized................... (43,894,299) (15,450,082) 501,760 (525,530)
Tax Basis.............................. 1,297,397,697 376,159,957 40,812,779 46,003,252

<CAPTION>
HIGH
CONSERVATIVE FLEXIBLE YIELD
BALANCED MANAGED BOND
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 618,254,006 $ 830,907,342 $ 22,003,313
Gross Unrealized Depreciation.......... 240,643,859 422,071,306 107,501,436
Total Net Unrealized................... 377,610,147 408,836,036 (85,498,123)
Tax Basis.............................. 4,477,171,346 5,222,267,377 883,980,108
</TABLE>
<TABLE>
<CAPTION>

STOCK EQUITY PRUDENTIAL
INDEX INCOME EQUITY JENNISON
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 2,409,423,762 $ 544,531,534 $ 1,820,600,926 $ 909,029,943
Gross Unrealized Depreciation.......... 99,360,670 302,384,157 470,574,036 17,746,324
Total Net Unrealized................... 2,310,063,092 242,147,377 1,350,026,890 891,283,619
Tax Basis.............................. 2,346,099,763 1,837,511,315 4,885,331,050 1,879,472,267

<CAPTION>
SMALL
CAPITALIZATION NATURAL
STOCK GLOBAL RESOURCES
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 101,763,449 $ 557,819,864 $ 87,889,839
Gross Unrealized Depreciation.......... 67,334,686 13,711,041 61,881,862
Total Net Unrealized................... 34,428,763 544,108,823 26,007,977
Tax Basis.............................. 410,459,911 731,553,655 263,690,421
</TABLE>

For federal income tax purposes, the following Portfolios had post October
losses deferred and capital loss carryforwards as of December 31, 1999.
Accordingly no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amounts:

<TABLE>
<CAPTION>
POST OCTOBER POST OCTOBER CAPITAL LOSSES CAPITAL LOSSES
CURRENCY CAPITAL CARRYFORWARDS CARRYFORWARDS
LOSSES DEFERRED LOSSES DEFERRED UTILIZED IN 1999 AVAILABLE EXPIRATION DATE
--------------- --------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Conservative Balanced Portfolio........ -- $8,302,364 -- -- --
Flexible Managed Portfolio............. -- 16,235,978 -- -- --
High Yield Bond Portfolio.............. -- 4,418,508 -- $ (2,841,700) 2003
(43,467,300) 2007
------------
(46,309,000)
Global Portfolio....................... $262,338 -- -- -- --
Natural Resources Portfolio............ 15,460 619,667 -- (4,117,123) 2006
(3,511,444) 2007
------------
(7,628,567)
</TABLE>

NOTE 7: CAPITAL

The Series Fund offers Class I and Class II shares. Both Class I and Class II
shares of a Portfolio are not subject to any sales charge or redemption charge
and are sold at the net asset value of the Portfolio. Class I shares are sold
only to certain separate accounts of The Prudential to fund benefits under
certain variable life insurance and variable annuity contracts ("contracts").
Class II shares are sold only to separate accounts of non-Prudential insurance
companies as investment options under certain contracts. The accounts invest in
shares of the Series Fund through subaccounts that correspond to the portfolios.
The accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts. As of December 31, 1999, only the Equity
Portfolio has Class II shares outstanding.

Transactions in shares of comon stock of the Equity Portfolio for the year ended
December 31, 1999 were as follows:

<TABLE>
<CAPTION>
CLASS I SHARES AMOUNT
------- ------------ ----------------
<S> <C> <C>
Year ended December 31, 1999:
Capital stock sold..................... 8,671,360 $ 269,536,387
Capital stock issued in reinvestment of
dividends and distributions.......... 29,303,403 842,957,463
Capital stock repurchased.............. (33,039,026) (1,018,930,728)
----------- ---------------
Net increase in shares outstanding..... 4,935,737 $ 93,563,122
=========== ===============
</TABLE>

<TABLE>
<CAPTION>
CLASS II SHARES AMOUNT
-------- ------- ----------
<S> <C> <C>
May 3, 1999 (a) through December 31,
1999:
Capital stock sold..................... 14,063 $ 457,113
Capital stock issued in reinvestment of
dividends and distributions.......... 1,186 33,511
Capital stock repurchased.............. (4,199) (135,030)
------ ---------
Net increase in shares outstanding..... 11,050 $ 355,594
====== =========

(a) Commencement of offering of Class II shares.
</TABLE>

NOTE 8: SUBSEQUENT EVENT

The Zero Coupon Bond 2000 Portfolio will be liquidated on or about November 15,
2000. On the liquidation date, all of the securities held in the Portfolio will
be sold and all outstanding shares will be redeemed. All redemption proceeds
will be used to purchase shares of the Money Market Portfolio, unless otherwise
directed by Contract holders.

C8
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
MONEY MARKET
--------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------
1999 1998 1997 1996 1995(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..................... 0.49 0.52 0.54 0.51 0.56
Dividends and distributions............ (0.49) (0.52) (0.54) (0.51) (0.56)
------ ------ ------ ------ ------
Net Asset Value, end of year........... $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:(b)............ 4.97% 5.39% 5.41% 5.22% 5.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,335.5 $920.2 $657.5 $668.8 $613.3
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.43% 0.44% 0.44%
Net investment income................ 4.90% 5.20% 5.28% 5.10% 5.64%
</TABLE>

<TABLE>
DIVERSIFIED BOND
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.69 0.80 0.76 0.76
Net realized and unrealized gains
(losses) on investments.............. (0.75) 0.08 0.11 (0.27) 1.29
-------- -------- -------- -------- --------
Total from investment operations... (0.08) 0.77 0.91 0.49 2.05
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.69) (0.83) (0.73) (0.75)
Distributions from net realized
gains................................ (0.03) (0.04) (0.13) -- (0.03)
-------- -------- -------- -------- --------
Total distributions................ (0.03) (0.73) (0.96) (0.73) (0.78)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 10.95 $ 11.06 $ 11.02 $ 11.07 $ 11.31
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ (0.74)% 7.15% 8.57% 4.40% 20.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,253.8 $1,122.6 $816.7 $720.2 $655.8
Ratios to average net assets:
Expenses............................. 0.43% 0.42% 0.43% 0.45% 0.44%
Net investment income................ 6.25% 6.40% 7.18% 6.89% 7.00%
Portfolio turnover rate................ 171% 199% 224% 210% 199%
</TABLE>

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

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

D1
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
GOVERNMENT INCOME
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.76 0.67 0.75 0.75 0.74
Net realized and unrealized gains
(losses) on investments.............. (1.08) 0.36 0.30 (0.51) 1.28
------- ------- ------- ------- -------
Total from investment operations... (0.32) 1.03 1.05 0.24 2.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.68) (0.75) (0.74) (0.76)
Dividends in excess of net investment
income............................... -- --(c) -- -- --
------- ------- ------- ------- -------
Total distributions................ -- (0.68) (0.75) (0.74) (0.76)
------- ------- ------- ------- -------
Net Asset Value, end of year........... $ 11.55 $ 11.87 $ 11.52 $ 11.22 $ 11.72
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ (2.70)% 9.09% 9.67% 2.22% 19.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $335.5 $443.2 $429.6 $482.0 $501.8
Ratios to average net assets:
Expenses............................. 0.44% 0.43% 0.44% 0.46% 0.45%
Net investment income................ 5.72% 5.71% 6.40% 6.38% 6.55%
Portfolio turnover rate................ 106% 109% 88% 95% 195%
</TABLE>

<TABLE>
ZERO COUPON BOND 2000
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 12.74 $ 12.61 $ 12.92 $ 13.27 $ 11.86
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.70 0.63 0.67 0.55 0.59
Net realized and unrealized gains
(losses) on investments.............. (0.43) 0.31 0.22 (0.36) 1.95
------- ------- ------- ------- -------
Total from investment operations... 0.27 0.94 0.89 0.19 2.54
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.64) (0.67) (0.54) (0.60)
Distributions from net realized
gains................................ (0.02) (0.17) (0.53) -- (0.53)
------- ------- ------- ------- -------
Total distributions................ (0.02) (0.81) (1.20) (0.54) (1.13)
------- ------- ------- ------- -------
Net Asset Value, end of year........... $ 12.99 $ 12.74 $ 12.61 $ 12.92 $ 13.27
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 2.18% 7.57% 7.17% 1.53% 21.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $41.2 $40.2 $41.3 $44.7 $25.3
Ratios to average net assets:
Expenses............................. 0.58% 0.62% 0.66% 0.52% 0.48%
Net investment income................ 5.56% 4.85% 4.78% 4.88% 4.53%
Portfolio turnover rate................ 4% 16% 32% 13% 71%
</TABLE>

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

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

D2
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
ZERO COUPON BOND 2005
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 13.44 $ 12.60 $ 12.25 $ 13.19 $ 10.74
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.66 0.68 0.66 0.66
Net realized and unrealized gains
(losses) on investments.............. (1.43) 0.87 0.66 (0.82) 2.73
-------- -------- -------- -------- --------
Total from investment operations... (0.76) 1.53 1.34 (0.16) 3.39
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.67) (0.71) (0.64) (0.65)
Distributions from net realized
gains................................ -- (0.02) (0.28) (0.14) (0.29)
-------- -------- -------- -------- --------
Total distributions................ -- (0.69) (0.99) (0.78) (0.94)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 12.68 $ 13.44 $ 12.60 $ 12.25 $ 13.19
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(B)............ (5.66)% 12.35% 11.18% (1.01)% 31.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $45.4 $45.5 $30.8 $25.8 $23.6
Ratios to average net assets:
Expenses............................. 0.59% 0.61% 0.74% 0.53% 0.49%
Net investment income................ 5.31% 5.35% 5.71% 5.42% 5.32%
Portfolio turnover rate................ 15% -- 35% 10% 69%
</TABLE>

<TABLE>
CONSERVATIVE BALANCED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.62 0.66 0.76 0.66 0.63
Net realized and unrealized gains on
investments.......................... 0.37 1.05 1.26 1.24 1.78
-------- -------- -------- -------- --------
Total from investment operations... 0.99 1.71 2.02 1.90 2.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.62) (0.66) (0.76) (0.66) (0.64)
Distributions from net realized
gains................................ (0.06) (0.94) (1.81) (1.03) (0.56)
Distributions in excess from net
realized gains....................... (0.03) -- -- -- --
-------- -------- -------- -------- --------
Total distributions................ (0.71) (1.60) (2.57) (1.69) (1.20)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 15.36 $ 15.08 $ 14.97 $ 15.52 $ 15.31
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(B)............ 6.69% 11.74% 13.45% 12.63% 17.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,387.1 $4,796.0 $4,744.2 $4,478.8 $3,940.8
Ratios to average net assets:
Expenses............................. 0.57% 0.57% 0.56% 0.59% 0.58%
Net investment income................ 4.02% 4.19% 4.48% 4.13% 4.19%
Portfolio turnover rate................ 109% 167% 295% 295% 201%
</TABLE>

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

(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.

SEE NOTES TO FINANCIAL STATEMENTS.

D3
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
FLEXIBLE MANAGED PORTFOLIO
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.58 0.58 0.59 0.57 0.56
Net realized and unrealized gains on
investments.......................... 0.69 1.14 2.52 1.79 3.15
-------- -------- -------- -------- --------
Total from investment operations... 1.27 1.72 3.11 2.36 3.17
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.59) (0.58) (0.58) (0.56)
Distributions from net realized
gains................................ (0.19) (1.85) (3.04) (1.85) (0.79)
-------- -------- -------- -------- --------
Total distributions................ (0.19) (2.44) (3.62) (2.43) (1.35)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 17.64 $ 16.56 $ 17.28 $ 17.79 $ 17.86
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 7.78% 10.24% 17.96% 13.64% 24.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,125.3 $5,410.0 $5,490.1 $4,896.9 $4,261.2
Ratios to average net assets:
Expenses............................. 0.62 0.61% 0.62% 0.64% 0.63%
Net investment income................ 3.20 3.21% 3.02% 3.07% 3.30%
Portfolio turnover rate................ 76% 138% 227% 233% 173%
</TABLE>

<TABLE>
HIGH YIELD BOND
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.79 0.77 0.78 0.80 0.81
Net realized and unrealized gains
(losses) on investments.............. (0.46) (0.94) 0.26 0.06 0.46
Dividends and distributions............
-------- -------- -------- -------- --------
Total from investment operations... 0.33 (0.17) 1.04 0.86 1.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.02) (0.76) (0.77) (0.78) (0.84)
Dividends in excess of net investment
income............................... -- -- -- (0.01) --
-------- -------- -------- -------- --------
Total distributions................ (0.02) (0.76) (0.77) (0.79) (0.84)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 7.52 $ 7.21 $ 8.14 $ 7.87 $ 7.80
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(B)............ 4.61% (2.36)% 13.78% 11.39% 17.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $802.2 $789.3 $568.7 $432.9 $367.9
Ratios to average net assets:
Expenses............................. 0.60% 0.58% 0.57% 0.63% 0.61%
Net investment income................ 10.48% 10.31% 9.78% 9.89% 10.34%
Portfolio turnover rate................ 58% 63% 106% 88% 139%
</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.

SEE NOTES TO FINANCIAL STATEMENTS.

D4
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
STOCK INDEX
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.44 0.42 0.43 0.40 0.40
Net realized and unrealized gains
(losses) on investments.............. 7.23 8.11 7.34 4.06 5.13
-------- -------- -------- -------- --------
Total from investment operations... 7.67 8.53 7.77 4.46 5.53
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.43) (0.42) (0.42) (0.40) (0.38)
Distributions from net realized
gains................................ (0.53) (0.59) (0.87) (0.28) (0.15)
-------- -------- -------- -------- --------
Total distributions................ (0.96) (1.01) (1.29) (0.68) (0.53)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(B)............ 20.54% 28.42% 32.83% 22.57% 37.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,655.0 $3,548.1 $2,448.2 $1,581.4 $1,031.3
Ratios to average net assets:
Expenses............................. 0.39% 0.37% 0.37% 0.40% 0.38%
Net investment income................ 1.09% 1.25% 1.55% 1.95% 2.27%
Portfolio turnover rate................ 2% 3% 5% 1% 1%
</TABLE>

<TABLE>
EQUITY INCOME PORTFOLIO
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.51 0.56 0.61 0.58 0.64
Net realized and unrealized gains
(losses) on investments.............. 1.89 (1.03) 6.06 2.88 2.50
Dividends and distributions............
-------- -------- -------- -------- --------
Total from investment operations... 2.40 (0.47) 6.67 3.46 3.14
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.50) (0.59) (0.57) (0.71) (0.62)
Distributions from net realized
gains................................ (2.41) (1.30) (2.22) (0.51) (0.73)
-------- -------- -------- -------- --------
Total distributions................ (2.91) (1.89) (2.79) (1.22) (1.35)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 19.52 $ 20.03 $ 22.39 $ 18.51 $ 16.27
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 12.52% (2.38)% 36.61% 21.74% 21.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,024.0 $2,142.3 $2,029.8 $1,363.5 $1,110.0
Ratios to average net assets:
Expenses............................. 0.42% 0.42% 0.41% 0.45% 0.43%
Net investment income................ 2.34% 2.54% 2.90% 3.36% 4.00%
Portfolio turnover rate................ 16% 20% 38% 21% 64%
</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.

SEE NOTES TO FINANCIAL STATEMENTS.

D5
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
EQUITY CLASS I EQUITY CLASS II
----------------------------------------------------- ----------------
YEAR ENDED MAY 3, 1999(d)
DECEMBER 31, THROUGH
----------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995(a) 1999
--------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 32.79
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.54 0.60 0.69 0.71 0.55 0.28
Net realized and unrealized gains on
investments.......................... 3.02 2.21 5.88 3.88 5.89 (0.60)
-------- -------- -------- -------- -------- -------
Total from investment operations... 3.56 2.81 6.57 4.59 6.44 (0.32)
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.53) (0.60) (0.70) (0.67) (0.52) (0.34)
Distributions from net realized
gains................................ (3.77) (3.64) (1.76) (2.60) (0.94) (3.21)
-------- -------- -------- -------- -------- -------
Total distributions................ (4.30) (4.24) (2.46) (3.27) (1.46) (3.55)
-------- -------- -------- -------- -------- -------
Net Asset Value, end of period......... $ 28.90 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 28.92
======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:(b)............ 12.49% 9.34% 24.66% 18.52% 31.29% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $6,235.0 $6,247.0 $6,024.0 $4,814.0 $3,813.8 $0.3
Ratios to average net assets:
Expenses............................. 0.47% 0.47% 0.46% 0.50% 0.48% 0.87%(c)
Net investment income................ 1.72% 1.81% 2.27% 2.54% 2.28% 1.33%(c)
Portfolio turnover rate................ 9% 25% 13% 20% 18% 9%
</TABLE>

<TABLE>
PRUDENTIAL JENNISON
----------------------------------------------------------
APRIL 25,
YEAR ENDED 1995(d)(a)
DECEMBER 31, TO
---------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
--------- --------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 23.91 $ 17.73 $ 14.32 $ 12.55 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.05 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 9.88 6.56 4.48 1.78 2.54
-------- -------- ------- ------- -------
Total from investment operations... 9.93 6.60 4.52 1.80 2.56
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.05) (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (1.40) (0.38) (1.07) -- --
-------- -------- ------- ------- -------
Total distributions................ (1.45) (0.42) (1.11) (0.03) (0.01)
-------- -------- ------- ------- -------
Net Asset Value, end of period......... $ 32.39 $ 23.91 $ 17.73 $ 14.32 $ 12.55
======== ======== ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 41.76% 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $2,770.7 $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.17% 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 58% 54% 60% 46% 37%
</TABLE>

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

(d) Commencement of offering of Class II shares.

SEE NOTES TO FINANCIAL STATEMENTS.

D6
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
SMALL CAPITALIZATION STOCK
------------------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
-------------------------------------- TO
1999 1998 1997 1996 DECEMBER 31, 1995(a)
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 14.71 $ 15.93 $ 13.79 $ 11.83 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.10 0.09 0.10 0.09 0.08
Net realized and unrealized gains
(losses) on investments.............. 1.71 (0.25) 3.32 2.23 1.91
------- ------- ------- ------- -------
Total from investment operations... 1.81 (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................................ (0.27) (0.97) (1.18) (0.27) (0.12)
------- ------- ------- ------- -------
Total distributions................ (0.27) (1.06) (1.28) (0.36) (0.16)
------- ------- ------- ------- -------
Net Asset Value, end of period......... 16.25 $ 14.71 $ 15.93 $ 13.79 $ 11.83
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 12.68% (0.76)% 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $437.5 $360.4 $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses............................. 0.45% 0.47% 0.50% 0.56% 0.60%(c)
Net investment income................ 0.70% 0.57% 0.69% 0.87% 0.68%(c)
Portfolio turnover rate................ 31% 26% 31% 13% 32%
</TABLE>

<TABLE>
GLOBAL
----------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995(A)
--------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 21.16 $17.92 $17.85 $15.53 $13.88
-------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.06 0.07 0.09 0.11 0.06
Net realized and unrealized gains
(losses) on investments.............. 10.04 4.38 1.11 2.94 2.14
-------- ------ ------ ------ ------
Total from investment operations... 10.10 4.45 1.20 3.05 2.20
-------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.16) (0.13) (0.11) (0.24)
Dividends in excess of net investment
income............................... (0.10) (0.12) (0.10) -- --
Distributions from net realized
gains................................ (0.18) (0.93) (0.90) (0.62) (0.31)
-------- ------ ------ ------ ------
Total distributions................ (0.28) (1.21) (1.13) (0.73) (0.55)
-------- ------ ------ ------ ------
Net Asset Value, end of year........... $ 30.98 $21.16 $17.92 $17.85 $15.53
======== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:(b) 48.27% 25.08% 6.98% 19.97% 15.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,298.3 $844.5 $638.4 $580.6 $400.1
Ratios to average net assets:
Expenses............................. 0.84% 0.86% 0.85% 0.92% 1.06%
Net investment income................ 0.21% 0.29% 0.47% 0.64% 0.44%
Portfolio turnover rate................ 76% 73% 70% 41% 59%
</TABLE>

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

(d) Commencement of operations.

SEE NOTES TO FINANCIAL STATEMENTS.

D7
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
NATURAL RESOURCES
-------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $11.98 $15.24 $19.77 $17.27 $14.44
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.10 0.09 0.12 0.15 0.21
Net realized and unrealized gains
(losses) on investments.............. 5.40 (2.48) (2.43) 5.11 3.66
------ ------ ------ ------ ------
Total from investment operations... 5.50 (2.39) (2.31) 5.26 3.87
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.11) (0.10) (0.14) (0.21)
Distributions from net realized
gains................................ -- (0.75) (2.12) (2.62) (0.83)
Tax return of capital distributions.... -- (0.01) -- -- --
------ ------ ------ ------ ------
Total distributions................ (0.10) (0.87) (2.22) (2.76) (1.04)
------ ------ ------ ------ ------
Net Asset Value, end of year........... $17.38 $11.98 $15.24 $19.77 $17.27
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN: (B)........... 45.99% (17.10)% (11.59)% 30.88% 26.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $289.5 $236.9 $358.0 $438.4 $293.2
Ratios to average net assets:
Expenses............................. 0.57% 0.61% 0.54% 0.52% 0.50%
Net investment income................ 0.70% 0.63% 0.60% 0.75% 1.25%
Portfolio turnover rate................ 26% 12% 32% 36% 46%
</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.

SEE NOTES TO FINANCIAL STATEMENTS.

D8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of Money Market Portfolio,
Diversified Bond Portfolio, Government Income Portfolio, Zero Coupon Bond 2000
Portfolio, Zero Coupon Bond 2005 Portfolio, Conservative Balanced Portfolio,
Flexible Managed Portfolio, High Yield Bond Portfolio, Stock Index Portfolio,
Equity Income Portfolio, Equity Portfolio, Prudential Jennison Portfolio, Small
Capitalization Stock Portfolio, Global Portfolio and Natural Resources Portfolio
(fifteen of the seventeen portfolios that constitute The Prudential Series Fund,
Inc.; the Portfolios) at December 31, 1999, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the four years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Portfolios' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights of
each Portfolio for the period ended December 31, 1995 were audited by other
independent accountants whose opinion dated February 15, 1996 was unqualified.

As explained in Note 8, the Zero Coupon Bond 2000 Portfolio will be liquidated
on or about November 15, 2000.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 23, 2000

TAX INFORMATION
(UNAUDITED)

Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1999) as to the federal tax status of dividends paid by the Series Fund during
such fiscal year. Accordingly, we are advising you that in 1999, the Series Fund
paid dividends as follows:

<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
------------------
SHORT-TERM LONG-TERM TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS
-------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Money Market Porfolio $0.490 -- -- $0.490
Diversified Bond Portfolio -- $0.029 $0.001 0.030
Government Income Portfolio -- -- -- --
Zero Coupon Bond 2000 Portfolio -- -- 0.024 0.024
Conservative Balanced Portfolio 0.623 0.043 0.043 0.709
Flexible Managed Portfolio 0.001 0.100 0.093 0.194
High Yield Bond Portfolio 0.020 -- -- 0.020
Stock Index Portfolio 0.434 0.069 0.462 0.965
Equity Income Portfolio 0.496 0.164 2.247 2.907
Equity Portfolio 0.530 0.260 3.511 4.301
Prudential Jennison Portfolio 0.047 -- 1.397 1.444
Small Capitalization Stock Portfolio -- 0.065 0.208 0.273
Global Portfolio 0.100 0.018 0.157 0.275
Natural Resources Portfolio 0.104 -- -- 0.104
</TABLE>

<PAGE>

APPENDIX

DEBT RATINGS

Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:

BONDS:

Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated "Baa" are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

COMMERCIAL PAPER:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

-- Leading market positions in well-established industries.

-- High rates of return of funds employed.

A-1

<PAGE>

-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Standard & Poor's Ratings Services describes its grades of corporate debt
securities and its "A" commercial paper as follows:

BONDS:

AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB Debt rated "BBB" is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.

BB-B-CCC-CC-C

Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.

COMMERCIAL PAPER:

Commercial paper rated A by Standard & Poor's Ratings Services has the following
characteristics:

Liquidity ratios are better than the industry average. Long term senior debt
rating is "A" or better. In some cases BBB credits may be acceptable. The issuer
has access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowances made for unusual circumstances.
Typically, the issuer's industry is well established, the issuer has a strong
position within its industry and the reliability and quality of management is
unquestioned. Issuers rated A are further referred to by use of numbers 1, 2 and
3 to denote relative strength within this classification.

A-2

<PAGE>

THE PRUDENTIAL
SERIES FUND, INC.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, Newark, NJ 07102-3777