PRUDENTIAL VARIABLE CONTRACT ACCOUNT 2, 497, 1997-05-08

PRUDENTIAL VARIABLE CONTRACT ACCOUNT 2
497, 1997-05-08

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PROSPECTUS

DATED MAY 1, 1997

GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS

issued through

THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-2

For Persons Eligible For Such Annuities
In accordance with Section 403(b) of the Internal Revenue Code

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The Prudential Variable Contract Account-2 will invest primarily in equity
securities of major, established corporations that are selected with the
objective of long-term growth of capital.

This Prospectus provides information a prospective investor should know before
investing. Additional information about the Contracts has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated May 1, 1997, which information is incorporated herein by reference, and is
available without charge upon written or oral request directed to the address or
telephone number shown below. The Table of Contents of the Statement of
Additional Information appears on page 25 of this Prospectus.

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.

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

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The Prudential Insurance Company of America

c/o Prudential Investments
30 Scranton Office Park
Scranton, PA 18507-1789
Telephone 1-800-458-6333

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PRUDENTIAL LOGO
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TABLE OF CONTENTS

PAGE
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<S> <C>
GLOSSARY OF TERMS USED IN THIS PROSPECTUS ..................................................... 1
FEE TABLE ..................................................................................... 2
SUMMARY OF PROSPECTUS INFORMATION ............................................................. 3
CONDENSED FINANCIAL INFORMATION ............................................................... 5
DESCRIPTION OF THE PRUDENTIAL AND VCA-2 ....................................................... 6
INVESTMENT PRACTICES OF VCA-2 ................................................................. 7
AGREEMENT FOR INVESTMENT MANAGEMENT SERVICES .................................................. 9
CHARGES ....................................................................................... 10
THE GROUP VARIABLE ANNUITY CONTRACTS .......................................................... 11
A. The Accumulation Period ............................................................... 11
1. Crediting Accumulation Units; Deduction for Sales and Administrative Expenses 11
2. Valuation of a Participant's Individual Accumulation Account ................ 12
3. The Accumulation Unit Value ................................................. 12
4. Discontinuance of Purchase Payments ......................................... 12
5. Continuance Under Group Contract After Being Employed by New Employer ....... 12
6. Withdrawal (Redemption) of Purchase Payments Prior to Death ................. 12
7. Systematic Withdrawal Plan .................................................. 13
8. Texas Optional Retirement Program ........................................... 14
9. Death Benefits Before an Annuity is Effected ................................ 14
10. Transfer Payments ........................................................... 15
11. Telephone Requests .......................................................... 16
12. Modified Procedures ......................................................... 17
13. Exchange Offer with the PMF Funds ........................................... 17
B. The Annuity Period .................................................................... 17
1. Variable Annuity Payments ................................................... 17
2. Electing the Annuity Date and the Form of Annuity ........................... 18
3. Deductions for Taxes on Annuity Considerations .............................. 18
4. Available Forms of Variable Annuity ......................................... 18
5. The Annuity Unit ............................................................ 19
6. The Annuity Unit Value ...................................................... 19
7. The Annuity Unit Change Factor for Any Month ................................ 19
8. Assumed Investment Result ................................................... 19
9. Schedule of Variable Annuity Purchase Rates ................................. 20
C. Assignment ............................................................................ 21
D. Changes in the Group Variable Annuity Contract ........................................ 21
E. Periodic Reports ...................................................................... 21
F. Participation in Divisible Surplus .................................................... 21
FEDERAL TAX STATUS ............................................................................ 21
VOTING RIGHTS ................................................................................. 22
OTHER CONTRACTS ON A VARIABLE BASIS ........................................................... 23
STATE REGULATION .............................................................................. 23
LEGAL PROCEEDINGS ............................................................................. 23
ADDITIONAL INFORMATION ........................................................................ 24
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION ........................................ 25

NOTE: All masculine references in this Prospectus are intended to include the
feminine gender. The singular context also includes the plural and vice
versa where necessary.
</TABLE>
<PAGE>

GLOSSARY OF TERMS USED IN THIS PROSPECTUS

ACCUMULATION PERIOD: the period from the date a Participant's VCA-2 account is
opened to the date it is applied to provide an annuity or otherwise withdrawn
(see page 11).

ACCUMULATION UNIT: a measure used to determine the value of a Participant's
VCA-2 account (see page 12).

ACCUMULATION UNIT VALUE: the dollar value of one Accumulation Unit (see page
12).

ANNUITY: a series of payments made each month as long as a person, called the
annuitant, is living. In some forms of annuity, payments may continue after the
annuitant's death (see page 18).

ANNUITY-CERTAIN: a series of payments for a definite period, not dependent on
the length of a person's life (see page 18).

ANNUITY UNIT: a measure used to determine the value of a variable annuity
payment (see page 19).

ANNUITY UNIT VALUE: the dollar value of one Annuity Unit (see page 19).

ASSUMED INVESTMENT RESULT: the annual rate of investment result assumed for the
purpose of establishing the initial payment under a variable annuity and which
is used in determining Annuity Unit Values (see page 19).

CONTRACT: the Group Variable Annuity Contract described in this Prospectus which
is a written agreement between Prudential and the Contract-holder which sets
forth the rights, duties, and privileges of all parties (see page 11).

CONTRACT-HOLDER: ordinarily the employer of the Participants, but may also be an
association representing them or their employers (see page 11).

MORTALITY AND EXPENSE RISKS: the risks Prudential assumes because the amount of
variable annuity payments will not be affected by losses Prudential may incur if
annuitants live longer than expected, or if actual expenses are higher than
expected (see page 11).

PARTICIPANT: a person for whom purchase payments have been made to credit
Accumulation Units which remain in his account or have been applied to provide a
variable annuity for him (see page 11).

PARTICIPANT'S ACCOUNT, INDIVIDUAL ACCUMULATION ACCOUNT: a record of the number
of Accumulation Units credited to a Participant (see page 11).

"PROGRAM"--PRUDENTIAL'S GROUP TAX-DEFERRED ANNUITY PROGRAM: a Contract-holder's
program providing for purchase payments under the Contract, a companion
fixed-dollar annuity contract or a combination of the two (see page3).

PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2 ("VCA-2" OR THE "ACCOUNT"): the separate
account in which the Contracts participate (see page 3).

PURCHASE PAYMENT: money paid under a contract on behalf of a Participant (see
pages 11 and 12).

TAX-DEFERRED ANNUITY: an arrangement for deferring Federal income tax on the
portion of a person's income which is applied by his employer to the purchase of
an annuity, until annuity payments commence (see page 3).

VARIABLE ANNUITY: an annuity whose payments vary with the investment results of
VCA-2 (see page 17).

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FEE TABLE

The purpose of this table is to assist the Participant in understanding the
various charges that a Participant in the Account will bear, whether directly or
indirectly. For a more complete description of the various charges, see
"Charges" onpage 10.

PARTICIPANT TRANSACTION EXPENSES

Sales Load Imposed on Purchases (as a percentage of purchase payments): 2.5%
Maximum Annual Contract Fee* ........................................... $30

ANNUAL ACCOUNT OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Investment Management Fee .............................................. .125%
Mortality and Expense* ................................................. .375%
----
Total Annual Expenses .................................................. .500%

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on each
$1,000 invested assuming a 5% annual return.
You would pay the same expenses whether you
withdraw from VCA-2, remain as a Participant
in the Account, or annuitize, at the end of
each time period........................... $30 $41 $54 $89

The above example is based on data for the Account's fiscal year ended
December31, 1996. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.

The example is intended to illustrate the dollar amount of the aggregate of all
the expenses, fees and charges shown above, on a cumulative basis over the
periods shown, that would be incurred on each $1000 invested. The annual
contract fee reflected in the above example is based upon the assumption that
the fee is deducted from the VCA-2 contract in the same proportion as the
aggregate annual contract fees are deducted from the fixed-dollar or VCA-2
contracts. The actual expenses paid by each Participant will vary depending upon
the total amount credited to that Participant and how that amount is allocated.

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* During a participant's annuity period, the annual contract fee is not charged
and the mortality and expense charges are not made. See "The Annuity Period"
on pages 17 through 21 for further information.

<PAGE>

SUMMARY OF PROSPECTUS INFORMATION

The Group Variable Annuity Contracts (the "Contracts" or the "Variable
Contracts") described in this Prospectus are offered for use by public school
systems and certain tax-exempt organizations pursuant to Section 403(b) of the
Internal Revenue Code of 1986 (the "Code" or "Internal Revenue Code"). The
Contracts, together with fixed-dollar annuity contracts offered for the same
use, but which are not described in this Prospectus, comprise Prudential's Group
Tax-Deferred Annuity Program (the "Program"). A person for whom purchase
payments have been made under a Contract which remain credited to his account or
which have been applied to provide a variable annuity for him is referred to as
a "Participant." The following is a summary of information about the Contracts
and the rights of Participants. More detailed information can be found in the
referenced portions of this Prospectus. A glossary of certain terms used in this
Prospectus can be found on page 1.

REGISTRANT

The Prudential Variable Contract Account-2 ("VCA-2" or the "Account") is an
open-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). See "Description of
The Prudential and VCA-2," page 6.

The Prudential Insurance Company of America ("Prudential") is the investment
manager of VCA-2, and Prudential Investment Management Services LLC ("PIMS"), a
direct wholly-owned subsidiary of Prudential, is the principal underwriter of
the Contracts pursuant to an agreement between Prudential, VCA-2, and PIMS (the
"Distribution Agreement"). Prudential is a mutual life insurance company
incorporated in 1873 under the laws of the State of New Jersey. See "Description
of The Prudential and VCA-2," page 6.

INVESTMENT OBJECTIVE

VCA-2's investment objective is long-term growth of capital. VCA-2 will seek to
achieve this objective by investing primarily in equity securities of major,
established corporations. Current income, if any, is incidental to this
objective. There is no assurance that this investment objective will be
attained. There is no guarantee that the amount available to a person for whom
purchase payments have been made will equal or exceed the total purchase
payments made on his behalf. The value of the investments held in the Account
fluctuates daily and is subject to the risks of changing economic conditions and
risks inherent in the selection of investments necessary to meet the Account's
objective. See "Investment Practices of VCA-2," page 7, and see "Investment
Management and Administration of VCA-2" in the Statement of Additional
Information.

CONTRACTS OFFERED

The Contracts are generally offered pursuant to agreements between certain
eligible employers and their employees. Annuities issued pursuant to such
agreements are commonly called "tax-deferred annuities," because the
Participants enjoy certain federal income tax benefits provided by Section
403(b) of the Internal Revenue Code. A Participant is afforded an opportunity to
have his employer set aside funds for the purpose of providing retirement income
for him, with federal income tax upon those amounts deferred until the annuity
payments commence. The Contracts provide for variable annuity payments to each
Participant commencing on a date selected by him. The amounts of these annuity
payments will vary with the investment performance of VCA-2. The annuity
payments will reflect the investment performance of the Account not only during
the period in which the Participant is receiving annuity payments, but also from
the time he first becomes a Participant under the Contract until the
commencement of those payments. Certain of the rights provided by the Contracts
are granted to Participants, while other rights are exercisable by the
Contract-holder, usually the employer. See "The Group Variable Annuity
Contracts," pages 11 through 21.

CHARGES

A deduction of 2.5% (2.56% of the amount invested) for sales and marketing
expenses is made from each Participant's purchase payments. An annual
administration charge is made against each Participant's accumulation account in
an amount which varies with each Contract, but which is not more than $30 for
any accounting year. The sales and administration charges may be reduced in
connection with a particular Contract if Prudential estimates that its sales and
administrative expenses will be lower or that it will perform fewer sales or
administrative services in connection with the Contract. A daily charge is made
against each Participant's accumulation account, computed at an effective annual
rate of 0.5% (1/2 of 1%), consisting of 0.125% (1 @8 of 1%) for investment
management services, 0.125% (1/8 of 1%) for assuming mortality risks and 0.250%
(1/4 of 1%) for assuming expense risks, and corresponding charges are made in
computing monthly annuity payments. See "Charges," page 10.

All these charges, except those for investment management services, may be
changed by Prudential without the prior approval of Participants, except as
described under "Changes in the Group Variable Annuity Contract," page 21.

<PAGE>

REDEMPTION AND TRANSFER

Federal tax law imposes restrictions on withdrawals from Section 403(b)
annuities. In addition, an employer may adopt a plan that limits the right of
Participants to obtain cash withdrawals upon request. In cases where such
restrictions or limitations do not apply, a Participant upon written request on
a form approved by Prudential, is entitled to withdraw all or a portion of the
amount then credited to his accumulation account. See "Withdrawal (Redemption)
of Purchase Payments Prior to Death," page 12. Telephone redemptions also may be
allowed. A Participant may transfer all or a portion of his individual
accumulation account from the Contract to a fixed-dollar annuity contract.
Prudential may limit the frequency of such transfers. A Participant who changes
employers may also transfer all of his individual accumulation account to a
similar group annuity contract issued by Prudential which covers employees of
his new employer. See "Transfer Payments," page 15. Prudential may impose a
redemption charge on any withdrawal or transfer payment provided by the
Contract. See "Changes in the Group Variable Annuity Contract," page 21.

CONTACTING PRUDENTIAL

All written requests, notices and transfer requests required by the Contracts
(other than withdrawal requests and death benefit claims), should be sent to
Prudential at the address shown on the cover page of this Prospectus. Any
written inquiries also should be sent to Prudential at that address. A
Participant may effect the telephone transactions that are permitted by his
Program by calling Prudential at 1-800-458-6333. All written withdrawal requests
or death benefit claims relating to a Participant's interest in VCA-2 must be
sent to Prudential by one of the following three means: (1)By U.S. mail to:
Prudential Investments, P.O. Box5410, Scranton, Pennsylvania 18505-5410;
(2)Delivery service other than the U.S. mail (e.g., Federal Express, etc.) sent
to our office at the following address: Prudential Investment Services, 30
Scranton Office Park, Scranton, Pennsylvania 18507-1789; or (3)Fax to Prudential
Investment Services, Attention:Client Payments at: (717) 340-4328. A withdrawal
request or death benefit claim will be deemed received in good order by
Prudential as of the end of the valuation period within which all the properly
completed forms and other information required by Prudential to pay such a
request or claim (e.g., due proof of death) are received as specified above.
Receipt of a withdrawal request or death benefit claim in good order is required
by Prudential to process the transaction in the manner explained below in this
Prospectus. Under certain Contracts, the Contract-holder or a third party acting
on their behalf provides record-keeping services that would otherwise be
performed by Prudential. See "Modified Procedures," page17.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.

<PAGE>

CONDENSED FINANCIAL INFORMATION

INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT*
(For an Accumulation Unit outstanding throughout the year)

The following condensed financial information for the year ended December 31,
1996 has been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. In addition, the condensed financial information
for each of the years prior to and including the period ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, whose report
thereon was also unqualified. Their reports are included in the Statement of
Additional Information.

1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Investment income ...................... $ .2056 $ .2000 $ .1896 $ .2823 $ .1635 $ .1629 $ .2278 $ .2061 $ .1574 $ .1983
Expenses
for investment management fee ......... .0215 .0170 .0151 .0138 .0111 .0094 .0079 .0078 .0064 .0064
for assuming mortality and
expense risks ......................... .0646 .0511 .0453 .0412 .0335 .0285 .0239 .0234 .0193 .0193
Net investment income .................. .1195 .1319 .1292 .2273 .1189 .1250 .1960 .1749 .1317 .1726
Capital changes
Net realized gain on investments ..... 2.3368 1.5228 1.0028 1.1147 1.2862 .6231 .1523 .8364 .5383 .4257
Net unrealized appreciation
(depreciation) of investments ...... 1.7641 1.7558 (1.2955) .9803 (.2121) 1.4671 (.5709) .1931 .4303 (.4720)
Net increase (decrease) in
Accumulation Unit Value .............. 4.2204 3.4105 (.1635) 2.3223 1.1930 2.2152 (.2226) 1.2044 1.1003 .1263
Accumulation Unit Value
Beginning of year .................... 15.4037 11.9932 12.1567 9.8344 8.6414 6.4262 6.6488 5.4444 4.3441 4.2178
End of year ..........................$19.6241 $15.4037 $11.9932 $12.1567 $9.8344 $8.6414 $6.4262 $6.6488 $5.4444 $4.3441
Ratio of expenses to average
net assets** ......................... .4982% .4959% .4991% .4984% .4975% .4970% .4999% .5009% .5016% .5068%
Ratio of net investment income to
average net assets** ................. .6913% .9602% 1.0664% 2.056% 1.3253% 1.6372% 3.0779% 2.8084% 2.5657% 3.4026%
Portfolio turnover rate ................ 53% 42% 37% 47% 73% 79% 108% 71% 31% 29%
Number of Accumulation Units out-
standing for Participants at end of
year (000 omitted) ................... 30,548 31,600 32,624 32,968 33,147 34,228 35,218 37,813 41,638 47,239
Average commission rate per share ...... $.0543 N/A N/A N/A N/A N/A N/A N/A N/A N/A

</TABLE>

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* Calculated by accumulating the actual per unit amounts daily.

** These calculations exclude Prudential's equity in VCA-2.

The above table does not reflect the annual administration charge, which does
not affect the Accumulation Unit Value. This charge, which is described on page
10, is made by reducing Participants' Accumulation Accounts by a number of
Accumulation Units equal in value to the charge.

5
<PAGE>

PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
GROUP VARIABLE ANNUITY CONTRACTS SOLD BY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

DESCRIPTION OF THE PRUDENTIAL
AND VCA-2

Prudential is a mutual life insurance company incorporated in 1873 under the
laws of the State of New Jersey. It is authorized to transact business in all
states of the United States, the District of Columbia, the Territory of Guam,
the Commonwealth of Puerto Rico, the Virgin Islands of the United States, Canada
and United States military installations in foreign countries. Its corporate
office is located at Prudential Plaza, Newark, New Jersey 07102.

Prudential conducts a conventional life insurance business. Assets derived from
such business are invested in the manner permitted by applicable state laws. The
financial statements of Prudential contained in the Statement of Additional
Information should be considered by Participants only to the extent they may
bear upon the ability of Prudential to meet its obligations under the Contracts.

On January 9, 1968, the Board of Directors of Prudential established VCA-2 in
accordance with certain provisions of the insurance statutes of the State of New
Jersey. The Account meets the definition of a "separate account" under the
federal securities laws. VCA-2 is empowered to hold only assets derived from
contributions under variable contracts issued by Prudential, assets that
Prudential may deem prudent to place in the Account for the purpose of
maintaining a surplus to support the obligations under the Contracts, and assets
derived from the dividends, interest and gains produced by the foregoing. The
portion of the assets in the Account equal to the reserve liability required by
law will be held for the sole benefit of Participants and persons entitled to
payment under the Contracts described herein and under other contracts which may
be offered by Prudential in the future and designated as participating in the
Account. The assets in the Accounts are the property of Prudential, but are
legally segregated from all other assets of Prudential and may not be charged
with liabilities arising out of any of Prudential's other business. All income,
gains and losses, whether or not realized, from assets allocated to the Account
are credited to or charged against the Account without regard to other income,
gains, or losses of Prudential. The obligations arising under the Contracts are
general corporate obligations of Prudential.

The Account is registered as an open-end, diversified management investment
company with the Securities and Exchange Commission (the "Commission") under the
1940 Act. This registration does not involve supervision by the Commission of
Prudential or of the management or investment practices or policies of the
Account.

Prudential acts as investment manager for VCA-2. The operation of the Account is
supervised by The Prudential Variable Contract Account-2 Committee (the "VCA-2
Committee" or the "Committee"). Beginning in June 1989, all Committee members
elected by persons having voting rights are elected for indefinite terms.
Vacancies may be filled by a majority vote of all the remaining Committee
members, provided that immediately after filling any such vacancy, at least
two-thirds of the members then holding office shall have been elected by persons
having voting rights. Members elected by the Committee, rather than by persons
having voting rights, hold their positions only until the next meeting of
persons having voting rights in respect to the Account. At that next meeting,
persons with voting rights fill the vacancy by electing a member for an
indefinite term. See "Voting Rights," page 22. A majority of the members of the
VCA-2 Committee are not affiliated with Prudential (nor are they "interested
persons" within the meaning of the 1940 Act). In addition, Prudential acts as
investment manager to several other investment companies registered under the
1940 Act. Prudential also manages assets for certain pension fund customers on a
discretionary basis.

Prudential has entered into a Service Agreement with its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to which PIC
provides such services as Prudential may require in connection with its
obligations as the Account's investment manager. See "Agreement for Investment
Management Services," page 9.

PIMS acts as principal underwriter for VCA-2 and is responsible for sales and
administrative functions relative to the Contracts and VCA-2 pursuant to an
Agreement for the Sale of Contracts between PIMS, Prudential, and VCA-2. This
Agreement was approved by the unanimous vote of the Committee on November 22,
1996. Under this Agreement, PIMS offers the Contracts through its agents and
independent brokers.

Prudential's administrative responsibilities include receiving and allocating
contributions in accordance with the Contracts, making annuity payments as they
become due, preparing and filing all reports required to be filed by VCA-2,
recordkeeping, and expenses associated with these activities. Administrative
expenses include, but are not limited to, salaries, rent, postage, telephone,
travel, office equipment, stationery, and fees for legal, actuarial and
accountants' services.

6
<PAGE>

For purposes of the Contracts, payments, notices and other communications such
as withdrawal and transfer requests will be deemed to have been received by
Prudential only if delivered to Prudential in the manner described in the
"Contacting Prudential" section of the summary of this Prospectus. Certain
alternative procedures apply if the Contract-holder or a third party provides
record-keeping services. See "Modified Procedures," page 17.

INVESTMENT PRACTICES OF VCA-2

A. INVESTMENT OBJECTIVE AND POLICIES

The investment policies of VCA-2 set forth below are adopted in an effort to
achieve the investment objective and are not fundamental. Therefore, these
investment policies may be changed by the VCA-2 Committee without the approval
of VCA-2 Participants.

In attempting to achieve its objective, VCA-2 will invest in common stocks,
preferred stocks, warrants or convertible bonds which, in the opinion of VCA-2's
investment adviser, are believed to be in sound financial condition and have
prospects for price appreciation greater than broadly based stock indices. Under
normal market conditions, VCA-2 may also invest up to 20% of its assets in
investment grade short-term, intermediate term, or long-term debt instruments.
At times when economic conditions or general levels of common stock prices are
such that the investment adviser deems it prudent to adopt a defensive position
by reducing or curtailing investments in equities, a larger proportion than
usual of VCA-2's assets may be invested in such debt instruments.

VCA-2 may also invest in American Depository Receipts ("ADRs") which are U.S.
dollar-denominated certificates issued by a United States bank or trust company
and represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in an over-the-counter market. Investment in ADRs has certain
advantages over direct investment in the underlying foreign securities because
they are easily transferable, have readily available market quotations, and the
foreign issuers are usually subject to comparable auditing, accounting and
financial reporting standards as domestic issuers. Nevertheless, as foreign
securities, ADRs involve certain risks which should be considered fully by
investors. These risks include political or economic instability in the country
of the issuer, the difficulty of predicting international trade patterns, and
the fact that there may be less publicly available information about a foreign
company than about a domestic company.

B. DESCRIPTION OF INVESTMENT TECHNIQUES

VCA-2 may use some of the following investment techniques designed to meet
VCA-2's objective.

Financial futures contracts. To the extent permitted by applicable regulations,
VCA-2 may purchase and sell financial futures contracts, including stock index
futures contracts, futures contracts on interest-bearing securities (such as
U.S. Treasury bonds and notes) or rate indices, and futures contracts on foreign
currencies or groups of foreign currencies. VCA-2 will use futures contracts
solely for the purpose of hedging the Account's positions with respect to
securities, interest rates, and foreign securities.

A financial futures contract generally provides for the future sale by one party
and purchase by the other party of a specified amount of a particular financial
instrument or currency at a specified price on a designated date. A stock index
futures contract is an agreement in which the seller of the contract agrees to
deliver to the buyer an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made.

Further information about futures contracts, including risks and investment
techniques, is provided in the Statement of Additional Information.

Options. VCA-2 may purchase and sell (i.e., write) put and call options on
equity securities, debt securities, securities indices, foreign currencies, and
financial futures contracts. An option gives the owner the right to buy or sell
securities at a predetermined exercise price for a given period of time.
Currently, the 1940 Act is interpreted to require that any options written by
investment companies, such as VCA-2, be "covered," which can be done in a
variety of ways, such as placing in a segregated account certain securities or
cash designed to "cover" VCA-2's obligation under the written option. Additional
explanation about techniques VCA-2 will use in connection with options is
provided in the Statement of Additional Information.

Although options will be primarily used to reduce fluctuations in the value of
VCA-2's investments (i.e., hedge) or to generate additional premium income, they
do involve certain risks. The investment adviser may not correctly anticipate
movements in the relevant markets, thus causing losses on VCA-2's options
positions. VCA-2's use of options is subject to other special risks, information
about which is provided in the Statement of Additional Information.

7
<PAGE>

Real estate-related securities. VCA-2 may invest in securities secured by real
estate or shares of real estate investment trusts that are listed on a stock
exchange or reported on the National Association of Securities Dealers, Inc.
automated quotation system ("NASDAQ"). Such securities may be sensitive to
factors such as real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. They may also be affected by tax and regulatory
requirements, such as those relating to the environment.

Repurchase agreements. When VCA-2 purchases certain money market securities, it
may on occasion enter into a repurchase agreement with the seller wherein the
seller and VCA-2 agree at the time of sale to a repurchase of the security at a
mutually agreed upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon market rate of interest effective for the period of time the
Account's money is invested in the security, and is not related to the coupon
rate of the purchased security. Repurchase agreements may be considered loans of
money to the seller of the underlying security, which are collateralized by the
securities underlying the repurchase agreement. VCA-2 will not enter into
repurchase agreements unless the agreement is "fully collateralized," i.e., the
value of the securities is, and during the entire term of the agreement remains,
at least equal to the amount of the "loan" including accrued interest. VCA-2
will take possession of the securities underlying the agreement and will value
them daily to assure that this condition is met. The VCA-2 Committee has adopted
standards for the parties with whom it will enter into repurchase agreements
which it believes are reasonably designed to assure that such a party presents
no serious risk of becoming involved in bankruptcy or insolvency proceedings
within the time frame contemplated by the repurchase agreement. In the event
that a seller defaults on a repurchase agreement, VCA-2 may incur a loss in the
market value of the collateral as well as disposition costs; and, if a party
with whom VCA-2 had entered into a repurchase agreement becomes insolvent,
VCA-2's ability to realize on the collateral may be limited or delayed and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the insolvency proceedings.

VCA-2 will not enter into repurchase agreements with Prudential or its
affiliates, including Prudential Securities Incorporated. This will not affect
VCA-2's ability to maximize its opportunities to engage in repurchase
agreements.

Reverse repurchase agreements and dollar roll transactions. VCA-2 may enter into
reverse repurchase agreements and dollar roll transactions. Reverse repurchase
agreements involve the sale of securities held by VCA-2 with an agreement by the
Account to repurchase the same securities at an agreed upon price and date.
During the reverse repurchase period, VCA-2 often continues to receive principal
and interest payments on the sold securities. The terms of each agreement
reflect a rate of interest for use of the funds for the period, and thus these
agreements have some of the characteristics of borrowing by VCA-2.

Dollar rolls involve sales by VCA-2 of securities for delivery in the current
month with a simultaneous contract to repurchase substantially similar
securities (same type and coupon) from the same party at an agreed upon price
and date. During the roll period, VCA-2 forgoes principal and interest paid on
the securities. VCA-2 is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. VCA-2 will
establish a segregated account with its custodian in which it will maintain
cash, U.S. Government securities or other liquid unencumbered assets marked to
market daily ("liquid unencumbered assets") equal in value to its obligations in
respect of reverse repurchase agreements and dollar rolls.

Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by VCA-2 may decline below the price of the
securities VCA-2 has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, VCA-2's use of the proceeds of
the agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce VCA-2's obligation to repurchasethe
securities.

When-issued or delayed delivery securities. VCA-2 may, from time to time and in
the ordinary course of business, purchase or sell securities on a when-issued or
delayed delivery basis, that is, delivery and payment can take place a month or
more after the date of the transaction. VCA-2 will make commitments for such
when-issued or delayed delivery transactions only with the intention of
acquiring the securities. The Account's custodian will maintain in a separate
account portfolio securities having a value equal to or greater than any such
commitments. If VCA-2 were to dispose of the right to acquire a security it
could, as with the disposition of any security, incur a gain or loss due to
market fluctuations.

Short sales against the box. VCA-2 may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open, VCA-2 owns an equal amount of the securities sold short or securities
convertible into or exchangeable, with or

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without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short (a "short sale against the
box"); provided, that if further consideration is required in connection with
the conversion or exchange, cash or U.S. Government securities in an amount
equal to such consideration must be put in a segregated account.

Other investment techniques. To the extent permitted by applicable regulations,
VCA-2 may also use forward foreign currency exchange contracts and interest rate
swaps. VCA-2 may also lend its portfolio securities from time to time.
Information about these investment techniques, including certain risks
associated with their use, is provided in the Statement of Additional
Information.

C. DETERMINATION OF ASSET VALUE

The Accumulation Unit Value for VCA-2 will be determined once daily as of 4:15
p.m. Eastern time on each day that the New York Stock Exchange ("NYSE") is open
for trading. The NYSE is normally open for trading Monday through Friday except
for the days on which the following holidays are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Any security for which the primary market
is on an exchange is generally valued at the last sale price on such exchange as
of the close of the NYSE (which is currently 4:00 p.m. Eastern time) or, in the
absence of recorded sales, at the mean between the last bid and asked prices.
NASDAQ National Market System equity securities are valued at the last sale
price or, if there was no sale on such day, at the mean between the most
recently quoted bid and asked prices. Other over-the-counter equity securities
are valued at the mean between the last quoted bid and asked prices.

Fixed income securities will be valued utilizing an independent pricing service
to determine valuations for normal institutional size trading units of
securities. The pricing service considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at securities valuations. Convertible debt securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked prices
provided by an independent pricing service. Short-term investments having
maturities of sixty days or less are valued at amortized cost which, with
accrued interest, approximates market value. Amortized cost is computed using
the cost on the date of purchase, adjusted for constant accrual of discount or
amortization of premium to maturity. Portfolio securities for which market
quotations are not readily available will be valued at fair value as determined
in good faith under the direction ofthe Committee.

AGREEMENT FOR INVESTMENT
MANAGEMENT SERVICES

Prudential acts as investment manager for VCA-2 pursuant to the Agreement for
Investment Management Services between Prudential and VCA-2 which was approved
initially by the Participants at their meeting on May 29, 1969, and most
recently renewed by unanimous vote of the Committee on November 22, 1996.

Subject to Prudential's supervision, substantially all of the services required
to be provided by Prudential under the Agreement for Investment Management
Services are furnished by PIC pursuant to a Service Agreement between them. This
Service Agreement was most recently renewed by unanimous vote of the Committee
at its meeting on November 22, 1996 and by the Participants on July 25, 1985.
PIC is registered as an investment adviser under the Investment Advisers Act of
1940.

Prudential continues to have responsibility for all investment advisory services
under its investment management agreement with the Account. Pursuant to the
service agreement between Prudential and PIC, Prudential reimburses PIC for its
costs and expenses.

The Agreement for Investment Management Services between Prudential and VCA-2:

A. must be specifically approved, at least annually, by the affirmative
vote of the VCA-2 Committee, cast in person at a meeting called for
the purpose of voting on such approval, which affirmative vote shall
include the votes of a majority of the members of the Committee who
are not "interested persons" of Prudential, its affiliates or VCA-2,
within the meaning of the 1940 Act; and

B. may not be amended to increase the compensation paid to Prudential
thereunder without prior approval by a majority vote of persons having
voting rights in respect of VCA-2 (as defined by the 1940 Act), and by
the affirmative vote of the Committee cast and constituted as
described in a. above; and

C. will continue in effect from year to year unless it is terminated,
without payment of any penalty, on sixty days' written notice to
Prudential, either by the Committee or by a majority vote of persons
having voting rights in respect of VCA-2 (as defined by the 1940 Act),
or unless it is terminated by Prudential on ninety days' written
notice to the Committee. It will also terminate automatically in the
event of its assignment. Termination of the Agreement does not
terminate Prudential's obligations to the Contract-holders or the
Participants under the Contracts.

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The Service Agreement between Prudential and PIC:

A. will continue in effect as to VCA-2 for a period of more than two
years from its execution, only so long as such continuance is
specifically approved at least annually in the same manner as the
Agreement for Investment Management Services between Prudential and
VCA-2.

B. may be terminated by either party upon not less than thirty days prior
written notice to the other party, will terminate automatically in the
event of its assignment and will terminate automatically as to VCA-2
in the event of the assignment or termination of the Agreement for
Investment Management Services between Prudential and VCA-2.

C. does not relieve Prudential of its responsibility for all investment
advisory services under the Agreement for Investment Management
Services between Prudential and VCA-2.

D. provides for Prudential to reimburse PIC for its costs and expenses
incurred in furnishing investment advisory services.

CHARGES

The purchase payments payable on behalf of a Participant will generally be set
forth in a salary-annuity agreement with his employer. Since the charges
discussed below may be a significant percentage of the purchase payments, a
person who is not reasonably certain of both his intention and ability to
continue as a Participant would be well-advised to refrain from participation
under the Contract.

Prudential and PIMS will be compensated for sales and administrative services in
the following manner:

First, ninety-seven and one-half percent (97.5%) of each purchase payment under
a Contract made on the Participant's behalf will be credited to his individual
accumulation account in the form of Accumulation Units. The remaining two and
one-half percent (2.5%), will be retained and used primarily for sales and other
marketing expenses. These maximum sales charges may be changed by Prudential on
90 days' notice (see Section D on page 21.

Second, an annual administration charge will be deducted from each Participant's
individual accumulation account for recordkeeping and other administrative
expenses. Any such charge will be made on the last business day of the
accounting year if the Participant's account is still open. If the account is
cancelled before the end of the accounting year, any such charge will be made on
the date of cancellation. After such cancellation, a Participant may participate
again only as a new Participant and will be subject to a new annual
administration charge. The annual administration charge will be pro rated for
new Participants for the first year of their participation, based on the number
of full months in the accounting year remaining after the first contribution is
received. If the Participant's account is cancelled prior to the end of that
accounting year, however, this initial charge will not be pro rated.

The annual administration charge will not be greater than $30 annually, to be
divided between the Variable Contract and a fixed-dollar annuity contract (if
the Participant is enrolled under such a contract) as determined by Prudential.
This maximum charge may be changed by Prudential on 90 days' notice (see Section
D on page 21).

The sales and annual administration charges described above may be reduced or
eliminated in connection with a particular Contract or Program, but only to the
extent that Prudential and PIMS estimate that they will incur lower sales or
administrative expenses or perform fewer sales or administrative services due to
economies arising from (1) the utilization of mass enrollment procedures or (2)
the performance of recordkeeping or sales functions by the Contract-holder or an
employee organization which Prudential and PIMS would otherwise be required to
perform or (3) an accumulated surplus of charges over expenses under the
Contract. The exact amount of the sales and annual administration charges
applicable to any Contract will be stated in the Contract.

Third, a daily deduction will be made from the value of a Participant's account
in an amount equal to a stated percentage of the current value of the account.
This is done in connection with the daily determination of the Accumulation Unit
Value (see page 12). A corresponding charge is made in computing monthly annuity
payments (see pages 17 through 20). This deduction (which will be in addition to
the investment management fee described below) will be equal to a percentage,
computed at an effective annual rate of 0.375% (3/8 of 1%), of the current
value of the Participant's account. Of this charge, 0.125% (1/8 of 1%) is for
assuming the mortality risks and 0.250% (1/4 of 1%) for assuming the expense
risks described below. This deduction may be changed by Prudential on 90 days'
notice except as described in Section D on page 21.

Prudential is compensated for investment management services through deductions
from the value of the units of a Participant's accumulation account and from the
value of the Annuity Units payable monthly to an annuitant. Deductions are
computed daily at an effective annual rate of 0.125% (1/8 of 1%) of the current
value of an

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<PAGE>

accumulation account and an equivalent charge is made monthly in determining the
amount of annuity payments.

Although variable annuity payments will vary in accordance with the investment
performance of VCA-2, they will not be affected by adverse mortality experience
or by an increase in Prudential's expenses (to an amount in excess of the
expense deductions provided for in the Contract). Prudential assumes the risk
(i) that annuitants as a class may live longer than had been estimated, so that
payments will continue for longer than had been anticipated, and (ii) that
deductions for sales and administrative expenses may be insufficient to cover
the actual costs of these items. In either case, the loss would fall on
Prudential. On the other hand, the deductions that will be made for sales,
investment management and administrative expenses and for assuming mortality and
expense risks may exceed the cost that Prudential will ultimately incur over the
life of the Contract. As the actual experience under these Contracts is
realized, the amount of any excess will become known, and if it is greater than
the amount which must prudently be retained to fulfill Prudential's contractual
obligations, the balance becomes part of the divisible surplus of Prudential
(see "Participation in Divisible Surplus," page 21).

THE GROUP VARIABLE ANNUITY
CONTRACTS

Prudential will issue a Contract to the Contract-holder, which will ordinarily
be the employer of the Participants but may also be an association or trustee of
a trust representing them or their employers. Prudential will also issue a
certificate to the Contract-holder for delivery to each annuitant under the
Contract on the date his first annuity payment is made. The certificate will
describe the variable annuity benefits to which the annuitant is entitled under
the Contract. If any applicable law so requires, Prudential will issue a similar
certificate to the Contract-holder for delivery to each Participant for whom an
annuity has not yet been effected.

A. THE ACCUMULATION PERIOD

1. Crediting Accumulation Units; Deduction for Sales and Administrative
Expenses

When a person first becomes a Participant under the Contract, he must designate,
if there is a companion fixed-dollar annuity contract, what portion of the
purchase payments on his behalf is to be invested under the Variable Contract
and what portion is to be invested in the companion fixed-dollar annuity
contract. This designation may be changed from time to time.

During the accumulation period--the period before the commencement of annuity
payments--ninety-seven and one-half percent (97.5%) (see "Charges," page 10) of
each purchase payment allocated to the Variable Contract on behalf of the
Participant will be credited to an individual accumulation account maintained
for him in the form of Accumulation Units. The number of Accumulation Units
credited is determined by dividing ninety-seven and one-half percent (97.5%) of
the amount allocated, by the Accumulation Unit Value for the business day on
which the purchase payment is received by Prudential. The term "business day"
means a day on which the New York Stock Exchange is open for trading.

The initial contribution made for a Participant will be invested in VCA-2 no
later than two business days after it is received by Prudential and identified
as being for investment in VCA-2, if it is preceded or accompanied by enrollment
information in a form satisfactory to Prudential (i.e., good order). If the
Contract-holder submits an initial contribution on behalf of one or more new
Participants that is not preceded or accompanied by satisfactory enrollment
information, then Prudential will allocate such contribution upon receipt to a
money market option (which is available contractually to the Contract-holder),
and also will send a notice to the Contract-holder that requests allocation
information for each such Participant. If the Contract-holder purchases only
contracts that are issued through VCA-2, or purchases such contracts together
with either a group variable annuity contract issued through Prudential's MEDLEY
Program or unaffiliated mutual funds, then contributions that are not preceded
or accompanied by satisfactory enrollment information will be invested in The
Prudential Variable Contract Account-11 ("VCA-11") within Prudential's MEDLEY
Program. If the Contract-holder purchases contracts that are issued through
VCA-2 as well as shares of a money market fund, then contributions that are not
preceded or accompanied by satisfactory enrollment information will be invested
in the money market fund. If the necessary enrollment information is not
received in response to its initial notice to the Contract-holder, Prudential
will deliver up to three additional notices to the Contract-holder at monthly
intervals that request such allocation information. After 105 days have passed
from the time that Units of VCA-11 (or, as the case may be, shares of the money
market fund) were purchased on behalf of Participants who failed to provide the
necessary enrollment information, Prudential will redeem the relevant VCA-11
Units (or shares of the money market fund) and pay the proceeds (including
earnings thereon) to the Contract-holder. Any proceeds paid to the
Contract-holder under this procedure may be considered a prohibited and taxable
reversion to the Contract-holder under current provisions of the Internal
Revenue Code. Similarly, returning proceeds may cause the Contract-holder to
violate a requirement under the Employee Retirement Income Security Act of 1974,
as amended, to hold all plan assets in trust. Both problems may be avoided if
the Contract-holder arranges to have the proceeds paid into a qualified trust or
annuity contract.

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<PAGE>

The number of Accumulation Units credited to a Participant will not be affected
by any subsequent change in the value of an Accumulation Unit, but the dollar
value of an Accumulation Unit will vary from business day to business day
depending upon the investment experience of VCA-2. The number of Accumulation
Units will be reduced, however, as the result of the annual administration
charge, which will be made by cancelling that number of Accumulation Units which
is equal to the amount of the charge (see "Charges," page 10) divided by the
Accumulation Unit Value for the business day on which the charge is made. The
annual administration charge is usually made on the last business day of each
accounting year. However, in certain circumstances (described below), such
charge will be made without reduction for the unexpired portion of the year, on
the date a Participant's individual accumulation account is cancelled, either
because a variable annuity is effected or otherwise.

2. Valuation of a Participant's Individual Accumulation Account

The value of a Participant's individual accumulation account on any day prior to
the commencement of annuity payments to him can be determined by multiplying the
total number of Accumulation Units credited to his account by the Accumulation
Unit Value for that day. Each Participant will be advised at least once during
the second and each subsequent accounting year of the number of Accumulation
Units credited to his account as of the end of the preceding accounting year and
of the Accumulation Unit Value at that time (see "Periodic Reports," page 21).

3. The Accumulation Unit Value

The Accumulation Unit Value will be determined each business day by multiplying
the previous day's Accumulation Unit Value by the gross change factor for the
current business day and reducing this amount by the daily equivalent of the
investment management fees and mortality and expense risk charges. The gross
change factor is determined by dividing the current day's net assets, ignoring
changes resulting from new purchase payments and withdrawals, by the previous
day's net assets.

4. Discontinuance of Purchase Payments

Purchase payments on behalf of all Participants under any Contract may be
discontinued upon notice by the Contract-holder to Prudential. In addition, any
Participant may cause purchase payments on his behalf to be discontinued.

On 90 days' advance notice to the Contract-holder, Prudential may elect not to
accept any new Participant, or not to accept further contributions for existing
Participants under certain Contracts.

A Participant on whose behalf purchase payments have been discontinued may
either leave his individual accumulation account in force or exercise any of the
applicable options outlined below under the headings "Withdrawal (Redemption) of
Purchase Payments Prior to Death," below and "Transfer Payments," page 15.

5. Continuance Under Group Contract After Being Employed by New Employer

A Participant who becomes employed by a new employer which is eligible to
provide for tax-deferred annuities may enter into an agreement with such new
employer under which purchase payments can be continued under the Contract by
the new employer on behalf of the Participant.

6. Withdrawal (Redemption) of Purchase Payments Prior to Death

The Internal Revenue Code imposes restrictions on withdrawals from the Contract.
Pursuant to Section 403(b)(11) of the Code, amounts in the Participant's
accumulation account attributable to salary reduction contributions (including
the earnings thereon) that are made under the Contract after December 31, 1988
can only be withdrawn when the Participant attains age 591 @2, separates from
service with his employer, dies or becomes disabled (within the meaning of
Section72(m)(7) of the Code). However, the Code permits the withdrawal at any
time of amounts attributable to salary reduction contributions (excluding the
earnings thereon) that are made after December 31, 1988, in the case of a
hardship. If the plan adopted by an employer under which a Participant is
covered contains a financial hardship provision, cash withdrawals from the
Contract can be made in the event of hardship.

Subject to any restrictions upon withdrawals contained in the plan adopted by an
employer under which a Participant is covered, a Participant can withdraw at any
time any amount up to the dollar value of his accumulation account as of
December 31, 1988. Post December 31, 1988 earnings on accumulations attributable
to salary reduction contributions are, however, subject to the Section
403(b)(11) withdrawal restrictions discussed above.

Subject to any conditions or limitations regarding transfers contained in the
plan adopted by an employer under which a Participant is covered, a Participant
can continue to make transfers of all or part of his accumulation account among
the available investment options offered by Prudential and can transfer directly
all or part of his interest in his accumulation account to a Section 403(b)
tax-deferred annuity contract of another insurance company or to a mutual fund
custodial account under Section 403(b)(7). (See "Transfer Payments," page 15).

Furthermore, unless a plan adopted by an employer provides otherwise, the
Contract will provide that upon written request by any Participant, a single sum
cash

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<PAGE>

payment will be made to him in any amount requested which is equal to or
less than the dollar value of his individual accumulation account attributable
to employer contributions or after tax Participant Contributions, if any, as of
the day Prudential receives notice of his request.

Withdrawal requests must be made on a form approved by Prudential (or may be
effected by telephone if the Program permits). If a Participant's account is
cancelled, the amount of this payment will be computed after deducting the full
annual administration charge that would otherwise be deducted at the end of the
accounting year. Such payment will be made within seven days after written
notice of the Participant's request has been received, except as deferment of
such payment may be permitted under the provisions of the 1940 Act as may be in
effect from time to time. Currently, deferment is permissible only when the New
York Stock Exchange is closed or trading thereon is restricted, when an
emergency exists as a result of which disposal of the securities held in VCA-2
is not reasonably practicable or it is not reasonably practicable for the value
of its assets to be fairly determined, or when the Securities and Exchange
Commission has provided for such deferment for the protection of Participants.
As of the day Prudential receives notice of the Participant's request, his
account will be reduced by the number of Accumulation Units obtained by dividing
the payment due by the Accumulation Unit Value for that day. The appropriate
address to which a written withdrawal request should be sent is set out in the
Summary of this Prospectus. Under certain Contracts, an entity other than
Prudential keeps certain records, and Participants under those Contracts must
contact the record-keeper with regard to withdrawals. See "Modified Procedures,"
page 17.

A Participant would be well-advised to obtain information about the federal
income tax consequences of any withdrawal and to check with a tax adviser
regarding the current state of the law before making a withdrawal. Generally, a
Participant who exercises his withdrawal rights will be taxed at ordinary income
rates on the amount withdrawn. In addition, withdrawals prior to age 59 1/2 will
generally be subject to a 10% premature distribution penalty tax. Certain
exceptions apply, however, and it is suggested that Participants consult a tax
adviser for additional information about this penalty tax before a withdrawal is
made. (See "Federal Tax Status," pages 21 and 22). Prudential may process a
withdrawal from a Participant's individual accumulation account if Prudential
determines that the Participant's contributions exceed the amount permitted by
the Internal Revenue Code.

An employer may adopt a plan that limits the right of Participants to obtain
cash withdrawals upon request. Participants should ascertain whether their
employer has adopted such a plan and, if so, whether it includes withdrawal
limitations and what they are. Contracts issued to employers who have adopted
such plans will provide that requests for cash withdrawals for the benefit of
the Participants may be made by the Contract-holder, with the concurrence of the
Participant, and that payment of the amount requested, less any applicable
annual administration charge, will be made within seven days after Prudential
has received notice of the request.

Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 requires that in the case of a married Participant, a withdrawal request
include the consent of the Participant's spouse. This consent must contain the
signatures of the Participant and spouse and must be notarized or witnessed by
an authorized Plan representative.

7. Systematic Withdrawal Plan

Subject to any restrictions upon withdrawals contained in the plan adopted by an
employer under which a Participant is covered, and subject to the restrictions
and limitations set forth below, a Participant may arrange for systematic
withdrawals to be made from his accumulation account. A Participant may arrange
for systematic withdrawals only if, at the time he elects to have such an
arrangement, the balance in his accumulation account is at least $5,000. A
Participant who has not reached age 59 1/2, however, may not elect a systematic
withdrawal arrangement unless he has first separated from service with his
employer. In addition, the $5,000 minimum balance does not apply to systematic
withdrawals made for the purpose of satisfying minimum distribution rules.

Generally, amounts withdrawn will be taxable at ordinary income tax rates. In
addition, withdrawals by Participants who have not reached age 59 1/2 will
generally be subject to a 10% premature distribution penalty tax. Withdrawals
made after the later of (i) a Participant's attaining age 70 1/2 and (ii) a
Participant's retirement, and certain withdrawals by beneficiaries must satisfy
certain minimum distribution rules. (See "Federal Tax Status," pages 21-22, and
"Death Benefits Before an Annuity is Effected," page 14.)

Systematic withdrawals may be arranged pursuant to an election on a form
approved by Prudential. Under certain types of Section 403(b) annuities, an
election to arrange for systematic withdrawals by a married Participant must be
consented to in writing by the Participant's spouse, with signatures notarized
or witnessed by an authorized plan representative. The election must specify
that the systematic withdrawals shall be made on a monthly, quarterly,
semi-annual, or annual basis.

All systematic withdrawals will be effected as of the day of the month specified
by the Contract-holder, or, if such day is not a business day, then on the next
succeeding business day. Systematic withdrawals will continue until the
Participant either has withdrawn all of the balance in his accumulation account
or has instructed Prudential in writing to terminate his systematic withdrawal
arrangement. The Participant may elect to make systematic withdrawals in equal
dollar amounts or over a specified period of time (at least three years). Where
the Participant elects to make systematic withdrawals over a

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<PAGE>

specified period of time, the amount of each withdrawal--which will vary,
reflecting investment experience during the withdrawal period--will be equal to
the sum of the balance then in the Participant's accumulation amount divided by
the number of systematic withdrawals remaining to be made during the withdrawal
period.

A Participant may change the frequency, amount or duration of his systematic
withdrawals by submitting a form to Prudential that Prudential will provide to
him upon request. A Participant may make such a change only once during each
calendar year.

A Participant may at any time instruct Prudential to terminate the Participant's
systematic withdrawal arrangement, and no systematic withdrawals will be made
for him after Prudential has received his instruction. A Participant who chooses
to stop making systematic withdrawals may not make them again until the next
calendar year and may be subject to federal tax consequences.

An arrangement to make systematic withdrawals will not affect any of the
Participant's other rights under the Contracts, including the right to make
withdrawals (redemptions) as described on pages 12 and 13 of this Prospectus,
the right to make transfers as described on pages 15 and 16, and the right to
effect an annuity as described on page 17.

Participants who have elected a systematic withdrawal may also continue to make
additional purchase payments. Purchase payments are generally reduced for sales
charges. See "Charges," page 10. Participants should carefully review the
election of this option if they intend to continue making purchase payments and
consider the effect of sales charge expenses while making payments and
withdrawals at the same time. Different procedures may apply for Contracts under
which an entity other than Prudential provides record-keeping services. See
"Modified Procedures," page 17.

8. Texas Optional Retirement Program

Special rules apply with respect to Contracts covering persons participating in
the Texas Optional Retirement Program ("Texas Program") in order to comply with
the provisions of Texas law relating to the Texas Program.

Under the terms of the Texas Program, Texas will contribute an amount somewhat
larger than a Participant's contribution. Texas' contributions, less the sales
charge described on page 10, will be credited to the Participant's individual
accumulation account. Until the Participant begins his second year of
participation in the Texas Program as a "faculty member" as defined in Section
31.001(8) of Title 110B of the Texas Revised Civil Statutes, Prudential will
have the right to withdraw the value of the Accumulation Units purchased for his
account with Texas' contributions. If the Participant does not commence his
second year of the Texas Program participation, the value of those Units will be
withdrawn and Texas' contributions returned to the State.

Pursuant to Section 36.105 of Title 110B of the Texas Revised Civil Statutes and
a ruling of the State Attorney General, withdrawal rights of Contracts issued
under the Texas Program are available only in the event of a Participant's
death, retirement or termination of employment in all institutions of higher
education as defined in Section 61.003 of the Texas Education Code. Participants
will not, therefore, be entitled to exercise the right of withdrawal in order to
receive in cash the values credited to them under the Contract unless one of the
foregoing conditions has been satisfied. The value of a Participant's interests
under the Contract may, however, be transferred to another Prudential contract
or contracts of other carriers approved under the Texas Program during the
period of the Participant's Texas Program participation. For certain Contracts,
a death benefit claim should be sent to a designated record-keeper rather than
to Prudential. See "Modified Procedures," page 17.

9. Death Benefits Before an Annuity is Effected

When a Participant dies, subject to receipt by Prudential of due proof of death
and to the submission of a claim for benefits on a form approved by Prudential,
his individual accumulation account balance (after deduction of the full annual
administration charge) will be used to provide a death benefit for his
beneficiary. The appropriate address to which a death benefit claim should be
sent is set out in the Summary section of this Prospectus.

Unless the Participant has directed otherwise, any beneficiary may elect to
apply the Participant's accumulation account balance (after deduction of the
full annual administration charge):

A. to receive a single sum cash payment of the dollar value of the
Participant's account as of the date such election is made and such proof
of death is received by Prudential. If a single sum payment is elected
within one year after the Participant's death, an additional payment will
be made, if necessary, so that the total paid is equal to the purchase
payments paid in, minus any withdrawals or transfers paid out;

B. to have a variable annuity effected for himself on a specified date on the
basis of the Participant's account, using the same annuity purchase rate
basis that would have applied if the account had been used to effect a
variable annuity for the Participant;

C. to receive regular payments in accordance with the systematic withdrawal
plan; or

D. a combination of all or any two of (a), (b) and (c).

The beneficiary must make his election in writing before the first anniversary
of the Participant's death or at any time before the expiration of two months
after Prudential

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<PAGE>

receives due proof of such death, whichever is later. With respect to benefits
accruing after December 31, 1986, IRS Regulations under Section 401(a)(9) of the
Internal Revenue Code provide that a designated beneficiary must begin to
receive payments no later than the earlier of (1)December 31 of the calendar
year which contains the fifth anniversary of the Participant's date of death or
(2)December 31 of the calendar year in which annuity payments would be required
to begin to satisfy the minimum distribution requirements described below. As of
such date the election must be irrevocable and must apply to all subsequent
years.

However, if the election includes systematic withdrawals, the beneficiary will
have the right to terminate them and receive the remaining balance in cash (or
effect an annuity with it), or to change their frequency, size or duration,
subject to the limitations described below.

Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 requires that, in the case of a married Participant, a death benefit be
payable to the Participant's spouse in the form of a "qualified pre-retirement
survivor annuity." A "qualified pre-retirement survivor annuity" is an annuity
for the lifetime of the Participant's spouse in an amount which can be purchased
with no less than 50% of the balance in the Participant's account as of his date
of death. Under the Retirement Equity Act, the spouse of a Participant in a
Section 403(b) annuity which is subject to these rules may consent to waive the
pre-retirement survivor annuity benefit. Such consent must acknowledge the
effect of waiving the coverage and contain the signatures of the Participant and
spouse and must be notarized or witnessed by an authorized Plan representative.
Unless the spouse of a Participant in a Plan which is subject to these
requirements properly waives the benefit, 50% of the Participant's account
balance will be paid to such spouse even if the designated beneficiary is
someone other than the spouse. Under these circumstances, the remaining 50% of
the Participant's account balance would be paid to the designated beneficiary.

With respect to benefits accrued before January 1, 1987, a beneficiary who
elects to have an annuity purchased for himself may choose from among the forms
of annuity described on page 18. The beneficiary may elect to have an annuity
effected immediately or at a future date (but not later than his 70th birthday,
or, if later, two months after the date of his election to have an annuity
effected).

Benefits accruing after December 31, 1986 under a Section 403(b) annuity
contract are subject to required minimum distribution rules which specify the
time when payment of benefits must begin and the minimum amount which must be
paid annually. Generally, when a Participant dies before payment of benefits has
begun, the death benefit must be paid out entirely by December 31 of the
calendar year containing the fifth anniversary of the Participant's date of
death. Alternatively, a designated beneficiary may elect an annuity from among
Options 1, 2, or 4 described on page 18, with payments required to begin by
December 31 of the calendar year immediately following the calendar year in
which the Participant died or, if the Participant's spouse is the designated
beneficiary, December 31 of the calendar year in which the Participant would
have attained age 70 1/2, if later. Options 3 and 5 may not be chosen. In
addition, the duration of any period certain annuities may not exceed the
beneficiary's life expectancy as determined under IRS Tables. If the amount
distributed to a beneficiary for a calendar year is less than the minimum
required amount, a federal excise tax is imposed equal to 50% of the amount of
the underpayment.

The requirements described above concerning the effecting of annuities or
annuity payments apply also to the commencement of a systematic withdrawal plan
and to withdrawals under it.

If the beneficiary elects to receive a single sum cash payment, such payment
will be made within seven days after the date of his election and receipt of due
proof of death, except in certain emergency situations when payment may be
deferred (see "Withdrawal (Redemption) of Purchase Payments Prior to Death,"
page 12). A beneficiary who elects to have a variable annuity effected for
himself will have the right to cancel such election by so notifying Prudential
in writing at least 15 days prior to the date on which such annuity would
otherwise be effected, and, within seven days after receipt of such notice, a
single sum cash payment will be made to the beneficiary in the amount of the
dollar value of the Participant's account (after deducting the full annual
administration charge) as of the date the notice is received.

10. Transfer Payments

A. Unless restricted by the retirement arrangement under which a Participant
is covered, upon the written request or properly authorized telephone
transfer request of a Participant who is also covered by a group
fixed-dollar annuity contract, all or a portion of the Participant's
accumulation account will be transferred from the Variable Contract to the
fixed-dollar contract. As of the date Prudential receives such a request,
the portion of the Participant's accumulation account specified in his
request will be cancelled and, within seven days after such date, a
transfer payment of the dollar value of such amount will be made. There is
no minimum transfer amount. Prudential reserves the right to limit the
frequency of such transfer payments to the fixed-dollar contract. Different
procedures may apply for Contracts under which an entity other than
Prudential provides record-keeping services. See "Modified Procedures,"
page 17.

B. Transfer payments may be made to a Participant's individual accumulation
account under the Vari-

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<PAGE>

able Contract from either the group fixed-dollar annuity contract, if any,
or from a similar group annuity contract issued by Prudential to another
employer. All such transfer payments will be treated as purchase payments
made to VCA-2 on the business day on which the transfer payment is made,
except that no transfer payment will count as a purchase for purposes of
calculating sales charges. Prudential reserves the right to limit the
frequency of such transfer payments.

If a Participant who is also covered by a group fixed-dollar annuity
contract transfers an amount to the Participant's accumulation account, the
applicable contracts or the terms of the Participant's retirement
arrangement may provide that amounts transferred may not for 90 days
thereafter be transferred into an investment option deemed to be
"competing" with the fixed-dollar contract with respect to investment
characteristics.

C. If a Participant ceases to be employed by a Contract-holder and becomes an
employee of another employer whose employees are covered under a similar
group annuity contract issued by Prudential, the Participant may request on
a form approved by Prudential that Prudential make a transfer payment from
his individual accumulation account to such similar contract, in an amount
equal to the dollar value of the Participant's account as of the date
Prudential receives his request. The transfer payment described in this
paragraph will be made without charge within seven days after Prudential
receives the Participant's transfer request, and the Participant's account
will be cancelled accordingly. If such a transfer is made, the provisions
of the substituted contract will be applicable to him.

D. The Contract provides that upon discontinuance of purchase payments for all
Participants thereunder (see "Discontinuance of Purchase Payments," page
12) the Contract-holder may on a form approved by Prudential request
Prudential to make transfer payments from VCA-2 to a designated alternate
funding agency. Each Participant and each beneficiary of a deceased
Participant for whom an individual accumulation account remains in force
under the Contract will be notified promptly that such a request has been
received. Each recipient of such a notice may within thirty days of such
receipt elect in writing on a form approved by Prudential to have his
account transferred to the alternate funding agency. If he does not so
elect, his account will continue in force under the Contract. The
accumulation account of any Participant or beneficiary who does so elect
will be cancelled as of a "transfer date," which is the business day
specified in the Contract-holder's request or 90 days after Prudential
receives the request, whichever is later. A single liquidation account for
the Contract will be established equal to the sum of the individual
accumulation accounts so cancelled (after deducting the full annual
administration charge from each such account). Beginning on the transfer
date and each month thereafter until the liquidation account is exhausted,
an allocation will be made from the liquidation account of not less than
the number of Accumulation Units equal in value to two million dollars or
3% of the number of Accumulation Units in such account on the transfer
date, whichever is greater (or the total amount of Accumulation Units in
the liquidation account, if less). Upon each such allocation, the number of
allocated Accumulation Units will be cancelled and a transfer payment will
be made which is equal to 100% of the product of (i) the number of
Accumulation Units so allocated, and (ii) the Accumulation Unit Value for
the date of allocation. Each transfer payment will be made to the
designated alternate funding agency within seven days of the date of
allocation.

Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 provides that, in the case of a married Participant, a request for transfer
payments (other than to the group fixed dollar annuity contract) must include
the consent and signatures of the Participant and spouse and must be notarized
or witnessed by an authorized Plan representative.

11. Telephone Requests.

Certain Programs may allow Participants to effect transfers and other Account
transactions by telephone and telecopy. If the Program offers telephone
privileges, each Program Participant will automatically receive such privileges
unless he or she declines those privileges on a form that will be supplied by
the Contract-holder or Prudential. For the Participant's protection and to
prevent unauthorized exchanges, telephone calls will be recorded and the
Participant will be asked to provide his or her personal identification number
or other identifying information. A written confirmation of a transfer will be
sent to the Participant. Neither the Account nor its agents will be liable for
any loss, liability or cost which results from acting upon instructions
reasonably believed to be genuine under the foregoing procedures. Telephone
privileges are available only if the Contract-holder has so elected and only in
states where these privileges may legally be offered. The safeguards discussed
above that are employed by the Account are designed to minimize unauthorized
exercise of these privileges. During times of extraordinary economic or market
changes, telephone or telecopy instructions may be difficult to implement.

12. Modified Procedures

Under certain Contracts, the Contract-holder or a third party acting on their
behalf provides record-keeping

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<PAGE>

services that would otherwise be performed by Prudential. Such Contracts may
require procedures somewhat different than those set forth in this Prospectus.
For example, such Contracts may require that contribution allocation requests,
withdrawal requests, and/or transfer requests be directed to the Contract's
record-keeper rather than Prudential. The record-keeper is the Contract-holder's
agent, not Prudential's agent. Accordingly, transactions will be processed and
priced as of the end of the valuation period in which Prudential receives
appropriate instructions and/or funds from the record-keeper. Any such different
procedures will be set forth in the Contract.

13. Exchange Offer with the PMF Funds

Prudential may offer certain open-end management investment companies--generally
referred to as mutual funds--as an alternative investment vehicle for existing
VCA-2 Contract-holders. These funds are managed by Prudential Mutual Fund
Management, LLC, an indirect wholly-owned subsidiary of Prudential
(collectively, the "PMF Funds"). If the Contract-holder elects to make one or
more of the PMF Funds available to its Participants, Participants will be given
the opportunity to direct new contributions to those PMF Funds.

Prudential may permit Participants to exchange any or all amounts in their
current individual accumulation accounts for shares of the PMF Funds without the
imposition of any sales load or other fee (a "VCA-2-to-PMF Exchange"). In
addition, Prudential may permit Participants to exchange any or all amounts in
their PMF Funds to VCA-2 (a "PMF-to-VCA-2 Exchange") without the imposition of
any sales load or other fee.

Prudential will determine the time periods for which any exchange offer will be
available and the other terms of the offer. Prudential may, for example,
establish fixed periods of time for exchanges under a particular Contract (an
"open window"). This exchange offer is subject to termination and its terms are
subject to change.

If a Participant exchanges all of the amount in his VCA-2 individual
accumulation account for shares of PMF Funds, the annual administrative charge,
which is assessed at the end of each administration year, may be deducted from
the Participant's PMF Fund account(s).

Before deciding whether to exchange any or all of their existing VCA-2
Accumulation Units for shares of any PMF Fund, Participants should carefully
read the relevant PMF Fund prospectus. Participants should understand that the
PMF Funds are registered management investment companies (i.e. mutual funds)
offered directly to qualified plans, certain institutional investors and others.
They are not funding vehicles for variable annuity contracts. Thus, Participants
investing in the PMF Funds will not have the features of an annuity contract or
certain annuity-related provisions, as they do under the VCA-2 Program.

In Prudential's opinion, there should be no adverse tax consequences if a
Participant in a qualified retirement arrangement elects to exchange amounts in
the Participant's current VCA-2 individual accumulation account(s) for shares of
PMF Funds or vice versa.

VCA-2-to-PMF Exchanges will be effected from a 403(b) annuity contract to a
Section 403(b)(7) custodial account (Tax Deferred Annuity funds under the PMF
Funds) so that such transactions will not constitute taxable distributions.
Conversely, PMF-to-VCA-2 Exchanges will be effected from a 403(b)(7) custodial
account to a 403(b) annuity contract so that such transactions will not
constitute taxable distributions. However, Participants should be aware that the
Code may impose more restrictive rules on early withdrawals from Section
403(b)(7) custodial accounts under the PMF Funds than under the VCA-2 Program.

Prudential also may make available to VCA-2 Contract-holders certain mutual
funds that are not affiliated with Prudential. If such mutual funds are made
available, Prudential may permit Participants to exchange any or all amounts in
their current individual accumulation accounts for shares of such unaffiliated
mutual funds (and also may permit exchanges from those mutual funds into VCA-2).
Any such exchanges would be effected without the imposition of any sales load or
other fee, and may be conducted in accordance with such other terms and
conditions as Prudential may determine. The tax consequences associated with
these exchanges involving unaffiliated mutual funds are comparable to those
discussed above in connection with exchanges involving the PMF Funds. With
respect to unaffiliated funds exchanges, VCA-2-to-PMF Exchanges, and
PMF-to-VCA-2 Exchanges, Contract-holders and Participants are encouraged to
consult a qualified tax advisor for complete tax information and advice.

B. THE ANNUITY PERIOD

1. Variable Annuity Payments

Variable annuity payments are determined on the basis of (i) the value of the
Participant's accumulation account on the date it is applied to effect an
annuity, reflecting the investment performance of VCA-2 to that date, (ii) any
taxes on annuity considerations applicable when the annuity is effected, (iii) a
schedule of annuity rates specified in the Contract (see "Schedule of Variable
Annuity Purchase Rates," page 20), and (iv) the investment performance of VCA-2
after the annuity has been effected. The amount of the variable annuity payments
will not be affected by adverse mortality experience or by an increase in
Prudential's expenses in excess of the expense deductions provided for in the
Contract. The annuitant will receive the value of a fixed number of Annuity
Units each month. Changes in the value of such Units, and thus the amounts of
the monthly annuity payments, will reflect investment gains and losses and
investment income occurring after the date on which annuity payments commence.

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<PAGE>

2. Electing the Annuity Date and the Form of Annuity

Subject to the withdrawal restrictions discussed above (See "Withdrawal
(Redemption) of Purchase Payments Prior to Death," page 12), a Participant may
at any time elect to have a variable annuity effected for him under the
Contract. A beneficiary may make a similar election (see "Death Benefits Before
an Annuity is Effected," page 14). It may also be possible to effect a
fixed-dollar annuity if there is a companion fixed-dollar contract to which a
transfer payment may be made (see "Transfer Payments," page 15).

In electing to have a variable annuity effected, the Participant may select from
the available forms of annuity described below. With respect to benefits
accruing after December 31, 1986, the duration of any period certain payments
may not exceed the life expectancy of the Participant or, if there is a
designated beneficiary, the joint life and last survivor expectancy of the
Participant and his designated beneficiary as determined under IRS Tables. In
addition, IRS Proposed Regulations under Section 401(a)(9) of the Internal
Revenue Code specify the maximum permissible duration of any period certain
payments and the maximum survivor benefit payable under a joint and survivor
annuity (expressed as a percentage of the benefit originally payable). The
annuity is effected on the first day of the second month following receipt by
Prudential of written notice that the Participant or beneficiary has elected to
have an annuity effected or on the first day of any subsequent month designated
by the Participant or beneficiary. Any such notice must be on a form approved by
Prudential and should include all the information Prudential requires to effect
the annuity. The first monthly annuity payment will be made to an annuitant on
the date an annuity is effected for him.

Under certain types of Section 403(b) annuities, the Retirement Equity Act of
1984 provides that, in the case of a married Participant, the election of a
payout which is not a qualified joint and survivor annuity must include the
consent and signatures of the Participant and spouse and must be notarized or
witnessed by an authorized Plan representative. A "qualified joint and survivor
annuity" is an annuity for the Participant's lifetime with at least 50% of the
amount payable to the Participant during his lifetime payable to his spouse, if
living at the Participant's death.

If the dollar amount of the first monthly payment of an annuity effected under
the Contract would be less than the minimum amount specified in the Contract,
Prudential at its option may, in lieu of making any annuity payment whatsoever,
consider that the person who would receive the annuity had requested a
withdrawal of the individual accumulation account that would otherwise have been
applied to effect the annuity, as of the date the annuity was to begin.

Once annuity payments have commenced to an annuitant under Options 1, 2, 3 or 5
described below, the annuitant cannot surrender his annuity benefit and receive
a single sum payment in lieu thereof. An annuitant under Option 4 may, by
written request, surrender his annuity benefit and receive the commuted value of
the unpaid payments-certain. Under Options 2, 4 or 5, the annuitant's
beneficiary may, by a written request made after the death of the annuitant,
surrender his annuity benefit and receive the commuted value of the unpaid
payments-certain due him. The annuitant's beneficiary may also receive a lump
sum payment under certain circumstances as described below.

3. Deductions for Taxes on Annuity Considerations

Some states impose a premium tax with respect to annuity contracts. The tax
rates in those jurisdictions that impose a tax generally range from 0.5% to 5%.
When an annuity is effected, any applicable taxes on annuity considerations will
be deducted from the amount applied.

4. Available Forms of Variable Annuity

Option 1--variable life annuity. This is an immediate annuity payable monthly
during the lifetime of the annuitant and terminating with the last monthly
payment preceding his death. This option offers a higher level of monthly
payments than Option 2, Option 3 or Option 5 because no further payments are
payable after the death of the annuitant. It would be possible under this option
for the annuitant to receive only one annuity payment if he died (in an
automobile accident, for example) within the first month after the annuity was
effected. Therefore, a life annuity under this option is generally appropriate
only for someone who has no dependents and wants higher income during his
lifetime.

Option 2--variable life annuity with 120 or 180 payments certain. This is an
immediate annuity payable monthly during the lifetime of the annuitant with the
guarantee that if, at the death of the annuitant, payments have been made for
less than the period-certain (which may be 120 or 180 months, as selected by the
annuitant), they will be continued during the remainder of the selected period
to his beneficiary.

Option 3--variable joint and survivor annuity. This is an immediate annuity
payable monthly during the lifetime of the annuitant with payments continued
after his death to his contingent annuitant, if surviving, for the latter's
lifetime. The payments continued to the contingent annuitant may be based on
100% of the Annuity Units originally payable each month, or a lower percentage
such as 50%, if the annuitant so elects.

Option 4--variable annuity-certain. This is an immediate annuity payable monthly
for a period-certain of 120 months. If the annuitant dies during the
period-certain, payments will be continued to his beneficiary, but no further
payments are payable after the end of the period-certain. Since Prudential
assumes no mortality

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<PAGE>

risks under Option 4, it makes no mortality risk charges in determining annuity
purchase rates for this option.

Option 5--variable joint and survivor annuity with 120 payments certain. This is
an immediate annuity payable monthly during the lifetime of the annuitant with
payments continued after his death to his contingent annuitant, if surviving,
for the latter's lifetime. The payments to the contingent annuitant prior to the
expiration of the period-certain will be based on 100% of the Annuity Units
originally payable each month. Thereafter, they will be based on the same
percentage or a lower percentage such as 50%, if the annuitant so elects. If
both the annuitant and the contingent annuitant die before 120 payments have
been made, payments will be continued during the remainder of the 120-month
period to the properly designated beneficiary.

If the dollar amount of the first monthly payment to a beneficiary is less than
the minimum amount specified in the Contract or if in Options 2, 4 and 5, the
beneficiary is other than a natural person receiving payments in his own right
or is an estate, Prudential may elect to pay the commuted value of the unpaid
payments-certain in one sum.

5. The Annuity Unit

On the date a variable annuity is effected for any Participant or his
beneficiary, his accumulation account is cancelled and the full annual
administration charge withdrawn. The aggregate value of the remaining
Accumulation Units in the Participant's accumulation account is determined. This
value, less any applicable taxes on annuity considerations, is then applied to
provide an annuity under which each payment will be the value of a specified
number of Annuity Units. The Annuity Unit Value is discussed in the following
section. The determination of each payment is discussed under "Schedule of
Variable Annuity Purchase Rates," page 20.

6. The Annuity Unit Value

The Annuity Unit Value for the month of June, 1968 was approximately $1.0102.
The Annuity Unit Value for any subsequent month is determined as of the end of
the month by multiplying the Annuity Unit Change Factor for the month (see
below) by the Annuity Unit Value for the preceding month. The Annuity Unit Value
applicable to annuity payments due during any month is the Annuity Unit Value
for the second preceding month. The Annuity Unit Value differs from and is
necessarily smaller than the Accumulation Unit Value since the Annuity Unit
Value must be reduced by the Assumed Investment Result as discussed in the
following sections.

7. The Annuity Unit Change Factor for Any Month

The Annuity Unit Change Factor for any month is obtained by (a) adding to 1.00
the rates of investment income earned, if any, after applicable taxes (currently
none--see "Federal Tax Status," pages 20 and 21), and of asset value changes in
VCA-2 during the period from the end of the preceding month to the end of the
current month, (b) deducting from such sum the rate of investment management fee
for the number of days in the current month, computed at an effective annual
rate of 0.125% (1/8 of 1%), and (c) dividing such difference by the sum of 1.00
and the rate of interest for one-twelfth of a year, computed at the effective
annual rate specified in the Contract as the Assumed Investment Result (see
below). The result of this division is the Annuity Unit Change Factor for the
month. (Items (a) and (b) for a given month are equivalent to items (a) and (b)
used during such month to derive Accumulation Unit Change Factors. See page 12).

8. Assumed Investment Result

In order to convert the value of an accumulation account into an annuity and to
determine the initial payment, it is necessary to use an appropriate annuity
purchase rate (as discussed below) which is based on, among other things, an
interest rate. The greater the assumed interest rate, the greater the initial
annuity payment provided by a given amount applied, since the annuity payments
are supported by the amount applied and the investment result on that amount.

Where the annuity is a variable annuity, the payments remain level only if the
actual investment results each month thereafter are at the assumed rate. If, for
any month, the actual rate is greater, the payments increase. If the actual rate
is less, the payments decrease. For the variable annuities under the Contract,
the selection of the Assumed Investment Result is not made by Prudential but by
the Contract-holder who may choose, for example, 4 1/2% as the annual rate.
Rates of 3 1/2%, 4%, 5% and 5 1/2% may also be selected. Annuity purchase rates
appropriate for the Assumed Investment Result selected by the Contract-holder
will be inserted in the Contract.

The selection should reflect the Contract-holder's conservative estimate of the
average investment result that may be obtained from a diversified portfolio of
common stocks in a relatively stable economy. If a Contract-holder selects a
high Assumed Investment Result, the dollar amount of the first variable annuity
payment to each annuitant under that Contract will be greater than if the
Contract-holder has selected a lower Assumed Investment Result. For example, for
a given amount applied, a 4 1/2% assumption produces a first monthly payment (in
dollars) higher by about 8 or 9% than a 3 1/2% assumption. The offset to this
higher initial payment is that, in reflecting the investment results of VCA-2,
the variable annuity payments resulting from the 3 1/2% assumption will increase
at a faster rate or decrease at a slower rate than the variable annuity payments
resulting from the 4% assumption. The lower Assumed Investment Result produces
greater income later in life than does a higher assumption, and it may be that
in later years a retired person will have the greatest need for more dollars of
income.

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<PAGE>

As may be seen from the description of the Annuity Unit Change Factor in the
preceding section, the change each month in the Annuity Unit Value depends on
the extent to which the actual investment results of VCA-2, including investment
income and market value changes, differ from the Assumed Investment Result
selected by the Contract-holder. If the actual results are at a rate greater
than the monthly equivalent of the assumed result, the Annuity Unit Value
increases, thereby increasing the dollar amount of the monthly variable annuity
payment. If the actual investment results are at a rate lower than the Assumed
Investment Result, the Annuity Unit Value decreases, thereby decreasing the
dollar amount of the monthly payment.

Once the Assumed Investment Result is fixed under a Contract, it applies to all
annuitants covered by that Contract. However, the Contract may be amended with
respect to all annuities effected after the amendment.

9. Schedule of Variable Annuity Purchas Rates

The annuity rates contained in the schedules of the Contract show how much
annuity is provided by the application of a given amount.

On July 6, 1983 the Supreme Court of the United States rendered a decision that
prohibits employers from providing for periodic retirement payments that vary in
amount depending upon the sex of the employee, to the extent that those payments
are derived from contributions made on or after August 1, 1983. While the
decision by its terms applies only to employers subject to the provisions of
Title VII of the Civil Rights Act of 1964, namely those with 15 or more
employees, it may be applicable to employers with fewer than 15 employees. To
facilitate employer compliance with the decision, Prudential has amended its
Group Tax-Deferred Variable Annuity Contracts issued through The Prudential
Variable Contract Account-2. The amendment provides for annuity purchase rates
that do not vary with the sex of the annuitant with respect to purchase payments
made under the Contracts on and after August 1, 1983. Thus, as a result of this
amendment, if a Participant's Annuity Units include Annuity Units derived from
purchase payments made before August 1, 1983, those Annuity Units are applied to
effect a variable annuity using schedules which take into account the date on
which the annuity is effected, the form of annuity selected, and the date of
birth and sex of the annuitant and of the contingent annuitant, if any. Any
remaining Annuity Units are applied using schedules which take into account the
form of annuity selected, the effective date and the relevant dates of birth,
but not the sex of any person. If a Participant's Annuity Units are derived
solely from purchase payments made either before August 1, 1983 or on and after
August 1, 1983, only one schedule of annuity rates is used. The dollar amount of
each monthly payment of the variable annuity will be equal to the number of
Annuity Units in each portion of the variable annuity payment, multiplied by the
Annuity Unit Value applicable to annuity payments due in the month.

Here are a few sample rates for an Assumed Investment Result of 4 1/2% from the
schedules in use for variable annuities effected in 1997 under Contracts entered
into on or after May 1, 1980. (More favorable results would be obtained for
variable annuities effected in 1997 under Contracts entered into prior to May 1,
1980). They show the number of Annuity Units payable each month resulting from
an accumulation, after reduction by the full annual administration charge and
applicable taxes on considerations, equivalent in value to 10,000 Annuity Units,
being applied to purchase the annuity.

POST--7/31/83 PRE--8/1/83
ANNUITY UNITS ANNUITY UNITS
------------- -------------
TYPE OF ANNUITY ANNUITANT AGE 65 MALE 65 FEMALE 65

Life Annuity with 120
Payments Certain 56.40 62.90 54.16
Life Annuity with 180
Payments Certain 54.07 58.64 52.32

The interest rate used in constructing the schedules of annuity rates equals the
Assumed Investment Result less 0.375% (3/8 of 1%), which corresponds to the
daily deductions from accumulation accounts, also at an effective annual rate of
0.375% (3/8 of 1%), for assuming mortality and expense risks. The mortality
rates are based on the Prudential 1950 Group Annuity Valuation Table, with
adjustments to allow for improvements in mortality. In the case of the schedules
applicable to the variable annuity-certain option (the fourth option listed
under "Available Forms of Variable Annuity," page 18), the interest rate used is
equal to the Assumed Investment Result less 0.25% (1/4% of 1%), to reflect the
absence of any charge for the mortality risk. The annuity purchase rates may be
changed by Prudential, except as described in section D following. While the
Contract, in keeping with the preceding discussion, expresses the schedule of
annuity purchase rates in terms of annuity units, it may be helpful to describe
the application of these schedules in terms of the dollar amount of the monthly
annuity payment due one month after the date on which an annuity is effected.
For each $1,000 applied on the effective date, the dollar amount of this monthly
payment is shown in the following table.

POST--7/31/83 PRE--8/1/83
ANNUITY UNITS ANNUITY UNITS
------------- -------------
TYPE OF ANNUITY ANNUITANT AGE 65 MALE 65 FEMALE 65

Life Annuity with 120
Payments Certain 5.640 6.290 5.416
Life Annuity with 180
Payments Certain 5.407 5.864 5.232

Subsequent payments will be more or less depending upon the investment results
of the Account.

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<PAGE>

C. ASSIGNMENT

Unless contrary to applicable law, the right to any payment under the Contract
is neither assignable nor subject to the claim of any creditor.

D. CHANGES IN THE GROUP VARIABLE ANNUITY CONTRACT

The Contract provides that Prudential may limit the frequency of transfers to or
from the companion fixed-dollar contract, if any. The Contract also reserves to
Prudential the right to change the annual administration charge, uniformly
applicable to all accumulation accounts, and the percentage deducted from each
future purchase payment for sales expenses.

The Contract also provides that Prudential may change the annuity purchase
rates, may change the 0.375% (3/8 of 1%) charge described on page 10, and may
impose a redemption charge on any withdrawal or transfer payment provided by the
Contract. Any such change will apply only to Accumulation Units credited after
such change becomes effective, except that the initial basis will continue to
apply to all Accumulation Units credited before the fifth Contract anniversary
to any person who was a Participant before such change became effective, or
credited before such Participant makes a withdrawal, if sooner.

Changes discussed in this section become effective 90 days after notice thereof
has been given to the Contract-holder. Each person to whom the change is
applicable will also be notified.

It should be realized that the initial schedules of annuity purchase rates
remain in effect indefinitely with respect to all purchase payments made before
a change in rates. Since purchase payments on behalf of a Participant may be
made long before any annuity is effected for him and since his annuity payments
may continue long after that date, this risk assumed by Prudential extends many
years into the future.

Although the Contract may be changed at any time by agreement between Prudential
and the Contract-holder, no such change may adversely affect rights with respect
to Accumulation Units credited or variable annuities effected prior to the
effective date of the change (unless the change is made to comply with a law or
government regulation or the consent of each Participant is obtained).

The Contract provides that if at any time an investment manager other than
Prudential is selected for VCA-2, Prudential may determine that no new
Participants will become covered under the Contract.

E. PERIODIC REPORTS

Participants will be sent semi-annual reports showing the financial condition of
VCA-2 including the investments held in the account. Each Participant will also
be sent, at least annually, a statement of the number of Accumulation Units
credited to his account as of the end of the preceding accounting year.

F. PARTICIPATION IN DIVISIBLE SURPLUS

A mutual life insurance company differs from a stock life insurance company in
that it has no stockholders who are the owners of the enterprise.

A contract-holder of Prudential participates in the divisible surplus of
Prudential, according to the annual determination of the Board of Directors as
to the portion, if any, of the divisible surplus of Prudential which has accrued
on the contract. In the case of Contracts described herein, any surplus
determined to be payable as a dividend is credited to the persons participating
under such Contracts.

No assurance can be given as to the amount of divisible surplus, if any, that
will be available for distribution under these Contracts in the future. The
determination of such surplus is within the sole discretion of Prudential's
Board of Directors. When any payments of divisible surplus are made, they may
take the form of additional payments to annuitants and additions to the accounts
of other Participants and beneficiaries.

Such payments amounted to $235,290 during 1996. The equivalent figure for 1995
was $12,650 and for 1994 was $13,605.

FEDERAL TAX STATUS

In the opinion of counsel, under the Internal Revenue Code, the operations of
VCA-2 form a part of and are taxed with the operations of Prudential. A ruling
to this effect has been received from the Internal Revenue Service. The effect
of this basis of taxation is that the Accumulation and Annuity Unit Values are
not reduced by federal income taxes under current law.

In the opinion of counsel, the Contract meets the requirements of Section 403(b)
of the Internal Revenue Code. Contributions on behalf of a Participant under
such a Contract are excludable from the Participant's gross income to the extent
the contributions do not exceed the "exclusion allowance" specified in the Code.
A further limit of $9,500 generally applies to salary reduction contributions.
Section 415 of the Code also imposes an overall limit on the maximum annual
contribution which can be made to the Contract by or on behalf of a Participant.
Generally, this limit on annual contributions is the lesser of $30,000 or 25% of
his compensation. Increases in the Accumulation and Annuity Unit Values are not
includable in the Participant's gross income in the year credited. Amounts
distributed to a Participant in the form of an annuity or otherwise are
includable in the Participant's gross income when received and are taxed at
ordinary income rates. However, an exclusion from federal income tax is provided
for distributions attribut-

21
<PAGE>

able to contributions which were includable in the Participant's gross income
when they were originally made.

In general, a death benefit consisting of amounts paid to a Participant's
beneficiary is includable in the Participant's estate for federal estate tax
purposes.

Benefits accruing after December 31, 1986 under Section 403(b) annuity contracts
are subject to required minimum distribution rules which specify the time when
payment of benefits must begin and the minimum amount which must be paid
annually. These rules apply to Participants and to beneficiaries. Generally,
payment of benefits to Participants must begin no later than April 1st of the
calendar year following the later of (i) the year the employee retires, or (ii)
the year in which the Participant attains age 70 1/2. If the Participant dies
before the entire interest in the contract has been distributed, the remaining
interest must be distributed at least as rapidly as under the method of
distribution being used as of the date of death. If the Participant dies before
payment of benefits has begun (or is treated as having begun) the entire
interest must be distributed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death. Alternatively, if there is a
designated beneficiary, the designated beneficiary may elect to receive payments
beginning no later than December 31 of the calendar year immediately following
the year in which the Participant died and continuing for the beneficiary's life
or a period not exceeding the beneficiary's life expectancy. If the
Participant's spouse is the designated beneficiary, payments can be deferred
until December 31 of the year in which the Participant would have attained age
70 1/2. An excise tax applies to Participants or beneficiaries who reach the
date when distributions are required to begin and fail to take the required
minimum distribution in any calendar year.

Payers of pension distributions (including insurance companies) are required to
withhold taxes on pension and annuity payments. This applies to payments made
under a tax-deferred annuity program (including total or partial withdrawals).

Certain distributions from qualified plans under Section 403(b) of the Code,
which are not directly rolled over or transferred to another eligible qualified
plan, are subject to a mandatory 20% withholding for federal income tax. The 20%
withholding requirement does not apply to:(a)distributions for the life or life
expectancy of the Participant or joint and last survivor expectancy of the
Participant and a designated beneficiary; or (b)distributions for a specified
period of 10 years or more; or (c) distributions which are required as minimum
distributions. A recipient of a distribution which is not subject to mandatory
withholding may elect not to have any taxes withheld from his distribution.
Participants must be notified annually of their right to change their
withholding elections. Payers of taxable pension payments must report such
payments to the Internal Revenue Service.

If a transfer is made from a Participant's accumulation account under this
Contract to another tax-deferred annuity program, no tax will be withheld from
the amount transferred.

A premature distribution penalty tax generally applies to withdrawals made prior
to age 59 1/2. Certain exceptions do, however, apply. In addition, Federal tax
law imposes restrictions on Withdrawals from Section 403(b) annuities (See
Withdrawal (Redemption) of Purchase Payments Prior to Death," page 12).
Therefore, persons contemplating participation in a Section 403(b) annuity
should consult a tax advisor concerning the tax consequences of a withdrawal
under the Contract.

The above description of certain federal income and estate tax rules that may
apply to a Participant is not exhaustive. A Participant should consult with
appropriate tax advisers concerning the applicability of the rules to the
Participant's personal tax circumstances.

VOTING RIGHTS

In addition to Prudential, each person who has an individual accumulation
account or a variable annuity as to which values or payments depend upon the
investment results of VCA-2 has the right to vote at meetings of such persons.
They are entitled to vote to:

A. approve any amendments of the Agreement for Investment Management Services
and approve any such new agreements negotiated by the Committee;

B. approve any recommendations made by the Committee regarding changes in the
fundamental investment policies of the Account; and

C. any matters requiring a vote of persons having voting rights with respect
to VCA-2.

Meetings of persons having voting rights are not required to be held annually.
The Rules and Regulations of VCA-2 provide that meetings of persons having
voting rights may be called by a majority of the Committee. The Committee is
required to call a meeting of persons having voting rights in the event that at
any time less than a majority of the members of the Committee holding office at
that time were elected by persons having voting rights. Such meeting must be
held within 60 days unless the Securities and Exchange Commission by order
extends such period. In addition, the Committee is required to call meetings of
persons with voting rights in order to submit for a vote matters on which such
persons are entitled to vote (as listed above).

For the purpose of determining the persons having voting rights in respect of
VCA-2 who are entitled to notice of and to vote at meetings, the Committee may
fix, in advance, a date as the record date which shall not be more than 70 nor
less than 10 days before the date of such meeting.

The number of votes which each person may cast at a meeting of persons having
voting rights in VCA-2 is equal

22
<PAGE>

to the number of dollars and fractions thereof in his accumulation account as of
the record date or, if he is an annuitant, the number of dollars and fractions
thereof equal in value to the portion of the assets in VCA-2 held to meet the
annuity obligations to him on such date. This number decreases as annuity
payments are made. Votes may be cast either in person or by proxy and persons
entitled to vote receive all proxy materials.

Prudential is entitled to vote the number of votes and fractions thereof equal
to the number of dollars and fractions thereof of its own funds invested in
VCA-2 as of the record date. Prudential will cast its votes in the same
proportions as all other votes represented at the meeting, in person or by
proxy.

As defined by the 1940 Act and as referred to elsewhere in this Prospectus, a
majority vote of persons having voting rights in respect of VCA-2 means (a) 67%
or more of the votes of such persons present at a meeting if more than 50% of
all votes entitled to be cast are held by persons present in person or
represented by proxy at such meeting, or (b) more than 50% of all votes entitled
to be cast, whichever is less.

OTHER CONTRACTS ON A
VARIABLE BASIS

In addition to the Contracts, Prudential currently issues other forms of
contracts on a variable basis. At present, purchase payments under such other
contracts are not held in VCA-2 but are held in other separate accounts.

STATE REGULATION

Prudential is subject to regulation by the Department of Insurance of the State
of New Jersey as well as by the insurance departments of all the other states
and jurisdictions in which it does business. Prudential must file an annual
statement in a form promulgated by the National Association of Insurance
Commissioners. This annual statement is reviewed and analyzed by the New Jersey
Department, which makes an independent computation of Prudential's legal reserve
liabilities and statutory apportionments under its outstanding contracts. New
Jersey law requires a quinquennial examination of Prudential to be made.
Examination involves extensive audit including, but not limited to, an inventory
check of assets, sampling techniques to check the performance by Prudential of
its contracts and an examination of the manner in which divisible surplus has
been apportioned and distributed to policy and contract-holders. This regulation
does not involve any supervision or control over the investment policy of VCA-2
or over the selection of investments therefor except for verification of the
compliance of Prudential's investment portfolio with New Jersey law. See
"Investment restrictions imposed by state law" in the Statement of Additional
Information.

The laws of New Jersey also contain special provisions which relate to the
issuance and regulation of contracts on a variable basis. These laws set forth a
number of mandatory provisions which must be included in contracts on a variable
basis and prohibit such contracts from containing other specified provisions. No
variable contract may be issued for delivery in New Jersey prior to the written
acknowledgement by the Department of Insurance of its filing. The Department may
initially disapprove or subsequently withdraw approval of any contract if it
contains provisions which are "unjust, unfair, inequitable, ambiguous,
misleading, likely to result in misrepresentation or contrary to law." Approval
can also be withheld or withdrawn if sales are solicited by communications which
involve misleading or inadequate descriptions of the provisions of the contract.

In addition to the annual statement referred to above, Prudential is required to
file with New Jersey and other states a separate statement with respect to the
operations of all its variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.

Persons engaged in the negotiation or sale of a variable annuity contract in New
Jersey are not subject to the provisions of the laws of New Jersey governing the
sale of securities. Such persons and such contracts may be subject to similar
laws (commonly known as "Blue-Sky Laws") in other states where such contracts
are sold.

LEGAL PROCEEDINGS

On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW).) On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate.

Pursuant to the Settlement, Prudential has agreed to provide an alternative
dispute resolution process for class members who believe they were misled
concerning the sale or performance of their life insurance policies. The
Settlement also provides certain no-fault relief. The ultimate cost of the
Settlement will depend on a variety of factors, including the number of
policyowners who participate in the Settlement, the number of policyowners who
are afforded relief and the remediation option they select. The administrative
costs of implementing the Settlement are also subject to a number of complex
uncertainties. In light of the uncertainties attendant to these and other
factors, it is difficult at this time to estimate the ultimate cost of the
Settlement to Prudential.

In addition, a number of actions have been filed against Prudential by
policyowners who have excluded them-

23
<PAGE>

selves from the Settlement; Prudential anticipates that additional suits may be
filed by other policyowners.

Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million.

Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted.

Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation. It is possible that the results of operations or the cash flow of
Prudential, in particular quarterly or annual periods, could be materially
affected by an ultimate unfavorable outcome of certain pending litigation and
regulatory matters. Management believes, however, that the ultimate outcome of
all pending litigation and regulatory matters referred to above should not have
a material adverse effect on Prudential's financial position.

ADDITIONAL INFORMATION

This Prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.

Participants may also receive further information about the Contracts at the
address and phone number set forth on the cover page of this Prospectus.

<PAGE>

TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION

PAGE
----
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2 ......................... 2
Fundamental investment restrictions adopted by VCA-2 .................... 2
Non-fundamental investment restrictions adopted by VCA-2 ................ 3
Investment restrictions imposed by state law ............................ 3
Loans of portfolio securities ........................................... 9
Portfolio turnover rate ................................................. 9
Portfolio brokerage and related practices ............................... 9
Custody of securities ................................................... 10
THE VCA-2 COMMITTEE ....................................................... 11
Remuneration of members of the committee and certain affiliated persons .. 11
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA--DIRECTORS .................... 12
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA--PRINCIPAL OFFICERS ........... 13
SALE OF GROUP VARIABLE ANNUITY CONTRACTS .................................. 14
EXPERTS ................................................................... 14
FINANCIAL STATEMENTS OF VCA-2 ............................................. 16
FINANCIAL STATEMENTS OF PRUDENTIAL ........................................ 23

25
<PAGE>

FORWARDING AND

RETURN POSTAGE GUARANTEED

GP-28 ED. 5/96

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY1, 1997

GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED THROUGH

THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-2

These Contracts are designed for use in connection with retirement arrangements
that qualify for federal tax benefits under Section 403(b) of the Internal
Revenue Code of 1986. Contributions made on behalf of Participants are invested
in The Prudential Variable Contract Account-2, a separate account primarily
invested in common stocks.

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

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus, dated May1, 1997, which is available without
charge upon written request to The Prudential Insurance Company of America, c/o
Prudential Investment Services, 30 Scranton Office Park, Scranton, Pennsylvania
18507-1789, or by telephoning 1-800-458-6333.

TABLE OF CONTENTS

PAGE
----
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2 ......................... 2
Fundamental investment restrictions adopted by VCA-2 ..................... 2
Non-fundamental investment restrictions adopted by VCA-2 ................. 3
Investment restrictions imposed by state law ............................. 3
Loans of portfolio securities ............................................ 9
Portfolio turnover rate .................................................. 9
Portfolio brokerage and related practices ................................ 9
Custody of securities .................................................... 10
THE VCA-2 COMMITTEE ....................................................... 11
Remuneration of members of the committee and certain affiliated persons .. 11
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA--DIRECTORS .................... 12
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA--PRINCIPAL OFFICERS ........... 13
SALE OF GROUP VARIABLE ANNUITY CONTRACTS .................................. 14
EXPERTS ................................................................... 14
FINANCIAL STATEMENTS OF VCA-2 ............................................. 15
FINANCIAL STATEMENTS OF THE PRUDENTIAL .................................... 29

The Prudential Insurance Company of America
c/o Prudential Investments
30 Scranton Office Park
Scranton, PA 18507-1789
Telephone 1-800-458-6333

<PAGE>

PRUDENTIAL LOGO

INVESTMENT MANAGEMENT AND
ADMINISTRATION OF
VCA-2

Prudential acts as investment manager for VCA-2 under an Agreement for
Investment Management Services. The Account's assets are invested and reinvested
in accordance with its investment objective and policies, subject to the general
supervision and authorization of the Account's Committee.

Subject to Prudential's supervision, substantially all of the investment
management services provided by Prudential are furnished by its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to the
service agreement between Prudential and PIC (the "Service Agreement") which
provides that Prudential will reimburse PIC for its costs and expenses. PIC is
registered as an investment adviser under the Investment Advisers Act of 1940.

Prudential continues to have responsibility for all investment advisory services
under its advisory or subadvisory agreements with respect to its clients.
Prudential's Agreement for Investment Management Services with VCA-2 was
approved initially by the Participants at their meeting on May 29, 1969 and was
most recently renewed by unanimous vote of the Committee on November 22, 1996.
The Service Agreement was approved by participants in VCA-2 on July 25, 1985 and
its annual continuation was most recently approved by unanimous vote of the
VCA-2 Committee on November 22, 1996. The Account's Agreement for Investment
Management Services and the Service Agreement will continue in effect as long as
approved at least once a year by a majority of the non-interested members of the
Account's Committee and either by a majority of the entire Committee or by a
majority vote of persons entitled to vote in respect of the Account. The
Account's Agreement for Investment Management Services will terminate
automatically in the event of assignment, and may be terminated without penalty
on 60 days' notice by the Account's Committee or by the majority vote of persons
having voting rights in respect of the Account, or on 90 days' notice by
Prudential.

The Service Agreement will continue in effect as to the Account for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in the same manner as the Agreement for
Investment Management Services between Prudential and the Account. The Service
Agreement may be terminated by either party upon not less than thirty days'
prior written notice to the other party, will terminate automatically in the
event of its assignment and will terminate automatically as to the Account in
the event of the assignment or termination of the Agreement for Investment
Management Services between Prudential and the Account. Prudential is not
relieved of its responsibility for all investment advisory services under the
Agreement for Investment Management Services between Prudential and the Account.
The Service Agreement provides for Prudential to reimburse PIC for its costs and
expenses incurred in furnishing investment advisory services. For the meaning of
a majority vote of persons having voting rights with respect to the Account, see
"Voting Rights," page 22 of the Prospectus.

Prudential is responsible for the administrative and recordkeeping functions of
VCA-2 and pays the expenses associated with them. These functions include
enrolling Participants, receiving and allocating contributions, maintaining
Participants' Accumulation Accounts, preparing and distributing confirmations,
statements, and reports. The administrative and recordkeeping expenses borne by
Prudential include salaries, rent, postage, telephone, travel, legal, actuarial
and accounting fees, office equipment, stationery and maintenance of computer
and other systems.

A daily charge is made which is equal to an effective annual rate of 0.5% of the
net asset value of VCA-2. One-half (0.25%) of this charge is for assuming
expense risks; 1/4 (0.125%) of this charge is for assuming mortality risks; and
1/4 (0.125%) is for investment management services. During 1996, 1995 and 1994
Prudential received $2,694,889, $2,195,986 and $2,085,191, respectively from
VCA-2 for assuming mortality and expense risks and for providing investment
management services.

There is also an annual administration charge made against each Participant's
accumulation account in an amount which varies with each Contract but which is
not more than $30 for any accounting year. During 1996, 1995 and 1994 Prudential
collected $30,477, $34,067 and $42,008, respectively, from VCA-2 in those annual
account charges.

A sales charge is also imposed on certain purchase payments made under a
Contract on behalf of a Participant. The sales charges imposed on purchase
payments to VCA-2 during 1996, 1995 and 1994 were $162,008, $180,356 and
$108,110, respectively.

FUNDAMENTAL INVESTMENT RESTRICTIONS ADOPTED
BY VCA-2

In addition to the investment objective described in the prospectus, the
following investment restrictions are fundamental investment policies of VCA-2
and may not be changed without the approval of a majority vote of persons having
voting rights in respect of the Account.

Concentration in Particular Industries. VCA-2 will not purchase any security
(other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) with respect to 75% of VCA-2's total
assets, more than 5% of VCA-2's total assets (determined at the time of
investment) would then be invested in securities of a single issuer, or (ii) 25%
or more of VCA-2's total assets (determined at the time of the investment) would
be invested in a single industry.

2
<PAGE>

Investments in Real Estate-Related Securities. No purchase of or investment in
real estate will be made for the account of VCA-2 except that VCA-2 may buy and
sell securities that are secured by real estate or shares of real estate
investment trusts listed on stock exchanges or reported on the National
Association of Securities Dealers, Inc. automated quotation system ("NASDAQ").

Investments in Financial Futures. No commodities or commodity contracts will be
purchased or sold for the account of VCA-2 except that VCA-2 may purchase and
sell financial futures contracts and related options.

Loans. VCA-2 will not lend money, except that loans of up to 10% of the value of
VCA-2's total assets 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 VCA-2 in accordance with its investment objectives and policies.

Borrowing. VCA-2 will not issue senior securities, borrow money or pledge its
assets, except that VCA-2 may borrow from banks up to 33 1/3 percent of the
value of its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes, for the clearance of transactions or for
investment purposes. VCA-2 may pledge up to 33 1/3 percent of the value of its
total assets to secure such borrowing. For purposes of this restriction, the
purchase or sale of securities on a when-issued or delayed delivery basis,
forward foreign currency exchange contracts and collateral arrangements relating
thereto, and collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements, dollar roll transactions, options,
futures contracts, and options thereon are not deemed to be a pledge of assets
or the issuance of a senior security.

Margin. VCA-2 will not purchase securities on margin (but VCA-2 may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by VCA-2 of initial or maintenance margin
in connection with futures or options is not considered the purchase of a
security on margin.

Underwriting of Securities. VCA-2 will not underwrite the securities of other
issuers, except where VCA-2 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 VCA-2 is permitted to make.

Control or Management of Other Companies. No securities of any company will be
acquired for VCA-2 for the purpose of exercising control or management thereof.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
ADOPTED BY VCA-2

The VCA-2 Committee has also adopted the following additional investment
restrictions as non-fundamental operating policies. The Committee can change
these restrictions without the approval of the persons having voting rights in
respect of VCA-2.

Investments in Other Investment Companies. Except as part of a merger,
consolidation, acquisition or reorganization, VCA-2 will not invest in the
securities of other investment companies in excess of the limits stipulated by
the Investment Company Act of 1940 as amended, and the rules and regulations
thereunder.

Short Sales. VCA-2 will not make short sales of securities or maintain a short
position, except that VCA-2 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.

Restricted Securities. No more than 15% of the value of the net assets held in
VCA-2 will be invested in securities (including repurchase agreements and
non-negotiable time deposits maturing in more than seven days) that are subject
to legal or contractual restrictions on resale or for which no readily available
market exists.

INVESTMENT RESTRICTIONS IMPOSED BY STATE LAW

In addition to the investment objectives, policies and restrictions that VCA-2
has adopted, the Account must limit its investments to those authorized for
variable contract accounts of life insurance companies by the laws of the State
of New Jersey. In the event of future amendments of the applicable New Jersey
statutes, the Account will comply, without the approval of Participants or
others having voting rights in respect of the Account, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
currently read are, in summary form, as follows:

1. An account may not purchase any evidence of indebtedness issued,
assumed or guaranteed by any institution created or existing under the
laws of the U.S., any U.S. state or territory, District of Columbia,
Puerto Rico, Canada or any Canadian province, if such evidence of
indebtedness is in default as to interest. "Institution" includes any
corporation, joint stock association, business trust, business joint
venture, business partnership, savings and loan association, credit
union or other mutual savings institution.

2. The stock of a corporation may not be purchased unless (i) the
corporation has paid a cash dividend

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on the class of stock during each of the past five years preceding the
time of purchase, or (ii) during the five-year period the corporation
had aggregate earnings available for dividends on such class of stock
sufficient to pay average dividends of 4% per annum computed upon the
par value of such stock, or upon stated value if the stock has no par
value. This limitation does not apply to any class of stock which is
preferred as to dividends over a class of stock whose purchase is not
prohibited.

3. Any common stock purchased must be (i) listed or admitted to trading
on a securities exchange in the United States or Canada; or (ii)
included in the National Association of Securities Dealers' national
price listings of "over-the-counter" securities; or (iii) determined
by the Commissioner of Insurance of New Jersey to be publicly held and
traded and as to which market quotations are available.

4. Any security of a corporation may not be purchased if after the
purchase more than 10% of the market value of the assets of an Account
would be invested in the securities of such corporation.

The currently applicable requirements of New Jersey law impose substantial
limitations on the ability of VCA-2 to invest in the stock of companies whose
securities are not publicly traded or who have not recorded a five-year history
of dividend payments or earnings sufficient to support such payments. This means
that the Account will not generally invest in the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under paragraph
1 or 2 above may be made if, after giving effect to the investment, the total
cost of all such non-eligible investments does not exceed 5% of the aggregate
market value of the assets of the Account.

Investment limitations may also arise under the insurance laws and regulations
of the other states where the Contracts are sold. Although compliance with the
requirements of New Jersey law set forth above will ordinarily result in
compliance with any applicable laws of other states, under some circumstances
the laws of other states could impose additional restrictions on the portfolios
of the Account.

ADDITIONAL INFORMATION ABOUT FINANCIAL FUTURES
CONTRACTS

As described in the prospectus, VCA-2 may engage in certain transactions
involving financial futures contracts. This additional information on those
instruments should be read in conjunction with the prospectus.

VCA-2 will only enter into futures contracts that are standardized and traded on
a U.S. exchange or board of trade. When a financial futures contract is entered
into, each party deposits with a broker or in a segregated custodial account
approximately 5% of the contract amount, called the "initial margin." Subsequent
payments to and from the broker, called the "variation margin," are made on a
daily basis as the underlying security, index, or rate fluctuates, making the
long and short positions in the futures contracts more or less valuable, a
process known as "marking to the market."

There are several risks associated with the use of futures contracts for hedging
purposes. While VCA-2's hedging transactions may protect it against adverse
movements in the general level of interest rates or other economic conditions,
such transactions could also preclude VCA-2 from the opportunity to benefit from
favorable movements in the level of interest rates or other economic conditions.
There can be no guarantee that there will be correlation between price movements
in the hedging vehicle and in the securities or other assets being hedged. An
incorrect correlation could result in a loss on both the hedged assets and the
hedging vehicle so that VCA-2's return might have been better if hedging had not
been attempted. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for futures and
futures options, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when, and how to hedge involves the exercise of skill
and judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected market trends.

There can be no assurance that a liquid market will exist at a time when VCA-2
seeks to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. The daily
limit governs only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Lack of a
liquid market for any reason may prevent VCA-2 from liquidating an unfavorable
position and VCA-2 would remain obligated to meet margin requirements and
continue to incur losses until the position is closed.

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ADDITIONAL INFORMATION ABOUT OPTIONS

As described in the prospectus, VCA-2 may engage in certain transactions
involving options. This additional information on those instruments should be
read in conjunction with the prospectus.

In addition to those described in the prospectus, options have other risks,
primarily related to liquidity. A position in an exchange-traded option 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 VCA-2
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 VCA-2 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 VCA-2 as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, 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 over-the-counter ("OTC") options will also be subject
to certain risks. Unlike exchange-traded options, OTC options generally do not
have a continuous liquid market. Consequently, VCA-2 will generally be able to
realize the value of an OTC option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when VCA-2 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 VCA-2 originally wrote the OTC option. There can be no assurance that
VCA-2 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, VCA-2 may be
unable to liquidate an OTC option.

Options on Equity Securities. VCA-2 may purchase and write (i.e., sell) put and
call options on equity securities that are traded on U.S. securities exchanges,
are listed on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or that result from privately negotiated transactions with
broker-dealers ("OTC options"). A call option is a short-term contract pursuant
to which the purchaser or holder, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract which gives the purchaser or holder, in return for a premium,
the right to sell the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security at the exercise price upon exercise by
the holder of the put.

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

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written or less than the exercise price if the difference is maintained by VCA-2
in cash, Treasury bills or other high grade short-term debt obligations in a
segregated account with its custodian.

VCA-2 may also purchase "protective puts" (i.e., put options acquired for the
purpose of protecting VCA-2 security from a decline in market value). The loss
to VCA-2 is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the
security underlying the put rises, the profit VCA-2 realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
(net of transaction costs) for which the put may be sold.

VCA-2 may also purchase putable and callable equity securities, which are
securities coupled with a put or call option provided by the issuer.

VCA-2 may purchase call options for hedging or investment purposes. VCA-2 does
not intend to invest more than 5% of its net assets at any one time in the
purchase of call options on stocks.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an option
may liquidate his or her position by exercise of the option or by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that closing purchase or closing
sale transactions can be effected.

Options on Debt Securities. VCA-2 may purchase and write exchange-traded and OTC
put and call options on debt securities. Options on debt securities are similar
to options on stock, except that the option holder has the right to take or make
delivery of a debt security, rather than stock.

VCA-2 will write only "covered" options. Options on debt securities are covered
in the same manner as options on stocks, discussed above, except that, in the
case of call options on U.S. Treasury Bills, VCA-2 might own U.S. Treasury Bills
of a different series from those underlying the call option, but with a
principal amount and value corresponding to the option contract amount and a
maturity date no later than that of the securities deliverable under the call
option.

VCA-2 may also write straddles (i.e., a combination of a call and a put written
on the same security at the same strike price where the same issue of the
security is considered as the cover for both the put and the call). In such
cases, VCA-2 will also segregate or deposit for the benefit of VCA-2's broker
cash or liquid high-grade debt obligations equivalent to the amount, if any, by
which the put is "in the money." It is contemplated that VCA-2's use of
straddles will be limited to 5% of VCA-2's net assets (meaning that the
securities used for cover or segregated as described above will not exceed 5% of
VCA-2's net assets at the time the straddle is written).

VCA-2 may purchase "protective puts" in an effort to protect the value of a
security that it owns against a substantial decline in market value. Protective
puts on debt securities operate in the same manner as protective puts on equity
securities, described above. VCA-2 may wish to protect certain securities
against a decline in market value at a time when put options on those particular
securities are not available for purchase. VCA-2 may therefore purchase a put
option on securities it does not hold. While changes in the value of the put
should generally offset changes in the value of the securities being hedged, the
correlation between the two values may not be as close in these transactions as
in transactions in which VCA-2 purchases a put option on an underlying security
it owns.

VCA-2 may also purchase call options on debt securities for hedging or
investment purposes. VCA-2 does not intend to invest more than 5% of its net
assets at any one time in the purchase of call options on debt securities.

VCA-2 may also purchase putable and callable debt securities, which are
securities coupled with a put or call option provided by the issuer.

VCA-2 may enter into closing purchase or sale transactions in a manner similar
to that discussed above in connection with options on equity securities.

Options on Stock Indices. VCA-2 may purchase and sell put and call options on
stock indices traded on national securities exchanges, listed on NASDAQ or that
result from privately negotiated transactions with broker-dealers ("OTC
options"). Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than in the case of a call, or less than, in the
case of a put, the strike price of the option. This amount of cash is equal to
such difference between the closing price of the index and the strike price of
the option times a specified multiple (the "multiplier"). If the option is
exercised, the writer is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

VCA-2 will write only "covered" options on stock indices. A call option is
covered if VCA-2 follows the segregation requirements set forth in this
paragraph. When VCA-2 writes a call option on a broadly based stock market
index, it will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the

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<PAGE>

option, cash, Treasury bills or other liquid high-grade short-term debt
obligations, or "qualified securities" (defined below) with a market value at
the time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which VCA-2 has not written a stock call option and which has not
been hedged by VCA-2 by the sale of stock index futures. When VCA-2 writes a
call option on an industry or market segment index, it will segregate or put
into escrow with its custodian or pledge to a broker as collateral for the
option, cash, Treasury bills or other liquid high-grade short-term debt
obligations, or at least five qualified securities, all of which are stocks of
issuers in such industry or market segment, with a market value at the time the
option is written of not less than 100% of the current index value times the
multiplier times the number of contracts. Such stocks will include stocks which
represent at least 50% of the weighting of the industry or market segment index
and will represent at least 50% of VCA-2's holdings in that industry or market
segment. No individual security will represent more than 15% of the amount so
segregated, pledged or escrowed in the case of broadly based stock market stock
options or 25% of such amount in the case of industry or market segment index
options. If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls below 100% of the
current index value times the multiplier times the number of contracts, VCA-2
will so segregate, escrow, or pledge an amount in cash, Treasury bills, or other
liquid high-grade short-term debt obligations equal in value to the difference.
In addition, when VCA-2 writes a call on an index which is in-the-money at the
time the call is written, it will segregate with its custodian or pledge to the
broker as collateral, cash or U.S. government or other liquid unencumbered
assets equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to VCA-2's obligation to segregate additional
amounts in the event that the market value of the qualified securities falls
below 100% of the current index value times the multiplier times the number of
contracts.

A call option is also covered if VCA-2 holds a call on the same index as the
call written where the strike price of the call held is equal to or less than
the strike price of the call written or greater than the strike price of the
call written if the difference is maintained by VCA-2 in cash, Treasury bills or
other high-grade short-term obligations in a segregated account with its
custodian.

A put option is covered if: (1) VCA-2 holds in a segregated account cash,
Treasury bills or other high-grade short-term debt obligations of a value equal
to the strike price times the multiplier times the number of contracts; or (2)
VCA-2 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
VCA-2 in cash, Treasury bills or other liquid unencumbered assets in a
segregated account with its custodian.

VCA-2 may purchase put and call options on stock indices for hedging or
investment purposes. VCA-2 does not intend to invest more than 5% of its net
assets at any one time in the purchase of puts and calls on stock indices. VCA-2
may effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.

The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options. Index prices may be distorted if
trading of certain stocks included in the index is interrupted. Trading in the
index options also may be interrupted in certain circumstances, such as if
trading were halted in a substantial number of stocks included in the index. If
this occurred, VCA-2 would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, might be
unable to exercise an option it holds, which could result in substantial losses
to VCA-2. Price movements in VCA-2's equity security holdings probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index VCA-2 bears the risk that the price of the
securities held by VCA-2 may not increase as much as the index. In such event,
VCA-2 would bear a loss on the call which is not completely offset by movement
in the price of VCA-2's equity securities. It is also possible that the index
may rise when VCA-2's securities do not rise in value. If this occurred, VCA-2
would experience a loss on the call which is not offset by an increase in the
value of its securities holdings and might also experience a loss in its
securities holdings. In addition, when VCA-2 has written a call, there is also a
risk that the market may decline between the time VCA-2 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 VCA-2 is able to sell stocks in its
portfolio. As with stock options, VCA-2 will not learn that an index option has
been exercised until the day following the exercise date but, unlike a call on
stock where VCA-2 would be able to deliver the underlying securities in
settlement, VCA-2 may have to sell part of its stock portfolio in order to make
settlement in cash, and the price of such stocks might decline before they can
be sold. This timing risk makes certain strategies involving more than one
option substantially more risky with options in stock indices than with stock
options.

There are also certain special risks involved in purchasing put and call options
on stock indices. If VCA-2 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 exercise option to fall out of-the-money, VCA-2 will be required to pay the
difference between the closing index value and the strike

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price of the option (times the applicable multiplier) to the assigned writer.
Although VCA-2 may be able to minimize the risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff times for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.

Options on Foreign Currencies. VCA-2 may purchase and write put and call options
on foreign currencies traded on U.S. or foreign securities exchanges or boards
of trade. Options on foreign currencies are similar to options on stock, except
that the option holder has the right to take or make delivery of a specified
amount of foreign currency, rather than stock. VCA-2's successful use of options
on foreign currencies depends upon the investment adviser'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. In addition, the correlation between movements in
the price of options and the price of currencies being hedged is imperfect.

Options on Futures Contracts. VCA-2 may enter into certain transactions
involving options on futures contracts. VCA-2 will utilize these types of
options for the same purpose that it uses the underlying futures contract. An
option on a futures contract gives the purchaser or holder the right, but not
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by the
writer and holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or purchasing an
option of the same series. There is no guarantee that such closing transactions
can be effected. VCA-2 intends to utilize options on futures contracts for the
same purposes that it uses the underlying futures contracts.

Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indices, and
futures contracts. These risks include the risk that the investment adviser 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, VCA-2 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 VCA-2 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 VCA-2.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A forward foreign currency exchange contract is a contract obligating one party
to purchase and the other party to sell one currency for another currency at a
future date and price. When investing in foreign securities, VCA-2 may enter
into such contracts in anticipation of or to protect itself against fluctuations
in currency exchange rates.

VCA-2 generally will not enter into a forward contract with a term of greater
than 1 year. At the maturity of a forward contract, VCA-2 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.

VCA-2's successful use of forward contracts depends upon the investment
adviser's ability to predict the direction of currency exchange markets and
political conditions, which requires different skills and techniques than
predicting changes in the securities markets generally.

INTEREST RATE SWAP TRANSACTIONS

VCA-2 may enter into interest rate swap transactions. Interest rate swaps, in
their most basic form, involve the exchange by one party with another party of
their respective commitments to pay or receive interest. For example, VCA-2
might exchange its right to receive certain floating rate payments in exchange
for another party's right to receive fixed rate payments. Interest rate swaps
can take a variety of other forms, such as agreements to pay the net differences
between two different indices or rates, even if the parties do not own the
underlying instruments. Despite their differences in form, the function of
interest rate swaps is generally the same -- to increase or decrease exposure to
long- or short-term interest rates. For example, VCA-2 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

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Account anticipates purchasing at a later date. VCA-2 will maintain appropriate
liquid assets in a segregated custodial account to cover its obligations under
swap agreements.

The use of swap agreements is subject to certain risks. As with options and
futures, if the investment adviser's prediction of interest rate movements is
incorrect, VCA-2's total return will be less than if the Account 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 VCA-2
could eliminate its exposure under an outstanding swap agreement by entering
into an offsetting swap agreement with the same or another party.

LOANS OF PORTFOLIO SECURITIES

VCA-2 may from time to time lend its portfolio securities to broker-dealers,
provided that such loans are made pursuant to written agreements and are
continuously secured by collateral in the form of cash, U.S. Government
securities or irrevocable standby letters of credit in an amount equal to at
least the market value at all times of the loaned securities. During the time
portfolio securities are on loan, VCA-2 continues to receive the interest and
dividends, or amounts equivalent thereto, on the loaned securities while
receiving a fee from the borrower or earning interest on the investment of the
cash collateral. The right to terminate the loan is given to either party
subject to appropriate notice. Upon termination of the loan, the borrower
returns to the lender securities identical to the loaned securities. VCA-2 does
not have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment. The primary risk in lending securities is that the borrower may
become insolvent on a day on which the loaned security is rapidly advancing in
price. In such event, if the borrower fails to return the loaned securities, the
existing collateral might be insufficient to purchase back the full amount of
stock loaned, and the borrower would be unable to furnish additional collateral.
The borrower would be liable for any shortage but VCA-2 would be an unsecured
creditor as to such shortage and might not be able to recover all or any of it.
However, this risk may be minimized by a careful selection of borrowers and
securities to be lent.

VCA-2 will not lend its portfolio securities to broker-dealers affiliated with
Prudential, including Prudential Securities Incorporated. This will not affect
VCA-2's ability to maximize its securities lending opportunities.

PORTFOLIO TURNOVER RATE

VCA-2 has no fixed policy with respect to portfolio turnover, which is an index
determined by dividing the lesser of the purchases or sales of portfolio
securities during the year by the monthly average of the aggregate value of the
portfolio securities owned during the year. VCA-2 seeks long term growth of
capital rather than short-term trading profits. However, during any period when
changing economic or market conditions are anticipated, successful management
requires an aggressive response to such changes which may result in portfolio
shifts that may significantly increase the rate of portfolio turnover. The rate
of portfolio activity will normally affect the brokerage expenses of VCA-2. The
annual portfolio turnover rate was 53% in 1996 and 42% in 1995.

PORTFOLIO BROKERAGE AND RELATED PRACTICES

In connection with decisions to buy and sell securities for VCA-2, brokers and
dealers to effect the transactions must be selected and brokerage commissions,
if any, negotiated. Transactions on a stock exchange in equity securities will
be executed primarily through brokers that will receive a commission paid by
VCA-2. Fixed income securities, on the other hand, as well as equity securities
traded in the over-the-counter market, will not normally incur any brokerage
commissions. These securities are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. Certain of these securities may also be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid.

In placing orders of securities transactions, primary consideration is given to
obtaining the most favorable price and efficient execution. An attempt is made
to effect each transaction at a price and commission, if any, that provides the
most favorable total cost or proceeds reasonably attainable in the
circumstances. However, a higher commission than would otherwise be necessary
for a particular transaction may be paid when to do so would appear to further
the goal of obtaining the best available execution.

In connection with any securities transaction that involves a commission
payment, the commission is negotiated with the broker on the basis of the
quality and quantity of execution services that the broker provides, in light of
generally prevailing commission rates. Periodically, Prudential and PIC review
the allocation among brokers of orders for equity securities and the commissions
that were paid.

When selecting a broker or dealer in connection with a transaction for VCA-2,
consideration is given to whether the broker or dealer has furnished PIC with
certain services, provided this does not jeopardize the objective of obtaining
the best price and execution. These services, which include statistical and
economic data and research reports on particular companies and industries, are
services that brokerage houses customarily provide

9
<PAGE>

to institutional investors. PIC uses these services in connection with all of
its investment activities, and some of the data or services obtained in
connection with the execution of transactions for VCA-2 may be used in
connection with the execution of transactions for other investment accounts.
Conversely, brokers and dealers furnishing such services may be selected for the
execution of transactions of such other accounts, while the data or service may
be used in connection with investment management for VCA-2. Although
Prudential's present policy is not to permit higher commissions to be paid for
transactions for VCA-2 in order to secure research and statistical services from
brokers or dealers, Prudential might in the future authorize the payment of
higher commissions, but only with the prior concurrence of the VCA-2 Committee,
if it is determined that the higher commissions are necessary in order to secure
desired research and are reasonable in relation to all of the services that the
broker or dealer provides.

When investment opportunities arise that may be appropriate for more than one
entity for which Prudential serves as investment manager or adviser, one entity
will not be favored over another and allocations of investments among them will
be made in an impartial manner believed to be equitable to each entity involved.
The allocations will be based on each entity's investment objectives and its
current cash and investment positions. Because the various entities for which
Prudential acts as investment manager or adviser have different investment
objectives and positions, from time to time a particular security may be
purchased for one or more such entities while, at the same time, such security
may be sold for another.

An affiliated broker may be employed to execute brokerage transactions on behalf
of VCA-2 as long as the commissions are reasonable and fair compared to the
commissions received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. During 1996, 1995 and 1994, $35,806, $0, and
$5,851, respectively, was paid to Prudential Securities Incorporated, an
affiliated broker. For 1996, the commissions paid to this affiliated broker
constitutes 4.98% of the total commissions paid by VCA-2 for that year, and the
transactions through this affiliated broker accounted for 6.48% of the aggregate
dollar amount of transactions for VCA-2 involving the payment of commissions.
VCA-2 may not engage in any transactions in which Prudential or its affiliates,
including Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal.

Prudential or PIC may enter into business transactions with brokers or dealers
for purposes other than the execution of portfolio securities transactions for
accounts Prudential manages. These other transactions will not affect the
selection of brokers or dealers in connection with portfolio transactions for
VCA-2.

During the calendar year 1996, $718,231 was paid to various brokers in
connection with securities transactions for VCA-2. Of this amount, approximately
77.6% was allocated to brokers who provided research and statistical services to
Prudential. The equivalent figures for 1995 were $655,211 and 76.62% and for
1994 were $516,567 and 71.03%.

CUSTODY OF SECURITIES

Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian of VCA-2's assets and maintains certain books and records in
connection therewith.

<PAGE>

THE VCA-2 COMMITTEE

VCA-2 is managed by The Prudential Variable Contract Account-2 Committee ("VCA-2
Committee"). The members of the Committee are elected by the persons having
voting rights in respect of the VCA-2 Account. The affairs of the Account are
conducted in accordance with the Rules and Regulations of the Account. The
members of the Account's Committee, the Account's Secretary and Assistant
Secretaries and the principal occupation of each during the past five years are
shown below.

VCA-2 COMMITTEE

MENDEL A. MELZER*, Chairman and Member of the Committee -- Chief Investment
Officer, Prudential Mutual Funds and Annuities, Prudential Investments, since
1996. Senior Vice President--Vice-President, and Chief Financial Officer,
Prudential Preferred Financial Services (a unit of PAMCO) from 1993 to 1995.
Vice-President, Managing Director, Prudential Investment Corporation from 1991
to 1993. Address: 751 Broad Street, Newark, New Jersey 07102.

SAUL K. FENSTER, Member of the Committee -- President, New Jersey Institute of
Technology (education). Address: 323 Martin Luther King Jr. Boulevard, Newark,
New Jersey 07102.

JONATHAN M. GREENE*, President and Member of the Committee -- President of
Investment Management (since 3/96), Prudential Investments. Vice President and
Portfolio Manager, T. Rowe Price Associates, Inc. from 6/74 to 3/96. Address:
751 Broad Street, Newark, New Jersey 07102.

W. SCOTT McDONALD, JR., Member of the Committee -- Principal, Kaludis Consulting
Group since 1997; 1995 to 1996, Principal, Scott McDonald & Associates; prior to
4/95, Executive Vice President, Fairleigh Dickinson University; prior to 9/91,
Executive Vice President, Drew University. Address: 9 Zamrok Way, Morristown,
New Jersey 07960.

JOSEPH WEBER, Member of the Committee -- Vice President, Interclass
(International corporate learning) since 10/90. President, Alliance for Learning
from 3/88 to 10/90. Consultant since 3/87. Address: 37Beachmont Terrace, North
Caldwell, New Jersey 07006.

THOMAS A. EARLY, Secretary to the Committee -- Vice President and General
Counsel, Mutual Funds and Annuities, Prudential Investments since 1996; Vice
President and General Counsel, Prudential Retirement Services 1994 to 1996.
Associate General Counsel, Frank Russell Company from 1988 to 1994. Address: 100
Mulberry Street, Gateway Center 3, Newark, New Jersey 07102.

EUGENE S. STARK, Comptroller, Treasurer, and Principal Financial Officer -- Vice
President, Prudential Investments since 1996; prior thereto First Vice President
of Prudential Mutual Fund Management LLC. Address: 100 Mulberry Street, Gateway
Center 3, Newark, New Jersey 07102.

* These Members of the Committee are interested persons of Prudential, its
affiliates or VCA-2, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Certain actions of the Committee, including the annual
continuance of the Agreement for Investment Management Services between
VCA-2 and Prudential, must be approved by a majority of the Members of the
Committee who are not interested persons of Prudential, its affiliates or
VCA-2. Messrs. Melzer and Greene, Members of the Committee, are interested
persons of Prudential, as that term is defined in the 1940 Act, because
they are officers of Prudential, the investment adviser of VCA-2. Messrs.
Fenster, McDonald, and Weber are not interested persons of Prudential, its
affiliates, or VCA-2. However, Mr. Fenster is President of the New Jersey
Institute of Technology. Prudential has issued a group annuity contract to
the Institute and provides group life and group health insurance to its
employees.

REMUNERATION OF MEMBERS OF THE COMMITTEE AND CERTAIN AFFILIATED PERSONS

No member of the VCA-2 Committee nor any other person (other than Prudential)
receives remuneration from the Account. Prudential pays certain of the expenses
relating to the operation of, including all compensation paid to members of the
Committee, its Chairman, its Secretary and Assistant Secretaries. No member of
the VCA-2 Committee, its Chairman, its Secretary or Assistant Secretaries who is
also an officer, Director or employee of Prudential or an affiliate of
Prudential is entitled to any fee for his services as a member or officer of the
Committee.

<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

DIRECTORS

FRANKLIN E. AGNEW, Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee. Business consultant
since 1987. Senior Vice President H.J. Heinz from 1971 to 1986. Mr. Agnew is
also a director of Bausch & Lomb Inc. and John Wiley & Sons, Inc. Age 62.
Address: One Mellon Bank Center, Suite 2120, Pittsburgh, PA 15219.

FREDERICK K. BECKER, Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics. President,
Wilentz Goldman and Spitzer (law firm) since 1989, with firm since 1960. Age 61.
Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.

JAMES G. CULLEN, Director since 1994 (current term expires April, 2001). Member,
Compensation Committee; Member, Committee on Business Ethics. Vice Chairman,
Bell Atlantic Corporation. President, Bell Atlantic Corporation from 1993 to
1995. President New Jersey Bell 1989 to 1993. Mr. Cullen is also a director of
Johnson& Johnson. Age 54. Address: 1310 North Court House Road, 11th Floor,
Alexandria, VA 22201.

CAROLYNE K. DAVIS, Director since 1989 (current term expires April, 1997).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. National and International Health Care Advisor, Ernst &
Young since 1985. Dr. Davis is also a director of Merck & Co., Inc., Beckman
Instruments, Inc., Pharmaceutical Marketing Services, Inc. and Science
Applications International Corporation. Age 65. Address: 1225 Connecticut
Avenue, N.W., Washington, DC 20036.

ROGER A. ENRICO, Director since 1994 (current term expires April, 1998). Member,
Committee on Nominations; Member, Compensation Committee. CEO PepsiCo, Inc.
since 1996. Vice Chairman, PepsiCo, Inc. from 1993 to 1996. Chairman and CEO,
Pepsi Co. Worldwide Food, from 1991 to 1993. President and CEO, Pepsi Co.
Worldwide Beverage from 1986-1991. Mr. Enrico is also a director of Dayton
Hudson Corporation and A.H.Belo Corporation. Age 52. Address: 14841 North Dallas
Parkway, Dallas, TX, 75240.

ALLAN D. GILMOUR, Director since 1995 (current term expires April, 1999).
Retired since 1995. Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr.
Gilmour originally joined Ford in 1960. Mr. Gilmour is also a director of
USWest, Inc., Whirlpool Corporation and The Dow Chemical Company. Age 62.
Address: 751 Broad Street, Newark, NJ 07102.

WILLIAM H. GRAY, III, Director since 1991 (current term expires April, 2000).
Member, Finance Committee; Member, Committee on Nominations. President and Chief
Executive Officer, The College Fund/UNCF since 1991. Mr.Gray served in Congress
from 1979 to 1991. Mr.Gray is also a director of Warner-Lambert Co., Chase
Manhattan Corp., Municipal Bond Investors Assurance Corp., Westinghouse Electric
Corp., Union Pacific Corp., Lotus Development Corp., and Rockwell International
Corp. Age 55. Address: 8260 Willow Oaks Corp. Drive, Fairfax, VA 22031.

JON F. HANSON, Director since 1991 (current term expires April, 1997). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Co. since 1976. Mr. Hanson is also a director of United Water
Resources. Age 60. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.

GLEN H. HINER, JR., Director since 1997. Chairman and Chief Executive Officer,
Owens Corning. Age 62. Address: One Owens Corning Parkway, Toledo, OH 43659.

CONSTANCE J. HORNER, Director since 1994 (current term expires April, 1998).
Member, Auditing Committee; Member, Committee on Nominations. Guest Scholar, The
Brookings Institution since 1993. Assistant to the President and Director of
Presidential Personnel, U.S. Government, 1991-1992. Deputy Secretary, Department
of Health & Human Services from 1989 to 1991. Ms. Horner is also a director of
Pfizer, Inc., Ingersoll-Rand Company and Foster Wheeler Corporation. Age 55.
Address: 1775 Massachusetts Ave., N.W. Washington, D.C. 20036-2188.

GAYNOR N. KELLEY, Director.--Former Chairman and Chief Executive Officer, The
Perkins Elmer Corporation. Age 65. Address: 751 Broad Street, Newark, NJ
07102-3777.

BURTON G. MALKIEL, Director since 1978 (current term expires April, 1998).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Nominations. Professor, Princeton University, since 1988. Dr. Malkiel is also a
director of The Jeffrey Co., Vanguard Group, Inc., Amdahl Corporation, Baker
Fentress & Company, and Southern New England Telecommunications Co. Age 64.
Address: 110 Fisher Hall, Prospect Avenue, Princeton University, Princeton, NJ
08544-1021.

ARTHUR F. RYAN, Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 54. Address: 751 Broad
Street, Newark, NJ 07102-3777.

<PAGE>

IDA F. S. SCHMERTZ, Director. Principal, Investment Strategies International.
Age 62. Address: 90 Riverside Drive, New York, NY 10024.

CHARLES R. SITTER, Director since 1995 (current term expires April, 1999).
Member, Committee on Dividends. President, Exxon Corporation from 1993 to 1996.
Mr. Sitter began his career with Exxon in 1957; he is currently a director of
Exxon. Age 66. Address: 5959 Las Colinas Boulevard, Irving, TX 75039.

DONALD L. STAHELI, Director since 1995 (current term expires April, 1999).
Member, Compensation Committee. Chairman and Chief Executive Officer,
Continental Grain Company since 1994. Mr. Staheli was Chairman of Continental
Grain from 1988 to 1994. Age 65. Address: 277 Park Avenue, New York, NY 10172.

RICHARD M. THOMSON, Director since 1976 (current term expires April, 2000).
Chairman, Compensation Committee; Member, Committee on Nominations, Member,
Executive Committee. Chairman of the Board and Chief Executive Officer, The
Toronto-Dominion Bank since 1978. Mr. Thomson is also a director of CGC, Inc.,
Eaton's of Canada, Ltd., INCO, Ltd., The Thomson Corp. National Retail Credit
Services Limited, TEC Leaseholds Limited, Thomglen Corporation and S.C. Johnson
& Son, Ltd. Age 63. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.

JAMES A. UNRUH, Director since 1996 (current term expires April, 2000). Chairman
and Chief Executive Officer of Unisys Corporation since 1990. Mr. Unruh is also
a director of Ameritech Corporation. Age 56. Address: Township Line& Union
Meeting Roads, Blue Bell, PA 19424.

P. ROY VAGELOS, M.D., Director since 1989 (current term expires April, 1997).
Chairman, Auditing Committee; Member, Committee on Dividends; Member, Executive
Committee. Chairman, Regeneron Pharmaceuticals since 1995. Chairman and Chief
Executive Officer, Merck & Co., Inc. from 1986 to 1994. Dr. Vagelos is also a
director of Pepsi Co., Inc., The Estee Lauder Companies Inc. and McDonnell
Douglas Corp. Age 67. Address: One Crossroads Drive, Bedminster, NJ 07921.

STANLEY C. VAN NESS, Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Auditing Committee; Member,
Executive Committee. Attorney, Picco Herbert Kennedy (law firm) from 1990.
Partner of Jamieson, Moore, Peskin & Spicer from 1984 to 1990. Mr. Van Ness is
also a director of Jersey Central Power & Light Company. Age 63. Address: One
State Street Square, Suite 1000, Trenton, NJ 08607-1388.

PAUL A. VOLCKER, Director since 1988 (current term expires April, 2000). Member,
Committee on Dividends; Member, Committee on Nominations. Chairman, James D.
Wolfensohn, Inc. since 1988; Chief Executive Officer, James D. Wolfensohn, Inc.
since 1995. Chairman, J. Rothschild, Wolfensohn & Co. from 1992 to 1995. Mr
Volcker is also a director of Fuji-Wolfensohn International, Nestle, S.A., UAL
Corp. and the Board of Governors, American Stock Exchange. Age 69. Address: 599
Lexington Avenue, New York, NY 10022.

JOSEPH H. WILLIAMS, Director since 1994 (current term expires April, 1998).
Member, Auditing Committee; Member, Committee on Dividends. Chairman of the
Board, The Williams Companies since 1994. Chairman & Chief Executive Officer,
The Williams Companies 1979-1993. Mr.Williams is also a director of Flint
Industries and The Orvis Company. Age 63. Address: One Williams Center, Tulsa,
OK 74102.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

PRINCIPAL OFFICERS

ARTHUR F. RYAN, Chairman, Chief Executive Officer, and President since 1994. Age
54.

E. MICHAEL CAULFIELD, Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group since 1995; 1989-92
Managing Director. Age 50.

MICHELE S. DARLING, Executive Vice President, Human Resources. Age 43.

RODGER LAWSON, Executive Vice President, Marketing and Planning. Age 50.

MARK B. GRIER, Chief Financial Officer since 1995. Age 44.

JOHN V. SCICUTELLA, Executive Vice President, Operations and Systems, since
1995. Age 48.

WILLIAM F. YELVERTON, Chief Executive Officer, Individual Insurance Group since
1995. Age 55.

R. BROCK ARMSTRONG, Senior Vice President, Individual Insurance Development. Age
50.

MARTIN BERKOWITZ, Senior Vice President and Comptroller since 1995. Age 48.

WILLIAM M. BETHKE, President, Capital Markets Group, Senior Vice President since
1986. Age 49.

MARK R. FETTING, President, Prudential Retirement Services, Age 42.

LEO J. CORBETT, Senior Vice President, Individual Insurance Marketing. Age 48.

<PAGE>

WILLIAM D. FRIEL, Senior Vice President and Chief Information Officer since
1993; 1988-92: Vice President.Age 57.

JAMES R. GILLEN, Senior Vice President and General Counsel since 1984. Age 59.

BRUCE J. GOODMAN, Chief Executive Officer, Prudential Service Company, Senior
Vice President since 1993.Age 55.

JONATHAN M. GREENE, President, Investment Management, Prudential Investments.
Age 53.

JEAN D. HAMILTON, President, Diversified Group. Age 50.

RONALD JOELSON, Senior Vice President, Guaranteed Products. Age 39.

IRA J. KLEINMAN, Executive Vice President, International Insurance Group; Senior
Vice President since 1992; 1978-92: Vice President. Age 49.

DONALD C. MANN, Senior Vice President, Community Resources; Senior Vice
President since 1990; 1985-90: Vice President. Age 54.

NEIL A. McGUINNESS, Senior Vice President, Marketing, Prudential Investments.
Age 50.

PRISCILLA A. MYERS, Senior Vice President, Audit, Compliance and Investigation
since 1995. Age 47.

RICHARD O. PAINTER, President, Prudential Insurance& Financial Services since
1995. Age 49.

KIYOFUMI SAKAGUCHI, President, International Insurance Group since 1995. Age 54.

GREGORY W. SCOTT, Chief Financial Officer, Prudential Healthcare Group since
1995. Age 43.

BRIAN M. STORMS, President, Mutual Funds and Annuities, Prudential Investments
since 1996. Age 42.

ROBERT J. SULLIVAN, Senior Vice President, Sales, Prudential Investments. Age
58.

SUSAN L. BLOUNT, Vice President and Secretary since 1995. Age 39.

C. EDWARD CHAPLIN, Vice President and Treasurer since 1995. Age 40.

SALE OF GROUP VARIABLE ANNUITY CONTRACTS

Prudential offers the Contracts on a continuous basis through Corporate Office,
regional home office and group sales office employees in those states in which
the Contracts may be lawfully sold. It may also offer the Contracts through
licensed insurance brokers and agents, or through appropriately registered
direct or indirect subsidiary(ies) of Prudential, provided clearances to do so
are secured in any jurisdiction where such clearances may be necessary or
desirable. During 1996, 1995 and 1994 Prudential received $162,008, $180,356,
and $108,110 respectively, as sales charges in connection with the sale of these
contracts. Prudential credited $108,192, $100,063 and $93,325 respectively to
other broker-dealers in connection with such sales.

EXPERTS

The condensed financial information included in the Prospectus and the financial
statements in this Statement of Additional Information for the fiscal year 1996
have been audited by Price Waterhouse LLP, independent accountants, as stated in
their report appearing herein. The condensed financial information included in
the Prospectus and the financial statements in this Statement of Additional
Information for all years prior to 1996 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein. Such
financial statements and condensed financial information have been included in
reliance upon the reports of such firms given upon their authority as experts in
accounting and auditing. The Committee approves the accountant's employment
annually. Price Waterhouse LLP's business address is 1177 Avenue of the
Americas, New York, NY 10036. Deloitte & Touche LLP's principal business address
is Two Hilton Court, Parsippany, New Jersey 07054-0319.

Financial statements for VCA-2 and Prudential, as of December31, 1996, are
included in this Statement of Additional Information, beginning at page 16.

<PAGE>

FINANCIAL STATEMENTS OF VCA-2

STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1996

COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 2.0%
Gen Corp. 378,600 $ 6,862,125
Litton Industries, Inc.+ 126,800 6,038,850
-----------
12,900,975
- --------------------------------------------------------------------------------
AUTOS & TRUCKS - 3.6%
A.O. Smith Corp. 294,100 8,786,238
Borg-Warner Automotive, Inc. 85,000 3,272,500
Custom Chrome, Inc.+ 153,900 3,097,237
Lear Corp.+ 95,000 3,241,875
Stant Corp. 265,000 4,173,750
-----------
22,571,600
- --------------------------------------------------------------------------------
CHEMICALS - 6.0%
Chemfirst, Inc.+ 171,000 3,954,375
Cytec Industries, Inc.+ 180,600 7,336,875
E.I. duPont de Nemours & Co. 55,000 5,190,625
Mississippi Chemical Corp. 312,114 7,490,747
Olin Corp. 143,800 5,410,475
Rhom & Haas Co. 42,900 3,501,712
Spartech Corp. 217,900 2,424,137
W.R. Grace & Co. 49,800 2,577,150
-----------
37,886,096
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.2%
Oak Industries, Inc.+ 62,100 1,428,300
- --------------------------------------------------------------------------------
COMPUTER HARDWARE - 2.1%
International Business
Machines Corp. 40,000 6,040,000
Seagate Technology, Inc.+ 178,600 7,054,700
-----------
13,094,700
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 1.1%
Whitman Corp. 310,000 7,091,250
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 3.1%
Aptar Group, Inc. 107,200 3,778,800
ACX Technologies, Inc.+ 146,900 2,919,638
Alltrista Corp+ 269,400 6,937,050
U.S. Can Corp.+ 356,700 6,019,312
-----------
19,654,800
- --------------------------------------------------------------------------------
DRUGS & MEDICAL SUPPLIES - 0.5%
Zeneca Group PLC (ADR)
(United Kingdom) 38,400 3,225,600
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.1%
Belden, Inc. 180,900 6,693,300
- --------------------------------------------------------------------------------
ELECTRONICS - 8.7%
Anixter International, Inc.+ 263,200 4,244,100
Berg Electronics Corp.+ 110,400 3,243,000
Dallas Semiconductor Corp. 257,900 5,931,700
Marshall Industries+ 200,000 6,125,000
Methode Electronics, Inc. 500,000 10,125,000
Pioneer Standard Electronics, Inc. 550,000 7,218,750
SGS-Thomson
Microelectronics N.V.+ 119,000 8,330,000
Sterling Electronics Corp. 414,750 5,547,281
Wyle Electronics Inc. 110,100 4,348,950
-----------
55,113,781
- --------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION - 1.7%
Giant Cement Holding, Inc.+ 367,400 5,924,325
Gradall Industries, Inc.+ 373,000 4,615,875
-----------
10,540,200
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCTION - 6.1%
Cabot Oil & Gas Corp. 225,600 3,863,400
Occidental Petroleum Corp. 188,200 4,399,175
Oryx Energy Co.+ 365,000 9,033,750
Parker & Parsley Petroleum Co. 150,000 5,512,500
Santa Fe Energy Resources, Inc.+ 243,600 3,379,950
Seagull Energy Corp.+ 110,000 2,420,000
Union Pacific Resources Group 68,348 1,999,179
Vintage Petroleum, Inc. 118,600 4,091,700
Western Gas Resources, Inc. 104,500 2,011,625
Zeigler Coal Holding Co. 96,500 2,062,687
-----------
38,773,966
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 6.4%
American States Financial Corp. 234,200 6,206,300
Associates First Capital Co. 29,300 1,292,863
Dean Witter Discover & Co. 143,000 9,473,750
Financial Security Assurance
Holdings Corp. 212,600 6,989,225
Finova Group, Inc. 80,000 5,140,000
Travelers Group, Inc. 133,333 6,049,985
W.R. Berkley Corp. 108,900 5,526,675
-----------
40,678,798
- --------------------------------------------------------------------------------

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

FINANCIAL STATEMENTS OF VCA-2

STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1996

COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
HOSPITAL MANAGEMENT - 1.3%
Fresenius National Medical
Care (ADR)(Germany)+ 49,800 $ 6,474
Tenet Healthcare Corp.+ 381,200 8,338,750
-----------

8,345,224
- --------------------------------------------------------------------------------
HOUSING RELATED - 2.6%
Furniture Brands
International, Inc.+ 450,000 6,300,000
Mueller Industries, Inc.+ 110,000 4,235,000
Owens Corning Fiberglass Corp. 135,300 5,767,162
-----------
16,302,162
- --------------------------------------------------------------------------------
INSURANCE - 8.0%
Allamerica Financial Corp. 50,000 1,675,000
Allied Group, Inc. 167,550 5,466,319
Equitable of Iowa Companies 240,000 11,010,000
ITT Hartford Group, Inc. 48,500 3,273,750
NAC Re Corp. 180,000 6,097,500
Reinsurance Group of America 239,100 11,267,588
TIG Holdings, Inc. 49,500 1,676,812
Trenwick Group, Inc. 111,900 5,175,375
Unionamerica Holdings,
PLC (ADR)(United Kingdom) 300,000 5,325,000
-----------
50,967,344
- --------------------------------------------------------------------------------
MACHINERY - 5.7%
Allied Products Corp. 264,900 7,880,775
Applied Power Co.
(Class 'A' Stock) 308,700 12,232,238
Hardinge, Inc. 141,800 3,775,425
Harnischfeger Industries, Inc. 226,000 10,876,250
Pfeiffer Vacuum Tech,
(ADR) (Germany)+ 25,000 450,000
Robbins & Myers, Inc. 49,500 1,237,500
-----------
36,452,188
- --------------------------------------------------------------------------------
MEDIA - 7.8%
Century Communications
Corp. (Class 'A' Stock)+ 588,400 3,346,525
Comcast Corp.
(Class 'A' Stock) 198,600 3,500,325
Comcast Corp.
(Class 'A' Stock) Special 346,626 6,174,276
Cox Communication, Inc.
(Class 'A' Stock)+ 188,687 4,363,387
E.W. Scripps Co.
(Class 'A' Stock) 100,000 3,500,000
Harcourt General, Inc. 137,100 6,323,737
Hollinger International, Inc.
(Class 'A' Stock) 240,700 2,768,050
Knight Ridder, Inc. 69,400 2,654,550
Lee Enterprises, Inc. 110,000 2,557,500
Pulitzer Publishing Co. 53,333 2,473,318
Tele-Communications, Inc.
Liberty Media Group
(Series A)+ 115,200 3,290,400
Time Warner, Inc. 170,000 6,375,000
United International Holdings, Inc.
(Class 'A' Stock)+ 161,200 1,974,700
-----------
49,301,768
- --------------------------------------------------------------------------------
MISCELLANEOUS-INDUSTRIAL - 14.1%
Clarcor, Inc. 84,400 1,867,350
Coltec Industries, Inc.+ 331,000 6,247,625
Crane Co. 162,900 4,724,100
Danaher Corp. 107,000 4,988,875
Donaldson, Inc. 175,000 5,862,500
Figgie International, Inc.
(Class'A' Stock)+ 345,300 4,143,600
Global Industrial Technologies, Inc.+ 421,300 9,321,263
Greenfields Industries, Inc. 251,900 7,714,438
Idex Corp. 130,000 5,183,750
Jason, Inc.+ 334,300 2,172,950
Lancaster Colony Corp. 28,000 1,288,000
Lydall, Inc.+ 190,400 4,284,000
Mark IV Industries, Inc. 248,850 5,630,231
Pentair, Inc. 196,500 6,337,125
Regal Beloit Corp. 218,600 4,290,025
United Dominion Industries, Ltd. 299,900 7,047,650
Varian Associates, Inc. 11,000 559,625
Wolverine Tube, Inc.+ 225,000 7,931,250
-----------
89,594,357
- --------------------------------------------------------------------------------

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

FINANCIAL STATEMENTS OF VCA-2

STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1996

COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
NON-FERROUS METALS - 2.0%
The Carbide/Graphite Group, Inc.+ 425,000 $ 8,340,625
UCAR International, Inc.+ 120,000 4,515,000
-----------
12,855,625
- --------------------------------------------------------------------------------
RAILROADS - 3.5%
Canadian Pacific Ltd. 131,400 3,482,100
Greenbrier Companies, Inc. 412,100 4,275,538
Illinois Central Corp. 153,000 4,896,000
Union Pacific Corp. 80,700 4,852,087
Varlen Corp. 212,055 4,360,381
-----------
21,866,106
- --------------------------------------------------------------------------------
REGIONAL BANKS - 4.1%
Bank of Boston Corp. 77,700 4,992,225
Cullen Frost Bankers, Inc. 140,000 4,655,000
First Chicago NBD Corp. 108,180 5,814,675
Norwest Corp. 245,000 10,657,500
-----------
26,119,400
- --------------------------------------------------------------------------------
RETAIL - 1.6%
Carson Pirie Scott & Co.+ 143,900 3,633,475
Haverty Furniture, Inc. 600,000 6,825,000
-----------
10,458,475
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS - 2.8%
Cambrex Corp. 150,000 4,912,500
Ferro Corp. 227,400 6,452,475
Lilly Industries, Inc. 156,200 2,850,650
OM Group, Inc. 127,500 3,442,500
-----------
17,658,125
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 1.2%
AT&T Corp. 177,300 7,712,550
- --------------------------------------------------------------------------------
TEXTILES/APPAREL - 0.0%
Paxar Corp.+ 10,800 186,300
- --------------------------------------------------------------------------------
TRUCKING/SHIPPING - 1.4%
Consolidated Freightways, Inc. 122,400 2,723,400
Interpool, Inc. 144,600 3,380,025
Pittston Burlington Group 163,550 3,271,000
-----------
9,374,425
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
INVESTMENTS - 98.7%
(Cost: $456,784,658) 626,847,415
- --------------------------------------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENT - 1.2% AMOUNT
- --------------------------------------------------------------------------------
Morgan Stanley, Loan
Participation Note, 6.79%
Due 01/02/97
(Cost: $7,652,000) $7,652,000 7,652,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.9%
(Cost: $464,436,658) 634,499,415
- --------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Cash 243
Dividends and Interest Receivable 531,296
Receivable for Investments Sold 2,279,615
Payable for Investments Purchased (1,726,115)
Payable for Pending Capital Transactions (708,113)
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS
LESS LIABILITIES 0.1% 376,926
- --------------------------------------------------------------------------------
NET ASSETS - 100% $634,876,341
- --------------------------------------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
(other than Annuitants)
30,548,115 Accumulation Units at an
Accumulation Unit Value of
$19.6241 $599,479,389
Equity of Annuitants 29,767,787
Equity of The Prudential Insurance
Company of America 5,629,165
- --------------------------------------------------------------------------------
$634,876,341
================================================================================
The following abbreviations are used in portfolio descriptions:
ADR - American Depository Receipts
N.V. - Naamloze Vennootschap (Dutch Corporation)
PLC - Public Limited Company
+No cash dividend was paid on these securities during the year ended December
31, 1996.

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

FINANCIAL STATEMENTS OF VCA-2

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2B]
Dividends $ 6,378,826
Interest 459,497
- -----------------------------------------------------------------------------------------
TOTAL INCOME 6,838,323
- -----------------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants and Annuitants for Investment
Management Services 698,622
Fees Charged to Participants (other than Annuitants) for
Assuming Mortality and Expense Risks 1,996,267
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES 2,694,889
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME - NET 4,143,434
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS - NET [NOTE 2B]
Realized Gain on Investments - Net 77,378,955
Increase in Unrealized Appreciation on Investments - Net 61,960,118
- -----------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 139,339,073
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $143,482,507
=========================================================================================
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income - Net $ 4,143,434 $ 4,691,807
Realized Gain on Investments - Net [NOTE 2B] 77,378,955 51,878,963
Increase In Unrealized
Appreciation on Investments - Net [NOTE 2B] 61,960,118 59,711,120
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 143,482,507 116,281,890
- -----------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS [NOTES 3 & 5]
Purchase Payments and Transfers In 34,187,009 27,724,309
Withdrawals and Transfers Out (54,140,871) (41,532,255)
Annual Administration Charges Deducted from
Participants' Accumulation Accounts (30,477) (34,067)
Mortality and Expense Risk Charges Deducted
from Annuitants' Accounts (99,600) (88,043)
Variable Annuity Payments (3,459,550) (3,045,807)
- -----------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (23,543,489) (16,975,863)
- -----------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (235,290) (12,650)
- -----------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 119,703,728 99,293,377
NET ASSETS
Beginning of Year 515,172,613 415,879,236
- -----------------------------------------------------------------------------------------
End of Year $634,876,341 $515,172,613
=========================================================================================
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF VCA-2
- -------------------------------------------------------------------------------

NOTE 1: GENERAL
The Prudential Variable Contract Account-2 (VCA-2 or the Account) was
established on January 9, 1968 by The Prudential Insurance Company of
America (Prudential) under the laws of the State of New Jersey and is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. VCA-2 has been
designed for use by public school systems and certain tax-exempt
organizations to provide for the purchase and payment of tax-deferred
variable annuities. Its investments are composed primarily of common
stocks. All contractual and other obligations arising under contracts
participating in VCA-2 (Contracts) are general obligations of
Prudential, although Participants' payments from the Account will
depend upon the investment experience of the Account.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. SECURITIES VALUATION

EQUITY SECURITIES
Any security for which the primary market is on an exchange is
generally valued at the last sale price on such exchange as of the
close of the NYSE (which is currently 4:00 p.m. Eastern time) or, in
the absence of recorded sales, at the mean between the most recently
quoted bid and asked prices. NASDAQ National Market System equity
securities are valued at the last sale price or, if there was no sale
on such day, at the mean between the most recently quoted bid and asked
prices. Other over-the-counter equity securities are valued at the mean
between the most recently quoted bid and asked prices. Portfolio
securities for which market quotations are not readily available will
be valued at fair value as determined in good faith under the direction
of the Account's Pricing Committee.

FIXED INCOME SECURITIES
Fixed income securities will be valued utilizing an independent pricing
service to determine valuations for normal institutional size trading
units of securities. The pricing service considers such factors as
security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at securities
valuations. Convertible debt securities that are actively traded in the
over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the
mean between the most recently quoted bid and asked prices provided by
an independent pricing service.

SHORT-TERM INVESTMENTS
Short-term investments having maturities of sixty days or less are
valued at amortized cost, which approximates market value. Amortized
cost is computed using the cost on the date of purchase, adjusted for
constant accrual of discount or amortization of premium to maturity.

B. 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 and interest
income is recorded on the accrual basis. Income and realized and
unrealized gains and losses are allocated to the Participants and
Prudential on a daily basis in proportion to their respective ownership
in VCA-2. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management. Notes to Financial
Statements of VCA-2. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management.

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF VCA-2
- -------------------------------------------------------------------------------

C. TAXES
The operations of VCA-2 are part of, and are taxed with, the operations of
Prudential. Under the current provisions of the Internal Revenue Code,
Prudential does not expect to incur federal income taxes on earnings of VCA-2 to
the extent the earnings are credited under the Contracts. As a result, the Unit
Value of VCA-2 has not been reduced by federal income taxes.

D. EQUITY OF ANNUITANTS
Reserves are computed for purchased annuities using the Prudential 1950 Group
Annuity Valuation (GAV) Table, adjusted, and a valuation interest rate related
to the Assumed Investment Result (AIR). The valuation interest rate is equal to
the AIR less .5% which is a charge defined in Note 3A. The AIRs are selected by
each Contract-holder and are described in the prospectus.

NOTE 3: CHARGES
A. Prudential acts as investment manager for VCA-2 under an
agreement for Investment Management Services. The expenses charged
to VCA-2 consist of the following contract charges which are paid to
Prudential:

(i) An investment management fee is calculated daily at an
effective annual rate of 0.125% of the current value of the
accounts of Participants (other than Annuitants and
Prudential). An equivalent charge is made monthly in
determining the amount of Annuitants' payments.

(ii) A daily charge for assuming mortality and expense risks is
calculated at an effective annual rate of 0.375% of the
current value of the accounts of Participants (other than
Annuitants and Prudential). A one-time equivalent charge is
deducted when the initial Annuity Units for Annuitants are
determined.

B. An annual administration charge of not more than $30 annually, is
deducted from the accumulation account of certain Participants
either at the time of withdrawal of the value of the entire
Participant's account or at the end of the accounting year by
canceling Accumulation Units. This deduction may be made from a
fixed-dollar annuity contract if the Participant is enrolled under
such a contract.

C. A charge of 2.5% for sales and other marketing expenses is made from
certain Participant's purchase payments. For the year ended December
31, 1996, Prudential has advised the account it has received
$162,008 for such charges.

NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the year ended December 31, 1996, the aggregate cost of purchases
and the proceeds from sales of securities, excluding short-term
investments, were $227,201,835 and $246,329,549 respectively.

20
<PAGE>

NOTES TO FINANCIAL STATEMENTS OF VCA-2
- -------------------------------------------------------------------------------

NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years
ended December 31, 1996 and 1995 is as follows:

1996 1995
----------------------------------------
Units issued 4,133,210 2,022,197
----------------------------------------
Units redeemed 5,185,531 3,045,441
----------------------------------------

NOTE 6: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents
the net reductions from the equity of Prudential from VCA-2.

NOTE 7: RELATED PARTY TRANSACTIONS
For the year ended December 31, 1996, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of Prudential,
earned $35,806 in brokerage commissions from portfolio transactions
executed on behalf of VCA-2.

NOTE 8: PARTICIPANT LOANS
Participant loan initiations are not permitted in VCA-2. However,
participants who initiated loans in other accounts are permitted to
direct loan repayments into VCA-2.

For the years ended December 31, 1996 and 1995, $36,354 and $1,311 of
participant loan principal and interest has been paid to VCA-2,
respectively.

This report is for the information of persons participating in The Prudential
Variable Contract Account-2 (VCA-2, Long Term Growth Account, or the Account).
It is not authorized for distribution to prospective investors unless preceded
or accompanied by a current prospectus for VCA-2. Prudential Investment
Management Services LLC, Distributor, is an affiliate of The Prudential
Insurance Company of America. VCA-2 is a group annuity insurance product issued
by The Prudential Insurance Company of America.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Committee and Participants
of The Prudential Variable Contract Account - 2
of The Prudential Insurance Company of America

In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Prudential Variable Contract Account - 2 of The Prudential Insurance Company
of America (the "Account") at December 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Account's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above. The
statement of changes in net assets for the year ended December 31, 1995 and the
financial highlights for each of the four years in the period ended December 31,
1995 were audited by other independent accountants whose report thereon dated
February 15, 1996 expressed an unqualified opinion on those statements.

Price Waterhouse LLP
New York, New York
February 12, 1997

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Contract-holders of
The Prudential Variable Contract Account-2
and the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey

We have audited the accompanying statement of changes in net assets of The
Prudential Variable Contract Account-2 of The Prudential Insurance Company of
America for the year ended December 31, 1995. This financial statement and share
information are the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statement presents fairly, in all material
respects, the changes in net assets of The Prudential Variable Contract
Account-2, for the year endd December 31, 1995 in conformity with generally
accepted accounting principles.

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

<PAGE>

<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31,
1996 1995
-------- --------
(In Millions)
<S> <C> <C>
ASSETS
Bonds ............................................................................ $ 75,006 $ 77,494
Preferred stock .................................................................. 239 396
Common stock ..................................................................... 7,076 6,133
Mortgage loans on real estate .................................................... 17,039 20,280
Real estate ...................................................................... 2,094 2,488
Policy loans and premium notes ................................................... 6,023 6,208
Cash and short-term investments .................................................. 5,982 4,803
Other invested assets ............................................................ 2,591 3,304
-------- --------

TOTAL CASH AND INVESTED ASSETS ................................................... 116,050 121,106

Premiums due and deferred ........................................................ 1,925 1,917
Accrued investment income ........................................................ 1,640 1,688
Other assets ..................................................................... 1,208 1,120
Assets held in separate accounts ................................................. 57,797 53,903
-------- --------

TOTAL ASSETS ..................................................................... $178,620 $179,734
======== ========

LIABILITIES AND SURPLUS

LIABILITIES

Policy liabilities and insurance reserves:
Future policy benefits and claims ............................................ $ 87,582 $ 93,346
Unearned premiums ............................................................ 619 624
Policy dividends ............................................................. 1,878 1,893
Policyholder account balances ................................................ 7,968 7,966
Notes payable and other borrowings ............................................... 763 807
Asset valuation reserve .......................................................... 2,682 2,705
Federal income tax payable ....................................................... 729 1,278
Other liabilities ................................................................ 9,588 9,191
Liabilities related to separate accounts ......................................... 57,436 53,256
-------- --------

TOTAL LIABILITIES ................................................................ 169,245 171,066
-------- --------

CONTINGENCIES (NOTE 11)

SURPLUS

Capital notes .................................................................... 985 984
Special surplus fund ............................................................. 1,268 1,274
Unassigned surplus ............................................................... 7,122 6,410
-------- --------

TOTAL SURPLUS .................................................................... 9,375 8,668
-------- --------

TOTAL LIABILITIES AND SURPLUS .................................................... $178,620 $179,734
======== ========
</TABLE>

SEE NOTES TO STATUTORY FINANCIAL STATEMENTS
<PAGE>

<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

STATEMENTS OF OPERATIONS AND CHANGES IN SURPLUS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31,
1996 1995 1994
(In Millions)

<S> <C> <C> <C>
REVENUE

Premiums and annuity considerations .................................... $ 20,674 $ 21,088 $ 23,612
Net investment income .................................................. 8,677 8,637 7,387
Other income ........................................................... 571 363 367
-------- -------- --------

TOTAL REVENUE .......................................................... 29,922 30,088 31,366
-------- -------- --------

BENEFITS AND EXPENSES

Death benefits ......................................................... 2,943 2,858 2,798
Annuity benefits ....................................................... 3,582 3,495 3,354
Disability benefits .................................................... 5,630 5,765 5,201
Other benefits ......................................................... 806 853 845
Surrender benefits and fund withdrawals ................................ 11,844 12,538 11,714
Net (decrease) increase in reserves .................................... (1,572) (2,178) 1,251
Commissions ............................................................ 477 535 610
Other expenses ......................................................... 2,690 2,650 3,727
-------- -------- --------

TOTAL BENEFITS AND EXPENSES ............................................ 26,400 26,516 29,500
-------- -------- --------

Operating income before dividends and income taxes ..................... 3,522 3,572 1,866
Dividends to policyholders ............................................. 2,526 2,464 2,290
-------- -------- --------

Operating income (loss) before income taxes ............................ 996 1,108 (424)
Income tax provision ................................................... 51 590 453
-------- -------- --------

INCOME (LOSS) FROM OPERATIONS .......................................... 945 518 (877)

NET REALIZED CAPITAL GAINS (LOSSES) .................................... 457 (183) (24)
-------- -------- --------

NET INCOME (LOSS) ..................................................... $ 1,402 $ 335 $ (901)
======== ======== ========

SURPLUS

SURPLUS, BEGINNING OF YEAR ............................................. 8,668 7,449 8,004

Net income (loss) ...................................................... 1,402 335 (901)
Change in net unrealized capital gains (losses) ........................ 191 661 (51)
Change in non-admitted assets .......................................... (206) 717 82
Change in asset valuation reserve ...................................... 11 (694) 653
Other changes, net ..................................................... (691) 200 (338)
-------- -------- --------

SURPLUS, END OF YEAR ................................................... $ 9,375 $ 8,668 $ 7,449
======== ======== ========
</TABLE>

SEE NOTES TO STATUTORY FINANCIAL STATEMENTS

- 1 -
<PAGE>

<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

STATEMENTS OF CASH FLOWS (STATUTORY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums and annuity considerations ...................................... $ 20,669 $ 21,030 $ 23,635
Net investment income .................................................... 8,629 8,511 7,261
Other income received .................................................... 599 479 502
Separate account transfers ............................................... 1,183 1,002 (494)
Benefits and claims paid ................................................. (24,952) (25,524) (24,403)
Policyholders' dividends paid ............................................ (2,453) (2,393) (2,594)
Federal income taxes (paid) received ..................................... (230) (847) 179
Other operating expenses ................................................. (4,224) (3,738) (3,636)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ...................... (779) (1,480) 450
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from investments sold, matured, or repaid
Bonds ............................................................... 119,195 93,178 80,668
Stocks .............................................................. 4,328 2,985 4,263
Mortgage loans on real estate ....................................... 3,140 4,997 4,205
Real estate ......................................................... 537 573 935
Net gains (losses) on cash and short-term investments ............... 13 (9) (5)
Miscellaneous proceeds .............................................. 2,128 3,707 2,671
Payments for investments acquired
Bonds ............................................................... (118,009) (101,018) (81,677)
Stocks .............................................................. (6,029) (2,199) (2,312)
Mortgage loans on real estate ....................................... (1,841) (2,810) (3,282)
Real estate ......................................................... (120) (425) (194)
Miscellaneous applications .......................................... (718) (1,213) (1,275)
Net (tax) benefit on capital gains and losses ............................ (622) 107 (275)
--------- --------- ---------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................... 2,002 (2,127) 3,722
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES

Net (repayments of) proceeds from borrowed money ......................... (44) 123 1
Net proceeds from the issuance of capital notes .......................... 0 686 0
--------- --------- ---------

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ..................... (44) 809 1
--------- --------- ---------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS ............... 1,179 (2,798) 4,173
Cash and short-term investments, beginning of year ....................... 4,803 7,601 3,428
--------- --------- ---------

CASH AND SHORT-TERM INVESTMENTS, END OF YEAR ............................. $ 5,982 $ 4,803 $ 7,601
========= ========= =========
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments of $253 million, $144 million and $85 million were made during
1996, 1995 and 1994, respectively.

SEE NOTES TO STATUTORY FINANCIAL STATEMENTS

- 2 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. ACCOUNTING POLICIES AND PRINCIPLES

A. Business and basis of presentation - The statutory financial
statements include the accounts of The Prudential Insurance Company of
America ("the Company"), a mutual life insurance company. The
activities of the Company include a broad range of financial services,
including life and health insurance, asset management, and investment
advisory services.

These financial statements were prepared on an unconsolidated
statutory basis of accounting, which differs from the 1995 and 1994
financial statements prepared for general distribution on a
consolidated statutory basis of accounting, both of which differ from
generally accepted accounting principles ("GAAP"). The financial
statements for 1995 and 1994 have been restated on an unconsolidated
statutory basis of accounting adopted in 1996 for purposes of general
distribution. Certain reclassifications have been made to the 1995 and
1994 financial statement amounts to conform to the 1996 presentation.

The Company, domiciled in the State of New Jersey, prepares its
statutory financial statements in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and
Insurance ("the Department"). Prescribed statutory accounting
practices include publications of the National Association of
Insurance Commissioners ("NAIC"), state laws, regulations, and general
administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The financial
statements are substantially the same as those included in the
Statutory Annual Statement except for certain reclassifications and
adjustments. These financial statements differ from those filed with
the Department in that changes to estimated income and premium taxes
applicable to prior periods, which are recorded as direct charges or
credits to surplus in the Annual Statement, have been included in the
"Income tax provision" and "Other expenses" in the Statements of
Operations and Changes in Surplus. This item has the net effect of
increasing (decreasing) net income by $396 million, ($143) million and
$6 million in 1996, 1995 and 1994, respectively.

Pursuant to the Financial Accounting Standards Board Interpretation
No. 40 "Applicability of Generally Accepted Accounting Principles to
Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 financial statements, statutory accounting
practices ("SAP") are no longer considered GAAP for mutual life
insurance companies. SAP differs from GAAP primarily as follows:

(a) the Commissioner's Reserve Valuation Method ("CRVM") is used for the
majority of individual insurance reserves under SAP, whereas for
individual insurance, policyholder liabilities are generally
established using the net level premium method under GAAP. Policy
assumptions used in the estimation of policyholder liabilities are
generally prescribed under SAP, but are based upon actual company
experience under GAAP;

(b) for investment-type contracts that do not contain mortality or
morbidity risk and universal life-type contracts, cash receipts are
recorded as premiums and reserves are established using prescribed
reserving methods under SAP. Under GAAP, premium from investment-type
and universal life-type contracts are generally recognized as
deposits. Revenues from these contracts represent amounts assessed
against policyholders and are reported in the period of assessment;

(c) policy acquisition costs are expensed when incurred under SAP rather
than being deferred and charged against earnings over the periods
covered by the related policies;

(d) deferred income taxes are not recorded for the tax effect of temporary
differences between book and tax basis of assets and liabilities under
SAP;

(e) certain "non-admitted assets" must be excluded under SAP through a
charge against surplus, e.g. fixed assets, prepaid pensions and
impaired investments;

(f) investments in the common stock of the Company's wholly-owned
subsidiaries are accounted for using the equity method under SAP
rather than consolidated;

(g) bonds are carried at amortized cost under SAP rather than categorized
as "held to maturity", "available for sale", or "trading". Under GAAP,
bonds classified as "available for sale" and "trading" are carried at
market value;

(h) certain reclassifications would be required with respect to the
balance sheet and statement of cash flows under SAP;

(i) the Asset Valuation Reserve ("AVR") and Interest Maintenance Reserve
("IMR") are required for life insurance companies under SAP.

The following is a summary of accounting practices permitted by the
state of New Jersey and reflected in these financial statements:

o Prescribed statutory accounting practices require Department
approval of each and every interest payment at the time of
payment in order to classify the Company's Capital Notes as a
component of surplus. Otherwise, such notes are required to be
classified as a liability. Interest payments on $300 million in
Capital Notes issued in 1993 are pre-approved by the Department,
and permitted to be classified in surplus.

o The Company sells synthetic guaranteed interest contracts
("GICs") containing minimum investment related guarantees on
qualified pension plan assets. The assets are owned by the
trustees of such plans, who invest the assets

- 3 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

under the terms of investment guidelines agreed to with the
Company. The investment related guarantees may include a minimum
rate of return on the underlying assets and/or a guarantee of
liquidity to meet plan cash flow requirements. The Company, with
the approval of the Department, reports both the plan liabilities
associated with the synthetic GICs and the trust assets
supporting this potential liability. In addition, the Company
files detailed schedules of trust assets and related statements
with the Department. Currently, prescribed statutory accounting
practices do not address accounting for synthetic GICs.

o The Company establishes guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities
are established net of estimated premium tax credits and federal
income tax. Prescribed statutory accounting practices do not
address the establishment of liabilities for guaranty fund
assessments.

B. Divestiture - On July 31, 1996, Prudential sold a substantial portion
of its Canadian Branch business to the London Life Insurance Company
("London Life"). The transaction was structured as an assumption
reinsurance transaction, whereby London Life assumed total liabilities
of the Canadian Branch equal to $3,146 million as well as a related
amount of total assets equal to $3,040 million. A net gain of $138
million was recorded for this transaction.

C. Use of estimates - The preparation of financial statements in
conformity with SAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from those
estimates.

D. Investments - Bonds, which consist of long-term bonds, are stated
primarily at amortized cost.

Preferred stock is generally valued at amortized cost.

Common Stock is carried at fair value. Investments in subsidiaries,
which are included in "Common stock", are accounted for using the
equity method. The subsidiaries' change in net assets, excluding
capital contributions and distributions, is included in "Net
investment income." The subsidiaries are engaged principally in the
businesses of life and health insurance, property and casualty
insurance, group health care, securities brokerage, asset management,
investment advisory services, retail banking and real estate and
brokerage.

Mortgage loans on real estate are stated primarily at unpaid principal
balances.

Real estate, except for real estate acquired in satisfaction of debt,
is carried at cost less accumulated straight-line depreciation,
encumbrances and permanent impairments in value. Properties acquired
in satisfaction of debt are valued at lower of depreciated cost or
fair value less disposition costs.

Policy loans and premium notes are stated at unpaid principal
balances.

Cash includes cash on hand, amounts due from banks and money market
instruments. Short term investments, including highly liquid debt
instruments purchased with an original maturity of twelve months or
less, are stated at amortized cost, which approximates fair value.

Other invested assets primarily include the Company's investment in
joint ventures and other forms of partnerships. These investments are
accounted for using the equity method where the Company has the
ability to exercise significant influence over the operating and
financial policies of the entity. The cost method is used for all
other assets.

Derivatives used in asset/liability risk management activities, which
support life and health insurance and annuity contracts, are recorded
at either fair value or statement value, depending upon the underlying
instrument, with unrealized gains and losses recorded in "Change in
net unrealized capital gains (losses)." Upon termination of
derivatives, the interest-related gains and losses are amortized
through the IMR.

E. Separate accounts - These assets and liabilities, reported at
estimated fair value, represent segregated funds invested for pension
and other clients. Investment risks associated with fair value changes
are generally borne by the clients, except to the extent of minimum
guarantees made by the Company with respect to certain accounts.

F. Revenue recognition of insurance income and related expenses - Life
premiums are recognized as income over the premium paying period of
the related policies. Annuity considerations are recognized as revenue
when received. Health premiums are earned ratably over the terms of
the related insurance and reinsurance contracts or policies. Expenses
incurred in connection with acquiring new insurance business,
including such acquisition costs as sales commissions, are charged to
operations as incurred.

- 4 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

G. Policyholder dividends - Substantially all of the policies issued by
the Company are participating. The amount of dividends to be paid to
policyholders is determined annually by the Company's Board of
Directors. The aggregate amount of policyholders' dividends is related
to actual interest, mortality, morbidity, and expense experience for
the year and judgment as to the appropriate level of statutory surplus
to be retained by the Company. Dividends declared by the Board of
Directors which have not been paid are included in "Policy dividends".

2. POLICY LIABILITIES AND INSURANCE RESERVES

A. For life insurance and annuities, future policy benefits and claims
include estimates of benefits and associated settlement expenses on
reported claims and those which are incurred but not reported.

Activity in the liability for unpaid claims and claim adjustment
expenses for accident and health business, which is included in
"Future policy benefits and claims", is as follows:

1996 1995 1994
------- ------- -------
(In Millions)

Balance at January 1 $ 2,636 $ 2,440 $ 2,416
Less reinsurance recoverables 15 23 15
------- ------- -------

Net balance at January 1 2,621 2,417 2,401
------- ------- -------

Incurred related to:
Current year 5,734 5,759 5,398
Prior years (87) 42 (87)
------- ------- -------

Total incurred 5,647 5,801 5,311
------- ------- -------

Paid related to:
Current year 4,135 4,028 3,856
Prior years 1,467 1,569 1,439
------- ------- -------

Total paid 5,602 5,597 5,295
------- ------- -------

Net balance at December 31 2,666 2,621 2,417
Plus reinsurance recoverables 10 15 23
------- ------- -------

Balance at December 31 $ 2,676 $ 2,636 $ 2,440
======= ======= =======

As a result of changes in reserve estimates for insured events of
prior years, the provision for claims and claim adjustment expenses
changed by ($87) million and $42 million in 1996 and 1995,
respectively, due to changes in claim cost trends and changed by ($87)
million in 1994 because of faster-than-expected shrinkage in the
indemnity health business.

B. Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables, which produce reserves
that meet the aggregate requirements of state laws and regulations.
Approximately 39% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of the net
level premium reserve or the policy cash value. About 52% of
individual life insurance reserves are calculated according to CRVM
or methods which compare CRVM to policy cash values. The remaining
reserves include universal life reserves which are equal to the
greater of the policyholder account value less the unamortized expense
allowance and the policy cash value, or are for supplementary benefits
whose reserves are calculated using methods, interest rates and tables
appropriate for the benefit provided.

For group life insurance, about 56% of the reserves are associated
with extended death benefits. These reserves are primarily calculated
using modified group tables at various interest rates. The remainder
are unearned premium reserves (calculated using the 1960
Commissioner's Standard Group Table), reserves for group life fund
accumulations and other miscellaneous reserves.

Reserves for deferred individual annuity contracts are determined
using the Commissioner's Annuity Reserve Valuation Method. These
account for 72% of the individual annuity reserves. The remaining
reserves are equal to the present value of future payments with the
annuity mortality table and interest rates based on the date of issue
or maturity as appropriate.

Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves.

Accident and health reserves represent the present value of the future
potential payments, adjusted for contingencies and interest. The
remaining material reserves for active life reserves and unearned
premiums are valued using the preliminary term method, gross premium
valuation method, or a pro rata portion of gross premiums. Reserves
are also held for amounts not yet due on hospital benefits and other
coverages.

- 5 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

The reserve for guaranteed interest contracts, deposit funds and other
liabilities without life contingencies equal either the present value
of future payments discounted at the guaranteed rate or the fund
value.

Policyholders, at their discretion, may withdraw funds from their
annuity policies. At December 31, 1996 and 1995, approximately 55% of
total annuity actuarial reserves and deposit liabilities of $92,536
million and $95,092 million, respectively, were not subject to
discretionary withdrawal.

3. INCOME TAXES

The Company and its domestic subsidiaries file a consolidated federal income
tax return. The Internal Revenue Code (the "Code") taxes the Company on its
operating income after dividends to policyholders. In calculating this tax,
the Code requires the capitalization and amortization of policy acquisition
expenses.

The Code also imposes an "equity tax" on mutual life insurance companies
which, in effect, imposes an additional amount of taxable income to the
Company. "Income tax provision" includes an estimate for the total equity tax
to be paid with respect to the year. Income from sources outside the United
States is taxed under applicable foreign statutes.

The Internal Revenue Service (the "Service") has completed an examination of
the consolidated federal income tax return through 1989. The Service is
examining the years 1990 through 1992. Discussions are being held with the
Service with respect to proposed adjustments. However, management believes
there are adequate defenses against, or sufficient reserves to provide for,
such adjustments.

4. INVESTED ASSETS

A. Bonds and stocks - The Company invests in both investment grade and
non-investment grade public and private bonds. The Securities
Valuation Office of the NAIC rates the bonds held by insurers for
regulatory purposes and classifies investments into six categories
ranging from highest quality bonds to those in or near default. The
lowest three NAIC categories represent primarily high-yield securities
and are defined by the NAIC as including any security with a public
agency rating equivalent to B+ or B1 or less. Securities in these
lowest three categories approximated 2.8% and 1.0%, of the Company's
bonds at December 31, 1996, 1995, respectively.

The following tables provide additional information relating to bonds
and preferred stock as of December 31:

<TABLE>
<CAPTION>
1996
-------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------ -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 9,504 $ 353 $ 74 $ 9,783

Obligations of U.S. states and their
political subdivisions 206 7 6 207

Foreign government bonds 2,420 133 11 2,542

Corporate securities 57,282 2,625 323 59,584

Mortgage-backed securities 5,594 131 15 5,710
------- ------- ------- -------

Total $75,006 $ 3,249 $ 429 $77,826
======= ======= ======= =======

Preferred Stock
Redeemable $ 142 $ 3 $ 6 $ 139

Non-redeemable 97 23 0 120
------- ------- ------- -------

Total $ 239 $ 26 $ 6 $ 259
======= ======= ======= =======

</TABLE>

- 6 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------- ------- ------- -------
Bonds (In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,715 $ 1,392 $ 1 $17,106

Obligations of U.S. states and their
political subdivisions 214 22 1 235

Foreign government bonds 3,196 260 1 3,455

Corporate securities 54,411 4,609 97 58,923

Mortgage-backed securities 3,958 241 8 4,191
------- ------- ------- -------

Total $77,494 $ 6,524 $ 108 $83,910
======= ======= ======= =======

Preferred Stock
Redeemable $ 304 $ 16 $ 4 $ 316

Non-redeemable 92 2 0 94
------- ------- ------- -------

Total $ 396 $ 18 $ 4 $ 410
======= ======= ======= =======

</TABLE>

The carrying amount and estimated fair value of bonds at December 31,
1996, categorized by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers
may prepay obligations with or without call or prepayment penalties.

CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(In Millions)

Due in one year or less $ 1,999 $ 2,012
Due after one year through five years 19,125 19,445
Due after five years through ten years 19,406 20,081
Due after ten years 28,882 30,578
------- -------
69,412 72,116
------- -------

Mortgage-backed securities 5,594 5,710
------- -------

Total $75,006 $77,826
======= =======

Proceeds from the sale and maturity of bonds during 1996, 1995 and
1994 were $119,195 million, $93,178 million and $80,668 million,
respectively. Gross gains of $1,516 million, $1,913 million and $618
million and gross losses of $988 million, $782 million and $1,841
million were realized on such sales during 1996, 1995 and 1994,
respectively. Realized gains and losses are determined using the
specific identification method.

B. Mortgage loans on real estate - Mortgage loans on real estate at
December 31 are as follows:

1996 1995
------------------ ------------------
CARRYING PERCENT CARRYING PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
(In Millions)
Commercial and agricultural loans:
In good standing $15,546 91.3% $17,649 87.0%
In good standing
with structured terms 809 4.7% 966 4.8%
Past due 90 days or more 229 1.3% 144 0.7%
In process of foreclosure 68 0.4% 157 0.8%

Residential loans 387 2.3% 1,364 6.7%
------- ----- ------- -----

Total $17,039 100.0% $20,280 100.0%
======= ===== ======= =====

At December 31, 1996, the Company's mortgage loans on real estate were
collateralized by the following property types: office buildings
(34%), retail stores (22%), residential properties (2%), apartment
complexes (18%), industrial buildings (11%), agricultural properties
(9%) and other commercial properties (4%). The maximum percentage of
any one loan to the value of collateral at the time of the loan,
exclusive of insured, guaranteed, purchase money mortgages or
mortgages supported by high credit leases is 80%. The mortgage loans
are geographically dispersed throughout the United States and

- 7 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Canada with the largest concentrations in California (26%) and New
York (8%). Included in these balances are mortgage loans with
affiliated joint ventures of $560 million and $653 million at December
31, 1996 and 1995, respectively.

C. Real estate - Real estate at December 31 was as follows:

1996 1995
------ ------
(In Millions)

Investment real estate $1,201 $1,484
Properties occupied by the Company 525 533
Properties acquired in
satisfaction of debt 368 471
------ ------

Total $2,094 $2,488
====== ======

Accumulated depreciation on real estate was $808 million and $853
million at December 31, 1996 and 1995, respectively.

D. Other invested assets - Other invested assets of $2,591 million and
and $3,304 million as of December 31, 1996 and 1995, respectively,
principally include the Company's net equity in joint ventures and
other forms of partnerships. The Company's share of net income from
other invested assets was $283 million, $240 million and $348 million
for 1996, 1995 and 1994, respectively.

E. Investment in subsidiaries - Included in "Common stock" is the
Company's investment in subsidiaries of $4,610 million and $4,328
million at December 31, 1996 and 1995, respectively. Included in "Net
investment income" for 1996, 1995 and 1994 is $370 million, $143
million and $(936) million, respectively, attributable to
undistributed income (loss) of subsidiaries.

In October 1995, the Company completed the sale of Prudential
Reinsurance Holdings, Inc., through an initial public offering of
common stock. As a result of the sale, an after-tax gain of $72
million was recorded in 1995.

In March 1995, the Company announced its intention to sell its
mortgage banking unit. On January 26, 1996, the Company entered into a
definitive agreement to sell substantially all the assets of
Prudential Home Mortgage Company, Inc. ("PHMC") and it also
liquidated certain mortgage-backed securities and extended warehouse
loans. In 1995, PHMC recorded an after-tax loss of $98 million which
includes operating gains and losses, asset write downs, and other
costs directly related to the sale. The Company continues to have
discussions with prospective buyers for the sale of the remaining
assets.

F. Net unrealized capital gains (losses) - Changes in net unrealized
capital gains (losses), which result principally from changes in the
differences between cost and carrying amounts of invested assets, were
$191 million and $661 million for the years ended December 31, 1996
and 1995, respectively, and are reflected in "Unassigned surplus."

G. Asset valuation reserve and interest maintenance reserve - These
reserves are required for life insurance companies under NAIC
requirements. The AVR is calculated based on a statutory formula and
is designed to mitigate the effect of valuation and credit-related
losses on unassigned surplus. The IMR captures realized capital gains
and losses, net of tax, resulting from changes in the general level of
interest rates. These gains and losses are amortized into net
investment income utilizing grouped amortization schedules over the
expected remaining life of the investments sold. At December 31, 1996,
AVR is comprised of 68% for bonds, stocks, and short-term investments;
17% for mortgage loans on real estate; and 15% for real estate and
other invested assets. The IMR balance at December 31, 1996 and 1995
was $1,365 million and $1,163 million, respectively, and is recorded
in "Other liabilities". During 1996, 1995 and 1994, $327 million, $766
million and ($910) million, respectively, of net realized capital
gains (losses) were deferred and $126 million, $82 million and $102
million, respectively, was amortized and included in income.

H. Restricted assets and special deposits - Assets in the amounts of $941
million and $5,072 million at December 31, 1996 and 1995,
respectively, were on deposit with governmental authorities or
trustees as required by law. Assets valued at $2,994 million and
$3,121 million at December 31, 1996 and 1995, respectively, were
maintained as compensating balances or pledged as collateral for bank
loans and other financing agreements. Letter stock or other securities
restricted as to sale amounted to $720 million in 1996 and $354
million in 1995.

I. Loan backed and structured securities - A retrospective method is
employed to recalculate the values of the loan backed and structured
securities holdings with the exception of interest only bonds. Each
acquisition lot was reviewed to recalculate the effective yield. The
recalculated effective yield was used to derive a book value as if the
new yield were applied at the time of acquisition. Outstanding
principal

- 8 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

factors from the time of acquisition to adjustment date were used to
calculate the prepayment history for all applicable securities.
Conditional prepayment rates, computed with life to date factor
histories and weighted average maturities, were used to affect the
calculation of projected payments for pass through, interest only and
principal only security types. Interest only bond adjustments are
developed on a prospective basis with adjustments made for permanent
impairments if needed.

J. Securities lending is a program whereby the Company loans securities
to third parties, primarily major brokerage firms. As of December 31,
1996 and 1995, the estimated fair values of loaned securities were
$6,362 million and $5,939 million respectively. Company and NAIC
policies require a minimum of 102% and 105% of the fair value of the
domestic and foreign loaned securities, respectively, to be separately
maintained as collateral for the loans. Cash collateral received is
invested in short-term investments. The offsetting collateral
liability as of December 31, 1996 and 1995 is $4,813 million and
$3,625 million, respectively. Non-cash collateral is not reflected in
the Statements of Admitted Assets, Liabilities and Surplus.

5. EMPLOYEE BENEFIT PLANS

A. Pension plans - The Company has several defined benefit pension plans,
which cover substantially all of its employees. Benefits are generally
based on career average earnings and credited length of service. The
Company's funding policy for U.S. plans is to contribute annually the
amount necessary to satisfy the Internal Revenue Service contribution
guidelines.

Employee pension benefit plan status is as follows:

1996 1995
------- -------
(In Millions)
Actuarial present value of benefit obligation:

Vested benefit obligation $(3,878) $(3,270)
======= =======

Accumulated benefit obligation $(4,174) $(3,572)
======= =======

Projected benefit obligation $(4,989) $(4,330)

Plan assets at fair value 7,326 6,688
------- -------

Plan assets in excess of projected
benefit obligation 2,337 2,358

Unrecognized transition amount (769) (904)

Unrecognized prior service cost 356 199

Unrecognized net gain (916) (753)
------- -------

Prepaid pension cost $ 1,008 $ 900
======= =======
Plan assets consist primarily of equity securities, bonds, real estate
and short-term investments, of which $5,668 million and $4,788 million
are included in separate account assets and liabilities at December
31, 1996 and 1995, respectively.

The components of the net periodic pension benefit for 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Service cost $ 119 $ 110 $ 141
Interest cost 336 371 293
Actual return on assets (720) (1,249) 62
Net amortization and deferral 57 604 (633)
Net curtailment gains and special termination benefits 63 0 156
------ ------ ------

Net periodic pension benefit $ (145) $ (164) $ 19
====== ====== ======
</TABLE>
The net increase to surplus relating to the Company's pension plans is
$37 million, $30 million and $0 million in 1996, 1995 and 1994,
respectively, which considers the changes in the non-admitted prepaid
pension asset of $108 million, $134 million and ($19) million,
respectively.

The accounting assumptions used by the Company were:

AS OF SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------

Discount rate 7.75% 7.50% 8.50%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Expected long-term rate of return on assets 9.50% 9.00% 9.00%

The Company maintains non-qualified supplemental retirement plans
providing benefits that may not be paid from the Company's two
qualified plans since qualified plans have limits imposed by Section
415 and 401(a)(17) of the Code. One of these plans also provides
certain participants with a subsidized early retirement benefit.

- 9 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

B. Postretirement benefits - The Company provides certain life insurance
and health care benefits for its retired employees. Substantially all
of the Company's employees may become eligible to receive these
benefits if they retire after age 55 with at least 10 years of
service.

Postretirement benefits are accounted for in accordance with
prescribed NAIC policy. The Company has elected to amortize its
transition obligation over 20 years. During 1996, 1995 and 1994,
funding of its postretirement benefit obligations totaled $35 million,
$47 million and $31 million, respectively.

The postretirement benefit plan status is as follows:

SEPTEMBER 30,
------------------
1996 1995
---- ----
(In Millions)

Accumulated postretirement benefit obligation for:
Retirees $(1,418) $(1,465)
Fully eligible active plan participants (35) (103)
Plan assets at fair value 1,341 1,309
------- -------
Funded status (112) (259)
Unrecognized transition amount 355 378
Unrecognized net gain (177) (19)
------- -------
Prepaid postretirement benefit cost $ 66 $ 100
======= =======

Plan assets consist of group and individual variable life insurance
policies, group life and health contracts and short-term investments,
of which $1,003 million and $990 million are included in the separate
account assets and liabilities at December 31, 1996 and 1995,
respectively.

Net periodic postretirement benefit cost for 1996, 1995 and 1994
includes the following components:

1996 1995 1994
----- ----- -----
(In Millions)

Service cost $ 24 $ 30 $ 36
Interest cost 115 117 107
Actual return on plan assets (104) (144) (98)
Amortization of transition obligation 22 22 23
Other 12 49 52
----- ----- -----
Net periodic postretirement benefit cost $ 69 $ 74 $ 120
===== ===== =====

The net reduction to surplus relating to the Company's postretirement
benefit plans is $35 million, $46 million, and $30 million in 1996,
1995 and 1994, respectively, which considers the changes in the
prepaid postretirement benefit cost of $34 million, $28 million and
$90 million in 1996 , 1995 and 1994, respectively.

The assumptions used for the postretirement benefit plan were:

AS OF SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.75% 7.50% 8.50%
Expected long-term rate of return on plan assets 9.00% 8.00% 9.00%
Rate of increase in compensation levels 4.50% 4.50% 5.50%
Health care cost trend rates 8.50-12.50% 8.90-13.30% 9.10-13.90%
Ultimate health care cost trend rate at 2006 5.00% 5.00% 6.00%
</TABLE>

A 1% increase in health care cost trend rates would increase the
September 30, 1996 accumulated postretirement benefit obligation and
service/interest costs by $115 million and $12 million, respectively.

C. Postemployment benefits - The Company accrues for postemployment
benefits primarily for life and health benefits provided to former or
inactive employees who are not retirees. The net accumulated liability
for these benefits at December 31, 1996 and 1995 was $99 million and
$96 million, respectively.

- 10 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

6. NOTES PAYABLE AND OTHER BORROWINGS

Notes payable and other borrowings consisted of the following at December
31:

Short-term: 1996 1995
---- ----
(In Millions)
Notes payable to affiliate $ 99 $ 0
Current portion of long term
notes payable 11 128
---- ----
$110 $128

Long-Term: 1996 1995
---- ----

8.173% note due 2002 $249 $249
7.501% note due 1999 248 248
5.0819% note due 2004 56 66
12.00% note due 1999 0 16
Secured demand note
due 1998 100 100
---- ----
653 679
---- ----
Total principal repayments and accrued interest $763 $807
==== ====

Scheduled principal repayments as of December 31, 1996, are as
follows: $110 million in 1997, $100 million in 1998, $239 million in
1999, $0 in 2000, $0 in 2001 and $294 million thereafter.

7. SURPLUS

A. Capital notes - The Company issues Capital Notes that are subordinate
in right of payment to policy claims, prior claims and senior
indebtedness. A summary of the outstanding Capital Notes as of
December 31, 1996 is as follows:

PRINCIPAL CARRYING INTEREST MATURITY
ISSUE DATE (PAR) AMOUNT RATE DATE
- ---------- --------- -------- -------- --------
(In Millions)
April 28, 1993 $ 300 $ 299 6.875% April 15, 2003
July 1, 1995 350 340 8.300% July 1, 2025
July 1, 1995 250 246 7.650% July 1, 2007
July 15, 1995 100 100 8.100% July 15, 2015
------- -----
Total $ 1,000 $ 985
======= =====

B. Special surplus fund - In accordance with the requirements of various
states, a special surplus fund has been established for contingency
reserves of $1,268 million and $1,274 million as of December 31, 1996
and 1995, respectively.

C. Non-admitted assets - Non-admitted assets were $1,367 million and
$1,167 million as of December 31, 1996 and 1995, respectively.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values presented below have been determined using available
information and reasonable valuation methodologies. Considerable judgment
is applied in interpreting data to develop the estimates of fair value.
Accordingly, such estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values.
The following methods and assumptions were used in calculating the fair
values. (For all other financial instruments, the carrying value is a
reasonable estimate of fair value.)

Bonds and preferred stock - Fair values for bonds and preferred stock,
other than private placement securities, are based on quoted market
prices or estimates from independent pricing services. Fair values for
private placement securities are estimated using a discounted cash
flow model which considers the current market spreads between the U.S.
Treasury yield curve and corporate bond yield curve, adjusted for the
type of issue, its current credit quality and its remaining average
life. The fair value of certain non-performing private placement
securities is based on amounts provided by state regulatory
authorities.

Common stock - Fair value of unaffiliated common stock is based on
quoted market prices, where available, or prices provided by state
regulatory authorities.

- 11 -
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Mortgage loans on real estate - The fair value of residential
mortgages is based on recent market trades or quotes, adjusted where
necessary for differences in risk characteristics. The fair value of
the commercial mortgage and agricultural loan portfolio is primarily
based upon the present value of the scheduled cash flows discounted at
the appropriate U.S. Treasury rate, adjusted for the current market
spread for a similar quality mortgage. For certain non-performing and
other loans, fair value is based upon the value of the underlying
collateral.

Policy loans and premium notes - The estimated fair value of policy
loans is calculated using a discounted cash flow model based upon
current U.S. Treasury rates and historical loan repayments.

Derivative financial instruments - The fair value of swap agreements
is estimated based on the present value of future cash flows under the
agreements discounted at the applicable zero coupon U.S. Treasury rate
and swap spread. The fair value of forwards, futures and options is
estimated based on market quotes for a transaction with similar terms.
The fair value of loan commitments is derived by comparing the
contractual future stream of fees with such fee streams adjusted to
reflect current market rates that would be applicable to instruments
of similar type, maturity and credit standing.

Investment-type insurance contract liabilities - Fair values for the
Company's investment-type insurance contract liabilities are estimated
using a discounted cash flow model, based on interest rates currently
being offered for similar contracts. Carrying amounts are included in
"Future policy benefits and claims."

Notes payable and other borrowings - The estimated fair value of notes
payable is derived using discount rates based on the borrowing rates
currently available to the Company for debt with similar terms and
remaining maturities.

The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:

<TABLE>
<CAPTION>
1996 1995
---- ----
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
(In Millions)
FINANCIAL ASSETS:

<S> <C> <C> <C> <C>
Bonds $75,006 $77,826 $77,494 $83,910
Preferred stock 239 259 396 410
Common stock * 2,466 2,466 1,805 1,805
Mortgage loans on real estate 17,039 17,364 20,280 20,839
Policy loans and premium notes 6,023 5,942 6,208 6,452
Short-term investments 5,817 5,817 4,633 4,633
Cash 165 165 170 170
Assets held in separate accounts 57,797 57,797 53,903 53,903
Derivative financial instruments 9 16 15 64

FINANCIAL LIABILITIES:

Investment-type insurance
contracts 30,194 30,328 34,799 35,720
Notes payable and other borrowings 763 794 807 829
Liabilities related to separate accounts 57,436 57,436 53,256 53,256
Derivative financial instruments 60 63 94 108
</TABLE>

* Excludes investments in subsidiaries of $4,610 million and $4,328 million
at December 31, 1996 and 1995, respectively.

- 12 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS

A. Derivative financial instruments - Derivatives include swaps,
forwards, futures, options and fixed-rate loan commitments subject to
market risk, all of which are used by the Company in the normal course
of business in activities other than trading. The Company does not
issue or hold derivatives for trading purposes. This classification is
based on management's intent at the time of contract inception and
throughout the life of the contract. The Company uses derivatives
primarily for asset/liability risk management and to reduce exposure
to interest rate, currency and other market risks. Of those
derivatives held at December 31,1996, 35% of the notional amounts
consisted of interest rate derivatives and 65% consisted of foreign
currency derivatives.

The tables below summarize the Company's outstanding positions on a
gross basis before netting pursuant to rights of offset, qualifying
master netting agreements with counterparties or collateral
arrangements at December 31:

<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENTS
1996 1995
---- ----
(In Millions)
CARRYING ESTIMATED CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
-------- ------ ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Swaps:
Assets $ 159 $ 1 $ 6 $ 418 $ (1) $ 32
Liabilities 479 50 53 371 76 79

Forwards:
Assets 453 8 8 235 13 17
Liabilities 980 9 9 1,074 13 13

Futures:
Assets 0 0 0 683 5 5
Liabilities 399 1 1 864 5 7

Options:
Assets 175 0 0 195 0 0
Liabilities 0 0 0 3 0 0

Loan Commitments:
Assets 164 0 2 122 (2) 10
Liabilities 9 0 0 532 0 9
------ ------ ------ ------ ------ ------

Total:
Assets $ 951 $ 9 $ 16 $1,653 $ 15 $ 64
====== ====== ====== ====== ====== ======

Liabilities $1,867 $ 60 $ 63 $2,844 $ 94 $ 108
====== ====== ====== ====== ====== ======
</TABLE>

B. Off-balance sheet credit-related instruments - During the normal
course of its business, the Company utilizes financial instruments
with off-balance sheet credit risk such as commitments, financial
guarantees and letters of credit. Commitments include variable rate
commitments to purchase and sell mortgage loans and the unfunded
portion of commitments to fund investments in private placement
securities. The Company also provides financial guarantees incidental
to other transactions and letters of credit that guarantee the
performance of customers to third parties. These credit-related
financial instruments have off-balance sheet credit risk because only
their origination fees, if any, and accruals for probable losses, if
any, are recognized until the obligation under the instrument is
fulfilled or expires. These instruments can extend for several years
and expirations are not concentrated in any period. The Company seeks
to control credit risk associated with these instruments by limiting
credit, maintaining collateral where customary and appropriate, and
performing other monitoring procedures.

The notional amount of these instruments, which represents the
Company's maximum exposure to credit loss from other parties'
non-performance, was $785 million and $1,254 million at December 31,
1996 and 1995, respectively. Because many of these amounts expire
without being advanced in whole or in part, the notional amounts do
not represent future cash flows.

The estimated fair value of these instruments, which represents the
Company's current exposure to credit loss from other parties'
non-performance, was $8 million and $56 million at December 31, 1996
and 1995, respectively.

10. RELATED PARTY TRANSACTIONS

A. Service agreements - The Company has entered into service agreements
with various subsidiaries. Under these agreements, the Company
furnishes services of officers and employees and provides supplies,
use of equipment, office space, and makes payment to

- 13 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

third parties for general expenses, state and local taxes. The
agreements obligate the subsidiaries to reimburse the Company for the
approximate cost of providing such services. The amounts receivable
from subsidiaries, reported in "Other assets" at December 31, 1996 and
1995, were $490 million and $509 million, respectively. The
subsidiaries also furnish similar services to the Company in
connection with such agreements. The amount payable to subsidiaries,
reported in "Other liabilities" at December 31, 1996 was $87 million.
There was no outstanding balance at December 31, 1995.

Certain of the Company's group health care subsidiaries provide health
insurance to certain employees of the Company. Enrollment contract
costs reported in "Other expenses" were $126 million, $111 million and
$104 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

The Company purchases corporate owned life insurance policies from one
of its life insurance subsidiaries for certain employees. The premium
charged for these policies reported in "Other expenses" was $3
million, $12 million and $12 million for the years ended December 31,
1996, 1995 and 1994, respectively. The cash value associated with
these policies was $118 million and $102 million at December 31,
1996 and 1995, respectively.

Certain of the Company's subsidiaries perform services for the Company
in connection with the Company's obligations under investment advisory
or subadvisory agreements. The costs incurred in connection with
performing such services, primarily reported in "Other expenses," were
$145 million, $327 million and $342 million for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company also
provides these services to subsidiaries in connection with such
agreements. The investment advisory fees received from affiliates by
the Company, reported in "Other income" were $161 million, $92 million
and $110 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

The Company borrows short-term funds from Prudential Funding
Corporation ("Funding"), a wholly owned subsidiary. The interest
expense for these borrowings was $131 million, $66 million and $21
million for the years ended December 31, 1996, 1995 and 1994,
respectively. The outstanding balance at December 31, 1996 was $99
million. There was no outstanding balance at December 31, 1995.

B. Net worth maintenance agreement - The Company has entered into a
support agreement with Funding under which it agrees to maintain
Funding's tangible net worth, including subordinated debt, at not less
than $1.00. As of December 31, 1996, the tangible net worth of Funding
was $44 million. Since the inception of the agreement, no support
payments have been required.

11. CONTINGENCIES

The Company is reviewing its obligations under certain managed care
arrangements for possible failure to comply with contractual and regulatory
requirements. It is the opinion of management that appropriate reserves
have been established in accordance with applicable accounting standards to
provide for appropriate reimbursements to customers.

Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or indeterminate
amounts are sought.

Twenty-six purported class actions and over 280 individual actions are
pending against the Company on behalf of those persons who purchased life
insurance policies allegedly because of deceptive sales practices engaged
in by the Company and its insurance agents in violation of state and
federal laws. The Company anticipates additional suits may be filed by
individuals who opted out of the class action settlement described below.
The sales practices alleged to have occurred are contrary to Company
policy. Some of these cases seek very substantial damages while others seek
unspecified compensatory, punitive and treble damages. The Company intends
to defend these cases vigorously.

A Multi-State Life Insurance Task Force (the "Task Force"), comprised of
insurance regulators from 29 states and the District of Columbia, was
created to conduct a review of sales and marketing practices throughout the
life insurance industry. As the largest life insurance company in the
United States, the Company was the initial focus of the Task Force
examination. On July 9, 1996, the Task Force released its report on the
Company's activities. In it, the Task Force found that some sales of life
insurance policies made by the Company were improper. The report criticizes
the Company's training, oversight, discipline and compliance programs
related to insurance sales. Based on these findings, the Task Force
recommended, and the Company agreed to, a series of fines allocated to all
50 states and the District of Columbia amounting to a total of $35 million.
In addition, the Task Force recommended a remediation program pursuant to
which the Company would offer relief to policyowners who purchased 10.7
million whole life insurance policies in the United States from the Company
from 1982 through 1995. In subsequent negotiations with several states, the
Company agreed to pay additional amounts aggregating approximately $30
million by way of fine, reimbursement of investigation expenses and costs
associated with outreach to residents of Florida and California.

On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in the class actions consolidated in a
Multi-District Litigation involving alleged improprieties in connection
with the Company's sale of whole life

- 14 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

insurance policies from 1982 through 1995. Pursuant to the proposed
settlement, the Company has agreed to provide certain enhancements and
changes to the remediation program previously accepted by the Multi-State
Task Force, including some additional remedies. In addition, the Company
agreed that a minimum cost of $410 million (which was recorded in the
Statement of Operations and Changes in Surplus) would be incurred in
providing remedies to policyowners under the program, and agreed to certain
other payments and guarantees. Under the terms of the guarantees, the
Company has agreed that the average cost per remedy will not be less than
$2,364 for up to 330,000 claims remedied. For claims remedied in excess of
330,000, the Company has not guaranteed an average cost per remedy. The
Company has also agreed to provide additional compensation to be
distributed by formula that will range in an aggregate amount from $50
million to $300 million depending on the total number of claims remedied.
The Company cannot predict how many claims ultimately will be remedied. The
Company has also recorded in the Statement of Operations and Changes in
Surplus, its estimate of the minimum administrative costs related to the
remediation program. As of March 5, 1997, all 50 states and the District of
Columbia have directed the Company to offer a remediation plan based on the
program accepted by the Task Force and containing many of the enhancements
of the class action settlement.

Also on October 28, 1996, the U.S. District Court of the District of New
Jersey, in which the Multi-District Litigation is pending, conditionally
certified a class for settlement purposes and scheduled a hearing on the
fairness, reasonableness and adequacy of the proposed settlement. This
hearing was held on February 24, 1997. On March 7, 1997, the Court
rendered its decision approving the settlement. The owners of approximately
23,000 policies have taken steps to exclude themselves from the class
action and are not bound by the settlement.

To date, the Company has mailed packages to 8.5 million policyowners
eligible for the remediation program, informing policyowners in all 50
states and the District of Columbia of their rights under the program. The
deadline for electing to participate in the Alternative Dispute Resolution
Process ("ADR") or Basic Claim Relief is June 1, 1997. Policyowners who
believe that they were misled can file a claim through the ADR.
Policyowners who do not believe they were misled, or who do not wish to
file a claim under the ADR, may choose from several options available under
Basic Claim Relief, such as preferred rate premium loans, or the purchase
of enhanced annuities, mutual fund shares or life insurance policies.

It is not possible on any reliable basis to estimate how many policyowners
will participate in the settlement. The cost of the settlement is dependent
upon complex and varying factors, including the number of policyowners that
participate in the settlement, the relief options chosen and the ultimate
dollar value of the settlement. The administrative costs to the Company of
remediation of policyowner claims are also subject to a number of complex
uncertainties in addition to the unknown quantity and cost of policyowner
claims. In light of the uncertainties attendant to these and other factors,
management is unable to make a reasonable estimate of the ultimate cost of
the remediation program to the Company.

A purported class action was brought against the Company and certain
subsidiaries alleging common law fraud, negligent misrepresentation and
violations of the New Jersey RICO statute arising out of the plaintiffs'
purchase of certain subordinated mortgage pass-through securities and
seeking compensatory and punitive damages and injunctive relief. The
Company will deny the substantive allegations of the complaint in its
answer and will vigorously defend the suit. The case is at a preliminary
stage, and management is not now in a position to predict the outcome or
effect of the litigation.

Litigation is subject to many uncertainties, and given the complexity and
scope of these suits, their outcome cannot be predicted. It is also not
possible to predict the likely results of any regulatory inquiries or their
effect on litigation which might be initiated in response to widespread
media coverage of these matters. Accordingly, management is unable to make
a meaningful estimate of the amount or range of loss that could result from
an unfavorable outcome of all pending litigation and the regulatory
inquiries. It is possible that the results of operations or the cash flow
of the Company, in particular quarterly or annual periods, could be
materially affected by an ultimate unfavorable outcome of certain pending
litigation and regulatory matters. Management believes, however, that the
ultimate outcome of all pending litigation and regulatory matters referred
to above should not have a material adverse effect on the Company's
financial position, after consideration of applicable reserves.

In 1993, Prudential Securities, Inc. ("PSI"), a subsidiary of Prudential,
entered into an agreement with the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc., and state securities
commissions whereby PSI agreed to pay $330 million into a settlement fund
to pay eligible claims on certain limited partnership matters. Under this
agreement, if partnership matter claims exceed the established settlement
fund, PSI is obligated to pay such additional claims. The agreement also
required PSI to take measures to enhance the adequacy of its sales
practices compliance controls.

In October 1994, the United States Attorney for the Southern District of
New York (the "U.S. Attorney") filed a complaint against PSI in connection
with its sale of certain limited partnerships. Simultaneously, PSI entered
into an agreement to comply with certain conditions for a period of three
years, and to pay an additional $330 million into the settlement fund. At
the end of the three year period, assuming PSI has fully complied with the
terms of the agreement, the U.S. Attorney will institute no further action.
In the opinion of management, PSI is in compliance with all provisions of
the aforementioned agreements.

- 15 -
<PAGE>

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

NOTES TO STATUTORY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

The Company has entered into a reinsurance agreement with The Prudential
Life Insurance Company, Ltd., a wholly owned subsidiary, under which it has
agreed to reinsure certain individual life insurance policies through a
yearly renewable term contract. The reinsurance assumed premiums and
reserves for 1996 were $27 million and $17 million, respectively.

The Company as a result of the sale of Prudential Reinsurance Inc. (a PRUCO
Inc. subsidiary), agreed to guarantee up to $775 million of Gibraltar
Casualty Company (a Prudential subsidiary) obligations with respect to a
Stop Loss Agreement and PRUCO Inc.'s (a Prudential subsidiary) payment
obligations under an Indemnity Agreement, subject to maximum aggregate
payments of $400 million. The maximum aggregate payments under the
Prudential Guarantee of the Gibraltar Casualty Company obligations will be
reduced in certain circumstances to take account of payments made and
collateral provided in respect of the guaranteed obligations. The Stop Loss
Agreement is intended to mitigate the impact on Prudential Reinsurance Inc.
of adverse development of loss reserves, as of June 30, 1995, of up to $375
million of the first $400 million of adverse development. The Company has
recorded a loss reserve of $175 million as of December 31, 1996.

Gibraltar Casualty Company and other property and casualty insurance
subsidiaries receive claims under expired contracts which assert alleged
injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances. The liabilities for such claims
cannot be estimated by traditional reserving techniques. As a result of
judicial decisions and legislative actions, the coverage afforded under
these contracts may be expanded beyond their original terms. Extensive
litigation between insurers and insureds over these issues continues and
the outcome is not predictable. In establishing the unpaid claim reserves
for these losses, management considered the available information and
established these reserves in accordance with applicable accounting
standards. However, given the expansion of coverage and liability by the
courts and legislatures in the past, and potential for other unfavorable
trends in the future, the ultimate cost of these claims could increase from
the levels currently established.

The Company and a number of other insurers (the "Consortium") entered into
a Reinsurance and Participation Agreement ("the Agreement") with MBL Life
Assurance Corporation ("MBLLAC") and others, under which the Company and
the other insurers agreed to reinsure certain payments to be made to
contractholders by MBLLAC in connection with the plan of rehabilitation of
Mutual Benefit Life Insurance Company. Under the Agreement, the Consortium,
subject to certain terms and conditions, will indemnify MBLLAC for the
ultimate net loss sustained by MBLLAC on each contract subject to the
Agreement. The ultimate net loss represents the amount by which the
aggregate required payments exceed the fair market value of the assets
supporting the covered contracts at the time such payments are due. The
Company's share of any net loss is 30.55%. The Company has determined that
it does not expect to make any payments to MBLLAC under the agreement. The
Company concluded this after testing a wide range of potentially adverse
scenarios during the rehabilitation period for MBLLAC.

******

- 16 -
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Policyholders of
The Prudential Insurance Company of America

We have audited the accompanying statement of admitted assets, liabilities and
surplus (statutory basis) of The Prudential Insurance Company of America as of
December 31, 1996, and the related statements of operations and changes in
surplus (statutory basis), and of cash flows (statutory basis) for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the New Jersey Department
of Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.

In our opinion, because of the effects of the matters referred to in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of The Prudential Insurance Company of America at December
31, 1996, and the results of its operations and its cash flows for the year then
ended.

Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and surplus of The
Prudential Insurance Company of America at December 31, 1996, and the results of
its operations and its cash flows for the year then ended, on the basis of
accounting described in Note 1.

/s/ PRICE WATERHOUSE, LLP
New York, New York

March 10, 1997

- 17 -

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
The Prudential Insurance Company of America
Newark, New Jersey

We have audited the accompanying statement of admitted assets, liabilities and
surplus--statutory basis of The Prudential Insurance Company of America as of
December 31, 1995, and the related statements of operations and changes in
surplus--statutory basis, and cash flows--statutory basis for each of the two
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our report dated March 1, 1996, we expressed an opinion that the 1995 and
1994 financial statements, prepared using accounting practices prescribed and
permitted by the New Jersey Department of Insurance, presented fairly, in all
material respects, the financial position of The Prudential Insurance Company of
America as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. As described in Note 1 to these financial statements,
pursuant to the pronouncements of the Financial Accounting Standards Board, the
1995 and 1994 financial statements of The Prudential Insurance Company of
America, prepared using accounting practices prescribed or permitted by
insurance regulators (statutory financial statements) are no longer considered
presentations in conformity with generally accepted accounting principles. The
effects on the financial statements of the differences between the statutory
basis of accounting and generally accepted accounting principles are material
and are also described in Note 1. Accordingly, our present opinion on the
presentation of the 1995 and 1994 financial statements in accordance with
generally accepted accounting principles, as presented herein, is different from
that expressed in our previous report.

In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the admitted assets,
liabilities and surplus of the Company as of December 31, 1995, and its
operations, changes in surplus and its cash flows for each of the two years in
the period ended December 31, 1995.

However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities and surplus
of The Prudential Insurance Company of America as of December 31, 1995, and the
results of its operations, changes in surplus and its cash flows for each of the
two years in the period then ended, on the basis of accounting described in Note
1.

Also, as described in Note 1 to the financial statements, these financial
statements were prepared on an unconsolidated statutory basis of accounting,
which differs from the 1995 and 1994 financial statements prepared for general
distribution on a consolidated statutory basis of accounting, both of which
differ from generally accepted accounting principles. The financial statements
for 1995 and 1994 have been restated on an unconsolidated statutory basis of
accounting adopted in 1996 for purposes of general distribution. Further, these
financial statements differ from the previously issued unconsolidated statutory
financial statements because certain permitted financial statement presentation
practices are no longer being used.

/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey

March 1, 1996, except for Note 1A,
as to which the date is March 10, 1997

- 18 -