PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT, 485BPOS, 1995-04-28

PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
485BPOS, 1995-04-28

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As filed with the SEC on _______________. Registration No. 33-20000

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-6

Post-Effective Amendment No. 15

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2

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

THE PRUDENTIAL VARIABLE
APPRECIABLE ACCOUNT
(Exact Name of Trust)

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)

Prudential Plaza
Newark, New Jersey 07102-3777
(800) 437-4016 Ext. 46
(Address and telephone number of principal executive offices)

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

Thomas C. Castano
Assistant Secretary

The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
(Name and address of agent for service)

Copy to:
Jeffrey C. Martin
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036

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

Variable Appreciable Life Insurance Contracts--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1994 was filed on
February 27, 1995.

It is proposed that this filing will become effective (check appropriate space):

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485

[X] on May 1, 1995 pursuant to paragraph (b) of Rule 485
--------------
(date)

[ ] 60 days after filing pursuant to paragraph (a) of Rule 485

[ ] on _____________________ pursuant to paragraph (a) of Rule 485
(date)

<PAGE>

CROSS REFERENCE SHEET
(as required by Form N-8B-2)

N-8B-2 Item Number Location
- ------------------ --------

1. Cover Page

2. Cover Page

3. Not Applicable

4. Sale of the Contract and Sales Commissions
(Part IB)

5. The Prudential Variable Appreciable Account

6. The Prudential Variable Appreciable Account

7. Not Applicable

8. Not Applicable

9. Litigation

10. Brief Description of the Contract; Short-Term
Cancellation Right, or "Free Look"; Contract
Forms; Premiums; Contract Date; Allocation of
Premiums; Transfers; Contract Fees and Charges;
How the Contract Fund Changes with Investment
Experience; How a Contract's Death Benefit Will
Vary; Surrender of a Contract; Lapse and
Reinstatement; When Proceeds are Paid; Other
General Contract Provisions; Voting Rights;
Withdrawal of Excess Cash Surrender Value (Part
IB); Increases in Face Amount (Part IB); Decreases
in Face Amount (Part IB); Riders; Possible
Replacement of the Series Fund (Part IB)

11. Brief Description of the Contract; The Prudential
Variable Appreciable Account

12. Cover Page; Brief Description of the Contract;
Fixed Income Portfolios; Equity Portfolios;
Flexible Portfolios; Further Information About the
Series Fund; Sale of the Contract and Sales
Commissions (Part IB)

13. Brief Description of the Contract; Contract Fees
and Charges; Reduction of Charges for Concurrent
Sales to Several Individuals (Part IB); Sale of
the Contract and Sales Commissions (Part IB)

14. Brief Description of the Contract; Requirements
for Issuance of a Contract

15. Brief Description of the Contract; Allocation of
Premiums; Transfers; Fixed-Rate Option;
Information About the Account, the Real Property
Account and the Fixed Rate Option

16. Brief Description of the Contract; Detailed
Information About the Contract

17. Surrender of a Contract; When Proceeds are Paid

18. The Prudential Variable Appreciable Account

19. Reports to Contract Owners

20. Not Applicable

<PAGE>

N-8B-2 Item Number Location
- ----------------- --------

21. Contract Loans

22. Not Applicable

23. Not Applicable

24. Other Standard Contract Provisions (Part IB)

25. Brief Description of the Contract

26. Brief Description of the Contract; Contract Fees
and Charges

27. Brief Description of the Contract; Further
Information About the Series Fund

28. Brief Description of the Contract; Directors and
Officers of The Prudential and Management of the
Series Fund (Part IB)

29. Brief Description of the Contract

30. Not Applicable

31. Not Applicable

32. Not Applicable

33. Not Applicable

34. Not Applicable

35. Brief Description of the Contract

36. Not Applicable

37. Not Applicable

38. Sale of the Contract and Sales Commissions
(Part IB)

39. Sale of the Contract and Sales Commissions
(Part IB)

40. Not Applicable

41. Sale of the Contract and Sales Commissions
(Part IB)

42. Not Applicable

43. Not Applicable

44. Brief Description of the Contract; Further
Information About the Series Fund; How the
Contract Fund Changes With Investment Experience;
How a Contract's Death Benefit Will Vary

45. Not Applicable

46. Brief Description of the Contract; The Prudential
Variable Appreciable Account; Further Information
About the Series Fund

47. The Prudential Variable Appreciable Account;
Further Information About the Series Fund

48. Not Applicable

49. Not Applicable

50. Not Applicable

<PAGE>

N-8B-2 Item Number Location
- ----------------- --------

51. Not Applicable

52. Possible Replacement of the Series Fund (Part IB)

53. Tax Treatment of Contract Benefits; Tax Treatment
of Contract Benefits (Part IB)

54. Not Applicable

55. Not Applicable

56. Not Applicable

57. Not Applicable

58. Not Applicable

59. Financial Statements; Financial Statements of The
Prudential Variable Appreciable Account;
Consolidated Financial Statements of The
Prudential Insurance Company of America and
Subsidiaries

<PAGE>

PART IA

INFORMATION IN PROSPECTUS

<PAGE>

Prudential's
Variable
Appreciable Life(R)
Insurance

May 1, 1995
PROSPECTUS
The Prudential Series Fund, Inc.
and
The Prudential Variable Appreciable Account

PVAL-1 Ed 5-95 The Prudential Insurance Company of America
Catalog No. 646960S

<PAGE>

PROSPECTUS
May 1, 1995

THE PRUDENTIAL
VARIABLE APPRECIABLE ACCOUNT

Variable
APPRECIABLE
LIFE(R)___________________
INSURANCE CONTRACTS

PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF

THE PRUDENTIAL SERIES
FUND, INC.

This prospectus describes two forms of a variable life insurance contract
offered by The Prudential Insurance Company of America under the name Variable
Appreciable Life(R) Insurance. The first form provides a death benefit that
generally remains fixed in an amount chosen by the purchaser and cash surrender
values that vary daily. The second form also provides cash surrender values that
vary daily but the death benefit will also vary daily. Under both forms of
contract, the death benefit will never be less than the "face amount" of
insurance chosen by the purchaser. There is no guaranteed minimum cash surrender
value.

The assets held for the purpose of paying benefits under these and other similar
contracts are segregated from the other assets of The Prudential and are
invested in one or more of sixteen investment portfolios of The Prudential
Series Fund, Inc. chosen by the contract owner. This prospectus also describes
the securities issued by the Series Fund. The contract owner may also choose to
have the assets invested in a fixed-rate option or in The Prudential Variable
Contract Real Property Account, described in a prospectus attached to this one.

Although it is advantageous to the purchaser to pay a Scheduled Premium amount
on the dates due, which are at least once a year but may be more often,
purchasers have considerable flexibility as to when and in what amounts they pay
premiums.

Before you sign an application to purchase this life insurance contract, you
should read this prospectus with care and have any questions you may have
answered by your Prudential representative. If you do purchase the contract, you
should retain this prospectus for future reference, together with the contract
itself that you will receive.

Additional information about the contract and the Series Fund is set forth in a
separate Statement of Additional Information which is incorporated by reference
into this prospectus. It is available without charge upon request to The
Prudential Insurance Company of America at the address shown below.

REPLACING EXISTING INSURANCE WITH A CONTRACT DESCRIBED IN THIS PROSPECTUS MAY
NOT BE TO YOUR ADVANTAGE. IF YOU CURRENTLY OWN A LIFE INSURANCE CONTRACT, THE
BENEFITS AND COSTS OF PURCHASING ADDITIONAL INSURANCE UNDER THE EXISTING POLICY
SHOULD BE COMPARED WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT
DESCRIBED IN THIS PROSPECTUS. IN MAKING THIS COMPARISON, YOU SHOULD CONSULT WITH
A QUALIFIED TAX ADVISOR.

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

The Prudential Insurance Company of America
The Prudential Series Fund, Inc.
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 437-4016 Ext. 46

*Appreciable Life is a registered mark of The Prudential.
PVAL-1 Ed 5-95

<PAGE>
TABLE OF CONTENTS
Page

INTRODUCTION AND SUMMARY .................................................. 1
Brief Description of the Contract ....................................... 1
Fixed Income Portfolios ................................................. 3
Money Market Portfolio ......................................... 3
Bond Portfolio ................................................. 3
Government Securities Portfolio ................................ 3
Zero Coupon Bond Portfolios 1995, 2000, and 2005 .............. 3
Balanced Portfolios ..................................................... 3
Conservatively Managed Flexible Portfolio ...................... 3
Aggressively Managed Flexible Portfolio ........................ 3
High Yield Bond Portfolios .............................................. 3
High Yield Bond Portfolio ...................................... 3
Diversified Stock Portfolios ............................................ 3
Stock Index Portfolio .......................................... 3
High Dividend Stock Portfolio .................................. 3
Common Stock Portfolio ......................................... 3
Growth Stock Portfolio ......................................... 3
Small Capitalization Stock Portfolio ........................... 4
Global Equity Portfolio ....................................... 4
Specialized Portfolios .................................................. 4
Natural Resources Portfolio .................................... 4
Real Property Account ................................................... 4
Fixed-Rate Option ....................................................... 4
Transfers Between Investment Options .................................... 4
Which Investment Option Should Be Selected? ............................. 4
The Scheduled Premium ................................................... 4
Payment of Substantially Higher Premiums ................................ 5
Contract Loans .......................................................... 5
Differences Between the Contract and Variable Universal Life
Insurance Contracts ................................................... 5

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND ................. 5

PORTFOLIO RATES OF RETURN ................................................. 13

HYPOTHETICAL ILLUSTRATION OF DEATH BENEFITS AND CASH SURRENDER VALUES ..... 14

INFORMATION ABOUT THE ACCOUNT, THE REAL PROPERTY ACCOUNT AND THE FIXED RATE
OPTION .................................................................. 15
The Prudential Variable Appreciable Account ........................... 15
The Prudential Variable Contract Real Property Account ................ 15
The Fixed-Rate Option ................................................. 15

DETAILED INFORMATION ABOUT THE CONTRACT ................................... 16
Requirements for Issuance of a Contract .............................. 16
Contract Forms ........................................................ 16
Short-Term Cancellation Right or "Free Look" .......................... 16
Contract Fees and Charges ............................................. 17
Deductions from Premiums ....................................... 17
Deductions from Portfolios ..................................... 17
Monthly Deductions from Contract Fund .......................... 18
Daily Deduction from the Contract Fund ......................... 19
Surrender or Withdrawal Charges ................................ 19
Transaction Charges ............................................ 20
Contract Date ......................................................... 20
Premiums .............................................................. 20
Allocation of Premiums ................................................ 21
Transfers ............................................................. 21
How the Contract Fund Changes with Investment Experience .............. 22
How a Contract's Death Benefit Will Vary .............................. 22
Contract Loans ........................................................ 23
Surrender of a Contract ............................................... 24
Lapse and Reinstatement ............................................... 24
Fixed Extended Term Insurance ................................... 24

<PAGE>
Page
Fixed Reduced Paid-Up Insurance ................................ 25
Variable Reduced Paid-Up Insurance ............................. 25
What Happens If No Request Is Made? ............................ 25
When Proceeds Are Paid .................................................. 25
Living Needs Benefit .................................................... 25
Terminal Illness Option ........................................ 25
Nursing Home Option ............................................ 25
Voting Rights ........................................................... 26
Reports to Contract Owners .............................................. 26
Tax Treatment of Contract Benefits ...................................... 27
Riders .................................................................. 27
Participation in Divisible Surplus ...................................... 28
Other Contract Provisions ............................................... 28

FURTHER INFORMATION ABOUT THE SERIES FUND ................................. 28

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ...................... 28
Fixed Income Portfolios ................................................. 29
Money Market Portfolio ......................................... 29
Bond Portfolio ................................................. 29
Government Securities Portfolio ................................ 30
Zero Coupon Bond Portfolios 1995, 2000, and 2005 ............... 31

Balanced Portfolios ..................................................... 32

Conservatively Managed Flexible Portfolio ...................... 32
Aggressively Managed Flexible Portfolio ........................ 32
High Yield Bond Portfolios .............................................. 33
High Yield Bond Portfolio ...................................... 33
Diversified Stock Portfolios ............................................ 34
Stock Index Portfolio .......................................... 34
High Dividend Stock Portfolio .................................. 35
Common Stock Portfolio ......................................... 36
Growth Stock Portfolio ......................................... 36
Small Capitalization Stock Portfolio ........................... 37
Global Equity Portfolio ........................................ 38
Specialized Portfolios .................................................. 38
Natural Resources Portfolio .................................... 38
Foreign Securities ...................................................... 39
Options, Futures Contracts and Swaps .................................... 40
Short Sales ............................................................. 40
Reverse Repurchase Agreements and Dollar Rolls .......................... 40
Loans of Portfolio Securities ........................................... 41

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS ...................... 41

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES ........................... 41
Portfolio Brokerage and Related Practices ............................... 42

STATE REGULATION .......................................................... 42

EXPERTS ................................................................... 42

LITIGATION ................................................................ 42

EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ......... 42

ADDITIONAL INFORMATION .................................................... 44

FINANCIAL STATEMENTS ...................................................... 44

FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT ....... A1

CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA AND SUBSIDIARIES ....................................... B1

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
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, ITS STATEMENT OF ADDITIONAL INFORMATION, AND THE PROSPECTUS FOR
THE REAL PROPERTY ACCOUNT.

<PAGE>
INTRODUCTION AND SUMMARY

This section provides only an overview of the more significant provisions of the
Contract. It omits details which are provided in the rest of this prospectus, as
well as in a Statement of Additional Information which is available to you upon
request without charge. A description of the contents of that Statement of
Additional Information is on page 42.

As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is variable life insurance --
and variable life insurance has significant investment aspects and requires you
to make investment decisions -- it is also a "security." That is why you have
been given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission, and the prospectus that
is a part of the registration statement must be given to all prospective buyers.
But because a substantial part of your premium pays for life insurance that will
pay to your beneficiary, in the event of your death, an amount far exceeding
your total premium payments, you should not buy this contract unless a major
reason for the purchase is to provide life insurance protection. Because the
contract provides whole-life or permanent insurance, it also serves a second
important objective. It can be expected to provide an increasing cash surrender
value that can be used during your lifetime.

Brief Description of the Contract

The Variable Appreciable Life Insurance Contract (referred to from now on as the
"Contract") is issued and sold by The Prudential Insurance Company of America
("The Prudential"), a mutual insurance company founded in 1875 under the laws of
the State of New Jersey. It is licensed to sell life insurance and annuities in
all 50 states, the District of Columbia and Guam. It is also registered as a
broker and dealer under The Securities and Exchange Act of 1934 and as an
investment adviser under The Investment Advisers Act of 1940. The Prudential's
consolidated financial statements begin on page B1.

The Contract is a form of flexible premium variable life insurance. It is built
around a Contract Fund, the amount of which changes every business day. That
amount represents the value of your Contract on that day although you will have
to pay a surrender charge if you decide to surrender the Contract during the
first ten Contract years.

A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. The Prudential has
established a separate account, like a separate division within the Company,
called The Prudential Variable Appreciable Account (from now on, the "Account").
Whenever you pay a premium, The Prudential first deducts certain charges
(described below) and, unless you decide otherwise (as explained below) puts the
remainder -- often called the "net premium" -- into the Account, where it is
combined with the net premiums from all other contracts like this one. The money
in the Account, including your Contract Fund, is then invested in the following
way. The Account is divided into sixteen subaccounts and you must decide which
subaccount or subaccounts will hold the assets of your Contract Fund. The money
allocated to each subaccount is immediately invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (from now on the "Series Fund").
Those sixteen portfolios are described in more detail below. Each has a
different investment objective (for example, common stocks, bonds, money market
securities, government securities) so that you have a wide range of investment
options to choose from.

You also have two additional options which are regulated differently from the
other sixteen because neither one is an investment company registered under the
Investment Company Act of 1940. The first of these is a fixed-rate option that
increases the portion of your Contract Fund allocated to this option at a
guaranteed rate of interest. The remaining option is a real property option
which invests in income-producing real property. It is described in a separate
prospectus that is attached to this one. Thus your Contract Fund value changes
every day depending upon the change in the value of the particular portfolios
(or the other two investment options) that you have selected for the investment
of your Contract Fund.

Although the selection of any of the investment portfolios or of the real
property option offers the possibility that your Contract Fund value will
increase if there is favorable investment performance, you are subject to the
risk that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See Which Investment Option Should Be Selected,
page 4. If you select the fixed-rate option, you are credited with a stated rate
of interest but you assume the risk that this rate may change in later years.

The Prudential deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, The Prudential
makes certain additional charges if a Contract lapses or is surrendered during
the first 10 Contract years. All these charges, which are largely designed to
cover insurance costs and risks as well as sales and administrative expenses,
are fully described under Contract Fees and Charges, on page 17. In brief, and
subject to that fuller description, the following diagram outlines the charges
which may be made:

1
<PAGE>

- --------------------------------------------------------------------------------
Premium Payment
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
o less charge for taxes
attributable to premiums
o less $2 processing fee
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
Invested Premium Amount
o To be invested in one or a combination of:
o The Investment Portfolios of the Series Fund described below
o The Fixed-Rate Option
o The Real Property Account
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
Daily Charges
o Management fees and expenses are deducted from the assets of the Series
Fund.
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from
the assets of the variable investment options for mortality and expense
risks.
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
Monthly Charges
o A sales charge is currently deducted from the Contract Fund in the amount
of 1/2 of 1% of the primary annual premium.
o The Contract Fund is reduced by a guaranteed minimum death benefit risk
charge of not more than $0.01 per $1,000 of the face amount of insurance.
o The Contract Fund is reduced by an administrative charge of up to $3 per
Contract and $0.03 per $1,000 of face amount of insurance; if the face
amount of the Contract is greater than $100,000, the charge is reduced.
o A charge for anticipated mortality is deducted, with the maximum charge
based on the Non-Smoker/Smoker 1980 CSO Tables.
o If the Contract includes riders, a deduction from the Contract Fund will be
made for charges applicable to those riders; a deduction will also be made
if the rating class of the insured results in an extra charge.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Possible Additional Charges
o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred sales charge is assessed; the maximum contingent
deferred sales charge during the first 5 years is 50% of the first year's
primary annual premium but this charge is both subject to other important
limitations and reduced for Contracts that have been in force for more than
5 years.
o If the Contract lapses or is surrendered during the first 10 years, a
contingent deferred administrative charge is assessed; during the first 5
years, this charge equals $5 per $1,000 of face amount and it begins to
decline uniformly after the fifth Contract year so that it disappears on
the tenth Contract anniversary.
o An administrative processing charge of up to $15 will be made in connection
with each withdrawal of excess cash surrender value or a decrease in face
amount.
- --------------------------------------------------------------------------------
An important feature of the Contract is its death benefit. You have a choice of
two different forms of the Contract which differ in the amount of the death
benefit. Under Contract Form A the death benefit will generally be equal to the
face amount of insurance. It can never be less than this amount, but it is
possible, after the Contract has been held for many years, that the Contract
Fund will become so large that The Prudential -- to meet certain requirements of
the Internal Revenue Code -- will increase the death benefit. Under Contract
Form B, the death benefit will increase and decrease as the amount of the
Contract Fund varies with the investment performance of the selected options.
However, the death benefit under Form B, as is true under Form A, will never be
less than the initial face amount and it may also increase to satisfy Internal
Revenue Code requirements. Throughout this prospectus the word "Contract" refers
to both Form A and B unless specifically stated otherwise. Under both Form A and
B Contracts there is no guaranteed minimum cash surrender value.

When you first buy the Contract you give instructions to The Prudential as to
which subaccounts (and, therefore, which corresponding portfolios of the Series
Fund) you wish your Contract Fund invested. Thereafter you may make changes in
these allocations either in writing or by telephone. The investment objectives
of each portfolio, described more fully at pages 28 to 38 of this prospectus,
and of the other two investment options are as follows:

2
<PAGE>

Fixed Income Portfolios

Money Market Portfolio. The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations. The rate of return will generally
follow the fluctuations in short term interest rates.

Bond Portfolio. A high level of income over the longer term while providing
reasonable safety of capital through investment primarily in readily marketable
intermediate and long-term fixed income securities that provide attractive
yields but do not involve substantial risk of loss of capital through default.
The securities will be of investment grade and should result in higher returns,
but market value will fluctuate inversely with changes in interest rates of
longer maturities.

Government Securities Portfolio. Achievement of a high level of income over the
longer term consistent with the preservation of capital through investment
primarily in U.S. Government securities, including intermediate and long-term
U.S. Treasury securities and debt obligations issued by agencies of or
instrumentalities established, sponsored or guaranteed by the U.S. Government.
At least 65% of the total assets of the portfolio will be invested in U.S.
Government securities. The rate of return is likely to be somewhat lower than
that of the Bond Portfolio, but the risk of loss through default is
significantly lower. Market value will also vary inversely with changes in
interest rates.

Zero Coupon Bond Portfolios 1995, 2000, and 2005. Achievement of the highest
predictable compounded investment return for a specific period of time,
consistent with the safety of invested capital, by investing primarily in debt
obligations of the United States Treasury and investment-grade corporations that
have been issued without interest coupons or stripped of their unmatured
interest coupons, in interest coupons that have been stripped from such debt
obligations, and receipts and in certificates for such stripped debt obligations
and stripped coupons (collectively "stripped securities"). The three portfolios
differ only in their liquidation dates, which for each portfolio is November 15
of the specified year. Market values are subject to greater fluctuations in
interest rates than they are for the other fixed-income portfolios so that
redemption, by transfer or otherwise prior to the maturity date could result in
a loss.

Balanced Portfolios

Conservatively Managed Flexible Portfolio. Achievement of a favorable total
investment return consistent with a portfolio having a conservatively managed
mix of money market instruments, fixed income securities, and common stocks, in
proportions believed by the investment manager to be appropriate for an investor
desiring diversification of investment who prefers a relatively lower risk of
loss than that associated with the Aggressively Managed Flexible Portfolio
while recognizing that this reduces the chances of greater appreciation.

Aggressively Managed Flexible Portfolio. Achievement of a high total return
consistent with a portfolio having an aggressively managed mix of money market
instruments, fixed income securities, and common stocks, in proportions believed
by the investment manager to be appropriate for an investor desiring
diversification of investment who is willing to accept a relatively high level
of loss in an effort to achieve greater appreciation.

High Yield Bond Portfolios

High Yield Bond Portfolio. Achievement of a high total return through investment
in high yield/high risk fixed income securities in the medium to low quality
ranges. These securities are sometimes known as "junk bonds." Even higher
returns are likely to be achieved but with greater risk of loss because of
investment in lower grade speculative debt securities.

Diversified Stock Portfolios

Stock Index Portfolio. Achievement of investment results that correspond to the
price and yield performance of publicly traded common stocks in the aggregate by
following a policy of attempting to duplicate the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.

High Dividend Stock Portfolio. Both current income and capital appreciation
through investment primarily in common stocks and convertible securities that
provide favorable prospects for investment income returns above those of the
Standard & Poor's 500 Stock Index or the NYSE Composite Index.

Common Stock Portfolio. Capital appreciation through investment primarily in
common stocks of companies, including major established corporations as well as
smaller capitalization companies, that appear to offer attractive prospects of
price appreciation that is superior to broadly-based stock indices. Current
income, if any, is incidental. Higher total return, through assumption of
greater risk, can be expected from this portfolio. As with all the equity
portfolios, significant fluctuations in market value can be expected, with
losses in some years.

Growth Stock Portfolio. Long-term growth of capital through investment primarily
in equity securities of established companies with above-average growth
prospects. Current income, if any, is incidental.

3
<PAGE>

Small Capitalization Stock Portfolio. Long-term growth of capital through
investment primarily in equity securities of publicly-traded companies with
small market capitalization. Current income, if any, is incidental.

Global Equity Portfolio. Long-term growth of capital through investment
primarily in common stock and common stock equivalents of foreign and domestic
issuers. Current income, if any, is incidental. While the characteristics of
this portfolio are similar to other equity portfolios, there will be an
additional risk because the portfolio invests a significant portion of its
assets in foreign securities.

Specialized Portfolios

Natural Resources Portfolio. Long-term growth of capital through investment
primarily in common stocks and convertible securities of "natural resource
companies" and in securities (typically debt securities and preferred stock) the
terms of which are related to the market value of a natural resource. While the
characteristics of this portfolio are similar to the other equity portfolios,
there will be additional risk because the portfolio is concentrated in a limited
number of sectors.

Real Property Account. High current income plus capital appreciation through
investment in a partnership whose assets are primarily 100%-owned unmortgaged
commercial real property and mortgages on real properties. Investment in real
property is also subject to fluctuations in market values.

Fixed-Rate Option. Guarantee against loss of principal plus income at a rate
which may change at yearly intervals, but will never be lower than an effective
annual rate of 4%.

Transfers Between Investment Options

You may at any time change the instructions for the allocation of your premiums
to the various investment options. You may also transfer amounts held in one
option to another. There are restrictions upon transfers out of the Real
Property Account and the fixed-rate option which The Prudential may waive.

Which Investment Option Should Be Selected?

Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small
Capitalization Stock, Global Equity, or Natural Resources Portfolios may be
desirable options if you are willing to accept such volatility in your Contract
values. Each of these equity portfolios involves somewhat different policies and
investment risks.

You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Government Securities or
Bond Portfolios. There may be times when you desire even greater safety of
principal and may then prefer the Money Market Portfolio or the fixed-rate
option, recognizing that the level of short-term rates may change rather
rapidly. Money invested in a Zero Coupon Bond Portfolio and held to its
liquidation date will realize a predictable return, although the portfolio's
value may fluctuate significantly with changes in interest rates prior to its
liquidation date. If you are willing to take risks and possibly achieve a higher
total return, you may prefer the High Yield Bond Portfolio, recognizing that
with higher yielding, lower quality bonds the risks are greater. You may wish to
divide your invested premium among two or more of the portfolios. You may wish
to obtain diversification by relying on The Prudential's judgment for an
appropriate asset mix by choosing one of the Balanced Portfolios. The Real
Property Account permits you to diversify your investment under the Contract to
include an interest in a pool of income-producing real property, and real estate
is often considered to be a hedge against inflation.

You should make a choice that takes into account how willing you are to accept
investment risks, the manner in which your other assets are invested, and your
own predictions about what investment results are likely to be in the future.
The Prudential does recommend against frequent transfers among the several
options as experience generally indicates that "market timing" investing,
particularly by non-professional investors, is likely to prove unsuccessful.

The Scheduled Premium

Your Contract sets forth an annual Scheduled Premium, or one that is payable
more frequently, such as monthly. The Prudential guarantees that, if the
Scheduled Premiums are paid when due (or if missed premiums are paid later, with
interest), the death benefit will be paid upon the death of the insured. The
Contract will not lapse even if investment experience is unexpectedly so
unfavorable that the Contract Fund value drops to below zero.

Your Scheduled Premium consists of two amounts. The first or initial amount is
payable from the time you purchase your Contract until the Contract anniversary
immediately following your 65th birthday or the Contract's seventh anniversary,
whichever is later (the "Premium Change Date"). The second amount is the
guaranteed maximum amount payable after the Premium Change Date. See Premiums,
page 20.

4
<PAGE>

Payment of Substantially Higher Premiums

The payment of premiums in excess of scheduled premiums may cause the Contract
to become a Modified Endowment Contract for federal income tax purposes. If you
make premium payments in amounts high enough to turn the Contract into a
Modified Endowment Contract, The Prudential will notify you, ask whether it is
your intention to do so, and return the premium, if you wish, with interest. See
Premiums, page 20 and Tax Treatment of Contract Benefits, page 27.

Contract Loans

The Contract permits the owner to borrow up to 90% of the amount of the cash
surrender value (100% of the portion allocated to the fixed-rate option) on
favorable terms. See Contract Loans, page 23. When a loan is made, the amount
held under the investment options described above is reduced, proportionately,
by the amount of the loan.

Differences Between the Contract and Variable Universal Life Insurance Contracts

The Prudential believes that the most common form of universal life insurance,
offered by many other life insurance companies, is suitable for many people and,
although it does not now offer such a contract to the general public, it may do
so in the future. It believes, however, that there are features in that form of
universal life insurance, particularly in universal variable life insurance,
that enable it too easily to be used in an unsuitable way. Most universal life
insurance contracts also provide for premiums to be paid at irregular intervals
but with a recommended "target premium" to be paid at specified intervals.
Regular payment of the recommended target premiums, however, does not guarantee
- -- as is the case with this Contract -- that a death benefit will always be
paid. If the target premium is set too low and investment experience for some
period is unfavorable, the Contract Fund can drop to zero and then those
contracts will lapse. Similarly, if a contract owner skips several premium
payments during a period of financial strain, the same thing could happen, even
after a contract has been in force for many years. If that should happen, there
will be little incentive to reinstate the contract and the contract owner will
have bought, unintentionally and unnecessarily, very expensive term insurance.
Two purposes for which permanent insurance is bought -- protection against death
and savings for later use -- will not have been met.

The Prudential's Variable Appreciable Life Insurance Contract is a form of life
insurance that seeks to eliminate these defects. Although it provides much of
the flexibility of variable universal life, it differs in two important ways.
First, The Prudential guarantees that if the Scheduled Premiums are paid when
due (or missed premiums are paid later with interest), the Contract will not
lapse and the face amount of insurance will be paid upon the death of the
insured even if, because of unfavorable investment experience, the Contract Fund
value should drop to below zero. Second, if all premiums are not paid when due
(or made up), the Contract will not lapse as long as the Contract Fund is higher
than a stated amount set forth in a table in the Contract -- an amount that
increases each year and in later years becomes quite high; it is called the
"Tabular Contract Fund." The Contract lapses when the Contract Fund falls to
below this stated amount, rather than when it drops to zero. Thus, when a
Variable Appreciable Life Contract lapses, it may still have considerable value
and you will, therefore, have a substantial incentive to reinstate it, as well
as an opportunity to make a considered decision whether to do so or to take, in
one form or another, the cash surrender value. In effect, The Prudential
provides an early and timely warning against the imprudent use of the
flexibility provided by the Contract.

In the following pages of this prospectus we describe in much greater detail all
of the provisions of the Contract. That description is preceded by two sets of
tables. The first set provides, in condensed form, financial information about
the portfolios of the Series Fund, beginning on the date each of them was first
established. The second set shows what the cash surrender values and death
benefits would be under a Contract issued on a hypothetical person, making
certain assumptions. These tables show generally how the values under the
Contract would vary, with different investment performances.

FINANCIAL HIGHLIGHTS OF THE PORTFOLIOS OF THE SERIES FUND

The tables that follow provide information about the annual investment income,
capital appreciation and expenses of the 14 portfolios of the Series Fund that
were available as of December 31, 1994 for each year, beginning with the year
after the Series Fund was established. They are prepared on a per share basis
and therefore provide useful information about the investment performance of
each portfolio.

Note, however, that these tables do not tell you how your Contract Fund would
have changed during this period because they do not reflect the deductions from
the Contract Fund other than the deductions for the investment management fees
and expenses.

<PAGE>

<TABLE>
<CAPTION>
MONEY MARKET
-------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86* 12/31/85*
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.402 0.290 0.372 0.596 0.778 0.877 0.717 0.630 0.062 0.079
Net realized and
unrealized gains
(losses) on
investments............ 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 0.402 0.290 0.372 0.596 0.778 0.877 0.717 0.630 0.062 0.079
Distributions to
Shareholders:
Distributions from net
investment income...... (0.402) (0.290) (0.372) (0.596) (0.778) (0.877) (0.717) (0.630) (0.062) (0.079)
Distributions from net
realized gains......... 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.402) (0.290) (0.372) (0.596) (0.778) (0.877) (0.717) (0.630) (0.062) (0.079)
Reverse stock split (10
to 1).................. -- -- -- -- -- -- -- -- 9.000 --
Net increase (decrease)
in Net Asset Value..... 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 9.000 0.000
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $10.000 $ 10.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:**.............. 4.05 % 2.95 % 3.79 % 6.16 % 8.16 % 9.25 % 7.35 % 6.52 % 6.54 % 7.91 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $583.3 $474.7 $528.7 $529.6 $434.2 $236.1 $155.9 $107.2 $52.5 $50.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.47 % 0.45 % 0.47 % 0.46 % 0.50 % 0.55 % 0.57 % 0.53 % 0.55 % 0.68 %
Ratio of net investment
income to average net
assets................. 4.02 % 2.90 % 3.72 % 5.96 % 7.80 % 8.77 % 7.17 % 6.30 % 6.16 % 7.60 %
Portfolio turnover
rate................... -- -- -- -- -- -- -- -- -- --
Number of shares
outstanding at end of
period (in millions)... 58.3 47.5 52.9 53.0 43.4 23.6 15.6 10.7 5.2 20.3
</TABLE>

<TABLE>
<CAPTION>
BOND
-------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86* 12/31/85*
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $10.038 $11.048 $ 10.967 $ 9.998
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.682 0.686 0.761 0.797 0.825 0.886 0.875 0.859 0.904 1.073
Net realized and
unrealized gains
(losses) on
investments............ (1.040) 0.398 0.013 0.842 (0.004) 0.424 (0.069) (0.821) 0.607 0.739
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... (0.358) 1.084 0.774 1.639 0.821 1.310 0.806 0.038 1.511 1.812
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.683) (0.657) (0.728) (0.779) (0.810) (0.854) (0.902) (0.990) (0.909) (0.843)
Distributions from net
realized gains......... (0.024) (0.153) (0.219) (0.190) 0 (0.077) 0 (0.058) (0.521) 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.707) (0.810) (0.947) (0.969) (0.810) (0.931) (0.902) (1.048) (1.430) (0.843)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... (1.065) 0.274 (0.173) 0.670 0.011 0.379 (0.096) (1.010) 0.081 0.969
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $10.038 $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $10.038 $ 11.048 $ 10.967
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:**.............. (3.23 %) 10.13 % 7.19 % 16.44 % 8.32 % 13.49 % 8.19 % 0.29 % 14.45 % 18.65 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $541.6 $576.2 $428.8 $318.7 $227.7 $191.1 $148.8 $139.5 $110.1 $40.9
Ratio of expenses net of
reimbursement to
average net assets..... 0.45 % 0.46 % 0.47 % 0.49 % 0.47 % 0.53 % 0.53 % 0.53 % 0.51 % 0.68 %
Ratio of net investment
income to average net
assets................. 6.41 % 6.05 % 6.89 % 7.43 % 8.06 % 8.56 % 8.52 % 8.15 % 8.11 % 9.85 %
Portfolio turnover
rate................... 31.57 % 41.12 % 60.53 % 131.01 % 42.10 % 272.85 % 222.20 % 238.41 % 246.82 % 92.56 %
Number of shares
outstanding at end of
period (in millions)... 54.0 51.9 39.6 29.0 22.0 18.5 15.0 13.9 10.0 2.5
</TABLE>

All calculations are based on average month-end shares outstanding, where
applicable.
*The per share information of the Portfolios of The Prudential Series Fund,
Inc. has not been restated to reflect the operations of the Pruco Life Series
Fund, Inc. prior to the November 1, 1986 merger.
**Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
This information should be read in conjunction with the financial statements
of The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.
Further information about the performance of the portfolios is contained in
the Annual Report to Contract Owners which may be obtained without charge.

<PAGE>

<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
-------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89
TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $11.784 $11.094 $11.133 $10.146 $10.324 $10.017
-------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.703 0.700 0.731 0.736 0.791 0.545
Net realized and
unrealized gains
(losses) on
investments............ (1.311) 0.678 (0.092) 0.847 (0.177) 0.613
-------- -------- -------- -------- -------- --------
Total from investment
operations........... (0.608) 1.378 0.639 1.583 0.614 1.158
-------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.723) (0.642) (0.593) (0.596) (0.769) (0.489)
Distributions from net
realized gains......... 0.008 (0.046) (0.085) 0 (0.023) (0.362)
-------- -------- -------- -------- -------- --------
Total
distributions........ (0.715) (0.688) (0.678) (0.596) (0.792) (0.851)
-------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (1.323) 0.690 (0.039) 0.987 (0.178) 0.307
-------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $10.461 $11.784 $11.094 $11.133 $10.146 $10.324
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. (5.16 %) 12.56 % 5.85 % 16.11 % 6.34 % 11.60 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $487.6 $540.1 $315.5 $95.0 $23.7 $17.0
Ratio of expenses net of
reimbursement to
average net assets..... 0.45 % 0.46 % 0.53 % 0.58 % 0.74 % 0.50 %
Ratio of net investment
income to average net
assets................. 6.30 % 5.91 % 6.58 % 6.97 % 7.86 % 5.06 %
Portfolio turnover
rate................... 34.19 % 18.59 % 80.71 % 127.18 % 379.45 % 208.86 %
Number of shares
outstanding at end of
period (in millions)... 46.6 45.8 28.3 8.5 2.3 1.6
</TABLE>

<TABLE>
<CAPTION>
ZERO COUPON BOND 1995
-------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 02/12/86
TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $11.282 $11.174 $11.250 $10.380 $11.094 $10.331 $10.270 $11.724 $ 10.156
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Income From Investment
Operations:
Net investment income.... 0.800 0.761 0.802 0.844 1.447 0.889 0.888 0.893 0.791
Net realized and
unrealized gains
(losses) on
investments............ (0.808) 0.107 (0.010) 0.874 (0.670) 0.766 0.027 (1.263) 1.437
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total from investment
operations........... (0.008) 0.868 0.792 1.718 0.777 1.655 0.915 (0.370) 2.228
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.679) (0.760) (0.798) (0.845) (1.491) (0.892) (0.854) (1.084) (0.660)
Distributions from net
realized gains......... (0.002) 0 (0.070) (0.003) 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total
distributions........ (0.681) (0.760) (0.868) (0.848) (1.491) (0.892) (0.854) (1.084) (0.660)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net increase (decrease)
in Net Asset Value..... (0.689) 0.108 (0.076) 0.870 (0.714) 0.763 0.061 (1.454) 1.568
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net Asset Value at end of
period................. $10.593 $11.282 $11.174 $11.250 $10.380 $11.094 $10.331 $10.270 $ 11.724
-------- -------- -------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total Investment Rate of
Return:**.............. (0.03 %) 7.87 % 7.19 % 17.20 % 7.95 % 16.41 % 9.01 % (3.25 %) 21.96 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $17.7 $15.2 $13.6 $13.0 $11.0 $10.0 $9.0 $7.5 $7.2
Ratio of expenses net of
reimbursement to
average net assets..... 0.60 % 0.63 % 0.69 % 0.71 % 0.75 % 0.75 % 0.75 % 0.69 % 0.42 %
Ratio of net investment
income to average net
assets................. 6.72 % 6.61 % 7.12 % 7.86 % 13.80 % 8.13 % 8.34 % 8.17 % 6.89 %
Portfolio turnover
rate................... 4.38 % 5.84 % 34.80 % 0.77 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Number of shares
outstanding at end of
period (in millions)... 1.7 1.3 1.2 1.2 1.1 0.9 0.9 0.7 0.6
</TABLE>

All calculations are based on average month-end shares outstanding, where
applicable.
**Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
This information should be read in conjunction with the financial statements
of The Prudential Series Fund, Inc. and notes thereto, which appear in the
Statement of Additional Information.
Further information about the performance of the portfolios is contained in
the Annual Report to Contract Owners which may be obtained without charge.

<PAGE>

<TABLE>
<CAPTION>
ZERO COUPON BOND 2000
-------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 02/12/86
TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $13.715 $12.550 $12.402 $11.279 $11.883 $11.004 $10.685 $12.476 $ 10.267
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Income From Investment
Operations:
Net investment income.... 0.927 0.850 0.892 0.908 1.114 0.919 0.919 0.934 0.807
Net realized and
unrealized gains
(losses) on
investments............ (1.907) 1.157 0.140 1.308 (0.593) 1.277 0.292 (1.623) 2.087
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total from investment
operations........... (0.980) 2.007 1.032 2.216 0.521 2.196 1.211 (0.689) 2.894
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.850) (0.837) (0.884) (0.944) (1.125) (0.915) (0.892) (1.102) (0.685)
Distributions from net
realized gains......... (0.023) (0.005) 0 (0.149) 0 (0.402) 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total
distributions........ (0.873) (0.842) (0.884) (1.093) (1.125) (1.317) (0.892) (1.102) (0.685)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net increase (decrease)
in Net Asset Value..... (1.853) 1.165 0.148 1.123 (0.604) 0.879 0.319 (1.791) 2.209
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net Asset Value at end of
period................. $11.862 $13.715 $12.550 $12.402 $11.279 $11.883 $11.004 $10.685 $ 12.476
-------- -------- -------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total Investment Rate of
Return:**.............. (7.18 %) 16.15 % 8.59 % 20.71 % 5.11 % 20.38 % 11.56 % (5.51 %) 28.62 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $20.6 $22.2 $16.7 $14.6 $13.9 $13.1 $10.9 $9.0 $8.1
Ratio of expenses net of
reimbursement to
average net assets..... 0.51 % 0.62 % 0.66 % 0.68 % 0.75 % 0.75 % 0.75 % 0.64 % 0.40 %
Ratio of net investment
income to average net
assets................. 6.69 % 6.21 % 7.24 % 7.77 % 9.99 % 7.73 % 8.24 % 8.19 % 6.61 %
Portfolio turnover
rate................... 9.41 % 0.53 % 0.00 % 0.00 % 0.00 % 38.62 % 0.00 % 0.00 % 0.00 %
Number of shares
outstanding at end of
period (in millions)... 1.7 1.6 1.3 1.2 1.2 1.1 1.0 0.8 0.7
</TABLE>

<TABLE>
<CAPTION>
ZERO COUPON BOND 2005
-------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89
TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $12.677 $11.029 $10.874 $ 9.798 $10.457 $10.017
-------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.752 0.768 0.804 0.820 0.850 0.561
Net realized and
unrealized gains
(losses) on
investments............ (1.967) 1.623 0.207 1.143 (0.649) 0.598
-------- -------- -------- -------- -------- --------
Total from investment
operations........... (1.215) 2.391 1.011 1.963 0.201 1.159
-------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.715) (0.741) (0.792) (0.827) (0.860) (0.531)
Distributions from net
realized gains......... (0.003) (0.002) (0.064) (0.060) 0 (0.188)
-------- -------- -------- -------- -------- --------
Total
distributions........ (0.718) (0.743) (0.856) (0.887) (0.860) (0.719)
-------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (1.933) 1.648 0.155 1.076 (0.659) 0.440
-------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $10.744 $12.677 $11.029 $10.874 $ 9.798 $10.457
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. (9.61 %) 21.94 % 9.66 % 21.16 % 2.56 % 11.67 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $16.5 $14.5 $9.8 $8.7 $7.3 $7.2
Ratio of expenses net of
reimbursement to
average net assets..... 0.60 % 0.66 % 0.75 % 0.75 % 0.75 % 0.49 %
Ratio of net investment
income to average net
assets................. 6.53 % 6.17 % 7.46 % 8.08 % 8.83 % 5.25 %
Portfolio turnover
rate................... 5.94 % 3.62 % 11.48 % 5.76 % 4.36 % 59.90 %
Number of shares
outstanding at end of
period (in millions)... 1.5 1.1 0.9 0.8 0.7 0.7
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
CONSERVATIVELY MANAGED FLEXIBLE
-----------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86* 12/31/85*
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $14.905 $14.243 $14.318 $13.060 $13.361 $12.295 $11.889 $12.571 $ 12.173 $ 10.469
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.528 0.486 0.558 0.687 0.821 0.891 0.773 0.656 0.652 0.725
Net realized and
unrealized gains
(losses) on
investments............ (0.679) 1.229 0.410 1.738 (0.143) 1.155 0.424 (0.399) 1.046 1.443
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... (0.151) 1.715 0.968 2.425 0.678 2.046 1.197 0.257 1.698 2.168
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.505) (0.468) (0.533) (0.668) (0.812) (0.887) (0.791) (0.709) (0.517) (0.464)
Distributions from net
realized gains......... (0.154) (0.585) (0.510) (0.499) (0.167) (0.093) 0 (0.230) (0.783) 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.659) (1.053) (1.043) (1.167) (0.979) (0.980) (0.791) (0.939) (1.300) (0.464)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... (0.810) 0.662 (0.075) 1.258 (0.301) 1.066 0.406 (0.682) 0.398 1.704
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $14.095 $14.905 $14.243 $14.318 $13.060 $13.361 $12.295 $11.889 $ 12.571 $ 12.173
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:**.............. (0.97 %) 12.20 % 6.95 % 19.07 % 5.27 % 16.99 % 10.19 % 1.54 % 14.17 % 21.11 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6 $803.9 $375.4 $75.9
Ratio of expenses net of
reimbursement to
average net assets..... 0.61 % 0.60 % 0.62 % 0.63 % 0.65 % 0.64 % 0.65 % 0.66 % 0.64 % 0.86 %
Ratio of net investment
income to average net
assets................. 3.61 % 3.22 % 3.88 % 4.89 % 6.21 % 6.81 % 6.22 % 5.05 % 5.10 % 5.99 %
Portfolio turnover
rate................... 125.18 % 79.46 % 62.07 % 115.35 % 44.04 % 153.92 % 110.67 % 140.69 % 207.78 % 54.89 %
Number of shares
outstanding at end of
period (in millions)... 248.4 208.2 148.4 104.8 84.2 73.0 66.3 67.6 29.9 4.2
</TABLE>

<TABLE>
<CAPTION>
AGGRESSIVELY MANAGED FLEXIBLE
-------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86* 12/31/85*
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $16.957 $16.005 $16.288 $13.996 $14.446 $13.123 $12.326 $13.555 $ 12.810 $ 10.469
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.473 0.566 0.583 0.650 0.715 0.813 0.724 0.577 0.611 0.584
Net realized and
unrealized gains
(losses) on
investments............ (1.021) 1.882 0.607 2.809 (0.466) 1.989 0.840 (0.753) 1.342 2.095
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... (0.548) 2.448 1.190 3.459 0.249 2.802 1.564 (0.176) 1.953 2.679
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.451) (0.567) (0.559) (0.654) (0.699) (0.813) (0.767) (0.673) (0.456) (0.338)
Distributions from net
realized gains......... (0.462) (0.929) (0.914) (0.513) 0 (0.666) 0 (0.380) (0.752) 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.913) (1.496) (1.473) (1.167) (0.699) (1.479) (0.767) (1.053) (1.208) (0.338)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... (1.461) 0.952 (0.283) 2.292 (0.450) 1.323 0.797 (1.229) 0.745 2.341
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $15.496 $16.957 $16.005 $16.288 $13.996 $14.446 $13.123 $12.326 $ 13.555 $ 12.810
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:**.............. (3.16 %) 15.58 % 7.61 % 25.43 % 1.91 % 21.77 % 12.83 % (1.83 %) 15.48 % 25.87 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9 $1,062.4 $593.6 $138.7
Ratio of expenses net of
reimbursement to
average net assets..... 0.66 % 0.66 % 0.67 % 0.67 % 0.69 % 0.69 % 0.70 % 0.71 % 0.67 % 0.93 %
Ratio of net investment
income to average net
assets................. 2.90 % 3.30 % 3.63 % 4.23 % 5.13 % 5.66 % 5.52 % 4.09 % 4.43 % 4.65 %
Portfolio turnover
rate................... 123.63 % 62.99 % 59.03 % 93.13 % 51.87 % 141.04 % 128.45 % 123.83 % 133.76 % 56.46 %
Number of shares
outstanding at end of
period (in millions)... 224.7 194.1 152.2 122.2 107.7 96.0 84.1 86.2 43.8 6.1
</TABLE>

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)
The following financial highlights information has been audited by Deloitte &
Touche LLP, Independent Auditors. Their report is included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
HIGH YIELD BOND
---------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 02/23/87
TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(AS RESTATED)
Net Asset Value at
beginning of period.... $ 8.406 $ 7.719 $ 7.212 $ 5.838 $ 7.673 $ 8.904 $ 8.742 $10.000
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.869 0.822 0.824 0.836 0.936 1.071 1.066 0.968
Net realized and
unrealized gains
(losses) on
investments............ (1.102) 0.632 0.415 1.397 (1.792) (1.223) 0.065 (1.428)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... (0.233) 1.454 1.239 2.233 (0.856) (0.152) 1.131 (0.460)
-------- -------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.807) (0.767) (0.732) (0.859) (0.979) (1.079) (0.969) (0.798)
Distributions from net
realized gains......... 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.807) (0.767) (0.732) (0.859) (0.979) (1.079) (0.969) (0.798)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (1.040) 0.687 0.507 1.374 (1.835) (1.231) 0.162 (1.258)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $ 7.366 $ 8.406 $ 7.719 $ 7.212 $ 5.838 $ 7.673 $ 8.904 $ 8.742
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. (2.72 %) 19.27 % 17.54 % 39.71 % (11.84 %) (2.05 %) 13.17 % (4.91 %)
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $306.2 $282.9 $153.7 $78.7 $49.8 $60.0 $65.8 $40.4
Ratio of expenses net of
reimbursement to
average net assets..... 0.65 % 0.65 % 0.70 % 0.75 % 0.75 % 0.71 % 0.75 % 0.73 %
Ratio of net investment
income to average net
assets................. 9.82 % 9.91 % 10.67 % 12.05 % 13.42 % 12.29 % 11.60 % 10.13 %
Portfolio turnover
rate................... 68.67 % 95.52 % 75.04 % 57.21 % 34.66 % 60.59 % 70.73 % 16.58 %
Number of shares
outstanding at end of
period (in millions)... 41.6 33.6 19.9 10.9 8.5 7.8 7.4 4.6

<CAPTION>
STOCK INDEX
---------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 10/19/87
TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531 $ 8.071
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.377 0.361 0.350 0.351 0.357 0.326 0.357 0.047
Net realized and
unrealized gains
(losses) on
investments............ (0.231) 1.002 0.600 2.814 (0.792) 2.570 0.951 0.548
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... 0.146 1.363 0.950 3.165 (0.435) 2.896 1.308 0.595
-------- -------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.368) (0.346) (0.329) (0.307) (0.309) (0.354) (0.385) (0.135)
Distributions from net
realized gains......... (0.023) (0.033) (0.008) (0.013) (0.228) (0.264) 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.391) (0.379) (0.337) (0.320) (0.537) (0.618) (0.385) (0.135)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (0.245) 0.984 0.613 2.845 (0.972) 2.278 0.923 0.460
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $14.957 $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. 1.01 % 9.66 % 7.13 % 29.72 % (3.63 %) 30.93 % 15.44 % 7.35 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $664.5 $615.1 $433.5 $236.9 $104.5 $53.8 $36.0 $24.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.42 % 0.42 % 0.46 % 0.47 % 0.60 % 0.69 % 0.78 % 0.45 %
Ratio of net investment
income to average net
assets................. 2.50 % 2.43 % 2.56 % 2.82 % 3.23 % 2.95 % 3.87 % 0.53 %
Portfolio turnover
rate................... 1.74 % 0.60 % 0.43 % 1.10 % 17.80 % 14.54 % 15.62 % 0.47 %
Number of shares
outstanding at end of
period (in millions)... 44.4 40.5 30.5 17.4 9.7 4.6 3.8 2.9
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
HIGH DIVIDEND STOCK
-----------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 02/19/88
TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period $15.655 $13.673 $13.209 $11.241 $12.254 $10.621 $10.132
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.664 0.551 0.582 0.578 0.509 0.539 0.452
Net realized and
unrealized gains
(losses) on
investments............ (0.453) 2.459 0.723 2.430 (0.980) 1.841 0.684
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.211 3.010 1.305 3.008 (0.471) 2.380 1.136
-------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.562) (0.501) (0.515) (0.542) (0.461) (0.462) (0.420)
Distributions from net
realized gains......... (0.820) (0.527) (0.326) (0.498) (0.081) (0.285) (0.227)
-------- -------- -------- -------- -------- -------- --------
Total
distributions........ (1.382) (1.028) (0.841) (1.040) (0.542) (0.747) (0.647)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (1.171) 1.982 0.464 1.968 (1.013) 1.633 0.489
-------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $14.484 $15.655 $13.673 $13.209 $11.241 $12.254 $10.621
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. 1.44 % 22.28 % 10.14 % 27.50 % (3.73 %) 22.67 % 11.31 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $859.7 $602.8 $234.4 $106.9 $55.5 $34.9 $11.3
Ratio of expenses net of
reimbursement to
average net assets..... 0.52 % 0.54 % 0.57 % 0.57 % 0.60 % 0.74 % 0.64 %
Ratio of net investment
income to average net
assets................. 3.92 % 3.56 % 4.32 % 4.53 % 4.53 % 4.48 % 4.08 %
Portfolio turnover
rate................... 62.66 % 41.43 % 39.98 % 60.12 % 54.79 % 56.65 % 61.31 %
Number of shares
outstanding at end of
period (in millions)... 59.4 38.5 17.1 8.1 4.9 2.9 1.1
</TABLE>

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86 01/01/85
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86* 12/31/85*
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $21.487 $18.903 $17.905 $15.449 $18.539 $15.463 $13.620 $14.815 $ 14.634 $ 11.160
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.512 0.417 0.444 0.482 0.577 0.474 0.402 0.393 0.448 0.340
Net realized and
unrealized gains
(losses) on
investments............ 0.054 3.666 2.050 3.414 (1.573) 4.064 1.909 (0.065) 1.765 3.306
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 0.566 4.083 2.494 3.896 (0.996) 4.538 2.311 0.328 2.213 3.646
Distributions to
Shareholders:
Distributions from net
investment income...... (0.487) (0.404) (0.439) (0.478) (0.563) (0.503) (0.468) (0.496) (0.275) (0.172)
Distributions from net
realized gains......... (0.904) (1.095) (1.057) (0.962) (1.531) (0.959) 0 (1.027) (1.757) 0
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (1.391) (1.499) (1.496) (1.440) (2.094) (1.462) (0.468) (1.523) (2.032) (0.172)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... (0.825) 2.584 0.998 2.456 (3.090) 3.076 1.843 (1.195) 0.181 3.474
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $20.662 $21.487 $18.903 $17.905 $15.449 $18.539 $15.463 $13.620 $ 14.815 $ 14.634
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:**.............. 2.78 % 21.87 % 14.17 % 26.01 % (5.21 %) 29.73 % 17.05 % 1.67 % 15.10 % 32.84 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $2,617.8 $2,186.5 $1,416.6 $1,032.8 $700.5 $675.5 $500.1 $451.0 $247.9 $68.8
Ratio of expenses net of
reimbursement to
average net assets..... 0.55 % 0.53 % 0.53 % 0.51 % 0.56 % 0.56 % 0.57 % 0.51 % 0.52 % 0.88 %
Ratio of net investment
income to average net
assets................. 2.39 % 1.99 % 2.33 % 2.66 % 3.37 % 2.66 % 2.67 % 2.34 % 2.90 % 2.44 %
Portfolio turnover
rate................... 6.90 % 12.95 % 15.70 % 20.85 % 84.84 % 73.54 % 62.35 % 79.91 % 117.15 % 91.70 %
Number of shares
outstanding at end of
period (in millions)... 126.7 101.8 74.9 57.7 45.3 36.4 32.3 33.1 16.7 2.0
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
GLOBAL EQUITY
-----------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 09/19/88
TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508 $ 9.818
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.028 0.023 0.051 0.096 0.203 0.079 0.052
Net realized and
unrealized gains
(losses) on
investments............ (0.744) 4.433 (0.419) 1.020 (1.802) 1.806 0.787
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... (0.716) 4.456 (0.368) 1.116 (1.599) 1.885 0.839
-------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.019) (0.079) (0.056) (0.100) (0.067) (0.073) (0.149)
Distributions from net
realized gains......... (0.025) (0.106) 0 (0.090) (0.015) (0.773) 0
-------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.044) (0.185) (0.056) (0.190) (0.082) (0.846) (0.149)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (0.760) 4.271 (0.424) 0.926 (1.681) 1.039 0.690
-------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $13.879 $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. (4.89 %) 43.14 % (3.42 %) 11.39 % (12.91 %) 18.82 % 8.57 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $345.7 $129.1 $34.0 $34.3 $26.2 $29.4 $26.9
Ratio of expenses net of
reimbursement to
average net assets..... 1.23 % 1.44 % 1.87 % 1.62 % 1.67 % 1.47 % 0.42 %
Ratio of net investment
income to average net
assets................. 0.20 % 0.18 % 0.49 % 0.92 % 1.92 % 0.70 % 0.51 %
Portfolio turnover
rate................... 37.46 % 54.54 % 78.16 % 136.21 % 43.12 % 47.95 % 6.40 %
Number of shares
outstanding at end of
period (in millions)... 24.9 8.8 3.3 3.2 2.7 2.5 2.6
</TABLE>

<TABLE>
<CAPTION>
NATURAL RESOURCES
-----------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 05/01/88
TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $15.562 $12.949 $12.450 $11.622 $12.705 $10.141 $ 9.910
-------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.183 0.227 0.319 0.368 0.417 0.364 0.254
Net realized and
unrealized gains
(losses) on
investments............ (0.850) 3.004 0.588 0.821 (1.143) 3.216 0.274
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... (0.667) 3.231 0.907 1.189 (0.726) 3.580 0.528
-------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.150) (0.207) (0.309) (0.361) (0.336) (0.358) (0.252)
Distributions from net
realized gains......... (0.302) (0.411) (0.099) 0 (0.021) (0.658) (0.045)
-------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.452) (0.618) (0.408) (0.361) (0.357) (1.016) (0.297)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (1.119) 2.613 0.499 0.828 (1.083) 2.564 0.231
-------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $14.443 $15.562 $12.949 $12.450 $11.622 $12.705 $10.141
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:**.............. (4.30 %) 25.15 % 7.30 % 10.30 % (5.76 %) 35.64 % 5.42 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $227.3 $158.8 $77.5 $62.6 $50.6 $17.9 $9.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.61 % 0.60 % 0.72 % 0.68 % 0.75 % 0.86 % 0.58 %
Ratio of net investment
income to average net
assets................. 1.09 % 1.50 % 2.44 % 2.97 % 3.45 % 3.04 % 2.46 %
Portfolio turnover
rate................... 18.10 % 19.64 % 29.20 % 21.33 % 42.18 % 49.17 % 59.33 %
Number of shares
outstanding at end of
period (in millions)... 15.7 10.2 6.0 5.0 4.4 1.4 0.9
</TABLE>

<PAGE>

PORTFOLIO RATES OF RETURN

The following table, based upon the immediately preceding condensed financial
information for the Series Fund, shows first the average annual compounded net
rates of return for each Portfolio for the year ended 12/31/94 for the 5 year
period ending on that date, and from the inception date of each Portfolio to
December 31, 1994. Then, the annual net rates of return for each Portfolio for
each year are shown. These rates of return should not be regarded as an estimate
or prediction of future performance. They may be useful in assessing the
competence and performance of the Series Fund's investment advisor and in
helping you to decide which portfolios to choose. AS STATED ABOVE, THIS
INFORMATION RELATES ONLY TO THE SERIES FUND AND DOES NOT REFLECT THE VARIOUS
OTHER CHARGES MADE UNDER THE CONTRACTS SUCH AS SALES AND ADMINISTRATIVE CHARGES
AND COST OF INSURANCE CHARGES. SEE CONTRACT FEES AND CHARGES, PAGE 17.
<TABLE>
<CAPTION>
5 YEAR 10 YEAR
PERIOD PERIOD INCEPTION
INCEPTION YEAR ENDED ENDED ENDED DATE TO YEAR ENDED YEAR ENDED YEAR ENDED
DATE 12/31/94 12/31/94 12/31/94 12/31/94 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- ------------- ----------- ----------- -----------

MONEY MARKET 5/83 4.1% 5.0% 6.3% 6.7% 4.1% 3.0% 3.8%

BOND 5/83 -3.2% 7.6% 9.2% 9.0% -3.2% 10.1% 7.2%

GOVERNMENT
SECURITIES 5/89 -5.2% 6.9% N/A 8.1% -5.2% 12.6% 5.9%

ZERO COUPON BOND
1995 2/86 0.0% 7.9% N/A 9.2% 0.0% 7.9% 7.2%

ZERO COUPON BOND
2000 2/86 -7.2% 8.2% N/A 10.5% -7.2% 16.2% 8.6%

ZERO COUPON BOND
2005 5/89 -9.6% 8.5% N/A 9.6% -9.6% 21.9% 9.7%

CONSERVATIVELY
MANAGED FLEXIBLE 5/83 -1.0% 8.3% 10.4% 9.9% -1.0% 12.2% 6.9%

AGGRESSIVELY
MANAGED FLEXIBLE 5/83 -3.2% 9.0% 11.7% 10.6% -3.2% 15.6% 7.6%

HIGH YIELD BOND 2/87 -2.7% 10.8% N/A 7.5% -2.7% 20.0% 17.5%

STOCK INDEX 10/87 1.0% 8.2% N/A 13.0% 1.0% 9.7% 7.1%

HIGH DIVIDEND
STOCK 2/88 1.4% 10.9% N/A 12.8% 1.4% 22.3% 10.1%

COMMON STOCK 5/83 2.8% 11.3% 15.0% 13.3% 2.8% 21.9% 14.2%

GLOBAL EQUITY 9/88 -4.9% 5.0% N/A 8.3% -4.9% 43.1% -3.4%

NATURAL RESOURCES 5/88 -4.3% 6.0% N/A 10.2% -4.3% 25.2% 7.3%

YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85
<S> <C> <C> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- ----------- ----------- -----------
MONEY MARKET 6.2% 8.2% 9.3% 7.4% 6.5% 6.5% 7.9%
BOND 16.4% 8.3% 13.5% 8.2% 0.3% 14.4% 18.7%
GOVERNMENT
SECURITIES 16.1% 6.3% N/A N/A N/A N/A N/A
ZERO COUPON BOND
1995 17.2% 8.0% 16.4% 9.0% -3.3% N/A N/A
ZERO COUPON BOND
2000 20.7% 5.1% 20.4% 11.6% -5.5% N/A N/A
ZERO COUPON BOND
2005 21.2% 2.6% N/A N/A N/A N/A N/A
CONSERVATIVELY
MANAGED FLEXIBLE 19.1% 5.3% 17.0% 10.2% 1.5% 14.2% 21.1%
AGGRESSIVELY
MANAGED FLEXIBLE 25.4% 1.9% 21.8% 12.8% -1.8% 15.5% 25.9%
HIGH YIELD BOND 39.2% -11.8% -2.1% 13.2% N/A N/A N/A
STOCK INDEX 29.7% -3.6% 30.9% 15.4% N/A N/A N/A
HIGH DIVIDEND
STOCK 27.5% -3.7% 22.7% N/A N/A N/A N/A
COMMON STOCK 26.0% -5.1% 29.7% 17.1% 1.7% 15.1% 32.8%
GLOBAL EQUITY 11.4% -12.9% 18.8% N/A N/A N/A N/A
NATURAL RESOURCES 10.3% -5.8% 35.6% N/A N/A N/A N/A
</TABLE>

<PAGE>
HYPOTHETICAL ILLUSTRATION OF
DEATH BENEFITS AND CASH SURRENDER VALUES

The four tables that follow show how the death benefit and cash surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, each of which is
described below. All four tables assume, first, that a Contract with a face
amount of $100,000 has been bought by a 35 year old man in a preferred rating
class. It is assumed that the Scheduled Premium of $894.06 is paid on each
anniversary date, and that the deduction for taxes attributable to premiums is
3.25%. The first table assumes that a Form A Contract has been purchased and the
second table assumes that a Form B Contract has been purchased. Both assume that
the current charges will continue for the indefinite future. They assume also
that a termination dividend will be paid, since that is The Prudential's current
intention, upon death or surrender after the 16th year. The third and fourth
tables are based upon the same assumptions except that it is assumed that the
maximum charges permitted by the Contract have been made from the beginning and
that no termination dividends are paid. In effect, the third and fourth tables
represent a kind of "worst case" scenario.

Another assumption is that the Contract Fund has been invested in equal amounts
in each of the 16 available portfolios of the Series Fund. Finally, there are
four assumptions, shown separately, about the average investment performance of
the portfolios. The first is that there will be a uniform 0% gross rate of
return, that is, that the average value of the Contract Fund will uniformly be
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since
actual returns will fluctuate from year to year. Nevertheless, these assumptions
help show how the Contract values will change with investment experience.

The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
Scheduled Premiums had been invested in a savings account paying 4% compounded
interest. Of course, if that were done, there would be no life insurance
protection. The next four columns show the death benefit payable in each of the
years shown for the four different assumed investment returns. Note that a gross
return (as well as the net return) is shown at the top of each column. The gross
return represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Series Fund expenses. The net return reflects an average total annual expenses
of the 16 portfolios of 0.58%, and the daily deduction from the Contract Fund of
0.6% per year for the first two tables, which are based on current charges, and
0.9% per year for the two tables that are based upon maximum charges. For
Contracts with face amounts of less than $100,000, the current charge is 0.9%
per year. Thus, assuming maximum charges, gross returns of 0%, 4%, 8% and 12%
are the equivalent of net returns of -1.48%, 2.52%, 6.52% and 10.52%
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Series Fund and under the
Contract.

The amounts shown assume that there is no loan. The cash surrender values shown
for the first 10 years reflect the surrender charges that would be deducted if
the Contract were surrendered in those years. For years after the tenth, the
cash surrender values are equal to the Contract Fund value, plus any termination
dividend.

Note that under the Form B Contract the death benefit changes to reflect
investment returns, while under the Form A Contract the death benefit increases
only when the cash surrender value becomes quite large (the small increase in
death benefit in years 20 to 35 reflects a termination dividend, not investment
results). Correspondingly, the cash surrender values under the Form A Contract
are slightly larger than those under the Form B Contract.

If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for a
35 year old woman or a 50 year old man. To take a second example, the death
benefit and cash surrender values under a $50,000 Contract cannot be determined
by dividing by two the amount shown in a table for a $100,000 Contract. Your
Prudential representative can provide you with a comparable hypothetical
illustration for a person of your own age, sex, and rating class. You can obtain
an illustration using premium amounts and payment patterns that you wish to
follow. You may use assumed gross returns different than those shown in the
tables, although they may not be higher than 12%.

<PAGE>

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

VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT CONTRACTUAL CHARGES

Death Benefit (2) (4) Cash Surrender Value (2) (4)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 272 $ 351 $ 432 $ 516
3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 760 $ 912 $ 1,074 $ 1,244
4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $ 1,231 $ 1,479 $ 1,749 $ 2,043
5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $ 1,683 $ 2,050 $ 2,460 $ 2,919
6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $ 2,369 $ 2,879 $ 3,465 $ 4,137
7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $ 3,041 $ 3,719 $ 4,518 $ 5,460
8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $ 3,690 $ 4,559 $ 5,614 $ 6,891
9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $ 4,315 $ 5,401 $ 6,755 $ 8,441
10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $ 4,915 $ 6,241 $ 7,942 $ 10,121
15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $ 6,548 $ 9,435 $ 13,719 $ 20,082
20 $ 27,688 $101,115 $101,115 $101,115 $101,115 $ 8,448 $13,532 $ 22,372 $ 37,772
25 $ 38,723 $102,229 $102,229 $102,229 $126,155 $ 9,483 $17,345 $ 33,595 $ 66,881
30 (Age 65) $ 52,149 $102,225 $102,225 $102,225 $186,777 $ 7,432 $18,690 $ 46,879 $111,974
35 $ 88,449 $102,455 $102,455 $102,455 $273,324 $21,015 $37,083 $ 64,883 $183,298
40 $132,613 $102,672 $102,672 $120,713 $398,981 $30,906 $57,183 $ 89,657 $294,716
45 $186,345 $102,863 $102,863 $151,192 $584,216 $35,051 $80,902 $121,151 $466,475
</TABLE>

(1) If premiums are paid more frequently than annually, the initial payments
would be $456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The
ultimate payments would be $2,411.37 semi-annually, $1,218.60 quarterly or
$410.34 monthly. The death benefits and cash surrender values would be
slightly different for a Contract with more frequent premium payments.

(2) Assumes no Contract loan has been made.

(3) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $4,726.61. For a gross return of 4%, the second Scheduled
Premium will be $4,582.92; on a current basis, a lesser premium of $4,438.41
will guarantee that your contract will not lapse for one year. For a gross
return of 8%, the second Scheduled Premium will be $1,818.18; on a current
basis, a lesser premium of $894.06 will guarantee that your contract will
not lapse for one year. For a gross return of 12%, the second Scheduled
Premium will be $894.06. The premiums accumulated at 4% interest in column 2
are those payable if the gross investment return is 4%. For an explanation
of why the scheduled premium may increase on the premium change date, see
Premiums.

(4) Assumes after age 65 payment of the lesser premium amount, if applicable.

THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY THE PRUDENTIAL
OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

<PAGE>

<TABLE>
<CAPTION>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT CONTRACTUAL CHARGES

Death Benefit (2) (4) Cash Surrender Value (2) (4)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,021 $100,049 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,061 $100,144 $ 217 $ 296 $ 376 $ 460
3 $ 2,903 $100,000 $100,000 $100,119 $100,289 $ 704 $ 856 $ 1,016 $ 1,186
4 $ 3,948 $100,000 $100,000 $100,199 $100,491 $ 1,190 $ 1,437 $ 1,706 $ 1,998
5 $ 5,036 $100,000 $100,000 $100,302 $100,758 $ 1,672 $ 2,038 $ 2,446 $ 2,902
6 $ 6,167 $100,000 $100,000 $100,481 $101,148 $ 2,366 $ 2,874 $ 3,456 $ 4,123
7 $ 7,344 $100,000 $100,000 $100,689 $101,624 $ 3,038 $ 3,712 $ 4,505 $ 5,440
8 $ 8,568 $100,000 $100,000 $100,931 $102,196 $ 3,687 $ 4,551 $ 5,596 $ 6,861
9 $ 9,840 $100,000 $100,000 $101,209 $102,876 $ 4,312 $ 5,391 $ 6,732 $ 8,399
10 $ 11,164 $100,000 $100,000 $101,523 $103,674 $ 4,912 $ 6,230 $ 7,911 $ 10,062
15 $ 18,618 $100,000 $100,000 $103,764 $109,962 $ 6,545 $ 9,417 $13,603 $ 19,801
20 $ 27,688 $101,115 $101,115 $109,097 $123,892 $ 8,509 $13,614 $22,161 $ 36,956
25 $ 38,723 $102,229 $102,300 $117,723 $149,255 $ 9,610 $17,570 $32,993 $ 64,525
30 (Age 65) $ 52,149 $102,225 $104,036 $129,777 $192,532 $ 7,621 $19,036 $44,777 $107,532
35 $ 88,295 $102,455 $106,733 $128,447 $264,335 $21,343 $37,034 $58,748 $177,296
40 $132,272 $102,672 $111,007 $131,145 $389,313 $31,513 $55,834 $75,972 $287,592
45 $185,778 $102,863 $117,554 $139,749 $575,007 $36,124 $75,081 $97,276 $459,131
</TABLE>

(2) Assumes no Contract loan has been made.

(3) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $4,726.61. For a gross return of 4%, the second Scheduled
Premium will be $4,630.16; on a current basis, a lesser premium of $4,411.15
will guarantee that your contract will not lapse for one year. For a gross
return of 8%, the second Scheduled Premium will be $3,259.52; on a current
basis, a lesser premium of $894.06 will guarantee that your contract will
not lapse for one year. For a gross return of 12%, the second Scheduled
Premium will be $894.06. The premiums accumulated at 4% interest in column 2
are those payable if the gross investment return is 4%. For an explanation
of why the scheduled premium may increase on the premium change date, see
Premiums.

(4) Assumes after age 65 payment of the lesser premium amount, if applicable.

<PAGE>

<TABLE>
<CAPTION>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$100,000 GUARANTEED DEATH BENEFIT
$894.06 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING MAXIMUM CONTRACTUAL CHARGES

Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,000 $100,000 $ 267 $ 345 $ 426 $ 509
3 $ 2,903 $100,000 $100,000 $100,000 $100,000 $ 749 $ 901 $ 1,061 $ 1,231
4 $ 3,948 $100,000 $100,000 $100,000 $100,000 $1,213 $ 1,460 $ 1,728 $ 2,020
5 $ 5,036 $100,000 $100,000 $100,000 $100,000 $1,657 $ 2,021 $ 2,428 $ 2,883
6 $ 6,167 $100,000 $100,000 $100,000 $100,000 $2,284 $ 2,788 $ 3,367 $ 4,031
7 $ 7,344 $100,000 $100,000 $100,000 $100,000 $2,897 $ 3,562 $ 4,347 $ 5,274
8 $ 8,568 $100,000 $100,000 $100,000 $100,000 $3,485 $ 4,333 $ 5,363 $ 6,612
9 $ 9,840 $100,000 $100,000 $100,000 $100,000 $4,050 $ 5,101 $ 6,415 $ 8,055
10 $ 11,164 $100,000 $100,000 $100,000 $100,000 $4,588 $ 5,864 $ 7,505 $ 9,613
15 $ 18,618 $100,000 $100,000 $100,000 $100,000 $5,905 $ 8,602 $ 12,628 $ 18,639
20 $ 27,688 $100,000 $100,000 $100,000 $100,000 $6,170 $10,731 $ 18,738 $ 32,796
25 $ 38,723 $100,000 $100,000 $100,000 $106,241 $4,657 $11,395 $ 25,623 $ 55,426
30 (Age 65) $ 52,149 $100,000 $100,000 $100,000 $152,071 $ 75 $ 9,056 $ 32,836 $ 90,434
35 $ 90,072 $100,000 $100,000 $100,000 $212,544 $8,135 $21,296 $ 51,591 $141,903
40 $136,211 $100,000 $100,000 $105,063 $295,301 $8,471 $29,886 $ 77,422 $217,610
45 $192,347 $100,000 $100,000 $137,661 $407,903 $ 0 $30,208 $109,780 $325,291
</TABLE>

(1) If premiums are paid more frequently than annually, the payments would be
$456.85 semi-annually, $231.52 quarterly or $78.55 monthly. The death
benefits and cash surrender values would be slightly different for a
Contract with more frequent premium payments.

(2) Assumes no Contract loan has been made.

(3) For a hypothetical gross investment return of 0%, the premium after age 65
will be $4,726.61; for a gross return of 4% the premium after age 65 will be
$4,726.61; for a gross return of 8% the premium after age 65 will be
$2,977.27; for a gross return of 12% the premium after age 65 will be
$894.06. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the
scheduled premium may increase on the premium change date, see Premiums.

<PAGE>

Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 930 $100,000 $100,000 $100,019 $100,047 $ 0 $ 0 $ 0 $ 0
2 $ 1,897 $100,000 $100,000 $100,055 $100,138 $ 211 $ 290 $ 370 $ 453
3 $ 2,903 $100,000 $100,000 $100,107 $100,276 $ 693 $ 844 $ 1,004 $ 1,173
4 $ 3,948 $100,000 $100,000 $100,178 $100,468 $1,172 $ 1,418 $ 1,685 $ 1,975
5 $ 5,036 $100,000 $100,000 $100,270 $100,722 $1,646 $ 2,009 $ 2,414 $ 2,866
6 $ 6,167 $100,000 $100,000 $100,383 $101,042 $2,281 $ 2,783 $ 3,358 $ 4,017
7 $ 7,344 $100,000 $100,000 $100,519 $101,438 $2,894 $ 3,556 $ 4,335 $ 5,254
8 $ 8,568 $100,000 $100,000 $100,682 $101,919 $3,482 $ 4,326 $ 5,347 $ 6,584
9 $ 9,840 $100,000 $100,000 $100,871 $102,493 $4,047 $ 5,093 $ 6,394 $ 8,016
10 $ 11,164 $100,000 $100,000 $101,090 $103,171 $4,585 $ 5,856 $ 7,478 $ 9,559
15 $ 18,618 $100,000 $100,000 $102,697 $108,553 $5,902 $ 8,592 $ 12,536 $ 18,392
20 $ 27,688 $100,000 $100,000 $105,381 $118,768 $6,167 $10,720 $ 18,445 $ 31,832
25 $ 38,723 $100,000 $100,000 $109,466 $136,734 $4,654 $11,381 $ 24,736 $ 52,004
30 (Age 65) $ 52,149 $100,000 $100,000 $115,248 $166,857 $ 73 $ 9,039 $ 30,248 $ 81,857
35 $ 90,072 $100,000 $100,000 $119,939 $197,109 $8,132 $21,274 $ 50,240 $127,410
40 $136,211 $100,000 $100,000 $128,713 $267,674 $8,468 $29,854 $ 73,540 $197,252
45 $192,347 $100,000 $100,000 $143,033 $372,271 $ 0 $30,156 $100,560 $296,875
</TABLE>

(2) Assumes no Contract loan has been made.

(3) For a hypothetical gross investment return of 0%, the premium after age 65
will be $4,726.61; for a gross return of 4% the premium after age 65 will be
$4,726.61; for a gross return of 8% the premium after age 65 will be
$3,914.71; for a gross return of 12% the premium after age 65 will be
$1,166.65. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the
scheduled premium may increase on the premium change date, see Premiums.

<PAGE>
INFORMATION ABOUT THE ACCOUNT,
THE REAL PROPERTY ACCOUNT AND THE
FIXED RATE OPTION

The Prudential Variable Appreciable Account. The Account was established on
August 11, 1987 under New Jersey law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of The
Prudential's other assets.

The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of The Prudential. The Prudential is also the
legal owner of the assets in the Account. But The Prudential will at all times
maintain assets in the Account with a total market value at least equal to the
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
The Prudential conducts. Accordingly, Contract owners, under New Jersey law,
have a prior claim to these assets. In addition to these assets, the Account's
assets may include funds contributed by The Prudential to commence operation of
the Account and may include accumulations of the charges The Prudential makes
against the Account. From time to time these additional assets will be withdrawn
by The Prudential but before making any such withdrawal, The Prudential will
consider any possible adverse impact the withdrawal might have on the Account.

The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of The Prudential. There are currently sixteen subaccounts within the
Account that are available investments under the Contract. Additional
subaccounts may be added in the future. The Account's financial statements begin
on page A1.

The Prudential Variable Contract Real Property Account. The Prudential Variable
Contract Real Property Account (the "Real Property Account") is a separate
account of The Prudential that, through a general partnership formed by The
Prudential and two of its subsidiaries, invests primarily in income-producing
real property such as office buildings, shopping centers, agricultural land,
hotels, apartments or industrial properties. It also invests in mortgage loans
and other real estate-related investments, including sale-leaseback
transactions. It is not registered as an investment company under the Investment
Company Act of 1940 and is therefore not subject to the same regulation as the
Series Fund. The objectives of the Real Property Account and the Partnership are
to preserve and protect capital, provide for compounding of income as a result
of reinvestment of cash flow from investments, and provide for increases over
time in the amount of such income through appreciation in the value of assets.

The Partnership has entered into an investment management agreement with The
Prudential, under which The Prudential selects the properties and other
investments held by the Partnership. The Prudential charges the Partnership a
daily fee for investment management which amounts to 1.25% per year of the
average daily gross assets of the Partnership.

A full description of the Real Property Account, its management, policies, and
restrictions, its charges and expenses, the risks associated with investment
therein, the Partnership's investment objectives, and all other aspects of the
Real Property Account's and the Partnership's operations is contained in the
attached prospectus for the Real Property Account, which should be read together
with this prospectus by any Contract owner considering the real estate
investment option. There is no assurance that the investment objectives will be
met.

The Fixed-Rate Option. Because of exemptive and exclusionary provisions,
interests in the fixed-rate option under the Contract have not been registered
under the Securities Act of 1933 and The Prudential has not been registered as
an investment company under the Investment Company Act of 1940. Accordingly,
interests in the fixed-rate option are not subject to the provisions of these
Acts, and The Prudential has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosure in this Prospectus relating
to the fixed-rate option. Any inaccurate or misleading disclosure regarding the
fixed-rate option may, however, subject The Prudential and its directors to
civil liability if that results in any damage.

As explained earlier, you may elect to allocate, either initially or by
transfer, all or part of the amount credited under the Contract to the
fixed-rate option, and the amount so allocated or transferred becomes part of
The Prudential's general assets. Sometimes this is referred to as The
Prudential's general account, which consists of all assets owned by The
Prudential other than those in the Account and in other separate accounts that
have been or may be established by The Prudential. Subject to applicable law,
The Prudential has sole discretion over the investment of the assets of the
general account, and Contract owners do not share in the investment experience
of those assets. Instead, The Prudential guarantees that the part of the
Contract Fund allocated to the fixed-rate option will accrue interest daily at
an effective annual rate that The Prudential declares periodically. This rate
may not be less than an effective annual rate of 4%. Currently, declared
interest rates remain in effect from the date money is allocated to the
fixed-rate option until the Monthly date in the same month in the following
year. See

15
<PAGE>

Contract Date, page 20. Thereafter, a new crediting rate will be declared each
year and will remain in effect for the calendar year. The Prudential reserves
the right to change this practice. The Prudential is not obligated to credit
interest at a higher rate than 4%, although in its sole discretion it may do so.
Different crediting rates may be declared for different portions of the Contract
Fund allocated to the fixed-rate option. At least annually and on request, a
Contract owner will be advised of the interest rates that currently apply to his
or her Contract.

Transfers from the fixed-rate option are subject to strict limits. (See
Transfers, page 21). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to 6 months (see When Proceeds Are Paid,
page 25).

DETAILED INFORMATION ABOUT THE CONTRACT

Requirements for Issuance of a Contract. Generally, the minimum initial
guaranteed death benefit that can be applied for is $60,000; however, higher
minimums apply to insureds over the age of 75. Insureds 14 years of age or less
may apply for a minimum initial guaranteed death benefit of $40,000, which will
increase by 50% at age 21. The Contract may generally be issued on insureds
below the age of 81. Before issuing any Contract, The Prudential requires
evidence of insurability, which may include a medical examination. Non-Smokers
who meet preferred underwriting requirements are offered the most favorable
premium rate. A higher premium is charged if an extra mortality risk is
involved. Certain classes of Contracts, for example a Contract issued in
connection with a tax-qualified pension plan, may be issued on a "guaranteed
issue" basis and may have a lower minimum initial death benefit than a Contract
which is individually underwritten. These are the current underwriting
requirements. The Prudential reserves the right to change them on a
non-discriminatory basis.

Contract Forms. A purchaser may select either of two forms of the Contract. The
Scheduled Premiums shown in the Contract will be the same for a given insured,
regardless of which Contract Form is chosen. Contract Form A has a death benefit
equal to the initial face amount of insurance. The death benefit of a Form A
Contract does not vary with the investment performance of the investment options
selected by the owner, unless the death benefit is increased to ensure that the
Contract meets the Internal Revenue Code's definition of life insurance. See How
a Contract's Death Benefit Will Vary, page 22. Favorable investment results of
the investment options to which the assets related to the Contract are allocated
and payment of greater than Scheduled Premiums will generally result in
increases in the cash surrender value. See How the Contract Fund Changes With
Investment Experience, page 22.

Contract Form B also has an initial face amount of insurance but favorable
investment performance and payment of greater than Scheduled Premiums generally
result in an increase in the death benefit and, over time, in a lesser increase
in the cash surrender value than under the Form A Contract. See How the Contract
Fund Changes With Investment Experience, page 22 and How a Contract's Death
Benefit Will Vary, page 22. Unfavorable investment performance will result in
decreases in the death benefit (but never below the face amount stated in the
Contract) and in the cash surrender value.

Purchasers should select the form that best meets their needs and objectives.
All permanent insurance provides both protection for beneficiaries in the event
of death and the opportunity to accumulate savings for possible use in later
years. The Prudential's Variable Appreciable Life Contract provides more
flexible investment opportunities than do more conventional life insurance
policies because it permits the owner to decide how the assets held under the
Contract will be invested, because it permits considerable flexibility in
determining the amount and timing of premium payments, because it permits
adjustment of the face amount of insurance (subject, in the case of an increase,
to evidence of insurability), and because favorable investment returns result in
an increase in Contract values. Purchasers who prefer to have favorable
investment results and greater than Scheduled Premiums reflected in part in the
form of an increased death benefit should choose Contract Form B. Purchasers who
are satisfied with the amount of their insurance coverage and wish to have
favorable investment results and additional premiums reflected to the maximum
extent in increasing cash surrender values should choose Contract Form A.

In choosing a Contract form, purchasers should also consider whether they intend
to use the withdrawal feature. Purchasers of Form A Contracts should note that
an early withdrawal may result in a portion of the surrender charge being
deducted from the Contract Fund. Furthermore, a purchaser of a minimum face
amount Form A Contract cannot make withdrawals unless the Contract's death
benefit has been increased to comply with the Internal Revenue Code's definition
of life insurance. Purchasers of Form B Contracts will not incur a surrender
charge for a withdrawal and are not precluded from making withdrawals if they
purchase a minimum size Contract. See Withdrawal of Excess Cash Surrender Value
in the Statement of Additional Information. Withdrawal of part of the cash
surrender value may have tax consequences, see Tax Treatment of Contract
Benefits, page 27.

Short-Term Cancellation Right or "Free Look". Generally, you may return the
Contract for a refund within 10 days after you receive it, within 45 days after
Part I of the application for insurance is signed, or within 10 days after

16
<PAGE>

The Prudential mails or delivers a Notice of Withdrawal Right, whichever is
latest. Some states allow a longer period of time during which a Contract may be
returned for a refund. A refund can be requested by mailing or delivering the
Contract to the representative who sold it or to The Prudential Home Office
specified in the Contract. A Contract returned according to this provision shall
be deemed void from the beginning. You will then receive a refund of all premium
payments made, plus or minus any change due to investment experience in the
value of the invested portion of the premiums, calculated as if no charges had
been made against the Account or the Series Fund. However, if applicable law so
requires, if you exercise your short-term cancellation right, you will receive a
refund of all premium payments made, with no adjustment for investment
experience.

Contract Fees and Charges. This section provides a detailed description of each
charge that is described briefly in the chart on page 2, and an explanation of
the purpose of the charge.

In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, will be the highest charge that
The Prudential is entitled to make under the Contract. The "current charge" is
the lower amount that The Prudential is now charging and which it intends to
charge for the indefinite future. However, if circumstances change, The
Prudential reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.

A Contract owner may add several "riders" to the Contract which provide
additional benefits, which are charged for separately. The statement and
description of charges that follows assumes there are no riders to the Contract.

Deductions from Premiums

(a) A charge for taxes attributable to premiums is deducted from each premium
payment. That charge is currently made up of two parts. The first part is in an
amount equal to the state or local premium tax. It varies from state to state
and generally ranges from 0.5% to 5% of the premium received by The Prudential.
The second part is for federal income taxes measured by premiums and it is equal
to 1.25% of the premium. The Prudential believes that this charge is a
reasonable estimate of an increase in its federal income taxes resulting from a
1990 change in the Internal Revenue Code. It is intended to recover this
increased tax. During 1994 and 1993, The Prudential deducted a total of
approximately $22,131,000 and $23,248,000, respectively, in taxes attributable
to premiums.

(b) A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually, this
charge will be $2 per year. If you pay premiums monthly, the charge will be $24
per year. During 1994 and 1993, The Prudential received a total of approximately
$28,372,000 and $23,826,000, respectively, in processing charges.

Deductions from Portfolios

(a) An investment advisory fee is deducted daily from each portfolio at a rate,
on an annualized basis, from 0.35% for the Stock Index Portfolio to 0.75% for
the Global Equity Portfolio.

(b) The expenses incurred in conducting the investment operations of the
portfolios (such as investment advisory fees, custodian fees and preparation and
distribution of annual reports) are paid out of the portfolio's income. These
expenses also vary from portfolio to portfolio. The total expenses of each
portfolio for the year 1994 expressed as a percentage of the average assets
during the year are shown below:

Investment Other Total
Portfolio Advisory Fee Expenses * Expenses *
- --------- ------------ ---------- ----------
Money Market ...................... 0.40% 0.07% 0.47%
Bond .............................. 0.40% 0.05% 0.45%
High Yield Bond ................... 0.55% 0.10% 0.65%
Government Securities ............. 0.40% 0.05% 0.45%
Common Stock ...................... 0.45% 0.10% 0.55%
Stock Index ....................... 0.35% 0.07% 0.42%
High Dividend Stock ............... 0.40% 0.10% 0.50%
Natural Resources ................. 0.45% 0.10% 0.55%
Global Equity ..................... 0.75% 0.48% 1.23%
Conservatively Managed Flexible.... 0.55% 0.06% 0.61%
Aggressively Managed Flexible ..... 0.60% 0.06% 0.66%
Zero Coupon Bond 1995 ............. 0.40% 0.00% 0.40%
Zero Coupon Bond 2000 ............. 0.40% 0.00% 0.40%
Zero Coupon Bond 2005 ............. 0.40% 0.00% 0.40%

* For some of the portfolios, the actual expenses were higher than those
shown in the second and third columns. The Prudential currently makes
payments to the following seven subaccounts so that the portfolio expenses
indirectly borne by a Contract owner investing in: (1) the Zero Coupon Bond
Portfolios will not exceed the investment management fee; and (2) the High
Yield Bond, Stock Index,

<PAGE>

High Dividend Stock, and Natural Resources Portfolios will not exceed the
investment advisory fee plus 0.1% of the average daily net assets of the
Portfolio. Without such adjustments the portfolio expenses indirectly borne
by a Contract owner, expressed as a percentage of the average daily net
assets by portfolio, would have been 0.60% for the Zero Coupon Bond
Portfolio 2005, 0.60% for the Zero Coupon Bond Portfolio 1995, 0.51% for
the Zero Coupon Bond Portfolio 2000, 0.61% for the Natural Resources
Portfolio and 0.52% for the High Dividend Stock Portfolio. No such
adjustments were necessary for the High Yield Bond or Stock Index
Portfolios during 1994. The Prudential intends to continue making these
adjustments in the future, although it retains the right to stop doing so.
For the years 1994, 1993 and 1992, The Prudential received a total of
$66,413,260, $51,197,499, and $35,661,075, respectively in investment
advisory fees.

The advisory fee for the Small Capitalization Stock Portfolio is 0.40% and for
the Growth Stock Portfolio is 0.60%. These portfolios were not available for
investment in 1994.

Monthly Deductions from Contract Fund

The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].

(a) An administrative charge of $3 plus $0.03 per $1,000 per month of face
amount of insurance is deducted each month. Thus, for a Contract with $60,000
face amount, the charge is $3 plus $1.80 for a total of $4.80. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. The current charge for Contracts with face amounts greater than
$100,000 is lower. The $0.03 per $1,000 portion of the charge is reduced to
$0.01 per $1,000 for that part of the face amount that exceeds $100,000 and will
not exceed $12. If premiums are paid by automatic transfer under The
Prudential's Pru-Matic Plan, as described on page 20, the $0.03 per $1,000
charge is reduced to $0.01 for all Contract face amounts and will not exceed $1.
During 1994 and 1993, The Prudential received a total of approximately
$56,055,000, and $49,562,000, respectively, in monthly administrative charges.

(b) A mortality charge is deducted that is intended to be used to pay death
benefits. When an insured dies, the amount payable to the beneficiary is larger
than the Contract Fund and significantly larger if the insured dies in the early
years of a Contract. The mortality charges collected from all Contract owners
enables The Prudential to pay the death benefit for the few insureds who die.
The maximum mortality charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit exceeds
the Contract Fund) by a rate based upon the insured's current attained age and
sex (except where unisex rates apply) and the anticipated mortality for that
class of persons. The anticipated mortality is based upon mortality tables
published by The National Association of Insurance Commissioners called the
Non-Smoker/Smoker 1980 CSO Tables. The Prudential's current mortality charge is
lower than the maximum for insureds of 50 years of age and older. In addition,
for insureds of all ages, if a Contract has a face amount of at least $100,000
and the insured under the Contract has met strict underwriting requirements and
qualifies for a "select rating" basis for the particular risk classification,
the current mortality charges may be lower still.

Certain Contracts, for example Contracts issued in connection with tax-qualified
pension plans, may be issued on a "guaranteed issue" basis and may have current
mortality charges which are different from those mortality charges for Contracts
which are individually underwritten. These Contracts with different current
mortality charges may be offered to categories of individuals meeting
eligibility guidelines determined by The Prudential.

(c) A sales charge, often called a sales load, is deducted to pay part of the
costs The Prudential incurs in selling the Contracts, including commissions,
advertising and the printing and distribution of prospectuses and sales
literature. The charge is equal to 0.5% of the "primary annual premium" which is
equal to the Scheduled Premium that would be payable if premiums were being paid
annually, less the two deductions from premiums (taxes attributable to premiums
and the $2 processing charge), and less the $3 part of the monthly deduction
described in (a) above. The deduction is made whether the Contract owner is
paying premiums annually or more frequently. It is lower on Contracts issued on
insureds over 60 years of age. At present this sales charge is made only during
the first five Contract years. For Contracts with face amounts of at least $7.5
million, this sales charge is made only during the first two Contract years.
However, The Prudential reserves the right to make this charge in all Contract
years. To summarize, for most Contracts, this charge is somewhat less than 6% of
the annual Scheduled Premium for each of the first five Contract years and it
may but probably will not continue to be charged after that.

There is a second sales load, which will be charged only if a Contract lapses or
is surrendered before the end of the 10th Contract year. It is often described
as a contingent deferred sales load ("CDSL") and is described below under
Surrender or Withdrawal Charges. During 1994 and 1993, The Prudential received a
total of approximately $96,357,000 and $74,858,000, in sales charges.

(d) A charge of $0.01 per $1000 of face amount of insurance is made to
compensate The Prudential for the risk it assumes by guaranteeing that, no
matter how unfavorable investment experience may be, the death benefit will
never be less than the guaranteed minimum death benefit so long as Scheduled
Premiums are paid on or before

<PAGE>

the due date or during the grace period. During 1994 and 1993, The Prudential
received a total of approximately $9,487,000 and $7,817,000, respectively, for
this risk charge.

(e) If a rider is added to the basic Contract, or if an insured is in a
substandard risk classification (for example, a person in a hazardous
occupation), the annual Scheduled Premium will be increased and the additional
charges will be deducted monthly.

(f) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. At present no such taxes are imposed and no charge is
made.

Daily Deduction from the Contract Fund

Each day a charge is deducted from the assets of each of the subaccounts and/or
the Real Property Account (the "variable investment options") in an amount
equivalent to an effective annual rate of 0.9%. For Contracts with face amounts
of $100,000 or more, the current charge is 0.6%. This charge is intended to
compensate The Prudential for assuming mortality and expense risks under the
Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than The Prudential estimated when it determined what mortality
charge to make. The expense risk assumed is that expenses incurred in issuing
and administering the Contract will be greater than The Prudential estimated in
fixing its administrative charges. The Prudential will realize a profit from
this risk charge to the extent it is not needed to provide benefits and pay
expenses under the Contracts. During 1994 and 1993, The Prudential received a
total of approximately $16,959,000 and $12,154,000, respectively, in mortality
and expense risk charges. This charge is not assessed against amounts allocated
to the fixed-rate option.

Surrender or Withdrawal Charges

(a) An additional sales load (the CDSL) is charged if a Contract is surrendered
for its cash surrender value or lapses during the first 10 Contract years. It is
not deducted from the death benefit if the insured should die during this
period. This contingent deferred charge is generally at its highest in dollar
amount during the Contract's fourth and fifth years and then is reduced daily at
a constant rate until it reaches zero at the end of the 10th year. The exact
amount is determined by a complex formula that is described in the Statement of
Additional Information. The amount of this charge can be more easily understood
by reference to the following table which shows the sales loads that would be
paid by a 35 year old man under a Form B Contract with $100,000 face amount of
insurance, both through the monthly deductions from the Contract Fund described
above and upon the surrender of the Contract.
<TABLE>
<CAPTION>

Cumulative Cumulative
Cumulative Sales Load Total Sales Load
Surrender, Scheduled Deducted from Contingent as Percentage
Last Day of Premiums Contract Deferred Total Sales of Scheduled
Year No. Paid Fund Sales Load Load Premiums Paid
- ----------- --------- ------------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
1 $ 894.06 $ 49.56 $218.66 $268.22 30.00%
2 1,788.12 99.12 367.64 466.76 26.10%
3 2,682.18 148.68 398.55 547.23 20.40%
4 3,576.24 198.24 414.00 612.24 17.12%
5 4,470.30 247.80 414.00 661.80 14.80%
6 5,364.36 247.80 331.00 578.80 10.79%
7 6,258.42 247.80 248.00 495.80 7.92%
8 7,152.48 247.80 166.00 413.80 5.79%
9 8,046.54 247.80 83.00 330.80 4.11%
10 8,940.60 247.80 0.00 247.80 2.77%

</TABLE>

The percentages shown in the last column will not be appreciably different for
insureds of different ages.

(b) An administrative charge of $5 per $1,000 of face amount of insurance is
deducted upon lapse or surrender to cover the cost of processing applications,
conducting medical examinations, determining insurability and the insured's
rating class, and establishing records. However, this charge is reduced
beginning on the Contract's fifth anniversary and declines daily at a constant
rate until it disappears entirely on the tenth Contract anniversary. During 1994
and 1993, The Prudential received a total of approximately $7,971,000 and
$5,612,000, respectively, from surrendered or lapsed Contracts. The Prudential
does not expect to make a profit on this charge.

19
<PAGE>

Transaction Charges

There may be transaction charges if certain events take place. Examples are: the
face amount of insurance is decreased or part of the cash surrender value is
withdrawn. The Prudential is entitled under the Contract to charge a fee in
these situations, which will generally be $15 or less. Currently, it waives the
fee in some instances. These fees are described at the appropriate place in this
prospectus or in the Statement of Additional Information.

Contract Date. When the first premium payment is paid with the application for a
Contract, the Contract Date will ordinarily be the later of the date of the
application or the date of any medical examination. In most cases no medical
examination will be necessary. If the first premium is not paid with the
application, the Contract Date will ordinarily be the date the first premium is
paid and the Contract is delivered. It may be advantageous for a Contract owner
to have an earlier Contract Date when that will result in the use by The
Prudential of a lower issue age in determining the amount of the Scheduled
Premium. The Prudential will permit a Contract to be back-dated but only to a
date not earlier than 6 months prior to the date of the application. The
Prudential will require the payment of all premiums that would have been due had
the application date coincided with the back-dated Contract Date. No Contract
may be back-dated to a date prior to that which is in accordance with The
Prudential's regulations. The death benefit and cash surrender value under the
Contract will be equal to what they would have been had the Contract been issued
on the Contract Date, all Scheduled Premiums been received on their due dates,
and all Contract charges been made. The term Monthly Date means the day of each
month that is the same as the Contract Date.

Premiums. As already explained, the Contract provides for a Scheduled Premium
which, if paid when due or within a 61 day grace period, ensures that the
Contract will not lapse. If you pay premiums other than on a monthly basis, you
will receive a notice that a premium is due about 3 weeks before each due date.
If you pay premiums monthly, you will receive each year a book with 12 coupons
that will serve as a reminder. With The Prudential's consent, you may change the
frequency of premium payments.

You may elect to have monthly premiums paid automatically under the "Pru-Matic
Premium Plan" by pre-authorized transfers from a bank checking account. If you
select the Pru-Matic Premium Plan, one of the current monthly charges will be
reduced. See Monthly Deductions From Contract Fund, page 18. Some Contract
owners may also be eligible to have monthly premiums paid by pre-authorized
deductions from an employer's payroll.

As stated above, your Contract sets forth two Scheduled Premium amounts. Your
first or initial amount is payable from the time you purchase your Contract
until the Contract anniversary immediately following your 65th birthday or the
Contract's 7th anniversary, whichever is later (the "Premium Change Date"). If
your Contract Fund on the Premium Change Date is higher than it would have been
had all Scheduled Premiums been paid when due, maximum contractual charges been
deducted, and only an average net rate of return of 4% been earned, then the
second Scheduled Premium Amount will be lower than the maximum amount stated in
your Contract. You will be told what the amount of your second Scheduled Premium
will be. You will also be told what lesser amount, if any, The Prudential will
accept that will guarantee against lapse for one year. For examples of what the
second Scheduled Premium might be, see Footnote 3 to the tables on pages T1
through T4.

A significant feature of this Contract is that it permits you to pay greater
than Scheduled Premiums. This may be done by making occasional unscheduled
premium payments or on a periodic basis. If you wish, you may select a higher
contemplated premium than the Scheduled Premium. The Prudential will then bill
you for the chosen premium. In general, the regular payment of higher premiums
will result in higher cash surrender values and, at least under Form B, in
higher death benefits. Conversely, payment of a Scheduled Premium need not be
made if the Contract Fund is sufficiently large to enable the charges due under
the Contract to be made without causing the Contract to lapse. See Lapse and
Reinstatement, page 24. The payment of premiums substantially in excess of
Scheduled Premiums may cause the Contract to become a Modified Endowment
Contract. If this happens, loans and other distributions which would otherwise
not be taxable events will be subject to federal income taxation. See Tax
Treatment of Contract Benefits, page 27.

If you elect to add a "rider" to your Contract that provides additional
benefits, see Riders, page 27, the Scheduled Premium may be increased. Some
riders provide additional term insurance in a stated amount that does not vary
with investment experience. One of these "term riders" also allows you to choose
different insurance amounts in different years. For these riders, you may choose
to pay a billed premium higher than your initial Scheduled Premium. Under some
circumstances this could result in a higher cash surrender value and death
benefit than if the same premium had been paid under a Contract with the same
death benefit but without the rider. After several years, however, even if the
billed premiums are paid on time, the Contract could lose its guarantee against
lapse and, after many more years, could have lower cash surrender values.

In states where the necessary approvals have been obtained, you may choose a
level premium option. In that case, the Scheduled Premium, the amount (which can
be obtained from your Prudential representative), will be higher and the
Scheduled Premium will not increase at age 65 (or 7 years after issue, if
later), even if investment

20
<PAGE>

experience has been unfavorable. If that level Scheduled Premium is paid when
due, or within the grace period, the Contract will not lapse.

The Prudential will generally accept any premium payment if the payment is at
least $25. The Prudential does reserve the right, however, to limit unscheduled
premiums to a total of $10,000 in any Contract year, and to refuse to accept
premiums that would immediately result in more than a dollar-for-dollar increase
in the death benefit. See How a Contract's Death Benefit Will Vary, page 22. The
flexibility of premium payments provides Contract owners with different
opportunities under the two Forms of the Contract. Greater than scheduled
payments under a Form A Contract increase the Contract Fund. Greater than
scheduled payments under a Form B Contract increase both the Contract Fund and
the death benefit, but any future increases in the Contract Fund will be less
than under a Form A Contract. This is because the monthly mortality charges
under the Form B Contract will be higher to compensate for the higher amount of
insurance. For all Contracts, the privilege of making large or additional
premium payments offers a way of investing amounts which accumulate without
current income taxation.

Unless you elect otherwise, your Contract will include a "waiver of premium"
provision under which The Prudential will pay your Scheduled Premiums if you
incur a disability before age 60 that lasts over six months. If the disability
begins after you become 60 and before you are 65, premiums will be paid only
until the first Contract anniversary following your 65th birthday. The waiver of
premium provision does not apply if you become disabled after your 65th
birthday.

Allocation of Premiums. On the Contract Date, the $2 processing charge and the
charge for taxes attributable to premiums are deducted from the initial premium,
and the first monthly deductions are made. See Contract Fees and Charges, page
17. The remainder of the initial premium will be allocated on the Contract Date
among the subaccounts, the fixed-rate option or the Real Property Account
according to the desired allocation specified in the application form. The
invested portion of any part of the initial premium in excess of the Scheduled
Premium is placed in the selected investment options on the date of receipt, but
not earlier than the Contract Date. Thus, to the extent that The Prudential
receives the initial premium prior to the Contract Date, there will be a period
during which it will not be invested. All subsequent premium payments, after the
deductions from premiums, when received by The Prudential will be placed in the
subaccounts, the fixed-rate option or the Real Property Account in accordance
with the allocation previously designated. Provided the Contract is not in
default, you may change the way in which subsequent premiums are allocated by
giving written notice to the Prudential Home Office stated in the Contract. You
may also change the way in which subsequent premiums are allocated by
telephoning your Prudential Home Office, provided you are enrolled to use the
Telephone Transfer System. There is no charge for reallocating future premiums.
If any part of the invested portion of a premium is allocated to a particular
investment option, that portion must be at least 10% on the date the allocation
takes effect. All percentage allocations must be in whole numbers. For example,
33% can be selected but 33 1/3% cannot. Of course, the total allocation of all
selected investment options must equal 100%.

Additionally, a feature called Dollar Cost Averaging is available to Contract
owners. If you wish, designated dollar amounts will be transferred monthly from
the Money Market Subaccount into other investment options available under the
Contract, excluding the fixed-rate option, but including the Real Property
Account. At issue, the minimum amount initially designated for transfer under
this feature must be the greater of $2,000 and 10% of the initial premium
payment. After issue, The Prudential will accept an amount less than $2,000
provided it brings the balance in any current Dollar Cost Averaging account up
to $2,000. Monthly transfers must be at least 3% of the amount allocated to the
Dollar Cost Averaging account (that is, if you designate $5,000, the minimum
monthly transfer is $150), with a minimum of $20 transferred into any one
investment option. These amounts are subject to change at The Prudential's
discretion. The minimum transfer amount will only be recalculated if the amount
designated for transfer is increased.

Each automatic monthly transfer will take effect as of the end of the valuation
period on the Monthly Date, provided the New York Stock Exchange is open on that
date. A valuation period is the period of time from one determination of the
value of the amount invested in a subaccount to the next. Such determinations
are made when the net asset values of the portfolios of the Series Fund are
calculated, which is generally 4:15 p.m. New York City time on each day during
which the New York Stock Exchange is open. If the New York Stock Exchange is not
open on that date, or if the Monthly Date does not occur in that particular
month, the transfer will take effect as of the end of the last valuation period
which immediately follows that Monthly Date. Automatic monthly transfers will
continue until the amount designated for Dollar Cost Averaging has been
transferred, or until the Contract owner gives notification of a change in
allocation or cancellation of the feature. Currently there is no charge for
using the Dollar Cost Averaging feature.

Transfers. If the Contract is not in default, or if the Contract is in force as
variable reduced paid-up insurance (see Lapse and Reinstatement, page 24), you
may, up to four times in each Contract year, transfer amounts from one
subaccount to another subaccount, to the fixed-rate option or to the Real
Property Account. There is no charge. All or a portion of the amount credited to
a subaccount may be transferred.

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In addition, the total amount credited to a Contract held in the subaccounts or
the Real Property Account may be transferred to the fixed-rate option at any
time during the first two Contract years. If you wish to convert your variable
Contract to a fixed-benefit Contract in this manner, you must request a complete
transfer of funds to the fixed-rate option and also change your allocation
instructions regarding future premiums.

Transfers among subaccounts will take effect as of the end of the valuation
period (usually the business day) in which a proper transfer request is received
at your Prudential Home Office. The request may be in terms of dollars, such as
a request to transfer $10,000 from one subaccount to another, or may be in terms
of a percentage reallocation among subaccounts. In the latter case, as with
premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to your Prudential Home Office, or by
telephone, unless you ask that transfers by telephone not be made. The
Prudential has adopted procedures designed to ensure that requests by telephone
are genuine and will require appropriate identification for that purpose. The
Prudential cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.

On the liquidation date of a Zero Coupon Bond Subaccount, all the shares held by
it in the corresponding portfolio of the Series Fund will be redeemed and the
proceeds of the redemption applicable to each Contract will be transferred to
the Money Market Subaccount unless the owner directs that it be transferred to
another subaccount. Affected owners will be notified in writing prior to the
liquidation date and given the opportunity to transfer their proceeds to another
subaccount. A transfer that occurs upon the liquidation date of a Zero Coupon
Bond Subaccount will not be counted as one of the four permissible transfers in
a Contract year.

Transfers from the fixed-rate option to the subaccounts or the Real Property
Account are currently permitted once each Contract year and only during the
30-day period beginning on the Contract anniversary. The maximum amount which
may be transferred out of the fixed-rate option each year is currently the
greater of: (a) 25% of the amount in the fixed-rate option, or (b) $2,000. Such
transfer requests received prior to the Contract anniversary will be effected on
the Contract anniversary. Transfer requests received within the 30-day period
beginning on the Contract anniversary will be effected as of the end of the
valuation period in which a proper transfer request is received at your
Prudential Home Office. These limits are subject to change in the future.
Transfers from the Real Property Account are also subject to restrictions, and
these restrictions are described in the attached prospectus for that investment
option.

How the Contract Fund Changes with Investment Experience. As explained above,
after the tenth Contract year, there will no longer be a surrender charge and,
if there is no Contract loan, the cash surrender value will be equal to the
Contract Fund, plus any termination dividend. This section, therefore, also
describes how the cash surrender value of the Contract will change with
investment experience.

On the Contract Date, the Contract Fund value is the initial premium less the
deductions from premiums and the first monthly deductions. See Contract Fees and
Charges, page 17. This amount is placed in the investment options designated by
the owner. Thereafter the Contract Fund value changes daily, reflecting
increases or decreases in the value of the securities in which the assets of the
subaccount have been invested, the performance of the Real Property Account if
that option has been selected, and interest credited on any amounts allocated to
the fixed-rate option. It is also reduced by the daily asset charge for
mortality and expense risks assessed against the variable investment options.
The Contract Fund value also increases to reflect the receipt of additional
premium payments and is decreased by the monthly deductions.

A Contract's cash surrender value on any date will be the Contract Fund value
plus any termination dividend, reduced by the withdrawal charges, if any, and by
any Contract debt. Upon request, The Prudential will tell a Contract owner the
cash surrender value of his or her Contract. It is possible, although highly
unlikely, that the cash surrender value of a Contract could decline to zero
because of unfavorable investment performance, even if a Contract owner
continues to pay Scheduled Premiums when due.

The tables on pages T1 through T4 of this prospectus illustrate what the death
benefit and cash surrender values would be for a representative Contract,
assuming uniform hypothetical investment results in the selected portfolio[s],
and also provide information about the aggregate premiums payable under the
Contract. The tables also show, if the level premium option has not been chosen,
the maximum Scheduled Premium that may be payable for the period after the
insured reaches the age of 65 for the illustrated Contract under each of the
assumed investment returns.

How a Contract's Death Benefit Will Vary. The death benefit under a Form A
Contract will generally be equal to the face amount of insurance chosen by the
purchaser when the Contract was bought. Generally the investment experience
affects only the value of the Contract Fund. This means that as the Contract
Fund value grows, the deduction for the cost of mortality may decrease because
the "amount at risk" becomes smaller. The death benefit cannot ever fall below
the face amount of insurance. It could happen, however, that it will become
higher. If the Contract is kept in force for several years and if investment
performance is relatively favorable, the Contract Fund value may grow to the
point where, to meet certain provisions of the Internal Revenue Code which
require that

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<PAGE>

the death benefit always be greater than the Contract Fund value, the death
benefit must be increased. The required difference between the death benefit and
Contract Fund value is higher at younger ages than at older ages. A precise
description is in the Statement of Additional Information.

If the Contract Fund value reaches this level, each premium payment increases
the death benefit by an amount greater than the premium. Accordingly, The
Prudential, when that occurs, reserves the right to refuse further premium
payments, although in practice it will accept a payment equal to two years'
Scheduled Premiums.

Under a Form B Contract, the death benefit will change from the outset with
investment experience. Here again the precise way in which that will occur is
complicated and is described in the Statement of Additional Information. In
general, if the net investment performance is 4% per year or higher, the death
benefit will increase; if it is below 4%, it will decrease. The Prudential
guarantees, however, that it will not decrease below the face amount of
insurance. If unfavorable experience of that kind should occur, it must be
offset by favorable experience before the death benefit begins to increase
again.

The death benefit could also increase to satisfy Internal Revenue Code
requirements, for the same reasons described above respecting Form A Contracts.

Contract Loans. The owner may borrow from The Prudential up to the "loan value"
of the Contract, using the Contract as the only security for the loan. The loan
value is equal to (1) 90% of an amount equal to the portion of the Contract Fund
value attributable to the variable investment options and to any prior loan[s]
supported by the variable investment options, minus the portion of any charges
attributable to variable investment options that would be payable upon an
immediate surrender; plus (2) 100% of an amount equal to the portion of the
Contract Fund value attributable to the fixed-rate option and to any prior
loan[s] supported by the fixed-rate option, minus the portion of any charges
attributable to the fixed-rate option that would be payable upon an immediate
surrender. The minimum amount that may be borrowed at any one time is $200
unless the proceeds are used to pay premiums on the Contract.

If you request a loan you may choose one of two interest rates. You may elect to
have interest charges accrued daily at a fixed effective annual rate of 5.5%.
Alternatively, you may elect a variable interest rate that changes from time to
time. You may switch from the fixed to variable interest loan provision, or
vice-versa, with The Prudential's consent.

If you elect the variable loan interest rate provision, interest charged on any
loan will accrue daily at an annual rate The Prudential determines at the start
of each Contract year (instead of at the fixed 5.5% rate). This interest rate
will not exceed the greatest of (1) the "Published Monthly Average" for the
calendar month ending two months before the calendar month of the Contract
anniversary; (2) 5%; or (3) the rate permitted by law in the state of issue of
the Contract. The "Published Monthly Average" means Moody's Corporate Bond Yield
Average -- Monthly Average Corporates, as published by Moody's Investors
Service, Inc. or any successor to that service, or if that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued. For example, the Published Monthly
Average in 1994 ranged from 7.25% to 8.94%.

Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds what
the cash surrender value would be if there were no Contract debt, The Prudential
will notify the Contract owner of its intent to terminate the Contract in 61
days, within which time the owner may repay all or enough of the loan to reduce
it to below the cash surrender value and thus keep the Contract in force.

When a loan is made, an amount equal to the loan proceeds will be transferred
out of the Account, the fixed-rate option and/or the Real Property Account, as
applicable. The reduction will normally be made in the same proportions as the
value in each subaccount, the fixed-rate option, and the Real Property Account
bears to the total value of the Contract Fund. While a fixed-rate (5.5%) loan is
outstanding, the amount that was so transferred will continue to be treated as
part of the Contract Fund and it will be credited with the daily equivalent of
an annual return of 4% rather than with the actual rate of return of the
subaccount[s], fixed-rate option or Real Property Account. While a loan made
pursuant to the variable loan interest rate provision is outstanding, the amount
that was so transferred will be credited with the daily equivalent of a rate
that is 1% less than the loan interest rate for the Contract year. If a loan
remains outstanding at a time when The Prudential fixes a new rate, the new
interest rate will apply.

Choosing the variable rate option will usually mean a higher outlay of cash when
the loan is repaid but it will also result in a greater increase in the Contract
Fund value.

A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, any Contract debt will be deducted from the death benefit or the
cash surrender value.

<PAGE>

A loan will have an effect on a Contract's cash surrender value and may have an
effect on the death benefit, even if the loan is fully repaid, because the
investment results of the selected investment options will apply only to the
amount remaining invested under those options. The longer the loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If investment results are greater than the rate being
credited on the loan balance while the loan is outstanding, values under the
Contract will not increase as rapidly as they would have if no loan had been
made. If investment results are below that rate, Contract values will be higher
than they would have been had no loan been made. A loan that is repaid will not
have any effect upon the guaranteed minimum death benefit.

Consider, for example, a Contract issued on a 35 year old male, as illustrated
in the table on page T1, with an 8% gross investment return. Assume a $2,500
fixed-rate (5.5%) loan was made under this Contract at the end of Contract year
8 and repaid at the end of Contract year 10 and loan interest was paid when due.
Upon repayment, the cash surrender value would be $7,798.65. This amount is
lower than the cash surrender value shown on that page for the end of Contract
year 10 because the loan amount was credited with the 4% assumed rate of return
rather than the 6.82% net return for the designated subaccount[s] resulting from
the 8% gross return in the underlying Series Fund. Loans from Modified Endowment
Contracts may be treated for tax purposes as distributions of income. See Tax
Treatment of Contract Benefits, page 27.

Surrender of a Contract. You may surrender a Contract in whole or in part for
its cash surrender value while the insured is living. Partial surrender involves
splitting the Contract into two Contracts. One Contract is surrendered for its
cash surrender value; the other is continued in force on the same terms as the
original Contract except that premiums will be based on the new face amount. You
will be given a new Contract document. The cash surrender value and the
guaranteed minimum death benefit of the new Contract will be proportionately
reduced based upon the reduction in the face amount of insurance. The new
Contract must have a face amount of insurance at least equal to the minimum face
amount applicable to the insured. Otherwise a partial surrender is not
permitted. See Requirements for Issuance of a Contract, page 16.

To surrender a Contract in whole or in part, you must deliver or mail it,
together with a written request, to your Prudential Home Office. The cash
surrender value of a surrendered or partially surrendered Contract (taking into
account the deferred sales and administrative charges, if any) will be
determined as of the end of the valuation period in which such a request is
received in the Home Office. Surrender of all or part of a Contract may have tax
consequences. See Tax Treatment of Contract Benefits, page 27.

Lapse and Reinstatement. As has already been explained, if Scheduled Premiums
are paid on or before each due date, or within the grace period after each due
date, and there are no withdrawals, a Contract will remain in force even if the
investment results of that Contract's variable investment option[s] have been so
unfavorable that the Contract Fund has decreased to zero or less.

In addition, even if a Scheduled Premium is not paid, the Contract will remain
in force as long as the Contract Fund on any Monthly Date is equal to or greater
than the Tabular Contract Fund value on the following Monthly Date. (A Table of
Tabular Contract Fund Values is included in the Contract; the values increase
with each year the Contract remains in force.) This could occur because of such
factors as favorable investment experience, deduction of current rather than
maximum charges, or the previous payment of greater than Scheduled Premiums.

However, if a Scheduled Premium is not paid, and the Contract Fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, The Prudential will send the Contract owner a notice of
default setting forth the payment necessary to keep the Contract in force on a
premium paying basis. This payment must be received at the Prudential Home
Office within the 61 day grace period after the notice of default is mailed or
the Contract will lapse. A Contract that lapses with an outstanding Contract
loan may have tax consequences. See Tax Treatment of Contract Benefits, page 27.

Neither transfers nor reallocations of premium payments may be made if a
Contract is in default.

A Contract that has lapsed may be reinstated within 5 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, The Prudential requires renewed evidence of
insurability, and submission of certain payments due under the Contract.

If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of The Prudential prior to
the end of the 61 day grace period. You may also choose one of the three forms
of insurance described below for which no further premiums are payable.

Fixed Extended Term Insurance. The amount of insurance that would have been paid
on the date of default will continue for a stated period of time. You will be
told in writing how long that will be. The insurance amount will not change.
There will be a diminishing cash surrender value but no loan value. Extended
term insurance is not available to insureds in high risk classifications or
under Contracts issued in connection with tax-qualified pension plans.

<PAGE>

Fixed Reduced Paid-Up Insurance. This insurance continues for the lifetime of
the insured but at an insurance amount that is lower than that provided by fixed
extended term insurance. It will increase in amount only if dividends are paid
and it will decrease only if a Contract loan is taken. You will be told, if you
ask, what the amount of the insurance will be. Fixed paid-up insurance has a
cash surrender value and a loan value both of which will gradually increase in
value. It is possible for this Contract to be classified as a Modified Endowment
Contract if this option is exercised during the first 7 Contract years. See Tax
Treatment of Contract Benefits, page 27.

Variable Reduced Paid-Up Insurance. This is similar to fixed paid-up insurance
and will initially be in the same amount. The Contract Fund will continue to
vary to reflect the experience of the selected investment options. There will be
a new guaranteed minimum death benefit. Loans will be available subject to the
same rules that apply to premium-paying Contracts.

Variable paid-up insurance is not available to insureds in high risk rating
classes or if the new guaranteed amount is less than $5,000. It is possible for
this Contract to be classified as a Modified Endowment Contract if this option
is exercised during the first 7 Contract years. See Tax Treatment of Contract
Benefits, page 27.

What Happens If No Request Is Made? Except in the two situations described
below, if no request is made the "automatic option" will be fixed extended term
insurance. If that is not available to the insured, then fixed reduced paid-up
insurance will be provided. However, if variable reduced paid-up insurance is
available and the amount is at least as great as the amount of fixed extended
term insurance, then the automatic option will be variable reduced paid-up
insurance. This could occur when there is a Contract debt outstanding when the
Contract lapses.

When Proceeds Are Paid. The Prudential will generally pay any death benefit,
cash surrender value, loan proceeds or withdrawal within 7 days after receipt at
a Prudential Home Office of all the documents required for such a payment. Other
than the death benefit, which is determined as of the date of death, the amount
will be determined as of the end of the valuation period in which the necessary
documents are received. However, The Prudential may delay payment of proceeds
from the subaccount[s] and the variable portion of the death benefit due under
the Contract if the sale or valuation of the Account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC or the SEC declares
that an emergency exists.

With respect to the amount of any cash surrender value allocated to the
fixed-rate option, and with respect to a Contract in force as fixed reduced
paid-up insurance, The Prudential expects to pay the cash surrender value
promptly upon request. However, The Prudential has the right to delay payment of
such cash surrender value for up to 6 months (or a shorter period if required by
applicable law). The Prudential will pay interest of at least 3% a year if it
delays such a payment for 30 days or more (or a shorter period if required by
applicable law).

Living Needs Benefit. Contract applicants may elect to add the Living Needs
Benefit(SM) to their Contracts at issue, subject to The Prudential's receipt of
satisfactory evidence of insurability. The benefit may vary state-by-state. It
can generally be added only to Contracts of $50,000 or more. There is no charge
for adding the benefit to the Contract. However, an administrative charge (not
to exceed $150) will be made at the time the Living Needs Benefit is paid.

The Living Needs Benefit allows the Contract owner to elect to receive an
accelerated payment of all or part of the Contract's death benefit, adjusted to
reflect current value, at a time when certain special needs exist. The adjusted
death benefit will always be less than the death benefit, but will generally be
greater than the Contract's cash surrender value. Depending upon state
regulatory approval, one or both of the following options may be available. A
Prudential representative should be consulted as to whether additional options
may be available.

Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, The Prudential will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a Living Needs
Benefit. You may (1) elect to receive the benefit in a single sum or (2) receive
equal monthly payments for 6 months. If the insured dies before all the payments
have been made, the present value of the remaining payments will be paid to the
beneficiary designated in the Living Needs Benefit claim form in a single sum.

Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for 6 months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, The Prudential
will provide an accelerated payment of the portion of the death benefit selected
by the Contract owner as a Living Needs Benefit. You may (1) elect to receive
the benefit in a single sum or (2) receive equal monthly payments for a
specified number of years (not more than 10 nor less than 2), depending upon the
age of the insured. If the insured dies before all of the payments have been
made, the present value of the remaining payments will be paid to the
beneficiary designated in the Living Needs Benefit claim form in a single sum.

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<PAGE>

All or part of the Contract's death benefit may be accelerated under the Living
Needs Benefit. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. The Prudential reserves the
right to determine the minimum amount that may be accelerated.

No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. The
Prudential can furnish details about the amount of Living Needs Benefit that is
available to an eligible Contract owner under a particular Contract, and the
adjusted premium payments that would be in effect if less than the entire death
benefit is accelerated.

The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the Living Needs Benefit to
the Contract has no adverse consequences; however, electing to use it could.
Contract owners should consult a qualified tax advisor before electing to
receive this benefit. Unlike a death benefit received by a beneficiary after the
death of an insured, receipt of a Living Needs Benefit payment may give rise to
a federal or state income tax. Receipt of a Living Needs Benefit payment may
also affect a Contract owner's eligibility for certain government benefits or
entitlements.

Voting Rights. As stated above, all of the assets held in the subaccounts of the
Account will be invested in shares of the corresponding portfolios of the Series
Fund. The Prudential is the legal owner of those shares and as such has the
right to vote on any matter voted on at Series Fund shareholders meetings.
However, The Prudential will vote the shares of the Series Fund at any regular
and special shareholders meetings it is required to hold in accordance with
voting instructions received from Contract owners. The Series Fund will not hold
annual shareholders meetings when not required to do so under Maryland law or
the Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares indirectly owned
by The Prudential, will be voted in the same proportion as shares in the
respective portfolios for which instructions are received.

Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter.

The number of shares in a portfolio for which you may give instructions is
determined by dividing the portion of your Contract Fund attributable to the
portfolio, by the value of one share of the portfolio. The number of votes for
which each Contract owner may give The Prudential instructions will be
determined as of the record date chosen by the Board of Directors of the Series
Fund. The Prudential will furnish Contract owners with proper forms and proxies
to enable them to give these instructions. The Prudential reserves the right to
modify the manner in which the weight to be given voting instructions is
calculated where such a change is necessary to comply with current federal
regulations.

The Prudential may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, The Prudential itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that The Prudential reasonably disapproves such changes in accordance
with applicable federal regulations. If The Prudential does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.

Contract owners also share with the owners of all Prudential Contracts and
policies the right to vote in elections for members of the Board of Directors of
The Prudential.

Reports to Contract Owners. Once each Contract year (except where the Contract
is in force as fixed extended term insurance or fixed reduced paid-up
insurance), you will be sent a statement that provides certain information
pertinent to your own Contract. These statements show all transactions during
the year that affected the value of your Contract Fund, including monthly
changes attributable to investment experience. That statement will also show the
current death benefit, cash surrender value, and loan values of your Contract.
On request, you will be sent a current statement in a form similar to that of
the annual statement described above, but The Prudential may limit the number of
such requests or impose a reasonable charge if such requests are made too
frequently.

You will also receive, usually at the end of February, an annual report of the
operations of the Account and of the Series Fund. That report will list the
investments held in each portfolio and include audited financial statements for
the Account and the Series Fund. A semi-annual report, with similar unaudited
information for the Series Fund, will be sent to you, usually at the end of
August.

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<PAGE>

Tax Treatment of Contract Benefits. The tax treatment of life insurance is
complex and may change, therefore you should consult with a qualified tax
advisor. A more technical discussion of what follows is contained in the
Statement of Additional Information. Here The Prudential provides, not tax
advice but, a general statement of how it believes the tax laws currently apply
in the most commonly occurring circumstances.

Treatment as Life Insurance. The Prudential believes that the Contract should
qualify as "life insurance" under the Internal Revenue Code. This means that,
except as noted below, any annual increases in your Contract Fund, whether
attributable to income or capital appreciation, should not be included in your
income. In addition, the receipt of a death benefit by a beneficiary should not
result in taxable income.

Although The Prudential believes the Contract should qualify as "life insurance"
for federal tax purposes, there are uncertainties, particularly because the
Secretary of the Treasury has not yet issued final regulations that bear on this
question. Accordingly, we have reserved the right to make changes -- which will
be applied uniformly to all Contract owners after advance written notice -- that
we deem necessary to insure that the Contract will continue to qualify as life
insurance.

Pre-Death Distributions. The tax treatment of any distribution received by an
owner prior to an insured's death will depend upon whether the Contract is
classified as a Modified Endowment Contract.

If the Contract is not classified as a Modified Endowment Contract, proceeds
received in the event of a lapse, total or partial surrender of the Contract, or
withdrawal of part of the cash surrender value will generally not be taxable
unless the total amount received exceeds the gross premiums paid less the
untaxed portion of any prior withdrawals. In certain limited circumstances, all
or a portion of a withdrawal or partial surrender during the first 15 contract
years may be taxable even if total withdrawals do not exceed total premiums paid
to date. The proceeds of any loan will be treated as indebtedness of the owner
and will not be treated as taxable income.

If the Contract is classified as a Modified Endowment Contract, pre-death
distributions, including loans, withdrawals and partial surrenders (even those
made during the 2 year period before the Contract became a Modified Endowment
Contract), will be taxed first as investment income to the extent of gain in the
Contract, and then as a return of the Contract owner's investment in the
Contract. In addition, pre-death distributions (including full surrenders) will
be subject to a penalty of 10% of the amount includible in income unless the
amount is distributed on or after the owner reaches age 59 1/2, on account of
the owner's disability, or as a life annuity.

A policy may be classified as a Modified Endowment Contract if premiums
substantially (or sometimes slightly) in excess of Scheduled Premiums are paid
or the face amount of insurance is decreased during the first seven Contract
years, or if the face amount of insurance is increased or if a rider is added to
(or a rider is removed from) the Contract. You should consult with your tax
advisor or a Prudential representative before making any of these policy
changes.

Other Tax Consequences. There may be federal estate taxes and state and local
estate and inheritance taxes payable if either the owner or the insured dies.
The transfer or assignment of the Contract to a new owner may also have tax
consequences. The individual situation of each Contract owner or beneficiary
will be significant.

Riders. When the Contract is first issued, the owner may be able to obtain
additional fixed benefits which may increase the Scheduled Premium. If they do
cause an increase in the Scheduled Premium, they will be charged for by making
monthly deductions from the Contract Fund. These optional insurance benefits
will be described in what is known as a "rider" to the Contract. One rider pays
an additional amount if the insured dies in an accident. Another waives certain
premiums if the insured is disabled within the meaning of the provision (or, in
the case of a Contract issued on an insured under the age of 15, if the
applicant dies or becomes disabled within the meaning of the provision). Others
pay an additional amount if the insured dies within a stated number of years
after issue; similar benefits may be available if the insured's spouse or child
should die. The amounts of these benefits are fully guaranteed at issue; they do
not depend on the performance of the Account, although they will no longer be
available if the Contract should lapse. Certain restrictions may apply; they are
clearly described in the applicable rider.

Under other riders, which provide a fixed amount of term insurance in exchange
for increasing total scheduled annual premiums, the amount payable upon death of
the insured may be substantially increased for a given total initial annual
premium. The rider may be appropriate for Contract owners who reasonably expect
their incomes to increase regularly so that they will be able to afford the
increasing scheduled annual premiums or who may be willing to rely upon their
future Contract Fund values to prevent the Contract from lapsing in later years.

Certain term riders issued by The Prudential may provide for a conversion
premium credit if the rider or policy is converted to a Prudential whole life
policy, including the Contracts described in this prospectus. If a Contract is
purchased through exercise of such a conversion privilege, the first year's
scheduled premium will be reduced by the amount of the premium credit. The
Prudential will add to first year scheduled premiums paid by the Contract owner
the pro rata portion of the premium credit.

27
<PAGE>

Any Prudential representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from The
Prudential upon written request.

Participation in Divisible Surplus. Because the Contract is issued by The
Prudential, a mutual life insurance company, it is a participating policy. This
means that the Contract is eligible to be credited part of The Prudential's
divisible surplus attributable to the Contracts, as determined by The
Prudential's Board of Directors. That determination is made, with respect to the
insurance contracts issued by The Prudential, every year. However, The
Prudential does not expect to credit any dividends upon these Contracts while
they remain in force because favorable investment performance will be reflected
in Contract values and because The Prudential intends, if experience indicates
that current charges are greater than needed to cover expenses, to reduce those
charges further so that there will be no source of distributable surplus
attributable to these Contracts. If a Contract is kept in force for a number of
years, The Prudential currently intends to add a termination dividend to the
proceeds payable upon death or surrender.

Other Contract Provisions. There are several other Contract provisions that are
of less significance to you than those already described in detail either
because they relate to options that you may choose under the Contract but are
not likely to exercise for several years after you first purchase it or because
they are of a routine nature not likely to influence your decision to buy the
Contract. These provisions are summarized in the Expanded Table of Contents of
the Statement of Additional Information, page 42 and described in greater detail
in the Statement of Additional Information.

FURTHER INFORMATION ABOUT THE SERIES FUND

The Prudential Series Fund, Inc. (the "Series Fund") is a Maryland corporation
organized on November 15, 1982. It is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end, diversified, management investment
company. This registration does not imply any supervision by the Securities and
Exchange Commission over the Series Fund's management or its investment policies
or practices.

The Series Fund is currently made up of sixteen separate portfolios. Each
portfolio is, for many purposes, in effect a separate investment fund, and a
separate class of capital stock is issued for each portfolio. Each share of
capital stock issued with respect to a portfolio has a pro-rata interest in the
assets of that portfolio and has no interest in the assets of any other
portfolio. Each portfolio bears its own liabilities and also its proportionate
share of the general liabilities of the Series Fund. In other respects the
Series Fund is treated as one entity. For example, the Series Fund has only one
Board of Directors and owners of the shares of each portfolio are entitled to
vote for members of the Board.

Shares in the Series Fund are currently sold and redeemed at the close of each
business day, at their net asset value, determined in the manner described in
the Statement of Additional Information, only to separate accounts of The
Prudential and its subsidiaries. They may, in the future, be sold to other
insurers to fund benefits under variable life insurance and variable annuity
contracts issued by those companies.

The Prudential is the investment advisor of the Series Fund. The Prudential has
entered into a Service Agreement with its wholly-owned subsidiary The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under an Investment Advisory Agreement with the
Series Fund. In addition, The Prudential has entered into a Subadvisory
Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp.
("Jennison"), under which Jennison furnishes investment advisory services in
connection with the management of the Growth Stock Portfolio. See Investment
Management Arrangements and Expenses, page 41.

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

Each portfolio of the Series Fund has a different objective which it pursues
through separate investment policies as described below. Since each portfolio
has a different investment objective, each can be expected to have different
investment results and incur different market and financial risks. Those risks,
as explained above, are borne by the Contract owner. The Series Fund may in the
future establish other portfolios with different investment objectives.

The investment objectives of each portfolio are fundamental and may not be
changed without the approval of the holders of a majority of the outstanding
shares of the portfolio affected (which for this purpose and under the 1940 Act
means the lesser of: (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented; or (ii) more than 50%
of the outstanding shares). The policies by which a portfolio seeks to achieve
its investment objectives, however, are not fundamental. They may be changed by
the Board of Directors of the Series Fund without the approval of the
shareholders.

28
<PAGE>

The investment objectives of each portfolio are set forth on pages 3 through 4.
For the sake of convenience, they are repeated here, followed in each case by a
brief description of the policies of each portfolio. In some cases a fuller
description of those policies is in the Statement of Additional Information.
There is no guarantee that any of these objectives will be met.

Fixed Income Portfolios

Money Market Portfolio. The objective of this portfolio is to achieve, through
investment in high-quality short-term debt obligations, the maximum current
income that is consistent with stability of capital and maintenance of
liquidity.

The portfolio seeks to achieve this objective by following the policy of
investing primarily in money market instruments denominated in U.S. dollars that
mature in 13 months or less from the date the portfolio acquires them.
Money-market instruments include short-term obligations of the United States and
foreign governments, their agencies, instrumentalities, and political
subdivisions, and of domestic and foreign banks and corporations. They also
include commercial paper, other corporate obligations, obligations of savings
and loan associations and savings banks, and variable amount demand master
notes. The portfolio may also enter into repurchase and reverse repurchase
agreements and may purchase and sell securities on a when-issued and delayed
delivery basis. These investment techniques may involve additional risks. A
detailed description of the money market instruments in which the portfolio may
invest, of the repurchase and reverse repurchase agreements it may enter into,
and of the risks associated with those instruments and agreements is in the
Statement of Additional Information.

Because of the high quality, short-term nature of the portfolio's holdings,
increases in the value of an investment in the portfolio will be derived almost
entirely from interest on the securities held by it. Accordingly, the results
for the portfolio will follow generally the fluctuation in short-term interest
rates.

Bond Portfolio. The objective of this portfolio is to achieve a high level of
income over the longer term while providing reasonable safety of capital through
investment primarily in readily marketable intermediate and long-term fixed
income securities that provide attractive yields but do not involve substantial
risk of loss of capital through default.

The portfolio seeks to achieve this objective by following the policies of
purchasing only debt securities of investment grade or, if not rated, of
comparable quality in the opinion of the portfolio manager and of investing from
time to time a portion of its assets in short-term debt obligations of the kind
held in the Money Market Portfolio as described in the Statement of Additional
Information. Since the value of fixed income securities generally fluctuates
inversely with changes in interest rates, the proportions of intermediate or
longer-term securities and short-term debt obligations held in the portfolio
will vary to reflect The Prudential's assessment of prospective changes in
interest rates, so that the portfolio may benefit from relative price
appreciation when interest rates decline and suffer lesser declines in value
when interest rates rise. The success of this strategy will depend on The
Prudential's ability to forecast changes in interest rates, and there is a
corresponding risk that the value of the securities held in the portfolio will
decline.

At least 80% of the portfolio's holdings (including short-term debt obligations)
will generally consist of debt securities that at the time of purchase have a
rating within the four highest grades determined by Moody's Investor Services,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), or a similar
nationally-recognized rating service. The portfolio may retain a security whose
rating has dropped below the four highest grades as determined by a commercial
rating service. Without limitation, the portfolio may invest in obligations of
the U.S. Government and its agencies and instrumentalities. The Statement of
Additional Information defines the ratings that are given to debt securities by
Moody's and S&P and describes the standards applied by them in assigning these
ratings.

The remaining assets of the portfolio may be invested in, among other things,
debt securities that are not rated within the four highest grades or in
convertible debt securities and preferred or convertible preferred stocks that
are rated within the four highest grades applicable to such securities. On
occasion, however, the portfolio may acquire common stock, not through direct
investment but by the conversion of convertible debt securities or the exercise
of warrants. No more than 10% of the value of the total assets of the portfolio
will be held in common stocks, and those will usually be sold as soon as a
favorable opportunity is available.

The portfolio may invest up to 20% of its total assets in United States currency
denominated debt securities issued outside the United States by foreign or
domestic issuers. The particular risks of investments in foreign securities are
described under Foreign Securities on page 39.

In addition, the portfolio may (i) purchase and sell options on debt securities;
(ii) purchase and sell interest rate futures contracts and options thereon;
(iii) purchase securities on a when-issued or delayed delivery basis; (iv) use
interest rate swaps; and (v) make short sales. These techniques are described
briefly under Options, Futures Contracts and Swaps and Short Sales on page 40,
and in detail in the Statement of Additional Information.

Barbara Kenworthy, Managing Director, PIC, has been portfolio manager of the
Bond Portfolio since 1995. Ms. Kenworthy is also portfolio manager of the
Prudential Diversified Bond Fund, Inc. and the Prudential Government

29
<PAGE>

Income Fund. Prior to 1994, Ms. Kenworthy was a portfolio manager and president
of several taxable fixed-income funds for The Dreyfus Corp.

Government Securities Portfolio. The objective of this portfolio is to achieve a
high level of income over the longer term consistent with the preservation of
capital through investment primarily in U.S. Government securities, including
intermediate and long-term U.S. Treasury securities and debt obligations issued
by agencies of or instrumentalities established, sponsored or guaranteed by the
U.S. Government. At least 65% of the total assets of the portfolio will be
invested in U.S. Government securities.

The portfolio seeks to achieve this objective by investing at least 65% of its
assets in U.S. Treasury securities, obligations issued or guaranteed by U.S.
Government agencies and instrumentalities, mortgage-related securities issued by
U.S. Government instrumentalities or non-governmental corporations, or related
collateralized mortgage obligations. These instruments are described below. The
portfolio may invest up to a total of 35% of its assets in the following three
categories: (1) short-term debt obligations of the kind held in the Money Market
Portfolio; (2) securities of issuers other than the U.S. government and related
entities, usually foreign governments, where the principal and interest are
substantially guaranteed (generally to the extent of 90% thereof) by U.S.
Government agencies whose guarantee is backed by the full faith and credit of
the United States and where an assurance of payment on the unguaranteed portion
is provided for in a comparable way; and (3) asset-backed securities rated in
either of the top two ratings by Moody's or Standard & Poor's, or if not rated,
determined by the investment manager to be of comparable quality. A description
of debt ratings is in the Statement of Additional Information.

U.S. Government Securities are considered among the most creditworthy of fixed
income investments. Their values (like those of fixed-income securities,
generally) will vary inversely with changes in interest rates. The magnitude of
these fluctuations will generally be greater for securities with longer
maturities.

U.S. Treasury securities are direct obligations of the U.S. Government and, as
such, are backed by the full faith and credit of the United States. Obligations
issued by agencies of the U.S. Government or instrumentalities established or
sponsored by the U.S. Government include securities that are guaranteed by
federal agencies or instrumentalities, and may or may not be backed by the full
faith and credit of the United States. Obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration, and the Export-
Import Bank, for example, are backed by the full faith and credit of the United
States. Obligations issued by the Tennessee Valley Authority, The Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), the United States Postal Service, the Federal Farm Credit
Bank and the Federal Home Loan Bank are not, and the portfolio must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment.

The portfolio may invest in mortgage-backed securities issued by GNMA, FNMA or
FHLMC and representing undivided ownership interests in pools of mortgages. The
mortgages backing these securities include conventional 30 year fixed rate
mortgages, 15 year fixed rate mortgages, graduated payment mortgages, and
adjustable rate mortgages. The U.S. Government or the issuing agency guarantees
the payment of interest and principal of these securities. However, the
guarantees do not extend to the securities' yield or value of the portfolio's
shares. The portfolio may also purchase collateralized mortgage obligations
("CMOs"). A CMO is a debt security issued by a corporation or a U.S. Government
instrumentality. The payment of principal and interest is secured by an
underlying portfolio of mortgages or mortgage-backed securities. The portfolio
will invest in only those privately issued CMOs that are collateralized by
mortgage-backed securities issued by GNMA, FHLMC or FNMA, and in CMOs issued by
FHLMC, GNMA or FNMA. Neither the United States Government nor any U.S.
Government agency guarantees the payment of principal or interest on these
securities.

The portfolio may also invest in asset-backed securities. Asset-backed
securities represent a participation in, or are secured by and payable from, a
stream of payments generated by particular assets, such as automobile or credit
card receivables. Asset-backed securities present certain risks, including the
risk that the underlying obligor on the asset, such as the automobile purchaser
or the credit card holder, may default on his or her obligation. In addition,
asset-backed securities often do not provide a security interest in the related
collateral. For example, credit card receivables are generally unsecured, and
for automobile receivables the security interests in the underlying automobiles
are often not transferred when the pool is created, with the resulting
possibility that the collateral could be resold. In general, however, these
types of loans are of shorter average life than mortgage loans and are less
likely to have substantial prepayments.

Under normal circumstances, this portfolio's turnover rate is not expected to
exceed 200%. Purchases of U.S. Government Securities are generally made from
dealers at prices which usually include a profit to the dealer.

<PAGE>

David Graham, Vice President, PIC, has been portfolio manager of the Government
Securities Portfolio since 1995. Mr. Graham also manages the Prudential GNMA
Fund, the Prudential Adjustable Rate Securities Fund, and the Prudential U.S.
Government Fund. He has been employed by PIC as a portfolio manager since 1993.
Prior to 1993, Mr. Graham was a portfolio manager for Alliance Capital
Management, L.P.

Zero Coupon Bond Portfolios 1995, 2000, and 2005. The objective of each of these
portfolios is to achieve the highest predictable compounded investment return
for a specific period of time, consistent with the safety of invested capital,
by investing primarily in debt obligations of the United States Treasury and
investment-grade corporations that have been issued without interest coupons or
stripped of their unmatured interest coupons, interest coupons that have been
stripped from such debt obligations, and receipts and certificates for such
stripped debt obligations and stripped coupons (collectively "stripped
securities"). The three portfolios differ only in their liquidation dates, which
for each portfolio is November 15 of the specified year.

In pursuing this objective, each Zero Coupon Bond portfolio invests only in
readily marketable debt securities that do not involve substantial risk of loss
of capital through default, although their value may vary because of changes in
the general level of interest rates. It is the policy of each Zero Coupon Bond
portfolio to invest at least 70% of its assets in stripped securities that are
obligations of the United States Government maturing within 2 years of the
portfolio liquidation date. Up to 30% of the assets may be invested and held
either in stripped securities issued by investment-grade corporations or in
high-grade interest bearing corporate debt securities, in each case with a
quality rating of Baa or better, provided that no more than 20% of the assets of
the portfolio may be invested in interest bearing securities. The Prudential
will evaluate the creditworthiness of the potential investments in corporate
securities in order to determine whether such securities are suitable for
purchase by the portfolios. A small portion of the portfolios may be invested in
short-term debt obligations of the kind held in the Money Market Portfolio in
order to make effective use of cash reserves pending investments in the
securities described above.

At the beginning of each week, The Prudential will calculate the anticipated
compounded growth rate that investors purchasing shares of each portfolio that
day are predicted to achieve if their investment is maintained until the
portfolio liquidation date. That rate will change from day to day depending on
various factors, including particularly the general level of interest rates, but
daily changes will generally not be significant. If there is a significant
change in interest rates (greater than a 0.30% change in the yield of a zero
coupon Treasury bond maturing in the specified year), The Prudential will
recalculate the predicted yield. The Prudential will furnish the anticipated
compounded growth rate on request.

In order to achieve a predictable compounded investment return to each
portfolio's liquidation date that will be as little affected as possible by
variations in the general level of interest rates during the intervening period,
the composition of the securities held in each portfolio is such that the
weighted average period of time until receipt of scheduled cash payments
(whether of principal or interest) -- sometimes referred to as the portfolio's
"duration" -- will be kept within 1 year of the period remaining until the
portfolio liquidation date. When the portfolio's duration is thus maintained,
differences between the market value and the face amount of unmatured bonds on
the portfolio's liquidation date resulting from changes in the general level of
interest rates will be approximately equal in magnitude to, but opposite in
direction from, the difference between the amount of interest accumulated
through the reinvestment of earlier coupon or principal payments and the amount
that would have been accumulated at the originally predicted rate. Each
portfolio is thus able to hold interest bearing securities and stripped
securities with maturity dates before, during, and after the portfolio's
liquidation date. The concept of "duration" is explained more fully in the
Statement of Additional Information.

Each portfolio seeks to realize a higher yield than would be obtained simply by
maintaining the portfolio's initial investments. The portfolios are actively
managed by The Prudential to take advantage of trading opportunities that may
exist from time to time when, for various reasons, some of the securities
available for purchase by the portfolio appear underpriced. There is a
corresponding risk that, to the extent that this strategy is unsuccessful, the
initial yield objective will not be met.

Stripped securities are purchased at a substantial (or "deep") discount from
their principal amounts payable at maturity. If held to maturity, these
obligations provide a predictable yield. But because interest on stripped
securities is not paid in cash on a current basis but rather is in effect
compounded until maturity (or the payment date in the case of a coupon), the
market values of securities of this type are subject to greater fluctuations, as
a result of changes in interest rates, than are the values of debt securities
that provide for the periodic payment of interest; and the longer the term to
maturity of a portfolio, the greater the risk of such fluctuations. Accordingly,
if you redeem an interest in the portfolio (for example, by a transfer to
another portfolio) prior to the portfolio liquidation date, you are likely to
achieve quite a different investment return than the return that was predicted
on the date your investment was made. You may suffer a loss.

On the liquidation date of a Zero Coupon Bond Portfolio, all of the securities
held by the portfolio will be sold, all outstanding shares of the portfolio will
be redeemed, and the proceeds will, unless otherwise directed by Contract
owners, be allocated to the Money Market Subaccount and invested in the Money
Market Portfolio.

<PAGE>

May Ngai, Senior Associate, PIC, has been portfolio manager of the Zero Coupon
Bond Portfolios 1995, 2000, and 2005 since 1995. From 1991 to the present, Ms.
Ngai has held the position of mortgage strategist, Taxable Mutual Funds,
Prudential Investment Advisors. Prior to 1991, Ms. Ngai was an Applications
Specialist for Gifford Fong Associates.

Balanced Portfolios

Conservatively Managed Flexible Portfolio. The objective of this portfolio is to
achieve a favorable total investment return consistent with a portfolio having a
conservatively managed mix of money market instruments, fixed income securities,
and common stocks in proportions believed by the investment manager to be
appropriate for an investor desiring diversification of investment who prefers a
relatively lower risk of loss than that associated with the Aggressively Managed
Flexible Portfolio while recognizing that this reduces the chances of greater
appreciation.

To achieve this objective, the Conservatively Managed Flexible Portfolio will
follow a policy of maintaining a more conservative asset mix among stocks, bonds
and money market instruments than the Aggressively Managed Flexible Portfolio.
In general, the portfolio manager will observe the following range of target
asset allocation mixes:

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 15% 35% 50%
Bonds 15% 35% 50%
Money Marke 0% 30% 70%

The bond portion of the portfolio will be invested primarily in securities with
maturities of 2 to 10 years and ratings at the time of purchase within the four
highest grades determined by Moody's, S&P, or a similar nationally- recognized
rating service. A description of debt ratings is in the Statement of Additional
Information. Because of their shorter maturities, the value of the notes and
bonds in this portfolio will be less sensitive to changes in interest rates than
the longer-term bonds likely to be held in the Aggressively Managed Flexible
Portfolio. Thus, there will be less of a risk of loss of principal, but not as
much of a likelihood for greater appreciation in value. Up to 20% of the bond
portion of this portfolio may be invested in United States currency denominated
debt securities issued outside the United States by foreign or domestic issuers.
The common stock portion of this portfolio will be invested primarily in the
equity securities of major, established corporations in sound financial
condition that appear to offer attractive prospects of a total return from
dividends and capital appreciation that is superior to broadly based stock
indices. The money market portion of the portfolio will hold high-quality
short-term debt obligations with a maturity of 12 months or less (as described
in the Statement of Additional Information) and will maintain a dollar-weighted
average maturity of 120 days or less.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under Foreign Securities on
page 39.

In addition, the portfolio may (i) purchase and sell options on equity
securities, debt securities, stock indices and foreign currencies (ii) purchase
and sell stock index, interest rate and foreign currency futures contracts and
options thereon; (iii) enter into forward foreign currency exchange contracts;
(iv) purchase securities on a when-issued or delayed delivery basis; (v) use
interest rate swaps; and (vi) make short sales. These techniques are described
briefly under Options, Futures Contracts and Swaps and Short Sales on page 40,
and in detail in the Statement of Additional Information.

The Conservatively Managed Flexible Portfolio is managed by Prudential
Investment Advisors ("PIA") and Prudential Diversified Investment Strategies
("PDI"), units of PIC, using a team of portfolio managers under the supervision
of Mark Stumpp, Managing Director, PIC. Mr. Stumpp has been providing overall
asset allocation for the portfolio since 1994. Mr. Stumpp also supervises the
team of portfolio managers for the Aggressively Managed Flexible Portfolio of
the Series Fund and is portfolio manager for several employee benefit trusts
including The Prudential Retirement System for U.S. Employees and Special
Agents. Prior to 1994, he was responsible for corporate pension asset management
for Prudential Diversified Investment Strategies' corporate clients.

Aggressively Managed Flexible Portfolio. The objective of this portfolio is
achievement of a high total return consistent with a portfolio having an
aggressively managed mix of money market instruments, fixed income securities,
and common stocks, in proportions believed by The Prudential to be appropriate
for an investor desiring diversification of investment who is willing to accept
a relatively high level of loss in an effort to achieve greater appreciation.

To achieve this objective, the Aggressively Managed Flexible Portfolio will
follow a policy of maintaining a more aggressive asset mix among stocks, bonds
and money market investments than the Conservatively Managed Flexible Portfolio.
In general, the portfolio manager will observe the following range of target
asset allocation mixes:

<PAGE>

Asset Type Minimum Normal Maximum
---------- ------- ------ -------
Stocks 25% 60% 100%
Bonds 0% 40% 75%
Money Market 0% 0% 75%

The bond component of this portfolio is expected under normal circumstances to
have a weighted average maturity of greater than 10 years. The values of bonds
with longer maturities are generally more sensitive to changes in interest rates
than those of shorter maturities. The bond portion of this portfolio will
primarily be invested in securities that have a rating at the time of purchase
within the four highest grades determined by Moody's, S&P, or a similar
nationally-recognized rating service. A description of debt ratings is in the
Statement of Additional Information. However, up to 25% of the bond component of
this portfolio may be invested in securities having ratings at the time of
purchase of "BB," "Ba" or lower, or if not rated, of comparable quality in the
opinion of the portfolio manager, these securities are also known as high risk
securities. Up to 20% of the bond portion of this portfolio may be invested in
United States currency denominated debt securities issued outside the United
States by foreign or domestic issuers. The established company common stock
component of this portfolio will consist of the equity securities of major
corporations that are believed to be in sound financial condition. In selecting
stocks of smaller capitalization companies, the portfolio manager will
concentrate on companies with a capitalization range of $75 million to $600
million that show above-average profitability (measured by return-on-equity,
earnings, and dividend growth rates) with modest price/earnings ratios. The
individual equity selections for this portfolio may tend to have more volatile
market values than the equity securities selected for the Common Stock Portfolio
or the Conservatively Managed Flexible Portfolio. The money market portion of
the portfolio will hold high-quality short-term debt obligations with a maturity
of 12 months or less (as described in the Statement of Additional Information)
and will maintain a dollar-weighted average maturity of 120 days or less.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investment in foreign securities are described under Foreign Securities,
page 39.

The Aggressively Managed Flexible Portfolio is managed by Prudential Investment
Advisors ("PIA") and Prudential Diversified Investment Strategies ("PDI"), units
of PIC, using a team of portfolio managers under the supervision of Mark Stumpp,
Managing Director, PIC. Mr. Stumpp has been providing overall asset allocation
for the portfolio since 1994. Mr. Stumpp also supervises the team of portfolio
managers for the Conservatively Managed Flexible Portfolio of the Series Fund
and is portfolio manager for several employee benefit trusts including The
Prudential Retirement System for U.S. Employees and Special Agents. Prior to
1994, he was responsible for corporate pension asset management for Prudential
Diversified Investment Strategies' corporate clients.

High Yield Bond Portfolios

High Yield Bond Portfolio. The objective of this portfolio is to achieve a high
total return through investment in a diversified portfolio of high yield/high
risk fixed income securities.

The portfolio seeks to achieve its objective by following a policy of generally
investing in fixed income securities rated in the medium to lower categories by
recognized rating services or in unrated fixed income securities of comparable
quality. The portfolio expects to invest principally in fixed income securities
rated Baa or lower by Moody's, or BBB or lower by S&P. Corporate bonds which are
rated Baa by Moody's are described by Moody's as being investment grade, but are
also characterized as having speculative characteristics. Corporate bonds rated
below Baa by Moody's and BBB by S&P are considered speculative. A description of
corporate bond ratings is in the Statement of Additional Information.

Medium to lower rated fixed income securities tend to offer higher yields than
higher rated securities because they are subject to the higher risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and also to higher price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). In the lower quality segments
of the fixed income securities market, changes in perception of the
creditworthiness of individual issuers tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed
income securities market. The Prudential considers both credit risk and market
risk in selecting securities for the portfolio. It will evaluate, among other
things, an issuer's financial history, condition, prospects and management. It
will make its own independent credit analysis and will not rely principally on
the ratings assigned by the ratings services

33
<PAGE>

(e.g., Moody's and S&P), although such ratings will be considered. By holding a
diversified selection of such securities, the portfolio seeks to reduce both
credit risk and volatility.

The portfolio may invest up to 20% of its total assets in United States currency
denominated debt issues issued outside the United States by foreign and domestic
issuers. The particular risks of investments in foreign securities are described
under Foreign Securities on page 39.

The portfolio may also (i) purchase and sell options on debt securities; (ii)
purchase and sell interest rate futures contracts and options thereon; (iii)
purchase securities on a when-issued or delayed delivery basis; (iv) use
interest rate swaps; and (v) make short sales. These techniques are described
briefly under Options, Futures Contracts and Swaps and Short Sales on page 40,
and in detail in the Statement of Additional Information.

Although the portfolio is not expected to engage in substantial short-term
trading, it may sell securities it owns without regard to the length of time
they have been held. The portfolio's turnover rate is not expected to exceed
150%.

Lars Berkman, Managing Director, PIC, and Michael Snyder, Vice President, PIC,
have been co-managers of the High Yield Bond Portfolio since 1995. Mr. Berkman
is also portfolio manager of The Prudential High Yield Fund and has been
employed by PIC as a portfolio manager since 1990. Mr. Snyder is also the
portfolio manager of the U.S. High Yield Income Fund for The Prudential and has
been employed by PIC since 1987.

Diversified Stock Portfolios

Stock Index Portfolio. The objective of this portfolio is to achieve investment
results that correspond to the price and yield performance of publicly-traded
common stocks in the aggregate.

The portfolio seeks to achieve this objective by following the policy of
attempting to duplicate the price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"), an index which represents
more than 70% of the total market value of all publicly-traded common stocks and
is widely viewed among investors as representative of the performance of
publicly-traded common stocks as a whole. The S&P 500 Index is composed of 500
selected common stocks, over 95% of which are listed on the New York Stock
Exchange ("NYSE"). Standard & Poor's Corporation chooses the stocks to be
included in the index on a statistical basis taking into account market values
and industry diversification. Inclusion in the index in no way implies an
opinion by Standard & Poor's Corporation as to a stock's attractiveness as an
investment, and Standard & Poor's Corporation is not in any way affiliated with
this portfolio. "Standard & Poor's," "Standard & Poor's 500" and "500" are
trademarks of McGraw Hill, Inc. and have been licensed for use by The Prudential
Insurance Company of America and its affiliates and subsidiaries. The Series
Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no
representation regarding the advisability of investing in the Series Fund.
Reference is made to the Statement of Additional Information which sets forth
certain additional disclaimers and limitations of liabilities on behalf of S&P.

The S&P 500 Index is a "weighted" index in which the weighting of each stock
depends on its relative total market value: its market price per share times the
number of shares outstanding. Because of this weighting, approximately 10% of
the S&P 500 Index's value is accounted for by the stocks of the five largest
companies by relative market value. As of December 31, 1994 those companies
were: General Electric Co., American Telephone and Telegraph Co., Exxon Corp.,
Coca-Cola Co., and Royal Dutch.

This portfolio will not be "managed" in the traditional sense of using economic,
financial or market analysis to determine the stocks to be purchased by the
portfolio. Rather, the portfolio manager will purchase stocks for the portfolio
in proportion to their weighting in the S&P 500 Index. Thus, adverse financial
performance by a company will not result in reduction or elimination of the
portfolio's holdings of its stock and, conversely, superior financial
performance by a company will not lead the portfolio to increase its holdings of
the company's stock. If a stock held by this portfolio is eliminated from the
S&P 500 Index, the portfolio will sell its holdings of the stock regardless of
the prospects of the company. Because the portfolio will not be "managed" in the
traditional sense, portfolio turnover is expected to be low and is generally not
expected to exceed 10% and brokerage commissions are also expected to be
correspondingly low.

The following table shows the performance of the S&P 500 Index for the 25 years
ending in 1994. The period covered by this table is one of generally rising
stock prices, and the performance of the S&P 500 Index in this period should not
be viewed as a representation of any future performance by that index. In
addition, the fees and costs involved in the operation of the Stock Index
Portfolio mean that the performance of a share of stock in the portfolio may not
equal the performance of the S&P 500 Stock Index even if the assets held by the
portfolio do equal that performance.

<PAGE>
<TABLE>
*S&P 500 WITH DIVIDENDS REINVESTED
Annual Percentage Change
<CAPTION>
<S> <C> <C> <C>
1970 +3.93 1983 +22.38
1971 +14.56 1984 +6.10
1972 +18.90 1985 +31.57
1973 -14.77 1986 +18.56
1974 -26.39 1987 +5.10
1975 +37.16 1988 +16.61
1976 +23.57 1989 +31.69
1977 -7.42 1990 -3.10
1978 +6.38 1991 +30.47
1979 +18.20 1992 +7.61
1980 +32.27 1993 +10.08
1981 -5.01 1994 +1.32
1982 +21.44
</TABLE>

Source: Standard & Poor's Corporation. Percentage change calculated in
accordance with specifications of SEC release number IA-327.

In the seven full years since this portfolio was established its total return,
compared to that of the S&P 500 Index, was as follows:

Annual Percentage Change S&P 500 Total Return
with Stock Index Portfolio
Dividends Reinvested (after deduction of expenses)
--------------------------------- -----------------------------
1988 +16.61 +15.44
1989 +31.69 +30.93
1990 -3.10 -3.63
1991 +30.47 +29.72
1992 +7.61 +7.13
1993 +10.08 +9.66
1994 +1.32 +1.01

A fuller description of the policies followed by the Stock Index Portfolio is in
the Statement of Additional Information.

High Dividend Stock Portfolio. The objective of this portfolio is both current
income and capital appreciation through investment primarily in common stocks
and convertible securities that provide favorable prospects for investment
income returns above those of the Standard & Poor's 500 Stock Index or the NYSE
Composite Index.

The portfolio seeks to achieve this objective by following the policy of
investing in such securities, giving emphasis to earnings, balance sheet and
cash flow analysis, and the relationships that these factors have to the price
and return of a given security. Under normal circumstances, the portfolio
intends to invest at least 65% of its total assets in such securities.

The portfolio may invest the balance of its assets in other stocks, other
securities convertible into common stocks and in debt securities (including
money market instruments). The portfolio may under normal circumstances invest
up to 35% of its total assets in money market instruments of the type invested
in by the Money Market Portfolio and without limit when the portfolio's manager
believes market conditions warrant a temporary defensive posture or pending the
investment of proceeds from sales of the portfolio shares. In addition, up to
35% of the portfolio's total assets may be invested in other fixed-income
obligations. The portfolio anticipates that these will primarily be rated A or
better by Moody's or S&P. However, the portfolio may also invest in lower-rated
fixed-income securities, although it will not invest in securities rated lower
than CC or Ca by Moody's or S&P, respectively. The risks of medium to lower
rated securities, also known as high risk securities, are described above in
connection with the High Yield Bond Portfolio. A description of debt ratings is
in the Statement of Additional Information. The portfolio may also invest in
non-rated fixed-income securities which, in the opinion of the manager, are of a
quality comparable to rated securities in which the portfolio will invest.

To the extent permitted by applicable insurance law, the portfolio may invest up
to 30% of its total assets in non-United States currency denominated debt and
equity securities of foreign and U.S. issuers. The particular risks of
investments in foreign securities are described under Foreign Securities on
page 39.

<PAGE>

These techniques are described briefly under Options, Futures Contracts and
Swaps on page 40, and in detail in the Statement of Additional Information.

As a result of its investment policies, the portfolio's turnover rate may exceed
100%, although it is not expected to exceed 200%.

Warren Spitz, Managing Director, PIC, has been portfolio manager for the High
Dividend Stock Portfolio since 1988.

Common Stock Portfolio. The objective of this portfolio is to achieve capital
appreciation through investment primarily in common stocks of companies,
including major established corporations as well as smaller capitalization
companies, that appear to offer attractive prospects of price appreciation that
is superior to broadly-based stock indices. Current income, if any, is
incidental.

The portfolio seeks to achieve this objective by following the policy of
investing primarily in common stocks. It may also invest to a limited extent in
short, intermediate or long term debt, either convertible or nonconvertible into
common stock, as well as in nonconvertible preferred stock. The portfolio will
attempt to maintain a flexible approach to the selection of common stocks of
various types of companies whose valuations appear to offer opportunities for
above-average appreciation. Thus, the portfolio may invest in securities of
companies whose estimated growth in earnings exceeds that projected for the
market as a whole because of factors such as expanding market share, new
products or changes in market environment. Or it may invest in "undervalued"
securities which are often characterized by a lack of investor recognition of
the basic value of a company's assets. Securities of companies with sales and
earnings trends which are currently unfavorable but which are expected to
reverse may also be in the portfolio. The effort to achieve price appreciation
that is superior to broadly based stock indices necessarily involves accepting a
greater risk of declining values. During periods when stock prices decline
generally, it can be expected that the value of the portfolio will also decline.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in non-United States currency denominated common
stock and fixed-income securities convertible into common stock of foreign and
U.S. issuers. The particular risks of investments in foreign securities are
described in further detail under Foreign Securities on page 39.

In addition, the portfolio may (i) purchase and sell options on equity
securities, stock indices and foreign currencies (ii) purchase and sell stock
index and foreign currency futures contracts and options thereon; (iii) enter
into forward foreign currency exchange contracts; and (iv) purchase securities
on a when-issued or delayed delivery basis. These techniques are described
briefly under Options, Futures Contracts and Swaps on page 40, and in detail in
the Statement of Additional Information.

A portion of the portfolio may be invested in short-term debt obligations of the
kind held in the Money Market portfolio as described in the Statement of
Additional Information in order to make effective use of cash reserves pending
investment in common stocks.

Thomas Jackson, Managing Director, PIC, has been portfolio manager of the Common
Stock Portfolio since 1990. Prior to 1990, Mr. Jackson was Principal for Red Oak
Advisors.

Growth Stock Portfolio. The objective of the Growth Stock Portfolio is to
achieve long-term growth of capital through investment primarily in equity
securities of established companies with above-average growth prospects. Current
income, if any, is incidental.

In order to achieve this objective, the Growth Stock Portfolio will follow a
policy of selecting stocks on a company-by-company basis primarily through the
use of fundamental analysis. The portfolio manager will look for companies that
have demonstrated growth in earnings and sales, high returns on equity and
assets, or other strong financial characteristics, and in the opinion of the
portfolio manager, are attractively valued. These companies tend to have a
unique market niche, a strong new product profile or superior management. Under
normal market conditions, at least 65% of the value of the total assets of the
portfolio will be invested in common stocks and preferred stocks of companies
which exceed $1 billion in market capitalization.

The portfolio may invest up to 35% of its total assets in: (i) common stocks,
preferred stocks, and other equity-related securities of companies that are
undergoing changes in management or product and marketing dynamics which have
not yet been reflected in reported earnings but which are expected to impact
earnings in the intermediate term -- these securities often lack investor
recognition and are often favorably valued; (ii) other equity-related
securities; (iii) with respect to a maximum of 20% of its total assets, common
stocks, preferred stocks and other equity-related securities of Canadian issuers
or American Depository Receipts ("ADRs"); (iv) investment grade fixed income
securities and mortgage-backed securities, including lower rated securities
[rated in the fourth highest rating category by a rating service (i.e. Baa by
Moody's Investor Services or BBB by Standard & Poor's)] or, if not rated,
determined by the portfolio manager to be of comparable quality to securities so
rated. A description of debt ratings is contained in the Appendix to the
statement of additional information; and (v) obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities.

<PAGE>

In addition, the portfolio may: (i) purchase and sell options on equity
securities, stock indices, and foreign currencies; (ii) lend its portfolio
securities; (iii) purchase and sell stock index and foreign currency futures
contracts and options thereon; (iv) enter into forward foreign currency exchange
contracts; and (v) enter into repurchase agreements and purchase securities on a
when-issued or delayed delivery basis. These techniques are described on pages
39 through 41, and further information about some of them is included in the
Statement of Additional Information.

The effort to achieve superior investment returns necessarily involves a risk of
exposure to declining values. Securities in which the portfolio may primarily
invest have historically been more volatile than the Standard & Poor's 500
Composite Stock Price Index. Accordingly, during periods when stock prices
decline generally, it can be expected that the value of the portfolio will
decline more than the market indices.

David Poiesz, Director and Vice President of Jennison Associates Capital Corp.,
has been portfolio manager of the Growth Portfolio since its inception in 1995.
Mr. Poiesz joined Jennison Associates in 1983 as an equity research analyst and
has been an equity portfolio manager since 1991.

Small Capitalization Stock Portfolio. The objective of this portfolio is to
achieve long-term growth of capital through investment primarily in equity
securities of publicly-traded companies with small market capitalization.
Current income, if any, is incidental.

The portfolio seeks to achieve this objective by following the policy of
attempting to duplicate the price and yield performance of the Standard & Poor's
Small Capitalization Stock Index (the "S&P SmallCap 600 Index"), an index which
consists of six-hundred smaller capitalization domestic stocks chosen for market
size, liquidity, and industry group representation. Stocks in the index have
market capitalizations between $35 million and $1.215 billion. However, to be
included in the index, stock selections are also screened for trading volume,
share turnover, ownership concentration, share price and bid/ask spreads. The
initial sector weightings were selected to reflect the industry distribution of
all small capitalization stocks followed by S&P. The S&P SmallCap 600 Index has
above average risk and may fluctuate more than the S&P 500 Index which invests
in stocks of larger, more established firms.

The S&P SmallCap 600 Index is a market weighted index (stock price times shares
outstanding), with each stock affecting the index in proportion to its market
value. Standard & Poor's Corporation is responsible for selecting and
maintaining the list of stocks to be included in the index. Inclusion in the
index in no way implies an opinion by Standard & Poor's Corporation as to a
stock's attractiveness as an investment. "Standard & Poor's", "Standard & Poor's
Small Capitalization Stock Index" and "Standard & Poor's SmallCap 600" are
trademarks of McGraw Hill. Inc. The Series Fund is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representation regarding the advisability of
investing in the Series Fund. Reference is made to the statement of additional
information which sets forth certain additional disclaimers and limitations of
liabilities on behalf of S&P.

The following table shows the performance of the S&P SmallCap 600 Index for the
10 years ending in 1994. Although the index was first published in 1994, S&P
reconstructed its performance for earlier years. The performance of the S&P
SmallCap 600 Index in this period should not be viewed as a representation of
any future performance by that index. In addition, the fees and costs involved
in the operation of the Small Capitalization Stock Portfolio mean that the
performance of a share of stock in the portfolio may not equal the performance
of the S&P Small Cap 600 Stock Index even if the assets held by the portfolio do
equal that performance.

S&P SmallCap 600 With Dividends Reinvested
Annual Percentage Change
------------------------------------------
1985 +32.23
1986 +3.23
1987 -13.50
1988 +19.49
1989 +13.89
1990 -9.90
1991 +48.49
1992 +21.04
1993 +18.79
1994 -4.77

Source: Standard & Poor's Corporation. Percentage change calculated in
accordance with specifications of SEC release number IA-327.

37
<PAGE>

Under normal circumstances, this portfolio intends to be invested in all or a
representative sample of the stocks in the S&P SmallCap 600 Index. The portfolio
may hold cash or its equivalent, these holdings may cause its performance to
differ from that of the S&P SmallCap 600 Index. The portfolio will attempt to
minimize any such differences in performance through transactions involving
stock index futures contracts, options on stock indices, and/or options on stock
index future contracts.

In addition, the portfolio may: (i) purchase and sell options on equity
securities; (ii) lend its portfolio securities; and (iii) purchase securities on
a when-issued or delayed delivery basis. These techniques are described briefly
under Options, Futures Contracts and Swaps on page 40, and in detail in the
Statement of Additional Information.

The investment policies and techniques of the Small Capitalization Stock
Portfolio are not fundamental and may be changed without shareholder approval if
it is determined that alternative investment techniques would be more effective
in achieving the portfolio's objective.

Wai Chiang, Director of Portfolio Management, Prudential Diversified Investment
Strategies, has been portfolio manager for the Small Capitalization Stock
Portfolio since its inception in 1995. Mr. Chiang also manages the unregistered
separate accounts, Pridex and Pridex 500 for The Prudential. Mr. Chiang has been
employed by The Prudential as a portfolio manager since 1986.

Global Equity Portfolio. The objective of this portfolio is long-term growth of
capital through investment primarily in common stocks and common stock
equivalents (such as convertible debt securities) of foreign and domestic
issuers. Current income, if any, is incidental.

The portfolio is intended to provide investors with the opportunity to invest in
a portfolio of securities of companies located throughout the world. In making
the allocation of assets among the various countries and geographic regions, the
portfolio manager ordinarily considers such factors as prospects for relative
economic growth between foreign countries; expected levels of inflation and
interest rates; government policies influencing business conditions; the range
of individual investment opportunities available to international investors; and
other pertinent financial, tax, social, political and national factors--all in
relation to the prevailing prices of the securities in each country or region.

The portfolio is not required to maintain any particular geographic or currency
mix of its investments. The portfolio intends to maintain investments in at
least three countries (including the United States), but may, when market
conditions warrant, invest up to 35% of its assets in companies located in any
one country (other than the United States).

In analyzing companies for investment, the portfolio manager ordinarily looks
for one or more of the following characteristics: prospects for above-average
earnings growth per share; high return on invested capital; healthy balance
sheet; sound financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their marketplace--all in relation to the prevailing prices of
the securities of such companies.

Investing in securities of foreign companies and countries involves special
risks. See Foreign Securities on page 39.

When the portfolio manager believes market conditions dictate a temporary
defensive strategy, or during periods of structuring and restructuring the
portfolio, the portfolio may invest without limit in money market investments of
the kind in which the Money Market Portfolio invests, including repurchase
agreements.

In addition, the portfolio may (i) purchase and sell options on equity
securities, stock indices and foreign currencies; (ii) purchase and sell stock
index, interest rate and foreign currency futures contracts and options thereon;
(iii) enter into forward foreign currency exchange contracts; and (iv) purchase
securities on a when-issued or delayed delivery basis. These techniques are
described briefly under Options, Futures Contracts and Swaps on page 40, and in
detail in the Statement of Additional Information.

Daniel Duane, Managing Director, PIC, has been the portfolio manager of the
Global Equity Portfolio since 1990. Prior to 1990, Mr. Duane was the Senior
Portfolio Manager of the Global Equity Investments at First Investors Asset
Management.

Specialized Portfolios

Natural Resources Portfolio. The objective of this portfolio is long-term growth
of capital through investment primarily in common stocks and convertible
securities of "natural resource companies" (as defined below) and in securities
(typically debt securities and preferred stocks) the terms of which are related
to the market value of some natural resource ("asset-indexed securities"). Under
normal circumstances, the portfolio will invest at least 65% of its total assets
in such securities.

<PAGE>

Companies that primarily own, explore, mine, process or otherwise develop
natural resources, or supply goods and services primarily to such companies,
will be considered "natural resource companies." Natural resources generally
include precious metals (e.g., gold, silver and platinum), hydrocarbons (e.g.,
coal, oil and natural gases), timber land, undeveloped real property and
agricultural commodities.

The value of equity securities of natural resource companies (including those
companies that are primarily involved in providing goods and services to natural
resource companies) will fluctuate pursuant to market conditions generally, as
well as to the market for the particular natural resource in which the issuer is
involved. The Prudential will seek securities that are attractively priced
relative to the intrinsic values of the relevant natural resource or that are of
companies which are positioned to benefit under existing or anticipated economic
conditions. Accordingly, the portfolio may shift its emphasis from one natural
resource industry to another depending upon prevailing trends or developments.
However, the portfolio will not invest 25% or more of its total assets in the
securities of companies in any one natural resource industry.

"Asset-indexed securities," in which the portfolio may also invest, are
securities whose principal amount, redemption terms or conversion terms are
related to the market price of a natural resource asset. The portfolio expects
to purchase asset-indexed securities which are rated, or are issued by issuers
that have outstanding obligations which are rated, at least BBB or Baa by S&P or
Moody's, respectively, or commercial paper rated at least A-2, or P-2 by S&P or
Moody's, respectively, or in unrated securities that The Prudential determines
to be of comparable quality. The portfolio reserves the right, however, to
invest in asset-indexed securities rated as low as CC or Ca by Moody's or S&P,
respectively, or in unrated securities of comparable quality, also known as high
risk securities. The portfolio may invest a small portion of its assets in other
stocks, other securities convertible into common stocks, fixed-income securities
that are primarily rated A or better by Moody's or S&P (including money market
instruments), and options on stocks and on natural resource-related stock
indices. A description of debt ratings is in the Statement of Additional
Information. The portfolio may under normal circumstances invest up to 35% of
its total assets in money market instruments of the type invested in by the
Money Market Portfolio and without limit when the portfolio manager believes
market conditions warrant a temporary defensive posture or during periods of
structuring and restructuring the portfolio.

The portfolio's turnover rate may exceed 100%, although it is not expected to
exceed 200%.

Leigh Goehring, Vice President, PIC, has been portfolio manager of the Natural
Resources Portfolio since 1992. Prior to 1992, Mr. Goehring was portfolio
manager of The Prudential-Bache Option Growth Fund.

Foreign Securities. The Global Equity Portfolio may invest up to 100% of its
total assets in common stock and convertible securities denominated in a foreign
currency and issued by foreign or domestic issuers. The Bond and High Yield Bond
Portfolios may each invest up to 20% of their assets in United States currency
denominated debt securities issued outside the United States by foreign or
domestic issuers. In addition, the bond components of the Conservatively Managed
Flexible and Aggressively Managed Flexible Portfolios may each invest up to 20%
of their assets in such securities. To the extent permitted by applicable
insurance law, the High Dividend Stock, Conservatively Managed Flexible and
Aggressively Managed Flexible Portfolios may invest up to 30% of their total
assets in debt and equity securities denominated in a foreign currency and
issued by foreign or domestic issuers. Further, to the extent permitted by
applicable insurance law, the Common Stock, Growth Stock, and Natural Resources
Portfolios may invest up to 30% of their assets in non-United States currency
denominated common stock and fixed income securities convertible into common
stock of foreign and domestic issuers. Securities issued outside the United
States and not publicly traded in the United States, as well as American
Depository Receipts ("ADRs") and securities denominated in a foreign currency
are referred to collectively in this prospectus as "foreign securities."

ADRs are U.S. dollar-denominated certificates issued by a United States bank or
trust company and represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a United States bank and
traded on a United States exchange or in an over-the-counter market. Investment
in ADRs has certain advantages over direct investment in the underlying foreign
securities because they are easily transferable, have readily available market
quotations, and the foreign issuers are usually subject to comparable auditing,
accounting, and financial reporting standards as domestic issuers.

<PAGE>

Foreign securities involve risks of political and economic instability in the
country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and, in the case of
securities not denominated in United States currency, the risk of currency
fluctuations. Such securities may be subject to greater fluctuations in price
than domestic securities. Under certain market conditions, foreign securities
may be less liquid than domestic securities. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of securities
exchanges, brokers, and listed companies abroad than in the United States, and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries. If the security is denominated in foreign
currency, it may be affected by changes in currency rates and in exchange
control regulations, and costs may be incurred in connection with conversions
between currencies. Finally, in the event of a default of any foreign debt
obligations, it may be more difficult for a portfolio to obtain or to enforce a
judgment against the issuers of such securities. See Forward Foreign Currency
Exchange Contracts in the Statement of Additional Information.

Options, Futures Contracts and Swaps. The description of each portfolio's
investment policies also state whether they will invest in what are sometimes
called derivative securities. These include options (which may be to buy or sell
equity securities, debt securities, stock indices, foreign currencies and stock
index futures contracts); futures contracts on interest bearing securities,
stock and interest rate indices, and foreign currencies; and interest rate
swaps. These investments have not in the past represented more than a very minor
part of the investments of any portfolio but may increase in the future.

A call option gives the owner the right to buy and a put option the right to
sell a designated security or index at a predetermined price for a given period
of time. They will be used primarily to hedge or minimize fluctuations in the
principal value of a portfolio or to generate additional income. They involve
risks which differ, depending upon the particular option. But they often offer
an attractive alternative to the purchase or sale of the related security.

Futures contracts represent a contractual obligation to buy or sell a designated
security or index within a stated period. They can be used as a hedge against or
to minimize fluctuations of a portfolio or as an efficient way of establishing
certain positions more quickly than direct purchase of the securities. They can
also be used to speculate, but this will not be done by any of the portfolios.
They involve risks of various kinds, all of which could result in losses rather
than in achieving the intended objective of any particular purchase.

Because options, futures and swaps are now used to such a limited extent, a full
description of these investments and the risks associated with them is in the
Statement of Additional Information.

Short Sales. The Bond, High Yield, Bond, Government Securities, Conservatively
Managed Flexible and Aggressively Managed Flexible Portfolios may sell
securities they do not own in anticipation of a decline in the market value of
those securities ("short sales"). The portfolio will incur a loss as a result of
the short sale if the price of the security increases between the date of the
short sale and the date on which the portfolio replaces the borrowed security.
The portfolio will realize a gain if the security declines in price between
those dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss will be increased, by the amount of any
premium or interest paid in connection with the short sale.

Reverse Repurchase Agreements and Dollar Rolls. The Bond, High Yield Bond, and
Government Securities Portfolios, as well as the fixed income portions of the
Conservatively Managed Flexible and Aggressively Managed Flexible Portfolios,
may use reverse repurchase agreements and dollar rolls. The Money Market
Portfolio and the money market portion of any portfolio may use reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by a portfolio with an agreement by the portfolio to repurchase
the same securities at an agreed upon price and date. During the reverse
repurchase period, the portfolio often continues to receive principal and
interest payments on the sold securities. The terms of each agreement reflect a
rate of interest for use of the funds for the period, and thus these agreements
have the characteristics of borrowing by the portfolio. Dollar rolls involve
sales by a portfolio of securities for delivery in the current month with a
simultaneous contract to repurchase substantially similar securities (same type
and coupon) from the same party at an agreed upon price and date. During the
roll period, the portfolio forgoes principal and interest paid on the
securities. A portfolio is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
A portfolio will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities retained by the
portfolio may decline below the price of the securities the portfolio has sold
but

<PAGE>

is obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the portfolio's obligation to repurchase
the securities. The Bond, High Yield Bond, and Government Securities Portfolios,
as well as the fixed income portions of the Conservatively Managed Flexible and
Aggressively Managed Flexible Portfolios, will not obligate more than 30% of
their net assets in connection with reverse repurchase agreements and dollar
rolls. No other portfolio will obligate more than 10% of its net assets in
connection with reverse repurchase agreements.

There is a slight risk that the borrower may become insolvent, which might delay
carrying out a decision to sell the loaned security. This risk can be minimized
by careful selection of borrowers and requiring and monitoring the adequacy of
capital. No loans will be made to any broker affiliated with The Prudential.

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS

The Series Fund is subject to certain investment restrictions which are
fundamental to the operations of the Series Fund and may not be changed except
with the approval of a majority vote of the persons participating in the
affected portfolio.

The investments of the various portfolios are generally subject to certain
additional restrictions under state laws. In the event of future amendments to
the applicable New Jersey statutes, each portfolio will comply, without the
approval of the shareholders, with the statutory requirements as so modified.

A detailed discussion of investment restrictions applicable to the Series Fund
is in the Statement of Additional Information.

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES

The Series Fund has entered into an Investment Advisory Agreement with The
Prudential under which The Prudential will, subject to the direction of the
Board of Directors of the Series Fund, be responsible for the management of the
Series Fund, and provide investment advice and related services to each
portfolio. The Prudential manages the assets that it owns as well as those of
various separate accounts established by The Prudential and those held by other
investment companies for which it acts as investment advisor. Total assets under
management as of December 31, 1994 was approximately $297 billion, which
includes approximately $212 billion owned by The Prudential and approximately
$85 billion of external assets under The Prudential's management.

Subject to The Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by The Prudential are furnished,
with respect to 15 of the Series Fund's 16 portfolios, by its wholly-owned
subsidiary PIC, pursuant to the Service Agreement between The Prudential and
PIC. The Agreement provides that The Prudential will reimburse PIC for its costs
and expenses. The Conservatively Managed Flexible and Aggressively Managed
Flexible Portfolios are managed by Prudential Investment Advisors ("PIA") and
Prudential Diversified Investment Strategies ("PDI"), units of PIC, using a team
of portfolio managers under the supervision of Mark Stumpp, Managing Director,
PIC. Investment advisory services with respect to the Growth Stock Portfolio
provided by The Prudential are furnished by another wholly-owned subsidiary,
Jennison Associates Capital Corp. ("Jennison"), pursuant to an Investment
Subadvisory Agreement between The Prudential and Jennison. That Agreement
provides that a portion of the fee received by The Prudential for providing
investment advisory services to the Growth Stock Portfolio will be paid to
Jennison. PIC and Jennison are both registered as investment advisors under the
Investment Advisers Act of 1940.

Under the Investment Advisory Agreement, The Prudential receives an investment
management fee as compensation for its services to the Series Fund. The fee is a
daily charge, payable quarterly, equal to an annual percentage of the average
daily net assets of each individual portfolio. It is set forth on page 17.

For the year ended December 31, 1994, the Series Fund's total expenses were
0.59% of the average net assets of all of the Series Fund's portfolios. The
investment management fee for that period constituted 0.51% of the average net
assets. Further information about the investment management arrangements and the
expenses of the Series Fund is in the Statement of Additional Information.

41
<PAGE>

Portfolio Brokerage and Related Practices. The Prudential is responsible for
decisions to buy and sell securities for the portfolios, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. Fixed income securities, as well as equity securities
traded in the over-the-counter market, are generally traded on a "net" basis
with dealers acting as principals for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer.

An affiliated broker may be employed to execute brokerage transactions on behalf
of the portfolios, as long as the commissions are reasonable and fair compared
to the commissions received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Series Fund may not
engage in any transactions in which The Prudential or its affiliates, including
The Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal. Additional information about portfolio brokerage and related
transactions is in the Statement of Additional Information.

STATE REGULATION

The Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.

The Prudential is required to submit annual statements of its operations,
including financial statements, to the insurance departments of the various
jurisdictions in which it does business to determine solvency and compliance
with local insurance laws and regulations.

In addition to the annual statements referred to above, The Prudential is
required to file with New Jersey and other jurisdictions 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.

EXPERTS

The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing. Deloitte &
Touche LLP's principal business address is Two Hilton Court, Parsippany, New
Jersey 07054-0319. Actuarial matters included in this prospectus have been
examined by Nancy D. Davis, FSA, MAAA, whose opinion is filed as an exhibit to
the registration statement.

LITIGATION

No litigation is pending that would have a material effect upon the Account or
the Series Fund.

EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

Included in the registration statements for the Contracts and the Series Fund is
a Statement of Additional Information which is available without charge by
writing to The Prudential at Prudential Plaza, Newark, New Jersey 07102-3777.
The following table of contents of that Statement provides a brief summary of
what is included in each section.

I. MORE DETAILED INFORMATION ABOUT THE CONTRACT.

Sales Load Upon Surrender. A description is given of exactly how The
Prudential determines the amount of the part of the sales load that is
imposed only upon surrenders or withdrawals during the first 10 Contract
years.

Reduction of Charges for Concurrent Sales to Several Individuals. Where the
Contract is sold at the same time to several individuals who are members of
an associated class and The Prudential's expenses will be reduced, some of
the charges under those Contracts may be reduced.

Sales to Persons 14 Years of Age or Younger. The face amount will increase,
on the insured's 21st birthday, to 150% of the initial face amount. The
application of some of the other Contract provisions may be affected.

Paying Premiums by Payroll Deduction. Your employer may pay monthly
premiums for you with deductions from your salary.

Unisex Premiums and Benefits. In some states and under certain
circumstances, premiums and benefits will not vary with the sex of the
insured.

42
<PAGE>

How the Death Benefit Will Vary. A description is given of exactly how the
death benefit may increase to satisfy Internal Revenue Code requirements.

Withdrawal of Excess Cash Surrender Value. If the Contract Fund value is
high enough you may be able to withdraw part of the cash surrender value
while keeping the Contract in effect. There will be a transaction charge.
For Form A Contracts there will be a surrender charge. The death benefit
will change. There may be tax consequences. You should consult your
Prudential representative to discuss whether a withdrawal or a loan is
preferable.

Increases in Face Amount. If you wish to increase the amount of your
insurance, it may be preferable to increase the amount of this Contract
rather than to buy another Contract. Conditions will apply, and there will
be changes in the premiums and charges. Other provisions of your Contract
will be affected.

Decreases in Face Amount. In addition to effecting a partial surrender of
the Contract, you may, within limits, reduce the Contract's face amount
without withdrawing any cash. This reduces the amount at risk and the
monthly mortality charge. There could be tax consequences. Your Prudential
representative should first be consulted.

Tax Treatment of Contract Benefits. A fuller account is provided of how
Contract owners may be affected by federal income taxes.

Sale of the Contract and Sales Commissions. The Contract is sold primarily
by agents of The Prudential who are also registered representatives of one
of its subsidiaries, Pruco Securities Corporation, a broker and dealer
registered under the Securities and Exchange Act of 1934. Generally,
selling agents receive a commission of 50% of the Scheduled Premium in the
first year, 10% for the next three years and smaller commissions
thereafter.

Tax-Qualified Pension Plans. Certain restrictions apply if the Contract is
purchased to fund, in part, a tax-advantaged pension plan.

Other Standard Contract Provisions. The Contract contains several
provisions commonly included in all life insurance policies. They include
provisions relating to beneficiaries, misstatement of age or sex, suicide,
assignment, incontestability, and settlement options.

Exchange of Fixed-Dollar Contract to Variable Contract. Owners of an
existing Prudential fixed-dollar life insurance contract may be able to
exchange it for a Contract upon favorable terms.

II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.

General
Convertible Securities
Warrants
Options and Futures
When-Issued and Delayed Delivery Securities
Short Sales
Short Sales Against the Box
Interest Rate Swaps
Loans of Portfolio Securities
Illiquid Securities
Forward Foreign Currency Exchange Contracts
Further Information About the Policies of the
Stock Index Portfolio
Further Information About the Zero Coupon
Bond Portfolios

A more detailed description is given of these investments and the policies
of these portfolios.

III. INVESTMENT RESTRICTIONS.

There are many restrictions upon the investments the portfolios may make
and the practices in which they may engage; these are fundamental, meaning
they may not be changed without Contract owner approval.

IV. INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES.

A fuller description than that in the prospectus is given.

V. PORTFOLIO TRANSACTIONS AND BROKERAGE.

A description is given of how securities transactions are effected and how
The Prudential selects the brokers.

43
<PAGE>

VI. DETERMINATION OF NET ASSET VALUE.

A full description is given of how the daily net asset value of each
portfolio is determined.

VII. SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST.

A full description is given.

VIII. DEBT RATINGS.

A description is given of how Moody's Investors Services, Inc. and
Standard & Poor's Corporation describe the creditworthiness of debt
securities.

IX. POSSIBLE REPLACEMENT OF THE SERIES FUND.

Although it is most unlikely, it is conceivable that The Prudential might
wish to replace the Series Fund portfolios with other investment options.
SEC approval will be needed.

X. OTHER INFORMATION CONCERNING THE SERIES FUND.

Incorporation and Authorized Stock
Dividends, Distributions and Taxes
Custodian and Transfer Agent
Experts
Licenses

More detail is provided about these matters.

XI. DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES
FUND.

The names and recent affiliations of The Prudential's directors and
executive officers are given. The same information is given for the Series
Fund.

XII. FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC.

XIII. THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS.

ADDITIONAL INFORMATION

A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus and
the Statement of Additional Information do not include all of the information
set forth in the registration statement. Certain portions have been omitted
pursuant to the rules and regulations of the SEC. The omitted information may,
however, be obtained from the SEC's principal office in Washington, D.C., upon
payment of a prescribed fee.

Further information may also be obtained from The Prudential. Its address and
telephone number are on the cover of this prospectus.

FINANCIAL STATEMENTS

The financial statements of the Account should be distinguished from the
consolidated financial statements of The Prudential, which should be considered
only as bearing upon the ability of The Prudential to meet its obligations under
the Contracts. The financial statements of the Series Fund are in the Statement
of Additional Information.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF NET ASSETS

December 31, 1994

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

AGGRESSIVELY
MONEY COMMON MANAGED
TOTAL MARKET BOND STOCK FLEXIBLE
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2].......... $2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $2,568,337,051 $ 77,928,559 $ 76,018,846 $ 495,997,636 $ 695,664,623
Equity of The Prudential Insurance Company of
America....................................... 18,801,044 241,302 175,566 4,115,564 4,171,999
-------------- -------------- -------------- -------------- --------------
$2,587,138,095 $ 78,169,861 $ 76,194,412 $ 500,113,200 $ 699,836,622
============== ============== ============== ============== ==============
</TABLE>

STATEMENTS OF OPERATIONS

For the year ended December 31, 1994

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

AGGRESSIVELY
MONEY COMMON MANAGED
TOTAL MARKET BOND STOCK FLEXIBLE
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 79,801,099 $ 2,906,404 $ 4,745,723 $ 10,458,080 $ 18,588,518

EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 16,768,066 504,103 518,852 3,134,155 4,527,520
Reimbursement for excess expenses [Note 3D]..... (53,999) 0 0 0 0
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 16,714,067 504,103 518,852 3,134,155 4,527,520
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 63,087,032 2,402,301 4,226,871 7,323,925 14,060,998
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 54,709,623 0 158,594 19,666,506 18,931,168
Realized gain (loss) on shares redeemed
[average cost basis].......................... 167,179 0 4,403 86,672 0
Net unrealized loss on investments.............. (155,373,175) 0 (7,162,380) (18,362,891) (56,779,739)
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... (100,496,373) 0 (6,999,383) 1,390,287 (37,848,571)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ (37,409,341) $ 2,402,301 $ (2,772,512) $ 8,714,212 $ (23,787,573)
============== ============== ============== ============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A1

<PAGE>

STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
ZERO ZERO
CONSERVATIVELY COUPON COUPON HIGH
MANAGED BOND BOND YIELD STOCK
FLEXIBLE 1995 2000 BOND INDEX
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2].......... $ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024
============== ============== ============== ============== ==============
NET ASSETS, representing:
Equity of Contract owners....................... $ 633,504,352 $ 4,788,369 $ 16,177,407 $ 54,364,432 $ 190,028,325
Equity of The Prudential Insurance Company of
America....................................... 3,999,767 16,228 609,220 174,341 731,699
-------------- -------------- -------------- -------------- --------------
$ 637,504,119 $ 4,804,597 $ 16,786,627 $ 54,538,773 $ 190,760,024
============== ============== ============== ============== ==============

HIGH
DIVIDEND NATURAL GLOBAL
STOCK RESOURCES EQUITY
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2].......... $ 150,687,304 $ 72,147,168 $ 29,938,696
============== ============== ==============
NET ASSETS, representing:
Equity of Contract owners....................... $ 149,277,865 $ 71,565,256 $ 27,782,691
Equity of The Prudential Insurance Company of
America....................................... 1,409,439 581,912 2,156,005
-------------- -------------- --------------
$ 150,687,304 $ 72,147,168 $ 29,938,696
============== ============== ==============
</TABLE>

STATEMENTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
ZERO ZERO
CONSERVATIVELY COUPON COUPON HIGH
MANAGED BOND BOND YIELD STOCK
FLEXIBLE 1995 2000 BOND INDEX
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 21,289,808 $ 286,151 $ 1,133,170 $ 5,329,778 $ 4,465,133

EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 4,323,507 32,534 118,731 370,924 1,283,145
Reimbursement for excess expenses [Note 3D]..... 0 (9,637) (17,971) 0 0
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 4,323,507 22,897 100,760 370,924 1,283,145
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 16,966,301 263,254 1,032,410 4,958,854 3,181,988
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 6,635,310 1,011 31,655 38 267,733
Realized gain (loss) on shares redeemed
[average cost basis].......................... 31,649 586 1,031 5,625 58,302
Net unrealized loss on investments.............. (33,092,575) (288,227) (2,416,751) (6,827,471) (2,856,319)
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... (26,425,616) (286,630) (2,384,065) (6,821,808) (2,530,284)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ (9,459,315) $ (23,376) $ (1,351,655) $ (1,862,954) $ 651,704
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------

HIGH
DIVIDEND NATURAL GLOBAL
STOCK RESOURCES EQUITY*
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 5,001,100 $ 674,356 $ 44,201
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 893,008 470,895 55,679
Reimbursement for excess expenses [Note 3D]..... 0 (2) 0
-------------- -------------- --------------
NET EXPENSES...................................... 893,008 470,893 55,679
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 4,108,092 203,463 (11,478)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 7,633,088 1,375,424 5,622
Realized gain (loss) on shares redeemed
[average cost basis].......................... 34,607 22,045 0
Net unrealized loss on investments.............. (11,478,198) (5,314,192) (1,421,127)
-------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... (3,810,503) (3,916,723) (1,415,505)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 297,589 $ (3,713,260) $ (1,426,983)
-------------- -------------- --------------
-------------- -------------- --------------
*Commenced
Business
on 5/1/94
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A2

<PAGE>

STATEMENTS OF NET ASSETS (CONTINUED)

December 31, 1994

<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------
ZERO
COUPON
GOVERNMENT BOND
SECURITIES 2005
-------------- --------------
<S> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2].......... $ 61,563,342 $ 14,093,350
============== ==============
NET ASSETS, representing:
Equity of Contract owners....................... $ 61,256,996 $ 13,981,694
Equity of The Prudential Insurance Company of
America....................................... 306,346 111,656
-------------- --------------
$ 61,563,342 $ 14,093,350
============== ==============
</TABLE>

STATEMENTS OF OPERATIONS (CONTINUED)

For the year ended December 31, 1994

<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------
ZERO
COUPON
GOVERNMENT BOND
SECURITIES 2005
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 4,032,941 $ 845,736

EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 445,508 89,505
Reimbursement for excess expenses [Note 3D]..... 0 (26,389)
-------------- --------------
NET EXPENSES...................................... 445,508 63,116
-------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 3,587,433 782,620
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 3,474
Realized gain (loss) on shares redeemed
[average cost basis].......................... (74,828) (2,913)
Net unrealized loss on investments.............. (7,299,824) (2,073,481)
-------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... (7,374,652) (2,072,920)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ (3,787,219) $ (1,290,300)
============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A3

<PAGE>

(This page intentionally left blank.)

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS

For the years ended December 31, 1994 and 1993

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

MONEY
TOTAL MARKET BOND
------------------------------ ------------------------------ ------------------------------
1993
1994 (AS RESTATED) 1994 1993 1994 1993
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>

OPERATIONS:
Net investment income (loss)..... $ 63,087,032 $ 44,057,142 $ 2,402,301 $ 1,562,897 $ 4,226,871 $ 3,075,764
Capital gains distributions
received....................... 54,709,623 70,916,387 0 0 158,594 892,376
Realized gain (loss) on shares
redeemed
[average cost basis]........... 167,179 626,607 0 0 4,403 15,239
Net unrealized gain (loss) on
investments.................... (155,373,175) 89,884,218 0 0 (7,162,380) 662,894
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ (37,409,341) 205,484,354 2,402,301 1,562,897 (2,772,512) 4,646,273
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 560,003,324 595,883,814 6,444,757 5,467,177 11,829,119 18,271,190
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (942,487) 1,089,951 (213,654) (175,801) (532,267) (36,073)
-------------- -------------- -------------- -------------- -------------- --------------

TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 521,651,496 802,458,119 8,633,404 6,854,273 8,524,340 22,881,390

NET ASSETS:
Beginning of year................ 2,065,486,599 1,263,028,480 69,536,457 62,682,184 67,670,072 44,788,682
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $2,587,138,095 $2,065,486,599 $ 78,169,861 $ 69,536,457 $ 76,194,412 $ 67,670,072
============== ============== ============== ============== ============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A5

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------

AGGRESSIVELY
COMMON MANAGED
STOCK FLEXIBLE
------------------------------ ------------------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>

OPERATIONS:
Net investment income (loss)..... $ 7,323,925 $ 3,787,584 $ 14,060,998 $ 12,932,914
Capital gains distributions
received....................... 19,666,506 16,988,695 18,931,168 29,168,105
Realized gain (loss) on shares
redeemed
[average cost basis]........... 86,672 167,532 0 122,764
Net unrealized gain (loss) on
investments.................... (18,362,891) 30,362,343 (56,779,739) 18,927,854
-------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 8,714,212 51,306,154 (23,787,573) 61,151,637
-------------- -------------- -------------- --------------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 123,951,671 108,534,011 142,298,237 150,101,012
-------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ 452,486 1,171,594 (55,717) (111,711)
-------------- -------------- -------------- --------------

TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 133,118,369 161,011,759 118,454,947 211,140,938

NET ASSETS:
Beginning of year................ 366,994,831 205,983,072 581,381,675 370,240,737
-------------- -------------- -------------- --------------
End of year...................... $ 500,113,200 $ 366,994,831 $ 699,836,622 $ 581,381,675
============== ============== ============== ==============

ZERO
CONSERVATIVELY COUPON
MANAGED BOND
FLEXIBLE 1995
------------------------------ ------------------------------

1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 16,966,301 $ 10,601,459 $ 263,254 $ 257,300
Capital gains distributions
received....................... 6,635,310 18,959,118 1,011 0
Realized gain (loss) on shares
redeemed
[average cost basis]........... 31,649 120,806 586 0
Net unrealized gain (loss) on
investments.................... (33,092,575) 12,220,568 (288,227) (1,749)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ (9,459,315) 41,901,951 (23,376) 255,551
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 127,164,401 163,207,517 338,277 1,203,358
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (1,173,893) 816,842 (106,380) 8,524
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 116,531,193 205,926,310 208,521 1,467,433
NET ASSETS:
Beginning of year................ 520,972,926 315,046,616 4,596,076 3,128,643
-------------- -------------- -------------- --------------
End of year...................... $ 637,504,119 $ 520,972,926 $ 4,804,597 $ 4,596,076
============== ============== ============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A6

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

For the years ended December 31, 1994 and 1993

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

ZERO
COUPON HIGH
BOND YIELD STOCK
2000 BOND INDEX
------------------------------ ------------------------------ ------------------------------
1993
1994 1993 1994 (AS RESTATED) 1994 1993
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>

OPERATIONS:
Net investment income (loss)..... $ 1,032,410 $ 834,516 $ 4,958,854 $ 3,323,954 $ 3,181,988 $ 2,402,805
Capital gains distributions
received....................... 31,655 5,978 38 23 267,733 339,359
Realized gain (loss) on shares
redeemed
[average cost basis]........... 1,031 1,154 5,625 48,986 58,302 63,772
Net unrealized gain (loss) on
investments.................... (2,416,751) 919,475 (6,827,471) 2,255,362 (2,856,319) 8,649,699
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ (1,351,655) 1,761,123 (1,862,954) 5,628,325 651,704 11,455,635
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 900,334 5,163,860 9,774,435 17,361,907 26,983,569 43,311,756
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ 409,426 10,638 (576,511) (16,603) (298,727) (951,071)
-------------- -------------- -------------- -------------- -------------- --------------

TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... (41,895) 6,935,621 7,334,970 22,973,629 27,336,546 53,816,320

NET ASSETS:
Beginning of year................ 16,828,522 9,892,901 47,203,803 24,230,174 163,423,478 109,607,158
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 16,786,627 $ 16,828,522 $ 54,538,773 $ 47,203,803 $ 190,760,024 $ 163,423,478
============== ============== ============== ============== ============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A7

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------

HIGH
DIVIDEND NATURAL GLOBAL GOVERNMENT
STOCK RESOURCES EQUITY* SECURITIES
------------------------------ ------------------------------ -------------- --------------
1994 1993 1994 1993 1994 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>

OPERATIONS:
Net investment income (loss)..... $ 4,108,092 $ 1,948,922 $ 203,463 $ 300,114 $ (11,478) $ 3,587,433
Capital gains distributions
received....................... 7,633,088 3,057,447 1,375,424 1,290,124 5,622 0
Realized gain (loss) on shares
redeemed
[average cost basis]........... 34,607 68,504 22,045 8,953 0 (74,828)
Net unrealized gain (loss) on
investments.................... (11,478,198) 6,361,835 (5,314,192) 6,638,189 (1,421,127) (7,299,824)
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 297,589 11,436,708 (3,713,260) 8,237,380 (1,426,983) (3,787,219)
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 51,018,498 44,298,031 22,317,372 13,476,759 29,174,840 4,183,444
-------------- -------------- -------------- -------------- -------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (376,490) 886,003 (47,480) 173,903 2,190,839 (467,937)
-------------- -------------- -------------- -------------- -------------- --------------

TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 50,939,597 56,620,742 18,556,632 21,888,042 29,938,696 (71,712)

NET ASSETS:
Beginning of year................ 99,747,707 43,126,965 53,590,536 31,702,494 0 61,635,054
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 150,687,304 $ 99,747,707 $ 72,147,168 $ 53,590,536 $ 29,938,696 $ 61,563,342
============== ============== ============== ============== ============== ==============
*Commenced
Business
on 5/1/94

<CAPTION>
1993
--------------
<S> <C>
OPERATIONS:
Net investment income (loss)..... $ 2,505,506
Capital gains distributions
received....................... 213,250
Realized gain (loss) on shares
redeemed
[average cost basis]........... 6,004
Net unrealized gain (loss) on
investments.................... 2,070,124
--------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ 4,794,884
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 20,135,848
--------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (628,148)
--------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 24,302,584
NET ASSETS:
Beginning of year................ 37,332,470
--------------
End of year...................... $ 61,635,054
==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A8

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

For the years ended December 31, 1994 and 1993

<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------

ZERO
COUPON
BOND
2005
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>

OPERATIONS:
Net investment income (loss)..... $ 782,620 $ 523,407
Capital gains distributions
received....................... 3,474 1,912
Realized gain (loss) on shares
redeemed
[average cost basis]........... (2,913) 2,893
Net unrealized gain (loss) on
investments.................... (2,073,481) 817,624
-------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS........ (1,290,300) 1,345,836
-------------- --------------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 3,624,370 5,351,388
-------------- --------------

NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM SURPLUS
TRANSFERS........................ (146,182) (58,146)
-------------- --------------

TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 2,187,888 6,639,078

NET ASSETS:
Beginning of year................ 11,905,462 5,266,384
-------------- --------------
End of year...................... $ 14,093,350 $ 11,905,462
============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 AND A11.
A9

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE APPRECIABLE ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993

NOTE 1: GENERAL

The Prudential Variable Appreciable Account (the "Account") of The Prudential
Insurance Company of America ("The Prudential") was established on August 11,
1987 by a resolution of The Prudential's Board of Directors in conformity with
insurance laws of the State of New Jersey. The assets of the Account are
segregated from The Prudential's other assets.

The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are fourteen subaccounts within the Account,
each of which invests only in a corresponding portfolio of The Prudential Series
Fund, Inc. (the "Series Fund"). The Series Fund is a diversified open-end
management investment company, and is managed by The Prudential.

NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS

The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1994 were as
follows:

<TABLE>
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------
AGGRESSIVELY CONSERVATIVELY
PORTFOLIO MONEY COMMON MANAGED MANAGED
INFORMATION MARKET BOND STOCK FLEXIBLE FLEXIBLE
- ---------------------------- -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of shares: 7,816,986 7,590,332 24,204,046 45,162,376 45,229,225
Net asset value per share: $ 10.0000 $ 10.0384 $ 20.6624 $ 15.4960 $ 14.0950
Cost: $ 78,169,861 $ 82,298,314 $ 479,554,451 $ 718,908,716 $ 652,751,738
</TABLE>

<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------
ZERO ZERO
COUPON COUPON HIGH HIGH
PORTFOLIO BOND BOND YIELD STOCK DIVIDEND
INFORMATION 1995 2000 BOND INDEX STOCK
- ---------------------------- -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of shares: 453,570 1,415,159 7,400,245 12,753,836 10,403,600
Net asset value per share: $ 10.5929 $ 11.8620 $ 7.3655 $ 14.9571 $ 14.4842
Cost: $ 5,036,020 $ 17,707,975 $ 58,897,134 $ 172,505,026 $ 152,868,694
</TABLE>

<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------
ZERO
COUPON
PORTFOLIO NATURAL GLOBAL GOVERNMENT BOND
INFORMATION RESOURCES EQUITY SECURITIES 2005
- ---------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 4,995,241 2,157,138 5,884,837 1,311,729
Net asset value per share: $ 14.4432 $ 13.8789 $ 10.4614 $ 10.7441
Cost: $ 69,492,489 $ 31,359,823 $ 66,221,339 $ 15,136,391
</TABLE>

NOTE 3: CHARGES AND EXPENSES

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges at an effective annual rate of
up to 0.90% may be applied daily against the net assets representing equity
of the Contract owners held in each subaccount. For contracts with face
amounts of $100,000 or more, the annual rate is 0.60%.

B. Deferred Sales Charge

A deferred sales charge is imposed upon the surrender of certain variable
life insurance contracts to compensate The Prudential for sales and other
marketing expenses. The amount of any sales charge will depend on the number
of years that have elapsed since the Contract was issued. No sales charge
will be imposed after the tenth year of the Contract. No sales charge will
be imposed on death benefits.

A10

<PAGE>

C. Partial Withdrawal Charge

The partial withdrawal of the cash surrender value from certain variable
life insurance contracts invokes a charge equal to the lesser of $15 or 2%
of the amount withdrawn.

D. Expense Reimbursement

The Account is reimbursed by The Prudential, on a non-guaranteed basis, for
expenses incurred by the Series Fund in excess of the effective rate of
0.40% for all Zero Coupon Bond Portfolios, 0.45% for the Stock Index
Portfolio, 0.50% for the High Dividend Stock Portfolio, 0.55% for the
Natural Resources Portfolio, and 0.65% for the High Yield Bond Portfolio of
the average daily net assets of these portfolios.

NOTE 4: TAXES

The operations of the subaccounts form a part of, and are taxed with, the
operations of The Prudential. Under the Internal Revenue Code, all ordinary
income and capital gains allocated to the Contract owners are not taxed to The
Prudential. As a result, the net asset values of the subaccounts are not
affected by federal income taxes on distributions received by the subaccounts.

NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS

The increase (decrease) in net assets resulting from surplus transfers
represents the net contributions of The Prudential to the Account.

NOTE 6: RELATED PARTY TRANSACTIONS

The Prudential has purchased multiple individual contracts of the Account
insuring the lives of certain employees. The Prudential is the owner and
beneficiary of the contracts. Net premium payments of approximately $23.0
million for each of the years ended December 31, 1994 and December 31, 1993,
respectively, were directed to the Aggressively Managed Flexible subaccount.
Equity of Contract owners in that subaccount at December 31, 1994 and December
31, 1993 includes approximately $136.7 million and $122.8 million, respectively,
owned by The Prudential.

NOTE 7: RESTATEMENT

Subsequent to the issuance of the Account's previously issued December 31, 1993
financial statements, The Prudential determined that in the High Yield Bond
subaccount, net assets and net increase in net assets resulting from operations
were overstated by approximately $284,192 due to the overvaluation of a security
held in the High Yield Bond Portfolio of the Series Fund at December 31, 1993.
Accordingly, the comparative 1993 financial information included in the
statements of changes in net assets of the Account has been restated.

A11

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Contract Owners of
The Prudential Variable Appreciable
Account and the Board of Directors
of The Prudential Insurance Company of America
Newark, New Jersey

We have audited the accompanying statements of net assets of The Prudential
Variable Appreciable Account of The Prudential Insurance Company of America
(comprising, respectively, the Money Market, Bond, Common Stock, Aggressively
Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond 1995, Zero
Coupon Bond 2000, High Yield Bond, Stock Index, High Dividend Stock, Natural
Resources, Global Equity, Government Securities and Zero Coupon Bond 2005
subaccounts) as of December 31, 1994, the related statements of operations for
the periods presented in the year then ended, and the statements of changes in
net assets for each of the periods presented in the two years 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 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. Our procedures included
confirmation of securities owned as of December 31, 1994. 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 statements present fairly, in all material
respects, the financial position of each of the respective subaccounts
constituting The Prudential Variable Appreciable Account as of December 31,
1994, the results of their operations, and the changes in their net assets for
the respective stated periods in conformity with generally accepted accounting
principles.

As discussed in Note 7, the 1993 financial statements of The Prudential Variable
Appreciable Account have been restated.

Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995

A12

<PAGE>

<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
<TABLE>
<CAPTION>

DECEMBER 31,
1994 1993
------ ------
(IN MILLIONS)

<S> <C> <C>
ASSETS

Fixed maturities....................... $ 78,743 $ 79,061
Equity securities...................... 2,327 2,216
Mortgage loans......................... 26,199 27,509
Investment real estate................. 1,600 1,903
Policy loans........................... 6,631 6,456
Other long-term investments............ 5,147 4,739
Short-term investments................. 10,630 6,304
Securities purchased under
agreements to resell................. 5,591 9,656
Trading account securities............. 6,218 8,586
Cash................................... 1,109 1,666
Accrued investment income.............. 1,932 1,826
Premiums due and deferred.............. 2,712 2,549
Broker-dealer receivables.............. 7,311 9,133
Other assets........................... 7,119 9,997
Assets held in Separate Accounts....... 48,633 48,110
-------- --------
TOTAL ASSETS............................... $211,902 $219,711
======== ========
LIABILITIES, AVR AND SURPLUS
Liabilities:
Policy liabilities and insurance
reserves:
Future policy benefits and claims...... $101,589 $100,030
Unearned premiums...................... 1,144 1,146
Other policy claims and benefits
payable.............................. 1,848 1,935
Policy dividends....................... 1,686 2,018
Other policyholders' funds............. 9,097 9,874
Securities sold under agreements
to repurchase........................ 8,919 14,703
Notes payable and other borrowings..... 12,009 13,354
Broker-dealer payables................. 5,144 5,410
Other liabilities...................... 13,036 13,075
Liabilities related to
Separate Accounts...................... 47,946 47,475
-------- --------
TOTAL LIABILITIES.......................... 202,418 209,020
-------- --------
Asset valuation reserve (AVR).............. 2,035 2,687
-------- --------
Surplus:
Capital notes.......................... 298 298
Special surplus fund................... 1,097 1,091
Unassigned surplus..................... 6,054 6,615
-------- --------
TOTAL SURPLUS.............................. 7,449 8,004
-------- --------
TOTAL LIABILITIES, AVR
AND SURPLUS............................ $211,902 $219,711
======== ========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF
OPERATIONS AND CHANGES IN SURPLUS AND ASSET
VALUATION RESERVE (AVR)

YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)

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

Premiums and annuity
considerations............. $29,698 $29,982 $29,858
Net investment income........ 9,595 10,090 10,318
Broker-dealer revenue........ 3,677 4,025 3,592
Realized investment
(losses)/gains............. (450) 953 720
Other income................. 1,037 924 833
------- ------- -------
TOTAL REVENUE.................... 43,557 45,974 45,321
------- ------- -------
BENEFITS AND EXPENSES
Current and future benefits
and claims................. 30,788 30,573 32,031
Insurance and underwriting
expenses................... 4,830 4,982 4,563
Limited partnership
matters.................... 1,422 390 129
General, administrative
and other expenses......... 5,794 5,575 5,394
------- ------- -------
TOTAL BENEFITS AND
EXPENSES..................... 42,834 41,520 42,117
------- ------- -------
Income from operations
before dividends
and income taxes............. 723 4,454 3,204
Dividends to
policyholders................ 2,290 2,339 2,389
------- ------- -------
Income/(loss) before
income taxes................. (1,567) 2,115 815
Income tax
(benefit)/provision.......... (392) 1,236 468
------- ------- -------
NET INCOME/(LOSS)................ (1,175) 879 347
SURPLUS, BEGINNING
OF YEAR...................... 8,004 7,365 6,527
Issuance of capital notes
(after net charge-off
of non-admitted prepaid
postretirement benefit
cost of $113 in 1993)........ 0 185 0
Net unrealized
investment (losses)
and change in AVR............ 620 (425) 491
------- ------- -------
SURPLUS, END OF
YEAR......................... 7,449 8,004 7,365
------- ------- -------
AVR, BEGINNING OF YEAR........... 2,687 2,457 3,216
(Decrease)/increase in AVR (652) 230 (759)
------- ------- -------
AVR, END OF YEAR................. 2,035 2,687 2,457
------- ------- -------
TOTAL SURPLUS AND
AVR.......................... $ 9,484 $10,691 $ 9,822
======= ======= =======

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-1
<PAGE> 2

CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
1994 1993 1992
----- ----- -----
(IN MILLIONS)

<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES

Net income/(loss)................ $(1,175) $ 879 $ 347
Adjustments to reconcile
net income/(loss) to cash flows
from operating activities:
Increase in policy liabilities
and insurance reserves..... 1,289 2,747 3,428
Net increase in
Separate Accounts.......... (52) (59) (69)
Realized investment
losses/(gains)............. 450 (953) (720)
Depreciation, amortization
and other non-cash
items...................... 379 261 380
Decrease/(increase)
in operating assets:
Mortgage loans........... (226) (226) (1,952)
Policy loans............. (175) (174) (216)
Securities purchased
under agreements
to resell.............. 2,979 (2,049) (1,420)
Trading account
securities............. 2,447 (2,087) 351
Broker-dealer
receivables............ 1,822 (1,803) (161)
Other assets............. 1,873 (2,277) (1,041)
(Decrease)/increase in
operating liabilities:
Securities sold under
agreements to
repurchase........... (3,247) 1,134 1,967
Broker-dealer
payables............. (266) 1,067 (653)
Other liabilities...... (2,116) 2,007 841
------ ------ ------
CASH FLOWS FROM
OPERATING ACTIVITIES............ 3,982 (1,533) 1,082
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from the
sale/maturity of:
Fixed maturities.............. 82,834 87,840 73,326
Equity securities............. 1,426 1,725 957
Mortgage loans................ 4,154 4,789 3,230
Investment real estate........ 935 441 243
Other long-term
investments................. 1,022 1,352 2,046
Property and equipment........ 637 6 5
Payments for the purchase of:
Fixed maturities.............. (83,075) (89,034) (72,397)
Equity securities............. (1,535) (1,085) (977)
Mortgage loans................ (3,446) (3,530) (3,087)
Investment real estate........ (161) (196) (240)
Other long-term
investments................. (1,687) (531) (2,039)
Property and equipment........ (392) (640) (733)
Short-term investments (net)...... (4,281) (2,150) (1,160)
Net change in cash placed as
collateral for securities
loaned........................ 2,011 (589) (1,032)
------ ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES.......... (1,558) (1,602) (1,858)
------ ------ ------
</TABLE>

<TABLE>

<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Net (payments)/proceeds
of short-term borrowings.... $ (1,115) $ 1,106 $ 70
Proceeds from the issuance of
long-term debt.............. 345 1,228 217
Payments for the settlement
of long-term debt........... (760) (721) (204)
Proceeds/(payments) of
unmatched securities
purchased under
agreements to resell........ 1,086 (47) (170)
(Payments)/proceeds of
unmatched securities sold
under agreements to
repurchase.................. (2,537) 1,707 1,201
Proceeds from the issuance of
capital notes............... 0 298 0
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES.......... (2,981) 3,571 1,114
------- ------- -------
Net (decrease)/increase
in cash..................... (557) 436 338
Cash, beginning of year........ 1,666 1,230 892
------- ------- -------
CASH, END OF YEAR.............. $ 1,109 $ 1,666 $ 1,230
======== ======= =======

</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Income tax payments made, net of refunds, during 1994, 1993 and 1992 were $64
million, $933 million and $555 million, respectively. Interest payments made
during 1994, 1993 and 1992 were $1,429 million, $1,171 million and $1,272
million, respectively.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-2

<PAGE> 3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

1. ACCOUNTING POLICIES AND PRINCIPLES

A. PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
The Prudential Insurance Company of America ("The Prudential"), a mutual
life insurance company, and its subsidiaries (collectively, "the
Company"). The activities of the Company cover a broad range of financial
services, including life and health insurance, property and casualty
insurance, reinsurance, group health care, securities brokerage, asset
management, investment advisory services, mortgage banking and servicing,
and real estate development and brokerage. All significant intercompany
balances and transactions have been eliminated in consolidation.

B. BASIS OF PRESENTATION

The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by regulatory authorities in
the domiciliary states. Certain reclassifications have been made to the
1993 and 1992 financial statements to conform to the 1994 presentation.

In 1994, The American Institute of Certified Public Accountants issued
Statement of Position 94-5, "Disclosures of Certain Matters in the
Financial Statements of Insurance Enterprises" ("SOP 94-5"), which
requires insurance enterprises to disclose in their financial statements
the accounting methods used in their statutory financial statements that
are permitted by the state insurance departments rather than prescribed
statutory accounting practices.

The Prudential, 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 Insurance ("the
Department"). Its insurance subsidiaries prepare statutory financial
statements in accordance with accounting practices prescribed or permitted
by their respective domiciliary home state insurance departments.
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.

In 1993, The Prudential issued Fixed Rate Capital Notes ("the notes").
Interest payments on the notes are pre-approved by the Department, and
principal repayment is subject to a Risk-Based Capital test. This
permitted accounting practice differs from that prescribed by the NAIC.
The NAIC practices provide for Insurance Commissioner approval of every
interest and principal payment before the payment is made. The Prudential
has included the notes as part of surplus (see Note 7).

The Prudential has established guaranty fund liabilities for the
insolvencies of certain life insurance companies. The liabilities were
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.

The Company, with permission from the Department, prepares an Annual
Report that differs from the Annual Statement filed with the Department in
that subsidiaries are consolidated and certain financial statement
captions are presented differently.

C. FUTURE APPLICATION OF ACCOUNTING STANDARDS

The Financial Accounting Standards Board (the "FASB") issued Financial
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which, as
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of mutual life
insurance companies with respect to utilizing statutory basis financial
statements for general purposes in that it would not allow such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgment as to determining GAAP for mutual
insurance companies' insurance operations. The Company is currently
assessing the impact of Interpretation No. 40 on its consolidated
financial statements.

D. INVESTED ASSETS

Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Equity securities, which
consist primarily of common stocks, are carried at market value, which is
based on quoted market prices, where available, or prices provided by
state regulatory authorities.

F-3

<PAGE> 4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

As of January 1, 1994, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Under SFAS No. 115, debt and marketable equity securities are classified
in three categories: held-to-maturity, available-for-sale and trading. The
effect of adopting SFAS No. 115 for the non-insurance subsidiaries was not
material.

Mortgage loans are stated primarily at unpaid principal balances. In
establishing reserves for losses on mortgage loans, management considers
expected losses on loans which they believe may not be collectible in full
and expected losses on foreclosures and the sale of mortgage loans.
Reserves established for potential or estimated mortgage loan losses are
included in the "Asset valuation reserve."

Policy loans are stated primarily at unpaid principal balances.

Investment real estate, except for real estate acquired in satisfaction of
debt, is carried at cost less accumulated straight-line depreciation ($748
million in 1994 and $859 million in 1993), encumbrances and permanent
impairments in value. Real estate acquired in satisfaction of debt,
included in "Other assets," is carried at the lower of cost or fair value
less disposition costs. Fair value is considered to be the amount that
could reasonably be expected in a current transaction between willing
parties, other than in forced or liquidation sale.

Included in "Other long-term investments" is the Company's net equity in
joint ventures and other forms of partnerships, which amounted to $3,357
million and $3,745 million as of December 31, 1994 and 1993, respectively.
The Company's share of net income from such entities was $354 million,
$375 million and $185 million for 1994, 1993 and 1992, respectively.

Short-term investments are stated at amortized cost, which approximates
fair value.

Securities purchased under agreements to resell and securities sold under
agreements to repurchase are collateralized financing transactions and are
carried at their contract amounts plus accrued interest. These agreements
are generally collateralized by cash or securities with market values in
excess of the obligations under the contract. It is the Company's policy
to take possession of securities purchased under resale agreements and to
value the securities daily. The Company monitors the value of the
underlying collateral and collateral is adjusted when necessary.

Trading account securities from broker-dealer operations are reported
based upon quoted market prices with unrealized gains and losses reported
in "Broker-dealer revenue."

The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
As of December 31, 1994 and 1993, the estimated fair values of loaned
securities were $6,765 million and $6,520 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," which are reflected as assets in the
Consolidated Statements of Financial Position. The offsetting collateral
liability is included in the Consolidated Statements of Financial Position
in "Other liabilities" in the amounts of $2,385 million and $374 million
at December 31, 1994 and 1993, respectively. Non-cash collateral is
recorded in memorandum records and not reflected in the consolidated
financial statements.

Net unrealized investment gains and losses result principally from changes
in the carrying values of invested assets. Net unrealized investment
losses were $(32) million, $(195) million and $(268) million for the years
ended December 31, 1994, 1993 and 1992, respectively.

The asset valuation reserve (AVR) and the interest maintenance reserve
(IMR) are required reserves for life insurance companies. 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.

F-4

<PAGE> 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

The components of AVR at December 31, 1994 and 1993 are as follows:

1994 1993
----- -----
(IN MILLIONS)

<S> <C> <C>
Fixed maturities, equity securities
and short-term investments............. $ 930 $1,591
Mortgage loans.......................... 674 722
Real estate and other invested assets... 431 374
------ ------
Total AVR............................... $2,035 $2,687
====== ======
</TABLE>

In 1993, the Company made a voluntary contribution to the mortgage loan
component of the AVR in the amount of $305 million.

The IMR is designed to reduce the fluctuations of surplus resulting from
market interest rate movements. Interest rate-related realized capital
gains and losses are generally deferred and amortized into investment
income over the remaining life of the investment sold. The IMR balance,
included in "Other policyholders' funds," was $502 million and $1,539
million at December 31, 1994 and 1993, respectively. Net realized
investment (losses)/gains of $(929) million, $1,082 million and $626
million were deferred during the years ended December 31, 1994, 1993 and
1992, respectively. IMR amounts amortized into investment income were $107
million, $118 million and $51 million for the years ended December 31,
1994, 1993 and 1992, respectively.

E. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS

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 a net level
premium reserve or the policy cash value. About 56% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM") or methods which compare CRVM reserves to policy
cash values.

For group life insurance, 24% of reserves are determined using net level
premium methods and various mortality tables and interest rates. About 53%
of group life reserves are associated with extended death benefits. For
the most part, these are calculated using modified group tables at various
interest rates. The remainder of group life reserves 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 group and individual annuity contracts are
determined using the Commissioner's Annuity Reserve Valuation Method.

For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported. Unpaid claims and claim adjustment expenses for other than life
insurance and annuities include estimates of benefits and associated
settlement expenses for reported losses and a provision for losses
incurred but not reported.

F-5

<PAGE> 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

Activity in the liability for unpaid claims and claim adjustment
expenses is:

1994 1993
----------------------- ------------------------
ACCIDENT PROPERTY ACCIDENT PROPERTY
AND AND AND AND
HEALTH CASUALTY HEALTH CASUALTY
--------- ---------- ---------- ----------
(IN MILLIONS)

<S> <C> <C> <C> <C>
Balance at January 1 ......... $ 2,654 $ 4,869 $ 2,623 $ 4,712
Less reinsurance recoverables 15 1,070 22 1,107
-------- -------- -------- --------

Net balance at January 1 ..... 2,639 3,799 2,601 3,605
-------- -------- -------- --------

Incurred related to:
Current year ................ 7,398 2,541 7,146 2,364
Prior years ................. (105) 158 (167) 109
-------- -------- -------- --------

Total incurred ............... 7,293 2,699 6,979 2,473
-------- -------- -------- --------

Paid related to:
Current year ................ 5,568 1,237 5,336 1,119
Prior years ................. 1,649 1,163 1,605 1,160
-------- -------- -------- --------

Total paid ................... 7,217 2,400 6,941 2,279
-------- -------- -------- --------

Net balance at December 31 ... 2,715 4,098 2,639 3,799
Plus reinsurance recoverables 23 1,018 15 1,070
-------- -------- -------- --------

Balance at December 31 ....... $ 2,738 $ 5,116 $ 2,654 $ 4,869
======== ======== ======== ========

</TABLE>

As a result of changes in estimates of insured events in prior years, the
declines of $105 million and $167 million in the provision for claims and
claim adjustment expenses for accident and health business in 1994 and
1993, respectively, were due to lower-than-expected trends in claim costs
and an accelerated decline in indemnity health business.

As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses for property and
casualty business (net of reinsurance recoveries of $47 million and $120
million in 1994 and 1993, respectively) increased by $158 million and $109
million in 1994 and 1993, respectively, due to increased loss development
and reserve strengthening for asbestos and environmental claims.

F. REVENUE RECOGNITION 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 and property and casualty premiums are earned ratably over the
terms of the related insurance and reinsurance contracts or policies.
Unearned premium reserves are established to cover the unexpired portion
of premiums written. Such reserves are computed by pro rata methods for
direct business and are computed either by pro rata methods or using
reports received from ceding companies for reinsurance. Premiums which
have not yet been reported are estimated and accrued.

Expenses incurred in connection with acquiring new insurance business,
including such acquisition costs as sales commissions, are charged to
operations as incurred in "Insurance and underwriting expenses."

Commission revenues in "Broker-dealer revenue" and related broker-dealer
expenses in "General, administrative and other expenses" are accrued when
transactions are executed.

F-6

<PAGE> 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

G. INCOME TAXES

Under the Internal Revenue Code ("the Code"), The Prudential and its life
insurance subsidiaries are taxed on their gain from operations 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
based on an imputed surplus which, in effect, reduces the deduction for
policyholder dividends. The amount of the equity tax is estimated in the
current year based on the anticipated equity tax rate, and is adjusted in
subsequent years as the rate is finalized.

The Prudential files a consolidated federal income tax return with all of
its domestic subsidiaries. The provision for taxes reported in these
financial statements also includes tax liabilities for the foreign
subsidiaries. Net operating losses of the non-life subsidiaries may be
used in this consolidated return, but are limited each year to the lesser
of 35% of cumulative eligible non-life subsidiary losses or 35% of life
company taxable income.

As of January 1, 1993, the non-insurance subsidiaries of The Prudential
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, such subsidiaries
recognize deferred tax liabilities or assets for the expected future tax
consequences of events that have been recognized in their financial
statements. Included in "Income tax (benefit)/provision" are deferred
taxes of $(477) million, $21 million and $(8) million for the years ended
December 31, 1994, 1993 and 1992, respectively. The cumulative effect of
adopting SFAS No. 109 was not material.

At December 31, 1994, the Company had consolidated non-life tax loss
carryforwards of $598 million which will expire between 1998 and 2009, if
not utilized.

H. SEPARATE ACCOUNTS

Separate Account assets and liabilities, reported in the Consolidated
Statements of Financial Position at estimated market value, represent
segregated funds which are administered for pension and other clients. The
assets consist of common stocks, long-term bonds, real estate, mortgages
and short-term investments. The liabilities consist of reserves
established to meet withdrawal and future benefit payment contractual
provisions. Investment risks associated with market value changes are
generally borne by the clients, except to the extent of minimum guarantees
made by the Company with respect to certain accounts. Separate Account net
investment income, realized and unrealized capital gains and losses,
benefit payments and change in reserves are included in "Current and
future benefits and claims."

I. DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives used for trading purposes are recorded in the Consolidated
Statements of Financial Position at fair value at the reporting date.
Realized and unrealized changes in fair values are recognized in
"Broker-dealer revenue" and "Other income" in the Consolidated Statements
of Operations in the period in which the changes occur. Gains and losses
on hedges of existing assets or liabilities are included in the carrying
amount of those assets or liabilities and are deferred and recognized in
earnings in the same period as the underlying hedged item. For interest
rate swaps that qualify for settlement accounting, the interest
differential to be paid or received under the swap agreements is accrued
over the life of the agreements as a yield adjustment. Gains and losses on
early termination of derivatives that modify the characteristics of
designated assets and liabilities are deferred and are amortized as an
adjustment to the yield of the related assets or liabilities over their
remaining lives.

Derivatives used in activities that support life and health insurance and
annuity contracts are recorded at fair value with unrealized gains and
losses recorded in "Net unrealized investment (losses) and change in AVR."
Upon termination of derivatives supporting life and health insurance and
annuity contracts, the interest-related gains and losses are amortized
through the IMR.

2. RESTRICTED ASSETS AND SPECIAL DEPOSITS

Assets in the amounts of $5,901 million and $5,164 million at December 31,
1994 and 1993, respectively, were on deposit with governmental authorities or
trustees as required by law.

Assets valued at $5,855 million and $4,430 million at December 31, 1994 and
1993, respectively, were maintained as compensating balances or pledged as
collateral for bank loans and other financing agreements.

F-7

<PAGE> 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

Restricted cash of $455 million and $444 million at December 31, 1994 and
1993, respectively, was included in "Cash" in the Consolidated Statements of
Financial Position and Cash Flows.

3. FIXED MATURITIES

The carrying value and estimated fair value of fixed maturities at December
31, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
1994 1993
------------------------------------------- -----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)

<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies .......... $13,624 $ 123 $ 647 $13,100 $14,979 $ 754 $ 94 $15,639
Obligations of U.S. .....
states and their
political subdivisions 2,776 32 165 2,643 3,212 187 3 3,396
Fixed maturities issued
by foreign governments
and their agencies and
political subdivisions 3,101 37 153 2,985 2,716 188 3 2,901
Corporate securities .... 54,144 1,191 1,772 53,563 51,548 4,390 300 55,638
Mortgage-backed
securities ............ 4,889 82 148 4,823 6,478 257 220 6,515
Other fixed maturities .. 209 0 0 209 128 0 0 128
------- ------- ------- ------- ------- ------- ------- -------
Total ................... $78,743 $ 1,465 $ 2,885 $77,323 $79,061 $ 5,776 $ 620 $84,217
======= ======= ======= ======= ======= ======= ======= =======

</TABLE>

The carrying value and estimated fair value of fixed maturities at December
31, 1994 categorized by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
----------- -----------
(IN MILLIONS)

<S> <C> <C>
Due in one year or less .............. $ 2,746 $ 2,760
Due after one year through five years 24,405 24,000
Due after five years through ten years 18,972 18,536
Due after ten years .................. 27,731 27,204
------- -------
73,854 72,500
Mortgage-backed securities ........... 4,889 4,823
------- -------
Totals ............................... $78,743 $77,323
======= =======

</TABLE>

Proceeds from the sale and maturity of fixed maturities during 1994, 1993 and
1992 were $82,834 million, $87,840 million and $73,326 million, respectively.
Gross gains of $693 million, $2,473 million and $2,034 million, and gross
losses of $2,009 million, $698 million and $530 million were realized on such
sales during 1994, 1993 and 1992, respectively (see Note 1D).

The Company invests in both investment grade and non-investment grade
securities. The Securities Valuation Office of the NAIC rates the fixed
maturities held by insurers (which account for approximately 98% of the
Company's total fixed maturities balance at December 31, 1994 and 1993) for
regulatory purposes and groups investments into six categories ranging from
highest quality bonds to those in or near default. The lowest three NAIC
categories represent, for the most part, high-yield securities and are
defined by the NAIC as including any security with a public agency rating of
B+ or B1 or less.

F-8

<PAGE> 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

Included in "Fixed maturities" are securities that are classified by the NAIC
as being in the lowest three rating categories. These approximate 1.6% and
2.0% of the Company's assets at December 31, 1994 and 1993, respectively. At
December 31, 1994 and 1993, their estimated fair value varied from the
carrying value by $(78) million and $42 million, respectively.

4. MORTGAGE LOANS

Mortgage loans at December 31, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
1994 1993
----------------------- -------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
(IN MILLIONS)

<S> <C> <C> <C> <C>
Commercial and agricultural loans:
In good standing ......... $ 19,752 75.4% $ 20,916 76.0%
In good standing
with restructured terms 1,412 5.4% 1,177 4.3%
Past due 90 days or more . 339 1.3% 590 2.2%
In process of foreclosure 387 1.5% 415 1.5%
Residential loans .......... 4,309 16.4% 4,411 16.0%
-------- ------ -------- ------
Total mortgage loans ....... $ 26,199 100.0% $ 27,509 100.0%
======== ====== ======== ======

</TABLE>

At December 31, 1994, the Company's mortgage loans were collateralized by the
following property types: office buildings (30%), retail stores (20%),
residential properties (17%), apartment complexes (12%), industrial buildings
(11%), agricultural properties (7%) and other commercial properties (3%). The
mortgage loans are geographically dispersed throughout the United States and
Canada with the largest concentrations in California (25%) and New York (8%).
Included in these balances are mortgage loans with affiliated joint ventures
of $684 million and $689 million at December 31, 1994 and 1993, respectively.

5. EMPLOYEE BENEFIT PLANS

A. PENSION PLANS

The Company has several defined benefit pension plans which cover
substantially all of its employees. The benefits are generally based on
career average earnings and credited length of service.

The Company's funding policy is to contribute annually the amount necessary
to satisfy the Internal Revenue Service contribution guidelines. The
pension plans are accounted for in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS
No. 87").

Employee pension benefit plan status at September 30, 1994 and 1993 is as
follows:

1994 1993
-------- --------
(IN MILLIONS)

<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$2,956 in 1994 and $3,053 in 1993 ........................ $(3,255) $(3,401)
======= =======
Projected benefit obligation ............................... (4,247) (4,409)
Plan assets at fair value .................................... 5,704 5,950
------- -------
Plan assets in excess of projected benefit obligation ........ 1,457 1,541
Unrecognized net asset existing at the date of the initial
application of SFAS No. 87 ................................. (980) (1,086)
Unrecognized prior service cost since initial application of
SFAS No. 87 ................................................ 228 253
Unrecognized net loss from actuarial experience since initial
application of SFAS No. 87 ................................. 9 25
Additional minimum liability ................................. (8) 0
------- -------
Prepaid pension cost ......................................... $ 706 $ 733
======= =======

</TABLE>

F-9

<PAGE> 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

Plan assets consist primarily of equity securities, bonds, real estate and
short-term investments, of which $4,155 million are included in the
Consolidated Statement of Financial Position at December 31, 1994.

In compliance with statutory accounting principles, The Prudential's
prepaid pension costs of $765 million and $784 million at December 31,
1994 and 1993, respectively, were considered non-admitted assets. These
assets are excluded from the consolidated assets and the changes in these
non-admitted assets of ($19) million and $142 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses"
in the Consolidated Statements of Operations.

The components of the net periodic pension expense/(benefit) for 1994 and
1993 are as follows:

<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)

<S> <C> <C> <C>
Service cost - benefits earned during the year $ 163 $ 133 $ 133
Interest cost on projected benefit obligation 311 301 296
Actual return on assets ...................... 56 (854) (367)
Net amortization and deferral ................ (639) 301 (150)
Net charge for special termination benefits .. 156 0 0
----- ----- -----
Net periodic pension expense/(benefit) ...... $ 47 $(119) $ (88)
===== ===== =====

</TABLE>

The net expense relating to the Company's pension plans is $28 million, $23
million and $29 million in 1994, 1993 and 1992, respectively, which considers
the changes in The Prudential's non-admitted prepaid pension asset of $(19)
million, $142 million and $117 million, respectively.

As a result of a special early retirement program, net curtailment gains and
special termination benefits of approximately $156 million are included in
the net periodic pension expense for the year ended December 31, 1994.

The assumptions used in 1994 and 1993 to develop the accumulated pension
benefit obligation were:

1994 1993
-------- --------

<S> <C> <C>
Discount rate ................................ 8.25-8.5% 7.0%
Expected long-term rate of return on assets... 8.5-9.0% 8.5-9.0%
Rate of increase in compensation levels ...... 5.0-5.5% 4.5-5.0%

</TABLE>

B. POSTRETIREMENT AND POSTEMPLOYMENT 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 a benefit if they retire after age 55 with at
least 10 years of service.

Effective in 1993, the costs of postretirement benefits, with respect to
The Prudential, are recognized in accordance with the accounting policy
issued by the NAIC. The NAIC's policy is similar to Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," except that the NAIC policy excludes
non-vested employees. The Prudential has elected to amortize its
transition obligation over 20 years.

Prior to 1993, the Company's policy was to fund the cost of providing
these benefits in the years that the employees were providing services to
the Company. The Company defined this service period as originating at an
assumed entry age and terminating at an average retirement age. Annual
deposits to the fund were determined using the entry age normal actuarial
cost method, including amortization of prior service costs for employees'
services rendered prior to the initial funding of the plan. The provision
for the year ended December 31, 1992 was $143 million.

The Prudential's net periodic postretirement benefit cost required to be
recognized for 1994 and 1993, under the NAIC policy is $110 million and
$125 million, respectively. In 1994 and 1993, The Prudential voluntarily
accrued an additional $10 million and $62 million, respectively, which
represents a portion of the obligation for active non-vested employees
(the total of this obligation is $520 million and $594 million as of
December 31, 1994 and 1993, respectively).

Company funding of its postretirement benefit obligations totaled $31
million and $404 million in 1994 and 1993, respectively. The Company
contributes amounts to the plan in excess of covered expenses being paid.

F-10

<PAGE> 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

The postretirement benefit plan status as of September 30, 1994 and 1993 is
as follows:

<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN MILLIONS)

<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ........................................... $(1,337) $(1,211)
Fully eligible active plan participants ............ (188) (445)
------- -------
Total APBO ...................................... (1,525) (1,656)
Plan assets at fair value ............................ 1,304 1,335
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets .............................. (221) (321)
Unrecognized transition obligation ................... 448 525
Unrecognized net (gain)/loss from actuarial experience (41) 69
------- -------
Prepaid postretirement benefit cost in accordance
with the NAIC accounting policy .................... 186 273
Additional amount accrued ............................ (72) (62)
------- -------
Prepaid postretirement benefit cost .................. $ 114 $ 211
======= =======

</TABLE>

Plan assets consist of group and individual variable life insurance policies,
group life and health contracts and short-term investments, of which $996
million are included in the Consolidated Statement of Financial Position at
December 31, 1994.

In compliance with statutory accounting principles, The Prudential's prepaid
postretirement benefit costs of $127 million and $217 million at December 31,
1994 and 1993, respectively, are considered non-admitted assets. These assets
are excluded from the consolidated assets and the changes in these
non-admitted assets of $(90) million and $217 million in 1994 and 1993,
respectively, are reported in "General, administrative and other expenses" in
1994 and in "Issuance of capital notes" in 1993.

Net periodic postretirement benefit cost for 1994 and 1993 includes the
following components:

1994 1993
-------- --------
(IN MILLIONS)

<S> <C> <C>
Cost of newly eligible or vested employees... $ 38 $ 41
Interest cost ................................ 112 124
Actual return on plan assets ................. (98) (86)
Net amortization and deferral ................ (13) 15
Amortization of transition obligation ........ 23 39
Net charge for special termination benefits... 58 0
Additional contribution expense .............. 10 62
----- -----
Net periodic postretirement benefit cost ..... $ 130 $ 195
===== =====
</TABLE>

The net reduction to surplus relating to the Company's postretirement benefit
plans is $40 million and $412 million in 1994 and 1993, respectively, which
considers the changes in the non-admitted prepaid postretirement benefit cost
of $(90) million and $217 million in 1994 and 1993, respectively.

As a result of a special early retirement program, curtailment expenses and
special termination benefits of approximately $58 million are included in the
net periodic postretirement benefit cost for the year ended December 31,
1994.

The assumptions used in 1994 and 1993 to measure the accumulated
postretirement benefits obligation were:

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Discount rate ...................................... 8.25-8.5% 7.0-7.5%
Expected long-term rate of return on plan assets.... 9.0% 9.0%
Salary scale ....................................... 5.5% 5.0%

</TABLE>

F-11

<PAGE> 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

The health care cost trend rates used varied from 9.1% to 13.9%, depending
on the plan, with one plan being graded to 6.5% by the year 2012 and all
others being graded to 6.0% by 2006. Increasing the health care cost trend
rate by one percentage point in each year would increase the
postretirement benefit obligation as of September 30, 1994, by $243
million and the total of the cost of newly eligible or vested employees
and interest cost for 1994 by $21 million.

In 1994, the Company changed its method of accounting for the recognition
of costs and obligations relating to severance, disability and related
benefits to former or inactive employees after employment, but before
retirement, to an accrual method. Previously, these benefits were expensed
when paid. The effect of this change was to decrease surplus by
approximately $160 million in 1994.

6. NOTES PAYABLE AND OTHER BORROWINGS

Notes payable and other borrowings consisted of the following at December 31,
1994 and 1993:

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE COST OF FUNDS BALANCE COST OF FUNDS
-------- ---------------- -------- --------------
(IN MILLIONS)

<S> <C> <C> <C> <C>
Short-term debt..... $ 9,188 5.7% $ 9,435 3.7%
Long-term debt...... 2,821 6.5% 3,919 5.3%
------- -------
$12,009 $13,354
======= =======

</TABLE>

Scheduled repayments of long-term debt as of December 31, 1994, are as
follows: $594 million in 1995, $269 million in 1996, $362 million in 1997,
$268 million in 1998, $666 million in 1999, and $662 million thereafter. As
of December 31, 1994, the Company had $8,120 million in lines of credit from
numerous financial institutions of which $3,925 million were unused.

7. CAPITAL NOTES

In 1993, The Prudential issued 6.875% Fixed Rate Capital Notes ("the notes")
in the aggregate principal amount of $300 million. The notes mature on April
15, 2003, and may not be redeemed prior to maturity and will not be entitled
to any sinking fund. The notes are subordinated in right of payment to all
claims of policyholders and to senior indebtedness. Payment of the principal
amount of the notes at maturity is subject to the following conditions: (i)
The Prudential shall not be in payment default with respect to any senior
indebtedness or class of policyholders, (ii) no state or federal agency shall
have instituted proceedings seeking reorganization, rehabilitation or
liquidation of The Prudential, and (iii) immediately after making such
payment, Total Adjusted Capital would exceed 200% of its Authorized Control
Level Risk-Based Capital. The terms "Total Adjusted Capital" and "Authorized
Control Level" are defined by the Risk-Based Capital for Life and/or Health
Insurers Model Act. The payment of interest on the notes is subject to
satisfaction of conditions (i) and (ii) above. Unpaid accrued interest
amounted to $25 million at December 31, 1994 and 1993. The net proceeds from
the notes, approximately $298 million, were contributed to a voluntary
employee benefit association trust to prefund certain obligations of The
Prudential to provide postretirement medical and other benefits. This
resulted in a prepaid asset, which is non-admitted for statutory purposes.
The net increase to surplus from the issuance of the notes, including a tax
benefit of $104 million less the charge-off of the non-admitted asset of $217
million, was $185 million (see Note 5B).

8. SPECIAL SURPLUS FUND

The special surplus fund includes required contingency reserves of $1,097
million and $1,091 million as of December 31, 1994 and 1993, respectively.

9. FAIR VALUE INFORMATION

The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for those accounts for
which fair value disclosures are required. Considerable judgment is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the 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 presented in the table, the carrying
value is a reasonable estimate of fair value.)

F-12
<PAGE> 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

FIXED MATURITIES. Fair values for fixed maturities, 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 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.

MORTGAGE LOANS. 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. 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 and futures is estimated based on
market quotes for a transaction with similar terms, while the fair value of
options is based principally on market quotes. The fair value of loan
commitments is estimated based on fees actually charged or those currently
charged for similar arrangements, adjusted for changes in interest rates and
credit quality subsequent to origination.

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.

NOTES PAYABLE AND OTHER BORROWINGS. The estimated fair value of notes payable
and other borrowings is based on the borrowing rates currently available to
the Company for debt with similar terms and maturities.

The following table discloses the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993:

<TABLE>
<CAPTION>
1994 1993
------------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- ---------
(IN MILLIONS)

<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities ..................... $78,743 $77,323 $79,061 $84,217
Equity securities .................... 2,327 2,327 2,216 2,216
Mortgage loans ....................... 26,199 24,955 27,509 28,004
Policy loans ......................... 6,631 6,018 6,456 6,568
Short-term investments ............... 10,630 10,630 6,304 6,304
Securities purchased under
agreements to resell ............... 5,591 5,591 9,656 9,656
Trading account securities ........... 6,218 6,218 8,586 8,586
Cash ................................. 1,109 1,109 1,666 1,666
Broker-dealer receivables ............ 7,311 7,311 9,133 9,133
Assets held in Separate Accounts ..... 48,633 48,633 48,110 48,110

Financial liabilities:

Investment-type insurance contracts .. 39,747 38,934 41,149 42,668
Securities sold under agreements
to repurchase ...................... 8,919 8,919 14,703 14,703
Notes payable and other borrowings ... 12,009 11,828 13,354 13,625
Broker-dealer payables ............... 5,144 5,144 5,410 5,410
Liabilities related to Separate
Accounts ............................. 47,946 47,946 47,475 47,475
Derivative financial instruments - net
(see Note 10) ...................... 392 397 253 303

</TABLE>

F-13

<PAGE> 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

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

A. DERIVATIVE FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial
Instruments," effective for 1994, requires certain disclosures about
derivative financial instruments and other financial instruments with
similar characteristics ("derivatives"). Derivatives include swaps,
forwards, futures, options and loan commitments subject to market risk,
all of which are used by the Company in the normal course of business in
both trading and other than trading activities.

The Company uses derivatives in trading activities primarily to meet the
financing and hedging needs of its customers and to trade for its own
account. The Company also uses derivatives for purposes other than
trading to reduce exposure to interest rate, currency and other forms of
market risk.

The table below summarizes the Company's outstanding positions by
derivative instrument as of December 31,1994. The amounts presented are
classified as either trading or other than trading, based on
management's intent at the time of contract inception and throughout the
life of the contract. The table includes the estimated fair values of
outstanding derivative positions only and does not include the fair
values of associated financial and non-financial assets and liabilities,
which generally offset derivative fair values. The fair value amounts
presented do not reflect the netting of amounts pursuant to rights of
setoff, qualifying master netting agreements with counterparties or
collateral arrangements. The table shows that less than 5% of derivative
fair values were not reflected in the Company's Consolidated Statement
of Financial Position.

DERIVATIVE FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 1994
(IN MILLIONS)

TRADING OTHER THAN TRADING
-------------------- ----------------------
ESTIMATED ESTIMATED
NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
-------- ---------- -------- ----------

<S> <C> <C> <C> <C> <C>
Swaps Assets $13,852 $ 837 $ 184 $ 9
Liabilities 14,825 1,216 4,993 48
Forwards Assets 21,988 300 2,720 24
Liabilities 19,898 289 3,112 19
Futures Assets 1,520 40 4,296 17
Liabilities 1,878 35 505 3
Options Assets 2,924 31 2,407 8
Liabilities 3,028 38 2,217 2
Loan commitments Assets 0 0 212 2
Liabilities 0 0 1,543 15
------- ------- ------- -------
Total Assets $40,284 $ 1,208 $ 9,819 $ 60
======= ======= ======= =======
Liabilities $39,629 $ 1,578 $12,370 $ 87
======= ======= ======= =======

</TABLE>

TOTAL
----------------------------------------------
CARRYING ESTIMATED
NOTIONAL AMOUNT FAIR VALUE
-------- -------- ----------

<S> <C> <C> <C> <C>
Swaps Assets $14,036 $ 845 $ 846
Liabilities 19,818 1,236 1,264
Forwards Assets 24,708 312 324
Liabilities 23,010 299 308
Futures Assets 5,816 30 57
Liabilities 2,383 35 38
Options Assets 5,331 34 39
Liabilities 5,245 40 40
Loan commitments Assets 212 (2) 2
Liabilities 1,543 1 15
------- ------- -------
Total Assets $50,103 $ 1,219 $ 1,268*
======= ======= =======
Liabilities $51,999 $ 1,611 $ 1,665*
======= ======= =======

</TABLE>

* $1,233 of Assets and $1,596 of Liabilities are reflected in the Consolidated
Statement of Financial Position

F-14

<PAGE> 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

DERIVATIVES HELD FOR TRADING PURPOSES. The Company uses derivatives for
trading purposes in securities broker-dealer activities and in a
limited-purpose swap subsidiary. Net trading revenues for the year ended
December 31, 1994, relating to forwards, futures and swaps were $107 million,
$33 million and $8 million, respectively. Net trading revenues for options
were not material. Average fair value for trading derivatives in an asset
position during the year ended December 31, 1994, was $1,526 million and for
derivatives in a liability position was $1,671 million. Of those derivatives
held for trading purposes at December 31, 1994, 60.0% of notional consisted
of interest rate derivatives, 33.7% consisted of foreign exchange
derivatives, and 6.3% consisted of equity and commodity derivatives.

DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING. Of the total notional of
derivatives held for purposes other than trading at December 31, 1994, 23.0%
were used by the Company to hedge its investment portfolio to reduce interest
rate, currency and other market risks, 75.8% were used to hedge interest rate
risk related to the Company's mortgage banking subsidiary activities, and
1.2% were used to hedge interest and currency risks associated with the
Company's debt issuances. Of those derivatives held for purposes other than
trading at December 31, 1994, 85.0% of notional consisted of interest rate
derivatives, 13.9% consisted of foreign exchange derivatives, and 1.1%
consisted of equity and commodity derivatives.

Derivatives used to hedge the Company's investment portfolio, including
futures, options and forwards, are typically short-term in nature and are
intended to minimize exposure to market fluctuations or to change the
characteristics of the Company's asset/liability mix, consistent with the
Company's risk management activities. At December 31, 1994, net gains of $0.7
million relating to futures used as hedges of anticipated bond investments
were deferred and included in "Other liabilities." The investments being
hedged are expected to be made in the first quarter of 1995. The Company's
mortgage banking subsidiary hedges the interest rate risk associated with
mortgage loans and mortgage-backed securities held for sale and with unfunded
loans for which a rate of interest has been guaranteed. At December 31, 1994,
net gains of $0.8 million relating to forwards, futures and options used as
hedges of unfunded loan commitments were deferred as "Other liabilities." The
deferred gains were included in the carrying amounts of the loans when
funded, which is generally within sixty days from the commitment date. The
Company's mortgage banking subsidiary also hedges its exposure to future
changes in interest rates on interest-sensitive liabilities and hedges the
prepayment risk associated with its mortgage servicing portfolio. At December
31, 1994, net gains of $6.5 million relating to futures used as hedges of
anticipated borrowings were deferred and included in "Other liabilities." The
borrowings being hedged are expected to be issued by early 1996. The Company
also uses derivatives, particularly swaps and forwards, to manage the
interest rate and foreign exchange risks associated with its notes payable
and other borrowings.

B. OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS

During the normal course of its business, the Company is party to financial
instruments with off-balance-sheet credit risk such as commitments, financial
guarantees, loans sold with recourse and letters of credit. Commitments
include commitments to purchase and sell mortgage loans, the unfunded portion
of commitments to fund investments in private placement securities, and
unused credit card and home equity lines. 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 in the Consolidated Statements of Financial Position 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
$17,389 million and $18,666 million at December 31, 1994 and 1993,
respectively. Because many of these amounts expire without being advanced in
whole or in part, the amounts do not represent future cash flows. The above
notional amounts include $4,150 million and $3,066 million of unused
available lines of credit under credit card and home equity commitments as of
December 31, 1994 and 1993, respectively. The Company has not experienced,
and does not anticipate experiencing, all of its customers exercising their
entire available lines of credit at any given point in time.

The estimated fair value of off-balance-sheet credit related instruments was
$(91.3) million and $13.0 million at December 31, 1994 and 1993,
respectively. The total fair value at December 31, 1994, includes $(13.3)
million for fixed-rate loan commitments, which are subject to market risk.
The estimated fair value was determined based on fees currently charged for
similar arrangements, adjusted for changes in interest rate and credit
quality that occurred subsequent to origination.

F-15

<PAGE> 16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

11. CONTINGENCIES

A. ENVIRONMENTAL-RELATED CLAIMS

The Company receives 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, nor is there any clear emerging trend.
In establishing the unpaid claim reserves for these losses, management
considered the available information. 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.

B. LAWSUITS

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.

In 1993, Prudential Securities Incorporated (PSI), a subsidiary of The
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.

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 and, after consideration of applicable
accruals, the ultimate liability of such litigation, including
partnership settlement matters, will not have a material adverse effect
on the Company's financial position.

F-16

<PAGE> 17

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated statements of financial
position of The Prudential Insurance Company of America and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
operations and changes in surplus and asset valuation reserve and of cash
flows for each of the three years in the period ended December 31, 1994.
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 opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Prudential Insurance Company
of America and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.

Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1995

F-17

<PAGE>

PART IB

INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

May 1, 1995

THE PRUDENTIAL
VARIABLE APPRECIABLE ACCOUNT

Variable

APPRECIABLE

LIFE(R)___________________

INSURANCE CONTRACTS

PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF

THE PRUDENTIAL SERIES
FUND, INC.

The Prudential Insurance Company of America offers two forms of variable life
insurance contracts under the name Variable Appreciable Life(R) Insurance*. The
first form provides a death benefit that generally remains fixed in an amount
chosen by the purchaser and cash surrender values that vary daily. The second
form also provides cash surrender values that vary daily but the death benefit
will also vary daily. Under both forms of contract, the death benefit will never
be less than the "face amount" of insurance chosen by the purchaser. There is no
guaranteed minimum cash surrender value.

The assets held for the purpose of paying benefits under these contracts can be
invested in one or more of fourteen subaccounts of The Prudential Variable
Appreciable Account. The assets invested in each subaccount are in turn invested
in a corresponding portfolio of The Prudential Series Fund, Inc., a diversified,
open-end management investment company (commonly known as a mutual fund) that is
intended to provide a range of investment alternatives to variable contract
owners. Each portfolio is, for investment purposes, in effect a separate fund.
The sixteen Series Fund portfolios are: the Money Market Portfolio, the Bond
Portfolio, the Government Securities Portfolio, the three Zero Coupon Bond
Portfolios with different liquidation dates -- 1995 (not available for
investment after November 14, 1995), 2000, and 2005, the Conservatively Managed
Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the High Yield
Bond Portfolio, the Stock Index Portfolio, the High Dividend Stock Portfolio,
the Common Stock Portfolio, the Growth Stock Portfolio, the Small Capitalization
Stock Portfolio, the Global Equity Portfolio, and the Natural Resources
Portfolio. A separate class of capital stock is issued for each portfolio.
Shares of the Series Fund are currently sold only to separate accounts of The
Prudential and certain other insurers to fund the benefits under variable life
insurance and variable annuity contracts issued by those companies.

The Variable Appreciable Life(R) Insurance Contract owner may also choose to
invest in a fixed-rate option or in The Prudential Variable Contract Real
Property Account, which is described in a separate prospectus attached to the
prospectus of The Prudential Variable Appreciable Account.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUDENTIAL VARIABLE APPRECIABLE
ACCOUNT DATED MAY 1, 1995, WHICH IS AVAILABLE WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUDENTIAL PLAZA,
NEWARK, NEW JERSEY 07102-3777 OR BY TELEPHONING (800) 437-4016 Ext. 46.

The Prudential Insurance Company of America
The Prudential Series Fund, Inc.
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 437-4016 Ext. 46

* Appreciable Life is a registered mark of The Prudential.
PVAL-SAI Ed 5-95
Catalog No. 640466W

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

CONTENTS

Page

MORE DETAILED INFORMATION ABOUT THE CONTRACT ............................... 1
Sales Load Upon Surrender ................................................ 1
Reduction of Charges for Concurrent Sales to Several Individuals ......... 1
Sales to Persons 14 Years of Age or Younger .............................. 1
Paying Premiums by Payroll Deduction ..................................... 1
Unisex Premiums and Benefits ............................................. 2
How the Death Benefit Will Vary .......................................... 2
Withdrawal of Excess Cash Surrender Value ................................ 3
Increases in Face Amount ................................................. 3
Decreases in Face Amount ................................................. 5
Tax Treatment of Contract Benefits ....................................... 5
Sale of the Contract and Sales Commissions ............................... 7
Tax-Qualified Pension Plans .............................................. 7
Other Standard Contract Provisions ....................................... 8
Exchange of Fixed-Dollar Contract to Variable Contract ................... 8

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ....................... 8
General .................................................................. 8
Convertible Securities ................................................... 9
Warrants ................................................................. 9
Options and Futures ...................................................... 9
When-Issued and Delayed Delivery Securities .............................. 16
Short Sales .............................................................. 16
Short Sales Against the Box .............................................. 16
Interest Rate Swaps ...................................................... 17
Loans of Portfolio Securities ............................................ 17
Illiquid Securities ...................................................... 17
Forward Foreign Currency Exchange Contracts .............................. 18
Further Information About the Policies of the Stock Index Portfolio ...... 19
Further Information About the Zero Coupon Bond Portfolios ................ 20

INVESTMENT RESTRICTIONS .................................................... 21

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES ............................ 24

PORTFOLIO TRANSACTIONS AND BROKERAGE ....................................... 25

DETERMINATION OF NET ASSET VALUE ........................................... 26

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST ........ 28

DEBT RATINGS ............................................................... 30

POSSIBLE REPLACEMENT OF THE SERIES FUND .................................... 32

OTHER INFORMATION CONCERNING THE SERIES FUND ............................... 32
Incorporation and Authorized Stock ....................................... 32
Dividends, Distributions and Taxes ....................................... 32
Custodian and Transfer Agent ............................................. 32
Experts .................................................................. 33
Licenses ................................................................. 33
DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES FUND . 33

FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC. ................... A1

THE PRUDENTIAL SERIES FUND, INC. SCHEDULE OF INVESTMENTS .................. B1

STATEMENT OF ASSETS AND LIABILITIES OF THE GROWTH STOCK AND SMALL
CAPITALIZATION STOCK PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC. ........ C1

<PAGE>

MORE DETAILED INFORMATION ABOUT THE CONTRACT

Sales Load Upon Surrender. A contingent deferred sales load is assessed if the
Contract lapses or is surrendered during the first 10 Contract years, or if a
withdrawal is made under a Form A Contract during that 10 year period. No such
charge is applicable to the death benefit, no matter when that may become
payable. Subject to the additional limitations described below, for Contracts
that lapse or are surrendered during the first 5 Contract years the charge will
be equal to 50% of the first year's primary annual premium. In the next 5
Contract years that percentage is reduced uniformly on a daily basis until it
reaches zero on the tenth Contract anniversary. Thus, for Contracts surrendered
at the end of the sixth year, the maximum deferred sales charge will be 40% of
the first year's primary annual premium, for Contracts surrendered at the end of
year 7, the maximum deferred sales charge will be 30% of the first year's
primary annual premium, and so forth.

The contingent deferred sales load is also subject to a further limit at older
issue ages (approximately above age 67) in order to comply with certain
requirements of state law. Specifically, the contingent deferred sales load for
such insureds is no more than $32.50 per $1,000 of face amount.

The sales load is subject to a further important limitation that may,
particularly for Contracts that lapse or are surrendered within the first 5 or 6
years, result in a lower contingent deferred sales load than that described
above. (This limitation might also, under unusual circumstances, apply to reduce
the monthly sales load deductions described in the prospectus in item (c) under
Monthly Deductions from Contract Fund.) The limitation is applied in order to
conform with the requirements of the Investment Company Act of 1940 and
regulations adopted thereunder, which limit the amount of non-refundable sales
load that may be charged on contracts within the first 2 years.

The limitation is as follows: (Every Contract has associated with it a Guideline
Annual Premium ("GAP"), which is an amount, generally larger than the gross
annual scheduled premium for the Contract, determined actuarially in accordance
with a definition set forth in a regulation of the Securities and Exchange
Commission ("SEC").) The maximum aggregate sales load that The Prudential will
charge (that is, the sum of the monthly sales load deduction and the contingent
deferred sales charge) will not be more than 30% of the premiums actually paid
until those premiums total one GAP plus no more than 9% of the next premiums
paid until total premiums are equal to 5 GAPS, plus no more than 6% of all
subsequent premiums. If the sales charges described above would at any time
exceed this maximum amount then the charge, to the extent of any excess, will
not be made.

Reduction of Charges for Concurrent Sales to Several Individuals. The Prudential
may reduce the sales charges and/or other charges on individual Contracts sold
to members of a class of associated individuals, or to a trustee, employer or
other entity representing such a class, where it is expected that such multiple
sales will result in savings of sales or administrative expenses. The Prudential
determines both the eligibility for such reduced charges, as well as the amount
of such reductions, by considering the following factors: (1) the number of
individuals; (2) the total amount of premium payments expected to be received
from these Contracts; (3) the nature of the association between these
individuals, and the expected persistency of the individual Contracts; (4) the
purpose for which the individual Contracts are purchased and whether that
purpose makes it likely that expenses will be reduced; and (5) any other
circumstances which The Prudential believes to be relevant in determining
whether reduced sales or administrative expenses may be expected. Some of the
reductions in charges for these sales may be contractually guaranteed; other
reductions may be withdrawn or modified by The Prudential on a uniform basis.
The Prudential's reductions in charges for these sales will not be unfairly
discriminatory to the interests of any individual Contract owners.

Sales to Persons 14 Years of Age or Younger. Both Form A and Form B Contracts
covering insureds of 14 years of age or less contain a special provision
providing that the face amount of insurance will automatically be increased on
the Contract anniversary after the insured's 21st birthday to 150% of the
initial face amount, so long as the Contract is not then in default. The death
benefit will also usually increase, at the same time, by the same dollar amount.
In certain circumstances, however, it may increase by a smaller amount. See How
a Contract's Death Benefit Will Vary in the prospectus. This increase in death
benefit will also generally increase the net amount at risk under the Contract,
thus increasing the mortality charge deducted each month from amounts invested
under the Contract. See item (b) under Monthly Deductions from Contract Fund in
the prospectus. The automatic increase in the face amount of insurance may
affect future premium payments if the Contract owner wants to avoid the Contract
being classified as a Modified Endowment Contract. A Contract owner should
consult his or her Prudential representative before making unscheduled premium
payments.

Paying Premiums by Payroll Deduction. In addition to the annual, semi-annual,
quarterly and monthly premium payment modes, a payroll budget method of paying
premiums may also be available under certain Contracts. The employer generally
deducts the necessary amounts from employee paychecks and sends premium payments
to The Prudential monthly. Some Contracts sold using the payroll budget method
may be eligible for a guaranteed issue program under which the initial minimum
death benefit is $25,000 and the Contracts are based on unisex mortality

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tables. Any Prudential representative authorized to sell this Contract can
provide further details concerning the payroll budget method of paying premiums.

Unisex Premiums and Benefits. The Contract generally employs mortality tables
that distinguish between males and females. Thus, premiums and benefits under
Contracts issued on males and females of the same age will generally differ.
However, in those states that have adopted regulations prohibiting sex-distinct
insurance rates, premiums and cost of insurance charges will be based on a
blended unisex rate whether the insured is male or female. In addition,
employers and employee organizations considering purchase of a Contract should
consult their legal advisors to determine whether purchase of a Contract based
on sex-distinct actuarial tables is consistent with Title VII of the Civil
Rights Act of 1964 or other applicable law. The Prudential may offer the
Contract with unisex mortality rates to such prospective purchasers.

How the Death Benefit Will Vary. As noted above, there are two Forms of the
Contract, Form A and Form B. The death benefit under a Form B Contract varies
with investment performance while the death benefit under a Form A Contract does
not, unless it must be increased to satisfy tax requirements.

Under a Form A Contract, the guaranteed minimum death benefit is equal to the
face amount of insurance. (However, should the death benefit become payable
while a Contract loan is outstanding, the debt will be deducted from the death
benefit.) If the Contract is kept in force for several years and if investment
performance is reasonably favorable, the Contract Fund value may grow to the
point where it is necessary to increase the death benefit in order to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit under a Form A Contract will always be the
greater of (1) the guaranteed minimum death benefit; and (2) the Contract Fund
divided by the "net single premium" per $1 of death benefit at the insured's
attained age on that date. The latter provision ensures that the Contract will
always have a death benefit large enough to be treated as life insurance for tax
purposes under current law. The net single premium is used only in the
calculation of the death benefit, not for premium payment purposes. The
following is a table of illustrative net single premiums for $1 of death benefit
under Contracts issued on insureds in the preferred rating class.

Increase in Insurance
Male Net Single Amount Per $1
Attained Age Premium Increase in Contract Fund
-----------------------------------------------------------------
5 .09151 $10.93
25 .17000 $ 5.88
35 .23700 $ 4.22
55 .45209 $ 2.21
65 .59468 $ 1.68

Increase in Insurance
Female Net Single Amount Per $1
Attained Age Premium Increase in Contract Fund
-----------------------------------------------------------------
5 .07919 $12.63
25 .15112 $ 6.62
35 .21127 $ 4.73
55 .40090 $ 2.49
65 .53639 $ 1.00

Whenever the death benefit is determined in this way, The Prudential reserves
the right to refuse to accept further premium payments, although in practice the
payment of the lesser of 2 years' scheduled premiums or the average of all
premiums paid over the last 5 years will generally be allowed.

Under a Form B Contract, the death benefit will vary with investment experience.
Assuming no withdrawals, the death benefit will be equal to the face amount of
insurance plus the amount (if any) by which the Contract Fund value exceeds the
applicable "Tabular Contract Fund value" for the Contract (subject to an
exception described below under which the death benefit is higher). Each
Contract contains a table that sets forth the Tabular Contract Fund value as of
the end of each of the first 20 years of the Contract. Tabular Contract Fund
values between Contract anniversaries are determined by interpolation. The
"Tabular Contract Fund value" for each Contract year is an amount that is
slightly less than the Contract Fund value that would result as of the end of
such year if only scheduled premiums were paid, they were paid when due, the
selected investment options earned a net return at a uniform rate of 4% per
year, full mortality charges based upon the 1980 CSO Table were deducted,
maximum sales load and expense charges were deducted, and there was no Contract
debt.

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<PAGE>

Thus, under a Form B Contract with no withdrawals, the death benefit will equal
the face amount if the Contract Fund equals the Tabular Contract Fund value. If,
due to investment results greater than a net return of 4%, or to payment of
greater than scheduled premiums, or to smaller than maximum charges, the
Contract Fund value is a given amount greater than the Tabular Contract Fund
value, the death benefit will be the face amount plus that excess amount. If,
due to investment results less favorable than a net return of 4%, the Contract
Fund value is less than the tabular Contract Fund value, the death benefit will
not fall below the initial face amount stated in the Contract; however, this
unfavorable investment experience must first be offset by favorable performance
or additional payments that bring the Contract Fund up to the tabular level
before favorable investment results or additional payments will increase the
death benefit. Again, the death benefit will reflect a deduction for the amount
of any Contract debt. See Contract Loans in the prospectus.

As is the case under a Form A Contract, the Contract Fund of a Form B Contract
could grow to the point where it is necessary to increase the death benefit by a
greater amount in order to ensure that the Contract will satisfy the Internal
Revenue Code's definition of life insurance. Thus, the death benefit under a
Form B Contract will always be the greatest of (1) the face amount plus the
Contract Fund minus the tabular Contract Fund value; (2) the guaranteed minimum
death benefit; and (3) the Contract Fund divided by the net single premium per
$1 of death benefit at the insured's attained age on that date.

A Contract owner may also increase or decrease the face amount of his or her
Contract, subject to certain conditions. See Increase in Face Amount and
Decrease in Face Amount, below.

Withdrawal of Excess Cash Surrender Value. Under certain circumstances, a
Contract owner may withdraw a portion of the Contract's cash surrender value
without surrendering the Contract in whole or in part. The amount that a
Contract owner may withdraw is limited by the requirement that the Contract Fund
after withdrawal must not be less than the tabular Contract Fund value. (A Table
of Tabular Contract Fund Values is included in the Contract; the values increase
with each year the Contract remains in force.) But because the Contract Fund may
be made up in part by an outstanding Contract loan, there is a further
limitation that the amount withdrawn may not be larger than an amount sufficient
to reduce the cash surrender value to zero. The amount withdrawn must be at
least $2,000 under a Form A Contract (in which the death benefit is generally
equal to the face-amount of insurance) and at least $500 under a Form B Contract
(in which the death benefit varies daily). An owner may make no more than four
such withdrawals in each Contract year, and there is an administrative
processing fee for each withdrawal equal to the lesser of $15 or 2% of the
amount withdrawn. An amount withdrawn may not be repaid except as a scheduled or
unscheduled premium subject to the applicable charges. Upon request, The
Prudential will tell a Contract owner how much he or she may withdraw.
Withdrawal of part of the cash surrender value may have tax consequences. See
Tax Treatment of Contract Benefits, page 5. A temporary need for funds may also
be met by making a loan and you should consult your Prudential representative
about how best to meet your needs.

Under a Form A Contract, the face amount of insurance is reduced by not more
than the amount of the withdrawal. No partial withdrawal will be permitted under
a Form A Contract if it would result in a new face amount of less than the
minimum face amount applicable to the insured's Contract. See Requirements for
Issuance of a Contract in the prospectus. It is important to note, however, that
if the face amount is decreased at any time during the first 7 Contract years,
there is a danger that the Contract might be classified as a Modified Endowment
Contract. See Tax Treatment of Contract Benefits, page 5. Before making any
withdrawal which causes a decrease in face amount, a Contract owner should
consult with his or her Prudential representative. Also, if a withdrawal under a
Form A Contract is made before the end of the tenth year, the Contract Fund may
be reduced not only by the amount withdrawn but also by a proportionate amount
of any surrender charges that would be made if the Contract were surrendered.
The proportion is based on the percentage reduction in face amount. Form A
Contract owners who make a partial withdrawal will be sent replacement Contract
pages showing the new face amount, scheduled premiums, maximum surrender
charges, tabular values, and monthly deductions.

Under a Form B Contract, the cash surrender value and Contract Fund value are
reduced by the amount of the withdrawal, and the death benefit is accordingly
reduced. Neither the face amount of insurance nor the amount of scheduled
premiums will be changed due to a withdrawal of excess cash surrender value
under a Form B Contract. No surrender charges will be assessed upon a withdrawal
under a Form B Contract.

Withdrawal of part of the cash surrender value increases the risk that the
Contract Fund may be insufficient to provide for benefits under the Contract. If
such a withdrawal is followed by unfavorable investment experience, the Contract
may lapse even if scheduled premiums continue to be paid when due. This is
because, for purposes of determining whether a lapse has occurred, The
Prudential treats withdrawals as a return of premium.

Increases in Face Amount. An owner who wishes to increase the amount of his or
her insurance may do so by increasing the face amount of the Contract (which is
also the guaranteed minimum death benefit), subject to state approval and
underwriting requirements determined by The Prudential. An increase in face
amount is in many ways similar to the purchase of a second Contract, but it
differs in the following respects: the minimum permissible

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<PAGE>

increase is $25,000, while the minimum for a new Contract is $60,000; monthly
fees are lower because only a single $3 per month administrative charge is made
rather than two; a combined premium payment results in deduction of a single $2
per premium processing charge while separate premium payments for separate
Contracts would involve two charges; the monthly expense charge of $0.03 per
$1,000 of face amount may be lower if the increase is to a face amount greater
than $100,000; and the Contract will lapse as a unit, unlike the case if two
separate Contracts are purchased. These differences aside, the decision to
increase face amount is comparable to the purchase of a second Contract in that
it involves a commitment to higher scheduled premiums in exchange for greater
insurance benefits.

A Contract owner may elect to increase the face amount of his or her Contract no
earlier than the first anniversary of the Contract. The following conditions
must be met: (1) the owner must ask for the increase in writing on an
appropriate form; (2) the amount of the increase in face amount must be at least
$25,000; (3) the insured must supply evidence of insurability for the increase
satisfactory to The Prudential; (4) if The Prudential requests, the owner must
send in the Contract to be suitably endorsed; (5) the Contract must not be in
default on the date the increase takes effect; (6) the owner must pay an
appropriate premium at the time of the increase; (7) The Prudential has the
right to deny more than one increase in a Contract year; and (8) if The
Prudential has, between the Contract Date and the date that any requested
increase in face amount will take effect, changed any of the bases on which
benefits and charges are calculated under newly issued Contracts, The Prudential
has the right to deny the increase. An increase in face amount resulting in a
total face amount under the Contract of at least $100,000 may, subject to strict
underwriting requirements, render the Contract eligible for a Select Rating.

Upon an increase in face amount, The Prudential will recompute the Contract's
scheduled premiums, contingent deferred sales and administrative charges,
tabular values, and monthly deductions from the Contract Fund. The Contract
owner has a choice, limited only by applicable state law, as to whether the
recomputation will be made as of the prior or next Contract anniversary. There
will be a payment required on the date of increase; the amount of the payment
will depend, in part, on which Contract anniversary the Contract owner selects
for the recomputation. The Prudential will tell the owner the amount of the
required payment. If should also be noted that an increase in face amount may
impact the status of the Contract as a Modified Endowment Contract. See Tax
Treatment of Contract Benefits, page 5. Therefore, before increasing the face
amount, a Contract owner should consult with his or her Prudential
representative.

The effective date of the increase in the amount of insurance will be determined
by the same rules that apply when a new Contract is purchased. Generally
speaking, an increase will take effect on the latest of the date the owner
applies for it, the date satisfactory evidence of insurability is provided to
The Prudential or the date designated by the Contract owner, provided the
necessary payment is made on or before that date.

The Prudential will supply the Contract owner with pages which show the
increased face amount, the effective date of the increase, and the recomputed
items described two paragraphs above. The pages will also describe how the
increase in face amount affects the various provisions of the Contract,
including a statement that, for the amount of the increase in face amount, the
period stated in the Incontestability and Suicide provisions (see Other Standard
Contract Provisions, below on page 8) will run from the effective date of the
increase.

For the purpose of determining the sales load that will be charged after the
increase and upon any subsequent lapse or surrender, the Contract is treated as
if there were two separate Contracts, a "base Contract" representing the
Contract before the increase and an "incremental Contract" representing the
increase viewed as a separate Contract. At the time of the increase, a certain
portion of the Contract Fund is allocated to the incremental Contract as a
prepayment of premiums for purposes of the sales load limit. That portion is
equal to the Guideline Annual Premium ("GAP") of the incremental Contract
divided by the GAP of the entire Contract after the increase. Premium payments
made after the increase are also allocated between the base Contract and the
incremental Contract for purposes of the sales load limit. A portion of each
premium payment after the increase is allocated to the increase based on the GAP
for the incremental Contract divided by the GAP for the entire Contract. A
monthly deduction equal to 0.5% of the primary annual premium for each part of
the Contract (i.e., the base and incremental Contracts, respectively) will be
made until each part of the Contract has been in force for 5 years, although The
Prudential reserves the right to continue to make this deduction thereafter.
Similarly, the amount, if any, of sales charges upon lapse or surrender and the
application of the overall limitation upon sales load, as described above in
Sales Load Upon Surrender, page 1, will be determined as explained in that
section as if there were two Contracts rather than one. Moreover, the contingent
deferred administrative charge is also determined as if there were two separate
Contracts. Thus, an owner considering an increase in face amount should be aware
that such an increase will entail charges, including periodic sales load
deductions and contingent deferred sales and administrative charges, comparable
to the purchase of a new Contract.

Each Contract owner who elects to increase the face amount of his or her
Contract will be granted a "free-look" right which will apply only to the
increase in face amount, not the entire Contract. The right is comparable to the
right afforded to a purchaser of a new Contract. See Short-Term Cancellation
Right or "Free Look" in the

4
<PAGE>

prospectus. The "free-look" right would have to be exercised no later than 45
days after execution of the application for the increase or, if later, within 10
days after either receipt of the Contract as increased or receipt of the
withdrawal right notice by the owner. Upon exercise of the "free-look" right,
the owner will receive a refund in the amount of the aggregate premiums paid
since the increase was requested and attributable to the increase, not the base
Contract, as determined pursuant to the proportional premium allocation rule
described above. There will be no adjustment for investment experience. All
charges deducted after the increase will be reduced to what they would have been
had no increase been effected. A Contract owner may transfer the total amount
attributable to the increase in face amount from the subaccounts or the Real
Property Account to the fixed-rate option at any time within 2 years after the
increase in face amount.

Decreases in Face Amount. A Contract owner may effect a partial surrender of a
Contract (see Surrender of a Contract in the prospectus) or a partial withdrawal
of excess cash surrender value (see Withdrawal of Excess Cash Surrender Value
above). A Contract owner also has the additional option of decreasing the face
amount (which is also the guaranteed minimum death benefit) of his or her
Contract without withdrawing any such surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed will thus be able to decrease their amount of insurance
protection, and the monthly deductions for the cost of insurance, without
decreasing their current cash surrender value. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of $15 may be deducted from that value (unless
that fee is separately paid at the time the decrease in face amount is
requested). The Contract's Contract Fund value, however, will be reduced by
deduction of a proportionate part of the then applicable contingent deferred
sales and administrative charges, if any. Scheduled premiums for the Contract
will also be proportionately reduced. The Contracts of owners who exercise the
right to reduce face amount will be amended to show the new face amount, tabular
values, scheduled premiums, monthly charges, and, if applicable, the remaining
contingent deferred sales and administrative charges.

No decreases in face amount will be permitted in the first Contract year. The
minimum permissible decrease is $10,000. No decrease will be permitted that
causes the face amount of the Contract to drop below the minimum face amount
applicable to the insured's Contract. See Requirements for Issuance of a
Contract in the prospectus. No reduction will be permitted to the extent that it
would cause the Contract to fail to qualify as "life insurance" for purposes of
Section 7702 of the Internal Revenue Code. If the face amount of a Contract in
force on a Select Rating basis is reduced below $100,000, it is no longer
eligible for the Select Rating. A decrease in face amount will be effected as of
the Monthly date immediately preceding receipt of a proper request to decrease
face amount. Monthly charges previously deducted on that date and attributed to
the decreased portion of the face amount will be credited to the Contract Fund
as of that date.

It is important to note, however, that if the face amount is decreased at any
time during the first 7 Contract years, there is a danger the Contract might be
classified as a Modified Endowment Contract. See Tax Treatment of Contract
Benefits, page 5. Before requesting any decreases in face amount, a Contract
owner should consult his or her Prudential representative.

Tax Treatment of Contract Benefits. Each prospective purchaser is urged to
consult a qualified tax advisor. The following discussion is not intended as tax
advice, and it is not a complete statement of what the effect of federal income
taxes will be under all circumstances. Rather, it provides information about how
The Prudential believes the tax laws apply in the most commonly occurring
circumstances. There is no guarantee, however, that the current federal income
tax laws and regulations or interpretations will not change.

Treatment as Life Insurance. The Contract will be treated as "life insurance" as
long as it satisfies certain definitional tests set forth in Section 7702 of the
Internal Revenue Code (the "Code") and as long as the underlying investments for
the Contract satisfy diversification requirements set forth in Treasury
Regulations issued pursuant to Section 817(h) of the Code.

These diversification requirements must ordinarily be met within 1 year after
Contract owner funds are first allocated to the particular portfolio of the
Series Fund, and within 30 days after the end of each calendar quarter
thereafter. Each portfolio must meet one of two alternative tests. Under the
first test, no more than 55% of the portfolio's assets can be invested in any
one investment; no more than 70% of the assets can be invested in any two
investments; no more than 80% can be invested in any three investments; and no
more than 90% can be invested in any four investments. Under the second test,
the portfolio must meet the tax law diversification requirements for a regulated
investment company and no more than 55% of the value of the portfolio's assets
can be invested in cash, cash items, Government securities, and securities of
other regulated investment companies. A third test is available for portfolios
that underlie only variable life insurance contracts, such as the Zero Coupon
Bond Portfolios. Under this test, such portfolios can be invested without limit
in Treasury securities and, where the portfolio is invested in part in Treasury
securities, the percentages of the first test are revised and applied to the
portion of the portfolio not invested in Treasury securities.

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<PAGE>

For purposes of determining whether a variable account is adequately
diversified, each United States Government agency or instrumentality is treated
as a separate issuer. Compliance with diversification requirements will
generally limit the amount of assets that may be invested in federally insured
certificates of deposit and all types of securities issued or guaranteed by each
United States Government agency or instrumentality.

The Prudential believes that it has taken adequate steps to cause the Contract
to be treated as life insurance for tax purposes. This means that (1) except as
noted below, the Contract owner should not be taxed on any part of the Contract
Fund, including additions attributable to interest, dividends or appreciation;
and (2) the death benefit should be excludible from the gross income of the
beneficiary under section 101(a) of the Code.

However, Section 7702 of the Code, which defines life insurance for tax
purposes, gives the Secretary of the Treasury authority to prescribe regulations
to carry out the purposes of the Section. In this regard, proposed regulations
governing mortality charges were issued in 1991 and proposed regulations under
Sections 101, 7707, and 7702A governing the treatment of life insurance policies
that provide accelerated death benefits were issued in 1992. None of these
proposed regulations has yet been finalized. Additional regulations under
Section 7702 may also be promulgated in the future. Moreover, in connection with
the issuance of temporary regulations under Section 817(h), the Treasury
Department announced that such regulations do not provide guidance concerning
the extent to which Contract owners may direct their investments to particular
divisions of a separate account. Such guidance will be included in regulations
or rulings under Section 817(d) relating to the definition of a variable
contract.

The Prudential intends to comply with final regulations issued under sections
7702 and 817. Therefore, it reserves the right to make such changes as it deems
necessary to assure that the Contract continues to qualify as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made only after advance written notice to affected Contract owners.

Pre-Death Distributions. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.

1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value except for
the amount, if any, that exceeds the gross premiums paid less the untaxed
portion of any prior withdrawals. The amount of any unpaid Contract debt
will, upon surrender or lapse, be added to the cash surrender value and
treated, for this purpose, as if it had been received. Any loss incurred upon
surrender is generally not deductible. The tax consequences of a surrender
may differ if the proceeds are received under any income payment settlement
option.

A withdrawal generally is not taxable unless it exceeds total premiums paid
to the date of withdrawal less the untaxed portion of any prior withdrawals.
However, under certain limited circumstances, in the first 15 Contract years
all or a portion of a withdrawal or partial surrender may be taxable if the
Contract Fund exceeds the total premiums paid less the untaxed portion of any
prior withdrawals, even if total withdrawals do not exceed total premiums
paid to date.

Extra premiums for optional benefits and riders generally do not count in
computing the gross premiums paid, which in turn determines the extent to
which a withdrawal might be taxed.

Loans received under the Contract will ordinarily be treated as indebtedness
of the owner and will not be considered to be distributions subject to tax.

2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under section 7702A of the Code. It is possible
for the Contract to be classified as a Modified Endowment Contract under at
least two circumstances: premiums substantially in excess of scheduled
premiums are paid; or a decrease in the face amount of insurance is made (or
a rider removed) during the first 7 Contract years. Moreover, the addition of
a rider or the increase in the face amount of insurance after the Contract
Date may have an impact on the Contract's status as a Modified Endowment
Contract. Contract owners contemplating any of these steps should first
consult a qualified tax advisor and their Prudential representative.

If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are includible in
income to the extent that the Contract Fund prior to surrender charges
exceeds the gross premiums paid for the Contract increased by the amount of
any loans previously includible in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludible from
income. These rules may also apply to pre-death distributions, including
loans, made during the 2 year period prior to the Contract becoming a
Modified Endowment Contract.

In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10 per cent of the amount
includible in income unless the amount is distributed on or after age

6
<PAGE>

59 1/2, on account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to Contracts owned by
nonnatural persons such as corporations.

Under certain circumstances, the Code requires two or more Modified Endowment
Contracts issued during a calendar year period to be treated as a single
contract for purposes of applying the above rules.

Withholding. The taxable portion of any amounts received under the Contract will
be subject to withholding to meet federal income tax obligations if the Contract
owner fails to elect that no taxes be withheld or in certain other
circumstances. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. All recipients of such amounts may be subject to penalties under
the estimated tax payment rules if withholding and estimated tax payments are
not sufficient.

Other Tax Considerations. Transfer of the Contract to a new owner or assignment
of the Contract may have tax consequences depending on the circumstances. In the
case of a transfer of the Contract for a valuable consideration, the death
benefit may be subject to federal income taxes under section 101(a)(2) of the
Code. In addition, a transfer of the Contract to or the designation of a
beneficiary who is either 37 1/2 years younger than the Contract owner or a
grandchild of the Contract owner may have Generation Skipping Transfer tax
consequences under Section 2601 of the Code.

In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under section 163 of the Code as personal interest or
under section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.

Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Under section 264(a)(4) of the Code, a deduction is not allowed for
any interest paid or accrued on any Contract debt on an insurance policy to the
extent the indebtedness exceeds $50,000 per officer, employee or financially
interested person. The Code also imposes an indirect tax upon additions to the
Contract Fund or the receipt of death benefits under business-owned life
insurance policies under certain circumstances by way of the corporate
alternative minimum tax.

The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.

Sale of the Contract and Sales Commissions. Pruco Securities Corporation
("Prusec"), an indirect wholly-owned subsidiary of The Prudential, acts as the
principal underwriter of the Contract. Prusec, organized in 1971 under New
Jersey law, is registered as a broker and dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers,
Inc. Prusec's principal business address is 1111 Durham Avenue, South
Plainfield, New Jersey 07080. The Contract is sold by registered representatives
of Prusec who are also authorized by state insurance departments to do so. The
Contract may also be sold through other broker-dealers authorized by Prusec and
applicable law to do so. Registered representatives of such other broker-dealers
may be paid on a different basis than described below. Where the insured is less
than 60 years of age, the representative will generally receive a commission of
no more than 50% of the scheduled premiums for the first year, no more than 12%
of the scheduled premiums for the second, third, and fourth years, no more than
3% of the scheduled premiums for the fifth through tenth years, and no more than
2% of the scheduled premiums thereafter. For insureds over 59 years of age, the
commission will be lower. The representative may be required to return all or
part of the first year commission if the Contract is not continued through the
second year. Representatives with less than 3 years of service may be paid on a
different basis. Representatives who meet certain productivity, profitability,
and persistency standards with regard to the sale of the Contract will be
eligible for additional compensation.

Sales expenses in any year are not equal to the deduction for sales load in that
year. The Prudential expects to recover its total sales expenses over the
periods the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from The Prudential's surplus, which may include amounts derived from the
mortality and expense risk charge and the guaranteed minimum death benefit risk
charge described in the prospectus under Daily Deduction from the Contract Fund,
and item (d) under Monthly Deductions from Contract Fund.

Tax-Qualified Pension Plans. The Contracts may be acquired in connection with
the funding of retirement plans satisfying the qualification requirements of
Section 401 of the Internal Revenue Code. Such Contracts may be issued with a
minimum face amount of $10,000, and increases and decreases in face amount may
be effected in minimum increments of $10,000. The monthly charge for anticipated
mortality costs and the scheduled premiums under such Contracts will be the same
for male and female insureds of a particular age and underwriting
classification. Illustrations reflecting such premiums and charges will be given
to purchasers of Contracts issued in connection with qualified plans. Only
certain of the riders normally available with the Contracts are available to
Contracts issued in connection with qualified plans. See Riders in the
prospectus. Moreover, fixed reduced

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<PAGE>

paid-up insurance and payment of the cash surrender value are the only options
on lapse available to Contracts issued in connection with qualified plans. See
Lapse and Reinstatement in the prospectus. Finally, Contracts issued in
connection with qualified plans may not invest in the Real Property Account.

Prior to purchase of a Contract in connection with a qualified plan, the
provisions of the Code relating to such plans and life insurance thereunder
should be examined.

Other Standard Contract Provisions.

Beneficiary. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.

Incontestability. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract Date or, with respect to any change in
the Contract that requires The Prudential's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
2 years from the effective date of the change, The Prudential will not contest
its liability under the Contract in accordance with its terms.

Misstatement of Age or Sex. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, The Prudential will
adjust the death benefits payable, as required by law, to reflect the correct
age and sex. Any death benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.

Suicide Exclusion. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract Date, The Prudential will pay no more
under the Contract than the sum of the premiums paid.

If the insured, whether sane or insane, dies by suicide within 2 years from the
effective date of an increase in the face amount of insurance, The Prudential
will pay, with respect to the amount of the increase, no more than the sum of
the scheduled premiums attributable to the increase.

Assignment. This Contract may not be assigned if such assignment would violate
any federal, state, or local law or regulation. Generally, the Contract may not
be assigned to an employee benefit plan or program without The Prudential's
consent. The Prudential assumes no responsibility for the validity or
sufficiency of any assignment, and it will not be obligated to comply with any
assignment unless it has received a copy at one of its Home Offices.

Settlement Options. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Prudential representative authorized to sell this Contract can explain
these options upon request.

Exchange of Fixed-Dollar Contract to Variable Contract. The Prudential may, on a
non-discriminatory basis, permit the owner of an Appreciable Life insurance
policy issued by The Prudential (an Appreciable Life policy is a general
account, universal life type policy with guaranteed minimum values) to exchange
his or her policy for a comparable Variable Appreciable Life Contract with the
same Contract Date, scheduled premiums, and Contract fund. No charge will be
made for the exchange. There is no new "free look" right when an Appreciable
Life insurance policy owner elects to exchange his or her policy for a
comparable Variable Appreciable Life Contract.

Although The Prudential does not give tax advice, The Prudential does believe,
based on its understanding of federal income tax laws as currently interpreted,
that the original date exchange of an Appreciable Life Contract should be
considered to be a tax-free exchange under the Internal Revenue Code of 1986 as
amended. It should be noted, however, that the exchange of an Appreciable Life
Contract for a Variable Appreciable Life Contract may impact the status of the
Contract as Modified Endowment Contract. See Tax Treatment of Contract Benefits,
page 5. A contract owner should consult with his or her tax advisor and
Prudential representative before making an exchange.

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

General. The Prudential Series Fund, Inc. (the "Series Fund") has sixteen
separate portfolios available to Contract owners: the Money Market Portfolio,
the Bond Portfolio, the Government Securities Portfolio, the three Zero Coupon
Bond Portfolios with different liquidation dates -- 1995 (not available for
investment after November 14, 1995), 2000, and 2005, the Conservatively Managed
Flexible Portfolio, the Aggressively Managed Flexible Portfolio, the High Yield
Bond Portfolio, the Stock Index Portfolio, the High Dividend Stock Portfolio,
the Common Stock Portfolio, the Growth Stock Portfolio, the Small Capitalization
Stock Portfolio, the Global Equity Portfolio, and the Natural Resources
Portfolio. The portfolios are managed by The Prudential Insurance Company of
America ("The Prudential"), see INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES,
page 24.

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<PAGE>

Each of the portfolios seeks to achieve a different investment objective.
Accordingly, each portfolio can be expected to have different investment results
and to be subject to different financial and market risks. Financial risk refers
to the ability of an issuer of a debt security to pay principal and interest and
to the earnings stability and overall financial soundness of an issuer of an
equity security. Market risk refers to the degree to which the price of a
security will react to changes in conditions in securities markets in general,
and with particular reference to debt securities, to changes in the overall
level of interest rates.

The investment objectives of the Series Fund's portfolios can be found under
Investment Objectives and Policies of the Portfolios in the prospectus. The
policies employed to manage the Zero Coupon Bond Portfolios are also discussed
in greater detail in FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS,
page 20.

Convertible Securities. The Conservatively Managed Flexible, Aggressively
Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Small
Capitalization Stock, Global Equity, and Natural Resources Portfolios may invest
in convertible securities and such securities may constitute a major part of the
holdings of the High Dividend Stock, Natural Resources and Global Equity
Portfolios. A convertible security is a fixed-income security (a bond or
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without risk, investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

Warrants. The Conservatively Managed Flexible, Aggressively Managed Flexible,
High Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock,
Global Equity, and Natural Resources Portfolios may invest in warrants on common
stocks. Warrants are options to buy a number of shares of stock at a
predetermined price during a specified period. The risk associated with the
purchase of a warrant is that the purchase price will be lost if the market
price of the stock does not reach a level that justifies the exercise or sale of
the warrant before it expires. From time to time, the Bond and the High Yield
Bond Portfolios may invest in debt securities that are offered together with
warrants, but only when the debt security meets the portfolio's investment
criteria and the value of the warrant is relatively very small. If the warrant
later becomes valuable, it will ordinarily be sold rather than be exercised.

Options and Futures

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

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

<PAGE>

The Conservatively Managed Flexible, Aggressively Managed Flexible, High
Dividend Stock, Common Stock, Growth Stock, Small Capitalization Stock, Global
Equity, and Natural Resources Portfolios may also purchase "protective puts"
(i.e., put options acquired for the purpose of protecting a portfolio security
from a decline in market value). In exchange for the premium paid for the put
option, the portfolio acquires the right to sell the underlying security at the
exercise price of the put regardless of the extent to which the underlying
security declines in value. The loss to the portfolio is limited to the premium
paid for, and transaction costs in connection with, the put plus the initial
excess, if any, of the market price of the underlying security over the exercise
price. However, if the market price of the security underlying the put rises,
the profit the portfolio realizes on the sale of the security will be reduced by
the premium paid for the put option less any amount (net of transaction costs)
for which the put may be sold. Similar principles apply to the purchase of puts
on debt securities and stock indices, as described below under Options on Debt
Securities and Options on Stock Indices.

These portfolios may purchase call options for hedging and investment purposes.
No portfolio intends to invest more than 5% of its net assets at any one time in
the purchase of call options on stocks. These portfolios may also purchase
putable and callable equity securities, which are securities coupled with a put
or a call option provided by the issuer.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an
exchange-traded option may liquidate his or her position by exercise of the
option or by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. A portfolio will realize a
profit from a closing transaction if the price of the transaction is less than
the premium received from writing the option or is more than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect to a call option
is likely to be offset in whole or in part by appreciation of the underlying
equity security owned by the portfolio. Unlike exchange-traded options, OTC
options generally do not have a continuous liquid market. Consequently, the
portfolio will generally be able to realize the value of an OTC option it has
purchased only by exercising it or reselling it to the dealer who issued it.
Similarly, when the portfolio writes an OTC option, it generally will be able to
close out the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the portfolio originally wrote the
OTC option. There is, in general, no guarantee that closing purchase or closing
sale transactions can be effected.

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

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be 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, which might cause an exchange to institute special
procedures that might interfere with the timely execution of customers' orders.

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

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<PAGE>

Similarly, when a portfolio writes an OTC option, it generally will be able to
close out the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the portfolio originally wrote the
OTC option. While the portfolios will seek to enter into OTC options only with
dealers who agree to and which are expected to be able to be capable of entering
into closing transactions with the portfolio, there can be no assurance that the
portfolio will be able to liquidate an OTC option at a favorable price at any
time prior to expiration. In the event of insolvency of the other party, the
portfolio may be unable to liquidate an OTC option. The Prudential monitors the
creditworthiness of dealers with whom the Series Fund enters into OTC option
transactions under the general supervision of the Series Fund's Board of
Directors.

Options on Debt Securities. The Bond, Government Securities, Conservatively
Managed Flexible, Aggressively Managed Flexible, and High Yield Bond Portfolios
may purchase and write (i.e., sell) put and call options on debt securities
(including U.S. Government debt securities) that are traded on U.S. securities
exchanges or that result from privately negotiated transactions with primary
U.S. Government securities dealers recognized by the Federal Reserve Bank of New
York ("over-the-counter" or "OTC" options). Options on debt are similar to
options on stock, except that the option holder has the right to take or make
delivery of a debt security, rather than stock.

A portfolio will write only "covered" options. Options on debt securities are
covered in the same manner as options on stocks, discussed above, except that,
in the case of call options on U.S. Treasury Bills, the portfolio might own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract amount
and a maturity date no later than that of the securities deliverable under the
call option. The principal reason for a portfolio to write an option on one or
more of its securities is to realize through the receipt of the premiums paid by
the purchaser of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not be written
when, in the opinion of The Prudential, interest rates are likely to decline
significantly, because under those circumstances the premium received by writing
the call likely would not fully offset the foregone appreciation in the value of
the underlying security.

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

These portfolios may purchase "protective puts" in an effort to protect the
value of a security that it owns against a substantial decline in market value.
Protective puts are described above in Options on Equity Securities, page 9. A
portfolio may wish to protect certain portfolio securities against a decline in
market value at a time when put options on those particular securities are not
available for purchase. A portfolio may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio. While changes in the value of the put
option should generally offset changes in the value of the securities being
hedged, the correlation between the two values may not be as close in these
transactions as in transactions in which the portfolio purchases a put option on
an underlying security it owns.

These portfolios may also purchase call options on debt securities for hedging
or investment purposes. No portfolio currently intends to invest more than 5% of
its net assets at any one time in the purchase of call options on debt
securities. A portfolio may also purchase putable and callable debt securities,
which are securities coupled with a put or call option provided by the issuer.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" or a "closing sale
transaction" in a manner similar to that discussed above in connection with
options on equity securities.

The staff of the Securities and Exchange Commission has taken the position that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid for purposes of a portfolio's 15% limitation on investment in illiquid
securities. However, pursuant to the terms of certain no-action letters issued
by the staff, the securities used as cover for written OTC options may be
considered liquid provided that the portfolio sells OTC options only to
qualified dealers who agree that the portfolio may repurchase any OTC option it
writes for a maximum price to be calculated by a predetermined formula. In such
cases, the OTC option would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.

The use of debt options is subject to the same risks described above in
connection with stock options.

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<PAGE>

Options on Stock Indices. The Conservatively Managed Flexible, Aggressively
Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global
Equity, and Natural Resources Portfolios may purchase and sell put and call
options on stock indices traded on securities exchanges or listed on NASDAQ or
that result from privately negotiated transactions with broker-dealers ("OTC
options"). The Stock Index and Small Capitalization Stock Portfolios may utilize
options on stock indices by constructing "put/call" combinations that are
functionally comparable to a long stock index futures position as described
below under Additional Information Regarding the Use of Options and Futures
Contracts by the Stock Index Portfolio. Options on stock indices are similar to
options on stock except that rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks.

The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per Contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.

These portfolios may purchase put and call options for hedging and investment
purposes. No portfolio intends to invest more than 5% of its net assets at any
one time in the purchase of puts and calls on stock indices. A portfolio may
effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.

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

A put option is covered if: (1) the portfolio holds in a segregated account
cash, 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) the portfolio holds a put on the same index as the put written where the
strike price of the put held is equal to or greater than the strike price of the
put written or less than the strike price of the put written if the difference
is maintained by the portfolio in cash, Treasury bills or other high-grade
short-term debt obligations in a segregated account with its custodian. In
instances involving the purchase of futures contracts by a portfolio, an amount
of
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<PAGE>

cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the portfolio's
custodian and/or in a margin account with a broker to collateralize the position
and thereby ensure that the use of such futures is unleveraged.

The purchase and sale of options on stock indices will be subject to the risks
described above under Options on Equity Securities. In addition, the distinctive
characteristics of options on indices create certain risks that are not present
with stock options. Index prices may be distorted if trading of certain stocks
included in the index is interrupted. Trading in the index options also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of stocks included in the index. If this occurred, a
portfolio would not be able to close out options which it had purchased or
written and, if restrictions on exercise were imposed, might be unable to
exercise an option it holds, which could result in substantial losses to the
portfolio. It is the policy of the portfolios to purchase or write options only
on stock indices which include a number of stocks sufficient to minimize the
likelihood of a trading halt in options on the index.

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

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

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

When a portfolio has written a call, there is also a risk that the market may
decline between the time the portfolio has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of the
exercise, and the time the portfolio is able to sell stocks in its portfolio. As
with stock options, a portfolio will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on stock
where the portfolio would be able to deliver the underlying securities in
settlement, the portfolio may have to sell part of its stock portfolio in order
to make settlement in cash, and the price of such stocks might decline before
they can be sold. This timing risk makes certain strategies involving more than
one option substantially more risky with options in stock indices than with
stock options. For example, even if an index call which a portfolio has written
is "covered" by an index call held by the portfolio with the same strike price,
the portfolio will bear the risk that the level of the index may decline between
the close of trading on the date the exercise notice is filed with the clearing
corporation and the close of trading on the date the portfolio exercises the
call it holds or the time the portfolio sells the call, which in either case
would occur no earlier than the day following the day the exercise notice was
filed.

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

Options on Foreign Currencies. The Conservatively Managed Flexible, Aggressively
Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global
Equity, and Natural Resources Portfolios may purchase and write put and call
options on foreign currencies traded on U.S. or foreign securities exchanges or
boards of trade for hedging purposes in a manner similar to that in which
forward foreign currency exchange contracts (see

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Forward Foreign Currency Exchange Contracts, page 18) and futures contracts on
foreign currencies (discussed under Futures Contracts, page 14) will be
employed. Options on foreign currencies are similar to options on stock, except
that the option holder has the right to take or make delivery of a specified
amount of foreign currency, rather than stock.

A portfolio may purchase and write options to hedge the portfolio's securities
denominated in foreign currencies. If there is a decline in the dollar value of
a foreign currency in which the portfolio's securities are denominated, the
dollar value of such securities will decline even though the foreign currency
value remains the same. To hedge against the decline of the foreign currency, a
portfolio may purchase put options on such foreign currency. If the value of the
foreign currency declines, the gain realized on the put option would offset, in
whole or in part, the adverse effect such decline would have on the value of the
portfolio's securities. Alternatively, a portfolio may write a call option on
the foreign currency. If the foreign currency declines, the option would not be
exercised and the decline in the value of the portfolio securities denominated
in such foreign currency would be offset in part by the premium the portfolio
received for the option.

If, on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the portfolio may purchase call options
on the foreign currency. The purchase of such options could offset, at least
partially, the effects of the adverse movements of the exchange rates.
Alternatively, a portfolio could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

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

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

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

Futures Contracts. The Conservatively Managed Flexible, Aggressively Managed
Flexible, Stock Index, High Dividend Stock, Common Stock, Growth Stock, Small
Capitalization Stock, Global Equity, and Natural Resources Portfolios may, to
the extent permitted by applicable regulations, attempt to reduce the risk of
investment in equity securities by hedging a portion of their equity portfolios
through the use of stock index futures contracts. 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.

The Bond, High Yield Bond, Government Securities, Conservatively Managed
Flexible, Aggressively Managed Flexible, and Global Equity Portfolios may, to
the extent permitted by applicable regulations, purchase and sell for hedging
purpose futures contracts on interest-bearing securities (such as U.S. Treasury
bonds and notes) or interest rate indices (referred to collectively as "interest
rate futures contracts").

The Conservatively Managed Flexible, Aggressively Managed Flexible, High
Dividend Stock, Common Stock, Growth Stock, Global Equity, and Natural Resources
Portfolios may, to the extent permitted by applicable regulations, purchase and
sell futures contracts on foreign currencies or groups of foreign currencies for
hedging purposes.

When the 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," will be made on a daily basis as the underlying
security, index or rate fluctuates making the long and short positions in the
futures contracts more or less valuable, a process known as

<PAGE>

"marking to the market." The Board of Directors currently intends to limit
futures trading so that a portfolio will not enter into futures contracts or
related options if the aggregate initial margins and premiums exceed 5% of the
fair market value of its assets, after taking into account unrealized profits
and unrealized losses on any such contracts and options.

A portfolio's successful use of futures contracts depends upon the investment
manager's ability to predict the direction of the relevant market. The
correlation between movement in the price of the futures contract and the price
of the securities or currencies being hedged is imperfect. The ability of a
portfolio to close out a futures position depends on a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular futures contract at any particular time.

There are several additional risks associated with a portfolio's use of futures
contracts for hedging purposes. One such risk arises because of imperfect
correlation between movements in the price of the futures contract and the price
of the securities or currency that are the subject of the hedge. In the case of
futures contracts on stock or interest rate indices, the correlation between the
price of the futures contract and movements in the index might not be perfect.
To compensate for differences in historical volatility, a portfolio could
purchase or sell future contracts with a greater or lesser value than the
securities or currency it wished to hedge or purchase. In addition, temporary
price distortions in the futures market could be caused by a variety of factors.
Further, the ability of a portfolio to close out a futures position depends on a
liquid secondary market. There is no assurance that a liquid secondary market on
an exchange will exist for any particular futures contract at any particular
time. Further, each portfolio's successful use of futures contracts is to some
extent dependent on the ability of the portfolio manager to predict correctly
movements in the direction of the market, interest rates and/or currency
exchange rates.

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

Additional Information Regarding the Use of Options and Futures Contracts by the
Stock Index and Small Capitalization Stock Portfolios. As explained in the
prospectus, the Stock Index Portfolio seeks to duplicate the performance of the
S&P 500 Index and the Small Capitalization Stock Portfolio seeks to duplicate
the performance of the S&P SmallCap 600 Index. The portfolios will be as fully
invested in the S&P Indices stocks as is feasible in light of cash flow patterns
and the cash requirements for efficiently investing in a unit of the basket of
stocks comprising the S&P 500 and S&P SmallCap 600 Indices, respectively. When
the portfolios do have short-term investments, they may purchase stock index
futures contracts in an effort to have the portfolio better mimic the
performance of a fully invested portfolio. When a portfolio purchases stock
index futures contracts, an amount of cash and cash equivalents, equal to the
market value of the futures contracts, will be deposited in a segregated account
with the portfolio's custodian and/or in a margin account with a broker to
collateralize the position and thereby ensure that the use of futures is
unleveraged. As with the other portfolios, the Board of Directors currently
intends to limit futures trading so that the Stock Index and Small
Capitalization Stock Portfolios will not enter into futures contracts or related
options if the aggregate initial margins and premiums exceed 5% of the fair
market value of its assets, after taking into account unrealized profits and
unrealized losses on any such contracts and options.

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

Options on Futures Contracts. To the extent permitted by applicable insurance
law and federal regulations, the Conservatively Managed Flexible, Aggressively
Managed Flexible, Stock Index, High Dividend Stock, Common Stock, Growth Stock,
Small Capitalization Stock, Global Equity and Natural Resources, Portfolios may
enter into certain transactions involving options on stock index futures
contracts, and the Bond, Government Securities, Conservatively Managed Flexible,
Aggressively Managed Flexible, High Yield Bond, and Global Equity Portfolios may
enter into certain transactions involving options on interest rate futures
contracts; and the Conservatively Managed Flexible, Aggressively Managed
Flexible, High Dividend Stock, Common Stock, Growth Stock, Global Equity, and
Natural Resources Portfolios may enter into certain transactions involving
options on foreign currency futures contracts. An option on a futures contract
gives the purchaser or holder the right, but not the obligation, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified price at any time during
the option exercise period. The writer of the option is required upon

15
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exercise to assume an offsetting futures position (a short position if the
option is a call and a 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. As
noted above, the Stock Index and Small Capitalization Stock Portfolios intend to
utilize options on stock index futures contracts by constructing "put/call"
combinations that are economically comparable to a long stock index futures
position. The other portfolios intend to utilize options on futures contracts
for the same purposes that they use the underlying futures contracts.

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

When-Issued and Delayed Delivery Securities. From time to time, in the ordinary
course of business, the Bond, Government Securities, Conservatively Managed
Flexible, Aggressively Managed Flexible, High Yield Bond, High Dividend Stock,
Common Stock, Growth Stock, Small Capitalization Stock, Global Equity and
Natural Resources Portfolios may purchase equity 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. Each of these portfolios will limit such
purchases to those in which the date for delivery and payment falls within 120
days of the date of the commitment. A portfolio will make commitments for such
when-issued transactions only with the intention of actually acquiring the
securities. A portfolio's custodian will maintain, in a separate account, cash,
U.S. Government securities or other high grade debt obligations having a value
equal to or greater than such commitments. If a portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio security, incur a gain or loss
due to market fluctuations.

In addition, the Money Market Portfolio and short-term portions of the other
portfolios may purchase money market securities on a when-issued or delayed
delivery basis on the terms set forth under item 6 in SECURITIES IN WHICH THE
MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST, page 28.

Short Sales. The Bond, Government Securities, Conservatively Managed Flexible,
Aggressively Managed Flexible and High Yield Bond Portfolios may sell securities
they do not own in anticipation of a decline in the market value of those
securities ("short sales"). To complete such a transaction, the portfolio will
borrow the security to make delivery to the buyer. The portfolio is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the portfolio. Until the security is
replaced, the portfolio is required to pay to the lender any interest which
accrues during the period of the loan. To borrow the security the portfolio may
be required to pay a premium which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker to the extent
necessary to meet margin requirements until the short position is closed out.
Until the portfolio replaces the borrowed security, it will (a) maintain in a
segregated account cash or U.S. Government securities at such a level that the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current market value of the security sold short and
will not be less than the market value of the security at the time it was sold
short or (b) otherwise cover its short position.

The portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the portfolio replaces the borrowed security. The portfolio will realize a gain
if the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
will be increased, by the amount of any premium or interest paid in connection
with the short sale. No more than 25% of any portfolio's net assets will be,
when added together: (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales and (ii) allocated to segregated
accounts in connection with short sales.

Short Sales Against the Box. All portfolios (other than the Money Market and
Zero Coupon Bond Portfolios) may make short sales of securities or maintain a
short position, provided that at all times when a short position is open

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

Interest Rate Swaps. The Bond, Government Securities, and High Yield Bond
Portfolios and the fixed income portions of the Conservatively Managed Flexible
and Aggressively Managed Flexible Portfolios may use interest rate swaps to
increase or decrease a portfolio's exposure to long- or short-term interest
rates. No portfolio currently intends to invest more than 5% of its net assets
at any one time in interest rate swaps.

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

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

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

Loans of Portfolio Securities. All of the portfolios except the Money Market
Portfolio may from time to time lend the securities they hold 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 plus the accrued
interest and dividends. During the time securities are on loan, the portfolio
will continue to receive the interest and dividends or amounts equivalent
thereto on the loaned securities while receiving a fee from the borrower or
earning interest on the investment of the cash collateral. The right to
terminate the loan will be given to either party subject to appropriate notice.
Upon termination of the loan, the borrower will return to the lender securities
identical to the loaned securities. The portfolio will not have the right to
vote securities on loan, but would terminate the loan and retain the right to
vote if that were considered important with respect to the investment.

The primary risk in lending securities is that the borrower may become insolvent
on a day on which the loaned security is rapidly advancing in price. In such
event, if the borrower fails to return the loaned securities, the existing
collateral might be insufficient to purchase back the full amount of the
security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage; but the portfolio
would be an unsecured creditor with respect to such shortage and might not be
able to recover all or any of it. However, this risk may be minimized by a
careful selection of borrowers and securities to be lent and by monitoring
collateral.

No portfolio will lend securities to broker-dealers affiliated with The
Prudential, including Prudential Securities Incorporated. This will not affect a
portfolio's ability to maximize its securities lending opportunities.

Illiquid Securities. Each portfolio, other than the Money Market Portfolio, may
invest up to 15% of its net assets in illiquid securities. The Money Market
Portfolio may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those which may not be sold in the ordinary course of
business within seven days at approximately the value at which the portfolio has
valued them. Variable and floating rate instruments that cannot be disposed of
within seven days and repurchase agreements with a maturity of greater than
seven days are considered illiquid.

The portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the adviser, acting under
guidelines approved and monitored

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

Forward Foreign Currency Exchange Contracts. To the extent permitted by
applicable insurance law, the Conservatively Managed Flexible, Aggressively
Managed Flexible, High Dividend Stock, Common Stock, Growth Stock, Global
Equity, and Natural Resources Portfolios may purchase securities denominated in
foreign currencies. To address the currency fluctuation risk that such
investments entail, these portfolios may enter into forward foreign currency
exchange contracts in several circumstances. When a portfolio enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a portfolio anticipates the receipt in a foreign currency of
dividends or interest payments on a security which it holds, the portfolio may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward contract for a fixed amount of dollars, for the purchase or sale
of the amount of foreign currency involved in the underlying transactions, the
portfolio will be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.

Additionally, when a portfolio's manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the portfolio may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The portfolios will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a portfolio to deliver an amount of
foreign currency in excess of the value of the securities or other assets
denominated in that currency held by the portfolio. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the portfolios believe that it is important to have the
flexibility to enter into such forward contracts when it is determined that the
best interests of the portfolios will thereby be served. A portfolio's custodian
will place cash or liquid high-grade equity or debt securities into a segregated
account of the portfolio in an amount equal to the value of the portfolio's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the portfolio's
commitments with respect to such contracts.

The portfolios generally will not enter into a forward contract with a term of
greater than 1 year. At the maturity of a forward contract, a portfolio may
either sell the portfolio security and make delivery of the foreign currency or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a portfolio to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the

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amount of foreign currency that the portfolio is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.

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

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

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

The High Yield Bond Portfolio may also invest up to 10% of its total assets in
foreign currency denominated debt securities of foreign or domestic issuers;
however, the portfolio will not engage in such investment activity unless it has
been first authorized to do so by the Series Fund's Board of Directors. If the
portfolio does engage in such investment activity, it may also enter into
forward foreign currency exchange contracts.

Further Information About the Policies of the Stock Index Portfolio. Under
normal circumstances, the Stock Index Portfolio generally intends to purchase
all 500 stocks represented in the S&P 500 Index and to invest its assets as
fully in those stocks (in proportion to their weighting in the index) as is
feasible in light of cash flows into and out of the portfolio. In order to
reduce transaction costs, a weighted investment in the 500 stocks comprising the
S&P 500 Index is most efficiently made in relatively large amounts. Prior to the
commencement of the public offering of this portfolio's shares, The Prudential
purchased $25,000,000 worth of shares of this portfolio in order to permit the
portfolio to make an initial investment in the 500 stocks (in proportion to
their weighting in the S&P 500 index). As additional cash is received from the
purchase of shares in the portfolio, it may be held temporarily in short-term,
high quality investments of the sort in which the Money Market Portfolio
invests, until the portfolio has a sufficient amount of assets in such
investments to make an efficient weighted investment in the 500 stocks
comprising the S&P 500 Index. If net cash outflows from the portfolio are
anticipated, the portfolio may sell stocks (in proportion to their weighting in
the S&P 500 Index) in amounts in excess of those needed to satisfy the cash
outflows and hold the balance of the proceeds in short-term investments if such
a transaction appears, taking into account transaction costs, to be more
efficient than selling only the amount of stocks needed to meet the cash
requirements. The portfolio will not, however, increase its holdings of cash in
anticipation of any decline in the value of the S&P 500 Index or of the stock
markets generally. The portfolio will instead remain as fully invested in the
S&P 500 Index stocks as feasible in light of its cash flow patterns during
periods of market declines as well as advances, and investors in the portfolio
thus run the risk of remaining fully invested in common stocks during a period
of general decline in the stock markets.

Tracking accuracy is measured by the difference between total return for the S&P
Index with dividends reinvested and total return for the portfolio with
dividends reinvested before deductions of portfolio fees and expenses. Tracking
accuracy is monitored by the portfolio manager on a daily basis. All tracking
accuracy deviations are reviewed to determine the effectiveness of investment
policies and techniques.

If the portfolio does hold short-term investments as a result of the patterns of
cash flows to and from the portfolio, such holdings may cause its performance to
differ from that of the S&P 500 Index. The portfolio will attempt to minimize
any such difference in performance through transactions involving stock index
futures contracts, options on stock indices, and/or options on stock index
future contracts. These derivative investment instruments are described above
under Options on Stock Indices, Stock Index Futures Contracts, and Options on
Futures Contracts on pages 12 through 15. The portfolio will not use such
instruments for speculative purposes or to hedge against any decline in the
value of the stocks held in the portfolio, but instead will employ them only as
a temporary substitute for investment of cash holdings directly in the 500
stocks when the portfolio's cash holdings are too small to make such an
investment in an efficient manner.

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For example, if the portfolio's cash reserves are insufficient to invest
efficiently in another unit of the basket of stocks comprising the S&P 500
Index, the portfolio may purchase S&P 500 futures contracts to hedge against a
rise in the value of the stocks the portfolio intends to acquire. In its attempt
to minimize any difference in performance between the portfolio and the S&P 500
Index, the portfolio currently intends to engage in transactions involving the
S&P 500 Index futures contracts; the NYSE Composite Index futures contracts;
options on the S&P 500 Index, the S&P 100 Index, and the NYSE Composite Index;
and options on the S&P 500 Index futures contracts and the NYSE Composite Index
futures contracts. There can be no assurance that the portfolio's attempt to
minimize such performance difference through the use of any of these instruments
will succeed. See Additional Information Regarding the Use of Options and
Futures Contracts by the Stock Index and Small Capitalization Stock Portfolios,
page 15, for a more detailed discussion of the manner in which the portfolio
will employ these instruments, and Options on Stock Indices, page 12, for a
description of other risks involved in the use of such instruments.

The above described investment policies and techniques of the Stock Index
portfolio are non-fundamental and may be changed without shareholder approval if
it is determined that alternative investment techniques would be more effective
in achieving the portfolio's objective.

Further Information About the Zero Coupon Bond Portfolios. As stated in the
prospectus, the objective of Zero Coupon Portfolios 1995 (not available for
investment after November 14, 1995), 2000, and 2005 is to achieve the highest
predictable compounded investment return for a specified period of time,
consistent with the safety of invested capital. This discussion provides a more
detailed explanation of the investment policies that will be employed to manage
these portfolios.

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

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

When a portfolio's duration is equal to the length of time remaining until its
liquidation date, fluctuations in the amount of income accumulated by the
portfolio through reinvestment of coupon or principal payments received prior to
the liquidation date (i.e., fluctuations caused by reinvestment risk) will, over
the period ending on the liquidation date, be approximately equal in magnitude
to, but opposite in direction from, fluctuations in the market value on the
liquidation date of the portfolio's unmatured bonds (i.e., fluctuations caused
by market risk). By maintaining each portfolio's duration within 1 year of the
length of time remaining until its liquidation date, The Prudential believes
that each portfolio's value on its liquidation date, and hence an investor's
compounded investment return to that date, will largely be immunized against
changes in the general level of interest rates. The success of this technique
could be affected, however, by such factors as changes in the relationship
between long-term and short-term interest rates and changes in the difference
between the yield on corporate and Treasury securities.

The Prudential will also calculate a projected yield for each Zero Coupon Bond
Portfolio. At the beginning of each week, after the net asset value of each Zero
Coupon Bond Portfolio has been determined, The Prudential will calculate the
compounded annual yield that will result if all securities in the portfolio are
held until the liquidation

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date or, if earlier, until their maturity dates (with the proceeds reinvested
until the liquidation date). This is the predicted yield for that date. It can
also be expressed as the amount to which a premium of $10,000 is predicted to
grow by the portfolio's liquidation date. Both of these numbers will be
furnished upon request. Unless there is a significant change in the general
level of interest rates -- in which case a recalculation will be made -- the
predicted yield is not likely to vary materially over the course of each week.

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

INVESTMENT RESTRICTIONS

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

None of the portfolios will:

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

2. Except as part of a merger, consolidation, acquisition or reorganization,
invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company.

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

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

5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that the Bond, High Yield Bond and Government Securities
Portfolios, as well as the fixed income portions of the Balanced
Portfolios, may enter into reverse repurchase agreements, dollar rolls and
may purchase securities on a when-issued and delayed delivery basis;
except that the Money Market Portfolio and the money market portion of any
portfolio may enter into reverse repurchase agreements and may purchase
securities on a when-issued and delayed delivery basis; and except that the
Common Stock, Growth Stock, Small Capitalization Stock, High Dividend
Stock, Natural Resources, Global Equity, Aggressively Managed Flexible and
Conservatively Managed Flexible Portfolios may purchase securities on a
when-issued or a delayed delivery basis. The Series Fund may also obtain
such short-term credit as it needs for the clearance of securities
transactions and may borrow from a bank for the account of any portfolio as
a temporary measure to facilitate redemptions (but not for leveraging or
investment) or to exercise an option, an amount that does not exceed 5% of
the value of the portfolio's total assets (including the amount owed as a
result of the borrowing) at the time the borrowing is made. Interest paid
on borrowings will not be available for investment. Collateral arrangements
with respect to futures contracts and options thereon and forward foreign
currency exchange contracts (as permitted by restriction no. 1) are not
deemed to be the issuance of a senior security or the purchase of a
security on margin. Collateral arrangements with respect to the writing of
the following options by the following portfolios are not deemed to be the
issuance of a senior security or the purchase of a security on

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margin: Diversified Stock and Specialized Portfolios other than the Stock
Index Portfolio (options on equity securities, stock indices, foreign
currencies)and the Small Capitalization Stock Portfolio (options on equity
securities, stock indices); Balanced Portfolios (options on debt
securities, equity securities, stock indices, foreign currencies); Bond and
High Yield Bond Portfolios (options on debt securities, foreign
currencies); Government Securities Portfolio (options on debt securities).
Collateral arrangements entered into by the Fixed Income Portfolios (other
than the Money Market and Zero Coupon Bond Portfolios) and the Balanced
Portfolios with respect to interest rate swap agreements are not deemed to
be the issuance of a senior security or the purchase of a security on
margin.

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

7. Pledge or mortgage assets, except that no more than 10% of the value of any
portfolio may be pledged (taken at the time the pledge is made) to secure
authorized borrowing and except that a portfolio may enter into reverse
repurchase agreements. Collateral arrangements entered into with respect to
futures and forward contracts and the writing of options are not deemed to
be the pledge of assets. Collateral arrangements entered into with respect
to interest rate swap agreements are not deemed to be the pledge of assets.

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

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

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

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

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

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issuers are issuers (other than U.S. Government agencies or
instrumentalities) having a record, together with predecessors, of less
than 3 years' continuous operation.

The Natural Resources Portfolio will generally invest a substantial majority of
its total assets in securities of natural resource companies. With respect to
item 11 above, as it relates to the Natural Resources Portfolio, the following
categories will be considered separate and distinct industries: integrated
oil/domestic, integrated oil/international, crude oil production, natural gas
production, gas pipeline, oil service, coal, forest products, paper, foods
(including corn and wheat), tobacco, fertilizers, aluminum, copper, iron and
steel, all other basic metals (e.g., nickel, lead), gold, silver, platinum,
mining finance, plantations (e.g., edible oils), mineral sands, and diversified
resources. A company will be deemed to be in a particular industry if the
majority of its revenues is derived from or the majority of its assets is
dedicated to one of the categories described in the preceding sentence. The
Board of Directors of the Series Fund will review these industry classifications
from time to time to determine whether they are reasonable under the
circumstances and may change such classifications, without shareholder approval,
to the extent necessary.

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

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

2. Write or purchase any put or call option or combination of them, except
that it may purchase putable securities.

3. Invest in any security with a remaining maturity in excess of 13 months,
except that securities held pursuant to repurchase agreements may have a
remaining maturity of more than 13 months.

Certain additional non-fundamental investment policies are applicable only to
the High Yield Bond Portfolio. That portfolio will not:

1. Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed income securities,
but not including preferred stock.

2. Invest more than 20% of the market or other fair value of its total assets
in United States currency denominated issues of foreign governments and
other foreign issuers; or invest more than 10% of the market or other fair
value of its total assets in securities which are payable in currencies
other than United States dollars. The portfolio will not engage in
investment activity in non-U.S. dollar denominated issues without first
obtaining authorization to do so from the Series Fund's Board of Directors.
See INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS, page 8.

The investments of the various portfolios are generally subject to certain
additional restrictions under the laws of the State of New Jersey. In the event
of future amendments to the applicable New Jersey statutes, each portfolio will
comply, without the approval of the shareholders, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
stand are, in summary form, as follows:

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

2. The stock of a corporation may not be purchased unless: (i) the corporation
has paid a cash dividend on the class of stock during each of the past 5
years preceding the time of purchase; or (ii) during the 5-year period the
corporation had aggregate earnings available for dividends on such class of
stock sufficient to pay average dividends of 4% per annum computed upon the
par value of such stock or upon stated value if the stock has no par value.
This limitation does not apply to any class of stock which is preferred as
to dividends over a class of stock whose purchase is not prohibited.

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

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

As a result of these currently applicable requirements of New Jersey law, which
impose substantial limitations on the ability of the Series Fund to invest in
the stock of companies whose securities are not publicly traded or who have not
recorded a 5-year history of dividend payments or earnings sufficient to support
such payments, the
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<PAGE>

portfolios will not generally hold the stock of newly organized corporations.
Nonetheless, an investment not otherwise eligible under items 1 or 2 above may
be made if, after giving effect to the investment, the total cost of all such
non-eligible investments does not exceed 5% of the aggregate market value of the
assets of the portfolio.

Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the portfolios. For example, the Series Fund will generally invest no more
than 10% of its assets in the obligations of banks of the foreign countries
described in item 2 of SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST, page 28.

Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that The Prudential and other insurers with separate
accounts which invest in the Series Fund and not the Contract owners, are
considered the owners of assets held in the Account for federal income tax
purposes. See Tax Treatment of Contract Benefits, page 5. The Prudential intends
to maintain the assets of each portfolio pursuant to those diversification
requirements.

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES

The Series Fund and The Prudential have entered into an Investment Advisory
Agreement under which The Prudential will, subject to the direction of the Board
of Directors of the Series Fund, be responsible for the management of the Series
Fund, and provide investment advice and related services to each portfolio. As
noted in the prospectus, The Prudential has also entered into a Service
Agreement with its wholly-owned subsidiary, The Prudential Investment
Corporation ("PIC"), which provides that PIC will furnish to The Prudential such
services as The Prudential may require in connection with The Prudential's
performance of its obligations under the Investment Advisory Agreement. In
addition, The Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison") under
which Jennison furnishes investment advisory services in connection with the
management of the Growth Stock Portfolio.

The investment management fee for the Stock Index Portfolio is equal to an
annual rate of 0.35% of the average daily net assets of the portfolio. For the
Money Market, Bond, Government Securities, High Dividend Stock, and Zero Coupon
Bond and Small Capitalization Stock Portfolios, that fee is equal to an annual
rate of 0.4% of the average daily net assets of each of the portfolios. For the
Common Stock and Natural Resources Portfolios, the fee is equal to an annual
rate of 0.45% of the average daily net assets of each of the portfolios. The fee
for the Conservatively Managed Flexible and High Yield Bond Portfolios is equal
to an annual rate of 0.55% of the average daily net assets of each of the
portfolios. For the Aggressively Managed Flexible and Growth Stock Portfolios,
the fee is equal to an annual rate of 0.6% of the average daily net assets of
the portfolio. The fee for the Global Equity Portfolio is equal to an annual
rate of 0.75% of the average daily net assets of the portfolio. The Prudential
reimburses PIC for the costs and expenses it incurs under the Service Agreement.
The Prudential pays Jennison a portion of the fee it receives for providing
investment advisory services to the Growth Stock Portfolio.

The Investment Advisory Agreement requires The Prudential to pay for maintaining
any Prudential staff and personnel who perform clerical, accounting,
administrative, and similar services for the Series Fund, other than investor
services and any daily Series Fund accounting services. It also requires The
Prudential to pay for the equipment, office space and related facilities
necessary to perform these services and the fees or salaries of all officers and
directors of the Series Fund who are affiliated persons of The Prudential or any
subsidiary of The Prudential.

Each portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Series Fund's general administrative expenses
allocated on the basis of the asset size of the respective portfolios. Expenses
that will be borne directly by the portfolios include redemption expenses,
expenses of portfolio transactions, shareholder servicing costs, interest,
certain taxes, charges of the Custodian and Transfer Agent, and other expenses
attributable to a particular portfolio. Expenses that will be allocated among
all portfolios include legal expenses, state franchise taxes, auditing services,
costs of printing proxies, costs of stock certificates, Securities and Exchange
Commission fees, accounting costs, the fees and expenses of directors of the
Series Fund who are not affiliated persons of The Prudential or any subsidiary
of The Prudential, and other expenses properly payable by the entire Series
Fund. If the Series Fund is sued, litigation costs may be directly applicable to
one or more portfolios or allocated on the basis of the size of the respective
portfolios, depending upon the nature of the

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<PAGE>

lawsuit. The Series Fund's Board of Directors has determined that this is an
appropriate method of allocating expenses.

Under the Investment Advisory Agreement, The Prudential has agreed to refund to
a portfolio (except the Global Equity Portfolio) the portion of the investment
management fee for that portfolio equal to the amount that the aggregate annual
ordinary operating expenses of that portfolio (excluding interest, taxes, and
brokerage fees and commissions but including investment management fees) exceeds
0.75% of the portfolio's average daily net assets. There is no expense
limitation or reimbursement provision for the Global Equity Portfolio.

The Investment Advisory Agreement with The Prudential was most recently approved
by the Series Fund's Board of Directors, including a majority of the Directors
who are not interested persons of The Prudential, on February 28, 1995 with
respect to all portfolios. The Investment Advisory Agreement was most recently
approved by the shareholders in accordance with instructions from Contract
owners at their 1989 annual meeting with respect to all portfolios except the
Growth Stock and Small Capitalization Stock Portfolios. A Supplemental Advisory
Agreement regarding the Growth Stock and Small Capitalization Stock Portfolios
was approved by the Series Fund Board of Directors on December 20, 1994 and by
the sole shareholder of the Growth Stock and Small Capitalization Stock
Portfolios on April 5, 1995. The Investment Advisory and Supplemental Investment
Advisory Agreements will continue in effect if approved annually by: (1) a
majority of the non-interested persons of the Series Fund's Board of Directors;
and (2) by a majority of the entire Board of Directors or by a majority vote of
the shareholders of each portfolio. The required shareholder approval of the
Agreements shall be effective with respect to any portfolio if a majority of the
voting shares of that portfolio vote to approve the Agreements, even if the
Agreements are not approved by a majority of the voting shares of any other
portfolio or by a majority of the voting shares of the entire Series Fund. The
Agreements provide that they may not be assigned by The Prudential and that they
may be terminated upon 60 days notice by the Series Fund's Board of Directors or
by a majority vote of its shareholders. The Prudential may terminate the
Agreements upon 90 days notice.

The Service Agreement between The Prudential and PIC was most recently ratified
by shareholders of the Series Fund at their 1989 annual meeting with respect to
all portfolios except for the Growth Stock and Small Capitalization Stock
Portfolios, which had not yet been established. The Service Agreement with
respect to those portfolios and the Investment Subadvisory Agreement with
Jennison were ratified by the sole shareholder of those portfolios on April 5,
1995. The Service Agreement between The Prudential and PIC will continue in
effect as to the Series Fund for a period of more than 2 years from its
execution, only so long as such continuance is specifically approved at least
annually in the same manner as the Investment Advisory Agreement between The
Prudential and the Series Fund. The Service Agreement may be terminated by
either party upon not less than 30 days prior written notice to the other party,
will terminate automatically in the event of its assignment, and will terminate
automatically as to the Series Fund in the event of the assignment or
termination of the Investment Advisory Agreement between The Prudential and the
Series Fund. The Prudential is not relieved of its responsibility for all
investment advisory services under the Investment Advisory Agreement.

The Prudential also serves as the investment advisor to several other investment
companies. When investment opportunities arise that may be appropriate for more
than one entity for which The Prudential serves as investment advisor, The
Prudential will not favor one over another and may allocate investments among
them in an impartial manner believed to be equitable to each entity involved.
The allocations will be based on each entity's investment objectives and its
current cash and investment positions. Because the various entities for which
The Prudential acts as investor advisor have different investment objectives and
positions, The Prudential may from time to time buy a particular security for
one or more such entities while at the same time it sells such securities for
another.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Prudential is responsible for decisions to buy and sell securities, options
on securities and indices, and futures and related options for the Series Fund.
The Prudential is also responsible for the selection of brokers, dealers, and
futures commission merchants to effect the transactions and the negotiation of
brokerage commissions, if any. Broker-dealers may receive brokerage commissions
on Series Fund portfolio transactions, including options and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of The Prudential.

Bonds, including convertible bonds, and equity securities traded in the
over-the-counter market are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, certain money market
instruments and U.S. Government agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid.

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<PAGE>

The Series Fund will not deal with Prudential Securities Incorporated in any
transaction in which Prudential Securities Incorporated acts as principal. Thus,
it will not deal with Prudential Securities Incorporated if execution involves
Prudential Securities Incorporated's acting as principal with respect to any
part of the Series Fund's order.

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities Incorporated, during the existence of
the syndicate, is a principal underwriter (as defined in the 1940 Act) except in
accordance with rules of the Securities and Exchange Commission. This
limitation, in the opinion of the Series Fund, will not significantly affect the
portfolios' current ability to pursue their respective investment objectives.
However, in the future it is possible that the Series Fund may under other
circumstances be at a disadvantage because of this limitation in comparison to
other funds not subject to such a limitation.

In placing orders for portfolio securities of the Series Fund, The Prudential is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, The Prudential will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Series Fund, The Prudential or The Prudential's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by The Prudential in connection with all of its investment activities, and some
of such services obtained in connection with the execution of transactions for
the Series Fund may be used in managing other investment accounts. Conversely,
brokers, dealers or futures commission merchants furnishing such services may be
selected for the execution of transactions for such other accounts, and the
services furnished by such brokers, dealers or futures commission merchants may
be used by The Prudential in providing investment management for the Series
Fund. Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The Prudential's policy is to pay higher commissions to brokers, other
than Prudential Securities Incorporated, for particular transactions than might
be charged if a different broker had been selected on occasions when, in The
Prudential's opinion, this policy furthers the objective of obtaining best price
and execution. The Prudential's present policy is not to permit higher
commissions to be paid on Series Fund transactions in order to secure research,
statistical, and investment services from brokers. The Prudential might in the
future authorize the payment of such higher commissions but only with the prior
concurrence of the Board of Directors of the Series Fund, if it is determined
that the higher commissions are necessary in order to secure desired research
and are reasonable in relation to all the services that the broker provides.

Subject to the above considerations, Prudential Securities Incorporated may act
as a securities broker or futures commission merchant for the Series Fund. In
order for Prudential Securities Incorporated to effect any portfolio
transactions for the Series Fund, the commissions received by Prudential
Securities Incorporated must be reasonable and fair compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow Prudential Securities
Incorporated to receive no more than the remuneration that would be expected to
be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Series Fund, including a majority of the non-interested directors, has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Prudential Securities
Incorporated are consistent with the foregoing standard. In accordance with Rule
11a2-2(T) under the Securities Exchange Act of 1934, Prudential Securities
Incorporated may not retain compensation for effecting transactions on a
securities exchange for the Series Fund unless the Series Fund has expressly
authorized the retention of such compensation in a written contract executed by
the Series Fund and Prudential Securities Incorporated. Rule 11a2-2(T) provides
that Prudential Securities Incorporated must furnish to the Series Fund at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities Incorporated from transactions effected for the Series
Fund during the applicable period. Brokerage and futures transactions with
Prudential Securities Incorporated are also subject to such fiduciary standards
as may be imposed by applicable law.

For the years 1994, 1993, and 1992, the Series Fund paid a total of $11,579,886,
$9,492,283, and $5,802,658, respectively, in brokerage commissions. Of those
amounts, $560,155, $977,695, and $873,920, for 1994, 1993, and 1992,
respectively, was paid out to Prudential Securities Incorporated. For 1994, the
commissions paid to this affiliated broker constituted 4.8% of the total
commissions paid by the Series Fund for that year. Transactions through this
affiliated broker accounted for 6.04% of the aggregate dollar amount of
transactions for the Series Fund involving the payment of commissions.

DETERMINATION OF NET ASSET VALUE

Shares in the Series Fund are currently offered continuously, without sales
charge, at prices equal to the respective net asset values of the portfolios,
only to separate accounts to fund benefits payable under the Contracts described

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<PAGE>

in the variable life insurance and variable annuity prospectuses. The Series
Fund may at some later date also offer its shares to other separate accounts of
The Prudential or other insurers. The Prudential acts as principal underwriter
to the Series Fund. As such, The Prudential receives no underwriting
compensation from the Series Fund.

As noted in the prospectus, the net asset value of the shares of each portfolio
is determined once daily on each day the New York Stock Exchange ("NYSE") is
open for business. The NYSE is open for business Monday through Friday except
for the days on which the following holidays are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

In determining the net asset value of the Bond, High Yield Bond, and Government
Securities Portfolios, securities (other than debt obligations with remaining
maturities of less than 60 days, which are valued at amortized cost) will be
valued utilizing an independent pricing service to determine valuations for
normal institutional size trading units of securities. The pricing service
considers such factors as security prices, yields, maturities, call features,
ratings, and developments relating to specific securities in arriving at
securities valuations.

The net asset value of shares of the Money Market Portfolio will normally remain
at $10 per share, because the net investment income of this portfolio (including
realized and unrealized gains and losses on portfolio holdings) will be declared
as a dividend each time the portfolio's net income is determined. See DIVIDENDS,
DISTRIBUTIONS AND TAXES, page 32. If in the view of the Board of Directors of
the Series Fund it is inadvisable to continue to maintain the net asset value of
the Money Market Portfolio at $10 per share, the Board reserves the right to
alter the procedure. The Series Fund will notify Contract owners of any such
alteration.

All short-term debt obligations in the Money Market Portfolio of 13 months'
maturity or less are valued on an amortized cost basis. This means that each
obligation will be valued initially at its purchase price and thereafter by
amortizing any discount or premium uniformly to maturity, regardless of the
impact of fluctuating interest rates on the market value of the obligation. This
highly practical method of valuation is in widespread use and almost always
results in a value that is extremely close to the actual market value. In order
to continue to utilize the amortized cost method of valuation, the Money Market
Portfolio may not purchase any security with a remaining maturity of more than
13 months and must maintain a dollar-weighted average portfolio maturity of 90
days or less. In the event of sizeable changes in interest rates, however, the
value determined by this method may be higher or lower than the price that would
be received if the obligation were sold. The Series Fund's Board of Directors
has established procedures to determine whether, on these occasions, if any
should occur, the deviation might be enough to affect the value of shares in the
Money Market Portfolio by more than 1/2 of one percent, and, if it does, an
appropriate adjustment will be made in the value of the obligations. The
portfolio may only be invested in securities of high quality as described in
detail below in SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY
INVEST.

The net asset value of the Stock Index, High Dividend Stock, Common Stock,
Growth Stock, Small Capitalization Stock, Global Equity, and Natural Resources
Portfolios will be determined in the following manner. 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. New
York City 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. 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. Corporate bonds
(other than convertible debt securities) and Government bonds held by the High
Dividend Stock and Natural Resources Portfolios are valued on the same basis as
securities in the Bond and High Yield Bond Portfolios, as described above.
Short-term debt instruments which mature in less than 60 days are valued at
amortized cost. For valuation purposes, quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents.

Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities, and money market instruments, is substantially completed
each day at various times prior to the close of the NYSE. The values of any such
securities are determined as of such times for purposes of computing a
portfolio's net asset value. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. If an extraordinary event occurs
after the close of an exchange on which that security is traded, the security
will be valued at fair value as determined in good faith by the applicable
portfolio manager under procedures established by and under the general
supervision of the Series Fund's Board of Directors.

In determining the net asset value of each of the Balanced Portfolios, the
method of valuation of a security depends on the type of investment involved.
Intermediate or long-term fixed income securities are valued in the same way as
such securities are valued in the Bond Portfolio, and common stocks and
convertible debt securities are valued in the same way as such securities are
valued in the Common Stock Portfolio. Short-term debt obligations with

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<PAGE>

a maturity of 12 months or less are valued on an amortized cost basis in
accordance with an order obtained from the Securities and Exchange Commission.
Each Balanced Portfolio must maintain a dollar-weighted average maturity for its
short-term debt obligations of 120 days or less. As discussed above in
connection with the Money Market Portfolio, the values determined by the
amortized cost method may deviate from market value under certain circumstances.
The Series Fund's Board of Directors has established procedures to monitor
whether any material deviation occurs and, if so, will promptly consider what
action, if any, should be initiated to prevent unfair results to Contract
owners. The short-term portion of these portfolios may be invested only in high
quality instruments, as described below in SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST.

In determining the net asset value of the shares of the Zero Coupon Bond
Portfolios 1995, 2000, and 2005, securities (other than debt obligations with
maturities of less than 60 days, which are valued at amortized cost) will be
valued utilizing an independent pricing service to determine valuations for
normal institutional size trading units of securities. The pricing service
considers such factors as security prices, yields, maturities, call features,
ratings, and developments relating to specific securities in arriving at
securities valuations.

With respect to all the portfolios which utilize such investments, options on
stock and stock indices traded on national securities exchanges are valued at
the average of the quoted bid and asked prices as of the close of the respective
exchange (which is currently 4:10 p.m. New York City time). Futures contracts
are marked to market daily, and options thereon are valued at their last sale
price, as of the close of the applicable commodities exchanges (which is
currently 4:15 p.m. New York City time).

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by The Prudential under the direction of
the Board of Directors of the Series Fund.

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST

The Money Market Portfolio, and the other portfolios to the extent their
investment policies so provide, may invest in the following liquid, short-term,
debt securities regularly bought and sold by financial institutions:

1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These are debt securities
(including bills, certificates of indebtedness, notes, and bonds) issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government that is established under the authority of an act of Congress.
Although all obligations of agencies and instrumentalities are not direct
obligations of the U.S. Treasury, payment of the interest and principal on them
is generally backed directly or indirectly by the U.S. Government. This support
can range from the backing of the full faith and credit of the United States, to
U.S. Treasury guarantees or to the backing solely of the issuing instrumentality
itself. Securities which are not backed by the full faith and credit of the
United States include but are not limited to obligations of the Tennessee Valley
Authority, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the United States Postal Service, each of which has
the right to borrow from the U.S. Treasury to meet its obligations, and
obligations of the Federal Farm Credit System and the Federal Home Loan Banks,
the obligations of which may only be satisfied by the individual credit of the
issuing agency. Obligations of the Government National Mortgage Association, the
Farmers Home Administration, and the Export-Import Bank are examples of
securities that are backed by the full faith and credit of the United States.

2. Obligations (including certificates of deposit, bankers' acceptances, and
time deposits) of domestic banks, foreign branches of U.S. banks, U.S. branches
of foreign banks, and foreign offices of foreign banks provided that such bank
has, at the time of the portfolio's investment, total assets of at least $1
billion or the equivalent. Obligations of any savings and loan association or
savings bank organized under the laws of the United States or any state thereof,
provided that such association or savings bank has, at the time of the
portfolio's investment, total assets of at least $1 billion. The term
"certificates of deposit" includes both Eurodollar certificates of deposit,
which are traded in the over-the-counter market, and Eurodollar time deposits,
for which there is generally not a market. "Eurodollars" are dollars deposited
in banks outside the United States. An investment in Eurodollar instruments
involves risks that are different in some respects from an investment in debt
obligations of domestic issuers, including future political and economic
developments such as possible expropriation or confiscatory taxation that might
adversely affect the payment of principal and interest on the Eurodollar
instruments.

"Certificates of deposit" are certificates evidencing the indebtedness of a
commercial bank to repay funds deposited with it for a definite period of time
(usually from 14 days to 1 year). "Bankers' acceptances" are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. "Time deposits"
are non-negotiable deposits in a bank for a fixed period of time.

3. Commercial paper, variable amount demand master notes, bills, notes and other
obligations issued by a U.S. company, a foreign company or a foreign government,
its agencies, instrumentalities or political subdivisions,

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<PAGE>

denominated in U.S. dollars, and, at the date of investment, rated at least A or
A-2 by Standard & Poor's Corporation ("S&P"), A or Prime-2 by Moody's Investors
Service ("Moody's") or, if not rated, issued by an entity having an outstanding
unsecured debt issue rated at least A or A-2 by S&P or A or Prime-2 by Moody's.
For a description of corporate bond ratings, see DEBT RATINGS, page 30. If such
obligations are guaranteed or supported by a letter of credit issued by a bank,
such bank (including a foreign bank) must meet the requirements set forth in
paragraph 2 above. If such obligations are guaranteed or insured by an insurance
company or other non-bank entity, such insurance company or other non-bank
entity must represent a credit of high quality, as determined by the Series
Fund's investment adviser (which as noted above is currently The Prudential)
under the supervision of the Series Fund's Board of Directors.

As stated above in paragraphs 2 and 3, the Money Market Portfolio and short-term
portions of the other portfolios may contain obligations of foreign branches of
domestic banks and domestic branches of foreign banks, as well as commercial
paper, bills, notes, and other obligations issued in the United States by
foreign issuers, including foreign governments, their agencies, and
instrumentalities. This involves certain additional risks. These risks include
future political and economic developments in the country of the issuer, the
possible imposition of withholding taxes on interest income payable on such
obligations held by the Series Fund, the possible seizure or nationalization of
foreign deposits, and the possible establishment of exchange controls or other
foreign governmental laws or restrictions which might affect adversely the
payment of principal and interest on such obligations held by the Series Fund.
In addition, there may be less publicly available information about a foreign
issuer than about a domestic one, and foreign issuers may not be subject to the
same accounting, auditing and financial recordkeeping standards and requirements
as domestics issuers. Securities issued by foreign issuers may be subject to
greater fluctuations in price than securities issued by U.S. entities. Finally,
in the event of default with respect to any such foreign debt obligations, it
may be more difficult for the Series Fund to obtain or to enforce a judgment
against the issuers of such securities.

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

The Series Fund will not enter into repurchase agreements with The Prudential or
its affiliates, including Prudential Securities Incorporated. This will not
affect the Series Fund's ability to maximize its opportunities to engage in
repurchase agreements.

5. Reverse Repurchase Agreements. The Money Market Portfolio may use reverse
repurchase agreements, which are described under Reverse Repurchase Agreements
and Dollar Rolls in the prospectus. No portfolio may obligate more than 10% of
its net assets in connection with reverse repurchase agreements, except that the
Bond, High Yield Bond, and Government Securities Portfolios, as well as the
fixed income portions of the Conservatively Managed Flexible and Aggressively
Managed Flexible Portfolios, may obligate up to 30% of their net assets in
connection with reverse repurchase agreements and dollar rolls.

6. When-Issued and Delayed Delivery Securities. From time to time, in the
ordinary course of business, the Money Market Portfolio may purchase securities
on a when-issued or delayed delivery basis (i.e., delivery and payment can take
place a month or more after the date of the transaction). The purchase price and
the interest rate payable on the securities are fixed on the transaction date.
The securities so purchased are subject to market fluctuation, and no interest
accrues to the portfolio until delivery and payment take place. At the time the
portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value. The
portfolio will make commitments for when-issued transactions only with the
intention of actually acquiring the securities and, to

29
<PAGE>

facilitate such acquisitions, the Series Fund's custodian bank will maintain in
a separate account securities of the portfolio having a value equal to or
greater than such commitments. On delivery dates for such transactions, the
portfolio will meet its obligations from maturities or sales of the securities
held in the separate account and/or from then available cash flow. If the
portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
obligation, incur a gain or loss due to market fluctuation. No when-issued
commitments will be made if, as a result, more than 15% of the portfolio's net
assets would be so committed.

The Board of Directors of the Series Fund has adopted policies for the Money
Market Portfolio to conform to amendments of an SEC rule applicable to money
market funds, like the portfolio. These policies do not apply to any other
portfolio. The policies are as follows: (1) The portfolio will not invest more
than 5% of its assets in the securities of any one issuer (except U.S.
Government securities); however, the portfolio may exceed the 5% limit with
respect to a single security rated in the highest rating category for up to
three business days after the purchase thereof; (2) To be eligible for
investment, a security must be a United States dollar-denominated instrument
that the Series Fund's Board has determined to present minimal credit risks and
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs") assigning a
rating to the security or issue, or if only one NRSRO has assigned a rating,
that NRSRO. An unrated security must be deemed to be of comparable quality as
determined by the Series Fund's Board. In other words, the portfolio will invest
in only first tier or second tier securities. First tier securities are
securities which are rated by at least two NRSROs, or by the only NRSRO that has
rated the security, in the highest short-term rating category, or unrated
securities of comparable quality as determined by the Series Fund's Board.
Second tier securities are eligible securities that are not first tier
securities; (3) The portfolio will not invest more than 5% of its total assets
in second tier securities; (4) The portfolio may not invest more than 1% of its
assets in second tier securities of any one issuer; (5) In the event a first
tier security held by the portfolio is downgraded and becomes a second tier
security, or in the case of an unrated security the Series Fund's Board
determines it is no longer of comparable quality to a first tier security, or in
the event The Prudential becomes aware that an NRSRO has rated a second tier
security or an unrated portfolio security below its second highest rating, the
Board will reassess promptly whether the security presents minimal credit risks
and shall cause the portfolio to take such action as the Board determines is in
the best interests of the portfolio and its shareholders; (6) In the event of a
default or if because of a rating downgrade a security held in the portfolio is
no longer an eligible investment, the portfolio will sell the security as soon
as practicable unless the Series Fund's Board makes a specific finding that such
action would not be in the best interest of the portfolio; and (7) The
portfolio's dollar-weighted average maturity will be no more than 90 days. The
Series Fund's Board of Directors has adopted written procedures delegating to
the investment advisor under certain guidelines the responsibility to make
several of the above-described determinations, including certain credit quality
determinations.

DEBT RATINGS

Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:

Bonds:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
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<PAGE>

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

Commercial paper:

o Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

-- Leading market positions in well-established industries.
-- High rates of return of funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

o Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Standard & Poor's Corporation describes its grades of corporate debt securities
and its "A" commercial paper as follows:

Bonds:

AAA Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest.
Marketwise they move with interest rates, and hence provide the
maximum safety on all counts.

AA Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree.
Here, too, prices move with the long term money market.

A Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from
adverse effects of changes in economic and trade conditions.
Interest and principal are regarded as safe. They are predominately
reflect money rates in their market behavior, but to some extent,
also economic conditions.

BBB Bonds rated BBB, or medium grade, are borderline between definitely
sound obligations and those where the speculative element begins to
predominate. These bonds have adequate asset coverage and normally
are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly to depressions, necessitates
constant watching. Marketwise, the bonds are more responsive to
business and trade conditions than to interest rates. This group is
the lowest which qualifies for commercial bank investment.

BB-B-CCC-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC
the highest degree of speculation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

Commercial paper:

Commercial paper rated A by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are better than the industry average. Long
term senior debt rating is "A" or better. In some cases BBB credits may be
acceptable. The issuer has access to at least two additional channels of
borrowings. Basic earnings and cash flow have an upward trend with allowances
made for unusual circumstances. Typically, the issuer's industry is well
established, the issuer has a strong position within its industry and the
reliability and quality of management

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<PAGE>

is unquestioned. Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.

POSSIBLE REPLACEMENT OF THE SERIES FUND

Although The Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, The Prudential may seek to substitute the shares of another
portfolio or of an entirely different mutual fund. Before this can be done, the
approval of the SEC, and possibly one or more state insurance departments, will
be required. Contract owners will be notified of such substitution.

In addition, although it is highly unlikely, it is conceivable that in the
future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual fund. Although neither the companies which invest in the Series Fund nor
the Series Fund currently foresees any such disadvantage, the Series Fund's
Board of Directors intends to monitor events in order to identify any material
conflict between variable life insurance and variable annuity contract owners
and to determine what action, if any, should be taken in response thereto.
Material conflicts could result from such things as: (1) changes in state
insurance law; (2) changes in federal income tax law; (3) changes in the
investment management of any portfolio of the Series Fund; or (4) difference
between voting instructions given by variable life insurance and variable
annuity contract owners. The Prudential will bear the expense, if it does become
necessary, of remedying any material conflict including establishing a new
underlying investment company and segregating the assets held under variable
life insurance and variable annuity contracts.

OTHER INFORMATION CONCERNING THE SERIES FUND

Incorporation and Authorized Stock. The Series Fund was incorporated under
Maryland law on November 15, 1982. The authorized Capital Stock of the Series
Fund consists of 2 billion shares, par value $0.01 per share. The shares of
Capital Stock are divided into sixteen classes: Money Market Portfolio Capital
Stock (200 million shares), Bond Portfolio Capital Stock (200 million shares),
Government Securities Portfolio Capital Stock (100 million shares), Zero Coupon
Bond Portfolio 1995 Capital Stock (25 million shares), Zero Coupon Bond
Portfolio 2000 Capital Stock (25 million shares), Zero Coupon Bond Portfolio
2005 Capital Stock (50 million shares), Conservatively Managed Flexible
Portfolio Capital Stock (300 million shares), Aggressively Managed Flexible
Portfolio Capital Stock (300 million shares), High Yield Bond Portfolio Capital
Stock (100 million shares), Stock Index Portfolio Capital Stock (100 million
shares), High Dividend Stock Portfolio Capital Stock (100 million shares),
Common Stock Portfolio Capital Stock (200 million shares), Growth Stock
Portfolio Capital Stock (50 million shares), Small Capitalization Stock
Portfolio Capital Stock (50 million shares), Global Equity Portfolio Capital
Stock (100 million shares), Natural Resources Portfolio Capital Stock (100
million shares). The shares of each portfolio, when issued, will be fully paid
and non-assessable, will have no conversion, exchange or similar rights, and
will be freely transferable. Each share of stock will have a pro rata interest
in the assets of the portfolio to which the stock of that class relates and will
have no interest in the assets of any other portfolio.

Dividends, Distributions and Taxes. The Series Fund is qualified as a regulated
investment company under Section 851 of the Internal Revenue Code and
distributes substantially all of each portfolio's net investment income and
realized gains from securities transactions to the respective subaccounts, which
immediately reinvest it. For each taxable year in which it and each of its
portfolios so qualify, the Series Fund will not be subject to tax on net
investment income and realized gains from securities transactions distributed to
shareholders.

Custodian and Transfer Agent. Chemical Bank, 4 New York Plaza, New York, N.Y.
10004, is the custodian of the assets held by all the portfolios, except the
Global Equity Portfolio, and is authorized to use the facilities of the
Depository Trust Company and the facilities of the book-entry system of the
Federal Reserve Bank with respect to securities held by these portfolios.
Chemical Bank is also authorized to use the facilities of the Mortgage Backed
Security Clearing Corporation (a subsidiary of the Midwest Stock Exchange) with
respect to mortgage-backed securities held by any of these portfolios. Chemical
Bank maintains certain financial and accounting books and records pursuant to an
agreement with the Series Fund. Brown Brothers Harriman & Co. ("Brown
Brothers"), 40 Water Street, Boston, MA 02109, is the custodian of the assets of
the Global Equity Portfolio. Brown Brothers employs subcustodians, who were
approved by the directors of the Series Fund in accordance with regulations of
the Securities and Exchange Commission, for the purpose of providing custodial
service for the Global Equity Portfolio's foreign assets held outside the United
States. Morgan Guaranty Trust Company, 60 Wall Street, New York, NY 10260 is the
custodian of the assets held in connection with repurchase agreements entered
into by the portfolios and is authorized to use the facilities of the book-entry
system of the Federal Reserve Bank. The directors of the Series Fund monitor the
activities of the custodians and the subcustodians.

32
<PAGE>

The Prudential is the transfer agent and dividend-disbursing agent for the
Series Fund. The Prudential as transfer agent issues and redeems shares of the
Series Fund and maintains records of ownership for the shareholders.

Experts. The financial statements of the Series Fund included in this statement
of additional information and the FINANCIAL HIGHLIGHTS included in the
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, NJ 07054-0319.

Licenses. As part of the Investment Advisory Agreement, The Prudential has
granted the Series Fund a royalty-free, non-exclusive license to use the words
"The Prudential" and its registered service mark of a rock representing the Rock
of Gibraltar. However, The Prudential may terminate this license if The
Prudential or a company controlled by it ceases to be the Series Fund's
investment advisor. The Prudential may also terminate the license for any other
reason upon 60 days written notice; but, in this event, the Investment Advisory
Agreement shall also terminate 120 days following receipt by the Series Fund of
such notice, unless a majority of the outstanding voting securities of the
Series Fund vote to continue the Agreement notwithstanding termination of the
license.

The Series Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's ("S&P"). S&P makes no representation or warranty, express or implied, to
Contract owners or any member of the public regarding the advisability of
investing in securities generally or in the Series Fund particularly or the
ability of the S&P 500 Index or the S&P SmallCap 600 Index to track general
stock market performance. S&P's only relationship to the Series Fund is the
licensing of certain trademarks and trade names of S&P and the S&P 500 Index.
The S&P 500 Index and the S&P SmallCap 600 Index are determined, composed and
calculated by S&P without regard to the Series Fund, the Stock Index Portfolio
or the Small Capitalization Stock Portfolio. S&P has no obligation to take the
needs of the Series Fund or the Contract owners into consideration in
determining, composing or calculating the S&P 500 Index or the S&P SmallCap 600
Index. S&P is not responsible for and has not participated in the determination
of the prices and amount of the Series Fund shares or the timing of the issuance
or sale of those shares or in the determination or calculation of the equation
by which the shares are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Series Fund Shares.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS TO BE OBTAINED BY SERIES FUND,
CONTRACT OWNERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

DIRECTORS AND OFFICERS OF THE PRUDENTIAL AND MANAGEMENT OF THE SERIES FUND

DIRECTORS AND OFFICERS OF THE PRUDENTIAL

The directors and certain officers of The Prudential, listed with their
principal occupations during the past 5 years, are shown below.

DIRECTORS OF THE PRUDENTIAL

FRANKLIN E. AGNEW. Director.--Business Consultant and former Senior Vice
President of H.J. Heinz. Address: One Mellon Bank Center, Suite 2120,
Pittsburgh, PA 15219.

FREDERIC K. BECKER, Director.--President of Wilentz, Goldman, and Spitzer (law
firm). Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.

WILLIAM W. BOESCHENSTEIN, Director.--Director, Owens-Corning Fiberglas
Corporation. Address: Fiberglas Tower, Toledo, OH 43659.

LISLE C. CARTER, JR., Director.--Former Senior Vice President and General
Counsel, United Way of America. Address: 1307 Fourth Street, S.W., Washington,
DC 20024.

JAMES G. CULLEN, Director.--President, Bell Atlantic Corporation since 1993;
Prior to 1993: President, New Jersey Bell. Address: 1301 North Court House Road,
11th floor, Alexandria, VA 22201.
33
<PAGE>

CAROLYNE K. DAVIS, Director.--Health Care Advisor, Ernst & Young. Address: 1200
Nineteenth Street, N.W., 4th floor, Washington, DC 20024.

ROGER A. ENRICO, Director.--Vice Chairman, Pepsi Co. Inc. since 1993; 1991 to
1993: Chairman and Chief Executive Officer, Pepsi Co. Worldwide Foods; Prior to
1991: President and Chief Executive Officer, Pepsi Co. Worldwide Beverages.
Address: 7701 Legacy Drive, Plano, TX 75024.

ALLAN D. GILMOUR, Director.--Former Vice Chairman, Ford Motor Company. Address:
Prudential Plaza, Newark, NJ 07102-3777.

WILLIAM H. GRAY, III, Director.--President and Chief Executive Officer, United
Negro College Fund, Inc. since 1991; Prior to 1991: United States Representative
for Pennsylvania's 2nd District. Address: 500 East 62nd Street, New York, NY
10021.

JON F. HANSON, Director.--Chairman, Hampshire Management Co. Address: 235 Moore
Street, Suite 200, Hackensack, NJ 07601.

CONSTANCE J. HORNER, Director.--Guest Scholar, The Brookings Institution since
1993; 1991 to 1992 Assistant to the President and Director of Presidential
Personnel, U.S. Government; Prior to 1991: Deputy Secretary, Department of
Health and Human Services. Address: 1775 Massachusetts Avenue, N.W., Washington,
DC 20036-2188.

ALLEN F. JACOBSON, Director.--Former Chairman and Chief Executive Officer,
Minnesota Mining & Manufacturing Co. Address: 30 Seventh Street East, St. Paul,
MN 55101-4901.

GARNETT L. KEITH, JR., Director and Vice Chairman.--Vice Chairman of The
Prudential. Address: Prudential Plaza, Newark, NJ 07102-3777.

BURTON G. MALKIEL, Director.--Chemical Bank Chairman's Professor of Economics,
Princeton University. Address: Princeton University, Department of Economics,
110 Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021.

JOHN R. OPEL, Director.--Prior to 1994, Chairman of the Executive Committee,
International Business Machines Corporation. Address: 590 Madison Avenue,
New York, NY 10022.

ARTHUR F. RYAN, Chairman of the Board, President, and Chief Executive Officer.--
Chairman of the Board, President, and Chief Executive Officer, The Prudential
since 1994; Prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation. Address: 751 Broad Street, Newark, NJ 07102-3777.

CHARLES R. SITTER, Director.--President and Director, Exxon Corporation since
1993; Prior to 1993; Director, Exxon Corporation. Address: 225 John W. Carpenter
Freeway, Irving, TX 75062.

DONALD L. STAHELI, Director.--Chairman and Chief Executive Officer, Continental
Grain Company since 1994; Prior to 1994; Chairman, Continental Grain Company.
Address: 277 Park Avenue, New York, NY 10172.

RICHARD M. THOMSON, Director.--Chairman of the Board and Chief Executive
Officer, The Toronto-Dominion Bank. Address: P.O. Box 1, Toronto-Dominion
Centre, Toronto, Ontario, M5K 1A2, Canada.

P. ROY VAGELOS, M.D., Director.--Chairman, Regeneron Pharmaceuticals since 1995;
Prior to 1995, Chairman, President and Chief Executive Officer, Merck & Co.,
Inc. Address: 126 East Lincoln Avenue, Rahway, NJ 07065.

STANLEY C. VAN NESS, Director.--Attorney, Picco Mack Herbert Kennedy Jaffe
Perrella and Yoskin (law firm). Address: One State Street Square, Suite 1000,
Trenton, NJ 08607-1388.

PAUL A. VOLCKER, Director.--Chairman, James D. Wolfensohn, Inc. Address: 599
Lexington Avenue, New York, NY 10022.

JOSEPH H. WILLIAMS, Director.--Chairman of the Board, The Williams Companies
since 1994; Prior to 1994: Chairman and Chief Executive Officer, The Williams
Companies. Address: P.O. Box 2400, Tulsa, OK 74102.

OTHER EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

DOROTHY K. LIGHT, Vice President and Secretary.--Vice President and Secretary of
The Prudential.

EUGENE M. O'HARA, Senior Vice President and Comptroller.--Senior Vice President
and Comptroller of The Prudential.

MARTIN PFINSGRAFF, Vice President and Treasurer.--Vice President and Treasurer
of The Prudential since 1991; Prior to 1991: Senior Vice President, Mellon Bank.

34
<PAGE>

MANAGEMENT OF THE SERIES FUND

The names of all directors and officers of the Series Fund and the principal
occupation of each during the last 5 years are shown below. Unless otherwise
stated, the address of each director and officer is Prudential Plaza, Newark,
New Jersey 07102-3777.

ROBERT P. HILL*, Chairman of the Board--Executive Vice President of The
Prudential.

E. MICHAEL CAULFIELD*, President and Director--Chief Executive Officer of
Prudential Preferred Financial Services since 1995; 1993 to 1995: President of
Prudential Preferred Financial Services; prior to 1993: President of Prudential
Property and Casualty Insurance.

SAUL K. FENSTER, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.

W. SCOTT McDONALD, JR., Director--Executive Vice President of Fairleigh
Dickinson University since 1991: Prior to 1991: Executive Vice President of Drew
University. Address: 23 Forest Road, Madison, New Jersey 07940.

JOSEPH WEBER, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

MENDEL A. MELZER, Vice President--Senior Vice President and Chief Financial
Officer of Prudential Preferred Financial Services since 1993; 1991 to 1993:
Managing Director, The Prudential Investment Corporation; Prior to 1991: Senior
Vice President, Prudential Capital Corporation.

STEPHEN P. TOOLEY, Comptroller--Vice President and Comptroller of Prudential
Insurance and Financial Services since 1993; Prior to 1993: Director, Financial
Analysis of The Prudential.

THOMAS C. CASTANO, Secretary and Treasurer--Assistant General Counsel of The
Prudential since 1993; Prior to 1993: Assistant General Counsel of Pruco Life
Insurance Company.

No director or officer of the Series Fund who is also an officer, director or
employee of The Prudential or its affiliates is entitled to any remuneration
from the Series Fund for services as one of its directors or officers. Each
director of the Series Fund who is not an interested person of the Series Fund
will receive a fee of $2,000 per year plus $200 per portfolio for each meeting
of the Board attended and will be reimbursed for all expenses incurred in
connection with attendance at meetings.

*These members of the Board are interested persons of The Prudential, its
affiliates or the Series Fund as defined in the 1940 Act. Certain actions of the
Board, including the annual continuance of the Investment Advisory Agreement
between the Series Fund and The Prudential, must be approved by a majority of
the members of the Board who are not interested persons of The Prudential, its
affiliates or the Series Fund. Mr. Hill and Mr. Caulfield, two of the five
members of the Board, are interested persons of The Prudential and the Series
Fund, as that term is defined in the 1940 Act, because they are officers and/or
affiliated persons of The Prudential, the investment advisor to the Series Fund.
Messrs. Fenster, McDonald, and Weber are not interested persons of The
Prudential, its affiliates or the Series Fund. However, Mr. Fenster is President
of the New Jersey Institute of Technology. The Prudential has issued a group
annuity contract to the Institute and provides group life and group health
insurance to its employees.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments................................ $ 581,582,129
Cash....................................... 892
Interest receivable........................ 2,410,515
--------------
Total Assets............................. 583,993,536
--------------
LIABILITIES
Accrued expenses........................... 130,371
Payable to investment adviser.............. 581,688
--------------
Total Liabilities........................ 712,059
--------------
NET ASSETS................................... $ 583,281,477
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 583,281
Paid-in capital, in excess of par........ 582,698,196
--------------
Net assets, December 31, 1994.............. $ 583,281,477
--------------
--------------
Net asset value per share of 58,328,148
outstanding shares of common stock
(authorized 200,000,000 shares).......... $ 10.0000
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 24,040,312
---------------
EXPENSES
Investment management fee.................. 2,145,819
Shareholders' reports...................... 160,709
Accounting fees............................ 72,868
Custodian expense -- net................... 39,561
S.E.C. fees................................ 36,474
Professional fees.......................... 33,486
Directors' expense......................... 2,034
Miscellaneous expenses..................... 28
---------------
2,490,979
---------------
NET INVESTMENT INCOME........................ 21,549,333
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 21,549,333
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 21,549,333 $ 14,815,991
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (21,549,333) (14,815,991)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [18,862,200 and 9,104,900 shares, respectively]..................... 188,622,000 91,049,000
Reinvestment of dividend distributions [2,154,934 and 1,481,599 shares,
respectively]......................................................................... 21,549,333 14,815,991
Capital stock repurchased [(10,162,500) and (15,984,800) shares, respectively]......... (101,625,000) (159,848,000)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. 108,546,333 (53,983,009)
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ 108,546,333 (53,983,009)
NET ASSETS:
Beginning of year...................................................................... 474,735,144 528,718,153
------------------ -------------------
End of year............................................................................ $ 583,281,477 $ 474,735,144
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$563,227,825)............................ $ 531,295,677
Cash....................................... 702
Interest receivable........................ 11,014,524
--------------
Total Assets............................. 542,310,903
--------------
LIABILITIES
Accrued expenses........................... 39,255
Payable to investment adviser.............. 579,489
Payable for portfolio shares redeemed...... 43,560
--------------
Total Liabilities........................ 662,304
--------------
NET ASSETS................................... $ 541,648,599
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 539,579
Paid-in capital, in excess of par........ 583,467,451
--------------
584,007,030
Undistributed net investment income........ 381,010
Accumulated net realized losses............ (10,807,293)
Net unrealized depreciation................ (31,932,148)
--------------
Net assets, December 31, 1994.............. $ 541,648,599
--------------
--------------
Net asset value per share of 53,957,906
outstanding shares of common stock
(authorized 200,000,000 shares).......... $ 10.0384
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 38,674,225
---------------
EXPENSES
Investment management fee.................. 2,251,096
Shareholders' reports...................... 180,661
Accounting fees............................ 77,978
Custodian expense -- net................... 28,771
Professional fees.......................... 21,380
Directors' expense......................... 2,086
Miscellaneous expenses..................... 98
---------------
2,562,070
---------------
NET INVESTMENT INCOME........................ 36,112,155
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (4,246,256)
Net unrealized loss on investments......... (50,839,016)
---------------
NET LOSS ON INVESTMENTS...................... (55,085,272)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 18,973,117)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 36,112,155 $ 31,295,792
Net realized gain (loss) on investments................................................ (4,246,256) 8,958,204
Net unrealized gain(loss) on investments............................................... (50,839,016) 7,179,211
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (18,973,117) 47,433,207
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (35,627,999) (31,001,007)
Net realized gain from investment transactions......................................... (1,267,553) (7,690,651)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (36,895,552) (38,691,658)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [3,414,897 and 9,888,368 shares, respectively]...................... 36,662,212 111,911,952
Reinvestment of dividend distributions [3,610,015 and 3,457,814 shares,
respectively]......................................................................... 36,895,552 38,691,658
Capital stock repurchased [(4,963,909) and (1,044,056) shares, respectively]........... (52,266,357) (11,890,355)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 21,291,407 138,713,255
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (34,577,262) 147,454,804
NET ASSETS:
Beginning of year...................................................................... 576,225,861 428,771,057
------------------ -------------------
End of year............................................................................ $ 541,648,599 $ 576,225,861
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$507,031,047)............................ $ 478,087,478
Cash....................................... 329
Interest receivable........................ 8,947,544
Receivable for portfolio shares sold....... 1,059,634
--------------
Total Assets............................. 488,094,985
--------------
LIABILITIES
Accrued expenses........................... 5,192
Payable to investment adviser.............. 515,488
--------------
Total Liabilities........................ 520,680
--------------
NET ASSETS................................... $ 487,574,305
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 466,072
Paid-in capital, in excess of par........ 526,044,120
--------------
526,510,192
Undistributed net investment income........ 931,495
Accumulated net realized losses............ (10,923,813)
Net unrealized depreciation................ (28,943,569)
--------------
Net assets, December 31, 1994.............. $ 487,574,305
--------------
--------------
Net asset value per share of 46,607,219
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 10.4614
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 35,819,887
---------------
EXPENSES
Investment management fee.................. 2,125,130
Shareholders' reports...................... 168,609
Accounting fees............................ 73,159
Custodian expense -- net................... 13,387
Professional fees.......................... 9,127
Directors' expense......................... 2,077
Miscellaneous expenses..................... 31
S.E.C. fees................................ (3,561)
---------------
2,387,959
---------------
NET INVESTMENT INCOME........................ 33,431,928
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (10,380,614)
Net unrealized loss on investments......... (52,690,952)
---------------
NET LOSS ON INVESTMENTS...................... (63,071,566)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 29,639,638)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 33,431,928 $ 25,803,560
Net realized gain (loss) on investments................................................ (10,380,614) 884,434
Net unrealized gain(loss) on investments............................................... (52,690,952) 19,594,824
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (29,639,638) 46,282,818
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (32,955,665) (25,487,269)
Net realized gain from investment transactions......................................... 0 (1,904,203)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (32,955,665) (27,391,472)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [3,591,224 and 15,693,270 shares, respectively]..................... 41,656,912 185,551,898
Reinvestment of dividend distributions [3,094,061 and 2,328,874 shares,
respectively]......................................................................... 32,955,665 27,391,472
Capital stock repurchased [(5,912,961) and (449,498) shares, respectively]............. (64,569,681) (5,251,752)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 10,042,896 207,691,618
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (52,552,407) 226,582,964
NET ASSETS:
Beginning of year...................................................................... 540,126,712 313,543,748
------------------ -------------------
End of year............................................................................ $ 487,574,305 $ 540,126,712
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 1995 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$17,721,753)............................. $ 17,758,646
Cash....................................... 5,351
--------------
Total Assets............................. 17,763,997
--------------
LIABILITIES
Accrued expenses........................... 5,142
Payable to investment adviser.............. 25,223
--------------
Total Liabilities........................ 30,365
--------------
NET ASSETS................................... $ 17,733,632
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 16,741
Paid-in capital, in excess of par........ 17,695,936
--------------
17,712,677
Distributions in excess of net investment
income................................... (15,516)
Distributions in excess of net realized
gains.................................... (422)
Net unrealized appreciation................ 36,893
--------------
Net assets, December 31, 1994.............. $ 17,733,632
--------------
--------------
Net asset value per share of 1,674,113
outstanding shares of common stock
(authorized 25,000,000 shares)........... $ 10.5929
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 1,119,611
---------------
EXPENSES
Investment management fee.................. 60,662
Accounting fees............................ 18,250
Custodian expense -- net................... 5,694
Shareholders' reports...................... 4,264
Directors' expense......................... 1,816
S.E.C. fees................................ 1,006
Professional fees.......................... 493
---------------
92,185
---------------
NET INVESTMENT INCOME........................ 1,027,426
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 1,948
Net unrealized loss on investments......... (1,029,896)
---------------
NET LOSS ON INVESTMENTS...................... (1,027,948)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 522)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 1,027,426 $ 965,547
Net realized gain on investments....................................................... 1,948 7,307
Net unrealized gain(loss) on investments............................................... (1,029,896) 111,542
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (522) 1,084,396
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (1,001,231) (972,442)
Net realized gain from investment transactions......................................... (3,573) 0
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (1,004,804) (972,442)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [301,289 and 111,174 shares, respectively].......................... 3,295,000 1,287,000
Reinvestment of dividend distributions [94,042 and 85,653 shares, respectively]........ 1,004,804 972,442
Capital stock repurchased [(52,950) and (31,181) shares, respectively]................. (592,000) (360,000)
Initial capitalization repurchased [(18,027) and (35,953) shares, respectively]........ (197,000) (416,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 3,510,804 1,483,442
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 2,505,478 1,595,396
NET ASSETS:
Beginning of year...................................................................... 15,228,154 13,632,758
------------------ -------------------
End of year............................................................................ $ 17,733,632 $ 15,228,154
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2000 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$20,000,846)............................. $ 20,665,896
Cash....................................... 2,106
--------------
Total Assets............................. 20,668,002
--------------
LIABILITIES
Accrued expenses........................... 3,844
Payable to investment adviser.............. 29,162
--------------
Total Liabilities........................ 33,006
--------------
NET ASSETS................................... $ 20,634,996
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 17,396
Paid-in capital, in excess of par........ 19,986,241
--------------
20,003,637
Distributions in excess of net investment
income................................... (34,092)
Accumulated net realized gains............. 401
Net unrealized appreciation................ 665,050
--------------
Net assets, December 31, 1994.............. $ 20,634,996
--------------
--------------
Net asset value per share of 1,739,587
outstanding shares of common stock
(authorized 25,000,000 shares)........... $ 11.8620
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 1,521,379
---------------
EXPENSES
Investment management fee.................. 84,265
Accounting fees............................ 18,250
Shareholders' reports...................... 5,206
Directors' expense......................... 1,819
Miscellaneous expenses..................... 535
Custodian expense -- net................... (3,054)
---------------
107,021
---------------
NET INVESTMENT INCOME........................ 1,414,358
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 38,776
Net unrealized loss on investments......... (3,049,221)
---------------
NET LOSS ON INVESTMENTS...................... (3,010,445)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 1,596,087)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 1,414,358 $ 1,247,229
Net realized gain on investments....................................................... 38,776 8,483
Net unrealized gain(loss) on investments............................................... (3,049,221) 1,576,324
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (1,596,087) 2,832,036
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (1,398,377) (1,258,808)
Net realized gain from investment transactions......................................... (38,912) (7,940)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (1,437,289) (1,266,748)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [102,167 and 397,878 shares, respectively].......................... 1,340,000 5,460,000
Reinvestment of dividend distributions [118,462 and 92,723 shares, respectively]....... 1,437,289 1,266,748
Capital stock repurchased [(60,345) and (121,421) shares, respectively]................ (787,000) (1,675,000)
Initial capitalization repurchased [(38,338) and (80,105) shares, respectively]........ (507,000) (1,105,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 1,483,289 3,946,748
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (1,550,087) 5,512,036
NET ASSETS:
Beginning of year...................................................................... 22,185,083 16,673,047
------------------ -------------------
End of year............................................................................ $ 20,634,996 $ 22,185,083
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
ZERO COUPON BOND 2005 PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$16,718,218)............................. $ 16,531,317
Cash....................................... 971
Interest receivable........................ 404
--------------
Total Assets............................. 16,532,692
--------------
LIABILITIES
Accrued expenses........................... 3,464
Payable to investment adviser.............. 23,530
--------------
Total Liabilities........................ 26,994
--------------
NET ASSETS................................... $ 16,505,698
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 15,363
Paid-in capital, in excess of par........ 16,654,038
--------------
16,669,401
Undistributed net investment income........ 23,198
Net unrealized depreciation................ (186,901)
--------------
Net assets, December 31, 1994.............. $ 16,505,698
--------------
--------------
Net asset value per share of 1,536,257
outstanding shares of common stock
(authorized 50,000,000 shares)........... $ 10.7441
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Interest................................... $ 1,042,827
---------------
EXPENSES
Investment management fee.................. 57,716
Accounting fees............................ 18,250
Custodian expense -- net................... 4,522
Shareholders' reports...................... 3,767
Directors' expense......................... 1,816
S.E.C. fees................................ 1,318
Miscellaneous expenses..................... 262
---------------
87,651
---------------
NET INVESTMENT INCOME........................ 955,176
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net unrealized loss on investments......... (2,370,041)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 1,414,865)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 955,176 $ 751,943
Net realized gain on investments....................................................... 0 6,214
Net unrealized gain(loss) on investments............................................... (2,370,041) 1,440,496
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (1,414,865) 2,198,653
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (938,283) (751,577)
Net realized gain from investment transactions......................................... (3,855) (2,358)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (942,138) (753,935)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [461,883 and 442,819 shares, respectively].......................... 5,262,071 5,590,000
Reinvestment of dividend distributions [86,081 and 60,299 shares, respectively]........ 942,138 753,935
Capital stock repurchased [(31,239) and (169,578) shares, respectively]................ (366,000) (2,099,000)
Initial capitalization repurchased [(122,127) and (82,494) shares, respectively]....... (1,448,071) (1,040,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 4,390,138 3,204,935
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 2,033,135 4,649,653
NET ASSETS:
Beginning of year...................................................................... 14,472,563 9,822,910
------------------ -------------------
End of year............................................................................ $ 16,505,698 $ 14,472,563
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$3,443,877,594).......................... $3,468,953,719
Cash....................................... 2,043
Interest and dividends receivable.......... 24,063,629
Receivable for securities sold............. 20,886,513
--------------
Total Assets............................. 3,513,905,904
--------------
LIABILITIES
Accrued expenses........................... 304,995
Payable for securities purchased........... 7,467,333
Payable to investment adviser.............. 4,963,479
Payable for portfolio shares redeemed...... 65,811
--------------
Total Liabilities........................ 12,801,618
--------------
NET ASSETS................................... $3,501,104,286
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,483,940
Paid-in capital, in excess of par........ 3,488,749,211
--------------
3,491,233,151
Distributions in excess of net investment
income................................... (2,593,413)
Accumulated distributions in excess of net
realized gains........................... (12,611,577)
Net unrealized appreciation................ 25,076,125
--------------
Net assets, December 31, 1994.............. $3,501,104,286
--------------
--------------
Net asset value per share of 248,394,018
outstanding shares of common stock
(authorized 300,000,000 shares).......... $ 14.0950
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 21,577,417
Interest................................... 121,932,781
---------------
143,510,198
---------------
EXPENSES
Investment management fee.................. 18,730,421
Shareholders' reports...................... 982,095
Foreign withholding tax.................... 524,162
Accounting fees............................ 216,958
S.E.C. fees................................ 165,214
Custodian expense -- net................... 114,541
Professional fees.......................... 102,549
Directors' expense......................... 3,365
Miscellaneous expenses..................... 182
---------------
20,839,487
---------------
NET INVESTMENT INCOME........................ 122,670,711
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments --
Securities transactions.................. 30,566,616
Futures contracts........................ 184,405
---------------
Net realized gain on investments........... 30,751,021
Net unrealized loss on investments......... (184,854,002)
---------------
NET LOSS ON INVESTMENTS...................... (154,102,981)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 31,432,270)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 122,670,711 $ 83,594,970
Net realized gain on investments....................................................... 30,751,021 116,251,058
Net unrealized gain(loss) on investments............................................... (184,854,002) 86,497,365
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (31,432,270) 286,343,393
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (120,740,360) (84,057,597)
Net realized gain from investment transactions......................................... (37,214,012) (113,728,724)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (157,954,372) (197,786,321)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [34,889,459 and 48,698,296 shares, respectively].................... 514,344,688 736,447,769
Reinvestment of dividend distributions [11,198,868 and 13,291,624 shares,
respectively]......................................................................... 157,954,372 197,786,321
Capital stock repurchased [(5,887,371) and (2,225,762) shares, respectively]........... (84,977,146) (33,653,303)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 587,321,914 900,580,787
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 397,935,272 989,137,859
NET ASSETS:
Beginning of year...................................................................... 3,103,169,014 2,114,031,155
------------------ -------------------
End of year............................................................................ $ 3,501,104,286 $ 3,103,169,014
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$3,347,362,272).......................... $3,478,056,152
Cash....................................... 1,392
Interest and dividends receivable.......... 23,489,135
Receivable for securities sold............. 35,026,977
--------------
Total Assets............................. 3,536,573,656
--------------
LIABILITIES
Accrued expenses........................... 323,207
Payable for securities purchased........... 49,250,851
Payable to investment adviser.............. 5,363,453
Payable for portfolio shares redeemed...... 95,846
--------------
Total Liabilities........................ 55,033,357
--------------
NET ASSETS................................... $3,481,540,299
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,246,733
Paid-in capital, in excess of par........ 3,405,640,023
--------------
3,407,886,756
Accumulated distributions in excess of net
investment income........................ (7,770,622)
Accumulated distributions in excess of net
realized gains........................... (49,268,078)
Net unrealized appreciation (depreciation)
Securities............................... 130,693,880
Foreign currency translations............ (1,637)
--------------
Net assets, December 31, 1994.............. $3,481,540,299
--------------
--------------
Net asset value per share of 224,673,289
outstanding shares of common stock
(authorized 300,000,000 shares).......... $ 15.4960
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 40,972,935
Interest................................... 80,410,745
---------------
121,383,680
---------------
EXPENSES
Investment management fee.................. 20,399,604
Shareholders' reports...................... 895,362
Foreign withholding tax.................... 571,581
Accounting fees............................ 231,918
Custodian expense -- net................... 153,924
S.E.C. fees................................ 129,279
Professional fees.......................... 120,289
Directors' expense......................... 3,420
Miscellaneous expenses..................... 189
---------------
22,505,566
---------------
NET INVESTMENT INCOME........................ 98,878,114
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on investments --
Securities transactions.................. 23,860,613
Futures contracts........................ (22,340)
---------------
Net realized gain on investments........... 23,838,273
---------------
Net unrealized loss on investments and
foreign currencies--
Securities............................... (230,569,722)
Foreign currency translations............ (1,637)
---------------
Net unrealized loss on investments and
foreign currencies....................... (230,571,359)
---------------
NET LOSS ON INVESTMENTS AND FOREIGN
CURRENCIES................................... (206,733,086)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 107,854,972)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 98,878,114 $ 94,441,961
Net realized gain on investments....................................................... 23,838,273 202,429,143
Net unrealized gain(loss) on investments and foreign currency translations............. (230,571,359) 106,972,046
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (107,854,972) 403,843,150
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (96,126,295) (96,961,144)
Net realized gain from investment transactions......................................... (98,311,584) (167,511,713)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (194,437,879) (264,472,857)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [22,611,559 and 28,416,647 shares, respectively].................... 370,947,414 490,167,019
Reinvestment of dividend distributions [12,531,550 and 15,710,066 shares,
respectively]......................................................................... 194,437,879 264,472,857
Capital stock repurchased [(4,617,224) and (2,154,837) shares, respectively]........... (73,719,278) (37,398,394)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 491,666,015 717,241,482
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 189,373,164 856,611,775
NET ASSETS:
Beginning of year...................................................................... 3,292,167,135 2,435,555,360
------------------ -------------------
End of year............................................................................ $ 3,481,540,299 $ 3,292,167,135
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$326,056,650)............................ $ 299,082,997
Cash....................................... 219
Interest and dividends receivable.......... 7,505,266
Receivable for securities sold............. 1,590,651
--------------
Total Assets............................. 308,179,133
--------------
LIABILITIES
Accrued expenses........................... 38,417
Payable for securities purchased........... 1,457,852
Payable to investment adviser.............. 458,151
--------------
Total Liabilities........................ 1,954,420
--------------
NET ASSETS................................... $ 306,224,713
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 415,757
Paid-in capital, in excess of par........ 340,891,135
--------------
341,306,892
Accumulated distributions in excess of net
investment income........................ (1,410,346)
Accumulated net realized losses............ (6,698,180)
Net unrealized depreciation................ (26,973,653)
--------------
Net assets, December 31, 1994.............. $ 306,224,713
--------------
--------------
Net asset value per share of 41,575,673
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 7.3655
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 1,451,223
Interest................................... 30,539,834
---------------
31,991,057
---------------
EXPENSES
Investment management fee.................. 1,683,950
Accounting fees............................ 140,525
Shareholders' reports...................... 108,517
Custodian expense -- net................... 25,191
S.E.C. fees................................ 14,855
Professional fees.......................... 6,374
Directors' expense......................... 1,962
Miscellaneous expenses..................... 17
---------------
1,981,391
---------------
NET INVESTMENT INCOME........................ 30,009,666
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (4,761,509)
Net unrealized loss on investments......... (34,417,342)
---------------
NET LOSS ON INVESTMENTS...................... (39,178,851)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 9,169,185)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
(AS RESTATED)
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 30,009,666 $ 21,969,043
Net realized gain (loss) on investments................................................ (4,761,509) 9,902,123
Net unrealized gain (loss) on investments.............................................. (34,417,342) 6,056,112
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (9,169,185) 37,927,278
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (30,650,298) (22,294,669)
Net realized gain from investment transactions......................................... (228) (156)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (30,650,526) (22,294,825)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [7,836,280 and 12,700,848 shares, respectively]..................... 64,526,000 105,011,000
Reinvestment of dividend distributions [4,067,658 and 2,686,600 shares,
respectively]......................................................................... 30,650,526 22,294,825
Capital stock repurchased [(3,976,156) and (1,650,203) shares, respectively]........... (31,985,000) (13,774,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 63,191,526 113,531,825
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 23,371,815 129,164,278
NET ASSETS:
Beginning of year...................................................................... 282,852,898 153,688,620
------------------ -------------------
End of year............................................................................ $ 306,224,713 $ 282,852,898
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$584,600,736)............................ $ 665,573,026
Cash....................................... 125
Interest and dividends receivable.......... 1,826,860
--------------
Total Assets............................. 667,400,011
--------------
LIABILITIES
Accrued expenses........................... 43,939
Payable for securities purchased........... 1,961,738
Payable to investment adviser.............. 594,419
Payable for daily variation margin on open
futures contracts (see Note 2)........... 178,025
Payable for portfolio shares redeemed...... 87,683
--------------
Total Liabilities........................ 2,865,804
--------------
NET ASSETS................................... $ 664,534,207
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 444,295
Paid-in capital, in excess of par........ 584,354,669
--------------
584,798,964
Accumulated distributions in excess of net
investment income........................ (448,482)
Distributions in excess of net realized
gains.................................... (1,303,715)
Net unrealized appreciation
Securities............................... 80,972,290
Futures contracts........................ 515,150
--------------
Net assets, December 31, 1994.............. $ 664,534,207
--------------
--------------
Net asset value per share of 44,429,452
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 14.9571
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 17,703,412
Interest................................... 848,482
---------------
18,551,894
---------------
EXPENSES
Investment management fee.................. 2,223,022
Shareholders' reports...................... 169,859
Foreign withholding tax.................... 104,365
Accounting fees............................ 92,457
Custodian expense -- net................... 25,969
Professional fees.......................... 17,287
S.E.C. fees................................ 17,213
Directors' expense......................... 2,108
Miscellaneous expenses..................... 35
---------------
2,652,315
---------------
NET INVESTMENT INCOME........................ 15,899,579
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments --
Securities transactions.................. 225,124
Futures contracts........................ (1,036,890)
---------------
Net realized loss on investments........... (811,766)
---------------
Net unrealized gain (loss) on investments
--
Securities............................... (8,921,232)
Futures contracts........................ 486,200
---------------
Net unrealized loss on investments......... (8,435,032)
---------------
NET LOSS ON INVESTMENTS...................... (9,246,798)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 6,652,781
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 15,899,579 $ 12,982,334
Net realized gain (loss) on investments................................................ (811,766) 2,033,345
Net unrealized gain (loss) on investments.............................................. (8,435,032) 33,892,763
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 6,652,781 48,908,442
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (15,754,398) (13,030,262)
Net realized gain from investment transactions......................................... (958,203) (1,280,819)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (16,712,601) (14,311,081)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,553,644 and 10,331,253 shares, respectively]..................... 68,598,345 152,405,579
Reinvestment of dividend distributions [1,130,115 and 959,900 shares, respectively].... 16,712,601 14,311,081
Capital stock repurchased [(1,718,830) and (1,313,029) shares, respectively]........... (25,854,984) (19,639,158)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 59,455,962 147,077,502
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 49,396,142 181,674,863
NET ASSETS:
Beginning of year...................................................................... 615,138,065 433,463,202
------------------ -------------------
End of year............................................................................ $ 664,534,207 $ 615,138,065
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

A10

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$873,043,522)............................ $ 859,427,250
Cash....................................... 763
Interest and dividends receivable.......... 4,068,061
--------------
Total Assets............................. 863,496,074
--------------
LIABILITIES
Accrued expenses........................... 94,060
Payable for securities purchased........... 2,875,386
Payable to investment adviser.............. 855,376
--------------
Total Liabilities........................ 3,824,822
--------------
NET ASSETS................................... $ 859,671,252
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 593,526
Paid-in capital, in excess of par........ 873,328,334
--------------
873,921,860
Undistributed net investment income........ 145,759
Distributions in excess of net realized
gains.................................... (780,095)
Net unrealized depreciation................ (13,616,272)
--------------
Net assets, December 31, 1994.............. $ 859,671,252
--------------
--------------
Net asset value per share of 59,352,571
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 14.4842
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 28,264,031
Interest................................... 5,609,616
---------------
33,873,647
---------------
EXPENSES
Investment management fee.................. 3,061,395
Foreign withholding tax.................... 442,666
Shareholders' reports...................... 222,968
S.E.C. fees................................ 90,342
Accounting fees............................ 75,849
Custodian expense -- net................... 39,777
Professional fees.......................... 8,495
Directors' expense......................... 2,142
Miscellaneous expenses..................... 37
---------------
3,943,671
---------------
NET INVESTMENT INCOME........................ 29,929,976
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 41,343,251
Net unrealized loss on investments......... (64,632,006)
---------------
NET LOSS ON INVESTMENTS...................... (23,288,755)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 6,641,221
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 29,929,976 $ 14,507,277
Net realized gain on investments....................................................... 41,343,251 21,045,993
Net unrealized gain(loss) on investments............................................... (64,632,006) 35,871,500
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 6,641,221 71,424,770
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (29,421,933) (14,844,865)
Net realized gain from investment transactions......................................... (44,325,396) (18,679,382)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (73,747,329) (33,524,247)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [16,514,586 and 19,384,187 shares, respectively].................... 261,909,000 300,016,000
Reinvestment of dividend distributions [5,080,100 and 2,176,775 shares,
respectively]......................................................................... 73,747,329 33,524,247
Capital stock repurchased [(746,813) and (196,958) shares, respectively]............... (11,659,000) (3,017,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 323,997,329 330,523,247
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 256,891,221 368,423,770
NET ASSETS:
Beginning of year...................................................................... 602,780,031 234,356,261
------------------ -------------------
End of year............................................................................ $ 859,671,252 $ 602,780,031
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

A11

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$2,419,493,392).......................... $2,665,964,937
Cash....................................... 155
Interest and dividends receivable.......... 5,114,347
Receivable for securities sold............. 391,399
--------------
Total Assets............................. 2,671,470,838
--------------
LIABILITIES
Accrued expenses........................... 239,413
Payable for securities purchased........... 50,317,741
Payable to investment adviser.............. 2,947,775
Payable for portfolio shares redeemed...... 193,892
--------------
Total Liabilities........................ 53,698,821
--------------
NET ASSETS................................... $2,617,772,017
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,266,927
Paid-in capital, in excess of par........ 2,372,417,930
--------------
2,373,684,857
Accumulated distributions in excess of net
investment income........................ (5,718,849)
Accumulated net realized gains............. 3,334,464
Net unrealized appreciation................ 246,471,545
--------------
Net assets, December 31, 1994.............. $2,617,772,017
--------------
--------------
Net asset value per share of 126,692,657
outstanding shares of common stock
(authorized 200,000,000 shares).......... $ 20.6624
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 50,216,245
Interest................................... 20,648,244
---------------
70,864,489
---------------
EXPENSES
Investment management fee.................. 10,874,059
Foreign withholding tax.................... 1,200,006
Shareholders' reports...................... 651,725
S.E.C. fees................................ 144,182
Accounting fees............................ 143,460
Custodian expense -- net................... 77,177
Professional fees.......................... 71,071
Directors' expense......................... 2,913
Miscellaneous expenses..................... 127
---------------
13,164,720
---------------
NET INVESTMENT INCOME........................ 57,699,769
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 84,713,465
Net unrealized loss on investments......... (76,779,978)
---------------
NET GAIN ON INVESTMENTS...................... 7,933,487
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 65,633,256
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 57,699,769 $ 36,054,825
Net realized gain on investments....................................................... 84,713,465 124,861,589
Net unrealized gain (loss) on investments.............................................. (76,779,978) 185,462,685
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 65,633,256 346,379,099
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (56,757,732) (36,692,128)
Net realized gain from investment transactions......................................... (106,046,594) (103,435,491)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (162,804,326) (140,127,619)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [19,167,446 and 21,331,255 shares, respectively].................... 412,393,503 447,667,281
Reinvestment of dividend distributions [7,934,974 and 6,632,819 shares,
respectively]......................................................................... 162,804,326 140,127,619
Capital stock repurchased [(2,170,186) and (1,143,204) shares, respectively]........... (46,752,467) (24,126,373)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 528,445,362 563,668,527
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 431,274,292 769,920,007
NET ASSETS:
Beginning of year...................................................................... 2,186,497,725 1,416,577,718
------------------ -------------------
End of year............................................................................ $ 2,617,772,017 $ 2,186,497,725
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

A12

<PAGE>

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

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$333,259,423)............................ $ 340,065,997
Foreign currency, at value (cost:
$7,107,458).............................. 7,169,111
Dividends and interest receivable.......... 240,756
Receivable for securities sold............. 2,036,391
Receivable for portfolio shares sold....... 5,435
Other assets............................... 163,813
--------------
Total Assets............................. 349,681,503
--------------
LIABILITIES
Bank overdraft............................. 151,478
Accrued expenses........................... 507,759
Payable for securities purchased........... 2,689,594
Payable to investment adviser.............. 598,694
--------------
Total Liabilities........................ 3,947,525
--------------
NET ASSETS................................... $ 345,733,978
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 249,106
Paid-in capital, in excess of par........ 339,734,079
--------------
339,983,185
Distributions in excess of net investment
income................................... (306,676)
Accumulated net realized losses............ (830,366)
Net unrealized appreciation on securities
and foreign currency translations........ 6,887,835
--------------
Net assets, December 31, 1994.............. $ 345,733,978
--------------
--------------
Net asset value per share of 24,910,615
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 13.8790
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 2,857,120
Interest................................... 602,579
---------------
3,459,699
---------------
EXPENSES
Investment management fee.................. 1,798,467
Custodian expense -- net................... 695,706
Income taxes -- foreign.................... 284,990
Accounting fees............................ 101,774
S.E.C. fees................................ 82,504
Shareholders' reports...................... 17,205
Professional fees.......................... 2,375
Directors' expense......................... 1,886
Miscellaneous expenses..................... 70
---------------
2,984,977
---------------
NET INVESTMENT INCOME........................ 474,722
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITIES AND FOREIGN CURRENCIES
Net realized loss on securities and foreign
currency transactions.................... (578,250)
Net unrealized loss on securities and
foreign currency translations............ (16,334,560)
---------------
NET LOSS ON SECURITIES AND FOREIGN
CURRENCIES................................... (16,912,810)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (16,438,088)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 474,722 $ 113,317
Net realized gain (loss) on securities and foreign currency transactions............... (578,250) 2,342,360
Net unrealized gain (loss) on securities and foreign currency translations............. (16,334,560) 21,161,913
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (16,438,088) 23,617,590
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (499,141) (403,351)
Net realized gain from investment transactions......................................... (394,438) (839,910)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (893,579) (1,243,261)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [17,513,960 and 5,977,164 shares, respectively]..................... 254,421,899 78,356,145
Reinvestment of dividend distributions [64,991 and 90,677 shares, respectively]........ 893,579 1,243,261
Capital stock repurchased [(751,122) and (141,366) shares, respectively]............... (10,781,034) (1,761,681)
Initial capitalization repurchased [(735,674) and (391,272) shares, respectively]...... (10,558,000) (5,164,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 233,976,444 72,673,725
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 216,644,777 95,048,054
NET ASSETS:
Beginning of year...................................................................... 129,089,201 34,041,147
------------------ -------------------
End of year............................................................................ $ 345,733,978 $ 129,089,201
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

A13

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
NATURAL RESOURCES PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<S> <C>
ASSETS
Investments, at value (cost:
$227,082,786)............................ $ 230,156,734
Cash....................................... 204
Interest and dividends receivable.......... 455,179
--------------
Total Assets............................. 230,612,117
--------------
LIABILITIES
Accrued expenses........................... 37,673
Payable for securities purchased........... 3,040,439
Payable to investment adviser.............. 260,076
--------------
Total Liabilities........................ 3,338,188
--------------
NET ASSETS................................... $ 227,273,929
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 157,357
Paid-in capital, in excess of par........ 222,958,907
--------------
223,116,264
Undistributed net investment income........ 36,877
Accumulated net realized gains............. 1,046,840
Net unrealized appreciation................ 3,073,948
--------------
Net assets, December 31, 1994.............. $ 227,273,929
--------------
--------------
Net asset value per share of 15,735,726
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 14.4432
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<S> <C>
INVESTMENT INCOME
Dividends.................................. $ 2,919,308
Interest................................... 547,273
---------------
3,466,581
---------------
EXPENSES
Investment management fee.................. 917,600
Foreign withholding tax.................... 155,276
Shareholders' reports...................... 56,649
Accounting fees............................ 45,569
Custodian expense -- net................... 28,357
S.E.C. fees................................ 27,962
Professional fees.......................... 4,165
Directors' expense......................... 1,894
Miscellaneous expenses..................... 10
---------------
1,237,482
---------------
NET INVESTMENT INCOME........................ 2,229,099
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments --
Securities transactions.................. 4,039,297
Options written.......................... 32,757
---------------
Net realized gain on investments........... 4,072,054
Net unrealized loss on investments......... (16,859,455)
---------------
NET LOSS ON INVESTMENTS...................... (12,787,401)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 10,558,302)
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31
---------------------------------------
1994 1993
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 2,229,099 $ 1,708,004
Net realized gain on investments....................................................... 4,072,054 4,531,550
Net unrealized gain (loss) on investments.............................................. (16,859,455) 15,555,589
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (10,558,302) 21,795,143
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (2,145,214) (1,727,285)
Net realized gain from investment transactions......................................... (4,370,759) (3,710,814)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (6,515,973) (5,438,099)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [5,475,055 and 4,020,200 shares, respectively]...................... 85,097,000 61,876,000
Reinvestment of dividend distributions [446,624 and 360,819 shares, respectively]...... 6,515,973 5,438,099
Capital stock repurchased [(393,177) and (161,277) shares, respectively]............... (6,107,000) (2,363,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 85,505,973 64,951,099
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 68,431,698 81,308,143
NET ASSETS:
Beginning of year...................................................................... 158,842,231 77,534,088
------------------ -------------------
End of year............................................................................ $ 227,273,929 $ 158,842,231
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

A14

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 99.7% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS -- 17.0%
Bank of Montreal, C.D.,
5.800%, 01/30/95.............................. $ 25,000,000 $ 25,000,000
Bank of Tokyo, Ltd., C.D.,
6.460%, 03/30/95.............................. 10,000,000 10,000,000
Fuji Bank, Ltd, C.D.,
5.906%, 01/20/95.............................. 10,000,000 10,000,000
Industrial Bank of Japan, Ltd., T.D.,
6.375%, 03/28/95.............................. 10,000,000 10,000,000
Mitsubishi Bank, Ltd, T.D.,
7.000%, 01/03/95.............................. 4,047,000 4,047,000
Republic National Bank of New York, C.D.,
4.300%, 03/08/95.............................. 10,000,000 9,994,761
Sanwa Bank, Ltd., C.D.,
5.950%, 01/30/95.............................. 11,000,000 11,000,000
6.040%, 02/02/95.............................. 6,000,000 6,000,000
Societe Generale, C.D.,
5.650%, 02/07/95.............................. 5,000,000 5,000,000
Sumitomo Bank, Ltd., C.D.,
5.960%, 01/30/95.............................. 5,000,000 5,000,000
Sumitomo Bank, Ltd., T.D.,
6.060%, 02/01/95.............................. 3,000,000 3,000,000
--------------
99,041,761
--------------
COMMERCIAL PAPER -- 68.9%
American Express Centurion Bank,
%4.500%, 08/04/95, Tranche #TR00037........... 2,000,000 1,999,883
%4.813%, 08/18/95, Tranche #TR00039........... 3,000,000 2,999,813
American Home Products Corp.,
5.900%, 01/31/95.............................. 28,000,000 27,871,511
American Honda Finance Corp.,
5.980%, 01/31/95.............................. 4,000,000 3,981,396
6.150%, 01/30/95.............................. 2,000,000 1,990,775
Aristar, Inc.,
5.540%, 01/23/95.............................. 1,000,000 996,922
5.940%, 02/01/95.............................. 1,700,000 1,691,866
6.040%, 02/01/95.............................. 1,000,000 995,134
Asset Securitization Cooperative Corp.,
5.500%, 01/17/95-01/23/95..................... 14,000,000 13,965,472
5.520%, 01/23/95.............................. 6,000,000 5,981,600
5.970%, 02/01/95.............................. 6,000,000 5,971,145
Associates Corp. of North America,
5.770%, 01/31/95.............................. 8,000,000 7,964,098
%Avco Financial Services, Inc.,
4.677%, 09/13/95.............................. 4,000,000 4,000,000
Bankers Trust New York Corp.,
5.440%, 01/24/95.............................. 20,000,000 19,936,533
Chrysler Financial Corp.,
5.750%, 01/18/95.............................. 11,000,000 10,973,646
CIT Group Holdings, Inc.,
6.270%, 03/13/95.............................. 9,000,000 8,891,843
Coca-Cola Enterprises, Inc.,
6.015%, 02/01/95.............................. 10,000,000 9,951,546
6.170%, 03/07/95.............................. 5,000,000 4,946,013
Commercial Credit Co.,
5.750%, 01/31/95.............................. 2,000,000 1,991,056
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Corporate Asset Funding Co., Inc.,
5.500%, 01/11/95.............................. $ 1,000,000 $ 998,778
Dean Witter, Discover & Co.,
5.780%, 01/23/95.............................. 373,000 371,802
5.970%, 02/01/95.............................. 1,397,000 1,390,282
Duracell, Inc.,
6.300%, 02/10/95.............................. 1,000,000 993,350
Falcon Asset Securitization Corp.,
6.170%, 02/06/95-03/07/95..................... 15,725,000 15,608,336
First National Bank of Chicago,
5.688%, 02/22/95, Tranche #TR00087............ 2,000,000 2,000,000
Ford Motor Credit Co.,
5.780%, 02/01/95.............................. 8,000,000 7,962,751
6.000%, 01/23/95.............................. 1,423,000 1,418,257
6.050%, 01/17/95.............................. 1,000,000 997,647
Fuji Bank, Ltd.,
6.200%, 02/10/95.............................. 3,000,000 2,980,367
General Electric Capital Corp.,
5.430%, 01/11/95.............................. 2,000,000 1,997,587
5.850%, 01/30/95.............................. 5,000,000 4,978,063
6.450%, 04/13/95.............................. 9,650,000 9,477,104
General Mills, Inc.,
5.600%, 02/03/95.............................. 2,870,000 2,856,160
General Motors Acceptance Corp.,
5.740%, 01/17/95.............................. 27,400,000 27,338,837
Golden Peanut Co.,
5.600%, 02/01/95.............................. 3,000,000 2,986,467
Greyhound Financial Corp.,
6.200%, 01/13/95.............................. 1,000,000 998,278
6.290%, 02/08/95.............................. 3,000,000 2,981,130
6.300%, 01/27/95.............................. 5,000,000 4,979,000
Hanson Finance, PLC,
5.470%, 01/17/95.............................. 1,000,000 997,873
6.260%, 03/03/95.............................. 2,000,000 1,979,481
6.280%, 03/01/95.............................. 2,000,000 1,980,113
Heller Financial, Inc.,
6.300%, 03/13/95-03/14/95..................... 5,000,000 4,939,275
Household Finance Corp.,
5.500%, 01/12/95.............................. 4,000,000 3,994,500
International Lease Finance Corp.,
5.750%, 01/18/95.............................. 2,000,000 1,995,208
ITT Financial Corp.,
6.200%, 01/20/95.............................. 14,000,000 13,959,011
Maguire/Thomas Partners,
6.125%, 01/13/95.............................. 1,715,000 1,712,082
6.360%, 03/21/95.............................. 5,000,000 5,000,000
MCA Funding Corp.,
5.100%, 01/09/95.............................. 7,800,000 7,793,370
McKenna Triangle National Corp.,
6.250%, 03/08/95.............................. 4,000,000 3,955,556
Merrill Lynch & Co., Inc.,
5.750%, 01/17/95.............................. 15,000,000 14,966,458
5.870%, 01/31/95.............................. 3,000,000 2,986,303
Money Market Auto Loan Trust
1990-1,
%3.325%, 11/30/95............................. 2,300,000 2,300,000
%3.375%, 11/30/95............................. 5,000,000 5,000,000
</TABLE>

<PAGE>

MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Money Market Credit Card Trust 1989-1,
%3.720%, 06/10/96............................. $ 2,368,182 $ 2,368,070
%3.830%, 06/10/96............................. 1,090,909 1,090,909
%4.420%, 06/10/96............................. 986,364 986,364
Morgan Stanley Group, Inc.,
%3.530%, 12/15/95, Tranche #TR00102........... 5,000,000 5,000,000
%3.593%, 12/15/95, Tranche #TR00102........... 2,000,000 2,000,000
6.270%, 03/01/95.............................. 2,500,000 2,475,181
National Australia Funding, Inc.,
5.600%, 02/01/95.............................. 3,330,000 3,314,978
NationsBank Corp. of North Carolina,
5.400%, 01/23/95.............................. 1,560,000 1,555,320
PNC Bank N.A.,
5.520%, 01/06/95, Tranche #TR00010............ 19,000,000 18,999,874
PNC Bank of Ohio,
3.500%, 01/31/95, Tranche #TR00002............ 2,000,000 1,999,805
Preferred Receivables Funding Corp.,
5.650%, 01/11/95.............................. 4,000,000 3,994,978
Republic National Bank of New York,
5.750%, 02/01/95.............................. 2,000,000 1,999,994
Sears, Roebuck Acceptance Corp.,
5.870%, 01/27/95.............................. 3,000,000 2,988,260
6.050%, 02/06/95.............................. 14,000,000 13,920,006
Sumitomo Corp. of America,
5.125%, 01/09/95.............................. 4,000,000 3,996,583
WCP Funding, Inc.,
6.280%, 03/06/95.............................. 2,000,000 1,978,369
Westpac Capital Corp.,
5.500%, 01/17/95.............................. 2,000,000 1,995,721
6.280%, 03/14/95.............................. 3,000,000 2,963,367
Whirlpool Corp.,
5.570%, 01/09/95.............................. 3,500,000 3,496,750
5.660%, 02/02/95.............................. 1,000,000 995,283
Whirlpool Financial Corp.,
5.500%, 01/12/95.............................. 13,000,000 12,982,125
5.600%, 02/06/95-02/09/95..................... 2,000,000 1,988,956
5.610%, 02/10/95.............................. 2,000,000 1,988,156
WMX Technologies,
5.225%, 02/07/95.............................. 3,000,000 2,984,760
--------------
402,037,487
--------------
MEDIUM TERM NOTES -- 10.7%
%American Express Centurion Bank, M.T.N.,
4.813%, 09/19/95, Tranche #TR00080............ 2,000,000 1,999,861
%Beneficial Corp., M.T.N.,
4.487%, 07/19/95, Tranche #TR00768............ 7,000,000 6,997,412
Fifth Third Bank, M.T.N.,
6.200%, 02/07/95, Tranche #TR00075............ 4,000,000 4,000,188
Ford Motor Credit Co.,
9.300%, 03/15/95.............................. 2,000,000 2,017,850
General Motors Acceptance Corp., M.T.N.,
6.900%, 05/08/95, Tranche #TR00347............ 500,000 501,829
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
**Goldman Sachs Group L.P., M.T.N.,
5.375%, 01/11/96, Series A.................... $ 28,000,000 $ 28,000,000
Merrill Lynch & Co., Inc., M.T.N.,
%4.823%, 09/22/95, Tranche #TR00106........... 3,000,000 2,999,580
4.885%, 10/02/95, Tranche #TR00110............ 6,500,000 6,499,055
%Morgan Stanley Group, Inc., M.T.N.,
3.405%, 01/16/96, Tranche #TR00010............ 4,000,000 4,000,000
Society Bank of North America, M.T.N.,
3.550%, 01/20/95, Tranche #TR00005............ 2,500,000 2,499,810
Toyota Motor Credit Corp., M.T.N.,
5.700%, 01/23/95, Tranche #TR00029............ 3,000,000 2,998,996
--------------
62,514,581
--------------
PROMISSORY NOTES -- 3.1%
Lehman Brothers Holdings, Inc.,
5.028%, 05/23/95.............................. 15,000,000 15,000,000
Orix America, Inc.,
5.850%, 01/27/95.............................. 3,000,000 2,988,300
--------------
17,988,300
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 581,582,129
--------------
OTHER ASSETS -- 0.3%
(net of liabilities)........................................... 1,699,348
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 583,281,477
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

C.D. Certificates of Deposit
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
T.D. Time Deposit

**Indicates a restricted security; the aggregate cost of the restricted
securities is $28,000,000. The aggregate value, $28,000,000 is
approximately 4.8% of net assets. (See Note 2)

%Indicates a variable rate security.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

BOND PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 95.3% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 14.4%
Abbey National First Capital,
8.200%, 10/15/04.............................. $ 3,000,000 $ 2,928,630
Aristar, Inc.,
5.750%, 07/15/98.............................. 2,000,000 1,837,600
7.500%, 07/01/99.............................. 2,000,000 1,919,440
Associates Corp. of North America,
8.375%, 01/15/98.............................. 500,000 499,995
8.800%, 01/14/95.............................. 1,000,000 1,000,380
Chase Manhattan Corp.,
8.000%, 06/15/99.............................. 2,000,000 1,964,800
Chemical Bank,
6.625%, 08/15/05.............................. 2,000,000 1,713,160
Chrysler Finance Corp., M.T.N.,
5.260%, 07/06/95, Tranche #TR00029............ 900,000 890,334
5.340%, 07/05/95, Tranche #TR00028............ 2,300,000 2,276,356
Chrysler Financial Corp.,
9.500%, 12/15/99.............................. 5,000,000 5,187,800
Citicorp, M.T.N.,
8.500%, 02/24/97, Tranche #TR00128............ 3,000,000 3,018,390
Coles Myer Finance USA, Ltd., M.T.N.,
5.560%, 02/15/99, Tranche #TR00018............ 6,000,000 5,413,140
Countrywide Funding Corp., M.T.N.,
6.880%, 08/03/98, Tranche #TR00025............ 4,000,000 3,811,040
Equicredit Home Equity Loan Trust, CMO,
7.850%, 08/15/07, Series 1994-3, Class A-3.... 5,000,000 4,823,438
First Fidelity Bancorp,
9.750%, 05/25/95.............................. 5,000,000 5,049,300
Ford Motor Credit Co.,
6.250%, 02/26/98.............................. 3,000,000 2,826,090
General Motors Acceptance Corp.,
8.400%, 10/15/99.............................. 3,700,000 3,698,483
General Motors Acceptance Corp., M.T.N.,
7.500%, 11/04/97, Tranche #TR00598............ 2,000,000 1,946,940
Goldman Sachs Group, L.P.,
6.100%, 04/15/98.............................. 2,000,000 1,856,980
**John Hancock Mutual Life Insurance Co.,
7.375%, 02/15/24.............................. 3,000,000 2,414,670
Mellon Financial Co.,
6.500%, 12/01/97.............................. 2,000,000 1,912,200
NationsBank Corp. of North Carolina,
6.625%, 01/15/98.............................. 3,000,000 2,859,210
%Nomura Asset Securities Corp., CMO,
8.026%, 12/15/06, 1994 MDA, Class A-3......... 3,000,000 2,821,875
**Potomac Capital Investment Corp., M.T.N.,
6.190%, 04/28/97, Series B.................... 3,500,000 3,466,627
Republic New York Corp.,
9.125%, 05/15/21.............................. 2,850,000 2,978,591
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Sovereign Bancorp, Inc.
6.750%, 09/01/00.............................. $ 5,000,000 $ 4,475,000
Union Bank Finland, Ltd.,
5.250%, 06/15/96.............................. 3,000,000 2,872,530
Zurich Reinsurance Centre Holdings, Inc.,
7.125%, 10/15/23.............................. 2,000,000 1,587,680
--------------
78,050,679
--------------
FOREIGN -- 15.7%
Australia & New Zealand Banking Group, Ltd.,
6.250%, 02/01/04.............................. 3,000,000 2,566,560
**Banco Del Estado-Chile,
8.390%, 08/01/01.............................. 2,100,000 1,979,250
**Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 4,100,000 3,977,000
Canadian Pacific Forest Products Ltd.,
10.250%, 01/15/03............................. 4,000,000 3,963,390
Carter Holt Harvey, Ltd.,
8.875%, 12/01/04.............................. 2,500,000 2,524,150
**Cemex, SA,
8.875%, 06/10/98.............................. 6,000,000 5,265,000
Central Puerto and Cent Negue, SA,
10.750%, 11/02/97............................. 3,000,000 2,872,500
**Compania Sud Americana de Vapores, SA,
7.375%, 12/08/03.............................. 4,000,000 3,275,000
%Hydro-Quebec,
3.438%, 09/30/49, Series G-1E4................ 3,000,000 2,507,813
**Kansallis-Osake Pankki, N.Y.,
8.650%, 12/29/49.............................. 5,000,000 4,837,500
Korea Development Bank,
8.090%, 10/06/04.............................. 5,400,000 5,284,940
National Australia Bank, Ltd.,
9.700%, 10/15/98.............................. 1,700,000 1,774,970
Nippon Telegraph & Telephone Corp.,
9.500%, 07/27/98.............................. 1,800,000 1,869,588
Noranda, Inc.,
8.125%, 06/15/04.............................. 2,000,000 1,912,380
Nova Scotia, Province of Canada,
8.875%, 07/01/19.............................. 3,000,000 2,900,460
Ontario, Province of Canada,
15.750%, 03/15/12............................. 3,475,000 4,139,280
**%Petroleos Mexicanos,
5.563%, 03/08/99.............................. 2,500,000 2,375,000
Republic of Argentina,
8.375%, 12/20/03.............................. 4,000,000 2,850,000
Republic of Columbia,
7.250%, 02/23/04.............................. 2,500,000 2,059,375
8.750%, 10/06/99.............................. 3,500,000 3,338,125
Republic of Italy,
6.875%, 09/27/23.............................. 4,000,000 3,150,880
Republic of South Africa,
9.625%, 12/15/99.............................. 4,000,000 3,961,250
**Republic of Trinidad and Tobago,
11.750%, 10/03/04............................. 4,000,000 4,050,000
Saskatchewan, Province of Canada,
8.000%, 07/15/04.............................. 4,000,000 3,872,560
Svenska Handelsbanken,
8.125%, 08/15/07.............................. 2,500,000 2,350,225
</TABLE>

<PAGE>

BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
**Tenaga Nasional Berhad,
7.875%, 06/15/04.............................. $ 3,000,000 $ 2,856,570
United States of Mexico with Rights,
6.250%, 12/31/19, Class B..................... 4,000,000 2,175,000
--------------
84,688,766
--------------
INDUSTRIAL -- 17.2%
Arkla, Inc., M.T.N.,
9.320%, 12/18/00, Tranche #TR00043............ 2,000,000 1,962,460
9.380%, 03/15/96, Tranche #TR00018............ 1,300,000 1,308,567
Boise Cascade Corp.,
9.875%, 02/15/01.............................. 1,000,000 1,002,040
Borden, Inc.,
7.875%, 02/15/23.............................. 2,000,000 1,463,680
Carnival Cruise Lines, Inc.,
5.750%, 03/15/98.............................. 3,000,000 2,766,810
Comsat Corp.,
8.125%, 04/01/04.............................. 4,000,000 3,898,480
Crane Co.,
7.250%, 06/15/99.............................. 3,000,000 2,842,020
Delta Air Lines, Inc., M.T.N.,
7.790%, 12/01/98.............................. 1,000,000 928,400
8.380%, 06/12/98, Tranche #TR00017............ 2,000,000 1,897,680
Enterprise Rent A Car, M.T.N.,
8.750%, 12/15/99 Tranche #TR00001............. 3,000,000 2,989,650
Federal Express Corp.,
9.650%, 06/15/12.............................. 3,000,000 3,164,610
Fleming Companies, Inc., C.D.,
10.625%, 12/15/01............................. 4,000,000 4,000,000
Georgia-Pacific Corp.,
9.625%, 03/15/22.............................. 1,500,000 1,515,075
J.C. Penney Co., Inc.,
9.750%, 06/15/21.............................. 6,400,000 6,902,144
Laidlaw, Inc.,
8.250%, 05/15/23.............................. 2,500,000 2,177,225
News America Holdings, Inc.,
7.450%, 06/01/00.............................. 3,000,000 2,796,330
7.750%, 02/01/24.............................. 3,300,000 2,684,352
Noble Affiliates, Inc.,
7.250%, 10/15/23.............................. 2,000,000 1,596,200
Oryx Energy Co., M.T.N.,
6.050%, 02/01/96, Tranche #TR00013............ 3,000,000 2,887,500
Philip Morris Companies, Inc.,
7.500%, 01/15/02.............................. 2,500,000 2,343,100
9.000%, 01/01/01.............................. 4,800,000 4,858,032
Procter & Gamble Co., ESOP,
9.360%, 01/01/21, Series A.................... 4,900,000 5,286,120
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 5,750,000 5,606,250
Royal Caribbean Cruises Ltd.,
11.375%, 05/15/02............................. 4,000,000 4,250,000
Sears, Roebuck & Co.,
9.375%, 11/01/11.............................. 2,000,000 2,090,040
**Shurgard Securities Trust, CMO,
8.240%, 06/15/04.............................. 3,000,000 2,882,813
Tele-Communications, Inc.,
10.125%, 04/15/22............................. 5,000,000 5,015,400
Time Warner, Inc.,
**6.050%, 07/01/95............................ 2,500,000 2,479,075
7.450%, 02/01/98.............................. 2,200,000 2,096,885
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Transco Energy Co.,
11.250%, 07/01/99............................. $ 2,500,000 $ 2,659,375
Westinghouse Electric Corp.,
8.375%, 06/15/02.............................. 2,000,000 1,858,260
Whitman Corp.,
7.500%, 08/15/01.............................. 3,000,000 2,852,100
--------------
93,060,673
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 45.5%
Federal Farm Credit Bank,
8.650%, 10/01/99, Series A.................... 150,000 153,375
Federal Farm Credit Bank, M.T.N.,
7.900%, 03/01/96.............................. 2,800,000 2,816,744
Federal Home Loan Mortgage Corporation,
9.800%, 03/25/96.............................. 4,000,000 4,095,000
Federal Home Loan Mortgage Corporation, CMO,
6.800%, 08/15/05, Series 1224, Class 1224-F... 5,000,000 4,757,800
Federal Home Loan Mortgage Corporation, REMIC,
6.500%, 10/15/06, Series 1194, Class 1194-G... 5,000,000 4,428,100
7.500%, 09/15/05, Series 1295, Class 1295-G... 8,300,000 7,934,219
Federal National Mortgage Association,
7.000%, 10/01/13-01/01/24..................... 33,044,696 30,002,267
9.000%, 10/01/16-09/01/21..................... 792,613 797,724
11.000%, 11/01/20............................. 6,159,127 6,647,977
Federal National Mortgage Association, REMIC,
Zero Coupon, 09/25/15, Tranche #TR1989-102,
Class 102A.................................. 1,387,991 1,027,113
6.500%, 07/25/20, Tranche #TR1992-138, Class
D........................................... 5,000,000 4,492,150
8.600%, 04/25/03, Series 1989-92, Class
92-D........................................ 1,086,155 1,087,849
9.000%, 03/25/20, Series 1990-24, Class
24-E........................................ 2,000,000 2,028,120
Government National Mortgage Association,
7.500%, 05/20/02.............................. 690,383 649,823
International Bank for Reconstruction and
Development,
12.375%, 10/15/02............................. 750,000 923,213
Resolution Funding Corp.,
Zero Coupon, 10/15/15......................... 17,100,000 3,219,075
8.125%, 10/15/19, Class A..................... 700,000 703,283
8.625%, 01/15/21.............................. 200,000 211,562
United States Treasury Bonds,
6.250%, 08/15/23.............................. 4,800,000 3,902,256
8.125%, 08/15/19.............................. 8,250,000 8,359,560
10.750%, 08/15/05............................. 10,800,000 12,973,500
11.250%, 02/15/15............................. 6,400,000 8,456,000
11.625%, 11/15/04............................. 15,130,000 18,950,325
12.000%, 08/15/13............................. 6,000,000 7,978,140
United States Treasury Notes,
3.875%, 09/30/95.............................. 7,000,000 6,837,040
6.250%, 02/15/03.............................. 6,000,000 5,426,220
6.375%, 08/15/02, Series 2002................. 4,200,000 3,845,604
6.875%, 03/31/97, Series 1997................. 1,500,000 1,472,805
7.250%, 08/15/04.............................. 1,100,000 1,055,824
7.500%, 02/29/96, Series 1996................. 9,300,000 9,310,137
</TABLE>

<PAGE>

BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
7.875%, 02/15/96-07/31/96, Series 1996........ $ 36,000,000 $ 36,151,740
8.875%, 11/15/97, Series 1997................. 20,370,000 20,907,972
9.000%, 05/15/98, Series B-1998............... 3,000,000 3,100,770
9.250%, 01/15/96, Series 1996................. 12,000,000 12,228,720
9.250%, 08/15/98, Series D-1998............... 9,300,000 9,703,992
--------------
246,635,999
--------------
UTILITIES -- 2.5%
%Central Maine Power Co., M.T.N.,
5.978%, 08/03/95, Tranche #TR00036............ 4,000,000 4,000,000
Consolidated Edison of New York, Inc.,
9.700%, 12/01/25.............................. 2,100,000 2,273,922
Pennsylvania Power & Light Co.,
9.375%, 07/01/21.............................. 1,150,000 1,179,268
Southern Union Co.,
7.600%, 02/01/24.............................. 3,000,000 2,511,450
Texas Utilities Electric Co.,
5.875%, 04/01/98.............................. 4,000,000 3,702,920
--------------
13,667,560
--------------
TOTAL LONG-TERM BONDS
(Cost $548,035,825)............................................ 516,103,677
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 2.8% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95, (see Note 4)................ 15,192,000 15,192,000
--------------
OTHER ASSETS -- 1.9%
(net of liabilities)........................................... 10,352,922
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 541,648,599
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

C.D. Certificates of Deposit
CMO Collateralized Mortgage Obligations
ESOP Employee Stock Ownership Plan
L.P. Limited Partnership
M.T.N. Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

**Indicates a restricted security; the aggregate cost of the restricted
securities is $42,727,259. The aggregate value, $39,858,505 is
approximately 7.4% of net assets. (See Note 2)

%Indicates a variable rate security.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

GOVERNMENT SECURITIES PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 90.5% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 8.0%
Collateralized Mortgage Obligation, Trust 63
(Class E),
9.000%, 09/20/99.............................. $ 1,000,000 $ 995,310
ContiMortgage Home Equity Loan Trust, CMO,
7.960%, 09/15/09, Series 1994-4, Class A2..... 5,000,000 4,900,000
Equicon Home Equity Loan Trust, CMO,
7.850%, 03/18/14, Series 1994-2, Class A2..... 3,000,000 2,949,375
Equicredit Home Equity Loan Trust, CMO,
7.440%, 10/15/05, Series 1994-3, Class A2..... 5,000,000 4,871,875
European Investment Bank,
9.125%, 06/01/02.............................. 3,500,000 3,672,515
Green Tree Financial Corp., CMO,
7.250%, 11/15/19, Series 1994-6, Class A2..... 5,000,000 4,880,469
Olympic Automobile Receivables Trust, CMO,
6.850%, 06/15/01, Series 1994-B, Class A2..... 3,000,000 2,914,687
%People's Bank Credit Card Master Trust, CMO,
5.525%, 03/15/01, Series 1994-2, Class A...... 4,000,000 3,730,562
Vanderbilt Mortgage Finance, CMO,
7.600%, 07/10/19, Series 1994-A, Class A2..... 4,000,000 3,856,250
Western Financial Grantor Trust, CMO,
6.650%, 12/01/99, Series 1994-3, Class A...... 3,570,339 3,489,449
World Omni Automobile Lease Securitization
Trust, CMO,
6.450%, 09/25/00, Series 1994-A, Class A...... 3,000,000 2,907,188
--------------
39,167,680
--------------
INDUSTRIAL -- 0.6%
%Aircraft Lease Portfolio Securitization, Ltd.,
CMO,
7.800%, 09/15/04, Series 1994-1, Class A4..... 3,000,000 2,918,906
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 81.9%
Federal Farm Credit Bank, M.T.N.,
5.930%, 08/18/03.............................. 3,859,000 3,330,819
7.900%, 03/01/96.............................. 7,000,000 7,041,860
8.600%, 05/30/06.............................. 1,250,000 1,286,913
Federal Home Loan Bank,
5.000%, 10/25/95.............................. 5,000,000 4,903,100
Federal Home Loan Mortgage Corporation, Gold
Fixed Participation,
6.095%, 02/23/01.............................. 12,000,000 11,032,440
6.130%, 08/19/99.............................. 7,000,000 6,492,500
6.270%, 01/27/04.............................. 5,000,000 4,326,550
6.485%, 02/18/04.............................. 10,000,000 8,734,400
6.550%, 04/02/03.............................. 4,000,000 3,558,760
6.600%, 11/12/99.............................. 4,000,000 3,820,000
7.500%, 01/01/00-07/23/07..................... 28,463,802 26,902,313
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation, REMIC,
7.500%, 09/15/05, Series 1295, Class 1295-G... $ 2,100,000 $ 2,007,453
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... 22,500,000 3,009,375
7.600%, 04/14/04.............................. 7,000,000 6,573,420
7.850%, 09/10/98.............................. 3,000,000 3,010,320
8.200%, 12/23/96, Series K.................... 5,000,000 5,026,550
8.200%, 08/10/98, Series F.................... 2,000,000 1,996,240
8.500%, 06/10/96, Series G.................... 5,500,000 5,549,830
11.000%, 11/01/20............................. 7,527,510 8,124,968
Federal National Mortgage Association, M.T.N.,
5.930%, 09/26/03.............................. 5,000,000 4,309,000
5.990%, 10/01/03.............................. 5,000,000 4,327,100
7.800%, 02/21/07.............................. 5,000,000 4,701,563
8.625%, 06/30/04.............................. 3,000,000 3,087,330
Federal National Mortgage Association, REMIC,
6.500%, 07/25/20, Trust 1992-138, Class D..... 4,000,000 3,593,720
8.950%, 12/25/18, Trust 1990-45, Class 45-G... 2,000,000 1,993,750
Financing Corp.,
9.400%, 02/08/18.............................. 9,850,000 10,955,072
Government National Mortgage Association,
7.000%, 09/15/22-01/15/24..................... 33,750,027 30,290,650
8.500%, 07/15/08-08/15/24..................... 7,292,192 7,165,689
International Bank for Reconstruction and
Development,
7.625%, 01/19/23.............................. 5,000,000 4,662,300
8.375%, 10/01/99.............................. 7,900,000 8,102,398
Private Export Funding Corp.,
8.750%, 06/30/03, Series KK................... 9,950,000 10,294,867
Resolution Funding Corp.,
8.125%, 10/15/19, Principle Only Class A...... 4,200,000 4,219,698
Student Loan Marketing Association,
7.300%, 08/01/12.............................. 19,850,000 18,255,648
Tennessee Valley Authority Power,
8.375%, 10/01/99, Power 1989, Series D........ 6,300,000 6,402,375
8.625%, 11/15/29, Power 1989, Series G........ 3,100,000 3,076,037
United States Treasury Bonds,
6.250%, 08/15/23.............................. 1,600,000 1,300,752
7.625%, 11/15/22.............................. 3,200,000 3,088,512
7.875%, 02/15/21.............................. 500,000 493,750
8.000%, 11/15/21.............................. 11,400,000 11,444,574
8.125%, 08/15/19-08/15/21..................... 18,605,000 18,887,658
8.750%, 08/15/20.............................. 11,300,000 12,219,933
8.875%, 08/15/17-02/15/19..................... 11,850,000 12,917,785
9.250%, 02/15/16.............................. 800,000 900,128
10.375%, 11/15/12............................. 4,000,000 4,760,000
10.750%, 08/15/05............................. 7,300,000 8,769,125
11.250%, 02/15/15............................. 3,400,000 4,492,250
11.625%, 11/15/04............................. 3,750,000 4,696,875
United States Treasury Bonds, Stripped,
Zero Coupon, 02/15/05-02/15/12................ 4,750,000 1,756,783
</TABLE>

<PAGE>

GOVERNMENT SECURITIES PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
United States Treasury Notes,
4.625%, 08/15/95.............................. $ 4,700,000 $ 4,633,918
5.875%, 05/15/95.............................. 2,300,000 2,294,963
6.875%, 08/31/99.............................. 2,400,000 2,310,000
7.000%, 04/15/99.............................. 13,000,000 12,597,780
7.125%, 09/30/99.............................. 11,700,000 11,363,625
7.750%, 03/31/96-11/30/99..................... 7,000,000 6,995,320
8.000%, 08/15/99.............................. 10,100,000 10,158,378
8.500%, 11/15/00.............................. 2,000,000 2,061,560
8.625%, 08/15/97.............................. 7,600,000 7,743,715
8.875%, 02/15/99.............................. 10,700,000 11,074,500
--------------
399,126,892
--------------
TOTAL LONG-TERM BONDS
(Cost $470,157,047)............................................ 441,213,478
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 7.6% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 36,874,000 $ 36,874,000
--------------
OTHER ASSETS -- 1.9%
(net of liabilities)........................................... 9,486,827
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 487,574,305
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

CMO Collateralized Mortgage Obligations
M.T.N. Medium Term Note
REMIC Real Estate Mortgage Investment Conduit

%Indicates a variable rate security.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

ZERO COUPON BOND 1995 PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 100.1% VALUE VALUE
------------- --------------
<S> <C> <C>
INDUSTRIAL -- 4.1%
Schering-Plough Corp.,
Zero Coupon, 12/02/96......................... $ 850,000 $ 731,400
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 96.0%
Certificate of Accrual on Treasury Securities,
Zero Coupon, 02/15/97......................... 1,003,000 855,027
Coupon Treasury Receipts,
Zero Coupon, 05/15/95-02/15/97................ 13,002,145 11,928,682
Treasury Investment Growth Receipts,
Zero Coupon, 11/15/95......................... 236,000 222,494
United States Treasury Bills,
Zero Coupon, 11/16/95......................... 3,000,000 2,822,490
United States Treasury Bonds, Stripped,
Zero Coupon, 02/15/97......................... 1,407,000 1,198,553
--------------
17,027,246
--------------
TOTAL LONG-TERM BONDS
(Cost $17,721,753)............................................. 17,758,646
--------------
LIABILITIES -- (0.1%)
(net of other assets).......................................... (25,014)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 17,733,632
--------------
--------------
</TABLE>

ZERO COUPON BOND 2000 PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 100.1% VALUE VALUE
------------- --------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Certificate of Accrual on Treasury Securities,
Zero Coupon, 05/15/01......................... $ 1,088,000 $ 666,117
Coupon Treasury Receipts,
Zero Coupon, 11/15/00-08/15/01................ 3,622,026 2,208,859
Treasury Investment Growth Receipts,
Zero Coupon, 02/15/02......................... 9,831,000 5,669,144
United States Treasury Bonds, Stripped,
Zero Coupon, 02/15/00-05/15/02................ 19,368,000 12,121,776
--------------
TOTAL LONG-TERM BONDS
(Cost $20,000,846)............................................. 20,665,896
--------------
LIABILITIES -- (0.1%)
(net of other assets).......................................... (30,900)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 20,634,996
--------------
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

ZERO COUPON BOND 2005 PORTFOLIO

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 96.3% VALUE VALUE
------------- --------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
Certificate of Accrual on Treasury Securities,
Zero Coupon, 08/15/04-05/15/11................ $ 4,605,000 $ 1,873,840
Principal Treasury Receipts,
Zero Coupon, 05/15/03......................... 1,590,000 829,360
Treasury Investment Growth Receipts,
Zero Coupon, 05/15/04-11/15/11................ 13,113,500 4,451,632
United States Treasury Bonds, Stripped,
Zero Coupon, 05/15/04-11/15/07................ 21,221,000 8,740,485
--------------
TOTAL LONG-TERM BONDS
(Cost $16,082,218)............................................. 15,895,317
--------------

PRINCIPAL
SHORT-TERM INVESTMENTS -- 3.9% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 636,000 636,000
--------------
LIABILITIES -- (0.2%)
(net of other assets).......................................... (25,619)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 16,505,698
--------------
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

<PAGE>

CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 34.8% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.1%
+Coltec Industries, Inc......................... 311,000 $ 5,325,875
GenCorp, Inc.................................... 676,800 8,037,000
Loral Corp...................................... 338,100 12,805,538
Rockwell International Corp..................... 253,100 9,048,325
+UNC, Inc....................................... 289,100 1,734,600
--------------
36,951,338
--------------
AUTOS - CARS & TRUCKS -- 1.9%
A.O. Smith Corp................................. 466,800 11,436,600
Ford Motor Co................................... 318,300 8,912,400
General Motors Corp............................. 192,800 8,145,800
General Motors Corp. (Class 'E' Stock).......... 325,600 12,535,600
General Motors Corp. (Class 'H' Stock).......... 465,900 16,248,263
Titan Wheel International, Inc.................. 332,600 9,229,650
--------------
66,508,313
--------------
BANKS AND SAVINGS & LOANS -- 2.4%
First Bank System, Inc.......................... 490,900 16,322,425
First Interstate Bancorp........................ 300,000 20,287,500
KeyCorp......................................... 937,400 23,435,000
Norwest Corp.................................... 1,060,200 24,782,175
--------------
84,827,100
--------------
CHEMICALS -- 1.1%
Imperial Chemical Industries, PLC, ADR.......... 371,300 17,265,450
OM Group, Inc................................... 308,400 7,401,600
W.R. Grace & Co................................. 318,800 12,313,650
--------------
36,980,700
--------------
CHEMICALS - SPECIALTY -- 0.8%
Ferro Corp...................................... 655,200 15,642,900
M.A. Hanna Co................................... 464,000 11,020,000
--------------
26,662,900
--------------
COMMERCIAL SERVICES -- 0.2%
+Welbilt Corp................................... 168,600 5,627,025
--------------
COMPUTER SERVICES -- 0.5%
National Data Corp.............................. 413,400 10,645,050
+Paxar Corp..................................... 818,343 8,183,430
--------------
18,828,480
--------------
CONSTRUCTION -- 0.2%
Ply-Gem Industries.............................. 400,000 7,650,000
--------------
CONTAINERS -- 0.5%
Ball Corp....................................... 363,600 11,453,400
+Sealed Air Corp................................ 167,800 6,082,750
--------------
17,536,150
--------------
DIVERSIFIED GAS -- 0.1%
+Basin Exploration, Inc......................... 148,000 1,628,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 1.1%
Schering-Plough Corp............................ 289,000 21,386,000
Warner-Lambert Co............................... 210,600 16,216,200
--------------
37,602,200
--------------
ELECTRICAL EQUIPMENT -- 0.3%
Belden Corp..................................... 524,300 11,665,675
--------------
ELECTRONICS -- 0.4%
+ADT Ltd........................................ 620,000 6,665,000
+IMO Industries, Inc............................ 477,900 5,973,750
--------------
12,638,750
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 1.3%
American Express Co............................. 319,000 $ 9,410,500
Dean Witter, Discover & Co...................... 736,500 24,948,938
Reinsurance Group of America, Inc............... 487,800 12,012,075
--------------
46,371,513
--------------
FOODS -- 0.4%
Universal Foods Corp............................ 542,000 14,905,000
--------------
FOREST PRODUCTS -- 0.6%
Mead Corp....................................... 455,900 22,168,137
--------------
FURNITURE -- 0.1%
Leggett & Platt, Inc............................ 128,700 4,504,500
--------------
GAS PIPELINES -- 0.4%
Enron Oil & Gas Co.............................. 332,700 6,238,125
+Seagull Energy Corp............................ 387,200 7,405,200
--------------
13,643,325
--------------
HOSPITAL MANAGEMENT -- 1.3%
+Healthtrust, Inc.-The Hospital Co.............. 735,700 23,358,475
National Medical Enterprises, Inc............... 1,650,000 23,306,250
--------------
46,664,725
--------------
HOUSING RELATED -- 0.8%
+Giant Cement Holdings, Inc..................... 415,200 4,930,500
+Owens-Corning Fiberglas Corp................... 662,800 21,209,600
--------------
26,140,100
--------------
INSURANCE -- 2.4%
Emphesys Financial Group, Inc................... 314,600 9,988,550
Equitable of Iowa Companies..................... 372,700 10,528,775
Financial Security Assurance Holdings, Ltd...... 226,200 4,750,200
National Re Corp................................ 207,600 5,449,500
PennCorp Financial Group, Inc................... 638,400 8,379,000
Provident Life & Accident Insurance Co. (Class
'B' Stock).................................... 177,200 3,854,100
TIG Holdings, Inc............................... 588,300 11,030,625
Trenwick Group, Inc............................. 276,200 11,703,975
W.R. Berkley Corp............................... 192,800 7,230,000
Western National Corp........................... 900,000 11,587,500
--------------
84,502,225
--------------
LEISURE -- 0.4%
+Caesars World, Inc............................. 213,100 14,224,424
--------------
MACHINERY -- 0.6%
DT Industries, Inc.............................. 234,500 2,520,875
+INDRESCO, Inc.................................. 390,700 5,567,475
Kaydon Corp..................................... 229,700 5,512,800
Parker-Hannifin Corp............................ 136,500 6,210,750
--------------
19,811,900
--------------
MEDIA -- 2.2%
Central Newspapers (Class 'A' Stock)............ 331,700 9,329,063
Comcast Corp. (Class 'A' Stock)................. 362,500 5,573,438
Comcast Corp. (Special Class 'A' Stock)......... 9,600 150,600
Lee Enterprises, Inc............................ 168,700 5,820,150
Media General, Inc. (Class 'A' Stock)........... 123,600 3,507,150
+Tele-Communications, Inc. (Class 'A' Stock).... 848,200 18,448,350
Time Warner, Inc................................ 599,500 21,057,437
Times Mirror Co. (Class 'A' Stock).............. 400,000 12,550,000
--------------
76,436,188
--------------
</TABLE>

B10

<PAGE>

CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY -- 4.8%
American Publishing Co. (Class 'A' Stock)....... 161,400 $ 1,775,400
BW/IP, Inc. (Class 'A' Stock)................... 379,200 6,493,800
Danaher Corp.................................... 227,800 11,902,550
Diebold, Inc.................................... 421,400 17,330,075
Donaldson Company, Inc.......................... 400,400 9,609,600
+Enterra Corp................................... 280,300 5,325,700
+FMC Corp....................................... 110,800 6,398,700
+IDEX Corp...................................... 190,400 8,044,400
+Itel Corp...................................... 168,700 5,841,238
ITT Corp........................................ 144,000 12,762,000
+Litton Industries, Inc......................... 259,700 9,608,900
Mark IV Industries, Inc......................... 545,300 10,769,675
Mascotech, Inc.................................. 607,300 7,818,988
Pentair, Inc.................................... 472,950 19,982,137
+SPS Transaction Services, Inc.................. 192,800 5,061,000
Textron, Inc.................................... 96,400 4,856,150
Trinity Industries, Inc......................... 385,500 12,143,250
+Wolverine Tube, Inc............................ 279,500 6,638,125
York International Corp......................... 199,000 7,338,125
--------------
169,699,813
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0%
Eastman Kodak Co................................ 372,300 17,777,325
Whitman Corp.................................... 913,400 15,756,150
--------------
33,533,475
--------------
PETROLEUM -- 0.9%
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 594,400 8,618,800
Elf Aquitaine, ADR.............................. 530,100 18,686,025
Parker & Parsley Petroleum Co................... 257,800 5,284,900
--------------
32,589,725
--------------
PETROLEUM SERVICES -- 0.7%
+Mesa, Inc...................................... 1,008,400 4,915,950
Murphy Oil Corp................................. 190,800 8,109,000
Oryx Energy Co.................................. 849,400 10,086,625
--------------
23,111,575
--------------
RAILROADS -- 1.1%
Burlington Northern, Inc........................ 259,000 12,464,375
+Chicago & North Western Transportation Co...... 671,600 12,928,300
Illinois Central Corp........................... 440,000 13,530,000
--------------
38,922,675
--------------
REAL ESTATE DEVELOPMENT -- 0.7%
Zeneca Group, PLC, ADR.......................... 607,200 24,971,100
--------------
RESTAURANTS -- 0.4%
Morrison Restaurants, Inc....................... 350,300 8,582,350
+Shoney's, Inc.................................. 530,100 6,758,775
--------------
15,341,125
--------------
RETAIL -- 1.3%
+Best Products Corp., Inc....................... 1,081,600 7,030,400
+Caldor Corp.................................... 382,100 8,501,725
Harcourt General, Inc........................... 277,500 9,781,875
K mart Corp..................................... 621,400 8,078,200
Rite Aid Corp................................... 258,200 6,035,425
Sears, Roebuck & Co............................. 139,800 6,430,800
--------------
45,858,425
--------------
RUBBER -- 0.3%
Goodyear Tire & Rubber Co....................... 269,800 9,072,024
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
STEEL -- 0.3%
+Material Sciences Corp......................... 675,000 $ 10,715,624
--------------
TELECOMMUNICATIONS -- 1.6%
+Airtouch Communications, Inc................... 385,500 11,227,688
Century Telephone Enterprises, Inc.............. 337,300 9,950,350
MCI Communications Corp......................... 661,100 12,147,713
+Nextel Communications, Inc. (Class 'A'
Stock)........................................ 495,400 7,121,375
Rochester Telephone Corp........................ 797,700 16,851,412
--------------
57,298,538
--------------
TEXTILES -- 0.4%
+Owens-Illinois, Inc............................ 552,700 6,079,700
V.F. Corp....................................... 181,900 8,844,888
--------------
14,924,588
--------------
TRUCKING/SHIPPING -- 0.2%
Ryder System, Inc............................... 385,500 8,481,000
--------------
TOTAL COMMON STOCKS
(Cost $1,152,952,120).......................................... 1,218,998,355
--------------
<CAPTION>

PAR MARKET
LONG-TERM BONDS -- 27.3% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 5.2%
Associates Corp. of North America,
6.875%, 01/15/97.............................. $ 5,250,000 $ 5,117,018
8.250%, 12/01/99.............................. 34,100,000 33,900,515
8.375%, 01/15/98.............................. 1,100,000 1,099,989
Banc One Credit Card Master Trust, CMO,
7.750%, 12/15/99, Series 1994-B, Class B...... 5,100,000 5,036,250
%Chrysler Financial Corp.,
3.813%, 11/15/96.............................. 13,200,000 13,264,415
Chrysler Financial Corp., M.T.N.,
5.390%, 08/27/96, Tranche #TR00041............ 7,300,000 7,005,810
CIGNA Mortgage Securities, Inc.,
9.400%, 01/15/02, Series 1988-1, Class A2..... 3,362,186 3,329,614
Citicorp, M.T.N.,
8.500%, 02/24/97, Tranche #TR00128............ 5,100,000 5,131,263
Dean Witter, Discover & Co.,
6.000%, 03/01/98.............................. 2,500,000 2,334,275
Discover Card Trust,
7.875%, 04/16/98, Series #1991-C, Class B..... 10,000,000 9,959,300
Federal Express Corp., M.T.N.,
10.010%, 06/01/98, Tranche #SR00067........... 3,000,000 3,101,790
10.050%, 06/15/99, Tranche #SR00068........... 500,000 521,055
First Union Corp.,
9.450%, 06/15/99.............................. 4,000,000 4,112,080
Ford Credit Grantor Trust, CMO,
7.300%, 10/15/99, Series 1994-8, Class A...... 11,669,941 11,527,714
Ford Motor Credit Co.,
7.750%, 11/15/02.............................. 3,300,000 3,146,979
General Motors Acceptance Corp.,
8.250%, 08/01/96.............................. 5,000,000 4,985,950
</TABLE>

B11

<PAGE>

CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
General Motors Acceptance Corp., M.T.N.,
6.300%, 09/10/97, Tranche #TR00532............ $ 5,000,000 $ 4,735,700
6.500%, 06/10/96.............................. 13,000,000 12,725,960
7.375%, 07/20/98, Tranche #TR00667............ 4,650,000 4,474,184
7.500%, 11/04/97, Tranche #TR00598............ 15,000,000 14,602,050
7.850%, 03/05/97, Tranche #TR00187............ 3,300,000 3,259,938
Mellon Financial Co.,
6.500%, 12/01/97.............................. 1,650,000 1,577,565
Standard Credit Card Master Trust,
7.250%, 04/07/08, Series 1994-2A, Class A..... 4,650,000 4,237,313
Standard Credit Card Trust,
9.375%, 03/10/96, Series 1990-1............... 7,000,000 7,028,420
Union Bank Finland, Ltd.,
5.250%, 06/15/96.............................. 16,650,000 15,942,542
Westinghouse Credit Corp., M.T.N.,
8.750%, 06/03/96, Tranche #00248.............. 2,600,000 2,606,968
--------------
184,764,657
--------------
FOREIGN -- 4.5%
**Banco Del Estado-Chile,
8.390%, 08/01/01.............................. 3,700,000 3,487,250
**Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 7,300,000 7,081,000
**%Cemex, SA,
6.250%, 10/25/95, Series B.................... 4,250,000 4,165,000
**Cemex, SA, M.T.N.,
9.500%, 09/20/01, Tranche #TR00010............ 12,500,000 10,625,000
**Compania Sud Americana de Vapores, SA,
7.375%, 12/08/03.............................. 10,000,000 8,187,500
Controladora Commercial Mexicana, SA,
8.750%, 04/21/98.............................. 5,190,000 4,411,500
Empresa Columbia de Petroleos,
7.250%, 07/08/98.............................. 8,250,000 7,342,500
Financiera Energetic Nacional,
6.625%, 12/13/96.............................. 5,000,000 4,800,000
**Financiera Energetic Nacional, M.T.N.,
9.000%, 11/08/99.............................. 9,900,000 9,420,432
Fomento Economico Mexicano, SA,
9.500%, 07/22/97.............................. 5,150,000 5,107,352
**Grupo Condumex, SA, M.T.N.,
6.250%, 07/27/96.............................. 4,300,000 3,827,000
**Grupo Embotellador Mexicana,
10.750%, 11/19/97............................. 8,015,000 7,133,350
Grupo Televisa, SA,
10.000%, 11/09/97............................. 7,250,000 6,561,250
%Hydro-Quebec,
3.438%, 09/30/49.............................. 3,500,000 2,925,780
**Kansallis-Osake Pankki, N.Y.,
8.650%, 12/29/49.............................. 10,000,000 9,675,000
Kansallis-Osake Pankki, N.Y., C.D.,
6.125%, 05/15/98.............................. 6,160,000 5,715,494
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Korea Development Bank,
5.875%, 12/01/98.............................. $ 1,900,000 $ 1,727,290
6.750%, 12/01/05.............................. 10,400,000 8,811,504
9.250%, 06/15/98.............................. 10,000,000 10,159,300
Korea Electric Power Corp.,
7.750%, 04/01/13.............................. 2,350,000 2,038,343
Republic of Columbia,
7.125%, 05/11/98.............................. 2,775,000 2,548,664
7.250%, 02/23/04.............................. 5,400,000 4,448,250
8.750%, 10/06/99.............................. 925,000 882,219
Republic of South Africa,
9.625%, 12/15/99.............................. 8,200,000 8,120,563
**Republic of Trinidad and Tobago,
11.750%, 10/03/04............................. 9,300,000 9,416,250
United Mexican States,
5.820%, 06/28/01.............................. 1,375,000 976,250
6.970%, 08/12/00.............................. 2,300,000 1,771,000
8.500%, 09/15/02.............................. 6,850,000 5,514,250
--------------
156,879,291
--------------
INDUSTRIAL -- 4.3%
Arkla, Inc., M.T.N.,
9.250%, 12/18/97, Tranche #TR00027............ 3,000,000 2,988,840
Avenor, Inc.,
9.375%, 02/15/04.............................. 11,225,000 10,590,086
Coca-Cola Enterprises, Inc.,
6.500%, 11/15/97.............................. 3,750,000 3,582,975
Columbia/HCA Healthcare Corp., M.T.N.,
8.850%, 01/01/07, Tranche #TR00009............ 12,700,000 12,674,600
Comdisco, Inc.,
8.950%, 05/15/95.............................. 19,420,000 19,533,800
Delta Air Lines, Inc.,
9.750%, 05/15/21.............................. 10,800,000 9,927,575
10.375%, 02/01/11............................. 6,850,000 6,697,040
**Enterprise Rent A Car, M.T.N.,
8.750%, 12/15/99.............................. 13,750,000 13,702,563
Ford Motor Co.,
9.000%, 09/15/01.............................. 3,900,000 3,979,482
Hanson Overseas Corp.,
5.500%, 01/15/96.............................. 2,000,000 1,953,980
News America Holdings, Inc.,
7.750%, 01/20/24.............................. 4,550,000 3,716,304
Oryx Energy Co., M.T.N.,
6.050%, 02/01/96, Tranche #TR00013............ 12,000,000 11,550,000
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 8,950,000 8,726,250
RJR Nabisco, Inc.,
8.625%, 12/01/02.............................. 14,350,000 13,310,056
8.750%, 08/15/05.............................. 2,550,000 2,324,886
Sears, Roebuck & Co., M.T.N.,
9.420%, 04/01/96, Series IV................... 1,000,000 1,018,625
Sears, Roebuck Acceptance Corp.,
9.000%, 09/15/96.............................. 2,000,000 2,024,140
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. 6,800,000 5,664,060
9.875%, 06/15/22.............................. 4,700,000 4,606,658
**Time Warner, Inc.,
6.050%, 07/01/95.............................. 8,000,000 7,933,040
</TABLE>

B12

<PAGE>

CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Westinghouse Electric Corp., M.T.N.,
8.700%, 06/20/96, Tranche #TR00029............ $ 2,950,000 $ 2,956,136
--------------
149,461,096
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 13.3%
Federal National Mortgage Association,
9.050%, 04/10/00.............................. 14,000,000 14,647,500
United States Treasury Bonds,
6.250%, 08/15/23.............................. 29,585,000 24,051,717
11.250%, 02/15/15............................. 168,850,000 223,093,063
12.000%, 08/15/13............................. 50,450,000 67,082,861
United States Treasury Notes,
6.000%, 11/30/97.............................. 87,600,000 83,534,484
7.250%, 11/15/96.............................. 21,000,000 20,835,990
7.500%, 10/31/99.............................. 8,550,000 8,427,050
7.750%, 11/30/99.............................. 4,525,000 4,508,031
7.875%, 11/15/04.............................. 19,075,000 19,128,601
--------------
465,309,297
--------------
TOTAL LONG-TERM BONDS
(Cost $997,384,451)............................................ 956,414,341
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 36.9% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS -- 5.9%
Bank of Tokyo, Ltd., C.D.,
6.460%, 03/30/95.............................. 25,000,000 25,000,000
Banque Nationale De Paris, C.D.,
6.010%, 02/01/95.............................. 35,000,000 35,000,000
Chemical Bank, N.Y., T.D.,
6.250%, 01/03/95.............................. 7,393,000 7,393,000
Fuji Bank, Ltd., C.D.,
5.906%, 01/20/95.............................. 7,000,000 7,000,000
6.360%, 03/21/95.............................. 15,000,000 15,000,000
Fuji Bank, Ltd., T.D.,
6.400%, 01/03/95.............................. 25,000,000 25,000,000
National Westminister Bank, PLC, C.D.,
5.800%, 01/23/95.............................. 1,000,000 999,870
Republic National Bank of New York, C.D.,
4.300%, 03/08/95.............................. 21,000,000 20,988,906
Sanwa Bank, Ltd., C.D.,
6.040%, 02/02/95.............................. 50,000,000 50,000,000
Sumitomo Bank, Ltd., C.D.,
5.960%, 01/30/95.............................. 10,000,000 10,000,000
Sumitomo Bank, Ltd., T.D.,
6.060%, 02/01/95.............................. 10,000,000 10,000,000
--------------
206,381,776
--------------
COMMERCIAL PAPER -- 23.8%
%American Express Centurion Bank,
4.500%, 08/04/95, Tranche #TR00037............ 4,000,000 3,999,765
American Home Products Corp.,
5.900%, 01/31/95.............................. 61,440,000 61,158,059
American Honda Finance Corp.,
5.980%, 01/31/95.............................. 13,000,000 12,939,535
Aristar, Inc.,
5.540%, 01/23/95.............................. 1,000,000 996,922
6.300%, 03/20/95.............................. 2,000,000 1,973,400
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Asset Securitization Cooperative Corp.,
5.500%, 01/23/95.............................. $ 9,000,000 $ 8,972,500
5.970%, 02/02/95.............................. 6,000,000 5,970,150
6.050%, 02/01/95.............................. 12,800,000 12,737,618
Bankers Trust New York Corp.,
5.150%, 04/03/95.............................. 25,637,000 25,306,924
5.440%, 01/24/95.............................. 17,200,000 17,145,419
Barclays Bank, PLC,
6.100%, 02/17/95.............................. 500,000 496,188
Chrysler Financial Corp.,
5.750%, 01/17/95.............................. 23,000,000 22,948,569
CIESCO,
5.500%, 01/11/95.............................. 5,000,000 4,993,889
CIT Group Holdings, Inc.,
5.500%, 01/17/95.............................. 13,000,000 12,972,194
5.970%, 02/01/95.............................. 14,000,000 13,932,672
Coca-Cola Enterprises, Inc.,
6.015%, 02/01/95.............................. 23,000,000 22,888,555
6.120%, 01/31/95.............................. 31,970,000 31,817,823
6.170%, 03/07/95.............................. 4,900,000 4,847,092
Corporate Receivables Corp.,
6.170%, 03/07/95.............................. 47,000,000 46,492,518
6.570%, 05/23/95.............................. 11,100,000 10,816,395
Dean Witter, Discover & Co.,
5.970%, 02/01/95.............................. 7,344,000 7,308,680
Deerfield Capital,
6.090%, 01/17/95.............................. 19,900,000 19,852,870
Duracell, Inc.,
6.300%, 02/10/95.............................. 2,000,000 1,986,700
Falcon Asset Securitization Corp.,
6.100%, 01/13/95.............................. 11,000,000 10,981,360
6.170%, 03/07/95.............................. 8,975,000 8,878,092
General Electric Capital Corp.,
6.430%, 04/13/95.............................. 6,150,000 6,040,154
6.450%, 04/13/95-04/18/95..................... 36,350,000 35,684,396
General Motors Acceptance Corp.,
5.740%, 01/17/95.............................. 60,500,000 60,364,951
Golden Peanut Co.,
5.600%, 02/01/95-02/03/95..................... 9,500,000 9,455,589
Greyhound Financial Corp.,
6.180%, 02/16/95.............................. 7,649,000 7,591,225
6.290%, 02/08/95.............................. 5,000,000 4,968,550
6.300%, 01/27/95.............................. 7,000,000 6,970,600
6.330%, 02/07/95.............................. 2,000,000 1,987,692
Hanson Finance, PLC,
5.470%, 01/17/95.............................. 2,000,000 1,995,746
6.260%, 03/03/95.............................. 5,000,000 4,948,703
6.270%, 03/09/95.............................. 13,000,000 12,852,829
6.280%, 03/01/95.............................. 4,000,000 3,960,227
Heller Financial, Inc.,
6.300%, 03/14/95.............................. 6,000,000 5,926,500
International Lease Finance Corp.,
6.200%, 03/20/95.............................. 10,000,000 9,869,111
ITT Corp.,
5.820%, 01/17/95.............................. 7,000,000 6,984,157
ITT Financial Corp.,
6.200%, 01/20/95.............................. 28,000,000 27,918,022
Maguire/Thomas Partners,
6.100%, 01/18/95.............................. 5,000,000 4,987,292
MCA Funding Corp.,
5.100%, 01/09/95.............................. 5,000,000 4,995,750
5.120%, 01/17/95.............................. 22,000,000 21,956,196
</TABLE>

B13

<PAGE>

CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
McKenna Triangle National Corp.,
6.100%, 01/23/95.............................. $ 1,000,000 $ 996,611
Merrill Lynch & Co., Inc.,
5.750%, 01/17/95.............................. 15,000,000 14,966,458
Morgan Stanley Group, Inc.,
6.270%, 03/01/95.............................. 8,500,000 8,415,616
National Australia Funding, Inc.,
5.600%, 02/01/95.............................. 2,000,000 1,990,978
NationsBank Corp. of North Carolina,
5.400%, 01/23/95.............................. 19,000,000 18,943,000
Newell Co.,
6.000%, 01/05/95.............................. 21,054,000 21,046,982
Preferred Receivables Funding Corp.,
5.650%, 01/11/95.............................. 13,000,000 12,983,678
Public Service Electric & Gas Co.,
6.020%, 01/17/95.............................. 11,000,000 10,974,248
Republic National Bank of New York,
5.750%, 02/01/95.............................. 5,000,000 4,999,985
Sears Roebuck Acceptance Corp.,
6.050%, 02/07/95.............................. 37,000,000 36,782,368
State Street Bank & Trust,
5.950%, 01/17/95.............................. 33,377,000 33,299,769
WCP Funding, Inc.,
6.280%, 03/06/95.............................. 4,000,000 3,956,738
Westpac Capital Corp.,
6.280%, 03/14/95.............................. 6,000,000 5,926,733
Whirlpool Corp.,
5.660%, 02/02/95.............................. 2,000,000 1,990,567
Whirlpool Financial Corp.,
5.600%, 02/06/95-02/09/95..................... 3,000,000 2,983,667
5.610%, 02/10/95.............................. 5,000,000 4,970,392
WMX Technologies,
5.200%, 05/12/95.............................. 4,000,000 3,925,467
5.225%, 02/07/95.............................. 3,000,000 2,984,760
Xerox Credit Corp.,
5.970%, 02/01/95.............................. 32,000,000 31,846,107
--------------
835,855,703
--------------
MEDIUM TERM NOTES -- 2.4%
PNC Bank N.A., M.T.N.,
5.150%, 02/22/95, Tranche #TR00005............ 10,000,000 10,000,066
%Corestates Capital Corp., M.T.N.,
6.020%, 07/19/95, Tranche #TR00076............ 10,000,000 10,002,084
**%Goldman Sachs Group, L.P., M.T.N.,
3.875%, 04/13/95.............................. 48,000,000 48,000,000
%Xerox Credit Corp., M.T.N.,
6.800%, 06/02/95, Tranche #TR00016............ 15,000,000 15,003,075
--------------
83,005,225
--------------
PROMISSORY NOTES -- 1.3%
Diamond Lease USA, Inc.,
6.100%, 01/18/95.............................. 1,000,000 997,458
Lehman Brothers Holdings, Inc.,
5.028%, 05/23/95.............................. 32,000,000 32,000,000
Seiko Corporation of America,
6.100%, 01/20/95.............................. 3,000,000 2,991,358
SRD Finance, Inc.,
6.100%, 01/12/95.............................. 3,000,000 2,995,425
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Sumitomo Electric Finance U.S.A., Inc.,
6.050%, 01/26/95.............................. $ 8,000,000 $ 7,969,078
--------------
46,953,319
--------------
REPURCHASE AGREEMENTS -- 3.5%
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 121,345,000 121,345,000
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 1,293,541,023
--------------
OTHER ASSETS -- 1.0%
(net of liabilities)........................................... 32,150,567
--------------
TOTAL NET ASSETS -- 100.0%....................................... $3,501,104,286
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt
C.D. Certificates of Deposit
CMO Collateralized Mortgage Obligations
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
T.D. Time Deposit

**Indicates a restricted security; the aggregate cost of the restricted
securities is $148,547,029. The aggregate value, $142,653,385 is
approximately 4.1% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.

%Indicates a variable rate security.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B14

<PAGE>

AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 58.8% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.8%
Boeing Co....................................... 287,200 $ 13,426,600
Loral Corp...................................... 392,000 14,847,000
--------------
28,273,600
--------------
ALUMINUM -- 1.1%
Aluminum Co. of America......................... 426,700 36,962,888
--------------
AUTOS - CARS & TRUCKS -- 1.2%
Ford Motor Co................................... 442,900 12,401,200
General Motors Corp. (Class 'E' Stock).......... 814,600 31,362,100
--------------
43,763,300
--------------
BANKS AND SAVINGS & LOANS -- 1.9%
Bank of New York Company, Inc................... 1,549,400 44,932,600
Norwest Corp.................................... 597,800 13,973,575
Washington Mutual, Inc.......................... 407,800 6,881,625
--------------
65,787,800
--------------
BEVERAGES -- 0.3%
+Dr. Pepper/Seven-Up Cos., Inc.................. 467,300 11,974,563
--------------
CHEMICALS -- 2.4%
A. Schulman, Inc................................ 189,400 5,208,500
Air Products & Chemicals, Inc................... 470,900 21,013,913
Dow Chemical Co................................. 316,800 21,304,800
Eastman Chemical Co............................. 326,500 16,488,250
Imperial Chemical Industries, PLC, ADR.......... 275,400 12,806,100
+McWhorter Technologies, Inc.................... 243,950 3,628,756
OM Group, Inc................................... 183,700 4,408,800
--------------
84,859,119
--------------
CHEMICALS - SPECIALTY -- 0.9%
IMC Global, Inc................................. 699,100 30,236,075
--------------
COMMERCIAL SERVICES -- 1.0%
First Financial Management Corp................. 156,700 9,656,638
ServiceMaster, L.P.............................. 443,550 10,811,531
Southeby's Holdings, Inc. (Class 'A' Stock)..... 465,100 5,348,650
Wellman, Inc.................................... 355,300 10,037,225
--------------
35,854,044
--------------
COMPUTER SERVICES -- 2.7%
+American Management Systems, Inc............... 673,100 12,957,175
Automatic Data Processing, Inc.................. 690,400 40,388,400
First Data Corp................................. 509,800 24,151,775
+Microsoft Corp................................. 161,300 9,859,463
National Data Corp.............................. 232,200 5,979,150
--------------
93,335,963
--------------
COSMETICS & SOAPS -- 0.3%
Gillette Co..................................... 125,700 9,396,075
--------------
DIVERSIFIED GAS -- 0.4%
+Basin Exploration, Inc......................... 281,700 3,098,700
Cross Timbers Oil Co............................ 810,000 12,150,000
--------------
15,248,700
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.8%
International Business Machines Corp............ 381,000 28,003,500
--------------
DRUGS AND HOSPITAL SUPPLIES -- 2.6%
Abbott Laboratories............................. 580,700 18,945,338
Baxter International, Inc....................... 725,000 20,481,250
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Pfizer, Inc..................................... 285,300 $ 22,039,425
Schering-Plough Corp............................ 350,100 25,907,400
+Thermotrex Corp................................ 354,100 4,780,350
--------------
92,153,763
--------------
ELECTRICAL EQUIPMENT -- 1.2%
Baldor Electric Co.............................. 489,440 13,214,880
Belden, Inc..................................... 409,700 9,115,825
W.W. Grainger, Inc.............................. 177,600 10,256,400
Westinghouse Electric Corp...................... 674,200 8,258,950
--------------
40,846,055
--------------
ELECTRONICS -- 2.0%
+ADT Ltd........................................ 1,314,400 14,129,800
Emerson Electric Co............................. 883,800 55,237,500
--------------
69,367,300
--------------
FINANCIAL SERVICES -- 2.2%
Dean Witter, Discover & Co...................... 903,400 30,602,675
Federal Home Loan Mortgage Corp................. 403,700 20,386,850
GFC Financial Corp.............................. 232,400 7,378,700
Manufactured Home Communities, Inc.............. 717,900 14,268,262
T. Rowe Price & Associates...................... 170,200 5,106,000
--------------
77,742,487
--------------
FOODS -- 2.4%
Archer-Daniels-Midland Co....................... 3,512,040 72,435,825
Pioneer Hi-Bred International, Inc.............. 301,500 10,401,750
--------------
82,837,575
--------------
FOREST PRODUCTS -- 1.8%
Caraustar Industries, Inc....................... 419,500 9,333,875
International Paper Co.......................... 134,800 10,160,550
Willamette Industries, Inc...................... 881,200 41,857,000
--------------
61,351,425
--------------
GAS PIPELINES -- 0.3%
+Seagull Energy Corp............................ 535,400 10,239,525
--------------
HEALTHCARE -- 0.2%
+Sybron International Corp...................... 205,100 7,075,950
--------------
HOSPITAL MANAGEMENT -- 2.1%
Columbia / HCA Healthcare Corp.................. 840,442 30,676,132
+Health Care and Retirement Corp................ 576,400 17,364,050
+Healthtrust, Inc.-The Hospital Co.............. 374,700 11,896,725
+Homedco Group, Inc............................. 111,500 4,195,188
National Medical Enterprises, Inc............... 583,600 8,243,350
--------------
72,375,445
--------------
INSURANCE -- 3.4%
American International Group, Inc............... 411,800 40,356,400
CCP Insurance, Inc.............................. 74,800 1,524,050
Chubb Corp...................................... 302,000 23,367,250
General Re Corp................................. 323,900 40,082,625
NAC Re Corp..................................... 277,400 9,292,900
PennCorp Financial Group, Inc................... 256,100 3,361,313
--------------
117,984,538
--------------
LEISURE -- 1.3%
Carnival Corp. (Class 'A' Stock)................ 1,755,500 37,304,375
Royal Caribbean Cruise, Ltd..................... 233,600 6,657,600
--------------
43,961,975
--------------
MACHINERY -- 0.1%
+Thermo Fibertek, Inc........................... 219,800 3,489,325
--------------
</TABLE>

B15

<PAGE>

AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
MEDIA -- 3.4%
American Media, Inc. (Class 'A' Stock).......... 408,600 $ 6,639,750
Capital Cities/ABC, Inc......................... 347,400 29,615,850
Comcast Corp. (Class 'A' Stock)................. 276,000 4,243,500
Gannett Co., Inc................................ 400,000 21,300,000
+Rogers Communications, Inc. (Class 'B'
Stock)........................................ 350,100 4,679,441
Shaw Communications, Inc. (Class 'B' Stock)..... 703,700 5,016,572
+Tele-Communications, Inc. (Class 'A' Stock).... 1,107,200 24,081,600
Tribune Co...................................... 420,400 23,016,900
--------------
118,593,613
--------------
MINERAL RESOURCES -- 1.8%
Placer Dome, Inc................................ 912,000 19,836,000
Potash Corp. of Saskatchewan, Inc............... 876,500 29,801,000
+Sante Fe Pacific Gold Corp..................... 950,300 12,235,112
--------------
61,872,112
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 6.1%
+American Business Information, Inc............. 624,500 11,553,250
Danaher Corp.................................... 110,300 5,763,175
Expeditors International of Washington, Inc..... 359,000 7,808,250
General Electric Co............................. 660,800 33,700,800
Illinois Tool Works, Inc........................ 936,600 40,976,250
Libbey, Inc..................................... 323,600 5,663,000
Martin Marietta Materials, Inc.................. 631,800 11,214,450
Modine Manufacturing Co......................... 308,900 8,880,875
Pentair, Inc.................................... 258,200 10,908,950
+Scholastic Corp................................ 139,800 7,129,800
The Rival Co.................................... 181,700 3,179,750
+Thermo Electron Corp........................... 563,100 25,269,113
Tyco International Ltd.......................... 881,600 41,876,000
--------------
213,923,663
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.7%
+DeVRY, Inc..................................... 380,100 11,783,100
Kellwood Co..................................... 533,900 11,211,900
--------------
22,995,000
--------------
PETROLEUM -- 2.5%
Amoco Corp...................................... 401,000 23,709,125
Royal Dutch Petroleum Co., ADR.................. 586,300 63,027,250
--------------
86,736,375
--------------
PETROLEUM SERVICES -- 0.8%
+Mesa, Inc...................................... 1,037,800 5,059,275
Total SA, ADR................................... 739,100 21,803,450
--------------
26,862,725
--------------
RAILROADS -- 0.3%
Illinois Central Corp........................... 372,700 11,460,525
--------------
REAL ESTATE DEVELOPMENT -- 1.6%
Crescent Real Estate Equities, Inc.............. 480,600 13,036,275
Duke Realty Investments, Inc.................... 434,000 12,260,500
Equity Residential Properties Trust............. 451,100 13,533,000
Federal Realty Investment Trust................. 285,200 5,882,250
Weingarten Realty Investors..................... 306,800 11,620,050
--------------
56,332,075
--------------
RESTAURANTS -- 0.2%
Sbarro, Inc..................................... 342,900 8,915,400
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
RETAIL -- 2.0%
Dayton-Hudson Corp.............................. 307,400 $ 21,748,550
Edison Brothers Stores.......................... 143,400 2,652,900
Harcourt General, Inc........................... 468,800 16,525,200
Tiffany & Co.................................... 203,300 7,928,700
+Toys 'R' Us, Inc............................... 707,400 21,575,700
--------------
70,431,050
--------------
STEEL -- 2.1%
Broken Hill Proprietary Co., Ltd., ADR.......... 539,050 33,218,955
+LTV Corp....................................... 933,000 15,161,250
Worthington Industries, Inc..................... 1,206,100 24,122,000
--------------
72,502,205
--------------
TELECOMMUNICATIONS -- 2.4%
+Airtouch Communications, Inc................... 527,900 15,375,088
AT&T Corp....................................... 846,200 42,521,550
TCA Cable TV, Inc............................... 482,300 10,490,025
Telecomunicacoes Brasileiras, SA, ADR........... 39,700 1,776,455
Telefonos de Mexico (Class 'L' Stock), ADR...... 290,000 11,890,000
--------------
82,053,118
--------------
TEXTILES -- 0.4%
Russell Corp.................................... 168,900 5,299,237
Unifi, Inc...................................... 272,500 6,948,750
--------------
12,247,987
--------------
TOBACCO -- 1.1%
Philip Morris Companies, Inc.................... 438,900 25,236,750
UST, Inc........................................ 463,400 12,859,350
--------------
38,096,100
--------------
TOTAL COMMON STOCKS
(Cost $1,884,990,437).......................................... 2,046,142,938
--------------
<CAPTION>

PAR MARKET
LONG-TERM BONDS -- 24.6% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 3.1%
Associates Corp. of North America,
8.250%, 12/01/99.............................. $ 33,900,000 $ 33,701,685
Banc One Credit Card Master Trust, CMO,
7.750%, 12/15/99, Series 1994-B, Class B...... 5,000,000 4,937,500
Chase Manhattan Credit Card Trust,
7.400%, 05/15/00, Series 1992-1............... 5,000,000 4,921,850
Ford Credit Grantor Trust, CMO,
7.300%, 10/15/99, TR 1994-8, Class A.......... 13,614,932 13,449,000
Ford Motor Credit Co.,
7.750%, 11/15/02.............................. 2,815,000 2,684,468
General Motors Acceptance Corp., M.T.N.,
6.500%, 06/10/96.............................. 10,000,000 9,789,200
7.000%, 05/19/97, Tranche #TR00401............ 10,000,000 9,683,700
7.000%, 06/02/97, Tranche #TR00476............ 6,000,000 5,806,980
7.375%, 07/20/98, Tranche #TR00667............ 4,500,000 4,329,855
7.850%, 03/05/97, Tranche #TR00187............ 3,200,000 3,161,153
</TABLE>

B16

<PAGE>

AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
%MBNA Master Credit Card Trust, CMO,
5.495%, 01/15/02, Series 1994-1, Class A...... $ 7,500,000 $ 7,480,313
Standard Credit Card Master Trust, CMO,
7.250%, 04/07/08, Series 1994-2A, Class A..... 4,500,000 4,100,625
Westinghouse Credit Corp., M.T.N.,
8.750%, 06/03/96, Tranche #TR00248............ 3,330,000 3,338,924
--------------
107,385,253
--------------
FOREIGN -- 4.4%
**Banco Del Estado-Chile,
8.390%, 08/01/01.............................. 3,500,000 3,298,750
Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 7,300,000 7,081,000
**Cemex, SA,
8.875%, 06/10/98.............................. 5,000,000 4,387,500
**Cemex, SA, M.T.N.,
9.500%, 09/20/01, Tranche #TR00010............ 12,500,000 10,625,000
**Compania Sud Americana de Vapores, SA,
7.375%, 12/08/03.............................. 7,250,000 5,935,938
Controladora Commercial Mexicana, SA,
8.750%, 04/21/98.............................. 15,100,000 12,835,000
Empresa Columbia de Petroleos,
7.250%, 07/08/98.............................. 8,250,000 7,342,500
Empresas La Moderna, SA,
10.250%, 11/12/97............................. 2,000,000 1,750,000
Financiera Energetic Nacional,
6.625%, 12/13/96.............................. 5,100,000 4,896,000
**Financiera Energetic Nacional, M.T.N.,
9.000%, 11/08/99.............................. 9,900,000 9,420,432
Fomento Economico Mexicano, SA,
9.500%, 07/22/97.............................. 3,700,000 3,669,359
**Grupo Embotellador Mexicana,
10.750%, 11/19/97............................. 8,020,000 7,137,800
Grupo Televisa, SA,
10.000%, 11/09/97............................. 4,000,000 3,620,000
**Kansallis-Osake Pankki, N.Y.,
8.650%, 12/29/49.............................. 9,000,000 8,707,500
Korea Development Bank,
5.875%, 12/01/98.............................. 1,900,000 1,727,290
6.750%, 12/01/05.............................. 8,000,000 6,778,080
9.250%, 06/15/98.............................. 10,400,000 10,565,672
Korea Electric Power Corp.,
7.750%, 04/01/13.............................. 2,225,000 1,929,921
New Zealand Government,
9.875%, 01/15/11.............................. 7,300,000 8,225,713
Republic of Columbia,
7.125%, 05/11/98.............................. 2,700,000 2,479,782
7.250%, 02/23/04.............................. 4,100,000 3,377,375
8.750%, 10/06/99.............................. 900,000 858,375
Republic of South Africa,
9.625%, 12/15/99.............................. 8,300,000 8,219,593
**Republic of Trinidad and Tobago,
11.750%, 10/03/04............................. 9,000,000 9,112,500
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
United Mexican States,
5.820%, 06/28/01.............................. $ 1,375,000 $ 976,250
6.970%, 08/12/00.............................. 2,300,000 1,771,000
8.500%, 09/15/02.............................. 6,925,000 5,574,625
--------------
152,302,955
--------------
INDUSTRIAL -- 5.3%
Avenor, Inc.,
9.375%, 02/15/04.............................. 11,100,000 10,472,156
Columbia/HCA Healthcare Corp., M.T.N.,
8.850%, 01/01/07, Tranche #TR00009............ 15,400,000 15,369,200
Delta Air Lines, Inc.,
7.710%, 05/14/97.............................. 1,300,000 1,238,328
9.750%, 05/15/21.............................. 10,790,000 9,918,384
9.875%, 01/01/98.............................. 27,650,000 27,964,381
10.375%, 02/01/11............................. 6,950,000 6,794,807
Enterprise Rent A Car, M.T.N.,
8.750%, 12/15/99, Tranche #TR00001............ 13,750,000 13,702,563
Fleming Companies, Inc., C.D.,
10.625%, 12/15/01............................. 28,000,000 28,000,000
Ford Motor Co.,
9.000%, 09/15/01.............................. 3,000,000 3,061,140
News America Holdings, Inc.,
7.750%, 01/20/24.............................. 4,650,000 3,797,981
%Occidental Petroleum Corp., M.T.N.,
6.312%, 11/04/99.............................. 5,000,000 4,960,460
Oryx Energy Co.,
9.300%, 05/01/96.............................. 2,350,000 2,330,355
Oryx Energy Co., M.T.N.,
6.050%, 02/01/96, Tranche #TR00013............ 10,500,000 10,106,250
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 7,600,000 7,410,000
RJR Nabisco, Inc.,
8.625%, 12/01/02.............................. 14,080,000 13,059,621
8.750%, 08/15/05.............................. 2,500,000 2,279,300
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. 7,000,000 5,830,650
9.875%, 06/15/22.............................. 4,700,000 4,606,657
Transco Energy,
9.125%, 05/01/98.............................. 14,000,000 14,017,500
--------------
184,919,733
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 11.8%
Federal National Mortgage Association,
Zero Coupon, 07/05/14......................... 10,000,000 2,035,200
Government National Mortgage Association,
8.950%, 10/15/28, Pool #222286................ 4,024,004 4,000,514
United States Treasury Bonds,
6.250%, 08/15/23.............................. 21,510,000 17,486,985
8.875%, 08/15/17.............................. 53,900,000 58,717,043
8.875%, 02/15/19, Series 2019................. 29,800,000 32,537,726
9.250%, 02/15/16, Series 2016................. 16,200,000 18,227,592
11.250%, 02/15/15............................. 119,750,000 158,219,688
12.000%, 08/15/13............................. 17,250,000 22,937,153
United States Treasury Notes,
6.500%, 08/15/97.............................. 15,000,000 14,545,350
7.500%, 10/31/99, Series 1999................. 42,250,000 41,642,445
</TABLE>

B17

<PAGE>

AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
7.750%, 11/30/99.............................. $ 16,125,000 $ 16,064,530
7.875%, 11/15/04.............................. 24,750,000 24,819,547
--------------
411,233,773
--------------
TOTAL LONG-TERM BONDS
(Cost $886,300,335)............................................ 855,841,714
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 16.5% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS -- 1.1%
Bank of Tokyo, Ltd., C.D.,
6.460%, 03/30/95.............................. 5,000,000 5,000,000
Banque Nationale De Paris, C.D.,
6.010%, 02/01/95.............................. 15,000,000 15,000,000
Fuji Bank, Ltd, C.D.,
5.906%, 01/20/95.............................. 14,000,000 14,000,000
Sanwa Bank, Ltd., C.D.,
6.040%, 02/02/95.............................. 4,000,000 4,000,000
--------------
38,000,000
--------------
COMMERCIAL PAPER -- 5.2%
American Home Products Corp.,
5.900%, 01/31/95.............................. 16,000,000 15,926,578
American Honda Finance Corp.,
5.980%, 01/31/95.............................. 2,000,000 1,990,698
American Telephone & Telegraph Co.,
6.300%, 03/24/95.............................. 500,000 493,000
Asset Securitization Cooperative Corp.,
5.970%, 02/02/95.............................. 4,000,000 3,980,100
6.050%, 02/01/95.............................. 3,100,000 3,084,892
Bankers Trust New York Corp.,
5.150%, 04/03/95.............................. 5,000,000 4,935,625
5.440%, 01/24/95.............................. 7,800,000 7,775,248
Chemical Bank,
6.000%, 01/23/95.............................. 250,000 249,167
6.250%, 01/03/95.............................. 656,000 656,000
CIT Group Holdings, Inc.,
5.500%, 01/17/95.............................. 11,000,000 10,976,472
Coca-Cola Enterprises, Inc.,
6.170%, 03/07/95.............................. 16,000,000 15,827,240
Corporate Asset Funding Co., Inc.,
5.500%, 01/11/95.............................. 3,000,000 2,996,333
Dean Witter, Discover & Co.,
5.970%, 02/01/95.............................. 16,000,000 15,923,053
First National Bank of Chicago,
5.180%, 02/27/95, Tranche #TR00072............ 1,000,000 999,143
5.688%, 02/22/95, Tranche #TR00087............ 5,000,000 5,000,000
Ford Motor Credit Co.,
6.070%, 01/31/95.............................. 4,335,000 4,314,534
Gateway Fuel Corp.,
5.800%, 01/20/95.............................. 1,082,000 1,079,037
General Electric Capital Corp.,
5.500%, 01/12/95.............................. 4,000,000 3,994,500
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
General Motors Acceptance Corp.,
5.740%, 01/17/95.............................. $ 16,100,000 $ 16,064,061
Greyhound Financial Corp.,
6.300%, 01/27/95.............................. 2,000,000 1,991,600
Hanson Finance, PLC,
6.280%, 03/01/95.............................. 1,000,000 990,057
Household Finance Corp.,
5.500%, 01/12/95.............................. 5,000,000 4,993,125
International Lease Finance Corp.,
6.200%, 03/20/95.............................. 5,000,000 4,934,556
ITT Corp.,
5.820%, 01/17/95.............................. 2,000,000 1,995,473
ITT Financial Corp.,
6.200%, 01/23/95.............................. 6,000,000 5,979,333
Konica Finance USA Corp.,
6.200%, 01/10/95.............................. 1,000,000 998,794
McKenna Triangle National Corp.,
6.150%, 01/17/95.............................. 100,000 99,761
Merrill Lynch & Co., Inc.,
5.750%, 01/17/95.............................. 5,000,000 4,988,819
Morgan Guaranty Trust Co.,
6.500%, 05/18/95.............................. 259,200 252,882
NationsBank Corp. of North Carolina,
5.400%, 01/23/95.............................. 11,000,000 10,967,000
Newell Co.,
6.000%, 01/05/95.............................. 8,946,000 8,943,018
Public Service Electric & Gas Co.,
6.020%, 01/10/95.............................. 8,700,000 8,689,816
Sears, Roebuck Acceptance Corp.,
6.050%, 02/06/95.............................. 10,000,000 9,942,861
Transamerica Corp.,
6.150%, 01/20/95.............................. 350,000 348,984
--------------
182,381,760
--------------
MEDIUM TERM NOTES -- 0.6%
NationsBank Corp. of Texas, M.T.N.,
6.030%, 01/31/95, Tranche #TR00023............ 5,000,000 5,000,000
PNC Bank N.A., M.T.N.,
5.150%, 02/22/95, Tranche #TR00005............ 5,000,000 5,000,033
%Xerox Credit Corp., M.T.N.,
6.800%, 06/02/95, Tranche #TR00016............ 10,000,000 10,002,050
--------------
20,002,083
--------------
PROMISSORY NOTES -- 0.1%
SRD Finance, Inc.,
6.150%, 01/12/95.............................. 3,000,000 2,995,388
Sumitomo Electric Finance U.S.A., Inc.,
6.050%, 01/26/95.............................. 2,000,000 1,992,269
--------------
4,987,657
--------------
</TABLE>

B18

<PAGE>

AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 9.5%
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. $ 330,700,000 $ 330,700,000
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 576,071,500
--------------
OTHER ASSETS -- 0.1%
(net of liabilities)........................................... 3,484,147
--------------
TOTAL NET ASSETS -- 100.0%....................................... $3,481,540,299
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt
C.D. Certificates of Deposit
CMO Collateralized Mortgage Obligations
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

**Indicates a restricted security; the aggregate cost of the restricted
securities is $63,175,092. The aggregate value, $58,625,420 is
approximately 1.7% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.

%Indicates a variable rate security.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B19

<PAGE>

HIGH YIELD BOND PORTFOLIO

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 0.7% SHARES VALUE
------------- --------------
<S> <C> <C>
BEVERAGES -- 0.0%
**+Dr. Pepper Bottling Holdings, Inc. (Class 'B'
Stock)........................................ 5,807 $ 20,325
--------------
CHEMICALS - SPECIALTY -- 0.1%
**+Thermadyne Holdings Corp. (Class 'B'
Stock)........................................ 3,787 45,444
--------------
CONTAINERS -- 0.0%
+Gaylord Container Corp. (Class 'A' Stock)...... 1,738 15,859
--------------
ELECTRONICS -- 0.2%
**+Berg Electronics Holding Corp................ 154,080 693,360
--------------
FINANCIAL SERVICES -- 0.0%
**+PM Holdings Corp............................. 1,103 0
--------------
FOODS -- 0.0%
**+Specialty Foods Acquisition Corp............. 30,000 22,500
--------------
HOUSING RELATED -- 0.0%
+U.S. Home Corp................................. 1,290 20,800
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.0%
+Total Renal Care, Inc. (Class 'B' Stock)....... 4,500 0
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.0%
**+Acme Boot, Inc............................... 1,250 0
--------------
PETROLEUM SERVICES -- 0.0%
+Mesa, Inc...................................... 6,417 31,283
--------------
RETAIL -- 0.0%
**+Loehmann's Holdings, Inc..................... 19,708 19,708
--------------
TOBACCO -- 0.4%
+RJR Nabisco Holdings Corp...................... 204,501 1,124,756
--------------
TOTAL COMMON STOCKS
(Cost $2,424,049).............................................. 1,994,035
--------------

MARKET
PREFERRED STOCKS -- 4.2% SHARES VALUE
------------- --------------
<S> <C> <C>
AIRLINES -- 0.0%
USAir Group, Inc. (Conv. Pfd.; Class 'B'
Stock)........................................ 5,000 75,625
--------------
BANKS AND SAVINGS & LOANS -- 0.4%
**Riggs National Corp., Series B................ 47,500 1,163,750
--------------
ELECTRONICS -- 0.6%
[Berg Electronics Holding Corp. (Class 'E'
Stock)........................................ 73,345 1,870,298
--------------
FINANCIAL SERVICES -- 0.2%
[SD Warren Co................................... 20,000 520,000
--------------
FOODS -- 0.1%
Pantry Pride, Inc. (Ex. Pfd.; Class 'B'
Stock)........................................ 2,950 281,725
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.3%
[FoxMeyer Health Corp. (Ex. Pfd.; Class 'A'
Stock)........................................ 7,533 241,056
[Harvard Industries, Inc. (Ex. Pfd.)............ 98,161 2,564,456
[Supermarkets General Holdings Corp. (Ex.
Pfd.)......................................... 56,670 1,246,740
--------------
4,052,252
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.0%
[+Pay 'n Pak Stores (Cum. Ex. Pfd.)............. 82,384 0
--------------
PETROLEUM-CANADIAN -- 0.1%
%+Gulf Canada Resources Ltd.,
Series 1...................................... 122,000 305,000
--------------
REAL ESTATE DEVELOPMENT -- 0.1%
[UDC Homes, Inc. (Ex. Pfd.)..................... 107,789 296,420
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
PREFERRED STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
RETAIL -- 0.9%
Color Tile, Inc................................. 10,000 $ 1,680,000
**Color Tile, Inc. (Class 'A' Stock)............ 47,500 1,187,500
Grand Union Holdings Corp. (Cum. Conv. Pfd.;
Class 'C' Stock).............................. 9,000 1,125
--------------
2,868,625
--------------
STEEL -- 0.3%
**Republic Engineered Steels, Inc............... 76,167 856,883
--------------
TELECOMMUNICATIONS -- 0.2%
Tele Communications, Inc. (Ex. Pfd.; Class 'B'
Stock)........................................ 9,900 559,350
--------------
TOTAL PREFERRED STOCKS
(Cost $16,088,791)............................................. 12,849,928
--------------
<CAPTION>

MARKET
RIGHTS AND WARRANTS -- 0.1% SHARES VALUE
------------- --------------
<S> <C> <C>
COMMUNICATIONS -- 0.0%
++Dial Call Communications, Inc. (Warrant)...... 3,793 4,741
--------------
CONTAINERS -- 0.1%
++Gaylord Container Corp. (Warrant)............. 21,259 154,128
--------------
ENVIRONMENTAL SERVICES -- 0.0%
++ICF Kaiser International, Inc. (Warrant)...... 7,200 7,200
--------------
FINANCIAL SERVICES -- 0.0%
++SD Warren Co. (Warrant)....................... 20,000 0
--------------
HEALTHCARE -- 0.0%
++Eye Care Centers of America, Inc. (Warrant)... 1,250 0
--------------
HOUSING RELATED -- 0.0%
**++J.M. Peters Co., Inc. (Warrant)............. 9,875 0
++Miles Homes, Inc. (Warrant)................... 15,000 0
++U.S. Home Corp. (Class 'B' Warrant)........... 1,056 6,072
--------------
6,072
--------------
INDUSTRIAL -- 0.0%
++United International Holdings, Inc.
(Warrant)..................................... 6,000 0
--------------
LEISURE -- 0.0%
++Casino America, Inc. (Warrant)................ 6,526 1,000
++Casino Magic Finance Corp. (Warrant).......... 10,500 525
**++Louisiana Casino Cruise, Inc. (Warrant)..... 4,200 0
**++President Riverboat Casinos, Inc.
(Warrant)..................................... 15,000 7,500
++President Riverboat Casinos, Inc. (Warrant)... 22,075 11,038
--------------
20,063
--------------
LODGING -- 0.0%
++Santa Fe Hotel, Inc. (Warrant)................ 50 0
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.0%
++Berry Plastics Corp. (Warrant)................ 1,000 15,000
**++Fitzgerald's Gaming Corp. (Warrant)......... 500 0
++Foamex - JPS Automotive, L.P. (Warrant)....... 2,000 0
++Health O Meter, Inc. (Warrant)................ 1,000 0
**++Purity Supreme (Warrant).................... 5,198 104
**++Sam Houston Race Park (Warrant)............. 4,000 100
**++Southdown, Inc. (Warrant)................... 5,000 20,000
++Uniroyal Technology Corp.(Warrant)............ 12,500 6,250
--------------
41,454
--------------
</TABLE>

B20

<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
RIGHTS AND WARRANTS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
RETAIL -- 0.0%
**++Apparel Ventures (Warrant).................. 500 $ 0
--------------
TELECOMMUNICATIONS -- 0.0%
**++Pagemart, Inc. (Warrant).................... 9,200 0
--------------
TOTAL RIGHTS AND WARRANTS
(Cost $130,633)................................................ 233,658
--------------
<CAPTION>

PAR MARKET
LONG-TERM BONDS -- 87.9% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 5.6%
American Financial Corp.,
12.000%, 09/03/99............................. $ 1,000,000 $ 1,002,500
12.000%, 09/03/99, Series A................... 500,000 501,250
GB Property Funding Corp.,
10.875%, 01/15/04............................. 1,000,000 810,000
Indah Kiat International Finance Co.,
12.500%, 06/15/06............................. 3,000,000 2,917,500
Lomas Mortgage USA, Inc.,
10.250%, 10/01/02............................. 1,250,000 1,037,500
*Mesa Capital Corp.,
Zero Coupon, 06/30/96-06/30/98................ 3,017,000 2,602,970
*PM Holdings Corp.,
Zero Coupon, 09/01/05, Series B............... 3,281,000 1,464,146
**PSF Finance, L.P.,
12.250%, 06/15/04............................. 1,000,000 1,005,000
Reliance Group Holdings, Inc.,
9.750%, 11/15/03.............................. 1,500,000 1,312,500
SD Warren Co.,
12.000%, 12/15/04............................. 1,750,000 1,789,375
Tiphook Finance Corp.,
7.125%, 05/01/98.............................. 593,000 432,890
8.000%, 03/15/00.............................. 1,940,000 1,358,000
*Transtar Holdings, L.P.,
Zero Coupon, 12/15/03, Series B............... 2,000,000 1,035,000
--------------
17,268,631
--------------
FOREIGN -- 1.1%
*Bell Cablemedia, PLC,
Zero Coupon, 07/15/04......................... 1,500,000 802,500
*Diamond Cable Communication, PLC,
Zero Coupon, 09/30/04......................... 2,000,000 980,000
**Tubos De Acero De Mexico, SA, M.T.N.,
13.750%, 12/08/99, Tranche #TR00001........... 1,000,000 955,000
*Videotron Holdings, PLC,
Zero Coupon, 07/01/04......................... 1,000,000 525,000
--------------
3,262,500
--------------
INDUSTRIAL -- 81.2%
Acme Boot, Inc.,
11.500%, 12/15/00, Series B................... 1,250,000 500,000
ACME Holdings, Inc.,
11.750%, 06/01/00............................. 2,500,000 1,050,000
Adelphia Communications Corp.,
&9.500%, 02/15/04, Series B................... 2,092,220 1,506,398
12.500%, 05/15/02............................. 1,500,000 1,402,500
Affinity Group, Inc.,
11.500%, 10/15/03............................. 1,500,000 1,432,500
American Media Operations, Inc.,
11.625%, 11/15/04............................. 1,000,000 1,025,000
*American Standard, Inc.,
Zero Coupon, 06/01/05......................... 1,250,000 803,125
Americold Corp.,
11.500%, 03/01/05, Series B................... 750,000 675,000
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
*Apparel Retailers, Inc.,
Zero Coupon, 08/15/05, Series B............... $ 5,500,000 $ 3,080,000
Apparel Ventures, Inc.,
12.250%, 12/31/00, Series B................... 500,000 447,500
Applied Extrusion Technologies, Inc.,
11.500%, 04/01/02, Series B................... 1,000,000 990,000
Arcadian Partners, L.P.,
10.750%, 05/01/05, Series B................... 2,500,000 2,350,000
Astrum International Corp.,
11.500%, 06/08/03............................. 389,000 390,945
Aztar Corp.,
11.000%, 10/01/02............................. 1,000,000 910,000
13.750%, 10/01/04............................. 1,500,000 1,522,500
Baldwin Co.,
10.375%, 08/01/03, Series B................... 1,750,000 945,000
Bally's Park Place Funding, Inc.,
9.250%, 03/15/04.............................. 2,000,000 1,720,000
*Bell & Howell Holdings Co.,
Zero Coupon, 03/01/05......................... 3,250,000 1,584,375
Berg Electronics, Inc.,
11.375%, 05/01/03............................. 1,000,000 992,500
Berry Plastics Corp.,
12.250%, 04/15/04............................. 1,000,000 965,000
Big Flower Press, Inc.,
10.750%, 08/01/03............................. 2,000,000 1,860,000
*Building Materials Corp. of America,
Zero Coupon, 07/01/04, Series B............... 3,000,000 1,530,000
Cablevision Industries Corp.,
9.250%, 04/01/08, Series B.................... 750,000 671,250
10.750%, 01/30/02............................. 1,000,000 995,000
Cablevision Systems Corp.,
9.875%, 02/15/13.............................. 1,000,000 900,000
*Call-Net Enterprises, Inc.,
Zero Coupon, 12/01/04......................... 2,000,000 1,045,000
Carrols Corp.,
11.500%, 08/15/03............................. 2,250,000 2,070,000
Casino America, Inc.,
11.500%, 11/15/01............................. 2,000,000 1,690,000
Casino Magic Finance Corp.,
11.500%, 10/15/01, Series B................... 1,750,000 1,120,000
*Cencall Communications Corp.,
Zero Coupon, 01/15/04......................... 500,000 175,000
Chancellor Broadcasting Co.,
12.500%, 10/01/04............................. 2,000,000 2,000,000
Charter Medical Corp.,
11.250%, 04/15/04, Series A................... 1,000,000 1,030,000
Chiquita Brands International, Inc.,
10.500%, 08/01/04............................. 327,000 320,460
11.500%, 06/01/01............................. 250,000 243,750
Clark R&M Holdings, Inc.,
Zero Coupon, 02/15/00, Series A............... 1,500,000 855,000
Clean Harbors, Inc.,
12.500%, 05/15/01............................. 1,000,000 957,500
CMI Industries, Inc.,
9.500%, 10/01/03.............................. 750,000 622,500
Cole National Group, Inc.,
11.250%, 10/01/01............................. 875,000 822,500
Color Tile, Inc.,
10.750%, 12/15/01............................. 2,000,000 1,760,000
Computervision Corp.,
10.875%, 08/15/97............................. 1,500,000 1,380,000
Container Corp. of America,
11.250%, 05/01/04, Series A................... 1,000,000 1,025,000
Continental Cablevision, Inc.,
9.500%, 08/01/13.............................. 1,000,000 915,000
Continental Homes Holding Corp.,
12.000%, 08/01/99............................. 1,000,000 940,000
</TABLE>

B21

<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Dairy Mart Convenience Stores, Inc.,
10.250%, 03/15/04............................. $ 750,000 $ 555,000
Dan River, Inc.,
10.125%, 12/15/03............................. 1,000,000 900,000
**&Del Monte Corp.,
12.250%, 09/01/02............................. 2,388,000 2,220,840
Di Giorgio Corp.,
12.000%, 02/15/03............................. 1,500,000 1,440,000
*Dial Call Communications, Inc.,
Zero Coupon, 04/15/04-12/15/05................ 3,250,000 1,077,500
Doehler-Jarvis, Inc.,
11.875%, 06/01/02............................. 3,000,000 2,940,000
Domtar, Inc.,
11.750%, 03/15/99............................. 1,000,000 1,027,500
12.000%, 04/15/01............................. 1,000,000 1,040,000
Engle Homes, Inc,
11.750%, 12/15/00............................. 1,000,000 920,000
Eye Care Centers of America, Inc.,
12.000%, 10/01/03............................. 1,250,000 975,000
Fairchild Corp.,
13.125%, 03/15/06............................. 655,000 563,300
Fairchild Industries, Inc.,
12.250%, 02/01/99............................. 2,480,000 2,380,800
Family Restaurants, Inc.,
*Zero Coupon, 02/01/04........................ 1,800,000 954,000
9.750%, 02/01/02.............................. 1,250,000 981,250
Farm Fresh, Inc.,
12.250%, 10/01/00............................. 1,500,000 1,300,000
Federated Department Stores,
11.290%, 06/30/02, Series B................... 250,000 252,188
***Fitzgerald's Gaming Corp.,
Zero Coupon, 03/15/96......................... 500,000 270,000
Flagstar Corp.,
10.750%, 09/15/01............................. 1,250,000 1,171,875
11.250%, 11/01/04............................. 2,567,000 2,117,775
Florida Steel Corp.,
11.500%, 12/15/00............................. 500,000 490,000
Florsheim Shoe Co.,
12.750%, 09/01/02............................. 1,000,000 970,000
Foamex, L.P.,
11.250%, 10/01/02............................. 1,500,000 1,425,000
*Foamex - JPS Automotive, L.P.,
Zero Coupon, 07/01/04, Series B............... 2,000,000 1,050,000
Food 4 Less Supermarkets, Inc.,
*Zero Coupon, 12/15/04, Series B.............. 2,500,000 1,850,000
13.750%, 06/15/01............................. 1,000,000 1,085,000
Forecast Group, L.P.,
11.375%, 12/15/00............................. 1,000,000 670,000
Forest Oil Corp.,
11.250%, 09/01/03............................. 1,500,000 1,327,500
Forstmann & Co., Inc.,
**14.750%, 04/15/99........................... 500,000 515,000
14.750%, 04/15/99............................. 1,330,000 1,383,200
Fort Howard Corp.,
14.125%, 11/01/04............................. 3,500,000 3,526,250
12.625%, 11/01/00............................. 500,000 515,000
Fresh Del Monte Produce,
10.000%, 05/01/03, Series B................... 500,000 340,000
G-I Holdings, Inc.,
Zero Coupon, 10/01/98......................... 500,000 305,000
G.U. Acquisition Corp.,
13.000%, 03/02/98............................. 1,000,000 300,000
Garden State Newspapers, Inc.,
12.000%, 07/01/04............................. 2,250,000 2,250,000
Gaylord Container Corp.,
11.500%, 05/15/01............................. 500,000 515,000
Geneva Steel, Inc.,
11.125%, 03/15/01............................. 1,000,000 940,000
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Georgia Gulf Corp.,
15.000%, 04/15/00............................. $ 500,000 $ 510,000
Gillett Holdings, Inc.,
12.250%, 06/30/02, Series A................... 1,000,000 1,057,500
Grand Casinos Resorts, Inc.,
12.500%, 02/01/00, Series B................... 1,000,000 940,000
Great Dane Holdings, Inc.,
12.750%, 08/01/01............................. 1,925,000 1,905,750
GS Technologies Operating Co.,
12.000%, 09/01/04............................. 1,750,000 1,728,125
Gulf Canada Resources Ltd.,
9.250%, 01/15/04.............................. 500,000 458,750
Harvard Industries, Inc.,
12.000%, 07/15/04............................. 1,250,000 1,259,375
Health O Meter, Inc.,
13.000%, 08/15/02............................. 1,000,000 900,000
Hills Stores Co.,
10.250%, 09/30/03............................. 500,000 465,000
Hollywood Casino Corp.,
14.000%, 04/01/98............................. 1,750,000 1,732,500
Horsehead Industries, Inc.,
14.000%, 06/01/99............................. 2,000,000 1,980,000
15.750%, 06/01/97............................. 296,000 304,880
Host Marriott Hospitality, Inc.,
9.875%, 05/01/01, Series D.................... 938,000 938,000
10.500%, 05/01/06, Series M................... 253,000 251,735
10.875%, 11/01/01, Series E................... 220,000 223,300
ICF Kaiser International, Inc.,
12.000%, 12/31/03............................. 1,500,000 1,305,000
*Imax Corp.,
7.000%, 03/01/01.............................. 1,500,000 1,252,500
Imo Industries, Inc.,
12.000%, 11/01/01............................. 1,500,000 1,513,125
12.250%, 08/15/97............................. 750,000 750,000
*Indspec Chemical Corp.,
Zero Coupon, 12/01/03, Class B................ 1,249,000 711,930
Inter-City Products Corp.,
9.750%, 03/01/00.............................. 1,750,000 1,631,875
Interlake Corp.,
12.125%, 03/01/02............................. 2,500,000 2,325,000
*Ivex Holdings Corp.,
Zero Coupon, 03/15/05, Series B............... 2,000,000 800,000
Ivex Packaging Corp.,
12.500%, 12/15/02............................. 1,250,000 1,243,750
**J B Williams Holdings, Inc.,
12.000%, 03/01/04............................. 1,000,000 935,000
J.B. Poindexter & Co.,
12.500%, 05/15/04............................. 3,250,000 3,055,000
J.M. Peters Co.,
12.750%, 05/01/02............................. 1,250,000 1,037,500
Jones Intercable, Inc.,
10.500%, 03/01/08............................. 1,250,000 1,225,000
Jordan Industries, Inc.,
*Zero Coupon, 08/01/05........................ 500,000 250,000
10.375%, 08/01/03............................. 500,000 445,000
JPS Automotive Products Corp.,
11.125%, 06/15/01............................. 500,000 480,000
JPS Textile Group, Inc.,
7.000%, 05/15/00.............................. 1,000,000 410,000
9.850%, 06/01/99.............................. 1,049,000 645,135
K & F Industries, Inc.,
11.875%, 12/01/03............................. 1,500,000 1,458,750
13.750%, 08/01/01............................. 500,000 450,000
K. Hovnanian Enterprises, Inc.,
11.250%, 04/15/02............................. 1,000,000 835,000
Kaiser Aluminum & Chemical Corp.,
12.750%, 02/01/03............................. 1,375,000 1,385,313
</TABLE>

B22

<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Kloster Cruise Ltd.,
13.000%, 05/01/03............................. $ 1,500,000 $ 1,350,000
Lady Luck Gaming Corp.,
10.500%, 03/01/01, Series B................... 1,000,000 390,000
Lamson & Sessions Co.,
14.000%, 06/01/97............................. 500,000 505,000
Laroche Industries, Inc.,
13.000%, 08/15/04............................. 1,000,000 920,000
Loehmann's Holdings, Inc.,
10.250%, 10/01/97............................. 300,000 289,500
13.750%, 02/15/99............................. 1,600,000 1,584,000
Louisiana Casino Cruises, Inc.,
11.500%, 12/01/98............................. 1,400,000 1,190,000
MacAndrews & Forbes Group, Inc.,
12.250%, 07/01/96............................. 750,000 742,500
13.000%, 03/01/99............................. 1,250,000 1,225,000
Mail-Well Corp.,
10.500%, 02/15/04............................. 2,500,000 2,175,000
Malette, Inc.,
12.250%, 07/15/04............................. 2,500,000 2,525,000
*Marcus Cable Operating Co., L.P.,
Zero Coupon, 08/01/04......................... 3,000,000 1,590,000
Marvel Holdings, Inc.,
Zero Coupon, 04/15/98, Series B............... 2,000,000 1,230,000
Maxxam Group, Inc.,
*Zero Coupon, 08/01/03........................ 2,500,000 1,425,000
11.250%, 08/01/03............................. 1,000,000 937,500
Miles Homes, Inc.,
12.000%, 04/01/01............................. 1,250,000 862,500
Moran Transportation Co.,
11.750%, 07/15/04, Series B................... 1,000,000 945,000
Motor Wheel Corp.,
11.500%, 03/01/00, Series B................... 2,500,000 2,312,500
*Neodata Services, Inc.,
Zero Coupon, 05/01/03, Series B............... 2,000,000 1,560,000
NewCity Communications, Inc.,
11.375%, 11/01/03............................. 1,500,000 1,380,000
Newflo Corp.,
13.250%, 11/15/02............................. 1,000,000 985,000
*Nextel Communications, Inc.,
Zero Coupon, 09/01/03-08/15/04................ 2,000,000 760,000
NL Industries, Inc.,
*Zero Coupon, 10/15/05........................ 2,250,000 1,395,000
11.750%, 10/15/03............................. 1,250,000 1,250,000
Nortek, Inc.,
9.875%, 03/01/04.............................. 1,750,000 1,557,500
**%Northwest Airlines, Inc,
12.092%, 12/31/00............................. 1,976,884 1,907,693
NVR, Inc.,
11.000%, 04/15/03............................. 2,000,000 1,670,000
NWCG Holdings Corp.,
Zero Coupon, 06/15/99, Series B............... 3,000,000 1,530,000
OrNda Healthcorp,
11.375%, 08/15/04............................. 1,000,000 1,025,000
12.250%, 05/15/02............................. 1,500,000 1,605,000
Outdoor Systems, Inc.,
10.750%, 08/15/03............................. 1,250,000 1,125,000
Overhead Door Co.,
12.250%, 02/01/00............................. 1,000,000 1,012,500
PA Holdings Corp.,
13.750%, 07/15/99............................. 224,000 235,200
Pagemart, Inc.,
12.250%, 11/01/03............................. 2,000,000 1,200,000
Pamida, Inc.,
11.750%, 03/15/03............................. 1,500,000 1,402,500
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Pathmark Stores, Inc.,
*Zero Coupon, 11/01/03........................ $ 2,500,000 $ 1,275,000
9.625%, 05/01/03.............................. 500,000 445,000
11.625%, 06/15/02............................. 1,000,000 960,000
Petroleum Heat & Power Company, Inc.,
9.375%, 02/01/06.............................. 500,000 425,000
10.125%, 04/01/03............................. 1,240,000 1,128,400
**PF Acquisition Corp.,
12.250%, 02/01/05............................. 1,500,000 1,500,000
Pier 1 Imports, Inc.,
11.500%, 07/15/03............................. 347,000 357,410
Pilgrim's Pride Corp.,
10.875%, 08/01/03............................. 1,750,000 1,649,375
**Polymer Group, Inc.,
12.250%, 07/15/02............................. 1,250,000 1,193,750
**President Riverboat Casinos, Inc.,
13.000%, 09/15/01............................. 2,500,000 2,200,000
Presidio Oil Co.,
11.500%, 09/15/00, Series B................... 800,000 580,000
%14.050%, 07/15/02, Series B.................. 400,000 248,000
Presley Cos.,
12.500%, 07/01/01............................. 1,750,000 1,505,000
***Pricellular Wireless Corp.,
Zero Coupon, 11/15/01......................... 1,000,000 660,000
Pueblo Xtra International, Inc.,
9.500%, 08/01/03.............................. 500,000 420,000
Purity Supreme, Inc.,
11.750%, 08/01/99, Series B................... 1,250,000 1,037,500
Ralphs Grocery Co.,
9.000%, 04/01/03, Series B.................... 1,250,000 1,212,500
***Remington Arms Co.,
9.500%, 12/01/03.............................. 1,000,000 840,000
Republic Engineered Steel, Inc.,
9.875%, 12/15/01.............................. 1,000,000 905,000
Rexene Corp.,
11.750%, 12/01/04............................. 1,000,000 1,025,000
Robin Media Group, Inc.,
11.125%, 04/01/97............................. 1,250,000 1,187,500
Rohr, Inc.,
11.625%, 05/15/03............................. 1,000,000 995,000
Ryland Group, Inc.,
9.625%, 06/01/04.............................. 1,000,000 840,000
**Sam Houston Race Park, Ltd.,
11.750%, 07/15/99............................. 1,000,000 350,000
Santa Fe Hotel, Inc.,
11.000%, 12/15/00............................. 500,000 440,000
Scott Cable Communications, Inc.,
12.250%, 04/15/01............................. 250,000 200,000
Seminole Kraft Corp.,
13.500%, 10/15/96............................. 287,000 287,000
Seven-Up/RC Bottling Co.,
11.500%, 08/01/99............................. 1,250,000 1,050,000
Showboat, Inc.,
13.000%, 08/01/09............................. 1,500,000 1,425,000
Silgan Corp.,
11.750%, 06/15/02............................. 1,000,000 1,035,000
*Silgan Holdings, Inc.,
Zero Coupon, 12/15/02......................... 2,000,000 1,680,000
Southdown, Inc.,
14.000%, 10/15/01, Series B................... 500,000 556,250
Southland Corp.,
12.000%, 06/15/09, Series C................... 500,000 490,000
Specialty Foods Acquisition Corp.,
*Zero Coupon, 08/15/05, Series B.............. 2,000,000 805,000
10.250%, 08/15/01, Series B................... 1,000,000 890,000
11.250%, 08/15/03, Series B................... 1,250,000 1,087,500
</TABLE>

B23

<PAGE>

HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
SPX Corp.,
11.750%, 06/01/02............................. $ 2,500,000 $ 2,487,500
**Star Markets, Inc.,
13.000%, 11/01/04............................. 1,000,000 1,017,500
Station Casinos, Inc.,
9.625%, 06/01/03.............................. 2,000,000 1,680,000
Stone Consolidated Corp.,
10.250%, 12/15/00............................. 650,000 640,250
Stone Container Corp.,
9.875%, 02/01/01.............................. 1,500,000 1,410,000
12.625%, 07/15/98............................. 1,500,000 1,571,250
Surgical Health Corp.,
11.500%, 07/15/04............................. 600,000 600,000
*Talley Industries, Inc.,
Zero Coupon, 10/15/05......................... 2,750,000 1,375,000
Talley Manufacturing & Technology, Inc.,
10.750%, 10/15/03............................. 500,000 450,000
Thrifty Payless, Inc.,
11.750%, 04/15/03............................. 3,000,000 2,940,000
*Total Renal Care, Inc.,
Zero Coupon, 08/15/04......................... 500,000 375,000
Triangle Pacific Corp.,
10.500%, 08/01/03............................. 2,000,000 1,915,000
Trism, Inc.,
10.750%, 12/15/00............................. 500,000 475,000
*Triton Energy Corp.,
Zero Coupon, 12/15/00......................... 2,000,000 1,492,500
Trump Plaza Funding,
10.875%, 06/15/01............................. 800,000 608,000
Trump Taj Mahal Funding, Inc.,
11.350%, 11/15/99, Series A................... 2,000,000 1,330,000
Uniroyal Technology Corp.,
11.750%, 06/01/03............................. 2,000,000 1,620,000
%Unisys Corp.,
13.500%, 07/01/97............................. 750,000 802,500
United Artists Theatre Circuit, Inc.,
11.500%, 05/01/02, Series B................... 1,000,000 1,032,500
United International Holdings, Inc.,
Zero Coupon, 11/15/99......................... 6,000,000 3,030,000
US Air, Inc.,
9.625%, 02/01/01.............................. 2,000,000 1,100,000
10.375%, 03/01/13, Series 93-A3............... 1,000,000 815,000
12.875%, 04/01/00............................. 950,000 762,375
Valcor, Inc.,
9.625%, 11/01/03.............................. 750,000 690,000
Wainoco Oil Corp.,
12.000%, 08/01/02............................. 1,500,000 1,530,000
Waters Corp.,
12.750%, 09/30/04, Series B................... 1,250,000 1,256,250
Webb Corp.,
9.000%, 02/15/06.............................. 375,000 285,000
Webcraft Technologies, Inc.,
9.375%, 02/15/02.............................. 1,500,000 1,297,500
Wheeling-Pittsburgh Corp.,
9.375%, 11/15/03.............................. 1,400,000 1,190,000
Wherehouse Entertainment, Inc.,
13.000%, 08/01/02, Series B................... 150,000 75,000
White Rose Foods, Inc.,
Zero Coupon, 11/01/98......................... 1,750,000 945,000
Wickes Lumber Co.,
11.625%, 12/15/03............................. 2,500,000 2,425,000
Williamhouse Regency, Inc.,
11.500%, 06/15/05............................. 2,000,000 1,840,000
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Young Broadcasting Corp.,
11.750%, 11/15/04............................. $ 500,000 $ 505,000
--------------
248,816,277
--------------
TOTAL LONG-TERM BONDS
(Cost $293,001,887)............................................ 269,347,408
--------------
<CAPTION>

MARKET
OTHER LONG-TERM INVESTMENTS -- 0.1% SHARES VALUE
------------- --------------
<S> <C> <C>
**+PG Partners L.P.............................. 7,541 361,968
(Cost $115,290)
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 4.7% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 14,296,000 14,296,000
--------------
OTHER ASSETS -- 2.3%
(net of liabilities)........................................... 7,141,716
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 306,224,713
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

*Denotes deferred interest security that accrues no interest until a
predetermined date at which time a specified coupon rate becomes effective.

**Indicates a restricted security; the aggregate cost of the restricted
securities is $21,440,552. The aggregate value, $19,903,619 is
approximately 6.5% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.

++Non-income producing.

%Indicates a variable rate security.

[Payment-in-kind preferred stock--dividend is paid in additional preferred
shares in lieu of cash.

&Payment-in-kind bonds--interest is paid in additional bonds in lieu of
cash.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B24

<PAGE>

STOCK INDEX PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 96.1% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 2.1%
AlliedSignal, Inc............................... 54,100 $ 1,839,400
Boeing Co....................................... 64,850 3,031,737
E-Systems, Inc.................................. 6,200 258,075
General Dynamics Corp........................... 12,100 526,350
Lockheed Corp................................... 11,900 864,237
Loral Corp...................................... 16,300 617,362
Martin Marietta Corp............................ 18,400 816,500
McDonnell Douglas Corp.......................... 7,500 1,065,000
Northrop Grumman Corp........................... 9,300 390,600
Raytheon Co..................................... 25,800 1,647,975
Rockwell International Corp..................... 41,800 1,494,350
United Technologies Corp........................ 24,200 1,521,575
--------------
14,073,161
--------------
AIRLINES -- 0.3%
+AMR Corp....................................... 14,600 777,450
Delta Air Lines, Inc............................ 9,900 499,950
Southwest Airlines Co........................... 27,100 453,925
+USAir Group, Inc............................... 10,500 45,938
--------------
1,777,263
--------------
ALUMINUM -- 0.5%
Alcan Aluminum, Ltd............................. 42,450 1,077,169
Aluminum Co. of America......................... 16,900 1,463,962
Reynolds Metals Co.............................. 12,100 592,900
--------------
3,134,031
--------------
AUTOS - CARS & TRUCKS -- 2.6%
Chrysler Corp................................... 67,800 3,322,200
Cummins Engine Co., Inc......................... 8,300 375,575
Dana Corp....................................... 18,800 439,450
Echlin, Inc..................................... 10,900 327,000
Ford Motor Co................................... 191,800 5,370,400
General Motors Corp............................. 142,700 6,029,075
Genuine Parts Co................................ 23,650 851,400
Johnson Controls, Inc........................... 7,500 367,500
+Navistar International Corp.................... 14,500 219,312
Safety Kleen Corp............................... 11,050 162,987
--------------
17,464,899
--------------
BANKS AND SAVINGS & LOANS -- 5.1%
Banc One Corp................................... 77,622 1,969,658
Bank of Boston Corp............................. 20,300 525,262
BankAmerica Corp................................ 70,548 2,786,646
Bankers Trust NY Corp........................... 15,300 847,237
Barnett Banks, Inc.............................. 18,700 717,612
Boatmen's Bancshares, Inc....................... 19,500 528,937
Chase Manhattan Corp............................ 36,501 1,254,722
Chemical Banking Corp........................... 48,382 1,735,704
Citicorp........................................ 74,100 3,065,887
CoreStates Financial Corp....................... 28,000 728,000
First Chicago Corp.............................. 17,800 849,950
First Fidelity Bancorp.......................... 15,600 700,050
First Interstate Bancorp........................ 15,500 1,048,187
First Union Corp................................ 32,500 1,344,688
Fleet Financial Group, Inc...................... 26,700 867,750
Golden West Financial Corp...................... 12,200 430,050
Great Western Financial Corp.................... 24,500 392,000
H.F. Ahmanson & Co.............................. 22,200 357,975
J.P. Morgan & Co., Inc.......................... 36,650 2,052,400
KeyCorp......................................... 47,100 1,177,500
Mellon Bank Corp................................ 27,850 852,906
NationsBank Corp................................ 52,239 2,357,285
NBD Bancorp, Inc................................ 30,425 832,884
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Norwest Corp.................................... 60,800 $ 1,421,200
PNC Bank Corp................................... 44,300 935,838
Shawmut National Corp........................... 22,300 365,163
Suntrust Banks, Inc............................. 23,100 1,103,025
U.S. Bancorp.................................... 18,900 427,613
Wachovia Corp................................... 32,400 1,044,900
Wells Fargo & Co................................ 10,400 1,508,000
--------------
34,229,029
--------------
BEVERAGES -- 3.5%
Adolph Coors Co. (Class 'B' Stock).............. 7,100 118,925
Anheuser-Busch Companies, Inc................... 49,900 2,538,663
Brown-Forman Corp. (Class 'B' Stock)............ 15,300 466,650
Coca-Cola Co.................................... 246,100 12,674,150
PepsiCo, Inc.................................... 150,800 5,466,500
Seagram Co., Ltd................................ 70,300 2,073,850
--------------
23,338,738
--------------
CHEMICALS -- 2.8%
Air Products & Chemicals, Inc................... 21,700 968,362
Dow Chemical Co................................. 52,500 3,530,625
E.I. du Pont de Nemours & Co.................... 129,700 7,295,625
Eastman Chemical Co............................. 15,900 802,950
Hercules, Inc................................... 7,800 899,925
Mallinckrodt Group, Inc......................... 14,800 442,150
Monsanto Co..................................... 22,500 1,586,250
Nalco Chemical Co............................... 12,900 432,150
Rohm & Haas Co.................................. 13,100 748,337
Sigma-Aldrich Corp.............................. 9,000 297,000
Union Carbide Corp.............................. 28,600 840,125
W.R. Grace & Co................................. 17,900 691,388
--------------
18,534,887
--------------
CHEMICALS - SPECIALTY -- 0.4%
Engelhard Corp.................................. 18,850 419,413
First Mississippi Corp.......................... 3,700 92,500
Great Lakes Chemical Corp....................... 13,700 780,900
Morton International, Inc....................... 28,100 800,850
Praxair, Inc.................................... 25,100 514,550
Raychem Corp.................................... 7,800 277,875
--------------
2,886,088
--------------
COMMERCIAL SERVICES -- 0.2%
Deluxe Corp..................................... 15,300 405,450
John H. Harland Co.............................. 5,900 118,000
Moore Corp., Ltd................................ 18,300 345,413
Ogden Corp...................................... 7,600 142,500
--------------
1,011,363
--------------
COMPUTER SERVICES -- 2.8%
Autodesk, Inc................................... 8,800 348,700
Automatic Data Processing, Inc.................. 26,700 1,561,950
+Ceridian Corp.................................. 8,200 220,375
+Cisco Systems.................................. 50,000 1,756,250
Computer Associates International, Inc.......... 31,350 1,520,475
+Computer Sciences Corp......................... 9,900 504,900
First Data Corp................................. 20,600 975,925
+Harris Computer Systems Corp................... 370 4,532
+Intergraph Corp................................ 7,600 61,750
+Lotus Development Corp......................... 9,000 369,000
+Microsoft Corp................................. 109,900 6,717,638
+Novell, Inc.................................... 70,000 1,198,750
+Oracle Systems Corp............................ 54,400 2,400,400
</TABLE>

B25

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
+Sun Microsystems, Inc.......................... 19,300 $ 685,150
+Tandem Computers, Inc.......................... 21,100 361,338
--------------
18,687,133
--------------
CONSTRUCTION -- 0.2%
Fluor Corp...................................... 15,600 672,750
Foster Wheeler Corp............................. 6,800 202,300
Kaufman & Broad Home Corp....................... 6,366 81,962
Pulte Corp...................................... 5,100 117,300
--------------
1,074,312
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 5,400 170,100
Bemis Co., Inc.................................. 10,000 240,000
+Crown Cork & Seal, Inc......................... 17,300 653,075
--------------
1,063,175
--------------
COSMETICS & SOAPS -- 2.3%
Alberto Culver Co. (Class 'B' Stock)............ 5,000 136,250
Avon Products, Inc.............................. 13,400 800,650
Clorox Co....................................... 9,900 582,862
Colgate Palmolive Co............................ 28,500 1,806,188
Gillette Co..................................... 41,900 3,132,025
International Flavors & Fragrances, Inc......... 21,000 971,250
Procter & Gamble Co............................. 130,552 8,094,224
--------------
15,523,449
--------------
DIVERSIFIED GAS -- 0.2%
Coastal Corp.................................... 19,900 512,425
Eastern Enterprises............................. 4,100 107,625
ENSERCH Corp.................................... 12,200 160,125
NICOR, Inc...................................... 10,300 234,325
ONEOK, Inc...................................... 4,600 82,800
--------------
1,097,300
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 2.3%
Alco Standard Corp.............................. 10,388 651,847
Avery Dennison Corp............................. 10,500 372,750
+COMPAQ Computer Corp........................... 49,400 1,951,300
Honeywell, Inc.................................. 24,900 784,350
International Business Machines Corp............ 111,100 8,165,850
Pitney-Bowes, Inc............................... 29,600 939,800
+Unisys Corp.................................... 31,100 268,238
Xerox Corp...................................... 20,182 1,998,018
--------------
15,132,153
--------------
DRUGS AND HOSPITAL SUPPLIES -- 7.7%
Abbott Laboratories............................. 155,000 5,056,875
Allergan, Inc................................... 12,100 341,825
+ALZA Corp...................................... 15,200 273,600
American Home Products Corp..................... 58,200 3,652,050
+Amgen, Inc..................................... 25,600 1,510,400
Bausch & Lomb, Inc.............................. 11,300 382,787
Baxter International, Inc....................... 53,600 1,514,200
Becton, Dickinson & Co.......................... 14,000 672,000
+Biomet, Inc.................................... 21,600 302,400
Bristol-Myers Squibb Co......................... 97,140 5,621,978
C.R. Bard, Inc.................................. 9,900 267,300
Eli Lilly & Co.................................. 55,800 3,661,875
Johnson & Johnson............................... 122,600 6,712,350
Medtronic, Inc.................................. 22,000 1,223,750
Merck & Co., Inc................................ 240,050 9,151,906
Pfizer, Inc..................................... 58,300 4,503,675
Schering-Plough Corp............................ 36,700 2,715,800
St. Jude Medical, Inc........................... 8,500 337,875
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
United States Surgical Corp..................... 10,500 $ 199,500
Upjohn Co....................................... 32,700 1,005,525
Warner-Lambert Co............................... 25,500 1,963,500
--------------
51,071,171
--------------
ELECTRICAL EQUIPMENT -- 0.1%
Westinghouse Electric Corp...................... 66,800 818,300
--------------
ELECTRONICS -- 4.1%
+Advanced Micro Devices, Inc.................... 17,700 440,288
Amdahl Corp..................................... 23,300 256,300
AMP, Inc........................................ 20,200 1,469,550
Apple Computer, Inc............................. 22,400 873,600
+Cray Research, Inc............................. 4,700 74,025
+Data General Corp.............................. 5,400 54,000
+Digital Equipment Corp......................... 26,400 877,800
EG&G, Inc....................................... 9,700 137,012
Emerson Electric Co............................. 42,700 2,668,750
Harris Corp..................................... 7,400 314,500
Hewlett-Packard Co.............................. 48,500 4,843,937
Intel Corp...................................... 79,800 5,097,225
Micron Technology, Inc.......................... 19,800 873,675
Motorola, Inc................................... 107,800 6,238,925
+National Semiconductor Corp.................... 23,900 466,050
Perkin-Elmer Corp............................... 8,100 207,562
Tandy Corp...................................... 12,265 614,783
Tektronix, Inc.................................. 5,600 191,800
Texas Instruments, Inc.......................... 17,500 1,310,312
Thomas & Betts Corp............................. 3,500 234,938
+Zenith Electronics Corp........................ 8,300 96,488
--------------
27,341,520
--------------
FINANCIAL SERVICES -- 2.6%
American Express Co............................. 94,200 2,778,900
Beneficial Corp................................. 9,700 378,300
Dean Witter, Discover & Co...................... 32,245 1,092,299
Federal Home Loan Mortgage Corporation.......... 34,150 1,724,575
Federal National Mortgage Association........... 51,700 3,767,637
H & R Block, Inc................................ 19,800 735,075
Household International , Inc................... 17,500 649,688
MBNA Corp....................................... 27,800 649,825
Merrill Lynch & Co., Inc........................ 39,200 1,401,400
National City Corp.............................. 28,200 729,675
Salomon, Inc.................................... 20,600 772,500
Transamerica Corp............................... 14,200 706,450
Travelers, Inc.................................. 62,031 2,016,008
--------------
17,402,332
--------------
FOODS -- 3.2%
Archer-Daniels-Midland Co....................... 98,764 2,037,007
Campbell Soup Co................................ 47,900 2,113,587
ConAgra, Inc.................................... 47,600 1,487,500
CPC International, Inc.......................... 28,200 1,501,650
Fleming Companies, Inc.......................... 6,700 155,775
General Mills, Inc.............................. 30,000 1,710,000
Giant Food, Inc. (Class 'A' Stock).............. 10,900 237,075
H.J. Heinz & Co................................. 47,100 1,730,925
Hershey Foods Corp.............................. 16,300 788,513
Kellogg Co...................................... 42,500 2,470,313
Pet, Inc........................................ 19,900 393,025
Pioneer Hi-Bred International, Inc.............. 16,600 572,700
Quaker Oats Co.................................. 26,000 799,500
Ralston-Ralston Purina Group.................... 19,240 858,585
Sara Lee Corp................................... 91,000 2,297,750
</TABLE>

B26

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Sysco Corp...................................... 34,800 $ 896,100
W. M. Wrigley, Jr. Co........................... 22,300 1,101,063
--------------
21,151,068
--------------
FOREST PRODUCTS -- 1.8%
Boise Cascade Corp.............................. 7,686 205,600
Champion International Corp..................... 17,900 653,350
Federal Paper Board Co., Inc.................... 8,500 246,500
Georgia-Pacific Corp............................ 17,200 1,229,800
International Paper Co.......................... 23,600 1,778,850
James River Corp. of Virginia................... 15,900 321,975
Kimberly-Clark Corp............................. 31,000 1,565,500
Louisiana Pacific Corp.......................... 21,000 572,250
Mead Corp....................................... 11,100 539,737
Potlatch Corp................................... 5,800 216,050
Scott Paper Co.................................. 14,100 974,663
Stone Container Corp............................ 17,066 294,388
Temple Inland, Inc.............................. 10,500 473,813
Union Camp Corp................................. 13,100 617,338
Westvaco Corp................................... 12,400 486,700
Weyerhaeuser Co................................. 39,300 1,473,750
--------------
11,650,264
--------------
GAS PIPELINES -- 0.6%
+Columbia Gas System, Inc....................... 9,500 223,250
Consolidated Natural Gas Co..................... 17,900 635,450
Enron Corp...................................... 47,400 1,445,700
NorAm Energy Corp............................... 21,100 113,413
Panhandle Eastern Corp.......................... 22,990 454,053
Peoples Energy Corp............................. 6,400 167,200
Transco Energy Co............................... 7,600 126,350
Williams Companies, Inc......................... 19,900 499,987
--------------
3,665,403
--------------
HOSPITAL MANAGEMENT -- 0.6%
+Beverly Enterprises, Inc....................... 17,000 244,375
Columbia / HCA Healthcare Corp.................. 68,132 2,486,818
Community Psychiatric Centers................... 6,900 75,900
Manor Care, Inc................................. 11,850 324,394
National Medical Enterprises, Inc............... 30,600 432,225
Service Corp. International..................... 17,800 493,950
Shared Medical Systems Corp..................... 4,700 153,925
--------------
4,211,587
--------------
HOUSING RELATED -- 0.6%
Armstrong World Industries, Inc................. 7,100 273,350
Centex Corp..................................... 6,000 136,500
Fleetwood Enterprises, Inc...................... 8,700 163,125
Lowe's Companies, Inc........................... 30,000 1,042,500
Masco Corp...................................... 29,300 662,913
Maytag Corp..................................... 19,500 292,500
+Owens-Corning Fiberglas Corp................... 8,600 275,200
Skyline Corp.................................... 1,000 19,250
Stanley Works................................... 9,000 321,750
Whirlpool Corp.................................. 14,200 713,550
--------------
3,900,638
--------------
INSURANCE -- 3.1%
Aetna Life & Casualty Co........................ 21,500 1,013,187
Alexander & Alexander Services, Inc............. 8,500 157,250
American General Corp........................... 40,400 1,141,300
American International Group, Inc............... 60,225 5,902,050
Chubb Corp...................................... 16,800 1,299,900
CIGNA Corp...................................... 13,700 871,662
Continental Corp................................ 10,600 201,400
General Re Corp................................. 15,750 1,949,062
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Jefferson-Pilot Corp............................ 9,650 $ 500,594
Lincoln National Corp........................... 17,800 623,000
Marsh & McLennan Companies, Inc................. 13,800 1,093,650
Providian Corp.................................. 18,500 571,188
SAFECO Corp..................................... 11,700 608,400
St. Paul Companies, Inc......................... 16,000 716,000
Torchmark Corp.................................. 13,900 484,763
U.S. Healthcare, Inc............................ 30,500 1,258,125
United Healthcare Corp.......................... 32,700 1,475,587
UNUM Corp....................................... 14,500 547,375
USF&G Corp...................................... 14,900 203,013
USLIFE Corp..................................... 4,100 142,987
--------------
20,760,493
--------------
LEISURE -- 1.0%
+Bally Entertainment Corp....................... 7,200 44,100
Brunswick Corp.................................. 18,300 345,412
Handleman Co.................................... 5,850 66,544
Hasbro, Inc..................................... 16,500 482,625
+King World Productions, Inc.................... 6,650 229,425
Mattel, Inc..................................... 34,356 863,195
Outboard Marine Corp............................ 3,900 76,537
Walt Disney Co.................................. 102,200 4,713,975
--------------
6,821,813
--------------
LODGING -- 0.3%
Hilton Hotels Corp.............................. 9,400 633,325
Marriott International, Inc..................... 23,700 666,563
+Promus Companies, Inc.......................... 19,950 618,450
--------------
1,918,338
--------------
MACHINERY -- 1.2%
Briggs & Stratton Corp.......................... 5,200 170,300
Caterpillar, Inc................................ 38,500 2,122,312
Cincinnati Milacron, Inc........................ 6,900 163,013
+Clark Equipment Co............................. 3,200 173,600
Cooper Industries, Inc.......................... 22,100 754,162
Deere & Co...................................... 16,500 1,093,125
Dover Corp...................................... 10,700 552,387
Eaton Corp...................................... 14,900 737,550
Giddings & Lewis, Inc........................... 6,900 101,775
+Giddings & Lewis, Inc. (Contingent Payment
Right)........................................ 1,000 0
Harnischfeger Industries, Inc................... 8,400 236,250
Ingersoll-Rand Co............................... 19,700 620,550
PACCAR, Inc..................................... 7,130 315,503
Parker-Hannifin Corp............................ 9,300 423,150
Snap-On Inc..................................... 8,000 266,000
SPX Corp........................................ 1,500 24,938
Timken Co....................................... 6,400 225,600
+Varity Corp.................................... 8,810 319,363
--------------
8,299,578
--------------
MEDIA -- 3.0%
Capital Cities/ABC, Inc......................... 29,800 2,540,450
CBS, Inc........................................ 12,150 672,806
Comcast Corp. (Special Class 'A' Stock)......... 44,400 696,525
Dow Jones & Co., Inc............................ 18,300 567,300
Dun & Bradstreet Corp........................... 32,760 1,801,800
Gannett Co., Inc................................ 27,800 1,480,350
Interpublic Group of Companies, Inc............. 14,400 462,600
Knight-Ridder, Inc.............................. 9,900 499,950
McGraw-Hill, Inc................................ 9,400 628,625
Meredith Corp................................... 2,900 135,213
</TABLE>

B27

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
New York Times Co. (Class 'A' Stock)............ 19,800 $ 438,075
R. R. Donnelley & Sons Co....................... 29,500 870,250
+Tele-Communications, Inc. (Class 'A' Stock).... 109,900 2,390,325
Time Warner, Inc................................ 71,940 2,526,893
Times Mirror Co. (Class 'A' Stock).............. 24,000 753,000
Tribune Co...................................... 12,500 684,375
+Viacom, Inc. (Class 'B' Stock)................. 66,367 2,696,159
--------------
19,844,696
--------------
MINERAL RESOURCES -- 1.1%
American Barrick Resources Corp................. 67,100 1,492,975
ASARCO, Inc..................................... 8,700 247,950
Burlington Resources, Inc....................... 24,600 861,000
Cyprus Amax Minerals Co......................... 17,600 459,800
Echo Bay Mines, Ltd............................. 21,800 231,625
Homestake Mining Co............................. 26,300 450,388
Inco, Ltd....................................... 22,200 635,475
Newmont Mining Corp............................. 16,100 579,600
Phelps Dodge Corp............................... 13,300 822,937
Pittston Services Group......................... 7,300 193,450
Placer Dome, Inc................................ 45,800 996,150
+Sante Fe Pacific Gold Corp..................... 46,916 604,044
--------------
7,575,394
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 4.5%
Bassett Furniture Industries, Inc............... 2,612 74,442
Browning-Ferris Industries, Inc................. 37,400 1,061,225
Crane Co........................................ 5,500 147,813
Ecolab, Inc..................................... 12,000 252,000
+FMC Corp....................................... 6,900 398,475
General Electric Co............................. 326,400 16,646,400
General Signal Corp............................. 9,262 295,226
Illinois Tool Works, Inc........................ 21,400 936,250
ITT Corp........................................ 22,400 1,985,200
+JWP, Inc....................................... 4,200 0
Millipore Corp.................................. 5,500 266,062
Morrison Knudsen Corp........................... 5,800 73,950
NACCO Industries, Inc. (Class 'A' Stock)........ 1,600 77,400
Pall Corp....................................... 21,900 410,625
PPG Industries, Inc............................. 40,400 1,499,850
Rollins Environmental Services, Inc............. 9,400 45,825
Teledyne, Inc................................... 10,300 207,287
Textron, Inc.................................... 17,100 861,412
Trinova Corp.................................... 5,600 164,500
TRW, Inc........................................ 12,300 811,800
Tyco International, Ltd......................... 14,300 679,250
W.W. Grainger, Inc.............................. 9,500 548,625
WMX Technologies, Inc........................... 91,700 2,407,125
Zurn Industries, Inc............................ 2,000 36,000
--------------
29,886,742
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 2.3%
American Greetings Corp. (Class 'A' Stock)...... 13,800 372,600
Black & Decker Corp............................. 16,500 391,875
Corning, Inc.................................... 42,400 1,266,700
Dial Corp....................................... 17,600 374,000
Eastman Kodak Co................................ 63,300 3,022,575
Jostens, Inc.................................... 8,100 150,863
Minnesota Mining & Manufacturing Co............. 80,500 4,296,687
+National Education Corp........................ 2,700 11,138
Polaroid Corp................................... 9,500 308,750
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Premark International, Inc...................... 12,300 $ 538,125
Rubbermaid, Inc................................. 30,800 885,500
Unilever N.V., ADR.............................. 30,400 3,541,600
Whitman Corp.................................... 19,700 339,825
--------------
15,500,238
--------------
PETROLEUM -- 8.8%
Amerada Hess Corp............................... 17,500 798,438
Amoco Corp...................................... 94,730 5,600,911
Ashland Oil, Inc................................ 11,600 400,200
Atlantic Richfield Co........................... 30,485 3,101,848
Chevron Corp.................................... 123,900 5,529,037
Exxon Corp...................................... 236,800 14,385,600
Kerr-McGee Corp................................. 9,900 455,400
Louisiana Land & Exploration Co................. 6,500 236,438
+Maxus Energy Corp.............................. 23,000 77,625
Mobil Corp...................................... 75,800 6,386,150
Occidental Petroleum Corp....................... 59,700 1,149,225
Pennzoil Co..................................... 9,100 401,538
Phillips Petroleum Co........................... 49,700 1,627,675
Royal Dutch Petroleum Co........................ 102,000 10,965,000
Santa Fe Energy Resources, Inc.................. 15,970 127,760
Sun Co., Inc.................................... 21,000 603,750
Tenneco, Inc.................................... 32,700 1,389,750
Texaco, Inc..................................... 49,600 2,969,800
Unocal Corp..................................... 46,300 1,261,675
USX-Marathon Group.............................. 54,800 897,350
--------------
58,365,170
--------------
PETROLEUM SERVICES -- 0.9%
Baker Hughes, Inc............................... 26,700 487,275
Dresser Industries, Inc......................... 35,000 660,625
Halliburton Co.................................. 21,800 722,125
Helmerich & Payne, Inc.......................... 5,100 130,687
McDermott International, Inc.................... 9,700 240,075
Oryx Energy Co.................................. 18,600 220,875
+Rowan Companies, Inc........................... 15,200 93,100
Schlumberger, Ltd............................... 46,600 2,347,475
Sonat, Inc...................................... 16,000 448,000
+Western Atlas, Inc............................. 9,700 364,963
--------------
5,715,200
--------------
RAILROADS -- 1.0%
Burlington Northern, Inc........................ 17,300 832,562
Conrail Inc..................................... 15,100 762,550
CSX Corp........................................ 19,856 1,382,474
Norfolk Southern Corp........................... 25,800 1,564,125
Santa Fe Pacific Corp........................... 36,260 634,550
Union Pacific Corp.............................. 39,300 1,793,063
--------------
6,969,324
--------------
RESTAURANTS -- 0.7%
Luby's Cafeterias, Inc.......................... 4,550 101,806
McDonald's Corp................................. 133,800 3,913,650
+Ryan's Family Steak Houses, Inc................ 8,500 63,750
+Shoney's, Inc.................................. 7,900 100,725
Wendy's International, Inc...................... 19,700 283,188
--------------
4,463,119
--------------
RETAIL -- 5.9%
Albertson's, Inc................................ 48,300 1,400,700
American Stores Co.............................. 27,600 741,750
Brown Group, Inc................................ 3,000 96,000
Bruno's, Inc.................................... 13,700 114,737
Charming Shoppes, Inc........................... 18,300 121,237
Circuit City Stores, Inc........................ 18,700 416,075
</TABLE>

B28

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Dayton Hudson Corp.............................. 13,614 $ 963,190
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 21,950 587,163
Great Atlantic & Pacific Tea Co., Inc........... 7,000 126,875
Hartcourt General, Inc.......................... 15,406 543,062
+Hartmarx Corp.................................. 2,600 15,275
Home Depot, Inc................................. 85,749 3,944,454
J.C. Penney Co., Inc............................ 44,700 1,994,737
K mart Corp..................................... 85,700 1,114,100
+Kroger Co...................................... 22,100 533,163
Liz Claiborne, Inc.............................. 15,600 263,250
Longs Drug Stores, Inc.......................... 3,600 114,300
May Department Stores Co........................ 47,300 1,596,375
Melville Corp................................... 20,200 623,675
Mercantile Stores Co., Inc...................... 7,100 280,450
Newell Co....................................... 30,000 630,000
Nike, Inc. (Class 'B' Stock).................... 14,100 1,052,212
Nordstrom, Inc.................................. 15,400 646,800
Oshkosh B' Gosh, Inc. (Class 'A' Stock)......... 1,900 26,600
Pep Boys-Manny, Moe & Jack...................... 11,700 362,700
+Price/Costco, Inc.............................. 42,566 548,037
Reebok International, Ltd....................... 15,600 616,200
Rite Aid Corp................................... 17,100 399,713
Sears, Roebuck & Co............................. 66,900 3,077,400
Sherwin-Williams Co............................. 16,200 536,625
Stride Rite Corp................................ 9,400 104,575
Supervalu, Inc.................................. 13,700 335,650
The Gap, Inc.................................... 27,300 832,650
The Limited, Inc................................ 68,700 1,245,187
TJX Companies, Inc.............................. 14,300 223,438
+Toys 'R' Us, Inc............................... 54,850 1,672,925
Wal-Mart Stores, Inc............................ 438,600 9,320,250
Walgreen Co..................................... 23,700 1,036,875
Winn Dixie Stores, Inc.......................... 14,300 734,663
Woolworth Corp.................................. 24,400 366,000
--------------
39,359,068
--------------
RUBBER -- 0.2%
B.F. Goodrich Co................................ 4,700 203,863
Cooper Tire & Rubber Co......................... 16,200 382,725
Goodyear Tire & Rubber Co....................... 28,900 971,762
--------------
1,558,350
--------------
STEEL -- 0.4%
+Armco, Inc..................................... 19,500 129,188
+Bethlehem Steel Corp........................... 21,000 378,000
+Inland Steel Industries, Inc................... 8,900 312,612
Nucor Corp...................................... 16,600 921,300
USX-U.S. Steel Group............................ 14,140 501,970
Worthington Industries, Inc..................... 17,300 346,000
--------------
2,589,070
--------------
TELECOMMUNICATIONS -- 4.5%
+Airtouch Communications........................ 94,200 2,743,575
Alltel Corp..................................... 30,000 903,750
Ameritech Corp.................................. 104,600 4,223,225
+Andrew Corp.................................... 4,900 256,025
AT&T Corporation................................ 299,173 15,033,443
+DSC Communications Corp........................ 21,200 760,550
+M/A-Com, Inc................................... 2,300 16,675
MCI Communications Corp......................... 123,300 2,265,638
Northern Telecom, Ltd........................... 48,000 1,602,000
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Scientific-Atlanta, Inc......................... 14,500 $ 304,500
Sprint Corp..................................... 65,400 1,806,675
--------------
29,916,056
--------------
TEXTILES -- 0.2%
National Service Industries, Inc................ 9,500 243,438
Russell Corp.................................... 7,200 225,900
Springs Industries, Inc......................... 3,700 136,900
V.F. Corp....................................... 12,018 584,375
--------------
1,190,613
--------------
TOBACCO -- 1.9%
American Brands, Inc............................ 39,000 1,462,500
Philip Morris Companies, Inc.................... 166,100 9,550,750
+RJR Nabisco Holdings Corp...................... 62,557 344,063
UST, Inc........................................ 38,600 1,071,150
--------------
12,428,463
--------------
TRUCKING/SHIPPING -- 0.3%
Consolidated Freightways, Inc................... 6,500 145,438
+Federal Express Corp........................... 10,400 626,600
Roadway Services, Inc........................... 7,600 431,300
Ryder System, Inc............................... 14,600 321,200
Yellow Corp..................................... 6,000 143,250
--------------
1,667,788
--------------
UTILITY - COMMUNICATIONS -- 4.2%
Bell Atlantic Corp.............................. 83,100 4,134,225
BellSouth Corp.................................. 94,400 5,109,400
GTE Corp........................................ 182,620 5,547,083
NYNEX Corp...................................... 79,800 2,932,650
Pacific Telesis Group........................... 80,500 2,294,250
Southwestern Bell Corp.......................... 115,000 4,643,125
U S West, Inc................................... 86,800 3,092,250
--------------
27,752,983
--------------
UTILITY - ELECTRIC -- 3.8%
American Electric Power Co., Inc................ 35,300 1,160,487
Baltimore Gas & Electric Co..................... 27,650 611,756
Carolina Power & Light Co....................... 30,500 812,062
Central & South West Corp....................... 36,400 823,550
CINergy Corp.................................... 27,739 648,399
Consolidated Edison Co. of NY, Inc.............. 44,900 1,156,175
Detroit Edison Co............................... 28,300 739,337
Dominion Resources, Inc......................... 32,050 1,145,788
Duke Power Co................................... 39,200 1,494,500
Entergy Corp.................................... 42,900 938,438
FPL Group, Inc.................................. 35,900 1,260,987
Houston Industries, Inc......................... 24,700 879,938
Niagara Mohawk Power Corp....................... 26,200 373,350
Northern States Power Co........................ 12,900 567,600
Ohio Edison Co.................................. 28,200 521,700
Pacific Enterprises............................. 15,700 333,625
Pacific Gas & Electric Co....................... 82,600 2,013,375
PacifiCorp...................................... 54,200 982,375
PECO Energy Co.................................. 42,500 1,041,250
Public Service Enterprise Group, Inc............ 47,100 1,248,150
SCEcorp......................................... 84,800 1,240,200
Southern Co..................................... 124,300 2,486,000
Texas Utilities Co.............................. 42,829 1,370,528
Unicom Corp..................................... 41,000 984,000
Union Electric Company.......................... 19,600 693,350
--------------
25,526,920
--------------
TOTAL COMMON STOCKS
(Cost $557,376,390)............................................ 638,348,680
--------------
</TABLE>

B29

<PAGE>

STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 4.1% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 3.9%
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. $ 25,939,000 $ 25,939,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
United States Treasury Bills,
/5.590%, 03/16/95............................ 100,000 98,882
/5.640%, 03/16/95............................ 1,200,000 1,186,464
--------------
1,285,346
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 27,224,346
--------------
##VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- 0.0%............... (178,025)
--------------
LIABILITIES -- (0.2%)
(net of other assets).......................................... (860,794)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 664,534,207
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt

+No dividend was paid on this security during the 12 months ending December
31, 1994.

/Entire amount pledged as collateral for futures transactions (See Note 2).

##Open futures contracts as of December 31, 1994 are as follows:

PAR VALUE
COVERED BY CONTRACT TYPE EXPIRATION DATE VALUE OF CONTRACTS
$24,628,425 S&P 500 Index Futures Mar 95 $25,143,575
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B30

<PAGE>

HIGH DIVIDEND STOCK PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 67.8% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 5.1%
E-Systems, Inc.................................. 78,900 $ 3,284,212
Northrop Grumman Corp........................... 379,200 15,926,400
Rockwell International Corp..................... 127,400 4,554,550
Thiokol Corp.................................... 706,600 19,696,475
--------------
43,461,637
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Chrysler Corp................................... 106,100 5,198,900
General Motors Corp............................. 106,100 4,482,725
--------------
9,681,625
--------------
BANKS AND SAVINGS & LOANS -- 0.1%
First Fidelity Bancorp.......................... 12,300 551,963
--------------
COMPUTER SERVICES -- 0.7%
+Intergraph Corp................................ 760,900 6,182,313
--------------
DIVERSIFIED GAS -- 2.3%
British Gas, PLC, ADR........................... 225,600 10,998,000
Equitable Resources, Inc........................ 83,550 2,266,293
Sonat Offshore Drilling, Inc.................... 311,200 5,523,800
Yankee Energy Systems, Inc...................... 30,400 661,200
--------------
19,449,293
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 3.1%
International Business Machines Corp............ 279,600 20,550,600
United Stationers, Inc.......................... 429,800 5,694,850
--------------
26,245,450
--------------
DRUGS AND HOSPITAL SUPPLIES -- 0.8%
Baxter International, Inc....................... 254,000 7,175,500
--------------
ELECTRICAL EQUIPMENT -- 1.6%
Westinghouse Electric Corp...................... 1,105,600 13,543,600
--------------
ELECTRONICS -- 1.6%
+Digital Equipment Corp......................... 62,600 2,081,450
+IMO Industries, Inc............................ 411,200 5,140,000
Kollmorgen Corp................................. 4,600 26,450
Newport Corp.................................... 316,400 2,452,100
Pacific Scientific Co........................... 101,500 4,110,750
--------------
13,810,750
--------------
FINANCIAL SERVICES -- 5.5%
A.G. Edwards, Inc............................... 425,100 7,651,800
Alex Brown, Inc................................. 118,700 3,605,513
Bear Stearns Companies, Inc..................... 560,000 8,610,000
Carr Realty Corp................................ 22,100 397,800
Legg Mason, Inc................................. 89,300 1,897,625
Lehman Brothers Holdings, Inc................... 1,124,100 16,580,475
Manufactured Home Communities, Inc.............. 137,100 2,724,863
Property Trust of America....................... 347,771 6,259,877
--------------
47,727,953
--------------
GAS PIPELINES -- 2.1%
Panhandle Eastern Corp.......................... 421,700 8,328,575
TransCanada Pipelines, Ltd...................... 442,700 5,367,738
Transco Energy Co............................... 183,500 3,050,687
Williams Companies, Inc......................... 42,000 1,055,250
--------------
17,802,250
--------------
HOUSING RELATED -- 0.8%
Irvine Apartment Communities, Inc............... 400,000 6,550,000
--------------
INSURANCE -- 7.3%
Aetna Life & Casualty Co........................ 161,600 7,615,400
Alexander & Alexander Services, Inc............. 812,000 15,022,000
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Continental Corp................................ 822,300 $ 15,623,700
Jefferson-Pilot Corp............................ 51,600 2,676,750
Lincoln National Corp........................... 168,800 5,908,000
Ohio Casualty Corp.............................. 97,600 2,757,200
SAFECO Corp..................................... 159,200 8,278,400
Selective Insurance Group, Inc.................. 208,400 5,262,100
--------------
63,143,550
--------------
MACHINERY -- 0.7%
+Esterline Technologies Corp.................... 298,800 4,108,500
+Terex Corp..................................... 278,600 1,950,200
--------------
6,058,700
--------------
MINERAL RESOURCES -- 0.4%
Potash Corp. of Saskatchewan, Inc............... 113,300 3,852,200
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
+Moog, Inc. (Class 'A' Stock)................... 7,700 71,225
Morrison Knudsen Corp........................... 546,000 6,961,500
+Tubos De Acero De Mexico, ADR.................. 59,500 278,906
--------------
7,311,631
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6%
Pulitzer Publishing Co.......................... 132,800 5,328,600
--------------
PETROLEUM -- 7.8%
Elf Aquitaine, ADR.............................. 385,979 13,605,760
KN Energy, Inc.................................. 261,900 6,220,125
Mobil Corp...................................... 36,700 3,091,975
Occidental Petroleum Corp....................... 445,100 8,568,175
Petroleum Heat and Power Co., Inc. (Class 'A'
Stock)........................................ 49,800 460,650
Quaker State Corp............................... 652,800 9,139,200
Sun Co., Inc.................................... 150,100 4,315,375
Tenneco, Inc.................................... 258,700 10,994,750
Texaco, Inc..................................... 47,200 2,826,100
USX-Marathon Group.............................. 498,600 8,164,575
--------------
67,386,685
--------------
PETROLEUM SERVICES -- 8.3%
Baker Hughes, Inc............................... 601,300 10,973,725
**+Crestar Energy, Inc.......................... 200,000 2,067,367
Dresser Industries, Inc......................... 576,400 10,879,550
Halliburton Co.................................. 480,000 15,900,000
McDermott International, Inc.................... 782,400 19,364,400
+Smith International Inc........................ 102,300 1,278,750
Sonat, Inc...................................... 144,400 4,043,200
+Varco International, Inc....................... 1,056,300 6,601,875
--------------
71,108,867
--------------
REAL ESTATE DEVELOPMENT -- 8.7%
Amli Residential Properties Trust............... 208,300 3,905,625
Avalon Properties, Inc.......................... 265,000 6,095,000
Beacon Properties Corp.......................... 184,800 3,511,200
Crescent Real Estate Equities, Inc.............. 251,000 6,808,375
Equity Residential Properties Trust............. 686,000 20,580,000
First Union Real Estate Investments............. 130,500 864,563
Gables Residential Trust........................ 345,800 7,434,700
Glimcher Realty Trust........................... 300,000 6,562,500
JP Realty, Inc.................................. 84,000 1,764,000
Kimco Realty Corp............................... 37,500 1,420,312
Malan Realty Investors, Inc..................... 140,000 1,872,500
Simon Property Group, Inc....................... 214,300 5,196,775
Vornado Realty Trust............................ 175,400 6,292,475
Weingarten Realty Investors..................... 62,500 2,367,187
--------------
74,675,212
--------------
</TABLE>

B31

<PAGE>

HIGH DIVIDEND STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
RETAIL -- 0.8%
Bradlees, Inc................................... 900 $ 10,463
K mart Corp..................................... 160,000 2,080,000
May Department Stores Co........................ 150,000 5,062,500
--------------
7,152,963
--------------
STEEL -- 0.8%
USX-U.S. Steel Group............................ 187,600 6,659,800
--------------
TELECOMMUNICATIONS -- 3.3%
Ameritech Corp.................................. 12,800 516,800
Telefonos de Mexico (Class 'L' Stock), ADR...... 682,200 27,970,200
--------------
28,487,000
--------------
UTILITY - COMMUNICATIONS -- 0.9%
BellSouth Corp.................................. 80,000 4,330,000
NYNEX Corp...................................... 73,300 2,693,775
U S West, Inc................................... 14,800 527,250
--------------
7,551,025
--------------
UTILITY - ELECTRIC -- 2.5%
Central & South West Corp....................... 63,000 1,425,375
Central Hudson Gas & Electric Corp., Inc........ 34,400 911,600
Central Louisiana Electric Co................... 54,500 1,287,563
CINergy Corp.................................... 343,728 8,034,642
Entergy Corp.................................... 217,200 4,751,250
NIPSCO Industries, Inc.......................... 91,000 2,707,250
SCEcorp......................................... 182,000 2,661,750
--------------
21,779,430
--------------
TOTAL COMMON STOCKS
(Cost $583,122,780)............................................ 582,677,997
--------------
<CAPTION>

MARKET
PREFERRED STOCKS -- 16.4% SHARES VALUE
------------- --------------
<S> <C> <C>
ALUMINUM -- 1.3%
Kaiser Aluminum Corp. (Conv. Pfd.).............. 363,500 3,862,187
Reynolds Metals Co. (Conv. Pfd.)................ 147,700 7,144,988
--------------
11,007,175
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Ford Motor Co. (Cum. Conv. Pfd.), Series A...... 127,000 11,684,000
--------------
DRUGS & HOSPITAL SUPPLIES -- 0.6%
U.S. Surgical Corp. (Conv. Pfd.)................ 224,400 5,161,200
--------------
ELECTRICAL EQUIPMENT -- 2.3%
**Westinghouse Electric Corp. (Conv. Pfd.)...... 1,457,000 19,487,375
--------------
ELECTRONICS -- 2.0%
Advanced Micro Devices, Inc. (Conv. Ex. Pfd.)... 160,000 8,400,000
National Semiconductor Corp. (Conv. Pfd.)....... 125,000 9,062,500
--------------
17,462,500
--------------
FINANCIAL SERVICES -- 0.8%
**Parker & Parsley Capital, LLC (Conv. Pfd.).... 135,000 6,210,000
Property Trust of America (Conv. Pfd.), Series
A............................................. 54,500 1,199,000
--------------
7,409,000
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
PREFERRED STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 1.1%
Bowater, Inc. (Conv. Pfd.), Series B............ 161,100 $ 3,967,088
James River Corp. of Virginia (Cum. Conv. Ex.
Pfd.), Series P............................... 268,300 5,433,075
--------------
9,400,163
--------------
INSURANCE -- 0.7%
**Alexander & Alexander Services, Inc. (Conv
Pfd.), Series A............................... 100,000 4,000,000
**Unocal Corp. (Conv. Pfd.)..................... 35,000 1,754,375
USF&G Corp. (Conv. Ex. Pfd.), Series A.......... 10,900 493,225
--------------
6,247,600
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.7%
Echo Bay Finance Corp. (Conv. Pfd.), Series A... 100,000 3,287,500
Hecla Mining Co. (Conv. Pfd.), Series B......... 60,000 2,805,000
--------------
6,092,500
--------------
PETROLEUM SERVICES -- 1.0%
McDermott International, Inc. (Conv. Pfd.),
Series C...................................... 100,000 4,137,500
Noble Drilling Corp. (Conv. Pfd.)............... 90,000 1,822,500
Reading & Bates Corp. (Conv. Pfd.).............. 134,800 2,780,250
--------------
8,740,250
--------------
STEEL -- 2.3%
**Bethlehem Steel Corp. (Cum. Conv. Pfd.)....... 300,000 14,700,000
USX Corp. (Cum. Conv. Pfd.)..................... 114,600 5,128,350
--------------
19,828,350
--------------
TOBACCO -- 2.1%
RJR Nabisco Holdings Corp. (Conv. Pfd.), Series
C............................................. 2,955,000 17,730,000
--------------
UTILITY - ELECTRIC -- 0.1%
Gulf States Utilities Co........................ 900 51,075
Gulf States Utilities Co. (Preferred Series
A)............................................ 4,392 432,612
--------------
483,687
--------------
TOTAL PREFERRED STOCKS
(Cost $151,254,542)............................................ 140,733,800
--------------
<CAPTION>

MARKET
RIGHTS AND WARRANTS -- 0.0% SHARES VALUE
------------- --------------
<S> <C> <C>
MACHINERY
**++Terex Corp. (Rights)........................ 16,950 0
--------------
(Cost $0)
<CAPTION>

PAR MARKET
CONVERTIBLE BONDS -- 4.5% VALUE VALUE
------------- --------------
<S> <C> <C>
INDUSTRIAL
Coeur D'Alene Mines, Corp.,
7.000%, 11/30/02.............................. $ 3,000,000 $ 3,375,000
Conner Peripherals, Inc.,
6.750%, 03/01/01.............................. 1,980,000 1,366,200
Cross Timbers Oil Co.,
5.250%, 11/01/03.............................. 2,583,000 2,095,459
**Cypress Semiconductor Corp.,
3.150%, 03/15/01.............................. 1,335,000 1,229,869
</TABLE>

B32

<PAGE>

HIGH DIVIDEND STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
CONVERTIBLE BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
IMC Global, Inc.,
6.250%, 12/01/01.............................. $ 4,500,000 $ 4,162,500
Malan Realty Investors, Inc.,
9.500%, 07/15/04.............................. 3,000,000 2,576,250
Noble Affiliates, Inc.,
4.250%, 11/01/03.............................. 11,701,000 9,945,850
Oryx Energy Co.,
7.500%, 05/15/14.............................. 2,000,000 1,385,000
Quantum Corp.,
6.375%, 04/01/02.............................. 5,250,000 5,118,750
Seagate Technology,
**5.000%, 11/01/03............................ 4,200,000 4,326,000
6.750%, 05/01/12.............................. 3,070,000 2,548,100
VLSI Technology, Inc.,
7.000%, 05/01/12.............................. 1,054,000 901,170
--------------
TOTAL CONVERTIBLE BONDS
(Cost $41,994,290)............................................. 39,030,148
--------------
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 2.5% VALUE VALUE
------------- --------------
<S> <C> <C>
INDUSTRIAL -- 0.5%
**Terex Corp.,
13.000%, 08/01/96............................. 4,583,000 4,376,765
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 2.0%
United States Treasury Notes,
7.500%, 10/31/99, Series 1999................. 17,000,000 16,755,540
--------------
TOTAL LONG-TERM BONDS
(Cost $20,818,910)............................................. 21,132,305
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 8.8% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 75,853,000 75,853,000
--------------
OTHER ASSETS -- 0.0%
(net of liabilities)........................................... 244,002
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 859,671,252
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt
PLC Public Limited Company (British Corporation)

**Indicates a restricted security; the aggregate cost of the restricted
securities is $63,176,231. The aggregate value, $58,151,751 is
approximately 6.8% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.

++Non-income producing.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B33

<PAGE>

COMMON STOCK PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 87.3% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 3.4%
AAR Corp........................................ 650,000 $ 8,693,750
Lockheed Corp................................... 207,900 15,098,738
Loral Corp...................................... 900,000 34,087,500
United Technologies Corp........................ 500,000 31,437,500
--------------
89,317,488
--------------
ALUMINUM -- 1.3%
+Alumax, Inc.................................... 267,500 7,590,313
Aluminum Co. of America......................... 300,000 25,987,500
--------------
33,577,813
--------------
AUTOS - CARS & TRUCKS -- 4.0%
Chrysler Corp................................... 975,000 47,775,000
Ford Motor Co................................... 800,000 22,400,000
General Motors Corp............................. 700,000 29,575,000
+Navistar International Corp.................... 395,200 5,977,400
--------------
105,727,400
--------------
BANKS AND SAVINGS & LOANS -- 5.9%
Bank of New York Company, Inc................... 900,000 26,100,000
BankAmerica Corp................................ 550,000 21,725,000
Chase Manhattan Corp............................ 600,000 20,625,000
Comerica, Inc................................... 700,000 17,062,500
First of America Bank Corp...................... 187,000 5,610,000
Great Western Financial Corp.................... 1,000,000 16,000,000
J.P. Morgan & Co., Inc.......................... 300,000 16,800,000
Mellon Bank Corp................................ 276,398 8,464,689
Mercantile Bankshares Corp...................... 279,600 5,487,150
NationsBank Corp................................ 350,000 15,793,750
--------------
153,668,089
--------------
CHEMICALS -- 0.9%
Eastman Chemical Co............................. 466,550 23,560,774
--------------
CHEMICALS - SPECIALTY -- 1.5%
+ESSEF Corp..................................... 110,000 1,677,500
IMC Global, Inc................................. 705,500 30,512,875
Witco Corp...................................... 268,800 6,619,200
--------------
38,809,575
--------------
COMMERCIAL SERVICES -- 0.6%
Wellman, Inc.................................... 550,000 15,537,500
--------------
COMPUTER SERVICES -- 1.0%
Comdisco, Inc................................... 900,000 20,812,500
Gerber Scientific, Inc.......................... 419,800 5,457,400
+Harris Computer Systems Corp................... 15,000 183,750
--------------
26,453,650
--------------
CONSTRUCTION -- 0.0%
+Willcox & Gibbs, Inc........................... 107,199 629,793
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.8%
International Business Machines Corp............ 300,000 22,050,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 2.8%
Baxter International, Inc....................... 2,100,000 59,325,000
Upjohn Co....................................... 450,000 13,837,500
--------------
73,162,500
--------------
ELECTRONICS -- 7.7%
Amdahl Corp..................................... 850,000 9,350,000
+Digital Equipment Corp......................... 2,500,000 83,125,000
Harris Corp..................................... 300,000 12,750,000
Hewlett-Packard Co.............................. 175,000 17,478,125
Tandy Corp...................................... 1,418,000 71,077,250
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Varian Associates, Inc.......................... 145,000 $ 5,075,000
Zero Corp....................................... 120,500 1,687,000
--------------
200,542,375
--------------
FINANCIAL SERVICES -- 6.8%
American Express Co............................. 2,100,000 61,950,000
Dean Witter, Discover & Co...................... 1,200,000 40,650,000
Lehman Brothers Holdings, Inc................... 900,000 13,275,000
Republic New York Corp.......................... 225,000 10,181,250
Salomon, Inc.................................... 700,000 26,250,000
Travelers, Inc.................................. 800,000 26,000,000
--------------
178,306,250
--------------
FOREST PRODUCTS -- 6.1%
International Paper Co.......................... 415,000 31,280,625
James River Corp. of Virginia................... 560,000 11,340,000
Rayonier, Inc................................... 125,000 3,812,500
Scott Paper Co.................................. 1,650,000 114,056,250
--------------
160,489,375
--------------
GAS PIPELINES -- 0.3%
NorAm Energy Corp............................... 1,300,000 6,987,500
--------------
HEALTHCARE -- 1.1%
+Foundation Health Corp......................... 950,000 29,450,000
--------------
HOSPITAL MANAGEMENT -- 3.2%
+American Medical Holdings, Inc................. 649,600 15,671,600
+Beverly Enterprises, Inc....................... 39,300 564,938
Columbia / HCA Healthcare Corp.................. 400,000 14,600,000
+Hillhaven Corp................................. 459,400 9,762,250
National Medical Enterprises, Inc............... 2,965,000 41,880,625
--------------
82,479,413
--------------
HOUSING RELATED -- 0.5%
Centex Corp..................................... 600,000 13,650,000
--------------
INSURANCE -- 13.0%
Alexander & Alexander Services, Inc............. 1,050,000 19,425,000
American General Corp........................... 1,000,000 28,250,000
Chubb Corp...................................... 700,000 54,162,500
Citizens Corp................................... 500,000 8,500,000
Continental Corp................................ 2,300,000 43,700,000
Emphesys Financial Group, Inc................... 441,400 14,014,450
Equitable Companies, Inc........................ 1,518,700 27,526,438
First Colony Corp............................... 1,253,600 28,049,300
John Alden Financial Corp....................... 141,000 4,053,750
Old Republic International Corp................. 1,000,590 21,262,538
Providian Corp.................................. 340,500 10,512,937
SAFECO Corp..................................... 800,000 41,600,000
SCOR U.S. Corp.................................. 195,600 1,638,150
St. Paul Companies, Inc......................... 400,000 17,900,000
Western National Corp........................... 1,528,200 19,675,575
--------------
340,270,638
--------------
LODGING -- 2.0%
Loews Corp...................................... 600,000 52,125,000
--------------
MINERAL RESOURCES -- 1.6%
Amax Gold, Inc.................................. 131,342 788,052
Cyprus Amax Minerals Co......................... 1,533,200 40,054,850
+Nord Resources Corp............................ 130,500 831,938
--------------
41,674,840
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.8%
American Water Works Co., Inc................... 135,000 3,645,000
ITT Corp........................................ 500,000 44,312,500
+Worldtex, Inc.................................. 107,199 388,596
--------------
48,346,096
--------------
</TABLE>

B34

<PAGE>

COMMON STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.8%
Avnet, Inc...................................... 310,000 $ 11,470,000
Eastman Kodak Co................................ 500,000 23,875,000
Gibson Greetings, Inc........................... 750,000 11,062,500
--------------
46,407,500
--------------
PETROLEUM -- 4.8%
Amerada Hess Corp............................... 325,000 14,828,125
Atlantic Richfield Co........................... 250,000 25,437,500
Elf Aquitaine, ADR.............................. 1,836,033 64,720,163
Occidental Petroleum Corp....................... 1,100,000 21,175,000
--------------
126,160,788
--------------
PETROLEUM SERVICES -- 2.3%
+B.J. Services Co............................... 500,000 8,437,500
Oryx Energy Co.................................. 1,600,000 19,000,000
Total SA, ADR................................... 717,640 21,170,380
Union Texas Petroleum Holdings, Inc............. 504,500 10,468,375
--------------
59,076,255
--------------
RAILROADS -- 0.9%
+Southern Pacific Rail Corp..................... 1,300,000 23,562,500
--------------
RETAIL -- 5.7%
Dayton-Hudson Corp.............................. 119,600 8,461,700
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 1,300,000 34,775,000
+Federated Department Stores, Inc............... 700,000 13,475,000
K mart Corp..................................... 2,300,000 29,900,000
Petrie Stores Corp.............................. 540,000 12,082,500
U.S. Shoe Corp.................................. 1,491,600 27,967,500
+Waban, Inc..................................... 1,300,000 23,075,000
--------------
149,736,700
--------------
STEEL -- 0.5%
+Bethlehem Steel................................ 500,000 9,000,000
Carpenter Technology Corp....................... 50,000 2,800,000
--------------
11,800,000
--------------
TELECOMMUNICATIONS -- 3.5%
Sprint Corp..................................... 1,700,000 46,962,500
Telefonica de Espana, SA, ADR................... 1,300,000 45,662,500
--------------
92,625,000
--------------
TRUCKING/SHIPPING -- 0.8%
OMI Corp........................................ 1,000,000 6,625,000
Overseas Shipholding Group, Inc................. 600,000 13,800,000
--------------
20,425,000
--------------
UTILITY - ELECTRIC -- 0.7%
American Electric Power Co., Inc................ 180,000 5,917,500
General Public Utilities Corp................... 500,000 13,125,000
--------------
19,042,500
--------------
TOTAL COMMON STOCKS
(Cost $2,039,308,682).......................................... 2,285,652,312
--------------
<CAPTION>

MARKET
PREFERRED STOCKS -- 1.4% SHARES VALUE
------------- --------------
<S> <C> <C>
AUTOS - CARS & TRUCKS -- 0.5%
**Chrysler Corp. (Conv. Pfd.)................... 95,000 13,050,625
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
PREFERRED STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
TOBACCO -- 0.9%
RJR Nabisco Holdings Corp. (Conv. Pfd.)......... 4,000,000 $ 24,000,000
--------------
TOTAL PREFERRED STOCKS
(Cost $36,922,710)............................................. 37,050,625
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 13.1% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. $ 343,262,000 $ 343,262,000
--------------
LIABILITIES -- (1.8%)
(net of other assets).......................................... (48,192,920)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $2,617,772,017
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

**Indicates a restricted security; the aggregate cost of the restricted
securities is $10,923,100. The aggregate value, $13,050,625 is
approximately 0.5% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B35

<PAGE>

GLOBAL EQUITY PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 87.0% SHARES VALUE
------------- --------------
<S> <C> <C>
AUSTRALIA -- 6.7%
Brambles Industries, Ltd.
(Miscellaneous - Basic Industry).............. 314,800 $ 3,006,681
Broken Hill Proprietary Co., Ltd.
(Metals - Diversified)........................ 303,900 4,617,732
BTR Nylex, Ltd.
(Miscellaneous - Basic Industry).............. 1,391,344 2,588,736
Coca-Cola Amatil, Ltd.
(Foods)....................................... 817,705 5,198,194
Publishing and Broadcasting, Ltd.
(Media)....................................... 50,000 139,933
Western Mining Corp. Holdings, Ltd.
(Metals - Diversified)........................ 1,336,312 7,728,382
--------------
23,279,658
--------------
BELGIUM -- 0.9%
Bekaert, NPV
(Miscellaneous - Basic Industry).............. 4,500 3,194,107
--------------
FEDERAL REPUBLIC OF GERMANY -- 2.5%
BASF, AG
(Chemicals)................................... 18,900 3,896,719
Bilfinger & Berger Bau, AG
(Construction)................................ 3,744 1,908,663
Preussag, AG
(Miscellaneous - Basic Industry).............. 9,270 2,691,898
--------------
8,497,280
--------------
FINLAND -- 0.7%
Kymmene Corp.
(Forest Products)............................. 85,200 2,320,066
--------------
FRANCE -- 4.6%
Guyenne et Gascogne
(Retail)...................................... 3,100 783,561
Imetal
(Mineral Resources)........................... 32,880 3,176,574
Lafarge Coppee
(Construction)................................ 47,510 3,380,228
**Lafarge Coppee
(Construction)................................ 1,100 78,263
Legrand
(Electrical Equipment)........................ 2,700 3,275,791
Plastic Omnium
(Autos - Cars & Trucks)....................... 6,765 729,571
Valeo, SA
(Autos - Cars & Trucks)....................... 88,885 4,425,112
--------------
15,849,100
--------------
HONG KONG -- 4.4%
Cdl Hotels International, Ltd.
(Real Estate Development)..................... 3,908,174 1,540,540
Citic Pacific, Ltd.
(Miscellaneous - Basic Industry).............. 1,387,000 3,343,141
Guoco Group, Ltd.
(Financial Services).......................... 1,243,000 5,317,389
Hung Hing Printing Group, Ltd.
(Miscellaneous - Basic Industry).............. 3,452,000 709,361
Hutchison Whampoa, Ltd.
(Miscellaneous - Basic Industry).............. 1,097,000 4,480,155
--------------
15,390,586
--------------
INDONESIA -- 0.4%
PT Kabelmetal Indonesia (Foreign)
(Telecommunications).......................... 1,047,400 1,429,572
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
JAPAN -- 17.0%
Aiwa
(Electronics)................................. 122,000 $ 2,999,498
Autobacs Seven
(Retail)...................................... 41,700 4,979,729
DDI Corp.
(Telecommunications).......................... 370 3,193,176
Japan Associated Finance
(Financial Services).......................... 26,000 4,044,155
Kamigumi Co.
(Trucking/Shipping)........................... 302,000 3,212,444
Keyence Corp.
(Electrical Equipment)........................ 37,000 4,195,685
Kyocera Corp.
(Electrical Equipment)........................ 59,000 4,375,414
Minebea Co., Ltd.
(Miscellaneous - Basic Industry).............. 434,000 3,658,404
Murata Manufacturing Co., Ltd.
(Electronics)................................. 55,500 2,144,255
Nichiei Co., Ltd.
(Financial Services).......................... 77,300 4,964,576
Nissen Co., Ltd.
(Retail)...................................... 68,520 2,117,828
Nisshin Steel Co., Ltd.
(Steel)....................................... 578,000 2,911,751
Rohm Co.
(Electronics)................................. 102,000 4,319,518
Shin-Etsu Chemical Co.
(Chemicals)................................... 176,000 3,497,040
Sony Music Entertainment
(Leisure)..................................... 65,600 3,686,503
Tokyo Electron, Ltd.
(Electrical Equipment)........................ 141,000 4,386,352
--------------
58,686,328
--------------
MALAYSIA -- 3.9%
Hong Leong Industries Berhad
(Construction)................................ 3,000 15,508
I.J.M. Corp. Berhad (Loan Stock)
(Construction)................................ 810,000 1,887,409
Malaysian Airline Systems Berhad
(Airlines).................................... 421,000 1,261,269
Renong Berhad
(Miscellaneous - Basic Industry).............. 2,181,000 2,699,025
Resorts World Berhad
(Leisure)..................................... 804,000 4,722,929
Technology Resources Industries Berhad
(Miscellaneous - Basic Industry).............. 904,000 2,885,295
United Merchant Group Berhad
(Financial Services).......................... 666 1,226
--------------
13,472,661
--------------
MEXICO -- 2.2%
Cementos Apasco, SA (Class 'A' Stock)
(Housing Related)............................. 426,400 2,125,573
Cifra, SA (Class 'B' Stock)
(Retail)...................................... 1,259,800 2,562,648
Femsa (Class 'B' Stock)
(Miscellaneous - Basic Industry).............. 604,900 1,549,030
Grupo Financiero Banamex (Class 'L' Stock)
(Banks and Savings & Loans)................... 5,720 16,556
</TABLE>

B36

<PAGE>

GLOBAL EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Grupo Financiero Banamex Accival, SA (Class 'C'
Stock)
(Banks and Savings & Loans)................... 414,100 $ 1,223,572
--------------
7,477,379
--------------
NETHERLANDS -- 0.5%
Boskalis Westminster, CVA
(Construction)................................ 91,050 1,857,002
--------------
NEW ZEALAND -- 1.1%
Fletcher Challenge, Ltd.
(Forest Products)............................. 1,574,000 3,697,877
--------------
REPUBLIC OF KOREA -- 1.4%
Pohang Iron & Steel Co., Ltd.
(Steel)....................................... 3,800 306,988
Samsung Electronics Co.
(Electronics)................................. 27,390 3,786,316
Samsung Electronics Co. (New)
(Electronics)................................. 1,309 178,462
Shinsegae Department Store
(Retail)...................................... 4,200 434,115
--------------
4,705,881
--------------
SINGAPORE -- 6.5%
Fraser & Neave, Ltd.
(Beverages)................................... 303,000 3,139,142
Overseas Union Bank, Ltd. (Foreign)
(Banks and Savings & Loans)................... 740,000 4,315,609
Sembawang Maritime, Ltd.
(Trucking/Shipping)........................... 706,500 3,417,376
Singapore Airlines, Ltd. (Foreign)
(Airlines).................................... 508,000 4,670,463
United Overseas Bank, Ltd. (Foreign)
(Banks and Savings & Loans)................... 527,000 5,568,302
Wing Tai Holdings, Ltd.
(Miscellaneous - Basic Industry).............. 856,250 1,515,695
--------------
22,626,587
--------------
SPAIN -- 2.7%
Acerinox, SA
(Steel)....................................... 30,760 3,212,862
Centros Commerciales Pryca, SA
(Retail)...................................... 93,362 1,407,776
Dragados Y Construcciones, SA
(Construction)................................ 118,900 1,670,924
Vallehermoso, SA
(Real Estate Development)..................... 167,233 2,902,760
--------------
9,194,322
--------------
SWEDEN -- 4.2%
Astra, AB (Series 'B' Free)
(Drugs and Hospital Supplies)................. 145,150 3,701,724
Hennes & Mauritz (Series 'B' Free)
(Retail)...................................... 90,200 4,624,974
Mo Och Domsjo, AB (Series 'B' Free)
(Forest Products)............................. 57,000 2,654,170
Volvo, AB (Series 'B' Free)
(Autos - Cars & Trucks)....................... 190,200 3,583,573
--------------
14,564,441
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
THAILAND -- 0.9%
Land & House Public Co., Ltd. (Foreign)
(Construction)................................ 25,700 $ 458,618
Sahaviriya Steel Industry
(Metals - Diversified)........................ 764,800 1,949,699
Sahaviriya Steel Industry (Foreign)
(Metals - Diversified)........................ 322,000 820,872
--------------
3,229,189
--------------
UNITED KINGDOM -- 8.9%
Barclays, PLC
(Banks and Savings & Loans)................... 246,900 2,360,517
British Sky Broadcasting Group, PLC
(Media)....................................... 620,600 2,490,829
Carlton Communications
(Communications).............................. 192,600 2,703,295
Guest Kean & Nettlefolds, PLC
(Autos - Cars & Trucks)....................... 446,570 4,105,274
**Guest Kean & Nettlefolds, PLC
(Autos - Cars & Trucks)....................... 22,870 210,242
J. Sainsbury, PLC
(Retail)...................................... 299,500 1,928,464
Powergen, PLC
(Utility - Electric).......................... 294,000 2,465,795
S.G. Warburg Group, PLC
(Financial Services).......................... 171,900 1,861,344
Siebe, PLC
(Machinery)................................... 500,840 4,369,066
TeleWest Communications, PLC
(Media)....................................... 1,200,000 3,192,089
Vodafone Group, PLC
(Telecommunications).......................... 1,503,900 4,988,840
--------------
30,675,755
--------------
UNITED STATES -- 17.5%
+Adaptec, Inc.
(Computer Services)........................... 206,600 4,880,925
+Applied Materials, Inc.
(Electrical Equipment)........................ 81,000 3,422,250
+Cirrus Logic, Inc.
(Electronics)................................. 106,500 2,396,250
+Electronic Arts, Inc.
(Computer Services)........................... 139,700 2,689,225
Exide Corp.
(Autos - Cars & Trucks)....................... 61,000 3,431,250
Mattel, Inc.
(Leisure)..................................... 171,050 4,297,631
MCI Communications Corp.
(Telecommunications).......................... 162,300 2,982,263
+Microsoft Corp.
(Computer Services)........................... 72,800 4,449,900
Mobil Corp.
(Petroleum)................................... 48,500 4,086,125
Motorola, Inc.
(Electronics)................................. 105,900 6,128,962
+Nextel Communications, Inc. (Class 'A' Stock)
(Telecommunications).......................... 186,600 2,682,375
Norwest Corp.
(Banks and Savings & Loans)................... 155,000 3,623,125
+Oracle Systems Corp.
(Computer Services)........................... 115,900 5,114,087
Pohang Iron & Steel Co., Ltd., ADR
(Steel)....................................... 60,800 1,778,400
</TABLE>

B37

<PAGE>

GLOBAL EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
+Silicon Graphics, Inc.
(Computer Services)........................... 157,800 $ 4,891,800
Time Warner, Inc.
(Media)....................................... 103,300 3,628,413
--------------
60,482,981
--------------
TOTAL COMMON STOCKS
(Cost $296,456,732)............................................ 300,630,772
--------------
<CAPTION>

MARKET
PREFERRED STOCKS -- 3.2% SHARES VALUE
------------- --------------
<S> <C> <C>
FEDERAL REPUBLIC OF GERMANY -- 0.7%
Krones, AG
(Machinery)................................... 4,368 2,452,270
--------------
FINLAND -- 2.4%
Nokia, AB
(Miscellaneous - Basic Industry).............. 55,900 8,236,414
--------------
REPUBLIC OF KOREA -- 0.1%
Samsung Electronics Co.
(Electronics)................................. 5,213 394,033
--------------
TOTAL PREFERRED STOCKS
(Cost $7,891,492).............................................. 11,082,717
--------------
<CAPTION>
MARKET
RIGHTS AND WARRANTS -- 0.4% SHARES VALUE
------------- --------------
<S> <C> <C>
FEDERAL REPUBLIC OF GERMANY -- 0.2%
)Kamigumi Co. (Warrants),
(Trucking/Shipping)........................... 1,000 164,553
)Nissen Co., Ltd. (Warrants),
(Retail)...................................... 316 397,638
--------------
562,191
--------------
FRANCE -- 0.0%
**Lafarge Coppee (Warrants),
(Construction)................................ 1,000 5,074
--------------
SWITZERLAND -- 0.1%
\Nitori Co., Ltd. (Warrants),
(Furniture)................................... 2,950 507,066
--------------
UNITED STATES -- 0.1%
#Autobacs Seven Warrants 95 #1,
(Retail)...................................... 35 130,813
#Autobacs Seven Warrants 96 #2,
(Retail)...................................... 35 127,313
--------------
258,126
--------------
TOTAL RIGHTS AND WARRANTS
(Cost $1,517,852).............................................. 1,332,457
--------------
<CAPTION>

PAR MARKET
CONVERTIBLE BONDS -- 0.3% VALUE VALUE
------------- --------------
<S> <C> <C>
SINGAPORE -- 0.1%
Sembawang Maritime, Ltd.,
(1.500%, 10/25/98
(Trucking/Shipping)........................... $ 154,000 $ 240,906
--------------
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
CONVERTIBLE BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
UNITED STATES -- 0.2%
MDX Public Co., Ltd.,
(4.750%, 9/17/03
(Real Estate Development)..................... $ 1,227,000 $ 779,145
--------------
TOTAL CONVERTIBLE BONDS
(Cost $1,393,348).............................................. 1,020,051
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 7.5% AMOUNT VALUE
------------- --------------
<S> <C> <C>
UNITED STATES
REPURCHASE AGREEMENTS
(Sanawa, 5.750%, entered 12/30/94; maturing
01/03/95 in the amount of $26,000,000
(collateralized by $25,575,000 United States
Treasury Notes, 7.875%, 01/15/98)........... $ 26,000,000 $ 26,000,000
--------------
- -C-UNREALIZED APPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS
- 0.0%......................................................... 17,247
--------------
OTHER ASSETS -- 1.6%
(net of liabilities)........................................... 5,650,734
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 345,733,978
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

AB Aktiebolag (Swedish Stock Company)
ADR American Depository Receipt
AG Aktiengesellschaft (West German Stock Company)
CVA Certificaten Van Affecton (Guaranteed)
NPV Net Present Value
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

#These are American warrants with an underlying Japanese security.

)These are German warrants with an underlying Japanese security.

\These are Swiss warrants with an underlying Japanese security.

**Indicates a restricted security; the aggregate cost of the restricted
securities is $216,115. The aggregate value, $293,578 is approximately .1%
of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.

- -C- Forward Foreign Exchange Contracts as of December 31, 1994:

FOREIGN CURRENCY SOLD EXPIRATION DATE UNREALIZED APPRECIATION
Australian Dollar
171,259 January 1995 $17,247
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B38

<PAGE>

NATURAL RESOURCES PORTFOLIO

DECEMBER 31, 1994

<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 88.3% SHARES VALUE
------------- --------------
<S> <C> <C>
ALUMINUM -- 6.0%
+Alumax, Inc.................................... 100,000 $ 2,837,500
Aluminum Co. of America......................... 40,000 3,465,000
Comalco, Ltd., ADR.............................. 142,000 2,753,579
+Kaiser Aluminum Corp........................... 91,000 989,625
Reynolds Metals Co.............................. 75,050 3,677,450
--------------
13,723,154
--------------
CHEMICALS -- 0.8%
Calgon Carbon Corp.............................. 180,000 1,867,499
--------------
CHEMICALS - SPECIALTY -- 3.0%
IMC Global, Inc................................. 154,800 6,695,099
--------------
DIVERSIFIED GAS -- 7.1%
+Basin Exploration, Inc......................... 130,000 1,413,750
Cross Timbers Oil Co............................ 224,900 3,373,500
+Rigel Energy Corp.............................. 294,500 2,945,000
Sonat Offshore Drilling, Inc.................... 127,000 2,254,250
USX-Delhi Group................................. 106,500 1,065,000
Western Gas Resources, Inc...................... 257,600 4,958,800
--------------
16,010,300
--------------
FOREST PRODUCTS -- 4.7%
Champion International Corp..................... 99,500 3,631,750
Fletcher Challenge, Ltd., ADR................... 312,900 3,559,238
Rayonier, Inc................................... 116,100 3,541,050
--------------
10,732,038
--------------
GAS PIPELINES -- 4.3%
Aquila Gas Pipeline Corp........................ 113,700 895,388
+Global Marine, Inc............................. 206,500 748,563
+Reading & Bates Offshore Drilling Co........... 232,600 1,395,600
+Seagull Energy Corp............................ 170,400 3,258,900
+Tejas Gas Corp................................. 70,450 3,355,180
--------------
9,653,631
--------------
METALS - DIVERSIFIED -- 1.4%
+Stillwater Mining Co........................... 242,900 3,263,969
--------------
MINERAL RESOURCES -- 30.9%
Agnico-Eagle Mines, Ltd......................... 425,000 4,515,625
American Barrick Resources Corp................. 254,653 5,666,029
Battle Mountain Gold Co......................... 162,300 1,785,300
+Cominco, Ltd................................... 144,000 2,556,000
CRA, Ltd., ADR.................................. 69,200 3,821,688
Freeport-McMoRan Copper & Gold, Inc. (Class 'A'
Stock)........................................ 162,300 3,448,875
Inco, Ltd....................................... 168,600 4,826,175
M.I.M. Holdings, Ltd., ADR...................... 840,000 2,801,652
Newmont Mining Corp............................. 126,307 4,547,052
Pegasus Gold, Inc............................... 172,000 1,956,500
Placer Dome, Inc................................ 199,700 4,343,475
Potash Corp. of Saskatchewan, Inc............... 320,400 10,893,600
+Sante Fe Pacific Gold Corp..................... 437,700 5,635,388
+TVX Gold, Inc.................................. 600,000 4,050,000
Vigoro Corp..................................... 169,000 5,070,000
Western Mining Corp. Holdings, Ltd., ADR........ 187,500 4,382,812
--------------
70,300,171
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.8%
+Enterra Corp................................... 98,500 1,871,500
--------------
PETROLEUM -- 6.9%
Amerada Hess Corp............................... 47,900 2,185,438
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 129,900 1,883,550
</TABLE>

DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Elf Aquitaine, ADR.............................. 189,783 $ 6,689,850
Parker & Parsley Petroleum Co................... 145,000 2,972,500
USX-Marathon Group.............................. 117,100 1,917,513
--------------
15,648,851
--------------
PETROLEUM CANADIAN -- 2.7%
Beau Canada Exploration, Ltd. (Class 'A'
Stock)........................................ 831,900 1,186,099
+Talisman Energy, Inc........................... 290,000 4,858,314
--------------
6,044,413
--------------
PETROLEUM SERVICES -- 19.7%
+American Oilfield Divers, Inc.................. 59,900 374,375
Baker Hughes, Inc............................... 126,700 2,312,275
+Cairn Energy USA, Inc.......................... 250,000 1,968,750
Camco International, Inc........................ 100,000 1,887,500
+Coflexip, ADR.................................. 172,000 3,999,000
**+Crestar Energy, Inc.......................... 240,000 2,480,841
+Dreco Energy Services, Ltd. (Class 'A'
Stock)........................................ 88,100 644,231
+Hornbeck Offshore Services, Inc................ 127,200 1,605,900
+ICO, Inc....................................... 192,300 769,200
+Marine Drilling Co., Inc....................... 820,400 2,307,375
+Mesa, Inc...................................... 440,900 2,149,388
+Newfield Exploration Co........................ 204,000 4,029,000
Noble Affiliates, Inc........................... 156,700 3,878,325
+Noble Drilling Corp............................ 140,600 826,025
+Offshore Pipelines, Inc........................ 150,000 3,393,750
Oryx Energy Co.................................. 117,100 1,390,563
+PetroCorp, Inc................................. 217,500 2,324,531
+Pride Petroleum Services, Inc.................. 260,000 1,348,750
+Stolt Comex Seaway, SA......................... 220,000 1,567,500
Trident NGL Holding, Inc........................ 200,000 2,100,000
+Varco International, Inc....................... 115,800 723,750
+Western Co. of North America................... 162,200 2,737,125
--------------
44,818,154
--------------
TOTAL COMMON STOCKS
(Cost $195,869,708)............................................ 200,628,779
--------------
<CAPTION>

MARKET
PREFERRED STOCKS -- 5.5% SHARES VALUE
------------- --------------
<S> <C> <C>
ALUMINUM -- 0.7%
Kaiser Aluminum Corp. (Conv. Pfd.).............. 150,000 1,593,750
--------------
MINERAL RESOURCES -- 1.3%
Amax Gold, Inc. (Conv. Pfd), Series B........... 22,400 1,086,400
Battle Mountain Gold Co. (Conv. Pfd.)........... 12,000 732,000
Freeport - McMoRan Copper & Gold, Inc........... 60,000 1,177,500
--------------
2,995,900
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.8%
Hecla Mining Co. (Conv. Pfd.), Series B......... 87,000 4,067,250
--------------
PETROLEUM SERVICES -- 1.7%
Noble Drilling Corp. (Conv. Pfd.)............... 150,000 3,037,500
Reading & Bates Corp. (Cum. Conv. Pfd.)......... 39,900 822,938
--------------
3,860,438
--------------
TOTAL PREFERRED STOCKS
(Cost $13,791,225)............................................. 12,517,338
--------------
</TABLE>

B39

<PAGE>

NATURAL RESOURCES PORTFOLIO (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAR MARKET
CONVERTIBLE BONDS -- 3.0% VALUE VALUE
------------- --------------
<S> <C> <C>
INDUSTRIAL
Coeur d'Alene Mines Corp.,
6.375%, 01/31/04.............................. $ 4,319,000 $ 3,584,770
7.000%, 11/30/02.............................. 1,465,000 1,648,125
**Homestake Mining Co.,
5.500%, 06/23/00.............................. 1,519,000 1,486,722
--------------
TOTAL CONVERTIBLE BONDS
(Cost $7,130,853).............................................. 6,719,617
--------------
<CAPTION>

PRINCIPAL
SHORT-TERM INVESTMENTS -- 4.5% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.720%, 01/03/95 (see Note 4)................. 10,291,000 10,291,000
--------------
LIABILITIES -- (1.3%)
(net of other assets).......................................... (2,882,805)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 227,273,929
--------------
--------------
<FN>

The following abbreviations are used in portfolio descriptions:

ADR American Depository Receipt
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)

**Indicates a restricted security; the aggregate cost of the restricted
securities is $4,570,797. The aggregate value, $3,967,563 is approximately
1.7% of net assets. (See Note 2)

+No dividend was paid on this security during the 12 months ending December
31, 1994.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B41 THROUGH B46.

B40

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 (AS RESTATED)

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of sixteen Portfolios, each with a separate series of
capital stock. Shares in the Series Fund are currently sold only to certain
separate accounts of The Prudential Insurance Company of America ("The
Prudential"), Pruco Life Insurance Company and Pruco Life Insurance Company of
New Jersey (together referred to as the "Companies") to fund benefits under
certain variable life insurance and variable annuity contracts issued by the
Companies.

The shareholders of Pruco Life Series Fund, Inc. ("Pruco Fund") and the Series
Fund approved the merger of the Pruco Fund into the Series Fund as of November
1, 1986. The merger combined five portfolios with identical investment
strategies (Money Market, Bond, Common Stock, Aggressively Managed Flexible and
Conservatively Managed Flexible) of the Pruco Fund with their counterpart in the
Series Fund. The merger was effected by converting the net assets of the Pruco
Fund at the merger date into shares of the Series Fund at the share price of
that day and was accounted for as a pooling of interest.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SECURITIES VALUATION: Equity securities are valued at market. Securities traded
on a national securities exchange are valued at the last sales price on such
exchange as of the close of the New York Stock Exchange or, in the absence of
recorded sales, at the mean between the most recently quoted bid and asked
prices. For any securities not traded on a national securities exchange but
traded in the over-the-counter market, the securities are valued at the mean
between the most recently quoted bid and asked prices, except that securities
for which quotations are furnished through a nationwide automated quotation
system approved by the National Association of Securities Dealers, Inc.
("NASDAQ") are valued at the last sales price or if there was no sale on such
day, at the mean between the most recently quoted bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determines prices by analysis of quality,
coupon, maturity and other adjustment factors. Long-term bonds are valued at
market, based on valuation prices by an independent pricing service which
determines prices by analysis of quality, coupon, maturity and other adjustment
factors. Short-term investments 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 amortization of discount or premium
to maturity. The interest rates shown for Commercial Paper, Promissory Notes,
and certain U.S. Government Agency Obligations on the Schedules of Investments
are the discount rates paid at the time of purchase. Any security for which a
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors.

The ability of issuers of debt securities held by specific Portfolios of the
Series Fund to meet their obligations may be affected by economic developments
in a specific country or industry.

Each portfolio, other than the Money Market Portfolio, may invest up to 15% of
its net assets in securities which are subject to legal or contractual
restrictions on resale or for which no readily available market exists
("restricted securities"). The Money Market Portfolio may invest up to 10% of
its net assets in restricted securities. Restricted securities are valued
pursuant to the valuation procedures noted above.

DERIVATIVE FINANCIAL INSTRUMENTS: The Series Fund may engage in various
portfolio strategies to seek increased returns by hedging the portfolios against
adverse movements in the equity, debt, and currency markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.

OPTION WRITING: When the Series Fund sells an option, an amount equal to the
premium received is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from writing
options which expire unexercised are treated on the expiration date as gains
from the sale of securities. As to options which are closed, the difference
between the premium and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is also treated as a gain, or if
the

B41

<PAGE>

premium received is less than the amount paid for the closing purchase
transaction, as a loss. If a call option is exercised, the premium is added to
the proceeds from the sale in determining whether a gain or loss has been
realized.

The Series Fund's use of written options involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts reflect the extent of the Series
Fund's involvement in these financial instruments. Risks arise from the possible
movements in foreign exchange rates and securities values underlying these
instruments.

STOCK INDEX FUTURES: Portfolios of the Fund may attempt to reduce the risk of
investment in equity securities by hedging a portion of their equity portfolios
through the use of stock index futures traded on a commodities exchange or board
of trade. 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 was made. Upon entering into a futures contract, a
Portfolio is required to pledge to the broker liquid assets equal to the minimum
"initial margin," approximately 5% of the contract amount. The Portfolio further
agrees to receive or pay to the broker an amount of cash equal to the futures
contract's daily fluctuation in value. These receipts or payments are known as
the "variation margin" and are recorded as unrealized gains or losses. When a
futures contract is closed, the Portfolio records a realized gain or loss equal
to the difference between the value of the contract at the time it was opened
and the value at the time it was closed.

FOREIGN CURRENCY TRANSACTIONS: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investment securities, other assets and liabilities at the
mid daily rate of exchange as reported by a major New York City bank;

(ii) purchases and sales of investment securities, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions.

Since the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, it is not practical
to isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from change
in the market prices of securities held at the end of the fiscal period.
Similarly, it is not practical to isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of equities sold during the fiscal year.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of government supervision and regulation of foreign security markets.

The Global Equity Portfolio may invest up to 100% of its total assets in common
stock and convertible securities denominated in a foreign currency and issued by
foreign or domestic issuers. The Bond and High Yield Bond Portfolios may each
invest up to 20% of their assets in United States currency denominated debt
securities issued outside the United States by foreign or domestic issuers. In
addition, the bond components of the Conservatively Managed Flexible and
Aggressively Managed Flexible Portfolios may each invest up to 20% of their
assets in such securities. Further, the High Dividend Stock and Aggressively
Managed Flexible Portfolios may invest up to 30% of their total assets in debt
and equity securities denominated in a foreign currency and issued by foreign or
domestic issuers. In addition, Common Stock and Natural Resources Portfolios may
invest up to 30% of their total assets in non-United States currency denominated
common stock and fixed-income securities convertible into common stock of
foreign and U.S. issuers.

Net realized gains and losses on foreign currency transactions represent net
foreign exchange gains and losses from holding of foreign currencies; currency
gains or losses realized between the trade and settlement dates on security
transactions; and the difference between the amounts of the dividends and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net currency gains and losses from valuing
foreign currency denominated assets and liabilities at fiscal period end
exchange rates are reflected as a component of unrealized loss on foreign
currencies.

FORWARD FOREIGN EXCHANGE CONTRACTS: The Series Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Series Fund's records. However, the effect on operations is recorded from the
date the Series Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.

B42

<PAGE>

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Dividend income is recorded on
the ex-dividend date. Interest income is accrued daily on both long-term bonds
and short-term investments. Interest income also includes net amortization from
the purchase of fixed-income securities. Long-term security and option
transactions are recorded on the first business day following the trade date,
except that transactions on the last business day of the reporting cycle are
recorded on that date. Short-term security and futures transactions are recorded
on trade date. Realized gains and losses from security transactions are
determined and accounted for on the basis of identified cost.

DISTRIBUTIONS AND TAXES: The Portfolios of the Series Fund intend to continue
to qualify for and elect the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code, thereby relieving the
Series Fund of Federal income taxes. To so qualify, the Series Fund intends to
distribute substantially all of its net investment income and net realized
capital gains, if any, less any available capital loss carry forward. As of
December 31, 1994, (based on an October 31 measurement period) the Bond
Portfolio had a net capital loss carry forward of $643,550 (expiring in 2002).
The High Yield Bond Portfolio had a net capital loss carry forward of $5,141,222
($3,756,791 expiring in 1999 and $1,384,431 expiring in 2002). The Global Equity
Portfolio had a net capital loss carry forward of $6,265,350 (expiring in 2002).
Finally, the Zero Coupon Bond 2005 Portfolio had a net capital loss carry
forward of $123,179 (expiring in 2002). These amounts will be available to
offset any future taxable gains.

The Money Market Portfolio declares dividends of net investment income
(including realized and unrealized gains and losses on Portfolio securities) on
each business day. These dividends are reinvested in additional full and
fractional shares of the Portfolio. This policy enables the Money Market
Portfolio to maintain a net asset value of $10.00 per share. Dividends from
investment income of the other Portfolios will normally be declared and
reinvested in additional full and fractional shares four times annually.
Dividends from net realized capital gains are declared and reinvested in
additional full and fractional shares twice a year.

EXPENSES: Each Portfolio pays for certain expenses incurred in its individual
operation, and also pays a portion of the Series Fund's general administrative
expenses allocated on the basis of the asset size of the respective Portfolios.

The Series Fund has an arrangement with Chemical Banking Corporation, a
custodian bank. On a daily basis, cash funds which are not invested earn a
credit which is used to offset custody charges on a Portfolio basis, exclusive
of the Global Equity Portfolio, for which Brown Brothers Harriman & Co. is the
custodian bank. For the year ended December 31, 1994, the total of the credits
used was:

<TABLE>
<S> <C>
Conservatively Managed Flexible Portfolio..................... $ 91,232
Aggressively Managed Flexible Portfolio....................... 41,492
Government Securities Portfolio............................... 15,374
Money Market Portfolio........................................ 14,851
High Yield Bond Portfolio..................................... 7,469
Bond Portfolio................................................ 4,838
Zero Coupon Bond 2005 Portfolio............................... 2,531
Zero Coupon Bond 2000 Portfolio............................... 1,447
Zero Coupon Bond 1995 Portfolio............................... 517
</TABLE>

NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT MANAGEMENT AND ACCOUNTING FEES: Pursuant to an investment advisory
agreement (the "Agreement"), The Prudential receives an investment management
fee, calculated daily, at an effective annual rate of 0.35% of the average daily
net assets of the Stock Index Portfolio: 0.40% of the average daily net assets
of the Money Market, Bond, Zero Coupon Bond 1995, Zero Coupon Bond 2000, Zero
Coupon Bond 2005, High Dividend Stock and Government Securities Portfolios;
0.45% of average daily net assets of the Common Stock and Natural Resources
Portfolios; 0.55% of the average daily net assets of the Conservatively Managed
Flexible and the High Yield Bond Portfolios; 0.60% of the average daily net
assets of the Aggressively Managed Flexible Portfolio; and 0.75% of the average
daily net assets of the Global Equity Portfolio. Under the Agreement, The
Prudential has agreed to refund to a portfolio (other than the Global Equity
Portfolio), the portion of the management fee for that Portfolio equal to the
amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's

B43

<PAGE>

average daily net assets. The Agreement also requires the Series Fund to
reimburse The Prudential for the cost of maintaining staff and personnel who
provide daily accounting services for the operation of the Series Fund with the
exception of the Global Equity Portfolio.

DIRECTORS' EXPENSES: The Series Fund pays for the fees and expenses of those
members of the Series Fund's Board of Directors who are not officers or
employees of The Prudential or its affiliates.

BROKERAGE COMMISSIONS: For the year ended December 31, 1994, Prudential
Securities Inc., an indirect, wholly-owned subsidiary of The Prudential, earned
$560,155 in brokerage commissions from Portfolio transactions executed on behalf
of the Series Fund.

OTHER TRANSACTIONS WITH AFFILIATES: As of December 31, 1994, The Prudential had
investments of $7,208,297 in the Zero Coupon Bond 1995 Portfolio; $105,934 in
the Zero Coupon Bond 2000 Portfolio; and $1,158,347 in the Global Equity
Portfolio.

NOTE 4: JOINT REPURCHASE AGREEMENT ACCOUNT

The Portfolios of the Series Fund transfer uninvested cash balances into a
single joint account, the daily aggregate balance of which is invested in one or
more repurchase agreements collateralized by U.S. Government obligations. The
Series Fund's undivided investment in the joint repurchase agreement account
represented, in principal, $974,388,000 as of December 31, 1994. The Portfolios
of the Series Fund with cash invested in the joint account had the following
percentage participation in the account:

<TABLE>
<S> <C>
Common Stock Portfolio........................................ 35.23%
Aggressively Managed Flexible Portfolio....................... 33.94%
Conservatively Managed Flexible Portfolio..................... 12.45%
High Dividend Stock Portfolio................................. 7.78%
Government Securities Portfolio............................... 3.78%
Stock Index Portfolio......................................... 2.66%
Bond Portfolio................................................ 1.56%
High Yield Bond Portfolio..................................... 1.47%
Natural Resources Portfolio................................... 1.06%
Zero Coupon Bond 2005 Portfolio............................... .07%
----------
100.00%
</TABLE>

Banker's Trust Securities Repurchase Agreement, dated 12/30/94, in the principal
amount of $225,000,000, repurchase price $225,143,746, due 1/3/95;
collateralized by $225,555,000 U.S. Treasury Notes, 8%, due 5/15/01.

Goldman Sachs Repurchase Agreement, dated 12/30/94, in the principal amount of
$67,388,000, repurchase price $67,427,309, due 1/3/95; collateralized by
$61,265,000 U.S. Treasury Bonds, 8.875%, due 2/15/19.

Morgan Stanley Repurchase Agreement, dated 12/30/94, in the principal amount of
$278,000,000, repurchase price $278,171,508, due 1/3/95; collateralized by
$143,865,000 U.S. Treasury Notes, 5.125%, due 3/31/98; $142,980,000 U.S.
Treasury Notes, 8.75%, due 10/15/97.

Nomura Securities Repurchase Agreement, dated 12/30/94, in the principal amount
of $179,000,000, repurchase price $179,119,333, due 1/3/95; collateralized by
$26,435,000 U.S. Treasury Bonds, 7.125%, due 2/15/23; $33,240,000 U.S. Treasury
Bonds, 7.875%, due 2/15/21; $118,360,000 U.S. Treasury Bonds, 8.125%, due
8/15/19.

Smith Barney Repurchase Agreement, dated 12/30/94, in the principal amount of
$100,000,000, repurchase price $100,065,552, due 1/3/95; collateralized by
$4,805,000 U.S. Treasury Bonds, 12.0%, due 8/15/13; $17,000,000 U.S. Treasury
Bonds, 7.125%, due 2/15/23; $15,000,000 U.S. Treasury Bonds, 8.875%, due
2/15/19; $17,000,000 U.S. Treasury Bonds, 11.875%, due 11/15/03; $33,000,000
U.S. Treasury Bonds, 11.125%, due 8/15/03.

UBS Securities Repurchase Agreement, dated 12/30/94, in the principal amount of
$125,000,000, repurchase price $125,079,860, due 1/3/95; collateralized by
$45,000,000 U.S. Treasury Bonds, 14.0%, due 11/15/11; $62,000,000 U.S. Treasury
Notes, 5.125%, due 3/31/96.

B44

<PAGE>

NOTE 5: PURCHASE AND SALE OF SECURITIES

The aggregate cost of purchase and the proceeds from the sales of securities
(excluding short-term issues) for the year ended December 31, 1994 were as
follows:

Cost of Purchases:

<TABLE>
<CAPTION>
ZERO ZERO ZERO CONSERVATIVELY AGGRESSIVELY
GOVERNMENT COUPON COUPON COUPON MANAGED MANAGED
BOND SECURITIES 1995 2000 2005 FLEXIBLE FLEXIBLE
------------ ------------ ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $230,427,085 $170,067,390 $ 3,088,318 $ 2,167,569 $ 3,833,265 $2,264,216,698 $2,110,107,294
Equity Securities........ $ 0 $ 0 $ 0 $ 0 $ 0 $ 587,491,444 $1,463,207,489
</TABLE>

<TABLE>
<CAPTION>
HIGH HIGH
YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL
BOND INDEX STOCK STOCK EQUITY RESOURCES
------------ ------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $245,231,365 $ 0 $ 59,651,560 $ 0 $ 2,014,070 $ 4,138,265
Equity Securities........ $ 15,834,213 $ 59,347,016 $ 672,161,860 $ 798,167,933 $298,502,390 $115,627,163
</TABLE>

Proceeds From Sales:

<TABLE>
<CAPTION>
ZERO ZERO ZERO CONSERVATIVELY AGGRESSIVELY
GOVERNMENT COUPON COUPON COUPON MANAGED MANAGED
BOND SECURITIES 1995 2000 2005 FLEXIBLE FLEXIBLE
------------ ------------ ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $161,141,232 $192,629,378 $ 670,613 $ 1,988,360 $ 854,514 $2,265,817,380 $1,985,428,664
Equity Securities........ $ 0 $ 0 $ 0 $ 0 $ 0 $ 430,107,759 $1,492,407,199
</TABLE>

<TABLE>
<CAPTION>
HIGH HIGH
YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL
BOND INDEX STOCK STOCK EQUITY RESOURCES
------------ ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $184,820,098 $ 0 $ 14,057,405 $ 0 $ 3,180,314 $ 2,019,170
Equity Securities........ $ 13,401,205 $ 10,703,691 $440,060,612 $133,822,827 $ 80,485,320 $ 34,073,194
</TABLE>

Transactions in call options written during the year ended December 31, 1994
were as follows:

<TABLE>
<CAPTION>
NATURAL
RESOURCES
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Options outstanding at
December 31, 1993....... 0 $ 0
Options written........... 300 66,832
Options terminated in
closing purchase
transactions............ (300) (66,832)
Options expired........... 0 0
Options exercised......... 0 0
--------- -----------
Options outstanding at
December 31, 1994....... 0 $ 0
--------- -----------
--------- -----------
</TABLE>

The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
ZERO ZERO ZERO CONSERVATIVELY
MONEY GOVERNMENT COUPON COUPON COUPON MANAGED
MARKET BOND SECURITIES 1995 2000 2005 FLEXIBLE
------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation... $ 0 1,403,760 947,221 147,086 839,286 381,531 147,865,296
Gross Unrealized Depreciation... 0 33,335,908 29,890,790 110,193 174,236 568,432 122,789,171
Total Net Unrealized............ 0 (31,932,148) (28,943,569) 36,893 665,050 (186,901) 25,076,125
Tax Basis....................... 581,582,129 563,227,825 507,031,047 17,721,753 20,000,846 16,718,218 3,443,877,594

AGGRESSIVELY HIGH HIGH
MANAGED YIELD STOCK DIVIDEND COMMON GLOBAL NATURAL
FLEXIBLE BOND INDEX STOCK STOCK EQUITY RESOURCES
------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation... 224,521,828 3,272,256 $105,889,895 41,940,476 376,581,396 29,685,605 23,326,212
Gross Unrealized Depreciation... 93,827,948 32,262,000 24,917,605 55,556,748 130,109,851 22,797,770 20,252,264
Total Net Unrealized............ 130,693,880 (28,989,744) 80,972,290 (13,616,272) 246,471,545 6,887,835 3,073,948
Tax Basis....................... 3,347,362,272 328,072,741 584,600,736 873,043,522 2,419,493,392 340,366,881 227,082,786
</TABLE>

B45

<PAGE>

NOTE 6: RESTATEMENT

Subsequent to the issuance of the 1993 financial statements of the High Yield
Bond Portfolio ("the Portfolio"), Prudential management learned that
distributions of $1,366,447 received by the Portfolio had been erroneously
reported to the Series Fund and reflected in the Portfolio's 1993 financial
statements as interest income. These distributions, in fact, represented
payments for partial redemptions of the underlying security.

This error resulted in the following overstatements in the originally issued
1993 financial statements:

<TABLE>
<S> <C>
Investments $1,708,058
----------
----------

Interest Income $1,366,447

Net Unrealized Gain
on Investments 341,611
----------

Net Assets $1,708,058
----------
----------
Net Asset Value Per Share $.051
----------
----------
</TABLE>

The comparative 1993 financial information included in the statements of changes
in net assets of the Portfolio has been restated to correct for this error.

B46

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors of The Prudential Series Fund, Inc.:

We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Money Market, Bond, Common Stock,
Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond
1995, Zero Coupon Bond 2000, Zero Coupon Bond 2005, High Yield Bond, Stock
Index, High Dividend Stock, Natural Resources, Government Securities and Global
Equity Portfolios of The Prudential Series Fund, Inc. as of December 31, 1994,
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
financial highlights contained in the prospectus for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodians and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios of The Prudential Series Fund, Inc. as of December 31,
1994, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and
financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.

As discussed in Note 6, the 1993 financial statements of the High Yield Bond
Portfolio have been restated.

Deloitte & Touche LLP
Parsippany, New Jersey
February 10, 1995

B47
<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO

<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 3, 1995

ASSETS
Cash.................................................. $ 100,000
---------

NET ASSETS
Net assets were comprised of:
Common stock, at $0.01 par value.................... $ 100
Paid-in capital, in excess of par................... 99,900
---------
Net assets............................................ $ 100,000
---------
---------
Net asset value per share of 10,000 outstanding shares
of common stock (authorized 50,000,000 shares)....... $ 10.0000
---------
---------

SMALL CAPITALIZATION STOCK PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES
April 3, 1995
<S> <C>

ASSETS
Cash.................................................. $ 100,000
---------

SEE NOTES TO THE STATEMENTS OF ASSETS AND LIABILITIES ON PAGE C2.
C1

<PAGE>

NOTES TO THE STATEMENTS OF ASSETS AND LIABILITIES OF THE
GROWTH STOCK AND SMALL CAPITALIZATION STOCK
PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC.
AS OF APRIL 3, 1995

NOTE 1: GENERAL

The Growth Stock and Small Capitalization Stock Portfolios had no operations
other than the sale to The Prudential of 10,000 shares of common stock on April
3, 1995.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT MANAGEMENT AND ACCOUNTING FEES: Pursuant to an investment advisory
agreement (the "Agreement"), The Prudential will receive an investment
management fee, calculated daily, at an effective annual rate of 0.60% of the
average daily net assets of the Growth Stock Portfolio and 0.40% of the average
daily net assets of the Small Capitalization Stock Portfolio.

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors of The Prudential Series Fund, Inc.:

We have audited the accompanying statements of assets and liabilities of the
Growth Stock and Small Capitalization Stock Portfolios (two of the portfolios
comprising The Prudential Series Fund, Inc.) as of April 3, 1995. These
financial statements are the responsibility of the Fund'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 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 statements of assets and liabilities present fairly, in all
material respects, the financial position of each of the respective portfolios
of The Prudential Series Fund, Inc. as of April 3, 1995 in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP
Parsippany, New Jersey
April 3, 1995

C3
<PAGE>

PART II

OTHER INFORMATION

<PAGE>

UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.

UNDERTAKING WITH RESPECT TO INDEMNIFICATION

The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA
Insurance Company, Lloyds of London, Great American Insurance Company, Reliance
Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E.
Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides coverage for "Loss" (as defined in the policies)
arising from any claim or claims by reason of any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties solely in their capacities as directors or
officers of The Prudential, any of its subsidiaries, or certain investment
companies affiliated with The Prudential. Coverage is also provided to the
individual directors or officers for such Loss, for which they shall not be
indemnified. Loss essentially is the legal liability on claims against a
director or officer, including adjudicated damages, settlements and reasonable
and necessary legal fees and expenses incurred in defense of adjudicatory
proceedings and appeals therefrom. Loss does not include punitive or exemplary
damages or the multiplied portion of any multiplied damage award, criminal or
civil fines or penalties imposed by law, taxes or wages, or matters which are
insurable under the law pursuant to which the policies are construed.

There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or deliberate fraudulent acts of a director or officer, and (2)
claims arising from actual or alleged performance of, or failure to perform,
services as, or in any capacity similar to, an investment adviser, investment
banker, underwriter, broker or dealer, as those terms are defined in the
Securities Act of 1933, the Securities Exchange Act of 1934, the Investment
Advisers Act of 1940, the Investment Company Act of 1940, any rules or
regulations thereunder, or any similar federal, state or local statute, rule or
regulation.

The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.

The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text
of The Prudential's by-law 27, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) to this
Registration Statement.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-1

<PAGE>

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and documents:

The facing sheet.

Cross-reference to items required by Form N-8B-2.

The prospectus consisting of 81 pages.

The statement of additional information consisting of 101 pages.

The undertaking to file reports.

The undertaking with respect to indemnification.

The signatures.

Written consents of the following persons:

1. Deloitte & Touche LLP
2. Clifford E. Kirsch, Esq.
3. Nancy D. Davis, FSA, MAAA

The following exhibits:

1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:

A. (1) Resolution of Board of Directors of The Prudential Insurance
Company of America establishing The Prudential Variable
Appreciable Account. (Note 1)

(2) Not Applicable.

(3) Distributing Contracts:

(a) Distribution Agreement between Pruco Securities
Corporation and The Prudential Insurance Company of
America. (Note 9)

(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to
the Sale of the Contracts. (Note 1)

(4) Not Applicable.

(5) Variable Appreciable Life Insurance Contracts: (Note 2)

(a) With fixed death benefit for use in New Jersey and
domicile approval states.

(b) With variable death benefit for use in New Jersey and
domicile approval states.

(d) With variable death benefit for use in non-domicile
approval states.

(6) (a) Charter of The Prudential Insurance Company of America,
as amended February 26, 1988. (Note 7)

(b) By-laws of The Prudential Insurance Company of America,
as amended January 10, 1995. (Note 18)

(7) Not Applicable.

(8) Not Applicable.

(9) Not Applicable.

(10) (a) Application Form for Variable Appreciable Life
Insurance Contract. (Note 3)

(b) Supplement to the Application for Variable Appreciable
Life Insurance Contract. (Note 3)

(11) Form of Notice of Withdrawal Right. (Note 2)

(12) Memorandum describing The Prudential's issuance, transfer,
and redemption procedures for the Contracts pursuant to Rule
6e-3(T)(b)(12)(iii) and method of computing adjustments in
payments and cash surrender values upon conversion to
fixed-benefit policies pursuant to Rule
6e-3(T)(b)(13)(v)(B). (Note 1)

(13) Available Contract Riders and Endorsements:

(a) Rider for Insured's Waiver of Premium Benefit. (Note 3)

(b) Rider for Applicant's Waiver of Premium Benefit. (Note
3)

II-2

<PAGE>

(d) Rider for Level Term Insurance Benefit on Life of
Insured. (Note 3)

(e) Rider for Decreasing Term Insurance Benefit on Life of
Insured. (Note 3)

(f) Rider for Interim Term Insurance Benefit. (Note 3)

(g) Rider for Option to Purchase Additional Insurance on
Life of Insured. (Note 3)

(h) Rider for Decreasing Term Insurance Benefit on Life of
Insured Spouse. (Note 3)

(i) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 3)

(j) Rider for Level Term Insurance Benefit on Dependent
Children--from Term Conversions. (Note 3)

(k) Rider for Level Term Insurance Benefit on Dependent
Children--from Term Conversions or Attained Age Change.
(Note 3)

(l) Endorsement defining Insured Spouse. (Note 3)

(m) Rider covering lack of Evidence of Insurability on a
Child. (Note 3)

(n) Rider modifying Waiver of Premium Benefit. (Note 3)

(o) Rider to terminate a Supplementary Benefit. (Note 3)

(p) Rider providing for election of Variable Reduced
Paid-up Insurance. (Note 3)

(q) Rider to provide for exclusion of Aviation Risk. (Note
3)

(r) Rider to provide for exclusion of Military Aviation
Risk. (Note 3)

(s) Rider to provide for exclusion for War Risk. (Note 3)

(t) Rider to provide for Reduced Paid-up Insurance. (Note
3)

(u) Rider providing for Option to Exchange Policy. (Note 3)

(v) Endorsement defining Ownership and Control of the
Contract. (Note 3)

(w) Rider providing for Modification of Incontestability
and Suicide Provisions. (Note 3)

(x) Endorsement issued in connection with Non-Smoker
Qualified Contracts. (Note 3)

(y) Endorsement issued in connection with Smoker Qualified
Contracts. (Note 3)

(z) Home Office Endorsement. (Note 3)

(aa) Endorsement showing Basis of Computation for Non-Smoker
Contracts. (Note 3)

(bb) Endorsement showing Basis of Computation for Smoker
Contracts. (Note 3)

(cc) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount After Three Years. (Note 3)

(dd) Rider for Renewable Term Insurance Benefit on Life of
Insured. (Note 3)

(ee) Rider for Level Term Insurance Benefit on Life of
Insured Spouse. (Note 2)

(ff) Living Needs Benefit Rider

(i) for use in Florida. (Note 10)

(ii) for use in all approved jurisdictions except
Florida and New York. (Note 10)

(iii) for use in New York. (Note 15)

(gg) Rider for Renewable Term Insurance Benefit on Life of
Insured Spouse. (Note 12)

(hh) Rider for Level Term Insurance Benefit on Life of
Insured--Premium Increases Annually. (Note 12)

(ii) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount. (Note 14)

(jj) Rider for a Level Premium Option. (Note 15)

(kk) Payment of Unscheduled Premium Benefit (Note 16)

(ll) Rider for Scheduled Term Insurance Benefit on Life of
Insured. (Note 16)

(mm) Endorsement altering the Assignment provision. (Note 4)

2. See Exhibit 1.A.(5).

3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)

4. None.

5. Not Applicable.

6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)

7. The Prudential's representations regarding mortality and expense risks
and sales loads. (Note 2)

8. Indemnification Agreement. (Note 15)

II-3

<PAGE>

9. Powers of Attorney. (Note 1)

27. Financial Data Schedule. (Note 1)

(Note 1) Filed herewith.

(Note 2) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed June 15, 1988.

(Note 3) Incorporated by reference to Registrant's Form S-6, filed February 4,
1988.

(Note 4) Incorporated by reference to Post-Effective Amendment No. 14 to this
Registration Statement, filed February 15, 1995.

(Note 5) Incorporated by reference to Form N-8B-2, File Number 2-80897, filed
December 15, 1982, on behalf of The Prudential Individual Variable
Contract Account.

(Note 6) Incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed September 1, 1988.

(Note 7) Incorporated by reference to Post-Effective Amendment No. 2 to this
Registration Statement, filed March 2, 1989.

(Note 8) Incorporated by reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed April 28, 1989.

(Note 9) Incorporated by reference to Post-Effective Amendment No. 4 to this
Registration Statement, filed March 2, 1990.

(Note 10) Incorporated by reference to Post-Effective Amendment No. 5 to this
Registration Statement, filed March 30, 1990.

(Note 11) Incorporated by reference to Post-Effective Amendment No. 22 to Form
S-1, Registration No. 2-56179, filed April 27, 1989, on behalf of The
Prudential Insurance Company of America Variable Contract
Account--Investment Fund.

(Note 12) Incorporated by reference to Post-Effective Amendment No. 6 to this
Registration Statement, filed March 1, 1991.

(Note 13) Incorporated by reference to Post-Effective Amendment No. 8 to this
Registration Statement, filed December 30, 1991.

(Note 14) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed March 12, 1992.

(Note 15) Incorporated by reference to Post-Effective Amendment No. 11 to this
Registration Statement, filed April 8, 1993.

(Note 16) Incorporated by reference to Post-Effective Amendment No. 12 to this
Registration Statement, filed March 2, 1994.

(Note 17) Incorporated by reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed April 26, 1994.

(Note 18) Incorporated by reference to Post-Effective Amendment No. 26 to Form
N-3, Registration No. 2-76580, filed April __, 1995 on behalf of The
Prudential Variable Contract Account--10.

II-4

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the filing date of a Post-Effective Amendment
filed under Rule 485(a) which has not become effective, and has caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 27th day of April, 1995.

(Seal) The Prudential Variable Appreciable Account
(Registrant)

By: The Prudential Insurance Company of America
(Depositor)

Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
------------------------ -----------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary Vice President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 15 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 27th day of April, 1995.

Signature and Title
-------------------

/s/ *
- -------------------------------------
Arthur F. Ryan
Chairman of the Board, President and
Chief Executive Officer

/s/ *
- -------------------------------------
Garnett L. Keith, Jr.
Vice Chairman and Director

/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------- ------------------------
Eugene M. O'Hara Thomas C. Castano
Senior Vice President and Comptroller (Attorney-in-Fact)
and Chief Financial Officer

/s/ *
- -------------------------------------
Franklin A. Agnew
Director

/s/ *
- -------------------------------------
Frederic K. Becker
Director

/s/ *
- -------------------------------------
William W. Boeschenstein
Director

/s/ *
- -------------------------------------
Lisle C. Carter, Jr.
Director

/s/ *
- -------------------------------------
James G. Cullen
Director

II-5

<PAGE>

/s/ *
- -------------------------------------
Carolyne K. Davis
Director

/s/ *
- -------------------------------------
Roger A. Enrico
Director

/s/ *
- -------------------------------------
Allan D. Gilmour
Director

/s/ *
- -------------------------------------
William H. Gray, III
Director

/s/ *
- -------------------------------------
Jon F. Hanson
Director

/s/ *
- -------------------------------------
Constance J. Horner
Director

/s/ *
- -------------------------------------
Allen F. Jacobson
Director

/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------- -------------------------
Burton G. Malkiel Thomas C. Castano
Director (Attorney-in-Fact)

/s/ *
- -------------------------------------
John R. Opel
Director

/s/ *
- -------------------------------------
Charles R. Sitter
Director

/s/ *
- -------------------------------------
Donald L. Staheli
Director

/s/ *
- -------------------------------------
Richard M. Thomson
Director

/s/ *
- -------------------------------------
P. Roy Vagelos, M.D.
Director

/s/ *
- -------------------------------------
Stanley C. Van Ness
Director

/s/ *
- -------------------------------------
Paul A. Volcker
Director

/s/ *
- -------------------------------------
Joseph H. Williams
Director

II-6

<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Post-Effective Amendment No. 15 to Registration
Statement No. 33-20000 on Form S-6 of The Prudential Variable Appreciable
Account of The Prudential Insurance Company of America (1) of our report dated
February 10, 1995, relating to the financial statements of The Prudential
Variable Appreciable Account, and of our report dated March 1, 1995, except for
Note 12, as to which the date is April 25, 1995, relating to the consolidated
financial statements of The Prudential Insurance Company of America and
subsidiaries appearing in the Prospectus, which is a part of such Registration
Statement; (2) of our report dated February 10, 1995, relating to the financial
statements of The Prudential Series Fund, Inc. Money Market, Bond, Common Stock,
Aggressively Managed Flexible, Conservatively Managed Flexible, Zero Coupon Bond
1995, Zero Coupon Bond 2000, High Yield Bond, Stock Index, High Dividend Stock,
Natural Resources, Global Equity, Government Securities and Zero Coupon Bond
2005 portfolios (fourteen of the portfolios comprising The Prudential Series
Fund, Inc.) appearing in the Statement of Additional Information, which is a
part of such Registration Statement; and (3) of our report dated April 3, 1995
relating to the statements of assets and liabilities of the Growth Stock and
Small Capitalization Stock portfolios (two of the portfolios comprising The
Prudential Series Fund, Inc.) appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading of "Experts" in such Registration Statement.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey
April 27, 1995

II-7

<PAGE>

EXHIBIT INDEX

Consent of Deloitte & Touche LLP, independent auditors. Page II-7

1.A.(1) Resolution of Board of Directors of The Prudential Page II-9
Insurance Company of America establishing The Prudential
Variable Appreciable Account.

1.A.(3)(b) Proposed Form of Agreement between Pruco Securities Page II-17
Corporation and The Prudential Insurance Company of
America.

1.A.(12) Memorandum describing The Prudential's issuance, Page II-24
transfer, and redemption procedures for the Contracts
pursuant to Rule 6e-3(T)(b)(12)(iii) and method of
computing adjustments in payments and cash surrender
values upon conversion to fixed-benefit policies
pursuant to Rule 6e-3(T)(b)(13)(v)(B).

3. Opinion and Consent of Clifford E. Kirsch, Esq. as to Page II-51
the legality of the securities being registered.

6. Opinion and Consent of Nancy D. Davis, FSA, MAAA as to Page II-52
actuarial matters pertaining to the securities being
registered.

9. Powers of Attorney. Page II-54

27. Financial Data Schedule. Page II-102

II-8

Exhibit 1.A.(1)

The Prudential Insurance Company of America
Isabelle L. Kirchner
Vice President and Secretary

October 29, 1987

I hereby certify that the following is a true copy of an extract from the
minutes of a meeting of the Finance Committee of the Board of Directors of The
Prudential Insurance Company of America held on August 11, 1987, at which
meeting a quorum was present and that said minute has not since been altered or
rescinded:

Senior Vice President Hill reviewed with the Committee the desirability of
establishing two new separate accounts:

a. The Prudential Variable Life Insurance Account, and

b. The Prudential Variable Appreciable Account

After discussion, the Committee, on motion, duly made and seconded, adopted the
following resolutions:

II-9

<PAGE>

(a) RESOLVED, subject to the approval of the Commissioner of Insurance in
the State of New Jersey and to such conditions as said Commissioner may impose,
pursuant to Section 17B:28-7 of the Revised Statutes of New Jersey, the Company
hereby establishes a new commingled Variable Contract Account, to be designated
initially as "The Prudential Variable Life Insurance Account" (hereinafter
referred to as the "Account") and to be used for contracts under which values or
payments, or portions thereof, vary to reflect the investment results of said
Account; and

FURTHER RESOLVED, that the Company shall receive and hold in the Account
amounts arising from (i) purchase payments received pursuant to certain variable
life insurance contracts ("Variable Contracts") of the Company sold as part of
its Variable Life Insurance Program ("Program") and (ii) such other assets of
the Company as the proper officers of the Company may deem prudent and
appropriate to have invested in the same manner as the assets applicable to its
reserve liability under Variable Contracts funded in the Account, and such
amounts, together with the dividends, interest and gains produced thereby shall
be invested and reinvested, subject to the rights of the holders of such
Variable Contracts, in shares of The Prudential Series Fund, Inc., and open-end
diversified management investment company of the series type, at the net asset
value of such shares at the time of acquisition; and

II-10

<PAGE>

-2-

FURTHER RESOLVED, that the Account shall be registered as an investment
company under the Investment Company Act of 1940, and that proper officers of
the Company be and they hereby are authorized to sign and file, or cause to be
filed with the Securities and Exchange Commission, a registration statement, on
behalf of the Account, as registrant, under the Investment Company Act of 1940
("Investment Company Act Registration") and to sign and file, or cause to filed,
an exemption application, including any amendments thereto, seeking an order
under Section 6(c) of the Investment Company Act of 1940, which shall grant such
exemptions from the provisions of that Act as may be necessary or desirable
("Exemption Application"); and

FURTHER RESOLVED, that the proper officers of the Company be and they
hereby are authorized to sign and file, or cause to be filed, with the
Securities and Exchange Commission on behalf of the Company as issuer, a
registration statement, including the financial statements and schedules,
exhibits and form of prospectus required as a part thereof, for the registration
under the Securities Act of 1933 of the offering and sale of the Variable
Contracts, to the extent they represent participating interests in the Account
("Securities Act Registration"), and to pay the registration fees required in
connection therewith; and

II-11

<PAGE>

-3-

FURTHER RESOLVED, that the proper officers of the Company are authorized
and directed to sign and file, or cause to be filed, such amendment or
amendments of such Invest Company Act Registration, Exemption Application and
Securities Act Registration as they may find necessary or desirable from time to
time; and

FURTHER RESOLVED, that the signature of any director or officer required by
law to affix his signature to any such Investment Company Act Registration,
Exemption Application and Securities Act Registration, or to any amendment
thereof, may be affixed by said director or officer personally, or by an
attorney in fact duly constituted in writing by said director or officer to sign
his name thereto; and

FURTHER RESOLVED, that the Secretary of the Company is appointed agent of
the Company to receive any and all notices and communications from the
Securities and Exchange Commission relating to such Investment Company Act
Registration, Exemption Application, and Securities Act Registration and any and
all amendments thereof; and

II-12

<PAGE>

-4-

such further action as may be necessary or desirable, including but not limited
to the payment of applicable fees and compliance with such laws and regulations
of the several states as may be applicable to the Company's Program, in order to
effectuate the purposes of the foregoing resolutions or any of them.

(b) RESOLVED, subject to the approval of the Commissioner of Insurance in
the State of New Jersey and to such conditions as said Commissioner may impose,
pursuant to Section 17B:28-7 of the Revised Statutes of New Jersey, the Company
hereby establishes a new commingled Variable Contract Account, to be designated
initially as "The Prudential Variable Appreciable Account" (hereinafter referred
to as the "Account") and to be used for contracts under which values or
payments, or portions thereof, vary to reflect the investment results of said
Account; and

FURTHER RESOLVED, that the Company shall receive and hold in the Account
amounts arising from (i) purchase payments received pursuant to certain Variable
Appreciable Life Insurance Contracts ("Variable Contracts") of the Company sold
as part of its Variable Appreciable Life Insurance Program ("Program") and (ii)
such other assets of the Company as the proper officers of the Company may deem
prudent and appropriate to

II-13

<PAGE>

-5-

have invested in the same manner as the assets applicable to its reserve
liability under Variable Contracts funded in the Account, and such amounts,
together with the dividends, interest and gains produced thereby shall be
invested and reinvested, subject to the rights of the holders of such Variable
Contracts, in shares of The Prudential Series Fund, Inc., and open-end
diversified management investment company of the series type, at the net asset
value of such shares at the time of acquisition; and

FURTHER RESOLVED, that the Account shall be registered as an investment
company under the Investment Company Act of 1940, and that the proper officers
of the Company be and they hereby are authorized to sign and file, or cause to
be filed with the Securities and Exchange Commission, a registration statement,
on behalf of the Account, as registrant, under the Investment Company Act of
1940 ("Investment Company Act Registration") and to sign and file, or cause to
be filed, an exemption application, including any amendments thereto, seeking an
order under Section 6(c) of the Investment Company Act of 1940, which shall
grant such exemption from the provisions of that Act as may be necessary or
desirable ("Exemption Application"); and

FURTHER RESOLVED, that the proper officers of the Company be and they
hereby are authorized to sign and file, or cause to be filed, with the

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<PAGE>

-6-

Securities and Exchange Commission on behalf of the Company as issuer, a
registration statement, including the financial statements and schedules,
exhibits and form of prospectus required as a part thereof, for the registration
under the Securities Act of 1933 of the offering and sale of the Variable
Contracts, to the extent they represent participating interests in the Account
("Securities Act Registration"), and to pay the registration fees required in
connection therewith; and

FURTHER RESOLVED, that the proper officers of the Company are authorized
and directed to sign and file, or cause to be filed, such amendment or
amendments of such Investment Company Act Registration, Exemption Application
and Securities Act Registration as they may find necessary or desirable from
time to time; and

II-15

<PAGE>

-7-

FURTHER RESOLVED, that the proper officers of the Company be and they
hereby are authorized, in the name and on behalf of the Company, to execute and
deliver such corporate documents and certificates and to take such further
action as may be necessary or desirable, including but not limited to the
payment of applicable fees and compliance with such laws and regulations of the
several states as may be applicable to the Company's Program, in order to
effectuate the purposes of the forgoing resolutions or any of them.

Secretary
The Prudential Insurance Company
of America

October 29, 1987

II-16

Exhibit 1.A.(3)(b)

SELECTED BROKER AGREEMENT

AGREEMENT dated __________________________, by and between Pruco Securities
Corporation (Distributor), a New Jersey corporation and _______________________
(Broker), a _________________________ corporation.

WITNESSETH:

In consideration of the mutual promises contained herein, the parties
hereto agree as follows:

A. Definitions

(1) Contracts--Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto which may be issued
and issued by any one of Pruco Life Insurance Company, Pruco Life
Insurance Company of New Jersey or The Prudential Insurance Company of
America (hereinafter collectively called the "Company") and for which
Distributor has been appointed the principal underwriter pursuant to
Distribution Agreements, copies of which have been furnished to
Broker.

(2) Accounts--Separate accounts established and maintained by Company
pursuant to the laws of Arizona or New Jersey, as applicable, to fund
the benefits under the Contracts.

(3) The Prudential Series Fund, Inc., or the Fund--An open-end management
investment company registered under the 1940 Act, shares of which are
sold to the Accounts in connection with the sale of the Contracts.

(4) Registration Statement--The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Fund,
including financial statements and all exhibits.

(5) Prospectus--The prospectuses included within the registration
Statements referred to herein.

(6) 1933 Act--The Securities Act of 1933, as amended.

(7) 1934 Act--The Securities Exchange Act of 1934, as amended.

(8) SEC--The Securities and Exchange Commission.

B. Agreements of Distributor

(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there
is an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.

(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the

II-17

<PAGE>

registration and/or offering of the Contracts and of any other action
or circumstance that may prevent the lawful sale of the contract in
any state or jurisdiction.

(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.

C. Agreements of Broker

(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the National Association of
Securities Dealers, Inc. and that the agents or representatives of
Broker who will be soliciting applications for the Contracts also will
be duly registered representatives of Broker.

(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use its best efforts to find purchasers for the
contract acceptable to Company. In meeting its obligation to use its
best efforts to solicit applications for Contracts, Broker shall,
during the term of this Agreement, engage in the following activities:

(a) Continuously utilize training, sales and promotional materials
which have been approved by Company;

(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may
be requested on the results of such inspections and the
compliance with such procedures.

(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to
an applicant to purchase a Contract in the absence of reasonable
grounds to believe that the purchase of the Contract is suitable
for such applicant. While not limited to the following, a
determination of suitability shall be based on information
furnished to a representative after reasonable inquiry of such
applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and the likelihood
that the applicant will continue to make the premium payments
contemplated by the Contract.

(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall be
remitted promptly in full together with such applications, forms and
other required documentation to an office of the company designated by
Distributor. Checks or money orders in payment of initial premiums
shall be drawn to the order of the applicable one of "Pruco Life
Insurance Company", (for contracts issued by Pruco Life Insurance
Company and/or Pruco Life Insurance Company of New Jersey) or "The
Prudential Insurance Company of America". Broker acknowledges that the
Company retains the ultimate right to control the sale of the
Contracts and that the Distributor or Company shall have the
unconditional right to reject, in whole or part, any application for
the contract. In the event Company or Distributor rejects an
application, Company immediately will return all payments directly to
the purchaser and Broker will be notified of such action. In the event
that any purchaser of a Contract elects to return such Contract
pursuant to Rule 6e-2(b)(13)(viii) of the 1940 Act, the purchaser will
receive a refund of any premium payments, plus or minus any change due
to investment performance in the value of the invested portion of such
premiums; however, if applicable state law so requires, the purchaser
who exercises his short-term cancellation right will receive a refund
of all payments made, unadjusted for investment experience prior to
the cancellation. The Broker will be notified of any such action.

II-18

<PAGE>

(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or
any employees thereof as employees of Company or Distributor in
connection with the solicitation of applications for Contracts.
Broker, its agents or representatives, and its employees shall not
hold themselves out to be employees of Company or Distributor in this
connection or in any dealings with the public.

(5) Broker agrees that any material it develops, approves or uses for
sales, training, explanatory or other purposes in connection with the
solicitation of applications for Contracts hereunder (other than
generic advertising materials which do not make specific reference to
the Contracts) will not be used without the prior written consent of
Distributor and, where appropriate, the endorsement of Company to be
obtained by Distributor.

(6) Solicitation and other activities by Broker shall be undertaken only
in accordance with applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the Contracts
until duly licensed and appointed by Company as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed. Broker understands and acknowledges that neither it nor its
agents or representatives is authorized by Distributor or Company to
give any information or make any representation in connection with
this Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material authorized
in writing by Distributor or Company.

(7) Broker shall not have authority on behalf of Distributor or Company
to: make, alter or discharge any Contract or other form; waive any
forfeiture, extend the time of paying any premium; receive any monies
or premiums due, or to become due, to Company, except as set forth in
Section C(3) of this Agreement. Broker shall not expend, nor contract
for the expenditure of the funds of Distributor, nor shall Broker
possess or exercise any authority on behalf of Broker by this
Agreement.

(8) Broker shall have the responsibility for maintaining the records of
its representatives licensed, registered and otherwise qualified to
sell the Contracts. Broker shall maintain such other records as are
required of it by applicable laws and regulations. The books, accounts
and records of Company, the Account, Distributor and Broker relating
to the sale of the Contracts shall be maintained so as to clearly and
accurately disclose the nature and details of the transactions. All
records maintained by the Broker in connection with this Agreement
shall be the property of the Company and shall be returned to the
Company upon termination of rights by the Broker. Nothing in this
Section C(8) shall be interpreted to prevent the Broker from retaining
copies of any such records which the Broker, in its discretion, deems
necessary or desirable to keep. The Broker shall keep confidential any
information obtained pursuant to this Agreement and shall disclose
such information, only if the Company has authorized such disclosure,
or if such disclosure is expressly required by applicable federal or
state regulatory authorities.

D. Compensation

(1) Pursuant to the Distribution Agreement between Distributor and
Company, Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each contract
sold by an agent or representative of Broker. The amount of such
compensation shall be based on a schedule to be determined by
agreement of Company, Distributor and Broker. Company shall identify
to Broker with each such payment the name of the agent or
representative of Broker who solicited each Contract covered by the
payment.

II-19

<PAGE>

(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive
for purposes of payment of commission or otherwise. Neither Broker nor
any of its agents or representatives shall have an interest in any
compensation paid by Company to Distributor, now or hereafter, in
connection with the sale of any Contracts hereunder.

E. Use of Insurance Agency Affiliate of Broker

It is understood and agreed that the registered representatives of
Broker engaged in the offer and sale of the Contracts may be employed by
(___________), an affiliate of Broker which is licensed as an insurance
agency (hereinafter referred to as "Insurance Agency Affiliate"), and whose
shareholders, officers, and employees are "associated persons" of Broker
within the meaning of Section 3(a)(18) of the 1934 Act. It is further
understood and agreed that records relating to sales of Contracts by such
employees may be maintained by Insurance Company Affiliate. It is further
understood and agreed that commissions payable under this agreement shall,
if broker so directs, be paid to Insurance Agency Affiliate. Broker agrees
that, if the Contracts are sold through Insurance Agency affiliate:

(1) Broker will retain full responsibility for compliance with the
requirements of the 1933 Act and the 1934 Act, and will continue to
perform all obligations set forth in Section C above.

(2) Any books and records maintained by Insurance Agency Affiliate will be
deemed, for purposes of the 1934 Act, to be books and records of
Broker and will conform to the requirements of Section 17(a) of the
1934 Act and the rules thereunder. The manner in which the books and
records of Broker and Insurance Agency Affiliate are made and
maintained will permit supervisory personnel of Broker as well as
authorized examiners of the SEC or of another appropriate governmental
agency or self-regulatory organization to review data concerning
transactions in the Contracts effected through Insurance Agency
Affiliate to the same extent as if such transactions had been effected
through Broker itself. This may be accomplished either through
maintaining one set of books and records for Broker and Insurance
Agency Affiliate or by maintaining separate sets of books and records
with adequate integration, through cross-referencing or otherwise,
between records maintained by Broker and those maintained by Insurance
Agency Affiliate.

(3) Any receipt by Insurance Agency Affiliate of commissions for the sale
of the Contracts, and any payment by Insurance Agency Affiliate of
commissions for the sale of the Contracts to its sales personnel, will
be reflected in the FOCUS reports filed by Broker pursuant to Section
17(a) of the 1934 Act and the rules thereunder and in its fee
assessment reports filed with the National Association of Securities
Dealers, Inc.

(4) All premiums derived from the sale of the Contract through Insurance
Agency Affiliate will be sent directly to the Company by Insurance
Agency Affiliate customers or will be sent by them to Broker for
forwarding to the Company. Insurance Agency Affiliate will not receive
or accumulate customer funds nor will it receive or maintain custody
of customer securities.

F. Complaints and Investigations

(1) Broker and Distributor jointly agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the Contracts marketed under
this Agreement. Broker and Distributor further agree to cooperate
fully in any securities regulatory investigation or proceeding or
judicial proceeding with respect to Broker, Distributor, their
affiliates and their agents or representatives to the extent that such
investigation or

II-20

<PAGE>

proceeding is in connection with Contract marketed under this
Agreement. Broker shall furnish applicable federal and state
regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may
request in order to ascertain whether the Company's operations are
being conducted in a manner consistent with any applicable law or
regulation.

G. Term of Agreement

(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.

(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section
F hereof; (b) the indemnity set forth in Section H hereof; and (c) the
obligation to settle accounts hereunder, including commission payments
on premiums subsequently received for Contracts in effect at the time
of termination or issued pursuant to applications received by Broker
prior to termination.

H. Indemnity

(1) Broker shall be held to the exercise of reasonable care in carrying
out the provision of this Agreement.

(2) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liabilities, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of material fact, required to be stated
therein or necessary to make the statements therein not misleading,
contained in any Registration Statement or any post-effective
amendment thereof or in the Prospectus or any amendment or supplement
to the Prospectus, or any sales literature provided by the Company or
by the Distributor.

(3) Broker agrees to indemnify and hold harmless Company and Distributor
and each of their current and former directors and officers and each
person, if any, who controls or has controlled Company or Distributor
within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities to which Company or Distributor
and any such director or officer or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon:

(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers; or

(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other
compensation or renumeration of any type;

(c) The failure of Broker, its officers, employees, or agents to
comply with the provisions of this Agreement; and Broker will
reimburse Company and Distributor and any director or officer or
controlling person of either for any legal or other expenses
reasonably incurred by Company, Distributor, or such director,
officer of controlling

II-21

<PAGE>

person in connection with investigating or defending any such
loss, claims, damage, liability or action. This indemnity
agreement will be in addition to any liability which Broker may
otherwise have.

I. Assignability

This Agreement shall not be assigned by either party without the written
consent of the other.

J. Governing Law

This Agreement shall be governed by and Construed in accordance with the
laws of the State of New Jersey.

In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

PRUCO SECURITIES CORPORATION
(Distributor)

By:___________________________
President

______________________________
(Broker)

By:____________________________

II-22

<PAGE>

SELECTED BROKER AGREEMENT
SCHEDULE A

The following policies are the Contracts as defined in the Agreement made and
effective ________________, 19__, between Pruco Securities Corporation and
_____________________.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

VARIABLE APPRECIABLE LIFE
(Flexible Premium Variable Life Policy)

VARIABLE LIFE
(Scheduled Premium Variable Life Policy)

II-23

Exhibit 1.A.(12)

Description of The Prudential's Issuance, Transfer
and Redemption Procedures for
Variable Appreciable Life Insurance Contracts
Pursuant to Rule 6e-3(T)(b)(12)(iii)

and

Method of Computing Adjustments in
Payments and Cash Surrender Values Upon
Conversion to Fixed Benefit Policies
Pursuant to Rule 6e-3(T)(b)(13)(v)(B)

This document sets forth the administrative procedures that will be
followed by The Prudential Insurance Company of America ("The Prudential") in
connection with the issuance of its Variable Appreciable Life Insurance Contract
("Contract"), the transfer of assets held thereunder, and the redemption by
contract owners of their interests in said Contracts. The document also explains
the method that The Prudential will follow in making a cash adjustment when a
Contract is exchanged for a fixed benefit insurance policy pursuant to Rule
6e-3(T)(b)(13)(v)(B).

I. Procedures Relating to Issuance and Purchase of the Contracts

A. Premiums Schedules and Underwriting Standards

Premiums for the Contract will not be the same for all owners. Insurance is
based on the principle of pooling and

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<PAGE>

distribution of mortality risks, which assumes that each owner pays a premium
commensurate with the Insured's mortality risk as actuarially determined
utilizing factors such as age, sex (in most cases), smoking status, health and
occupation. A uniform premium for all Insureds would discriminate unfairly in
favor of those Insureds representing greater risks. However, for a given face
amount of insurance, Contracts issued on insureds in a given risk classification
will have the same scheduled premium.

The underwriting standards and premium processing practices followed by The
Prudential are similar to those followed in connection with the offer and sale
of fixed-benefit life insurance, modified where necessary to meet the
requirements of the federal securities laws.

B. Application and Initial Premium Processing

Upon receipt of a completed application form from a prospective owner, The
Prudential will follow certain insurance underwriting (i.e., evaluation of risk)
procedures designed to determine whether the proposed Insured is insurable. In
the majority of cases this will involve only evaluation of the answers to the
questions on the application and will not include a medical examination. In
other cases,

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<PAGE>

the process may involve such verification procedures as medical examinations and
may require that further information be provided by the proposed Insured before
a determination can be made. A Contract cannot be issued, i.e., physically
issued through The Prudential's computerized issue system, until this
underwriting procedure has been completed.

These processing procedures are designed to provide immediate benefits to
every prospective owner who pays the initial scheduled premium at the time the
application is submitted, without diluting any benefit payable to any existing
owner. Although a Contract cannot be issued until after the underwriting process
has been completed, such a proposed Insured will receive immediate insurance
coverage for the face amount of the Contract, if he or she proves to be
insurable and the owner has paid the first scheduled premium.

The Contract Date marks the date on which benefits begin to vary in
accordance with the investment performance of the selected investment option(s).
It is also the date as of which the insurance age of the proposed Insured is
determined. It represents the first day of the Contract year and therefore
determines the Contract anniversary and also

II-26

<PAGE>

the Monthly Dates. It also represents the commencement of the suicide and
contestable periods for purposes of the Contract.

If the initial scheduled premium is paid with the application and no
medical examination is required (so that Part 2 of the application is not
completed) the Contract Date will ordinarily be the date of the application. If
an unusual delay is encountered (for example, if a request for further
information is not met promptly), the Contract Date will be 21 days prior to the
date on which the Contract is physically issued. If a medical examination is
required, the Contract Date will ordinarily be the date on which Part 2 of the
application (the medical report) is completed, subject to the same qualification
as that noted above.

If the initial scheduled premium is not paid with the application, the
Contract Date will be the Contract Date stated in the Contract, which will
generally be the date the initial premium is received from the owner and the
Contract is delivered.

There are two principal variations from the foregoing procedure. First, if
the owner wishes permanent insurance protection and variability of benefits to
commence at a

II-27
<PAGE>

future date, he or she can designate that date and purchase term insurance in a
fixed amount for the intervening period. The maximum length of initial term
insurance available is eleven months.

Second, if permitted by the insurance laws of the state in which the
Contract is issued, the Contract may be back dated up to six months, provided
that all past due scheduled premiums are paid with the application and that the
backdating results in a lower insurance age for the Insured. The values under
the Contract and the amount(s) deposited into the selected investment option(s)
will be calculated upon the assumptions that the Contract has been issued on the
Contract Date and all scheduled premiums had been received on their due dates.
If the initial premium paid is in excess of the aggregate of the scheduled
premiums due since the Contract Date, the excess (after the front-end
deductions) will be credited to the Contract and placed in the selected
investment option(s) on the date of receipt.

In general, (1) the invested portion of the initial scheduled premium will
be placed in the Contract Fund and allocated to the selected investment options
as of the Contract Date; and (2) the invested portion of any premiums

II-28
<PAGE>

in excess of the initial scheduled premium will be placed in the Contract Fund
and allocated to the selected investment options as of the later of the Contract
Date and the date received.

If, however, one or more premium due dates has passed before all
requirements for the issuance of the Contract have been satisfied, (1) the
invested portion of the initial scheduled premium will be placed in the Contract
Fund as of the Contract Date, (2) scheduled premiums will be placed in the
Contract Fund as of the intervening premium due dates, and (3) any premium
payments in excess of the aggregate premiums due since the Contract Date will be
placed in the Contract Fund as of the date of receipt.

C. Premium Processing

Whenever a premium after the first is received, unless the Contract is in
default past its days of grace, The Prudential will subtract the front-end
deductions. What is left will be invested in the selected investment option(s)
on the date received (or, if that is not a business day, on the next business
day). There is an exception if the Contract is in default within its days of
grace. Then, to the extent

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<PAGE>

necessary to end the default, premiums will be credited as of the date of the
default or the Monthly Date after default, and premiums greater than this amount
will be credited when received.

D. Reinstatement

The Contract may be reinstated within five years after default (this period
will be longer if required by state law) unless the Contract has been
surrendered for its cash surrender value. A Contract will be reinstated upon
receipt by The Prudential of a written application for reinstatement, production
of evidence of insurability satisfactory to The Prudential and payment of at
least the amount required to bring the premium account up to zero on the first
monthly date on which a scheduled premium is due after the date of
reinstatement. Any contract debt under reduced paid-up insurance must be repaid
with interest or carried over to the reinstated contract.

The Prudential will treat the amount paid upon reinstatement as a premium.
It will deduct the front-end charges, plus any charges in arrears, other than
mortality charges, with interest. The contract fund of the reinstated Contract
will, immediately upon reinstatement, be equal to

II-30

<PAGE>

this net premium payment, plus the cash surrender value of the Contract
immediately before reinstatement, plus a refund of that part of the deferred
sales and administrative charges which would be charged if the Contract were
surrendered immediately after reinstatement. An adjustment will be made for any
termination dividend paid at the time of lapse. The original Contract Date still
controls for purposes of calculating any contingent deferred sales and
administrative charges, and any termination dividends.

The reinstatement will take effect as of the date the required proof of
insurability and payment of the reinstatement amount have been received by The
Prudential at its Home Office.

The Prudential may agree to accept a lower amount than described above.
This lower amount must be at least the amount necessary to bring the contract
fund after reinstatement up to the tabular contract fund, plus the estimated
monthly charges for the next three months. The contract fund after reinstatement
will be calculated in the same way as described above. In this case, the premium
account after reinstatement will be negative, so payment of

II-31

<PAGE>

future scheduled premiums does not guarantee that the contract will not lapse at
some time in the future.

There is an alternative to this reinstatement procedure that applies only
if reinstatement is requested within three months after the contract went into
default. In such a case evidence of insurability will not be required and the
amount of the required payment will be the lesser of the unpaid scheduled
premiums and the amount necessary to make the contract fund equal to the tabular
contract fund on the third Monthly Date following the date on which the Contract
went into default.

E. Repayment of Loan

A loan made under the Contract may be repaid with an amount equal to the
monies borrowed plus interest which accrues daily, either at a fixed annual rate
of 5-1/2% or, if a contract owner has elected to have a variable loan interest
rate applicable to loans made under the Contract, at the variable loan interest
rate then applicable to the loan.

When a loan is made, The Prudential will transfer an amount equal to the
contract loan from the investment option(s). Under the fixed-rate contract loan
provision, the amount of contract fund attributable to the outstanding

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<PAGE>

contract loan will be credited with interest at an annual rate of 4%, and The
Prudential thus will realize the difference between that rate and the fixed loan
interest rate, which will be used to cover the loan investment expenses, income
taxes, if any, and processing costs. If an owner so desires, the owner may elect
to have a variable loan interest rate apply to the contract loans, if any, that
he or she may make. If this election is made:

1. Interest on the loan will accrue daily at an annual rate The Prudential
determines at the start of each contract year (instead of at a fixed rate), as
described in the prospectus.

2. While a loan is outstanding, the amount of the contract fund
attributable to the outstanding contract loan will be credited with interest at
a rate which is less than the loan interest rate for the contract year by 1%
(instead of 4%).

Upon repayment of Contract debt, the loan portion of the payment (i.e., not
the interest) will be added to the investment option(s). Amounts originally
borrowed from the fixed-rate option will be allocated to the fixed-rate option,
and the rest will be allocated among the variable investment

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<PAGE>

option(s) in proportion to the amounts in each variable investment option
attributable to the Contract as of the date of repayment.

II. Transfers

The Prudential Variable Appreciable Account ("Account") currently has 16
subaccounts, each of which is invested in shares of a corresponding portfolio of
The Prudential Series Fund, Inc. ("Fund"), which is registered under the 1940
Act as an open-end diversified management investment company. In addition, a
fixed-rate option and Real Property Account are available for investment by
contract owners. Provided the Contract is not in default or is in force as
variable reduced paid-up insurance, the owner may, up to four times in each
contract year, transfer amounts from one subaccount to another subaccount, to
the fixed-rate option, or to the Real Property Account without charge. All or a
portion of the amount credited to a subaccount may be transferred.

In addition, the entire amount of the contract fund may be transferred to
the fixed-rate option at any time during the first two contract years. A
contract owner who wishes to convert his or her variable contract to a
fixed-benefit

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<PAGE>

contract in this manner must request a complete transfer of funds to the
fixed-rate option and should also change his or her allocation instructions
regarding any future premiums.

Transfers among subaccounts will take effect at the end of the valuation
period during which a proper written request or authorized telephone request is
received at a Prudential Home Office. The request may be in terms of dollars,
such as a request to transfer $10,000 from one account to another, or may be in
terms of a percentage reallocation among subaccounts. In the latter case, as
with premium reallocations, the percentages must be in whole numbers.

Transfers from either the fixed-rate option or the Real Property Account to
other investment options are currently permitted only once each contract year
and only during the thirty-day period beginning on the contract anniversary. The
maximum amount which may currently be transferred out of the fixed-rate option
each year is the greater of: (a) 25% of the amount in the fixed-rate option, and
(b) $2,000. The maximum amount which may currently be transferred out of the
Real Property Account each year is the greater of: (a) 50% of the amount in the
Real Property Account, and (b) $10,000. Such transfer requests received prior to
the contract

II-35

<PAGE>

anniversary will be effected on the contract anniversary. Transfer requests
received within the thirty-day period beginning on the contract anniversary will
be effected as of the end of the valuation period during which the request is
received. These limits are subject to change in the future.

III. "Redemption" Procedures: Surrender and Related Transactions

A. Surrender for Cash Surrender Value

If the insured party under a Contract is alive, The Prudential will pay,
within seven days, the Contract's cash surrender value as of the date of receipt
at its Home Office of the Contract and a signed request for surrender. The
Contract's cash surrender value is computed as follows:

1. If the Contract is not in default: The cash surrender value is the
contract fund, minus any surrender charge, consisting of a deferred sales charge
and a deferred administrative charge, minus any contract debt, plus any
termination dividend.

The deferred sales charge and deferred administrative charge are described
in the prospectus. The deferred administrative charge is designed to recover the
administrative expenses, such as underwriting expenses,

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<PAGE>

incurred in connection with the issuance of a Contract. As a result, in the
early months after issue, there may be no cash surrender value if only scheduled
premiums are paid.

2. If the Contract is in default during its days of grace, The Prudential
will compute the cash surrender value as of the date the Contract went into
default. It will adjust this value for any loan the owner took out or paid back
or any premium payments or withdrawals made in the days of grace.

3. If the Contract is in default beyond its days of grace, the cash
surrender value as of any date will be either the value on the date of any
extended insurance benefit then in force, or the value on that date of any fixed
or variable reduced paid-up insurance benefit then in force, less any Contract
debt.

In lieu of the payment of the cash surrender value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all or a
portion of the proceeds under one of the fixed benefit settlement options
described in the Contract or, with the approval of The Prudential, a combination
of options. An option is available only if the proceeds to be applied are $1,000
or more or would result in

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<PAGE>

periodic payments of at least $20.00. The fixed-benefit settlement options are
subject to the restrictions and limitations set forth in the Contract.

B. Partial Surrenders and Withdrawal of Excess Cash Surrender Value

An owner may surrender a Contract in part. Partial surrender involves
splitting the Contract into two Contracts. One is surrendered for its cash
surrender value; the other is continued in force on the same terms as the
original Contract except that future scheduled premiums are reduced based upon
the continued Contract's face amount and all values under the Contract are
proportionately reduced based upon the reduction in the face amount of
insurance. The Contract continued must have at least the minimum face amount of
insurance stated in the contract.

An alternative to surrender or partial surrender of a Contract is a
withdrawal of cash surrender value without splitting the Contract into two
Contracts. A withdrawal may be made only if the following conditions are
satisfied. First, the amount withdrawn, plus the cash surrender value after
withdrawal, may not be more than the cash surrender value before withdrawal.
Second, the contract fund after the

II-38

<PAGE>

withdrawal must not be less than the tabular contract fund after the withdrawal.
Third, the amount withdrawn must be at least $500 under a Form B Contract and at
least $2,000 under a Form A Contract. An owner may make no more than four such
withdrawals in a Contract year, and there is a fee of the lesser of $15 and 2%
of the amount withdrawn for each such withdrawal. An amount withdrawn may not be
repaid except as a premium subject to the Contract charges.

Whenever a withdrawal is made, the death benefit payable will immediately
be reduced by at least the amount of the withdrawal. This will not change the
guaranteed minimum amount of insurance under a Form B Contract (i.e., the face
amount) nor the amount of the scheduled premium that will be payable thereafter
on such a Contract. Under a Form A Contract, however, the resulting reduction in
death benefit may require a reduction in the face amount. No withdrawal will be
permitted under a Form A Contract if it would result in a new face amount less
than the minimum face amount. Furthermore, any applicable deferred
administrative and sales charges are reduced in proportion to the reduction in
face amount. The contract fund is reduced by the sum of the cash withdrawn, the
fee for the withdrawal and the reduction in

II-39

<PAGE>

the backload. An amount equal to the reduction in the contract fund will be
withdrawn from the investment options. In addition, the amount of the scheduled
premiums due thereafter under a Form A Contract will be reduced to reflect the
lower face amount of insurance.

C. Death Claims

The Prudential will pay a death benefit to the beneficiary within seven
days after receipt at its Service Office of due proof of death of the Insured
and all other requirements necessary to make payment. State Insurance laws
impose various requirements, such as receipt of a tax waiver, before payment of
the death benefit may be made. In addition, payment of the death benefit is
subject to the provisions of the Contract regarding suicide and
incontestability. In the event The Prudential should contest the validity of a
death claim, an amount up to the portion of the Contract fund in the variable
investment options will be withdrawn, if appropriate, and held in The
Prudential's general account.

The following describes the death benefit if the Contract is not in default
past its days of grace. The death benefit under a Form A Contract is the face
amount less any contract debt. The death benefit under a Form B Contract is the
face

II-40

<PAGE>

amount, plus any excess of the contract fund over the tabular contract fund,
less any contract debt. There may be an additional amount payable from an extra
benefit added to the Contract by rider. Tabular contract funds on Contract
anniversaries are shown in the contract data pages. Tabular contract funds at
intermediate times can be obtained by interpolation.

If the contract fund grows to exceed the net single premium at the
insured's attained age for the death benefit described above, the death benefit
will be the contract fund, divided by such net single premium. The death benefit
will be adjusted for any contract debt and any extra benefits in the same manner
as above.

The proceeds payable on death also will include interest (at a rate
determined by The Prudential from time to time) from the date that the death
benefit is computed (the date of death) until the date of payment.

The Prudential will make payment of the death benefit out of its general
account, and will transfer assets, if appropriate, from the Account and/or the
Real Property Account to the general account in an amount up to the contract
fund.

II-41

<PAGE>

In lieu of payment of the death benefit in a single sum, an election may be
made to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Contract or, with the approval of The
Prudential, a combination of options. The election may be made by the owner
during the Insured's lifetime, or, at death, by the beneficiary. An option in
effect at death may not be changed to another form of benefit after death. An
option is available only if the proceeds to be applied are $1,000 or more or
would result in periodic payments of at least $20.00. The fixed benefit
settlement options are subject to the restrictions and limitations set forth in
the Contract.

D. Default and Options on Lapse

The Contract is in default on any Monthly Date on which the premium account
is less than zero and the contract fund is less than an amount which will grow
at the assumed net rate of return to the tabular contract fund applicable on the
next Monthly Date. Monthly Dates occur on the Contract Date and in each later
month on the same day of the month as the Contract Date. The Contract provides
for a grace period commencing on the Monthly Date on which the Contract goes

II-42

<PAGE>

into default and extending at least 61 days after the mailing date of the notice
of default. The insurance coverage continues in force during the grace period,
but if the Insured dies during the grace period, any charges due during the
grace period are deducted from the amount payable to the beneficiary.

Except for Contracts issued on certain insureds in high risk rating
classes, a lapsed Contract will normally provide extended term insurance at
expiration of the grace period. The death benefit of the extended term insurance
is equal to the death benefit of the Contract (excluding riders) as of the date
of default, less any Contract debt. The extended term insurance will continue
for a length of time that depends on the cash benefit of the extended term
insurance is equal to the death benefit of the Contract (excluding riders) as of
the due date of the premium in default, less any Contract debt. The extended
term insurance will continue for a length of time that depends on the cash
surrender value on the due date of first unpaid premium, the amount of
insurance, and the age and sex of the insured. However, extended term insurance
may be exchanged, if the contract owner so elects, for fixed or variable reduced
paid-up

II-43
<PAGE>

insurance within three months of the due date of the premium in default. The
face amount of the reduced paid-up insurance will depend on the cash surrender
value on the due date of the premium in default, and the age and sex of the
insured. Variable reduced paid-up is only available if the amount of such
insurance is at least $5,000, and if the insured is not in a high risk rating
class.

Contracts issued on the above-mentioned high risk insureds will be
converted to fixed reduced paid-up whole-life insurance at expiration of the
grace period.

If the amount of variable reduced paid-up (VRPU) is at least equal to the
amount of extended term insurance, and VRPU is available, then VRPU will be the
automatic option on lapse.

E. Loans

The Contract provides that an owner, if no premium is in default beyond the
grace period, may take out a loan at any time a loan value is available. The
Contract also provides for a loan value if the Contract is in effect under the
contract value option for fixed or variable reduced paid-up insurance, but not
if it is in effect as extended term insurance. The owner may borrow money on
completion of a

II-44

<PAGE>

form satisfactory to The Prudential. The Contract is the only security for the
loan. Disbursement of the amount of the loan will be made within seven days of
receipt of the form at The Prudential's Home Office. The investment options will
be debited in the amount of the loan on the date the form is received. The
percentage of the loan withdrawn from each investment option will normally be
equal to the percentage of the value of such assets held in the investment
option. An owner may borrow up to the Contract's full loan value. The loan
provision is described in the prospectus.

A loan does not affect the amount of premiums due. When a loan is made, the
contract fund is not reduced, but the value of the assets relating to the
Contract held in the investment option(s) is reduced. Accordingly, the daily
changes in the cash surrender value will be different from what they would have
been had no loan been taken. Cash surrender values and the death benefit are
thus permanently affected by any Contract debt, whether or not repaid.

The guaranteed minimum death benefit is not affected by Contract debt if
premiums are duly paid. However, on settlement the amount of any Contract debt
is subtracted from the insurance proceeds. If Contract debt ever becomes equal

II-45
<PAGE>

to or more than what the cash surrender value would be if there was no Contract
debt, all the Contract's benefits will end 31 days after notice is mailed to the
owner and any known assignee, unless payment of an amount sufficient to end the
default is made within that period.

F. Key Employee Rider

Many life insurance companies offer fixed-benefit "key person" insurance
policies. Those policies enable an employer to purchase life insurance payable
to the employer upon the death of an important or "key" employee whose death
would constitute a financial disadvantage to the employer. Such policies often
permit the owner the right to change the person insured under the policy, a
right often exercised when the original insured terminates his or her employment
with the company and is replaced by another person.

If permitted by the insurance laws of the state in which the Contract is
issued, a rider to the Contract is available, referred to herein as the "key
person" rider, that allows the owner the option to continue the Contract in
force on the life of a different insured, subject to certain conditions. This
rider is primarily offered to corporate and non-corporate employers who own or
may purchase a Contract issued

II-46

<PAGE>

on the life of a key employee. The rider may be included at the time the
original Contract is issued or added after issue. If the Contract includes this
rider, the owner will be able to continue the Contract in force on the life of a
different key employee. Thus, the rider provides employers with a way to
purchase the Contract on the life of a key employee that may continue in force
in an appropriately modified form on the life of a new employee when the
original insured leaves the owner's employment. The revised Contract will have a
new scheduled premium and certain other revised specifications, which will be
set forth in a new Contract document. An Owner's exercise of the option provided
by the key person rider could be viewed as an exchange of the existing Contract
for a new Contract. The Contract prior to the owner's exercise of the option to
change insureds will be referred to as the "original Contract". The Contract in
force after the exchange is effected will be referred to as the "new Contract."

An Owner's exercise of the right granted by the key person rider is subject
to several conditions. These conditions include but are not limited to the
following: (i) the new insured must have been alive as of the original Contract
Date

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<PAGE>

(i.e., the date the Contract was issued) and must be less than 70 years old as
of the date of the proposed change of insureds; (ii) the new insured must
satisfy The Prudential's underwriting requirements; (iii) the owner of the new
Contract must remain the same as the owner of the original Contract and that
owner must have an insurable interest in the new insured's life; and (iv) The
Prudential must not be waiving any premiums under the Contract pursuant to a
rider that waives premiums in the event of disability.

The specifications of the new Contract will be determined as follows: The
Contract date will remain the same as that of the original Contract. The face
amount of the new Contract will generally be the amount requested by the owner
in the application to effect the change of insureds, except that it cannot be
more than the face amount of the original Contract. The contract fund of the
original Contract will become the initial contract fund of the new Contract. The
premium for the new Contract will be based on The Prudential's rates in force on
the date of the change for the new insured's rating class. If the original
Contract has contract debt due to an outstanding loan, the contract debt may be
transferred to the new Contract unless that debt would

II-48

<PAGE>

exceed the new Contract's loan value, in which case the excess contract debt
must be paid off.

Upon the exchange of the original Contract for the new Contract, neither
the contingent deferred sales charge nor the contingent deferred administrative
charge is assessed. If the new Contract is subsequently surrendered, however,
the Contract's cash surrender value will be determined by using the greater of
the surrender charges that would apply under the original or the new Contract.
Thus, with respect to the contingent deferred administrative charge, the amount
of this charge upon surrender of the new Contract will be determined on the
basis of the face amount of the original Contract since the face amount cannot
be increased upon exercise of the right to change insureds. The original
Contract Date, however, will govern for purposes of determining whether this
charge will be reduced or eliminated for persistency.

With respect to the contingent deferred sales load, the amount of this
charge can be increased following exercise of the option granted by the key
person rider because the scheduled premiums on the new Contract can be higher
than the scheduled premiums on the original Contract due to the replacement of
the original insured with an insured of an

II-49

<PAGE>

older issue age. If this is so, the contingent deferred sales load will be
calculated as if the Contract had originally been issued on the life of the new
insured. The original Contract Date will control for purposes of calculating the
reduction in the contingent deferred sales charge for persistency.

IV. Cash Adjustment Upon Exchange of Contract

As described previously, at any time during the first 24 months after a
Contract is issued, so long as the Contract is not in default, the Owner may
transfer all amounts in the variable investment options into the fixed-rate
option. This option is provided in lieu of the option to exchange to a
comparable fixed-benefit life insurance combined.

II-50

Exhibit 3

April 24, 1995

The Prudential Insurance Company
of America
Prudential Plaza
Newark, New Jersey 07102-3777

Gentlemen:

In my capacity as Chief Counsel, Variable Products of The Prudential Insurance
Company of America, I have reviewed the establishment on August 11, 1987 of The
Prudential Variable Appreciable Account (the "Account") by the Finance Committee
of the Board of Directors of The Prudential Insurance Company of America ("The
Prudential") as a separate account for assets applicable to certain variable
life insurance contracts, pursuant to the provisions of Section 17B:28-7 of the
Revised Statutes of New Jersey. I am responsible for oversight of the
preparation and review of Registration Statements on Form S-6, as amended, filed
by The Prudential with the Securities and Exchange Commission (Registration No.
33-20000 and Registration No. 33-25372) under the Securities Act of 1933 for the
registration of certain variable appreciable life insurance contracts issued
with respect to the Account.

I am of the following opinion:

1. The Prudential is a corporation duly organized under the laws of the State
of New Jersey and is a validly existing corporation.

2. The Account has been duly created and is validly existing as a separate
account pursuant to the aforesaid provisions of New Jersey law.

3. The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable appreciable life
insurance contracts is not chargeable with liabilities arising out of any
other business The Prudential may conduct.

4. The variable appreciable life insurance contracts are legal and binding
obligations of The Prudential, in accordance with their terms.

In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.

I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.

Very truly yours,

Clifford E. Kirsch

II-51

Exhibit 6

April 24, 1995

The Prudential Insurance
Company of America
Prudential Plaza
Newark, New Jersey 07102-3777

To The Prudential:

This opinion is furnished in connection with the registration by The Prudential
Insurance Company of America of variable appreciable life insurance contracts
("Contracts") under the Securities Act of 1933. The prospectus included in
Post-Effective Amendment No. 15 to Registration Statement No. 33-20000 on Form
S-6 describes the Contracts. I have reviewed the two Contract forms and I have
participated in the preparation and review of the Registration Statement and
Exhibits thereto. In my opinion:

(1) The illustrations of cash surrender values and death benefits included in
the section of the prospectus entitled "Hypothetical Illustration of Death
Benefits and Cash Surrender Values", based on the assumptions stated in the
illustrations, are consistent with the provisions of the respective forms
of the Contracts. The rate structure of the Contracts has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear more favorable to a prospective purchaser of a
Contract issued on a male age 35, than to prospective purchasers of
Contracts on males of other ages or on females.

(2) The illustration of the effect of a Contract loan on the cash surrender
value included in the section of the prospectus entitled "Contract Loans",
based on the assumptions stated in the illustration, is consistent with the
provisions of the Form A Contract.

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<PAGE>

(3) The deduction in an amount equal to 1.25% of each premium is a reasonable
charge in relation to the additional income tax burden imposed upon The
Prudential Insurance Company of America as the result of the enactment of
Section 848 of the Internal Revenue Code. In reaching that conclusion a
number of factors were taken into account that, in my opinion, were
appropriate and which resulted in a projected after-tax rate of return that
is a reasonable rate to use in discounting the tax benefit of the
deductions allowed in Section 828 in taxable years subsequent to the year
in which the premiums are received.

I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.

Very truly yours,

Nancy D. Davis, FSA, MAAA
Vice President and Assistant Actuary
The Prudential Insurance Company of America

II-53

Exhibit 9

POWER OF ATTORNEY

Know all men by these presents:

That I, Franklin E. Agnew, of Pittsburgh, Pennsylvania, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Investment Plan Account and Systematic Investment Plan
Contracts, to the extent they represent participating interests in said
Account, and shares of the Common Stock of Prudential's Gibraltar Fund;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

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<PAGE>

Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of March,
1995.

FRANKLIN AGNEW
------------------
Signature

State of Pennsylvania )
) SS
County of Allegheny )

On this 20th day of March, 1995, before me personally appeared Franklin E.
Agnew, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires:
7/19/97

KAREN M. JENKINS
------------------
Notary Public

II-55

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Frederic K. Becker, of Short Hills, New Jersey, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

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<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March,
1995.

FREDERIC K. BECKER
------------------
Signature

State of New Jersey )
) SS
County of Middlesex )

On this 9th day of March, 1995, before me personally appeared Frederic K.
Becker, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires:
June 27, 1999

ELIZABETH R. HOWLEY
-------------------
Notary Public
II-57

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, William W. Boeschenstein, of Perrysburg, Ohio, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-58

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

W. W. BOESCHENSTEIN
-------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared William W.
Boeschenstein, to me known to me to be the person mentioned and described in and
who executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
-------------------
Notary Public
II-59

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Lisle C. Carter, Jr., of Flint Hill, Virginia, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-60

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

LISLE C. CARTER, JR.
--------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Lisle C.
Carter, Jr., to me known to me to be the person mentioned and described in and
who executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
-------------------
Notary Public

II-61

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, James G. Cullen, of Alexandria, Virginia, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-62

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

JAMES G. CULLEN
------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared James G.
Cullen, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
---------------------
Notary Public

II-63

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Carolyn K. Davis, of Washington, D.C., a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-64

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

CAROLYN K. DAVIS
---------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Carolyn K.
Davis, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
------------------------
Notary Public

II-65

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Roger A. Enrico, of Dallas, Texas, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-66

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of
March, 1995.

ROGER A. ENRICO
------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Roger A.
Enrico, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
--------------------------
Notary Public

II-67

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Allan D. Gilmour, of Dearborn, Michigan, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-68

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of April,
1995.

ALLAN D. GILMOUR
-------------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 11th day of April, 1995, before me personally appeared Allan D.
Gilmour, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: December 24, 1995

MARGARET D. MCQUADE
------------------------
Notary Public

II-69

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, William H. Gray III, of Vienna, Virginia, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-70

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

WILLIAM H. GRAY III
---------------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 199_, before me personally appeared William H.
Gray III, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
-------------------------
Notary Public

II-71

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Jon F. Hanson, of Far Hills, New Jersey, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-72

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March,
1995.

JON F. HANSON
-------------------
Signature

State of New Jersey )
) SS
County of Bergen )

On this 7th day of March, 1995, before me personally appeared Jon F.
Hanson, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: May 2, 1996

ANNE R. OMMUNDSEN
------------------------
Notary Public

II-73

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Constance J. Horner, of Washington, D.C., a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-74

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of April,
1995.

CONSTANCE HORNER
------------------------
Signature

District of Columbia )
) SS
)

On this 13th day of April, 1995, before me personally appeared Constance
Horner, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires:

CAROL P. HALLORAN
-------------------------
Notary Public
II-75

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Allen F. Jacobson, of St. Paul, Minnesota, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-76

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March,
1995.

ALLEN F. JACOBSON
------------------
Signature

State of Minnesota )
) SS
County of Ramsey )

On this 23rd day of March, 1995, before me personally appeared
_________________________________, to me known to me to be the person mentioned
and described in and who executed the foregoing instrument and duly acknowledged
to me that (s)he executed the same.

My commission expires: January 31, 2000

CHARLENE L. REUTER
------------------
Notary Public

II-77

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Garnett L. Keith, Jr., of Chatham, New Jersey, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-78

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of March,
1995.

GARNETT L. KEITH
------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 15th day of March, 1995, before me personally appeared Garnett L.
Keith, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: April 7, 1999

MARGA CONN
------------------
Notary Public

II-79

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Burton G. Malkiel, of Princeton, New Jersey, a member of the Board
of Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-80

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account--
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

BURTON G. MALKIEL
-------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Burton G.
Malkiel, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
-------------------
Notary Public

II-81

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Eugene M. O'Hara, of Rumson, New Jersey, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-82

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of January,
1995.

EUGENE M. O'HARA
------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 27 day of January, 1995, before me personally
appeared Eugene O'Hara, to me known to me to be the person
mentioned and described in and who executed the foregoing instrument and duly
acknowledged to me that (s)he executed the same.

My commission expires: 7/29/99

JULIE A. AMADOR
------------------
Notary Public

II-83

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, John R. Opel, of Sanibel, Florida, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-84

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

JOHN R. OPEL
-------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared John R.
Opel, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
---------------------
Notary Public

II-85

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Arthur F. Ryan, of New York, New York, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-86

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

ARTHUR F. RYAN
---------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Arthur F.
Ryan, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

Margaret D. McQuade
------------------------
Notary Public

II-87

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Charles R. Sitter, of Dallas, Texas, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-88

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
1995.

CHARLES R. SITTER
----------------------
Signature

State of Texas )
) SS
County of Dallas )

On this 3rd day of April, 1995, before me personally appeared Charles R.
Sitter, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: 6-15-97

CYNTHIA L. BIRDSALL
--------------------------
Notary Public

II-89

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Donald L. Staheli, of New Canaan, Connecticut, a member of the
Board of Directors of The Prudential Insurance Company of America, do hereby
make, constitute and appoint as my true and lawful attorneys in fact DOROTHY K.
LIGHT, ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY,
TIMOTHY P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY
JO REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-90

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of April,
1995.

DONALD L. STAHELI
-------------------------
Signature

State of New York )
) SS
County of New York )

On this 6th day of April, 1995, before me personally appeared Donald L.
Staheli, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: January 31, 1997

JOSEPHINE N. KING
----------------------
Notary Public

II-91

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Richard M. Thomson, of Toronto, Ontario, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-92

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of March,
1995.

RICHARD M. THOMSON
----------------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 14th day of March, 1995, before me personally appeared Richard M.
Thomson, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
----------------------------
Notary Public

II-93

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, P. Roy Vagelos, of Far Hills, New Jersey, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-94

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March,
1995.

ROY VAGELOS
---------------------
Signature

State of New Jersey )
) SS
County of Somerset )

On this 7th day of March, 1995, before me personally appeared P. Roy
Vagelos, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Nov. 9, 1998

DIANE TAYLOR
----------------------
Notary Public

II-95

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Stanley C. Van Ness, of Brielle, New Jersey, a member of the Board
of Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-96

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of April,
1995.

STANLEY C. VAN NESS
------------------------
Signature

State of New Jersey )
) SS
County of Essex )

On this 11th day of April, 1995, before me personally appeared Stanley C.
Van Ness, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: Dec. 24, 1995

MARGARET D. MCQUADE
--------------------------
Notary Public

II-97

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Paul A. Volcker, of New York, New York, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-98

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March,
1995.

PAUL A. VOLCKER
-------------------------
Signature

State of New York )
) SS
County of New York )

On this 8th day of March, 1995, before me personally appeared Paul A.
Volcker, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: 3/31/95

ANDREA SMALLWOOD
-----------------------
Notary Public

II-99

<PAGE>

POWER OF ATTORNEY

Know all men by these presents:

That I, Joseph H. Williams, of Tulsa, Oklahoma, a member of the Board of
Directors of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact DOROTHY K. LIGHT,
ROSANNE J. BARUH, THOMAS C. CASTANO, MARY L. CAVANAUGH, THOMAS A. EARLY, TIMOTHY
P. HARRIS, COLLEEN P. KELLY, THOMAS J. LOFTUS, BERNARD V. PETERSON, MARY JO
REICH, PETER T. SCOTT, ANDREW M. SHAINBERG, GEORGE S. SHIVELY and CHARLES C.
SPRAGUE or any of them severally for me and in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:

The Prudential Variable Contract Account-2 and group variable annuity
contracts, to extent they represent participating interests in said
Account;

The Prudential Variable Contract Account-10 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-11 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Account-24 and group annuity contracts, to
extent they represent participating interests in said Account;

The Prudential Variable Contract Real Property Account and individual
variable life insurance and annuity contracts, to the extent they represent
participating interests in said Account;

Prudential's Annuity Plan Account and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;

II-100

<PAGE>

Group variable retirement annuity contracts, to the extent they represent
participating interests in Prudential's Variable Contract Account --
Investment Fund;

The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in
said Account;

The Prudential Qualified Individual Variable Contract Account and
Individual Variable Annuity Contracts, to the extent they represent
participating interests in said Account;

The Prudential Variable Appreciable Account and Variable Appreciable Life
Insurance Contracts, to the extent they represent participating interests
in said Account; and

The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account.

IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of March,
1995.

JOSEPH H. WILLIAMS
-------------------------
Signature

State of Oklahoma )
) SS
County of Tulsa )

On this 15th day of March, 1995, before me personally appeared Joseph H.
Williams, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.

My commission expires: August 30, 1997

MOLLY M. GEORGE
-----------------------
Notary Public

II-101

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<MULTIPLIER> 1

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> $2,600,908
<INVESTMENTS-AT-VALUE> $2,587,138
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<DISTRIBUTIONS-OF-INCOME> $0
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<NET-CHANGE-IN-ASSETS> $521,651
<ACCUMULATED-NII-PRIOR> $0
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