PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT, 485BPOS, 1998-04-24

PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
485BPOS, 1998-04-24

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AS FILED WITH THE SEC ON _______________. REGISTRATION NO. 33-49994

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-6

POST-EFFECTIVE AMENDMENT NO. 9

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

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

PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)

PRUCO LIFE INSURANCE COMPANY
----------------------------
(Name of Depositor)

213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 437-4016
(Address and telephone number of principal executive offices)

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

THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)

Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036

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, 1998 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 1B)

5. Pruco Life PRUVIDER Variable Appreciable Account

6. Pruco Life PRUVIDER Variable Appreciable Account

7. Not Applicable

8. Not Applicable

9. Litigation

10. Brief Description of the Contract; Short-Term
Cancellation Right or "Free Look"; Transfers; How the
Contract Fund Changes with Investment Experience;
How a Contract's Death Benefit Will Vary; Surrender of
a Contract; Withdrawal of Excess Cash Surrender Value
(Part 1B); When Proceeds are Paid; Contract Loans;
Lapse and Reinstatement; Paid-Up Insurance Option;
The Fixed-Rate Option; Voting Rights; Possible
Replacement of Series Fund (Part 1B)

11. Brief Description of the Contract; Pruco Life PRUVIDER
Variable Appreciable Account

12. Cover Page; Brief Description of the Contract; Flexible
Portfolios; Further Information About The Series Fund;
Sale of the Contract and Sales Commissions (Part 1B)

13. Brief Description of the Contract; Premiums; Allocation
of Premiums; Contract Fees and Charges; Reduction of
Charges for Concurrent Sales to Several Individuals;
(Part 1B); Sale of the Contract and Sales Commissions
(Part 1B)

14. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners

15. Brief Description of the Contract; Premiums; Allocation
of Premiums; Transfers; General Information About
Pruco Life PRUVIDER Variable Appreciable Account, and
The Fixed Rate Option

16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners

17. Surrender of a Contract; Withdrawal of Excess Cash
Surrender Value (Part 1B); When Proceeds are Paid

18. Pruco Life PRUVIDER Variable Appreciable Account; How
the Contract Fund Changes with Investment Experience

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 1B); Possible
Replacement of The Series Fund (Part 1B)

25. Brief Description of the Contract

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

27. Brief Description of the Contract

28. Brief Description of the Contract; Directors and Officers
of Pruco Life and Management of the Series Fund (Part
1B)

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 1B)

39. Sale of the Contract and Sales Commissions (Part 1B)

40. Not Applicable

41. Sale of the Contract and Sales Commissions (Part 1B)

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; Pruco Life PRUVIDER
Variable Appreciable Account; Further Information
About the Series Fund

47. Pruco Life PRUVIDER Variable Appreciable Account;
Further Information About the Series Fund

48. Not Applicable

49. Not Applicable

50. Not Applicable

51. Not Applicable

52. Possible Replacement of the Series Fund (Part 1B)

<PAGE>

N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
53. Tax Treatment of Contract Benefits; Tax Treatment of
Contract Benefits (Part 1B)

54. Not Applicable

55. Not Applicable

56. Not Applicable

57. Not Applicable

58. Not Applicable

59. Financial Statements; Financial Statements of the Pruco
Life Variable Appreciable Account; Consolidated
Financial Statements of Pruco Life Insurance Company
and Subsidiaries

<PAGE>

PART I

INFORMATION REQUIRED IN PROSPECTUS

<PAGE>

PRUvider(SM) Variable
Appreciable Life(R) Insurance

PROSPECTUS

The Pruco Life PRUvider Variable
Appreciable Account and
The Prudential Series Fund, Inc.

May 1, 1998

PRUCO LIFE INSURANCE COMPANY

<PAGE>

PROSPECTUS

MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY
PRUVIDER VARIABLE APPRECIABLE ACCOUNT

PRUVIDER (SM)
VARIABLE APPRECIABLE LIFE (R)
INSURANCE CONTRACT

This prospectus describes a variable life insurance contract issued by Pruco
Life Insurance Company ("Pruco Life"), a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"). Pruco Life calls this contract its PRUVIDER(sm) Variable
APPRECIABLE LIFE(R) Insurance Contract* (the "Contract"). The Contract provides
whole-life insurance protection. The death benefit varies daily with investment
experience but will never be less than a guaranteed minimum amount (the face
amount specified in the Contract). The Contract also generally provides a cash
surrender value which does not have a guaranteed minimum amount.

The assets held for the purpose of paying benefits under these and other similar
contracts are segregated from the other assets of Pruco Life and are invested in
one or both of the current subaccounts of the Pruco Life PRUVIDER Variable
Appreciable Account (from now on, the "Account"). In this case, the assets will
be invested in the corresponding portfolio of The Prudential Series Fund, Inc.
(from now on, the "Series Fund"). The two portfolios of the Series Fund
currently available to Contract owners are the CONSERVATIVE BALANCED PORTFOLIO
and the FLEXIBLE MANAGED PORTFOLIO. The contract owner may also choose to have
the assets invested in a FIXED-RATE OPTION. This prospectus describes the
Contract generally, the Pruco Life PRUVIDER Variable Appreciable Account and the
securities issued by the Series Fund.

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 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 Pruco Life 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 Pruco
Life Insurance Company at the address shown below.

THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
POLICY SHOULD BE REQUESTED, THEREBY PROTECTING THE BENEFITS OF THE ORIGINAL
POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISOR.

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

PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992

Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.

<PAGE>

TABLE OF CONTENTS

PAGE

INTRODUCTION AND SUMMARY.......................................................1
BRIEF DESCRIPTION OF THE CONTRACT.....................................1
BALANCED PORTFOLIOS...................................................3
CONSERVATIVE BALANCED PORTFOLIO..............................3
FLEXIBLE MANAGED PORTFOLIO...................................4
FIXED-RATE OPTION.....................................................4
TRANSFERS BETWEEN INVESTMENT OPTIONS..................................4
THE SCHEDULED PREMIUM.................................................4
PAYMENT OF HIGHER PREMIUMS............................................4
CONTRACT LOANS........................................................4
PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS................4

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

PORTFOLIO RATES OF RETURN......................................................7

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS AND ACCUMULATED
PREMIUMS.....................................................................8

GENERAL INFORMATION ABOUT PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
AND THE FIXED RATE OPTION.............................................9
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT......................9
THE FIXED-RATE OPTION.................................................9

DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT..............................10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".........................10
CONTRACT FEES AND CHARGES............................................10
Deductions from Premiums....................................10
Deductions from Portfolios..................................10
Monthly Deductions from Contract Fund.......................11
Daily Deduction from the Contract Fund......................12
Surrender or Withdrawal Charges.............................12
Transaction Charges.........................................13
CONTRACT DATE........................................................13
PREMIUMS ............................................................13
ALLOCATION OF PREMIUMS...............................................14
TRANSFERS............................................................14
HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE.............15
HOW A CONTRACT'S DEATH BENEFIT WILL VARY.............................15
CONTRACT LOANS.......................................................16
SURRENDER OF A CONTRACT..............................................16
LAPSE AND REINSTATEMENT..............................................17
Fixed Extended Term Insurance...............................17
Fixed Reduced Paid-Up Insurance.............................17
Variable Reduced Paid-Up Insurance..........................17
What Happens If No Request Is Made?.........................17
PAID-UP INSURANCE OPTION.............................................17
WHEN PROCEEDS ARE PAID...............................................18
LIVING NEEDS BENEFIT.................................................18
Terminal Illness Option.....................................18
Nursing Home Option.........................................18
VOTING RIGHTS........................................................19
REPORTS TO CONTRACT OWNERS...........................................19
TAX TREATMENT OF CONTRACT BENEFITS...................................20
Treatment as Life Insurance.................................20
Pre-Death Distributions.....................................20
Other Tax Consequences......................................20
Withholding.................................................20
OTHER CONTRACT PROVISIONS............................................21

FURTHER INFORMATION ABOUT THE SERIES FUND.....................................21

<PAGE>

PAGE

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS..........................21
BALANCED PORTFOLIOS..................................................21
Conservative Balanced Portfolio.............................21
Flexible Managed Portfolio..................................22
FOREIGN SECURITIES...................................................24
RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE.........................................24
OPTIONS, FUTURES CONTRACTS AND SWAPS.................................25
SHORT SALES..........................................................25
REPURCHASE AGREEMENTS................................................25
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS.......................26
LOANS OF PORTFOLIO SECURITIES........................................26

INVESTMENT RESTRICTIONS APPLICABLE TO THE PORTFOLIOS..........................26

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES...............................26
PORTFOLIO BROKERAGE AND RELATED PRACTICES............................27

STATE REGULATION..............................................................27

EXPERTS .....................................................................27

LITIGATION....................................................................28

YEAR 2000 COMPLIANCE..........................................................28

EXPANDED TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............28

ADDITIONAL INFORMATION........................................................30

FINANCIAL STATEMENTS..........................................................30

FINANCIAL STATEMENTS OF THE PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT..A1

CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY 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 AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR
THE SERIES FUND.

<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 28.

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 ("SEC"), 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 PRUVIDER Variable APPRECIABLE LIFE Contract (referred to from now on as the
"Contract") is issued and sold by the Pruco Life Insurance Company ("Pruco
Life"), a stock life insurance company, organized in 1971 under the laws of the
State of Arizona. It is licensed to sell life insurance and annuities in the
District of Columbia, Guam, and in all states except New York. These Contracts
are not offered in any state in which the necessary approvals have not yet been
obtained.

Pruco Life is a wholly-owned subsidiary of Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. Prudential is
currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
or more years to complete. No plan of demutualization has been adopted yet by
the Company's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Company policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by the
Board of Directors and management of the Company as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.

Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and Contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and Contract owners of Prudential's subsidiaries,
including the Pruco Life insurance companies.

As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential is under no obligation to make such contributions and its
assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.

1
<PAGE>

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. Pruco Life has established
the Pruco Life PRUVIDER Variable Appreciable Account (the "Account") under
Arizona law as a separate investment account whose assets are segregated from
all other assets of Pruco Life. Whenever you pay a premium, Pruco Life first
deducts certain charges (described below) and, unless you decide otherwise 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 2 subaccounts and you must decide which one[s]
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. Those two portfolios -- called the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED PORTFOLIO -- differ in the amount of
risk associated with them and are described in more detail below.

Because the assets that relate to the Contract may be invested in these variable
investment options, the Contract offers an opportunity for your cash surrender
value to appreciate more rapidly than it would under comparable fixed-benefit
whole-life insurance. You, however, must accept the risk that if investment
performance is unfavorable the cash surrender value may not appreciate as
rapidly and, indeed, may decrease in value. If you prefer to avoid this risk you
may elect to allocate part or all of the net premiums in a fixed-rate option
under which a stated interest rate is credited to the amount of your Contract
Fund allocated to that option. See THE FIXED-RATE OPTION, page 9.

Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, Pruco Life 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 10. In brief, and
subject to that fuller description, the following diagram outlines the charges
which may be made:

------------------------------------------------------------
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 Conservative Balanced Portfolio
o The Flexible Managed Portfolio
o The Fixed-Rate Option
---------------------------------------------------------------------

2
<PAGE>

---------------------------------------------------------------------
DAILY CHARGES

o A daily charge equivalent to an annual rate of up to 0.9% is deducted
from the assets of the subaccounts for mortality and expense risks.

o Management fees and expenses are deducted from the assets of the
Series Fund. See DEDUCTIONS FROM PORTFOLIOS, page 10.

---------------------------------------------------------------------
|
---------------------------------------------------------------------
MONTHLY CHARGES

o A sales charge is 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 $6
per Contract and up to $0.19 per $1,000 of face amount of insurance
(currently, on a non-guaranteed basis, the $0.19 charge is decreased
to $0.09 per $1,000); if the face amount of the Contract is less than
$10,000, there is an additional charge of $0.30 per $1,000 of face
amount.

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.

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

Because of the charges listed above, and in particular because of the
significant charges deducted upon early surrender or lapse, you should purchase
a Contract only if you intend and have the financial capability to keep it in
force for a substantial period.

When you first buy the Contract you give instructions to Pruco Life as to what
combination of the three investment options you wish your Contract Fund
invested. Thereafter you may make changes in these allocations either in writing
or by telephone. The investment objectives of the portfolios, described more
fully starting on page 21 of this prospectus, and of the fixed-rate option are
as follows:

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED 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 who desires
diversification of investment who prefers a relatively

3
<PAGE>

lower risk of loss than that associated with the Flexible Managed Portfolio
while recognizing that this reduces the chances of greater appreciation.

FLEXIBLE MANAGED PORTFOLIO. Achievement of a high total investment 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.

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 fixed-rate
option which under certain circumstances Pruco Life may waive.

THE SCHEDULED PREMIUM

Your Contract sets forth an annual Scheduled Premium, or one that is payable
more frequently, such as monthly. Pruco Life 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.

The amount of the scheduled premium depends on the Contract's face amount, the
insured's sex (except where unisex rates apply) and age at issue, the insured's
risk classification, the rate for taxes attributable to premiums, and the
frequency of premium payments selected. Under certain low face amount Contracts
issued on younger insureds, the payment of the Scheduled Premium may cause the
Contract to be classified as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 20. The scheduled premium will not be increased (except
to reflect changes in the rate for taxes attributable to premiums). See
PREMIUMS, page 13.

PAYMENT OF HIGHER PREMIUMS

The payment of premiums in excess of Scheduled Premiums may cause the Contract
to be classified as a Modified Endowment Contract. See PREMIUMS, page 13 and TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

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 16. When a loan is made, the amount
held under the investment options described above is reduced, proportionately,
by the amount of the loan.

PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTS

Pruco Life's PRUVIDER Variable APPRECIABLE LIFE Insurance Contract is a form of
life insurance that provides much of the flexibility of variable universal life.
However, it differs in two important ways. First, Pruco Life guarantees that if
the Scheduled Premiums are paid when due or within the grace period (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

4
<PAGE>

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 PRUVIDER 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, Pruco Life 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 2 available portfolios of the Series
Fund 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 PORTFOLIO DEDUCTIONS.

5
<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)
The following highlights for the two years ended December 31, 1997 have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. In addition, the financial highlights for each of the years
prior to and including the period ended December 31, 1995 have been audited by
other independent auditors, whose report thereon was also unqualified. Price
Waterhouse LLP's report is included in the Statement of Additional Information.

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
----------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30 $ 11.89
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.76 0.66 0.63 -0.53 0.49 0.56 0.69 0.82 0.89 0.77
Net realized and
unrealized gains
(losses) on
investments..... 1.26 1.24 1.78 (0.68) 1.23 0.41 1.74 (0.14) 1.15 0.43
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total from
investment
operations... 2.02 1.90 2.41 (0.15) 1.72 0.97 2.43 0.68 2.04 1.20
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.76) (0.66) (0.64) (0.51) (0.47) (0.54) (0.67) (0.81) (0.89) (0.79)
Distributions from
net realized
gains........... (1.81) (1.03) (0.56) (0.15) (0.58) (0.51) (0.50) (0.17) (0.09) --
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Total
distributions. (2.57) (1.69) (1.20) (0.66) (1.05) (1.05) (1.17) (0.98) (0.98) (0.79)
--------- --------- --------- -------- -------- --------- --------- --------- -------- --------
Net Asset Value,
end of year..... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32 $ 13.06 $ 13.36 $ 12.30
========= ========= ========= ======== ======== ========= ========= ========= ======== ========
TOTAL INVESTMENT
RETURN(b)....... 13.45% 12.63% 17.27% (0.97)% 12.20% 6.95% 19.07% 5.27% 16.99% 10.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $ 4,744.2 $ 4,478.8 $ 3,940.8 $3,501.1 $3,103.2 $ 2,114.0 $ 1,500.0 $ 1,100.2 $ 976.0 $ 815.6
Ratios to average
net assets:
Expenses........ 0.56% 0.59% 0.58% 0.61% 0.60% 0.62% 0.63% 0.65% 0.64% 0.65%
Net investment
income........ 4.48% 4.13% 4.19% 3.61% 3.22% 3.88% 4.89% 6.21% 6.81% 6.22%
Portfolio turnover
rate............ 295% 295% 201% 125% 79% 62% 115% 44% 154% 111%
Average commission
rate paid per
share........... $0.0563 $0.0554 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value,
beginning of
year............ $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12 $ 12.33
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment
income.......... 0.59 0.57 0.56 0.47 0.57 0.58 0.65 0.72 0.82 0.72
Net realized and
unrealized gains
(losses) on
investments..... 2.52 1.79 3.15 (1.02) 1.88 0.61 2.81 (0.47) 1.99 0.84
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total from
investment
operations.. 3.11 2.36 3.71 (0.55) 2.45 1.19 3.46 0.25 2.81 1.56
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment
income.......... (0.58) (0.58) (0.56) (0.45) (0.57) (0.56) (0.66) (0.70) (0.81) (0.77)
Distributions from
net realized
gains........... (3.04) (1.85) (0.79) (0.46) (0.93) (0.91) (0.51) -- (0.67) --
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Total
distributions. (3.62) (2.43) (1.35) (0.91) (1.50) (1.47) (1.17) (0.70) (1.48) (0.77)
--------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
Net Asset Value,
end of year..... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29 $ 14.00 $ 14.45 $ 13.12
========= ========= ========= ======== ======== ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN(b)....... 17.96% 13.64% 24.13% (3.16)% 15.58% 7.61% 25.43% 1.91% 21.77% 12.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in
millions)....... $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9
Ratios to average
net assets:
Expenses........ 0.62% 0.64% 0.63% 0.66% 0.66% 0.67% 0.67% 0.69% 0.69% 0.70%
Net investment
income........ 3.02% 3.07% 3.30% 2.90% 3.30% 3.63% 4.23% 5.13% 5.66% 5.52%
Portfolio turnover
rate............ 227% 233% 173% 124% 63% 59% 93% 52% 141% 128%
Average commission
rate paid per
share........... $0.0569 $0.0563 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

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

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 performance of the portfolios is contained in the
Annual Report to Contract Owners which may be obtained without charge.

<PAGE>

PORTFOLIO RATES OF RETURN

The following table, based upon the immediately preceding financial highlights
for the Series Fund, shows first the average annual compounded net rates of
return for each Portfolio for the year ended December 31, 1997, for the 5 year
and 10 year periods ending on that date, and from the inception date of each
Portfolio to December 31, 1997. 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. THIS INFORMATION RELATES ONLY
TO THE SERIES FUND AND DOES NOT REFLECT THE VARIOUS OTHER CHARGES MADE UNDER THE
CONTRACTS.

<TABLE>
<CAPTION>
5 YEARS 10 YEARS INCEPTION TO
INCEPTION YEAR ENDED ENDED ENDED DATE
PORTFOLIO DATE 12/31/97 12/31/97 12/31/97 12/31/97
<S> <C> <C> <C> <C> <C>
- -------------------------- ------------- ----------- ----------- ----------- -------------
CONSERVATIVE BALANCED 5/83 13.45% 10.74% 11.15% 10.80%
FLEXIBLE MANAGED 5/83 17.96% 13.25% 13.41% 12.18%
</TABLE>

<PAGE>

ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS
AND ACCUMULATED PREMIUMS

The following tables have been prepared to help show how values under the
Contract change with investment performance of the Account. The tables assume
that no portion of the Contract Fund is allocated to the fixed-rate option. The
tables illustrate how cash surrender values (reflecting the deduction of
deferred sales load and administrative charges, if any) and death benefits of
Contracts issued on an insured of a given age would vary over time if the gross
investment return on the assets held in the selected Series Fund portfolios were
a uniform, after tax, annual rate of 0%, 4%, 8%, and 12% and minimum scheduled
premiums were paid. The death benefits and cash surrender values would be
different from those shown if the returns averaged 0%, 4%, 8%, and 12% but
fluctuated over and under those averages throughout the years.

The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life's current charges. The values shown in these
tables are calculated upon the assumption that Pruco Life will continue to use
the administrative charges and mortality rates that it is currently using, even
though it is permitted under the Contract to use higher administrative charges
and the higher mortality charges specified in the 1980 CSO Table. While Pruco
Life does not currently intend to withdraw or modify these reductions in
charges, it reserves the right to do so.

The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum
administrative charges allowable under the Contract and the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract; they do not reflect Pruco Life's current practice of reducing the
administrative and mortality charges.

The amounts shown for the death benefit and cash surrender value as of each
Contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross, after-tax return of the Series
Fund's portfolios. This is because these tables assume an investment management
fee and other estimated Series Fund expenses totaling 0.59% and also reflect the
daily charge to the Account for assuming mortality and expense risks, which is
equivalent to an effective annual rate of 0.9%. The 0.59% figure is based on an
average of the current management fees of the two available portfolios and an
analysis of historical operating expenses other than management fees, taking
into account any applicable expense offsets. Actual fees and expenses of the
portfolios associated with a Contract may be more or less than 0.59%, will vary
from year to year, and will depend on how the Contract Fund is allocated. Based
on the above assumptions, gross annual rates of return of 0%, 4%, 8%, and 12%
correspond in the tables to approximate net annual rates of return of -1.49%,
2.51%, 6.51%, and 10.51%, respectively. The tables reflect the fact that no
charges for federal or state income taxes are currently made against the Account
(other than "taxes attributable to premiums"). If such a charge is made in the
future, it will take higher gross rates of return to produce the same net
after-tax returns. The tables assume that the insured is in the preferred rating
class, and the charge for federal, state and local taxes attributable to
premiums is 3.25%.

Upon request, Pruco Life will furnish a comparable hypothetical illustration
based on the proposed insured's age and sex (except where unisex rates apply)
and on the face amount or premium amount requested. The illustrations can be
prepared upon the assumptions that the insured is in the preferred or standard
rating class or in a different risk classification, and can assume that annual,
semi-annual, quarterly or monthly premiums are paid.

8
<PAGE>
<TABLE>

ILLUSTRATIONS
-------------

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>

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 (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET) (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 181 $5,003 $5,007 $ 5,011 $ 5,016 $ 0 $ 0 $ 2 $ 6
2 $ 369 $5,002 $5,013 $ 5,025 $ 5,036 $ 48 $ 59 $ 70 $ 82
3 $ 564 $5,000 $5,019 $ 5,040 $ 5,063 $101 $ 121 $ 142 $ 165
4 $ 767 $5,000 $5,024 $ 5,058 $ 5,096 $154 $ 185 $ 219 $ 257
5 $ 978 $5,000 $5,028 $ 5,079 $ 5,136 $205 $ 249 $ 300 $ 357
6 $ 1,198 $5,000 $5,034 $ 5,105 $ 5,187 $268 $ 330 $ 401 $ 483
7 $ 1,427 $5,000 $5,039 $ 5,134 $ 5,248 $331 $ 411 $ 507 $ 620
8 $ 1,665 $5,000 $5,043 $ 5,167 $ 5,320 $392 $ 494 $ 618 $ 771
9 $ 1,912 $5,000 $5,047 $ 5,205 $ 5,404 $452 $ 578 $ 736 $ 935
10 $ 2,169 $5,000 $5,050 $ 5,248 $ 5,503 $511 $ 663 $ 861 $ 1,116
15 $ 3,617 $5,000 $5,058 $ 5,544 $ 6,271 $721 $1,047 $ 1,532 $ 2,259
20 $ 5,379 $5,000 $5,048 $ 6,027 $ 9,117 $882 $1,457 $ 2,436 $ 4,122
25 $ 7,523 $5,000 $5,016 $ 6,983 $13,550 $970 $1,882 $ 3,643 $ 7,069
30 (Age 65) $10,132 $5,000 $5,000 $ 8,747 $19,608 $940 $2,304 $ 5,202 $11,661
35 $13,305 $5,000 $5,000 $10,721 $27,975 $700 $2,696 $ 7,157 $18,678
40 $17,166 $5,000 $5,000 $12,973 $39,652 $ 52 $3,019 $ 9,560 $29,220
45 $21,864 $5,000 $5,000 $15,607 $56,163 $ 0 $3,189 $12,446 $44,788
</TABLE>

(1) If premiums are paid more frequently than annually, the payments would be
$89.46 semi-annually, $46.15 quarterly or $16.90 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.

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
PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

T1
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>
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 (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET) (-1.49% NET) (2.51% NET) (6.51% NET) (10.51% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 407 $20,012 $20,024 $20,036 $ 20,048 $ 39 $ 50 $ 62 $ 74
2 $ 829 $20,013 $20,046 $20,080 $ 20,115 $ 243 $ 276 $ 310 $ 345
3 $ 1,269 $20,002 $20,065 $20,133 $ 20,204 $ 442 $ 506 $ 573 $ 644
4 $ 1,726 $20,000 $20,082 $20,195 $ 20,317 $ 636 $ 739 $ 852 $ 974
5 $ 2,202 $20,000 $20,095 $20,266 $ 20,457 $ 833 $ 986 $ 1,157 $ 1,347
6 $ 2,697 $20,000 $20,112 $20,357 $ 20,636 $1,084 $ 1,296 $ 1,540 $ 1,820
7 $ 3,211 $20,000 $20,128 $20,461 $ 20,853 $1,335 $ 1,617 $ 1,950 $ 2,342
8 $ 3,746 $20,000 $20,141 $20,579 $ 21,111 $1,582 $ 1,944 $ 2,383 $ 2,914
9 $ 4,302 $20,000 $20,152 $20,715 $ 21,416 $1,824 $ 2,276 $ 2,839 $ 3,539
10 $ 4,881 $20,000 $20,160 $20,867 $ 21,773 $2,060 $ 2,612 $ 3,319 $ 4,225
15 $ 8,140 $20,000 $20,164 $21,949 $ 24,589 $2,900 $ 4,119 $ 5,903 $ 8,544
20 $12,106 $20,000 $20,092 $23,738 $ 34,499 $3,549 $ 5,730 $ 9,376 $ 15,597
25 $16,931 $20,000 $20,000 $26,860 $ 51,316 $3,900 $ 7,391 $14,013 $ 26,771
30 (Age 65) $22,801 $20,000 $20,000 $33,679 $ 74,293 $3,775 $ 9,031 $20,028 $ 44,181
35 $29,942 $20,000 $20,000 $41,307 $106,029 $2,801 $10,514 $27,578 $ 70,789
40 $38,631 $20,000 $20,000 $50,014 $150,318 $ 181 $11,630 $36,856 $110,771
45 $49,203 $20,000 $20,000 $60,199 $212,938 $ 0 $11,934 $48,007 $169,812
</TABLE>

(1) If premiums are paid more frequently than annually, the payments would be
$202.79 semi-annually, $103.98 quarterly or $36.59 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.

T2
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$5,000 GUARANTEED DEATH BENEFIT
$173.70 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>

(2) Assumes no Contract loan has been made.

T3
<PAGE>
<TABLE>

THE PRUVIDER VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
$20,000 GUARANTEED DEATH BENEFIT
$390.90 ANNUAL PREMIUM (1)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>

(2) Assumes no Contract loan has been made.

<PAGE>

GENERAL INFORMATION ABOUT
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
AND THE FIXED RATE OPTION

PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

Pruco Life PRUVIDER Variable Appreciable Account was established on July 10,
1992 under Arizona 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 Pruco Life's other assets.

The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account. Before making any such transfer, Pruco Life will consider any
possible adverse impact the transfer might have on the Account.

The Account is registered with the 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 Pruco Life. There are currently two subaccounts
within the Account, one of which invests in the Conservative Balanced Portfolio
and the other of which invests in the Flexible Managed Portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.

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 general account 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 Pruco
Life 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 Pruco Life 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 Pruco Life's general assets. Sometimes this is referred to as Pruco Life's
general account, which consists of all assets owned by Pruco Life other than
those in the Account and in other separate accounts that have been or may be
established by Pruco Life. Subject to applicable law, Pruco Life 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, Pruco Life guarantees that the part of the Contract Fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Pruco Life 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 CONTRACT DATE, page 13. Thereafter,
a new crediting rate will be declared each year and will remain in effect for
the calendar year. Pruco Life reserves the right to change this practice. Pruco
Life 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 14). 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 18).

9
<PAGE>

DETAILED INFORMATION FOR PROSPECTIVE
CONTRACT OWNERS

REQUIREMENTS FOR ISSUANCE OF A CONTRACT

Generally, the minimum initial guaranteed death benefit that can be applied for
is $5,000 and the maximum that can be applied for is $25,000. For proposed
insureds 21 years of age or younger, the minimum initial guaranteed death
benefit that can be applied for is $10,000. The Contract may generally be issued
on insureds below the age of 76. Before issuing any Contract, Pruco Life
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. These are the current underwriting requirements. The Company
reserves the right to change these requirements on a non-discriminatory basis.

SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"

Generally, you may return the Contract for a refund within 10 days after you
receive it. 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 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. 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
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life 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.
That charge is currently made up of two parts. The first part is a charge for
state and local premium-based taxes. It varies from jurisdiction to jurisdiction
and generally ranges from 0.75% to 5% (but in some instances it may exceed 5%)
of the premium received by Pruco Life. The amount charged may be more than Pruco
Life actually pays. The second part is for federal income taxes measured by
premiums and it is equal to 1.25% of the premium. Pruco Life 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 1997, 1996 and 1995, Pruco Life received a
total of approximately $1,668,969, $2,187,535, and $2,003,387, 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. If you pay premiums more frequently, for example under a payroll
deduction plan with your employer, the charge may be more than $24 per year.
During 1997, 1996 and 1995, Pruco Life received a total of approximately
$1,239,689, $1,155,021, and $965,634, respectively, in processing charges.

Deductions from Portfolios

(a) An investment advisory fee is deducted daily from each portfolio at an
annual rate of 0.55% for the Conservative Balanced Portfolio and 0.60% for the
Flexible Managed 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 1997 expressed as a percentage of the average assets
during the year are shown as follows:

10
<PAGE>

- --------------------------------------------------------------------------------
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- --------------------------------------------------------------------------------
Conservative Balanced 0.55% 0.01% 0.56%
Flexible Managed 0.60% 0.02% 0.62%
- --------------------------------------------------------------------------------

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) A sales charge, often called a sales load, is deducted to pay part of the
costs Pruco Life 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 $6 part of the monthly deduction
described in (c) below, the $0.30 per $1,000 of face amount for Contracts with a
face amount of less than $10,000, and any extra premiums for riders or
substandard risks. 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. To summarize, this charge is somewhat less than
(significantly less for Contracts with small face amounts) 6% of the annual
Scheduled Premium.

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 later under
SURRENDER OR WITHDRAWAL CHARGES. During 1997, 1996 and 1995, Pruco Life received
a total of approximately $3,998,082, $3,685,080, and $3,035,533, respectively,
in sales load charges.

(b) A charge of not more than $0.01 per $1000 of face amount of insurance is
made to compensate Pruco Life 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 the due date or during the grace period. This
charge will not be made if the Contract has been continued in force pursuant to
an option on lapse. During 1997, 1996 and 1995, Pruco Life received a total of
approximately $158,412, $147,942, and $120,813, respectively, for this risk
charge.

(c) An administrative charge of $6 plus up to $0.19 per $1,000 per month of face
amount of insurance is deducted each month. Currently, on a non-guaranteed
basis, this charge is reduced from $0.19 to $0.09 per $1,000. The charge is
intended to pay for processing claims, keeping records, and communicating with
Contract owners. If premiums are paid by automatic transfer under the Pru-Matic
Plan, as described on page 13, the current charge is further reduced to $0.07
per $1,000 of face amount. There is an additional charge of $0.30 per $1,000 of
face amount if the face amount of the Contract is less than $10,000. This
monthly administrative charge will not be made if the Contract has been
continued in force pursuant to an option on lapse. During 1997, 1996 and 1995,
Pruco Life received a total of approximately $8,726,448, $8,169,343, and
$6,876,677, respectively, in monthly administrative charges.

(d) 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 Pruco Life 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, computed as
if there were neither riders nor Contract debt, 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. Pruco Life may determine that a lesser amount than that called for by
these mortality tables will be adequate for insureds of particular ages and may
thus make a lower mortality charge for such persons. Any lower current mortality
charges are not applicable to Contracts in force pursuant to an option on lapse.
See LAPSE AND REINSTATEMENT, page 17.

(e) If the Contract includes riders, Pruco Life deducts any charges applicable
to those riders from the Contract Fund on each Monthly date. In addition, Pruco
Life will deduct on each Monthly date any extra charge incurred because of the
rating class of the insured.

(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

11
<PAGE>

no charge is made. Pruco Life will review the question of a charge to the
Account for company federal income taxes periodically. Such a charge may be made
in future years for any company federal income taxes that would be attributable
to the Account.

Under current law, Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Account. If there is a material change in
the applicable state or local tax laws, the imposition of any such taxes upon
Pruco Life that are attributable to the Account may result in a corresponding
charge against the Account.

Daily Deduction from the Contract Fund

Each day a charge is deducted from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. This charge is
intended to compensate Pruco Life for assuming mortality and expense risks under
the Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than Pruco Life 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 Pruco Life estimated in
fixing its administrative charges. This charge is not assessed against amounts
allocated to the fixed-rate option. During 1997, 1996 and 1995, Pruco Life
received a total of approximately $1,776,910, $1,391,951, and $976,867,
respectively, in mortality and expense risk charges.

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 maximum contingent deferred charge is equal to 50% of the first
year's primary annual premium upon Contracts that lapse during the first 5
Contract years. That percentage is reduced uniformly on a daily basis starting
from the Contract's fifth anniversary until it disappears on the tenth
anniversary. Other important limitations apply. They are described more fully 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 with $20,000 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 TOTAL SALES
CUMULATIVE SALES LOAD CONTINGENT LOAD AS
SURRENDER, SCHEDULED DEDUCTED DEFERRED TOTAL PER-
LAST DAY OF PREMIUMS FROM SALES SALES CENTAGE OF
YEAR NO. PAID CONTRACT LOAD LOAD SCHEDULED
FUND PREMIUMS
PAID
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 390.90 $ 18.24 $ 87.22 $105.46 26.98%
2 781.80 36.48 104.16 140.64 17.99%
3 1,172.70 54.72 121.10 175.82 14.99%
4 1,563.60 72.96 138.04 211.00 13.49%
5 1,954.50 91.20 146.55 237.75 12.16%
6 2,345.40 109.44 121.80 231.24 9.86%
7 2,736.30 127.68 91.40 219.08 8.01%
8 3,127.20 145.92 60.80 206.72 6.61%
9 3,518.10 164.16 30.40 194.56 5.53%
10 3,909.00 182.40 0.00 182.40 4.67%
- --------------------------------------------------------------------------------------------------------------------------
</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. We are
currently allowing partial surrenders of the Contract, but we reserve the right
to cancel this administrative practice. If the Contract is partially surrendered
during the first 10 years, a proportionate amount of the charge will be deducted
from the Contract Fund. During 1997, 1996 and 1995, Pruco Life received a total
of approximately $295,205, $269,611, and $219,895, respectively, for surrendered
or lapsed Contracts. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

12
<PAGE>

Transaction Charges

An administrative processing charge equal to the lesser of $15 or 2% of the
amount withdrawn will be made in connection with each withdrawal of excess cash
surrender value of a Contract. This charge is described in more detail 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 was paid and the Contract was
delivered. Under certain circumstances, Pruco Life 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. It may be advantageous for a Contract owner to have an earlier
Contract date since that will result in the use by Pruco Life of a lower issue
age in determining the amount of the scheduled premium. Pruco Life will require
the payment of all premiums that would have been due had the application date
coincided with the back-dated Contract date. 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.

PREMIUMS

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 a book each year with 12 coupons that will serve as a reminder. With
Pruco Life'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 11. Some Contract
owners may also be eligible to have monthly premiums paid by pre-authorized
deductions from an employer's payroll.

The following table shows, for two face amounts, representative preferred and
standard annual premium amounts under Contracts issued on insureds who are not
substandard risks. These premiums do not reflect any additional riders or
supplementary benefits.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
-------------------------------------------------------------------------
PREFERRED STANDARD PREFERRED STANDARD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 35 $233.70 $274.01 $390.90 $ 471.52
at issue
- --------------------------------------------------------------------------------------------------
Female, age 45 $278.04 $308.53 $479.59 $ 540.57
at issue
- --------------------------------------------------------------------------------------------------
Male, age 55 $450.96 $562.17 $825.43 $1047.86
at issue
- --------------------------------------------------------------------------------------------------
</TABLE>

The following table compares annual and monthly premiums for insureds who are in
the preferred rating class. Note that in these examples the sum of 12 monthly
premiums for a particular Contract is approximately 110% to 116% of the annual
scheduled premium for that Contract.

13
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
$10,000 FACE AMOUNT $20,000 FACE AMOUNT
--------------------------------------------------------------------
MONTHLY ANNUAL MONTHLY ANNUAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 35 $22.43 $233.70 $36.59 $390.90
at issue
- ---------------------------------------------------------------------------------------------
Female, age 45 $26.46 $278.04 $44.65 $479.59
at issue
- ---------------------------------------------------------------------------------------------
Male, age 55 $41.96 $450.96 $75.66 $825.43
at issue
- ---------------------------------------------------------------------------------------------
</TABLE>

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. Pruco Life will then bill you
for the chosen premium. In general, the regular payment of higher premiums will
result in higher cash surrender values and 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 17. The
payment of premiums 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 20.

Pruco Life will generally accept any premium payment if the payment is at least
$25. Pruco Life does reserve the right, however, to limit unscheduled premiums
to a total of $5,000 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 15. The privilege of
making large or additional premium payments offers a way of investing amounts
which accumulate without current income taxation, but again, there are tax
consequences if the Contract becomes a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

ALLOCATION OF PREMIUMS

On the Contract date, a $2 processing charge and the charge for taxes
attributable to premiums are deducted from the initial premium. The remainder is
allocated on the Contract date among the subaccount[s] or the fixed-rate option
according to the desired allocation specified in the application form. From this
invested portion of the initial premium, the first monthly deductions are made.
See CONTRACT FEES AND CHARGES, page 10. The invested portion of any part of the
initial premium in excess of the Scheduled Premium is placed in the selected
investment option[s] on the date of receipt at a Home Office, but not earlier
than the Contract date. Thus, to the extent that the receipt of the first
premium precedes the Contract date, there will be a period during which the
Contract owner's initial premium will not be invested. All subsequent premium
payments, after the deduction from premiums, will be invested as of the end of
the valuation period in which it is received at a Home Office 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 a Home Office. You may also change the way in which subsequent
premiums are allocated by telephoning the 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%.

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 17), you may, up to
four times in each Contract year, transfer amounts from one subaccount to the
other subaccount or to the fixed-rate option. Currently you may make additional
transfers with Pruco Life's consent. There is no charge. All or a portion of the
amount credited to a subaccount may be transferred.

In addition, the total amount credited to a Contract held in the subaccounts 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 should also change your allocation instructions regarding
any future premiums.

Transfers between 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 a Home Office. The valuation period is defined as the period of time from one
determination of the value of the amount invested in a subaccount to the next.
Such determinations

14
<PAGE>

are made when the net asset values of the portfolios are calculated, which is
generally at 4:15 p.m. New York City time on each day during which the New York
Stock Exchange is open. The request may be in terms of dollars, such as a
request to transfer $1,000 from one subaccount to the other, or may be in terms
of a percentage reallocation between 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 a Home Office or by telephone,
provided you are enrolled to use the Telephone Transfer System. You will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned, depending on the
terms of the assignment. Pruco Life has adopted procedures designed to ensure
that requests by telephone are genuine and will require appropriate
identification for that purpose. Pruco Life will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life 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.

Transfers from the fixed-rate option are subject to restrictions and may only be
made with Pruco Life's consent. Transfers from the fixed-rate option to the
subaccounts 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 a Home
Office. These limits are subject to change in the future.

The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the subaccounts and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent under
a power of attorney on behalf of more than one Contract owner.

HOW THE CONTRACT FUND CHANGES WITH INVESTMENT EXPERIENCE

As previously stated, 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. 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 10. 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, 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
reduced by the withdrawal charges, if any, and by any Contract debt. Upon
request, Pruco Life 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.

HOW A CONTRACT'S DEATH BENEFIT WILL VARY

The death benefit will change from the outset with investment experience. The
precise way in which that will occur is complicated and is described in the
Statement of Additional Information. In general, and assuming the optional
paid-up benefit is not in effect, see PAID-UP INSURANCE OPTION, on page 17, if
the net investment performance is 4% per year or higher, the death benefit will
increase; if it is below 4%, it will decrease. Pruco Life 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.

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 the
death benefit always be greater than the Contract Fund value, the death benefit
must be increased. The

15
<PAGE>

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.

CONTRACT LOANS

The owner may borrow from Pruco Life 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.

Interest charged on a loan accrues daily at a fixed effective annual rate of
5.5%. 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, Pruco Life
will notify you of its intent to terminate the Contract in 61 days, within which
time you may repay all or enough of the loan to obtain a positive cash surrender
value and thus keep the Contract in force for a limited time. If you fail to
keep the Contract in force, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 20, and LAPSE AND REINSTATEMENT, page 17.

When a loan is made, an amount equal to the loan proceeds will be transferred
out of the variable investment options and/or the fixed-rate option, as
applicable. The reduction will normally be made in the same proportions as the
value in each subaccount and the fixed-rate option bears to the total value of
the Contract. While a loan is outstanding, the amount that was so transferred
will continue to be treated as part of the Contract Fund but it will be credited
with the assumed rate of return of 4% rather than with the actual rate of return
of the subaccount[s] or fixed-rate option.

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.

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 upon the amount of the loan 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 the Contract issued on a 35 year old male insured illustrated in the
table on page T2 with an 8% gross investment return. Assume a $1,500 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 $3,242.58. 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 6.51% 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 20.

SURRENDER OF A CONTRACT

You may surrender a Contract for its cash surrender value while the insured is
living. To surrender a Contract, you must deliver or mail it, together with a
written request in a form that meets our needs, to a Home Office. The cash
surrender value of a 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. We
are currently allowing partial surrenders of Contracts, but we reserve the right
to cancel this administrative practice. Surrender of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

16
<PAGE>

LAPSE AND REINSTATEMENT

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, Pruco Life will send you 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 a 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 20.

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, Pruco Life 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 Pruco Life 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.

Fixed Reduced Paid-Up Insurance. This insurance continues for the lifetime of
the insured but at an insurance amount that is generally lower than that
provided by fixed extended term insurance. 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. It
is possible for this Contract to be classified as a Modified Endowment Contract
if this option is exercised. See TAX TREATMENT OF CONTRACT BENEFITS, page 20.

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. Variable reduced paid-up insurance has
cash surrender and loan values.

Variable reduced paid-up insurance is the automatic option provided upon lapse,
if the amount of variable reduced paid-up insurance is at least as great as the
amount of fixed extended term insurance which would have been provided upon
lapse. Variable reduced paid-up insurance will be available only if the insured
is not in one of the high risk rating classes for which Pruco Life does not
offer fixed extended term insurance. It is possible for this Contract to be
classified as a Modified Endowment Contract if this option is exercised. See TAX
TREATMENT OF CONTRACT BENEFITS, page 20.

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.

PAID-UP INSURANCE OPTION

In certain circumstances you may elect to stop paying premiums and to have
guaranteed insurance coverage for the lifetime of the insured. This benefit is
available only if the following conditions are met: (1) the Contract is not in
default; (2) Pruco Life is not paying premiums in accordance with any payment of
premium benefit that may be included in the Contract; and (3) the Contract Fund
is sufficiently large so that the calculated guaranteed paid-up insurance amount
is at least equal to the face amount of insurance plus the excess, if any, of
the Contract Fund over the tabular Contract Fund. The amount of guaranteed
paid-up insurance coverage may be greater. It will be equal to the difference
between the Contract Fund and the present value of future monthly charges from
the Contract Fund (other than charges for anticipated mortality costs and for
payment of premium riders) multiplied

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<PAGE>

by the attained age factor. This option will generally be available only when
the Contract has been in force for many years and the Contract Fund has grown
because of favorable investment experience or the payment of unscheduled
premiums or both. Once the paid-up insurance option is exercised, the actual
death benefit is equal to the greater of the guaranteed paid-up insurance amount
and the Contract Fund multiplied by the attained age factor. Upon request, Pruco
Life will quote the amount needed to pay up the Contract and to guarantee the
paid-up insurance amount as long as a payment equal to or greater than the
quoted amount is received within two weeks of the quote. There is no guarantee
if the remittance is received within the two week period and is less than the
quoted amount or if the remittance is received outside the two week period. In
this case, Pruco Life will add the remittance to the Contract Fund and
recalculate the guaranteed paid-up insurance amount. If the guaranteed paid-up
insurance amount is equal to or greater than the face amount, the paid-up
request will be processed. If the guaranteed paid-up insurance amount is
calculated below the face amount, the insured will be notified that the amount
is insufficient to process the request. In some cases, the quoted amount, if
paid, would increase the death benefit by more than it increases the Contract
Fund. In these situations, underwriting might be required to accept the premium
payment and to process the paid-up request. Pruco Life reserves the right to
change this procedure in the future. After the first Contract year, you must
make a proper written request for the Contract to become fully paid-up and send
the Contract to a Home Office to be endorsed. It is possible for this Contract
to be classified as a Modified Endowment Contract if this option is exercised.
See TAX TREATMENT OF CONTRACT BENEFITS, page 20. A Contract in effect under a
paid-up insurance option will have cash surrender and loan values.

WHEN PROCEEDS ARE PAID

Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within 7 days after receipt at a 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 at a Home
Office. However, Pruco Life 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 or as extended term insurance, Pruco Life expects to pay the
cash surrender value promptly upon request. However, Pruco Life 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). Pruco Life will pay interest of at least
3% a year if it delays such a payment for more than 30 days (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. The benefit may vary state-by-state. It can generally be
added only when the aggregate face amounts of the insured's eligible contracts
equal $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.

Subject to state regulatory approval, 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. One or both of the following options may be available. A Pruco
Life 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, Pruco Life 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, Pruco Life 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

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<PAGE>

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.

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. Pruco Life 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. Pruco
Life 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.
With the exception of certain business-related policies, the Health Insurance
Portability and Accountability Act of 1996 excludes from income the Living Needs
Benefit if the insured is terminally ill or chronically ill as defined by the
tax law (although the exclusion in the latter case may be limited). Contract
owners should consult a qualified tax advisor before electing to receive this
benefit. 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. Pruco
Life 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, Pruco Life will,
as required by law, 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 attributable to
general account investments of Pruco Life 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 including 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 Pruco Life instructions will be determined as
of the record date chosen by the Board of Directors of the Series Fund. Pruco
Life will furnish Contract owners with proper forms and proxies to enable them
to give these instructions. Pruco Life 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 or
interpretations of those regulations.

Pruco Life 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, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment manager of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life 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.

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

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<PAGE>

similar to that of the annual statement described above, but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.

You will also be sent annual and semi-annual reports of the Series Fund showing
the financial condition of the portfolios and the investments held in both. If a
single individual or company invests in the Series Fund through more than one
variable insurance contract, then the individual or company will receive only
one copy of each annual or semi-annual report issued by the Series Fund.
However, if such individual or company wishes to receive multiple copies of any
such report, a request may be made by calling the toll-free telephone number
listed on the inside front cover page of this prospectus.

TAX TREATMENT OF CONTRACT BENEFITS

The tax treatment of life insurance is complex and may change. 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 Pruco Life believes the tax laws apply in the
most commonly occurring circumstances. A more technical discussion of what
follows is contained in the Statement of Additional Information.

Treatment as Life Insurance. Pruco Life believes that the Contract should
qualify as "life insurance" under the Internal Revenue Code. 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 until amounts are distributed under the Contract; and (2) the death
benefit should be excludable from the gross income of the beneficiary under
section 101(a) of the Code.

Although Pruco Life 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 permanent 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, 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 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 and withdrawals (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 Contract may be classified as a Modified Endowment Contract under various
circumstances. For example, low face amount Contracts issued on younger insureds
may be classified as a Modified Endowment Contract even though the Contract
owner pays only the Scheduled Premiums or even less than the Scheduled Premiums.
Before purchasing such a Contract, you should understand the tax treatment of
pre-death distributions and consider the purpose for which the Contract is being
purchased. More generally, a Contract may be classified as a Modified Endowment
Contract if premiums 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 or removed from the
Contract. You should consult with your tax advisor 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.

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 will be withheld or in certain other
circumstances.

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<PAGE>

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 28 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 fifteen separate portfolios, two of
which, the Conservative Balanced and Flexible Managed Portfolios, are available
to Contract owners. 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 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.

Prudential is the investment manager of the Series Fund. Prudential has entered
into a Service Agreement with its wholly-owned subsidiary The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to
Prudential such services as Prudential may require in connection with the
performance of its obligations under an Investment Advisory Agreement with the
Series Fund. One of PIC's business groups is Prudential Investments. See
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 26.

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.

The investment objectives of both portfolios available to PRUVIDER Contract
owners are set forth on page 3. For the sake of convenience, they are repeated
here, followed in each case by a brief description of the policies of both
portfolios. 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.

BALANCED PORTFOLIOS

CONSERVATIVE BALANCED 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 Flexible Managed
Portfolio while recognizing that this reduces the chances of greater
appreciation.

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<PAGE>

To achieve this objective, the Conservative Balanced Portfolio will follow a
policy of maintaining a more conservative asset mix among stocks, bonds and
money market instruments than the Flexible Managed 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 and Money Market 25% 65% 85%

The portfolio manager will make variations in the proportions of each investment
category in accordance with its judgment about the expected returns and risks of
the various investment categories, but will maintain at least 25% of the value
of the portfolio's assets in fixed-income senior securities.

The bond portion of this 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 Investors Services, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), or a similar nationally-recognized
rating service or if unrated, of comparable quality in the opinion of the
portfolio manager. However, the portfolio may purchase below-investment grade
debt. A description of corporate bond ratings is contained 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 Flexible Managed
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 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
portfolio may also invest in preferred stock, including below investment grade
preferred stock, and other equity-related securities. The money market portion
of the portfolio will hold high quality money market instruments of the kind
held by the Money Market Portfolio. Moreover, when conditions dictate a
temporary defensive strategy or during temporary periods of portfolio
structuring and restructuring, the Conservative Balanced Portfolio may invest,
without limit, in high quality money market instruments of the kind held by the
Money Market Portfolio. See SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY
CURRENTLY INVEST in the Statement of Additional Information.

To the extent permitted by applicable insurance law, this portfolio may invest
up to 30% of its total assets in nonUnited 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
24.

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, beginning on
page 25, and in detail in the Statement of Additional Information.

The Conservative Balanced Portfolio is managed by a team of portfolio managers.
Mark Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Conservative Balanced Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, has been the portfolio manager of the
portfolio since 1995 and manages a portion of the portfolio's equity holdings.
The balance of the portfolio's equity holdings are managed to replicate the
performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"). Tony Rodriguez, Managing Director, Prudential Investments, has been
the portfolio manager of the fixed income portion of the portfolio since 1993.
Mr. Stumpp also supervises the team of portfolio managers for the Flexible
Managed Portfolio. Mr. Stumpp is also 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.
Mr. Spitz is also portfolio manager of the Prudential Equity Income Fund and the
Equity Income and Flexible Managed Portfolios of the Series Fund. Mr. Rodriguez
is also portfolio manager for the Prudential Structured Maturity Fund, Inc. and
the Flexible Managed Portfolio of the Series Fund.

FLEXIBLE MANAGED 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 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.

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

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<PAGE>

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

The portfolio manager may make short-run, and sometimes substantial, variations
in the asset mix based upon its judgment about the expected returns and risks of
the various investment categories. In varying the asset mix in accordance with
these judgments, Prudential will also seek to take advantage of imbalances in
fundamental values among the different markets.

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 corporate bond ratings is
contained 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, 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 may invest in
companies that show above average profitability (measured by return-on-equity,
earnings, and dividend growth rates) with modest price/earnings ratios or
alternatively, in companies whose stock is undervalued relative to other stocks
in the market. The individual equity selections for this portfolio may have more
volatile market values than the equity securities selected for the Conservative
Balanced Portfolio. The portfolio may also invest in preferred stock, including
below investment grade preferred stock, and other equity-related securities. The
money market portion of the portfolio will hold high quality money market
instruments of the kind held by the Money Market Portfolio. Moreover, when
conditions dictate a temporary defensive strategy or during temporary periods of
portfolio structuring and restructuring, the Flexible Managed Portfolio may
invest, without limit, in high quality money market instruments of the kind held
by the Money Market Portfolio. See SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST in the Statement of Additional Information.

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, below.

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, below, and
in detail in the Statement of Additional Information.

The facts that this portfolio will invest in a mix of common stocks regarded as
having higher risks than the mix of common stocks that will be purchased by the
Conservative Balanced Portfolio; that it will invest in bonds with longer
maturities; and that the "normal" mix for this portfolio will include a higher
percentage of stocks all combine to mean that the risk of investing in this
portfolio is relatively higher--to the extent that each of these factors results
in greater risks--than the risk of investing in the Conservative Balanced
Portfolio.

The Flexible Managed Portfolio is managed by a team of portfolio managers. Mark
Stumpp, Senior Managing Director, Prudential Investments, has been lead
portfolio manager of the Flexible Managed Portfolio since 1994 and is
responsible for the overall asset allocation decisions. Mr. Stumpp has
supervisory responsibility of the portfolio management team. Warren Spitz,
Managing Director, Prudential Investments, manages a portion of the portfolio's
equity holdings. The balance of the portfolio's equity holdings are managed to
replicate the performance of the S&P 500 Index. Tony Rodriguez, Managing
Director, Prudential Investments, has been the portfolio manager of the fixed
income portion of the portfolio since 1993. Mr. Stumpp also supervises the team
of portfolio managers for the Conservative Balanced Portfolio. Mr. Stumpp is
also 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. Mr. Spitz has been
portfolio manager of the equity portion of the Conservative Balanced Portfolio
since 1995 and is also portfolio manager of the Prudential Equity Income Fund
and the Equity Income Portfolio of the Series Fund. Mr. Rodriguez is also
portfolio manager for the Prudential Structured Maturity Fund, Inc., and the
Conservative Balanced Portfolio of the Series Fund.

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<PAGE>

FOREIGN SECURITIES

The bond components of the Conservative Balanced and Flexible Managed 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.
To the extent permitted by applicable insurance law, the Conservative Balanced
and Flexible Managed Portfolios may invest up to 30% of their total assets in
debt and equity securities denominated in a foreign currency and issued by
foreign or 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.

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.

RISK FACTORS RELATING TO INVESTING IN FIXED INCOME SECURITIES RATED BELOW
INVESTMENT GRADE

The Conservative Balanced and Flexible Managed Portfolios may invest in below
investment grade fixed income securities. Medium to lower rated and comparable
non-rated securities tend to offer higher yields than higher rated securities
with the same maturities because the historical financial condition of the
issuers of such securities may not have been as strong as that of other issuers.
Since medium to lower rated securities generally involve greater risks of loss
of income and principal than higher rated securities, investors should consider
carefully the relative risks associated with investments in high yield/high risk
securities which carry medium to lower ratings and in comparable non-rated
securities. Investors should understand that such securities are not generally
meant for short-term investing.

Fixed income securities are subject to the risk of an issuer's inability to meet
principal and interest payments on the obligations (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). The value of the fixed income securities in the
portfolio will be directly impacted by the market perception of the
creditworthiness of the securities' issuers and will fluctuate inversely with
changes in interest rates. Lower rated or unrated securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. For example, because investors generally perceive that there are
greater risks associated with investing in medium or lower rated securities, the
yields and prices of such securities may tend to fluctuate more than those of
higher rated securities. Moreover, 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 yield and price of medium to lower rated securities therefore may
experience greater volatility than is the case with higher rated securities.
Prudential considers both credit risk and market risk in selecting securities
for the portfolio. By holding a diversified selection of such securities, the
portfolio seeks to reduce this volatility.

The secondary market for high yield/high risk securities, which is concentrated
in relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities. Under adverse market or economic conditions,
the secondary market for high yield/high risk securities could contract further,
independent of any

24
<PAGE>

specific adverse changes in the condition of a particular issuer. As a result,
Prudential could find it more difficult to sell such securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities
therefore may be less than the prices used in calculating the portfolio's net
asset value. In the absence of readily available market quotations, high
yield/high risk securities will be valued by the Series Fund's Board of
Directors using a method that, in the good faith belief of the Board, accurately
reflects fair value. Valuing such securities in an illiquid market is a
difficult task. The Board's judgment plays a more significant role in valuing
such securities than those securities for which more objective market data are
available.

From time to time, federal laws have been enacted which have required the
divestiture by companies of their investments in high yield bonds and have
limited the deductibility of interest by certain corporate issuers of high yield
bonds. These types of laws could adversely affect the portfolio's net asset
value and investment practices, the secondary market for high yield securities,
the financial condition of issuers of these securities and the value of
outstanding high yield securities. There is currently no legislation pending
that would adversely impact the market for high yield/high risk securities.
However, there can be no assurance that such legislation will not be proposed or
enacted in the future.

OPTIONS, FUTURES CONTRACTS AND SWAPS

The description of the portfolios' 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
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 Conservative Balanced and Flexible Managed 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 fee or interest
paid in connection with the short sale.

REPURCHASE AGREEMENTS

The portfolios may enter into repurchase agreements, subject to each portfolio's
investment limit in short-term debt obligations, whereby the seller of a
security agrees to repurchase that security from the portfolio 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 rate of return effective for the period of time the portfolio's
money is invested in the repurchase agreement. The repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the portfolio will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the portfolio may incur a loss. Both portfolios participate
in a joint repurchase account pursuant to an order of the SEC. On a daily basis,
any uninvested cash balances of the portfolios may be aggregated and invested in
one or more repurchase agreements. Each portfolio participates in the income
earned or accrued in the joint account based on the percentage of its
investment.

25
<PAGE>

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

The fixed income portions of the Conservative Balanced and Flexible Managed
Portfolios may use reverse repurchase agreements and dollar rolls. The money
market portion of these portfolios 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 unencumbered assets equal in value to its
obligations in respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by the portfolio may decline below the price of
the securities the portfolio has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement or dollar roll files for bankruptcy or becomes insolvent, 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. No portfolio will
obligate more than 30% of its net assets in connection with reverse repurchase
agreements and dollar rolls.

LOANS OF PORTFOLIO SECURITIES

Both of the portfolios may from time to time lend the securities they hold to
broker-dealers, qualified banks and certain institutional investors, 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.

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 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
Prudential under which 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.
Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment manager.

Prudential manages the assets that it owns as well as those of various separate
accounts established by Prudential and those held by other investment companies
for which it acts as investment manager. Total assets under

<PAGE>

management as of December 31, 1997 were over $370.4 billion which includes over
$251.6 billion owned by Prudential and approximately $118.8 billion of external
assets under Prudential's management.

Subject to Prudential's supervision, substantially all of the investment
advisory services provided to the Series Fund by Prudential with respect to the
Conservative Balanced and Flexible Managed Portfolios, are furnished by its
wholly-owned subsidiary, PIC, pursuant to the Service Agreement between
Prudential and PIC which provides that a portion of the fee received by
Prudential for providing investment advisory services will be paid to PIC. PIC
is registered as an investment advisor under the Investment Advisers Act of
1940.

Under the Investment Advisory Agreement, 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 10.
Further information about the investment management arrangements and the
expenses of the Series Fund is in the Statement of Additional Information.

PORTFOLIO BROKERAGE AND RELATED PRACTICES

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 Prudential or its affiliates, including
Prudential Securities Incorporated, acts as principal, including
over-the-counter purchases and negotiated trades in which such a party acts as a
principal. Additional information about portfolio brokerage and related
transactions is in the Statement of Additional Information.

STATE REGULATION

Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, 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.

Pruco Life 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, Pruco Life is required
to file with Arizona 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 for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent accountants, 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. Price Waterhouse LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.

The financial statements included in this prospectus for the year ended December
31,1995 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.

On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.

Actuarial matters included in this prospectus have been examined by Nancy D.
Davis, FSA, MAAA, Vice President and Actuary of Prudential whose opinion is
filed as an exhibit to the registration statement.

27
<PAGE>

LITIGATION

Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.

YEAR 2000 COMPLIANCE

The services provided to the Contract owners by Pruco Life and Prusec depend on
the smooth functioning of their respective computer systems. The year 2000,
however, holds the potential for a significant disruption in the operation of
these systems. Many computer programs cannot distinguish the year 2000 from the
year 1900 because of the way in which dates are encoded. Left uncorrected, the
year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.

Prudential, Pruco Life and Prusec's ultimate corporate parent, identified this
issue as a critical priority in 1995 and has established quality assurance
procedures including a certification process to monitor and evaluate enterprise-
wide conversion and upgrading of systems for "Year 2000" compliance. Prudential
has also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.

The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.

Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.

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 Pruco Life at 213 Washington Street, Newark, New Jersey 07102-2992.
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 Pruco
Life 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 Pruco Life's expenses will be
reduced, some of the charges under those Contracts may be reduced.

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.

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

28
<PAGE>

transaction charge. The death benefit will change. There may be tax
consequences. You should consult your Pruco Life representative to
discuss whether a withdrawal or a loan is preferable.

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 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, no more than 6% of the
Scheduled Premiums for the second through tenth years and smaller
commissions thereafter.

RIDERS. Various extra fixed-benefits may be obtained for an extra
premium. They are described in what are known as "riders" to the
Contract.

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.

II. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.
General
Convertible Securities
Loan Participations
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

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 Prudential selects the brokers.

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 Ratings Services describe the creditworthiness of debt
securities.

IX. POSSIBLE REPLACEMENT OF THE SERIES FUND.

Although it is most unlikely, it is conceivable that Pruco Life 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, Transfer Agent, and Dividend Disbursing Agent
Year 2000

29
<PAGE>

Experts
License

More detail is provided about these matters.

XI. DIRECTORS AND OFFICERS OF PRUCO LIFE AND MANAGEMENT OF THE SERIES FUND.

The names and recent affiliations of Pruco Life'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 Pruco Life. Its address and
telephone number are on the inside front cover of this prospectus.

FINANCIAL STATEMENTS

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

30
<PAGE>

FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF NET ASSETS
December 31, 1997

SUBACCOUNTS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3] .... $108,801,658 $103,787,488
Receivable from Pruco Life Insurance Company
[Note 2] .................................... 67,000 70,991
------------ ------------
Net Assets ................................ $108,868,658 $103,858,479
============ ============

NET ASSETS, representing:
Equity of Contract owners ................... $108,868,658 $103,858,479
============ ============

STATEMENTS OF OPERATIONS
For the year ended December 31, 1997

SUBACCOUNTS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------

INVESTMENT INCOME
Dividend distributions received .............. $ 3,045,029 $ 4,605,400

EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] .. 890,696 886,214
------------- -------------

NET INVESTMENT INCOME ........................... 2,154,333 3,719,186
------------- -------------

NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ......... 16,205,801 11,137,278
Realized gain on shares redeemed
[average cost basis] ....................... 130,940 212,244
Net change in unrealized (loss) on investments (3,235,860) (3,623,420)
------------- -------------

NET GAIN ON INVESTMENTS ......................... 13,100,881 7,726,102
------------- -------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................... $ 15,255,214 $ 11,445,288
============= =============

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5
A1

<PAGE>

FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------------------------ --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............................ $2,154,333 $1,773,662 $1,286,436 $3,719,186 $2,785,827 $2,140,247
Capital gains distributions received............. 16,205,801 8,045,666 2,529,393 11,137,278 5,586,889 2,376,572
Realized gain on shares redeemed
[average cost basis]........................... 130,940 0 0 212,244 3,248 0
Net change in unrealized gain (loss) on
investments.................................... (3,235,860) (782,631) 6,464,304 (3,623,420) 771,969 4,408,774
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........................ 15,255,214 9,036,697 10,280,133 11,445,288 9,147,933 8,925,593
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]......................................... 6,605,926 16,291,683 13,702,273 427,926 12,500,355 13,523,927
------------ ----------- ----------- ------------ ----------- -----------

NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8]......................................... (328,229) 302,045 (910,613) (322,721) 285,561 (963,325)
------------ ----------- ----------- ------------ ----------- -----------

TOTAL INCREASE IN NET ASSETS........................ 21,532,911 25,630,425 23,071,793 11,550,493 21,933,849 21,486,195

NET ASSETS:
Beginning of year............................... 87,335,747 61,705,322 38,633,529 92,307,986 70,374,137 48,887,942
------------ ----------- ----------- ------------ ----------- -----------
End of year..................................... $108,868,658 $87,335,747 $61,705,322 $103,858,479 $92,307,986 $70,374,137
============ =========== =========== ============ =========== ===========

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A3 THROUGH A5
A2

<PAGE>

NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997

NOTE 1: GENERAL

Pruco Life PRUvider Variable Appreciable Account (the "Account") was
established on July 10, 1992 under Arizona law as a separate
investment account of Pruco Life Insurance Company ("Pruco Life")
which is a wholly-owned subsidiary of The Prudential Insurance
Company of America ("Prudential"). The assets of the Account are
segregated from Pruco Life's other assets.

The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are two 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 Prudential.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.

Investments--The investments in shares of the Series Fund are stated
-----------
at the net asset value of the respective portfolio.

Security Transactions--Realized gains and losses on security
-----------------------
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.

Distributions Received--Dividend and capital gain distributions
------------------------
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.

Equity of Pruco Life Insurance Company--Pruco Life maintains a
------------------------------------------
position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions, and expense
processing. Pruco Life monitors the balance daily and transfers funds
based upon anticipated activity. At times, Pruco Life may owe an
amount to the Account, which is reflected in the Account's Statements
of Net Assets as a receivable from Pruco Life. The receivable does
not have an effect on the Contract owner's account or the related
unit value.

<PAGE>

NOTE 3: 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, 1997 were as follows:

PORTFOLIOS
---------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------ ------------

Number of Shares: 6,296,287 6,932,930
Net asset value per share: $ 17.28029 $ 14.97022
Cost: $109,239,908 $104,868,420

NOTE 4: CONTRACT OWNER UNIT INFORMATION

Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:

SUBACCOUNTS
-----------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-----------------------------------
Contract Owner Units Outstanding 36,300,321.680 41,809,466.917
Unit Value ..................... $ 2.99911 $ 2.48409
---------------- ---------------
TOTAL CONTRACT OWNER EQUITY ... $ 108,868,658 $ 103,858,479
================ ===============

NOTE 5: CHARGES AND EXPENSES

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges at an effective
annual rate of 0.90% are applied daily against the net assets
representing equity of Contract owners held in each subaccount.
Mortality risk is that Contract owners may not live as long as
estimated and expense risk is that the cost of issuing and
administering the policies may exceed the estimated expenses. For
1997, the amount of these charges paid to Pruco Life was
$1,776,910.

B. Deferred Sales Charge

Subsequent to a Contract owner redemption, a deferred sales
charge is imposed upon surrenders of certain variable life
insurance contracts to compensate Pruco Life 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.
For 1997, the amount of these charges paid to Pruco Life was $
295,205.

C. Cost of Insurance Charges

Contract owner contributions are applied to the Account net of
the following charges: transaction costs, premium taxes, sales
loads, administrative charges, and death benefit risk charges.
During 1997, Pruco Life received a total of $1,239,689,
$1,668,969, $3,998,082, $8,726,448 and $158,412, respectively,
for these charges.

NOTE 6: TAXES

Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Pruco Life's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.

<PAGE>

NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS

The following amounts represent Contract owner activity components
for the year ended December 31, 1997:

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------- -------------
<S> <C> <C>
Contract Owner Net Payments ........................... $ 26,737,492 $ 19,001,987
Policy Loans .......................................... $ (912,970) $ (704,562)
Policy Loan Repayment and Interest .................... $ 390,085 $ 350,979
Surrenders, Withdrawals, and Death Benefits ........... $ (6,402,537) $ (6,555,299)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Options .......................................... $ 567,479 $ (476,329)
Administrative and Other Charges ...................... $(13,773,623) $(11,188,850)
</TABLE>

NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS

The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life to the
Account.

NOTE 9: UNIT ACTIVITY

Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1997 and December 31, 1996 were as follows:

<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
-------------------------------- -------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>

Contract Owner Contributions: 9,998,784.494 14,116,349.476 8,324,435.867 13,901,186.920
Contract Owner Redemptions: (7,621,394.910) (7,281,504.623) (8,122,803.908) (7,840,673.413)
</TABLE>

NOTE 10: PURCHASES AND SALES OF INVESTMENTS

The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund were as follows:

PORTFOLIOS
----------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
---------------- ---------------
For the year ended December 31, 1997:
Purchases.................................. $ 6,505,000 $ 2,017,000
Sales...................................... $ (1,185,000) $ (2,869,000)

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Contract Owners of the
Pruco Life PRUvider Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company

In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Flexible Managed
and Conservative Balanced) of the Pruco Life PRUvider Variable Appreciable
Account at December 31, 1997, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Pruco Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1997, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
New York, New York
March 20, 1998

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Contract Owners of
Pruco Life PRUvider Variable Appreciable
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey

We have audited the accompanying statements of changes in net assets of Pruco
Life PRUvider Variable Appreciable Account of Pruco Life Insurance Company
(comprising, respectively, the Flexible Managed and Conservative Balanced
subaccounts) for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life PRUvider Variable Appreciable Account for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.

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

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996
----------------- -----------------

<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351

Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-1

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES

Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------

TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES

Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------

TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------

Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------

Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------

Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------

NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-2

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602

Net income -- -- 152,644 -- -- 152,644

Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)

Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193

Net income -- -- 149,222 -- -- 149,222

Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)

Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981

Net income -- -- 106,374 -- -- 106,374

Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)

Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------

BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517

============= ============= ============= ============= =========== =============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-3

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------

1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)

--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B-4

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. BUSINESS

Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.

The only reportable industry segment of the Company is "Life Insurance."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.

USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.

INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."

EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."

MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts

POLICY LOANS are carried at unpaid principal balances.

SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.

OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.

REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.

CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.

DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are

B-5

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.

Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.

FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES

Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.

For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.

Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.

SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.

These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.

SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."

Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.

B-6

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."

DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."

Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.

INCOME TAXES
The Company and its subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.

NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.

In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a

B-7

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.

RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.

B-8

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. INVESTMENTS

FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:

<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)

<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902

Foreign government bonds 83,889 1,118 19 84,988

Corporate securities 2,263,898 36,857 2,017 2,298,738

Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============

1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)

FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911

Foreign government bonds 90,447 857 205 91,099

Corporate securities 2,087,250 30,365 4,206 2,113,409

Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============

------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>

B-9

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. INVESTMENTS (CONTINUED)

The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)

<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838

Due after one year through five years 1,738,532 1,758,946 204,298 212,050

Due after five years through ten years 555,194 567,928 98,192 101,143

Due after ten years 201,993 206,023 22,622 23,025

Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>

Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.

Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.

The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:

AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------

AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)

<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797

BBB 1,047,203 1,062,641 128,481 131,820

BB 80,136 83,293 20,540 21,264

B 73,717 76,781 2,132 2,172

CCC or lower 5,943 6,288 -- --

In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------

Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>

The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.

B-10

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. INVESTMENTS (CONTINUED)

MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,

1997 1996
---------------------- -----------------------

(In Thousands)

Office buildings $ 4,607 20% $ 18,497 39%

Retail stores 8,090 35% 8,731 19%

Apartment complexes 6,080 27% 11,771 25%

Industrial buildings 4,010 18% 7,916 17%

---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================

The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).

SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.

OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."

B-11

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. INVESTMENTS (CONTINUED)

INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES

NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:

1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>

REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:

1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------

Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>

NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:

1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)

<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>

B-12

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. INCOME TAXES

The components of income taxes for the years ended December 31, are as follows:

1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------

Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------

Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>

The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:

1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)

<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>

B-13

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. INCOME TAXES (CONTINUED)

Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:

1997 1996
-------------------- --------------------
(In Thousands)

<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------

Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------

Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>

Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.

The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.

5. REINSURANCE

The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:

1997 1996 1995
----------- ----------- -----------

Life insurance premiums

Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========

1997 1996 1995
----------- ----------- -----------

Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========

B-14

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6. EQUITY

RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME

Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.

1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)

<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565

Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================

1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645

Adjustments to reconcile to equity on a GAAP basis:

Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>

The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.

B-15

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.

MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.

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 futures is estimated based on market quotes for a transactions
with similar terms.

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

1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)

<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851

Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>

B-16

<PAGE>

PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8. DERIVATIVE INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This 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 notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.

9. RELATED PARTY TRANSACTIONS

SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.

REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.

10. CONTINGENCIES

Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.

In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.

11. DIVIDENDS

The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.

B-17

<PAGE>

Report of Independent Accountants
---------------------------------

To the Board of Directors of
Pruco Life Insurance Company

In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998

B-18
<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey

We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.

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

In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.

/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996

B-19

<PAGE>

PRUvider(sm)
Variable Appreciable Life(R)
Insurance

[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
SVAL-1 Ed. 5/98 CAT#6469898

<PAGE>

PART IB

INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998

PRUCO LIFE INSURANCE COMPANY
PRUVIDER VARIABLE APPRECIABLE ACCOUNT

PRUVIDER
VARIABLE
APPRECIABLE
LIFE(R)___________________
INSURANCE CONTRACTS

PROVIDING FOR THE INVESTMENT
OF ASSETS IN THE
INVESTMENT PORTFOLIOS OF

THE PRUDENTIAL SERIES
FUND, INC.

The Pruco Life Insurance Company, a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America, offers a
variable life insurance contract called the PRUVIDER Variable APPRECIABLE
LIFE(R) Insurance Contract*. The Contract provides whole-life insurance
protection. The death benefit varies daily with investment experience but will
never be less than the "face amount" of insurance specified in the Contract. The
Contract also generally provides a cash surrender value which also varies with
investment experience. 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 both of the two current subaccounts of the Pruco Life
PRUVIDER 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 two available Series Fund portfolios are the CONSERVATIVE
BALANCED PORTFOLIO and the FLEXIBLE MANAGED 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 Pruco Life and certain other
insurers to fund the benefits under variable life insurance and variable annuity
contracts issued by those companies.

The PRUVIDER Variable APPRECIABLE LIFE(R) Insurance Contract owner may also
choose to invest in a FIXED-RATE OPTION which is described in the prospectus of
The Pruco Life PRUVIDER Variable Appreciable Account.

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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE PRUCO LIFE PRUVIDER VARIABLE
APPRECIABLE ACCOUNT DATED MAY 1, 1998, WHICH IS AVAILABLE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE PRUCO LIFE INSURANCE COMPANY, 213 WASHINGTON STREET,
NEWARK, NEW JERSEY 07102-2992 OR BY TELEPHONING (800) 437-4016.

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

PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016

*PRUVIDER is a service mark of Prudential.
APPRECIABLE LIFE is a registered mark of Prudential.
SVAL-1SAI Ed 5-98
Catalog No. 64M086G

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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
PAYING PREMIUMS BY PAYROLL DEDUCTION................................1
UNISEX PREMIUMS AND BENEFITS........................................1
HOW THE DEATH BENEFIT WILL VARY.....................................2
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE...........................2
TAX TREATMENT OF CONTRACT BENEFITS..................................3
TREATMENT AS LIFE INSURANCE...............................3
PRE-DEATH DISTRIBUTIONS...................................3
WITHHOLDING...............................................4
OTHER TAX CONSIDERATIONS..................................4
SALE OF THE CONTRACT AND SALES COMMISSIONS..........................5
RIDERS..............................................................5
OTHER STANDARD CONTRACT PROVISIONS..................................5
BENEFICIARY...............................................5
INCONTESTABILITY..........................................5
MISSTATEMENT OF AGE OR SEX................................5
SUICIDE EXCLUSION.........................................5
ASSIGNMENT................................................5
SETTLEMENT OPTIONS........................................5

INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS...........................6
GENERAL ..........................................................6
CONVERTIBLE SECURITIES..............................................6
LOAN PARTICIPATIONS.................................................6
WARRANTS ..........................................................6
OPTIONS AND FUTURES.................................................6
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES........................13
SHORT SALES........................................................13
SHORT SALES AGAINST THE BOX........................................13
INTEREST RATE SWAPS................................................14
LOANS OF PORTFOLIO SECURITIES......................................14
ILLIQUID SECURITIES................................................14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS........................15

INVESTMENT RESTRICTIONS.......................................................16

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES...............................18

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................20

DETERMINATION OF NET ASSET VALUE..............................................21

SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO MAY CURRENTLY INVEST...........22

DEBT RATINGS..................................................................24

POSSIBLE REPLACEMENT OF THE SERIES FUND.......................................26

OTHER INFORMATION CONCERNING THE SERIES FUND..................................26
INCORPORATION AND AUTHORIZED STOCK.................................26
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................26
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT..........26
YEAR 2000..........................................................27
EXPERTS............................................................27
LICENSE............................................................27

DIRECTORS AND OFFICERS OF PRUCO LIFE AND MANAGEMENT OF THE SERIES FUND........28

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

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

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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. 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. We are currently allowing partial surrenders of the
Contract, but we reserve the right to cancel this administrative practice. If
the Contract is partially surrendered during the first 10 years, a proportionate
amount of the charge will be deducted from the Contract Fund. Surrender of all
or part of a Contract may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 3.

The contingent deferred sales load is also subject to a further limit at older
issue ages (approximately above age 61) 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 (a) under
MONTHLY DEDUCTIONS FROM CONTRACT FUND.)

The limitation is based on a Guideline Annual Premium ("GAP") that is associated
with every Contract. The GAP is an amount 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 Pruco Life 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

Pruco Life 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.
Pruco Life 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 Pruco Life 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 Pruco Life on a uniform basis. Pruco Life's
reductions in charges for these sales will not be unfairly discriminatory to the
interests of any individual Contract owners.

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 Pruco Life monthly. Any Pruco
Life 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

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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. Pruco Life may offer the Contract with unisex mortality
rates to such prospective purchasers.

HOW THE DEATH BENEFIT WILL VARY

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.

Thus, for a 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.

The Contract Fund 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 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 times the attained age factor that
applies.

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 $200. An owner
may make no more than four such withdrawals in each Contract year, and there is
an administrative processing fee equal to the lesser of $15 or 2% of the amount
withdrawn that is made in connection with each withdrawal. An amount withdrawn
may not be repaid except as a scheduled or unscheduled premium subject to the
applicable charges. Upon request, Pruco Life 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 3. A temporary
need for funds may also be met by making a loan and you should consult your
Pruco Life representative about how best to meet your needs.

When a withdrawal is made, 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. No
surrender charges will be assessed upon a withdrawal.

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, Pruco Life
treats withdrawals as a return of premium.

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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 Pruco Life 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.

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.

Pruco Life 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 until
amounts are distributed under the Contract; 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
relating to the definition of life insurance 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.

Pruco Life 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 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.

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Extra premiums for optional benefits and riders generally do not
count in computing 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. A
Contract may be classified as a Modified Endowment Contract under
various circumstances. For example, low face amount Contracts issued
on younger insureds may be classified as a Modified Endowment
Contract even though the Contract owner pays only the Scheduled
Premiums or even less than the Scheduled Premiums. Before purchasing
such a Contract, you should understand the tax treatment of pre-death
distributions and consider the purpose for which the Contract is
being purchased. More generally, a Contract may be classified as a
Modified Endowment Contract if premiums in excess of Scheduled
Premiums are paid or if a decrease in the face amount of insurance is
made (or a rider removed). Moreover, the addition of a rider 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
Pruco Life 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 percent of the
amount includible in income unless the amount is distributed on or
after age 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, Modified Endowment Contracts issued
during any calendar year will be treated as a single contract for
purposes of applying the above rules.

WITHHOLDING. The taxable portions 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 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 gift, estate and/or income 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. The Health Insurance Portability and Accountability Act of 1996
generally disallows tax deductions for interest on Contract debt on a
business-owned insurance policy effective (with certain transitional rules) for
interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
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.

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SALE OF THE CONTRACT AND SALES COMMISSIONS

Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
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 751 Broad
Street, Newark, New Jersey 07102-3777. 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 6% of the scheduled premiums for the second 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.

Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life 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 Pruco Life'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.

RIDERS

The Contract owner may be able to obtain extra fixed benefits which may require
an additional premium. These optional insurance benefits will be described in
what is known as a "rider" to the Contract. Charges for the riders will be
deducted from the Contract Fund on each Monthly date. 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 child should
die. The amounts of these benefits are fully guaranteed at issue; they do not
depend on the performance of the Account. Certain restrictions may apply; they
are clearly described in the applicable rider.

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

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 Pruco Life'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, Pruco Life 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, Pruco Life 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, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.

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 Pruco Life's consent.
Pruco Life 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 Pruco Life representative authorized to sell this Contract can explain
these options upon request.

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INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS

GENERAL

The Prudential Series Fund, Inc. (the "Series Fund") has fifteen separate
portfolios, two of which, the Conservative Balanced Portfolio and the Flexible
Managed Portfolio, are available to PRUVIDER Contract owners. The portfolios are
managed by The Prudential Insurance Company of America ("Prudential"), see
INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES, page 18.

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 that are available to
PRUVIDER Contract owners can be found under INVESTMENT OBJECTIVES AND POLICIES
OF THE PORTFOLIOS in the prospectus.

CONVERTIBLE SECURITIES

The Conservative Balanced and Flexible Managed Portfolios may invest in
convertible securities. 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.

LOAN PARTICIPATIONS

The Conservative Balanced and Flexible Managed Portfolios may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations between
a corporate borrower and one or more financial institutions ("Lenders"). The
portfolios may invest in such Loans generally in the form of participations in
Loans ("Participations"). Participations typically will result in the Series
Fund having a contractual relationship only with the Lender, not with the
borrower. The Series Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Series Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Series Fund may not benefit directly from any
collateral supporting the Loan in which it has purchased the Participation. As a
result, the Series Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Series Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower.

WARRANTS

The Conservative Balanced and Flexible Managed 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.

OPTIONS AND FUTURES

OPTIONS ON EQUITY SECURITIES. The Conservative Balanced and Flexible Managed
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

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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, U.S. Government securities or other liquid
unencumbered assets 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 unencumbered
assets 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, U.S. Government
securities or other liquid unencumbered assets in a segregated account with its
custodian.

The Conservative Balanced and Flexible Managed 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, page 8 and OPTIONS ON STOCK INDICES, page 9.

The 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

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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. 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. 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 Conservative Balanced and Flexible Managed
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 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.

The 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, U. S. Government securities or liquid unencumbered
assets 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.

The 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 6. 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

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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.

The 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 SEC 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.

OPTIONS ON STOCK INDICES. The Conservative Balanced and Flexible Managed
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"). 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.

The 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 liquid unencumbered
assets equal in value to the amount by which the call is in-the-money times the
multiplier times the number of

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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 liquid
unencumbered assets in a segregated account with its custodian. In instances
involving the purchase of futures contracts by a portfolio, 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 such futures is unleveraged.

The purchase and sale of options on stock indices will be subject to the risks
described under OPTIONS ON EQUITY SECURITIES, page 6. 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 the
portfolio manager's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on stocks.

There are certain 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

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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 Conservative Balanced and Flexible Managed
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 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, page 15) and futures
contracts on foreign currencies (discussed under FUTURES CONTRACTS, below) 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 investment 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 Conservative Balanced and Flexible Managed Portfolios
may, to the extent permitted by applicable regulations, purchase and sell stock
index futures contracts. A stock index futures contract is an agreement between
the buyer and the seller of the contract to transfer an amount of cash equal to
the daily variation margin of the contract. No physical delivery of the
underlying stocks in the index is made.

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The Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell 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 Conservative Balanced and Flexible Managed Portfolios may, to the extent
permitted by applicable regulations, purchase and sell futures contracts on
foreign currencies or groups of foreign currencies.

When the futures contract is entered into, each party deposits with a futures
commission merchant (or in a segregated custodial account) approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the futures commission merchant, 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 "marking to the market."

A portfolio may purchase or sell futures contracts without limit for hedging
purposes and may purchase and sell such contracts for non-hedging purposes
provided the initial margins and premiums associated with the contracts do not
exceed 5% of the fair market value of the portfolio's assets, taking into
account unrealized profits and unrealized losses on any such futures. Hedging is
generally considered to be the use of futures to reduce the risk of a particular
position in a security. For example, a portfolio manager might attempt to reduce
the risk of investment in equity securities by hedging a portion of its equity
portfolio through the use of stock index futures contracts. Subject to the
limitation discussed above, futures may also be utilized by a portfolio for
non-hedging uses, such as for investment purposes, to enhance income or to
adjust its asset mix. An example of non-hedging use of futures would be if the
investment manager expects bonds to outperform stocks, it may purchase interest
rate futures contracts rather than actually selling stocks and buying bonds.

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 risks associated with a portfolio's use of futures contracts.
When used for investment purposes (i.e., non-hedging purposes), successful use
of futures contracts, like successful investment in securities, depends on the
ability of the portfolio manager to predict correctly movements in the relevant
markets, interest rates and/or currency exchange rates. When used for hedging
purposes, there is a risk of imperfect correlation between movements in the
price of the futures contract and the price of the securities 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 futures contracts
with a greater or lesser value than the securities or currency it wished to
hedge or purchase. Other risks apply to use for both hedging and investment
purposes. Temporary price distortions in the futures market could be caused by a
variety of factors. Further, the ability of a portfolio to close out a futures
position depends on a liquid secondary market. There is no assurance that a
liquid secondary market on an exchange will exist for any particular futures
contract at any particular time.

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.

OPTIONS ON FUTURES CONTRACTS. To the extent permitted by applicable insurance
law and federal regulations, the Conservative Balanced and Flexible Managed
Portfolios may enter into certain transactions involving options on stock index
futures contracts, options on interest rate futures contracts, and 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 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. The portfolios intend
to utilize options on futures contracts for the same purposes that they use the
underlying futures contracts.

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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 Conservative Balanced
and Flexible Managed Portfolios may purchase or sell securities on a when-issued
or delayed delivery basis, that is, delivery and payment can take place a month
or more after the date of the transaction. The 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 liquid unencumbered assets 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 short-term portions of the 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 22.

SHORT SALES

The Conservative Balanced and Flexible Managed 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 fee 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, U.S. Government securities or other liquid unencumbered
assets 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 fee 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

The portfolios may make short sales of securities or maintain a short position,
provided that at all times when a short position is open 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, U.S. Government securities or
other liquid unencumbered assets in an amount equal to such consideration must
be put in a segregated account.

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INTEREST RATE SWAPS

The fixed income portions of the Conservative Balanced and Flexible Managed
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

The portfolios may from time to time lend the securities they hold to
broker-dealers, qualified banks and certain institutional investors 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 entities affiliated with Prudential,
including Prudential Securities Incorporated. This will not affect a portfolio's
ability to maximize its securities lending opportunities.

ILLIQUID SECURITIES

The portfolios may hold up to 15% 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 investment manager,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the investment manager will consider, among other relevant
factors: (1) the frequency of trades and

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quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades. A portfolio's treatment of
Rule 144A securities as liquid could have the effect of increasing the level of
portfolio illiquidity to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing these securities. In addition, the
investment manager, 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 investment manager must
determine that the security is of equivalent quality; and (3) the investment
manager must consider the trading market for the specific security, taking into
account all relevant factors. The investment manager 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 Conservative Balanced
and Flexible Managed 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.

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 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

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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.

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.

Neither of the portfolios available to PRUVIDER Contract owners 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 Conservative Balanced and Flexible Managed Portfolios may
purchase and sell stock index futures contracts and related options,
purchase and sell interest rate futures contracts and related options,
and 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 Conservative Balanced and Flexible Managed Portfolios may sell
securities short up to 25% of their net assets and 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 fixed income portions of the Conservative
Balanced and Flexible Managed 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
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 Conservative Balanced and Flexible Managed 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 options on debt
securities, equity securities, stock indices and foreign currencies by
the Conservative Balanced and Flexible Managed Portfolios

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are not deemed to be the issuance of a senior security or the purchase of
a security on margin. Collateral arrangements entered into by the
Conservative Balanced and Flexible Managed 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 fixed income portions of the Conservative Balanced and Flexible
Managed Portfolios may enter into reverse repurchase agreements and
dollar rolls provided that the portfolio's obligations with respect to
those instruments do not exceed 30% of the portfolio's net assets
(defined to mean total assets at market value less liabilities other than
reverse repurchase agreements and dollar rolls).

7. Pledge or mortgage assets, except that no more than 10% of the value of
any portfolio may be pledged (taken at the time the pledge is made) to
secure authorized borrowing and except that a 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. For
purposes of this restriction, illiquid securities are those deemed
illiquid pursuant to SEC regulations and guidelines, as they may be
revised from time to time.

Consistent with item 5 above, the Series Fund has entered into a credit
agreement (the "Line of Credit") with an unaffiliated lender to facilitate
redemptions if necessary. The maximum commitment under the Line of Credit, which
expires on December 18, 1998, is $250,000,000. The Series Fund pays a commitment
fee at an annual rate of 0.055 of 1% of the unused portion of the Line of Credit
and interest on any borrowings under the Line of Credit at market rates. As of
April 30, 1998, the Series Fund had not borrowed against the Line of Credit.

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

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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 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 22.

Current federal income tax laws require that the assets of each portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the 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 3. Prudential intends to
maintain the assets of each portfolio pursuant to those diversification
requirements.

INVESTMENT MANAGEMENT ARRANGEMENTS AND EXPENSES

The Series Fund and Prudential have entered into an Investment Advisory
Agreement under which 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, 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 Prudential such services as Prudential
may require in connection with Prudential's performance of its obligations under
the Investment Advisory Agreement.

The investment management fee for the Conservative Balanced Portfolio is equal
to an annual rate of 0.55% of the average daily net assets of each of the
portfolios. For the Flexible Managed Portfolio, the fee is equal to an annual
rate of 0.60% of the average daily net assets of the portfolio.

For the years 1997, 1996 and 1995, Prudential received a total of $25,757,735,
$23,052,572 and $20,327,574, respectively, in investment management fees for the
Conservative Balanced Portfolio and $31,740,440, $27,247,674 and $22,971,401,
respectively, for the Flexible Managed Portfolio.

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The Investment Advisory Agreement requires Prudential to pay for maintaining any
Prudential staff and personnel who perform clerical, accounting, administrative,
and similar services for the Series Fund, other than investor services and any
daily Series Fund accounting services. It also requires Prudential to pay for
the equipment, office space and related facilities necessary to perform these
services and the fees or salaries of all officers and directors of the Series
Fund who are affiliated persons of Prudential or any subsidiary of 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, SEC fees, accounting
costs, the fees and expenses of directors of the Series Fund who are not
affiliated persons of Prudential or any subsidiary of 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 lawsuit. The Series Fund's Board of Directors has determined
that this is an appropriate method of allocating expenses.

Under the Investment Advisory Agreement, Prudential has agreed to refund to the
Conservative Balanced and Flexible Managed Portfolios the portion of the
investment management fee for that portfolio equal to the amount that the
aggregate annual ordinary operating expenses of that portfolio (excluding
interest, taxes, and brokerage fees and commissions but including investment
management fees) exceeds 0.75% of the portfolio's average daily net assets.

The Investment Advisory Agreement with 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 Prudential, on May 19, 1997 with respect to the
Balanced Portfolios. The Investment Advisory Agreement was most recently
approved by shareholders in accordance with instructions from Contract owners at
their 1989 annual meeting with respect to the Balanced Portfolios. The Agreement
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
Agreement shall be effective with respect to any portfolio if a majority of the
voting shares of that portfolio vote to approve the Agreement, even if the
Agreement is 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
Agreement provides that it may not be assigned by Prudential and that it may be
terminated upon 60 days' notice by the Series Fund's Board of Directors or by a
majority vote of its shareholders. Prudential may terminate the Agreement upon
90 days' notice.

The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Series Fund at their 1989 annual meeting with respect to the
Balanced Portfolios. The Service Agreement between 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
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 Prudential and the
Series Fund. Prudential is not relieved of its responsibility for all investment
advisory services under the Investment Advisory Agreement. Under the Service
Agreement, Prudential pays PIC a portion of the fee it receives for providing
investment advisory services.

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

Prudential is currently considering reorganizing itself into a stock company.
This form of reorganization, known as demutualization, is a complex process that
may take two or more years to complete. No plan of demutualization has been
adopted yet by Prudential's Board of Directors. Adoption of a plan of
demutualization would occur only after enactment of appropriate legislation in
New Jersey and would have to be approved by Prudential policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of Prudential as
to the desirability of demutualization. The Prudential Board of Directors, in
its discretion, may choose not to demutualize or to delay demutualization for a
time.

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<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

Prudential is responsible for decisions to buy and sell securities, options on
securities and indices, and futures and related options for the Series Fund.
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 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. 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 SEC. 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, Prudential is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, 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, Prudential or 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
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 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. 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
Prudential's opinion, this policy furthers the objective of obtaining best price
and execution. 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. 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 transac tions 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

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<PAGE>

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 1997, 1996 and 1995, the Conservative Balanced Portfolio paid
$3,338,897, $2,192,303 and $1,893,008, respectively, in brokerage commissions
and the Flexible Managed Portfolio paid $6,544,428, $5,760,972 and $5,252,363,
respectively, in brokerage commissions. Of those amounts, for 1997, 1996 and
1995, the Conservative Balanced Portfolio paid $256,752, $120,976 and $82,153,
respectively, to Prudential Securities Incorporated, and the Flexible Managed
Portfolio paid $428,008, $582,317 and $589,038, respectively, to Prudential
Securities Incorporated. For 1997, the percentage of commissions paid to
Prudential Securities Incorporated was 7.69% for the Conservative Balanced
Portfolio and 6.54% for the Flexible Managed Portfolio. For 1997, the percentage
of the aggregate dollar amount of transactions effected through Prudential
Securities Incorporated was 5.18% for the Conservative Balanced Portfolio and
6.92% for the Flexible Managed Portfolio.

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
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
Prudential or other insurers. Currently, Pruco Securities Corporation
("Prusec"), an indirect wholly-owned subsidiary of Prudential, acts as the
principal underwriter of the Series Fund. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. Subject to Board approval,
during the second quarter of 1998 Prusec's responsibilities as principal
underwriter will be assigned to Prudential Investment Management Services LLC
("PIMS"). PIMS, also an indirect wholly-owned subsidiary of Prudential, is a
limited liability corporation organized under Delaware law in 1996. PIMS will
act as principal underwriter under substantially the same terms as Prusec does
currently. Both Prusec and PIMS are registered as broker-dealers under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. PIMS' principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777.

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,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In the event
the NYSE closes early on any business day, the net asset value of each portfolio
shall be determined at a time between such closing and 4:15 p.m. New York City
time.

In determining the net asset value of any intermediate or long-term fixed income
securities of the Conservative Balanced and Flexible Managed Portfolios (other
than debt obligations with remaining maturities of 12 months or less, 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.

All short-term debt obligations in the money market portions of the Conservative
Balanced and Flexible Managed Portfolios of 12 months remaining maturity or less
are valued on an amortized cost basis in accordance with an order obtained from
the SEC. 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 portions of the Conservative Balanced and
Flexible Managed Portfolios may not purchase any security with a remaining
maturity of more than 12 months and must maintain a dollar-weighted average
portfolio maturity of 120 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 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

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<PAGE>

quality instruments, as described in SECURITIES IN WHICH THE MONEY MARKET
PORTFOLIO MAY CURRENTLY INVEST, page 22.

The net asset value of the common stocks and convertible debt securities of the
portfolios will be determined in the following manner. NASDAQ National Market
System equity securities and securities for which the primary market is on an
exchange are generally valued at the last sale price on such system or exchange
on that day or, in the absence of recorded sales, at the mean between the most
recently quoted bid and asked prices on that day or at the bid price on such day
in the absence of an asked price. Other over-the-counter equity securities are
valued by an independent pricing agent or principal market maker. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by a principal market maker. Corporate bonds (other
than convertible debt securities) are valued on the same basis as intermediate
or long-term fixed income securities, 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.

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 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
and options thereon are valued at the last sale price at the close of the
applicable commodities exchanges or board of trade (which is currently 4:15 p.m.
New York City time) or, if there was no sale on the applicable commodities
exchange or board of trade on such day, at the mean between the most recently
quoted bid and asked prices on such exchange or board of trade.

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by 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

* Although the Money Market Portfolio is not available to PRUVIDER Contract
owners, any short-term portion of the Conservative Balanced and Flexible Managed
Portfolios may be invested in the types of securities described in this section.

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<PAGE>

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, denominated in U.S.
dollars, and, at the date of investment, rated at least A or A-2 by Standard &
Poor's Ratings Services ("S&P"), A or Prime-2 by Moody's Investors Services,
Inc. ("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 24. 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 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 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
fixed income portions of the Conservative Balanced and Flexible Managed
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

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<PAGE>

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 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 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 edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.

A -- Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

24
<PAGE>

Baa -- Bonds which are rated "Baa" are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.

Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C -- Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Commercial paper:

o Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

- --Leading market positions in well-established industries.

- --High rates of return of funds employed.

- --Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- --Well established access to a range of financial markets and assured sources of
alternate liquidity.

o Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

S&P describes its grades of corporate debt securities and its "A" commercial
paper as follows:

Bonds:

AAA Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.

A Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.

BBB Debt rated "BBB" is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.

BB-B-CCC-CC-C Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures
to adverse conditions.

25
<PAGE>

Commercial paper:

Commercial paper rated A by S&P has the following
characteristics: Liquidity ratios are better than the industry
average. Long term senior debt rating is "A" or better. In some
cases BBB credits may be acceptable. The issuer has access to at
least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowances made for unusual
circumstances. Typically, the issuer's industry is well
established, the issuer has a strong position within its
industry and the reliability and quality of management is
unquestioned. Issuers rated A are further referred to by use of
numbers 1, 2 and 3 to denote relative strength within this
classification.

POSSIBLE REPLACEMENT OF THE SERIES FUND

Although 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, 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. 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. As of
the date of this prospectus, the shares of Capital Stock are divided into
fifteen classes: MONEY MARKET PORTFOLIO Capital Stock, DIVERSIFIED BOND
PORTFOLIO Capital Stock, HIGH YIELD BOND PORTFOLIO Capital Stock, GOVERNMENT
INCOME PORTFOLIO Capital Stock, EQUITY PORTFOLIO Capital Stock, STOCK INDEX
PORTFOLIO Capital Stock, EQUITY INCOME PORTFOLIO Capital Stock, NATURAL
RESOURCES PORTFOLIO Capital Stock, GLOBAL PORTFOLIO Capital Stock, CONSERVATIVE
BALANCED PORTFOLIO Capital Stock, FLEXIBLE MANAGED PORTFOLIO Capital Stock, ZERO
COUPON BOND PORTFOLIO 2000 Capital Stock, ZERO COUPON BOND PORTFOLIO 2005
Capital Stock, PRUDENTIAL JENNISON PORTFOLIO Capital Stock, SMALL CAPITALIZATION
STOCK PORTFOLIO Capital Stock. 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.

CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT

Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City,
MO 64105-1716, is the custodian of the assets held by all the portfolios except
the Global Portfolio. IFTC is also 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 Depository Trust Company and the
facilities of the book-entry system of the Federal Reserve Bank with respect to
securities held by these portfolios. Brown Brothers Harriman & Co. ("Brown
Brothers"), 40 Water Street, Boston, MA 02109, is the custodian of the assets of
the Global Portfolio. Each of the Series Fund's

26
<PAGE>

custodians employs subcustodians, who were approved in accordance with
regulations of the SEC, for the purpose of providing custodial service for the
Series Fund's foreign assets held outside the United States.

Prudential is the transfer agent and dividend disbursing agent for the Series
Fund. Prudential as transfer agent issues and redeems shares of the Series Fund
and maintains records of ownership for the shareholders. Prudential's principal
business address is 751 Broad Street , Newark, New Jersey 07102-3777.

YEAR 2000

The services provided to the Series Fund and its shareholders by Prudential,
PIC, Jennison, as well as the Series Fund's principal underwriter and its
custodians, depend on the smooth functioning of their computer systems and those
of their outside service providers. Many computer software systems in use today
cannot distinguish the year 2000 from the year 1900 because of the way dates are
encoded and calculated. Such event could have a negative impact on handling
securities trades, payments of interest and dividends, pricing and account
services. Although at this time, there can be no assurance that there will be no
adverse impact on the Series Fund, the Prudential, PIC, Jennison, as well as the
Series Fund's principal underwriter and its custodians, have advised the Series
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
their outside service providers, will be adapted in time for that event.

EXPERTS

The financial statements of the Series Fund included in this statement of
additional information and the FINANCIAL HIGHLIGHTS included in the prospectus
for years ended December 31, 1997 and December 31, 1996 have been audited by
Price Waterhouse LLP, independent accountants, 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. Price Waterhouse
LLP's principal business address is 1177 Avenue of the Americas, New York, New
York 10036.

LICENSE

As part of the Investment Advisory Agreement, Prudential has granted the Series
Fund a royalty-free, non-exclusive license to use the words "The Prudential" and
"Prudential" and its registered service mark of a rock representing the Rock of
Gibraltar. However, Prudential may terminate this license if Prudential or a
company controlled by it ceases to be the Series Fund's investment advisor.
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.

27
<PAGE>

DIRECTORS AND OFFICERS OF PRUCO LIFE AND
MANAGEMENT OF THE SERIES FUND

DIRECTORS AND OFFICERS

The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.

DIRECTORS OF PRUCO LIFE

JAMES J. AVERY, JR., Chairman and Director. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.

WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.

IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.

MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; Prior to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services.

ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.

I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.

KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.

OFFICERS WHO ARE NOT DIRECTORS

SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.

C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.

JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.

CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.

FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.

EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.

JAMES M. SCHLOMANN, Vice President, Comptroller & Chief Accounting Officer. --
Vice President & Associate Comptroller, Prudential since 1997; Prior to 1997:
Senior Executive Vice President & CFO, USLife Corp.

SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.

JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.

The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.

Pruco Life directors and officers are elected annually.

<PAGE>

MANAGEMENT OF THE SERIES FUND

The names of all directors and major 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 751 Broad Street ,
Newark, New Jersey 07102-3777.

DIRECTORS OF THE SERIES FUND

MENDEL A. MELZER, CFA*, 37, Chairman of the Board--Chief Investment Officer of
Prudential Investments since 1996; 1995 to 1996: Chief Financial Officer of the
Money Management Group of Prudential; 1993 to 1995: Senior Vice President and
Chief Financial Officer of Prudential Preferred Financial Services; Prior to
1993: Managing Director, The Prudential Investment Corporation.

E. MICHAEL CAULFIELD*, 51, President and Director--Chief Executive Officer of
Prudential Investments since 1995; 1995: Chief Executive Officer, Prudential
Preferred Financial Services; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company; Prior to 1992: President of Investment Services of
Prudential.

SAUL K. FENSTER, 65, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.

W. SCOTT MCDONALD, JR., 61, Director--Principal, Kaludis Consulting Group since
1997; 1995 to 1996: Principal, Scott McDonald & Associates; Prior to 1995:
Executive Vice President of Fairleigh Dickinson University. Address: 9 Zamrok
Way, Morristown, New Jersey 07960.

JOSEPH WEBER, 74, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.

OFFICERS WHO ARE NOT DIRECTORS

CAREN A. CUNNINGHAM, Secretary--Assistant General Counsel of Prudential Mutual
Fund Management, Inc. since 1997; 1994 to 1997: Vice President and Associate
General Counsel of Smith Barney Mutual Fund Management Inc.; 1992 to 1994:
Assistant Vice President and Counsel, The Boston Company.

GRACE C. TORRES, Treasurer and Principal Financial and Accounting Officer--First
Vice President of PIFM since 1996; 1994 to 1996: First Vice President of
Prudential Securities Inc.; Prior to 1994: Vice President of Bankers Trust
Corporation.

STEPHEN M. UNGERMAN, Assistant Treasurer--Vice President and Tax Director of
Prudential Investments since 1996; 1993 to 1996: First Vice President of
Prudential Mutual Fund Management, Inc.

No director or officer of the Series Fund who is also an officer, director or
employee of 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 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 Prudential, must be approved by a majority of the members of
the Board who are not interested persons of Prudential, its affiliates or the
Series Fund. Mr. Melzer and Mr. Caulfield, two of the five members of the Board,
are interested persons of Prudential and the Series Fund, as that term is
defined in the 1940 Act, because they are officers and/or affiliated persons of
Prudential, the investment advisor to the Series Fund. Messrs. Fenster,
McDonald, and Weber are not interested persons of Prudential, its affiliates or
the Series Fund. However, Mr. Fenster is President of the New Jersey Institute
of Technology. Prudential has issued a group annuity contract to the Institute
and provides group life and group health insurance to its employees.

29
<PAGE>

The following table sets forth the aggregate compensation paid by the Series
Fund to the Directors who are not affiliated with Prudential for the fiscal year
ended December 31, 1997 and the aggregate compensation paid to such Directors
for service on the Series Fund's Board and the Boards of any other investment
companies managed by Prudential for the calendar year ended December 31, 1997.
Below are listed all Directors who have served the Series Fund during its most
recent fiscal year.

COMPENSATION TABLE
<TABLE>
<CAPTION>

Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation As Part of Series Benefits Upon Related to Funds
Name and Position From Series Fund Fund Expenses Retirement Managed by Prudential
- ----------------- ---------------- ------------- ---------- ---------------------
<S> <C> <C> <C> <C>
E. Michael Caulfield(1) -- -- -- --
Saul K. Fenster $14,400 None N/A $26,200(5)*
W. Scott McDonald, Jr. $14,400 None N/A $26,200(5)*
Mendel A. Melzer, CFA(1) -- -- -- --
Joseph Weber $14,400 None N/A $26,200(5)*
</TABLE>

(1) Directors who are "interested" do not receive compensation from Prudential
(including the Series Fund).

* Indicates number of funds (including the Series Fund) to which aggregate
compensation relates.

As of April 30, 1998, the Directors and officers of the Series Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Series
Fund capital stock.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$4,491,825,742).......................... $4,696,024,117
Cash....................................... 2,749
Interest and dividends receivable.......... 60,006,370
--------------
Total Assets............................. 4,756,033,236
--------------
LIABILITIES
Payable to investment adviser.............. 6,725,610
Payable for investments purchased.......... 3,573,515
Due to broker -- variation margin.......... 653,438
Accrued expenses........................... 546,540
Payable for capital stock repurchased...... 302,094
--------------
Total Liabilities........................ 11,801,197
--------------
NET ASSETS................................... $4,744,232,039
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,169,112
Paid-in capital, in excess of par........ 4,500,747,938
--------------
4,503,917,050
Undistributed net investment income........ 949,046
Accumulated net realized gain on
investments.............................. 36,942,793
Net unrealized appreciation on
investments.............................. 202,423,150
--------------
Net assets, December 31, 1997.............. $4,744,232,039
--------------
--------------
Net asset value and redemption price per
share, 316,911,160 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 14.97
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $187,480 foreign
withholding tax)......................... $ 19,377,627
Interest................................... 216,743,419
---------------
236,121,046
---------------
EXPENSES
Investment advisory fee.................... 25,757,735
Custodian expense.......................... 281,000
Shareholders' reports...................... 169,000
Accounting fees............................ 101,000
Audit fees................................. 67,000
Legal fees................................. 3,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 923
---------------
Total Expenses........................... 26,382,658
Less: Custodian fee credit................. (166,162)
---------------
Net Expenses............................. 26,216,496
---------------
NET INVESTMENT INCOME........................ 209,904,550
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 546,046,706
Futures contracts........................ (20,841,176)
Short sales.............................. (30,344)
---------------
525,175,186
---------------
Net change in unrealized appreciation on:
Investments.............................. (145,915,485)
Futures contracts........................ (1,775,225)
Short sales.............................. (1,139,560)
---------------
(148,830,270)
---------------
NET GAIN ON INVESTMENTS...................... 376,344,916
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 586,249,466
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 209,904,550 $ 173,283,574
Net realized gain on investments....................................................... 525,175,186 270,107,246
Net change in unrealized appreciation on investments................................... (148,830,270) 61,403,321
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 586,249,466 504,794,141
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (209,004,256) (174,034,704)
Dividends in excess of net investment income........................................... -- (41,632)
Distributions from net realized capital gains.......................................... (518,358,296) (273,551,593)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (727,362,552) (447,627,929)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,585,160 and 10,561,256 shares, respectively]..................... 74,015,405 167,668,924
Capital stock issued in reinvestment of dividends and distributions [47,801,252 and
29,086,855 shares, respectively]...................................................... 727,362,552 447,627,929
Capital stock repurchased [(24,112,955) and (8,429,995) shares, respectively].......... (394,841,365) (134,428,797)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 406,536,592 480,868,056
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 265,423,506 538,034,268
NET ASSETS:
Beginning of year...................................................................... 4,478,808,533 3,940,774,265
------------------ -------------------
End of year............................................................................ $ 4,744,232,039 $ 4,478,808,533
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$5,050,966,053).......................... $5,471,387,547
Cash....................................... 15,631
Interest and dividends receivable.......... 40,850,547
Receivable for investments sold............ 294
--------------
Total Assets............................. 5,512,254,019
--------------
LIABILITIES
Payable for investments purchased.......... 12,760,562
Payable to investment adviser.............. 8,471,572
Accrued expenses........................... 654,878
Due to broker -- variation margin.......... 203,828
Payable for capital stock repurchased...... 21,085
--------------
Total Liabilities........................ 22,111,925
--------------
NET ASSETS................................... $5,490,142,094
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,177,111
Paid-in capital, in excess of par........ 4,984,889,353
--------------
4,988,066,464
Undistributed net investment income........ 768,864
Accumulated net realized gain on
investments.............................. 82,447,694
Net unrealized appreciation on
investments.............................. 418,859,072
--------------
Net assets, December 31, 1997.............. $5,490,142,094
--------------
--------------
Net asset value and redemption price per
share, 317,711,061 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 17.28
--------------
--------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $810,090 foreign
withholding tax)......................... $ 35,833,891
Interest................................... 156,549,837
---------------
192,383,728
---------------
EXPENSES
Investment advisory fee.................... 31,740,440
Custodian expense.......................... 477,000
Shareholders' reports...................... 212,000
Accounting fees............................ 94,000
Audit fees................................. 72,000
Legal fees................................. 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 1,971
---------------
Total Expenses........................... 32,604,411
Less: Custodian fee credit................. (284,638)
---------------
Net Expenses............................. 32,319,773
---------------
NET INVESTMENT INCOME........................ 160,063,955
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 867,141,418
Futures contracts........................ (499,159)
Short sales.............................. 1,049,655
---------------
867,691,914
---------------
Net change in unrealized appreciation on:
Investments.............................. (160,872,103)
Futures contracts........................ (1,562,422)
Short sales.............................. (1,168,571)
---------------
(163,603,096)
---------------
NET GAIN ON INVESTMENTS...................... 704,088,818
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 864,152,773
---------------
---------------
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 160,063,955 $ 139,211,865
Net realized gain on investments....................................................... 867,691,914 408,046,131
Net change in unrealized appreciation on investments................................... (163,603,096) 41,728,823
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 864,152,773 588,986,819
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (159,343,911) (142,089,785)
Distributions from net realized capital gains.......................................... (823,214,223) (458,909,559)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (982,558,134) (600,999,344)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,859,580 and 8,998,637 shares, respectively]...................... 92,765,042 166,455,957
Capital stock issued in reinvestment of dividends and distributions [56,453,647 and
34,012,173 shares, respectively]...................................................... 982,558,134 600,999,344
Capital stock repurchased [(18,791,325) and (6,420,074) shares, respectively].......... (363,698,408) (119,724,926)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 711,624,768 647,730,375
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 593,219,407 635,717,850
NET ASSETS:
Beginning of year...................................................................... 4,896,922,687 4,261,204,837
------------------ -------------------
End of year............................................................................ $ 5,490,142,094 $ 4,896,922,687
------------------ -------------------
------------------ -------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
CONSERVATIVE BALANCED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 91.8%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
LONG-TERM BONDS -- 58.6% (NOTE 2)

<CAPTION>
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 2,875 $ 3,054,687
--------------
AIRLINES -- 4.2%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 25,218,200
10.375%, 02/01/11 (a)......................... Ba1 56,905 73,306,108
United Airlines, Inc.,
6.126%, 03/02/04.............................. Aa2 8,000 7,988,000
9.75%, 08/15/21............................... Baa3 10,125 12,956,659
10.67%, 05/01/04.............................. Baa3 46,665 55,931,736
11.21%, 05/01/14.............................. Baa3 18,433 25,848,780
--------------
201,249,483
--------------
ASSET-BACKED SECURITIES -- 1.6%
California Infrastructure,
6.14%, 03/25/02............................... Aaa 5,500 5,511,000
6.17%, 03/25/03............................... Aaa 6,000 6,018,600
6.28%, 09/25/05............................... Aaa 7,000 7,042,000
6.38%, 09/25/08............................... Aaa 21,000 21,172,200
6.42%, 12/26/09............................... Aaa 10,000 10,110,000
6.48%, 11/26/09............................... Aaa 10,000 10,115,625
Standard Credit Card Master Trust,
5.95%, 10/07/04 (a)........................... Aaa 4,650 4,602,012
Team Financing Corp,
7.35%, 05/15/03............................... Aa2 11,000 11,405,570
--------------
75,977,007
--------------
BANKS AND SAVINGS & LOANS -- 5.9%
Banco Ganadero, M.T.N. SA (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,500,750
Bangkok Bank, (Thailand),
7.25%, 09/15/05............................... Ba1 10,000 7,452,800
8.25%, 03/15/16............................... Ba1 7,500 5,250,000
8.375%, 01/15/27 Sr. Note..................... Ba1 40,000 23,440,400
Bank Nova Scotia,
6.50%, 07/15/07............................... A1 7,200 7,218,000
Bank of Boston N.A.,
5.973%, 01/25/99.............................. A2 2,500 2,507,600
Bankers Trust New York Corp.,
5.813%, 08/06/00.............................. A2 7,500 7,485,000
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 17,950 16,783,250
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,362,750
7.08%, 10/30/01............................... Baa3 35,100 35,915,022
7.35%, 06/20/00............................... Baa3 8,100 8,293,266
8.125%, 03/01/00.............................. Baa3 13,150 13,630,501
Chase, Inc.
6.075%, 02/28/00.............................. Aa3 4,000 4,006,160
Kansallis-Osake Pankki, (Finland),
8.65%, 12/29/49............................... A3 10,000 10,200,000
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 14,000 14,000,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 $ 5,000 $ 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
Okobank, (Finland),
7.20%, 10/29/49............................... A3 9,000 9,101,250
7.20%, 10/29/49............................... A3 3,500 3,539,375
7.312%, 09/27/49.............................. A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (a)........................... Aa3 17,400 17,513,448
Siam Commercila, (Thailand),
7.50%, 03/15/06............................... A3 14,500 9,425,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,075,000
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (a)........................... Ba1 20,000 12,000,000
--------------
278,805,472
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.0%
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Baa3 5,545 5,889,455
Tele-Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 10,036,800
7.375%, 02/15/00.............................. Ba1 27,000 27,521,100
7.875%, 08/01/13.............................. Ba1 19,350 20,812,279
8.25%, 01/15/03............................... Ba1 2,000 2,135,780
9.25%, 04/15/02............................... Ba1 9,500 10,427,865
9.875%, 06/15/22.............................. Ba1 12,900 16,811,667
--------------
93,634,946
--------------
CONSULTING -- 0.7%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 12,500 12,513,250
6.375%, 11/30/01.............................. Baa1 21,500 21,500,000
--------------
34,013,250
--------------
CONSUMER SERVICES -- 0.1%
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 3,500 3,503,570
--------------
FINANCIAL SERVICES -- 15.4%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 15,000 14,400,000
7.25%, 08/16/99............................... Ba3 3,000 2,957,910
7.50%, 08/28/00............................... Ba3 35,000 34,053,250
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 9,471,600
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 20,120,800
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 $ 10,000 $ 10,000,000
Conseco, Inc.,
8.70%, 11/15/26 (a)........................... Ba2 32,313 36,126,991
8.796%, 04/01/27 (a).......................... Ba2 23,900 26,676,463
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,395,827
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 11,500 11,554,050
6.95%, 03/01/04............................... Baa2 27,500 28,050,000
7.00%, 06/15/00............................... Baa2 30,000 30,598,800
7.50%, 06/15/03............................... Baa2 5,000 5,261,900
8.75%, 12/15/99............................... Baa2 5,000 5,245,000
First Chicago NBD Corp.,
5.819%, 09/23/02.............................. A1 8,000 7,976,000
First Union Corp.,
9.45%, 06/15/99............................... A2 4,000 4,177,920
Great Western Financial,
8.206%, 02/01/27 (a).......................... A3 19,300 20,469,966
Industrial Finance Corp.,
7.75%, 08/04/07............................... Ba1 5,000 4,750,000
7.875%, 08/04/02.............................. Ba1 6,000 5,700,000
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 8,000 7,950,000
6.33%, 08/01/00............................... Baa1 30,000 30,039,600
6.40%, 08/30/00............................... Baa1 79,000 78,901,250
6.71%, 10/12/99............................... Baa1 6,000 6,056,640
6.89%, 10/10/00............................... Baa1 10,545 10,701,804
7.125%, 07/15/02.............................. Baa1 16,000 16,359,680
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 21,750 23,055,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 15,000 15,390,000
Merrill Lynch Pierce, Fenner & Smith,
5.935%, 11/14/00.............................. Aa3 10,000 9,966,250
Paine Webber Group, Inc.,
7.625%, 10/15/08 Sr. Note..................... Baa1 5,000 5,352,700
PT Alatief Freeport Financial Co., Sr. Notes,
(Netherlands),
9.75%, 04/15/01............................... Ba1 8,950 9,039,500
Salomon, Inc.,
6.25%, 10/01/99............................... A2 32,800 32,838,048
6.50%, 03/01/00 (a)........................... A2 38,500 38,701,740
6.59%, 02/21/01 (a)........................... A2 30,750 31,005,840
6.75%, 02/15/03............................... A2 5,000 5,057,850
7.25%, 05/01/01............................... A2 8,625 8,852,010
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 25,000 25,125,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,008,100
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 46,440 46,354,771
Union Planters Corp., Gtd. Notes,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
731,941,767
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOOD & BEVERAGE -- 0.5%
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 $ 5,000 $ 5,008,650
6.95%, 12/15/2097............................. Aa3 18,800 19,045,152
--------------
24,053,802
--------------
INDUSTRIAL -- 0.8%
Compania Sud Americana de Vapores, SA (Chile),
7.375%, 12/08/03.............................. NR 7,600 7,505,000
Reliance Industries Ltd.,
8.125%, 09/27/05.............................. Baa3 15,000 14,025,000
8.25%, 01/15/27............................... Baa3 19,000 17,005,000
--------------
38,535,000
--------------
LEISURE & TOURISM -- 0.1%
Royal Carribean Cruises Ltd.,
7.50%, 10/15/27............................... Baa3 5,750 5,855,455
--------------
MEDIA -- 5.7%
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,582,541
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,016,815
8.11%, 08/15/06............................... Ba1 7,250 7,848,850
8.18%, 08/15/07............................... Ba1 24,915 27,118,981
9.125%, 01/15/13.............................. Ba1 41,270 49,143,078
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Ba1 17,325 19,438,997
Viacom, Inc.,
6.75%, 01/15/03............................... Ba2 71,325 70,082,518
7.75%, 06/01/05............................... Ba2 60,025 61,050,827
--------------
268,282,607
--------------
OIL & GAS -- 1.6%
Apache Corp.,
7.95%, 04/15/26............................... Baa1 2,900 3,250,030
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,095,000
Gulf Canada Resources, Ltd., (Canada),
8.25%, 03/15/17............................... Ba1 4,500 5,006,295
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,304,320
Petroliam Nasional, (Malaysia),
6.625%, 10/18/01.............................. A2 12,000 11,662,680
Seagull Energy Corp.,
7.50%, 09/15/27............................... Ba1 17,000 17,606,730
Talisman Energy Inc.,
7.25%, 10/15/27............................... Baa1 30,000 30,829,800
--------------
75,754,855
--------------
PAPER & FOREST -- 0.5%
UPM-Kymmene Oyj,
7.45%, 11/26/27............................... Baa1 22,800 23,398,500
--------------
RAILROADS -- 0.5%
Norfolk Southern Corp.,
7.05%, 05/01/37............................... Baa1 25,000 26,218,750
--------------
REAL ESTATE INVESTMENT TRUST -- 0.2%
Falcor Suite Hotels, Inc.,
7.625%, 10/1/07............................... Ba1 8,000 8,006,400
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 2.8%
Federated Department Stores, Inc.,
8.125%, 10/15/02 Sr. Note (a)................. Baa2 $ 41,030 $ 43,861,070
8.50%, 06/15/03 (a)........................... Baa2 32,400 35,345,160
10.00%, 02/15/01 (a).......................... Baa2 46,115 50,791,061
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,081,250
--------------
135,078,541
--------------
TELECOMMUNICATIONS -- 3.6%
McLeod USA Inc., Sr. Notes,
9.25%, 07/15/07............................... B3 3,000 3,150,000
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 33,000 15,840,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 80,000 83,775,200
7.75%, 04/01/07............................... Ba1 25,000 26,847,250
7.75%, 04/01/27............................... Ba1 4,500 4,944,420
8.875%, 01/15/06.............................. Ba1 32,000 34,429,440
--------------
168,986,310
--------------
TOBACCO -- 3.0%
Philip Morris Co. Inc.,
6.375%, 02/01/06.............................. A2 17,675 17,359,501
7.20%, 02/01/07............................... A2 31,915 32,932,769
RJR Nabisco, Inc.,
7.625%, 09/15/03.............................. Baa3 10,500 10,732,260
8.25%, 07/01/04............................... Baa3 8,000 8,410,000
8.50%, 07/01/07............................... Baa3 11,000 11,726,550
8.75%, 04/15/04............................... Baa3 23,090 24,719,000
8.75%, 08/15/05............................... Baa3 19,000 20,499,670
9.25%, 08/15/13............................... Baa3 13,571 15,227,341
--------------
141,607,091
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.0%
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa2 500 527,645
--------------
UTILITIES -- 1.9%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,523,880
7.625%, 01/15/07.............................. Baa3 21,000 22,162,980
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 25,000 25,093,750
6.875%, 12/15/17.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 5,000 4,415,625
--------------
91,634,985
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.1%
United States Treasury Bond,
6.125%, 08/15/07.............................. 7,500 7,707,450
United States Treasury Notes,
5.875%, 01/31/99 (a).......................... 20,000 20,046,800
5.875%, 09/30/02.............................. 28,550 28,706,169
5.875%, 02/15/04.............................. 16,750 16,896,563
6.25%, 10/31/01............................... 9,500 9,661,785
6.375%, 03/31/01 (a).......................... 4,600 4,686,250
6.375%, 08/15/27.............................. 57,325 60,460,104
--------------
148,165,121
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS -- 4.2%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 $ 5,500 $ 5,492,850
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 15,592,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 25,000 22,500,000
Province of Quebec, (Canada),
6.238%, 06/15/99.............................. A2 3,000 3,007,969
Republic of Colombia, (Colombia),
7.625%, 02/15/07 (a).......................... Baa3 85,000 79,370,450
8.00%, 06/14/01............................... Baa3 2,250 2,257,875
8.75%, 10/06/99............................... Baa3 12,325 12,692,532
Republic of South Africa, (South Africa),
8.50%, 06/23/17............................... Baa3 37,950 36,242,250
Russian Ministry of Finance, (Russia),
10.00%, 06/26/07.............................. Ba2 7,800 7,226,700
United Mexican States, (Mexico),
11.50%, 05/15/26.............................. Ba2 6,900 8,176,500
--------------
198,183,376
--------------
TOTAL LONG-TERM BONDS
(cost $2,787,932,280).................................................... 2,779,026,495
--------------

COMMON STOCKS -- 32.5% SHARES
-------------
AEROSPACE -- 0.8%
AlliedSignal, Inc............................... 196,400 7,647,325
GenCorp, Inc.................................... 100,000 2,500,000
Litton Industries, Inc. (b)..................... 78,900 4,536,750
Lockheed Martin Corp............................ 193,000 19,010,500
Parker-Hannifin Corp. (b)....................... 43,925 2,015,059
Raytheon Co. (Class "A" Stock) (b).............. 7,295 359,749
--------------
36,069,383
--------------
AIRLINES -- 0.4%
AMR Corp. (b)................................... 84,700 10,883,950
US Airways Group, Inc. (b)...................... 114,900 7,181,250
--------------
18,065,200
--------------
APPAREL -- 0.0%
Phillips-Van Heusen Corp........................ 96,300 1,372,275
--------------
AUTOS - CARS & TRUCKS -- 0.4%
Chrysler Corp................................... 147,800 5,200,712
Ford Motor Co................................... 95,600 4,654,525
General Motors Corp............................. 111,000 6,729,375
Mascotech, Inc.................................. 96,000 1,764,000
Titan International, Inc........................ 102,950 2,065,434
--------------
20,414,046
--------------
BANKS AND SAVINGS & LOANS -- 1.4%
BankAmerica Corp................................ 172,000 12,556,000
Barnett Banks, Inc.............................. 179,600 12,908,750
Chase Manhattan Corp............................ 213,800 23,411,100
Citicorp........................................ 56,800 7,181,650
Fleet Financial Group, Inc...................... 166,100 12,447,119
--------------
68,504,619
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CHEMICALS -- 0.2%
Ferro Corp...................................... 137,100 $ 3,333,244
Millennium Chemicals, Inc....................... 148,927 3,509,092
OM Group, Inc................................... 64,400 2,358,650
--------------
9,200,986
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (b)............................... 373,700 12,845,937
--------------
COMPUTER SERVICES -- 1.5%
Autodesk, Inc................................... 671,600 24,849,200
BMC Software, Inc. (b).......................... 296,400 19,451,250
Cadence Design Systems, Inc. (b)................ 693,800 16,998,100
Microsoft Corp. (a)............................. 67,900 8,776,075
--------------
70,074,625
--------------
COMPUTERS -- 2.1%
3Com Corp. (b).................................. 519,600 18,153,525
Cisco Systems, Inc. (b)......................... 436,050 24,309,787
Compaq Computer Corp............................ 245,300 13,844,119
Digital Equipment Corp. (b)..................... 99,200 3,670,400
International Business Machines Corp............ 179,800 18,800,337
Sun Microsystems, Inc. (b)...................... 552,900 22,046,887
--------------
100,825,055
--------------
CONSTRUCTION -- 0.2%
Oakwood Homes Corp.............................. 141,600 4,699,350
Standard Pacific Corp........................... 156,600 2,466,450
Webb Corp....................................... 142,600 3,707,600
--------------
10,873,400
--------------
CONSUMER-APPLIANCES -- 0.3%
Sunbeam Corp.,.................................. 293,000 12,342,625
--------------
CONTAINERS -- 0.0%
Owens-Illinois, Inc. (b)........................ 58,300 2,211,756
--------------
COSMETICS & SOAPS -- 0.5%
Avon Products, Inc.............................. 425,600 26,121,200
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 289,800 12,914,212
General Electric Co............................. 408,600 29,981,025
Whitman Corp.................................... 135,000 3,518,437
--------------
46,413,674
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.8%
American Home Products Corp.,................... 315,500 24,135,750
Biogen, Inc. (b)................................ 532,500 19,369,687
Bristol-Myers Squibb Co......................... 308,700 29,210,737
Cardinal Health, Inc............................ 300,300 22,560,037
Guidant Corp.................................... 202,400 12,599,400
Medtronic, Inc.................................. 398,500 20,846,531
Novartis Corp., AG, ADR (Switzerland)........... 84,100 6,833,125
Pfizer, Inc..................................... 253,800 18,923,962
Warner-Lambert Co............................... 190,400 23,609,600
--------------
178,088,829
--------------
ELECTRICAL EQUIPMENT -- 0.0%
Belden, Inc..................................... 68,200 2,404,050
--------------
ELECTRONICS -- 0.5%
Intel Corp...................................... 79,600 5,591,900
National Semiconductor Corp. (b)................ 738,400 19,152,250
--------------
24,744,150
--------------
ENGINEERING & CONSTRUCTION -- 0.0%
Giant Cement Holdings, Inc. (b)................. 59,100 1,366,687
--------------
ENVIRONMENTAL SERVICES -- 0.5%
U.S.A. Waste Services, Inc. (b)................. 651,100 25,555,675
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
EXPLORATION & PRODUCTION -- 0.0%
Apex Silver Mines Ltd. (b)...................... 83,600 $ 1,065,900
--------------
FINANCIAL SERVICES -- 1.6%
Fannie Mae...................................... 24,900 1,420,856
Lehman Brothers Holdings, Inc................... 254,000 12,954,000
Merrill Lynch & Co., Inc........................ 59,200 4,317,900
Morgan Stanley, Dean Witter, Discover & Co.,.... 334,090 19,753,071
Schwab (Charles) Corp........................... 417,600 17,513,100
Travelers Group, Inc............................ 357,967 19,285,472
--------------
75,244,399
--------------
FOOD & BEVERAGES -- 1.3%
PepsiCo, Inc.................................... 740,500 26,981,969
Quaker Oats Co.................................. 317,300 16,737,575
Ralston-Ralston Purina Group.................... 205,600 19,107,950
--------------
62,827,494
--------------
FOREST PRODUCTS -- 0.3%
Boise Cascade Corp.,............................ 145,600 4,404,400
Champion International Corp..................... 96,200 4,359,062
Louisiana-Pacific Corp.......................... 100,400 1,907,600
Mead Corp....................................... 96,500 2,702,000
Willamette Industries, Inc...................... 70,300 2,262,781
--------------
15,635,843
--------------
HEALTHCARE -- 0.1%
A.O. Smith Corp................................. 71,500 3,020,875
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.,.................. 203,800 6,037,575
Healthsouth Corp. (b)........................... 779,300 21,625,575
--------------
27,663,150
--------------
HOUSEHOLD PRODUCTS -- 0.0%
Leggett & Platt, Inc............................ 58,300 2,441,312
--------------
HOUSING RELATED -- 0.2%
Hanson, PLC, ADR (United Kingdom)............... 260,962 6,018,436
Owens Corning................................... 100,100 3,415,912
--------------
9,434,348
--------------
INSURANCE -- 1.2%
Allstate Corp................................... 150,000 13,631,250
Berkley (WR) Corp............................... 43,100 1,891,012
Financial Security Assurance Holdings Ltd.,..... 34,600 1,669,450
Loews Corp...................................... 29,500 3,130,687
PennCorp Financial Group, Inc................... 81,600 2,912,100
Provident Companies, Inc........................ 54,300 2,097,337
Reinsurance Group of America, Inc............... 117,450 4,998,966
TIG Holdings, Inc............................... 86,900 2,883,994
Trenwick Group, Inc............................. 65,950 2,481,369
United Healthcare Corp.......................... 377,000 18,732,187
Western National Corp........................... 134,500 3,984,562
--------------
58,412,914
--------------
INSTRUMENTS-CONTROLS -- 0.0%
Flowserve Corp.................................. 40,186 1,122,696
--------------
LEISURE -- 0.5%
Carnival Corp. (Class "A" Stock)................ 398,800 22,083,550
--------------
MACHINERY -- 0.2%
Case Corp....................................... 88,400 5,342,675
DT Industries, Inc.............................. 36,400 1,237,600
Global Industrial
Technologies, Inc. (b)........................ 62,400 1,056,900
Paxar Corp. (b)................................. 233,725 3,462,052
--------------
11,099,227
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MANUFACTURING -- 1.0%
Illinois Tool Works, Inc. (b)................... 181,300 $ 10,900,663
Tyco International, Ltd......................... 802,800 36,176,175
--------------
47,076,838
--------------
MEDIA -- 0.2%
Central Newspapers, Inc. (Class "A" Stock)...... 50,800 3,756,025
Houghton Mifflin Co............................. 59,700 2,290,988
Knight-Ridder, Inc.............................. 59,200 3,078,400
Lee Enterprises, Inc............................ 51,700 1,528,381
--------------
10,653,794
--------------
MEDICAL INSTRUMENTS -- 0.3%
Arterial Vascular Engineering, Inc., (b)........ 198,200 12,883,000
--------------
METALS-FERROUS -- 0.2%
Bethlehem Steel Corp. (b)....................... 225,200 1,942,350
LTV Corp........................................ 208,300 2,030,925
Material Sciences Corp. (b)..................... 98,500 1,200,469
National Steel Corp. (Class "B" Stock) (b)...... 42,900 496,031
USX-U.S. Steel Group............................ 61,800 1,931,250
--------------
7,601,025
--------------
METALS-NON FERROUS -- 0.2%
Aluminum Company of America..................... 147,600 10,387,350
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.3%
Coltec Industries, Inc. (b)..................... 44,400 1,029,525
Donaldson, Co................................... 55,500 2,500,969
IDEX Corp....................................... 61,100 2,130,863
Mark IV Industries, Inc......................... 87,942 1,923,731
Trinity Industries, Inc......................... 53,100 2,369,588
Wolverine Tube, Inc. (b)........................ 37,600 1,165,600
York International Corp......................... 27,400 1,084,013
--------------
12,204,289
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.3%
Eastman Kodak Co................................ 29,200 1,775,725
Unilever N.V., ADR (United Kingdom)............. 237,000 14,797,688
--------------
16,573,413
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.2%
CBS Corp........................................ 207,400 6,105,338
Energy Group, PLC, ADR (United Kingdom)......... 49,862 2,225,092
--------------
8,330,430
--------------
OIL & GAS -- 1.3%
Basin Exploration, Inc. (b)..................... 17,700 314,175
Cabot Oil & Gas Corp. (Class "A" Stock)......... 90,100 1,751,319
Cross Timbers Oil Co............................ 296,300 7,388,981
Elf Aquitaine SA, ADR (France).................. 126,900 7,439,513
Enron Oil & Gas Co.............................. 49,200 1,042,425
Murphy Oil Corp................................. 28,100 1,522,669
Noble Affiliates, Inc.,......................... 196,700 6,933,675
Pioneer Natural Resources Co.................... 325,044 9,405,961
Seagull Energy Corp. (b)........................ 63,700 1,313,813
Total SA (Class "B" Stock) (France)............. 126,800 7,037,400
Unocal Corp..................................... 389,700 15,125,231
Western Gas Resources, Inc.,.................... 104,700 2,316,488
--------------
61,591,650
--------------
OIL & GAS SERVICES -- 1.5%
Apache Corp..................................... 498,500 17,478,656
Halliburton Co.................................. 595,200 30,913,200
J. Ray McDermott, SA (b)........................ 166,500 7,159,500
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
McDermott International, Inc.................... 307,700 $ 11,269,513
Oryx Energy Co. (b)............................. 125,500 3,200,250
--------------
70,021,119
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Crescent Operating, Inc. (b).................... 17,360 425,320
Crescent Real Estate Equities, Inc.............. 166,300 6,548,063
Equity Residential Properties Trust............. 14,600 738,213
--------------
7,711,596
--------------
RETAIL -- 4.2%
Bombay Company, Inc. (b)........................ 141,500 654,438
Borders Group, Inc. (b)......................... 656,000 20,541,000
Charming Shoppes, Inc. (b)...................... 824,800 3,866,250
Consolidated Stores Corp. (b)................... 466,900 20,514,419
Costco Companies, Inc. (b)...................... 373,200 16,654,050
CVS Corp........................................ 157,900 10,115,469
Designs, Inc. (b)............................... 52,800 158,400
Dillards, Inc. (Class "A" Stock)................ 32,200 1,135,050
Federated Department Stores, Inc. (b)........... 242,700 10,451,269
Home Depot, Inc................................. 276,050 16,252,444
Jan Bell Marketing, Inc. (b).................... 153,800 384,500
Kmart Corp. (b)................................. 619,600 7,164,125
Kroger Co. (b).................................. 407,400 15,048,338
Liz Claiborne, Inc.............................. 276,600 11,565,338
Rite Aid Corp................................... 241,700 14,184,769
Safeway, Inc. (b)............................... 407,800 25,793,350
Tandy Corp...................................... 47,500 1,831,719
The Limited, Inc................................ 215,300 5,490,150
The TJX Companies, Inc.......................... 449,600 15,455,000
Toys 'R' Us, Inc. (b)........................... 88,700 2,788,506
--------------
200,048,584
--------------
RUBBER -- 0.1%
Goodyear Tire & Rubber Co....................... 39,800 2,532,275
--------------
TELECOMMUNICATIONS -- 1.2%
Alcatel Alsthom, ADR (France)................... 127,000 3,214,688
Deutsche Telekom, ADR (Germany)................. 45,800 853,025
Nextel Communications, Inc. (Class "A" Stock)
(b)........................................... 871,500 22,659,000
Tellabs, Inc. (b)............................... 299,000 15,809,625
WorldCom, Inc................................... 410,800 12,426,700
--------------
54,963,038
--------------
TEXTILES -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (b)... 73,800 1,891,125
Pillowtex Corp.................................. 18,830 656,696
Tultex Corp. (b)................................ 89,800 364,813
--------------
2,912,634
--------------
TOBACCO -- 0.8%
Bat Industries, PLC, ADR (United Kingdom)....... 107,100 2,008,125
Phillip Morris Co. Inc.......................... 646,700 29,303,594
RJR Nabisco Holdings Corp....................... 125,800 4,717,500
--------------
36,029,219
--------------
TOYS -- 0.4%
Mattel, Inc..................................... 475,751 17,721,725
--------------
TRUCKING/SHIPPING -- 0.0%
Yellow Corp. (b)................................ 44,300 1,113,038
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc........................... 208,000 5,720,000
--------------
TOTAL COMMON STOCKS
(cost $1,331,959,806).......................................... 1,543,620,897
--------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS -- 0.7% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp.,.................. 225,900 $ 6,254,606
Central Hispano Corp.,.......................... 1,000,000 26,000,000
--------------
32,254,606
--------------
TOTAL PREFERRED STOCKS
(cost $31,236,594)............................................. 32,254,606
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,151,360,152).......................................... 4,354,901,998
--------------

MOODY'S PRINCIPAL
RATING AMOUNT
SHORT-TERM INVESTMENTS -- 7.2% (UNAUDITED) (000)
------------ ---------
ASSET-BACKED SECURITIES -- 0.3%
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 $ 1,000 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 4,600 4,560,857
Falcon Asset Securitization Corp.,
5.90%, 01/21/98............................... P1 1,000 996,886
Restructured Asset Securities Enhanced Return,
5.95875%, 08/28/98............................ P1 4,000 4,000,000
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 2,000 2,000,000
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 2,000 1,984,184
Wood Street Funding Corp.,
5.83%, 02/13/98............................... P1 1,000 993,198
--------------
15,526,574
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank--Michigan,
5.00%, 01/30/98............................... P1 2,000 1,998,356
US Bank, N.A.,
5.83094%, 10/21/98............................ P1 1,000 999,358
--------------
7,997,714
--------------
CERTIFICATES OF DEPOSIT-EURO -- 0.2%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 4,000 4,000,209
Westdeutsche Landesbank Girozentral, (Germany),
5.83%, 08/03/98............................... P1 6,000 5,997,462
--------------
9,997,671
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 1.1%
Canadian Imperial Bank of Commerce, (Canada),
5.95%, 06/29/98............................... P1 900 899,706
Corestates Bank, NA,
5.7825%, 01/23/98............................. P1 1,000 1,000,000
Credit Agricole Indosuez,
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 7,000 6,998,241
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Kansallis-Osake Pankki, N.Y., (Finland),
6.125%, 05/15/98.............................. A3 $ 6,160 $ 6,160,000
9.75%, 12/15/98............................... Baa1 16,950 17,472,908
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,775 2,802,750
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Swiss Bank Corp.,
5.77%, 01/30/98............................... P1 2,000 1,999,421
--------------
53,613,180
--------------
COMMERCIAL PAPER -- 3.4%
Aon Corp.,
5.79%, 03/12/98............................... P2 880 870,234
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,000 993,719
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 6,000 5,992,907
BP America,
6.90%, 01/02/98............................... P1 6,500 6,500,000
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,088,291
Coca-Cola Enterprises,
5.65%, 03/12/98............................... P2 3,000 2,967,512
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,498,000
6.09%, 11/09/98............................... Baa1 34,000 34,009,860
6.29%, 10/22/98............................... Baa1 5,000 5,009,900
6.689%, 05/22/98.............................. Baa1 9,000 9,024,300
Duke Capital Corp.,
5.90%, 01/23/98............................... P2 1,000 996,558
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
7.875%, 03/15/98 (b).......................... Baa2 9,925 9,961,921
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa3 3,000 3,045,750
Finova Capital Corp.,
5.75%, 02/04/98............................... P2 3,400 3,382,079
First USA Bank,
8.20%, 02/15/98............................... Baa3 11,500 11,521,275
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
Honeywell Inc.,
6.75%, 01/02/98............................... P1 4,250 4,250,000
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 2,000 1,970,981
5.74%, 04/28/98............................... P1 1,600 1,570,407
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Newell Co.,
6.80%, 01/02/98............................... P1 6,500 6,500,000
Old Line Funding Corp.,
5.90%, 01/21/98............................... A1+ 1,000 996,886
PHH Corp.,
6.75%, 01/02/98............................... P1 6,500 6,500,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 2,000 1,976,320
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 $ 1,000 $ 1,000,220
Xerox Capital (Europe) PLC
5.75%, 02/05/98............................... P1 3,000 2,983,708
5.79%, 02/12/98............................... P1 875 869,230
6.85%, 01/02/98............................... P1 2,610 2,610,000
--------------
156,055,189
--------------
MEDIUM TERM NOTES -- 0.2%
Ford Motor Credit Corp.,
9.00%, 03/25/98............................... P1 1,200 1,208,318
General Motors Acceptance Corp.,
5.76825%, 09/21/98............................ P1 3,000 2,997,564
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 4,000 3,998,626
Morgan Stanley Group, Inc.,
6.34%, 03/09/98............................... P1 1,000 1,000,606
Suntrust Banks, Inc.,
8.875%, 02/01/98.............................. P1 805 806,820
--------------
10,011,934
--------------
OTHER CORPORATE OBLIGATIONS -- 0.1%
Association Corp. of America,
6.125%, 02/01/98.............................. P1 2,040 2,039,976
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,700 2,709,664
--------------
4,749,640
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.0%
United States Treasury Bills,
5.045%, 03/19/98 (a).......................... 700 692,545
5.165%, 01/22/98 (a).......................... 300 299,139
5.29%, 03/19/98 (a)........................... 400 395,533
--------------
1,387,217
--------------
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase Agreement Account,
6.53%, 01/02/98 (Note 5)...................... $ 81,783 $ 81,783,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $340,697,062)...................................................... 341,122,119
--------------
TOTAL INVESTMENTS -- 99.0%
(cost $4,491,825,742; Note 6)............................................ 4,696,024,117
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (c) -- (0.0%).................................................. (653,438)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.0%..................................................................... 48,861,360
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,744,232,039
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Security segregated as collateral for futures contracts.

(b) Non-income producing security.

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
61 S&P 500 Index Mar 98 15,095,625 14,931,275 (164,350)
318 U.S. Treasury 5 Yr. Mar 98 34,423,500 34,542,750 119,250
166 U.S. Treasury 5 Yr. Mar 98 19,931,438 19,997,813 66,375
Short Position:
637 U.S. Treasury 5 Yr. Mar 98 75,803,000 76,738,594 (935,594)
365 U.S. Treasury 5 Yr. Mar 98 39,488,438 39,648,125 (159,687)
1181 U.S. Treasury 10 Yr. Mar 98 131,755,312 132,456,531 (701,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO

DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.8%
VALUE
COMMON STOCKS -- 57.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
AlliedSignal, Inc............................... 289,300 $ 11,264,619
GenCorp, Inc.................................... 428,200 10,705,000
Litton Industries, Inc. (a)..................... 324,400 18,653,000
Lockheed Martin Corp............................ 272,900 26,880,650
Raytheon Co. (Class "A" Stock).................. 30,252 1,491,826
--------------
68,995,095
--------------
AIRLINES -- 1.4%
AMR Corp. (a)................................... 346,000 44,461,000
USAir Group, Inc. (a)........................... 491,700 30,731,250
--------------
75,192,250
--------------
AUTOS - CARS & TRUCKS -- 1.5%
Chrysler Corp................................... 632,700 22,263,131
Ford Motor Co................................... 301,300 14,669,544
General Motors Corp............................. 474,400 28,760,500
Mascotech, Inc.................................. 411,300 7,557,637
Titan International, Inc........................ 440,700 8,841,544
--------------
82,092,356
--------------
BANKS AND SAVINGS & LOANS -- 1.8%
BankAmerica Corp................................ 243,900 17,804,700
Barnett Banks, Inc.............................. 254,200 18,270,625
Chase Manhattan Corp............................ 302,100 33,079,950
Citicorp........................................ 80,500 10,178,219
Fleet Financial Group, Inc...................... 235,100 17,617,806
--------------
96,951,300
--------------
CHEMICALS -- 0.7%
Ferro Corp...................................... 586,950 14,270,222
Millennium Chemicals, Inc....................... 637,700 15,025,806
OM Group, Inc................................... 275,900 10,104,837
--------------
39,400,865
--------------
COMMERCIAL SERVICES -- 0.3%
Cendant Corp. (a)............................... 529,500 18,201,562
--------------
COMPUTERS -- 2.2%
3Com Corp. (a).................................. 737,000 25,748,937
Compaq Computer Corp............................ 346,700 19,566,881
Digital Equipment Corp. (a)..................... 424,700 15,713,900
International Business Machines Corp............ 254,400 26,600,700
Sun Microsystems, Inc. (a)...................... 781,100 31,146,362
--------------
118,776,780
--------------
COMPUTER SERVICES -- 2.4%
Autodesk, Inc................................... 951,300 35,198,100
BMC Software, Inc. (a).......................... 419,800 27,549,375
Cadence Design Systems, Inc. (a)................ 979,500 23,997,750
Cisco Systems, Inc. (a)......................... 617,100 34,403,325
Microsoft Corp.................................. 95,800 12,382,150
--------------
133,530,700
--------------
CONSTRUCTION -- 0.8%
Oakwood Homes Corp.............................. 606,400 20,124,900
Standard Pacific Corp........................... 670,400 10,558,800
Webb Corp....................................... 611,100 15,888,600
--------------
46,572,300
--------------
CONTAINERS -- 0.2%
Owens-Illinois, Inc. (a)........................ 250,000 9,484,375
--------------
COSMETICS & SOAPS -- 0.7%
Avon Products, Inc.............................. 595,600 36,554,950
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS -- 1.7%
Cognizant Corp.................................. 410,000 $ 18,270,625
General Electric Co............................. 577,200 42,352,050
Loews Corp...................................... 175,000 18,571,875
Whitman Corp.................................... 578,000 15,064,125
--------------
94,258,675
--------------
DRUGS AND MEDICAL SUPPLIES -- 4.6%
American Home Products Corp..................... 446,600 34,164,900
Biogen, Inc. (a)................................ 752,300 27,364,912
Bristol-Myers Squibb Co......................... 453,400 42,902,975
Cardinal Health, Inc............................ 425,100 31,935,637
Guidant Corp.................................... 284,900 17,735,025
Medtronic, Inc.................................. 564,000 29,504,250
Novartis Corp., AG, ADR (Switzerland)........... 114,200 9,278,750
Pfizer, Inc..................................... 359,600 26,812,675
Warner-Lambert Co............................... 269,000 33,356,000
--------------
253,055,124
--------------
ELECTRICAL EQUIPMENT -- 0.2%
Baldor Electric Co.............................. 1 29
Belden, Inc..................................... 292,200 10,300,050
--------------
10,300,079
--------------
ELECTRONICS -- 0.6%
Intel Corp...................................... 112,500 7,903,125
National Semiconductor Corp. (a)................ 1,029,600 26,705,250
--------------
34,608,375
--------------
ENERGY -- 0.2%
Energy Group, PLC, ADR (United Kingdom)......... 218,900 9,768,413
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 259,600 6,003,250
--------------
ENVIRONMENTAL SERVICES -- 1.1%
U.S.A. Waste Services, Inc. (a)................. 920,200 36,117,850
Waste Management, Inc........................... 872,300 23,988,250
--------------
60,106,100
--------------
FINANCIAL SERVICES -- 3.3%
Federal National Mortgage Association........... 35,100 2,002,894
Lehman Brothers Holdings, Inc................... 1,087,300 55,452,300
Merrill Lynch & Co., Inc........................ 253,100 18,460,481
Morgan Stanley, Dean Witter, Discover & Co...... 632,195 37,378,529
Schwab (Charles) Corp........................... 589,900 24,738,931
Travelers Group, Inc............................ 763,266 41,120,956
--------------
179,154,091
--------------
FOOD & BEVERAGES -- 2.0%
PepsiCo, Inc.................................... 1,047,900 38,182,856
Quaker Oats Co.................................. 448,500 23,658,375
Ralston-Ralston Purina Group.................... 291,000 27,044,812
RJR Nabisco Holdings Corp....................... 538,700 20,201,250
--------------
109,087,293
--------------
FOREST PRODUCTS -- 1.3%
Boise Cascade Corp.............................. 700,000 21,175,000
Champion International Corp..................... 412,200 18,677,812
Louisiana-Pacific Corp.......................... 412,200 7,831,800
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Mead Corp....................................... 413,200 $ 11,569,600
Willamette Industries, Inc...................... 301,600 9,707,750
--------------
68,961,962
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.0%
Columbia/HCA Healthcare Corp.................... 855,000 25,329,375
Healthsouth Corp. (a)........................... 1,101,400 30,563,850
--------------
55,893,225
--------------
HOUSEHOLD PRODUCTS -- 0.5%
Leggett & Platt, Inc............................ 249,500 10,447,812
Sunbeam Corp.................................... 415,000 17,481,875
--------------
27,929,687
--------------
HOUSING RELATED -- 0.7%
Hanson, PLC, ADR (United Kingdom)............... 1,046,700 24,139,519
Owens Corning................................... 429,000 14,639,625
--------------
38,779,144
--------------
INSTRUMENTS-CONTROLS -- 0.2%
Parker-Hannifin Corp............................ 187,500 8,601,563
--------------
INSURANCE -- 2.6%
Allstate Corp................................... 212,000 19,265,500
Berkley (WR) Corp............................... 186,450 8,180,494
Financial Security Assurance Holdings Ltd....... 148,500 7,165,125
PennCorp Financial Group, Inc................... 349,600 12,476,350
Provident Companies, Inc........................ 232,600 8,984,175
Reinsurance Group of America, Inc............... 503,100 21,413,194
TIG Holdings, Inc............................... 372,300 12,355,706
Trenwick Group, Inc............................. 289,700 10,899,962
United Healthcare Corp.......................... 532,700 26,468,531
Western National Corp........................... 575,900 17,061,037
--------------
144,270,074
--------------
LEISURE -- 0.5%
Carnival Corp. (Class "A" Stock)................ 563,300 31,192,737
--------------
MACHINERY -- 0.9%
Case Corp....................................... 378,500 22,875,594
DT Industries, Inc.............................. 155,600 5,290,400
Global Industrial Technologies, Inc. (a)........ 273,600 4,634,100
Paxar Corp. (a)................................. 1,011,875 14,988,398
--------------
47,788,492
--------------
MANUFACTURING -- 1.6%
A.O. Smith Corp................................. 306,300 12,941,175
Flowserve Corp.................................. 171,691 4,796,617
Illinois Tool Works, Inc........................ 256,100 15,398,012
Tyco International, Ltd......................... 1,134,202 51,109,978
--------------
84,245,782
--------------
MEDIA -- 0.8%
Central Newspapers, Inc. (Class "A" Stock)...... 217,600 16,088,800
Houghton Mifflin Co............................. 255,200 9,793,300
Knight-Ridder, Inc.............................. 253,000 13,156,000
Lee Enterprises, Inc............................ 221,400 6,545,137
--------------
45,583,237
--------------
MEDICAL INSTRUMENTS -- 0.3%
Arterial Vascular Engineering, Inc. (a)......... 280,000 18,200,000
--------------
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
METALS-FERROUS -- 0.6%
Bethlehem Steel Corp. (a)....................... 958,000 $ 8,262,750
LTV Corp........................................ 892,000 8,697,000
Material Sciences Corp. (a)..................... 421,800 5,140,687
National Steel Corp. (Class "B" Stock) (a)...... 183,200 2,118,250
USX-U.S. Steel Group............................ 265,100 8,284,375
--------------
32,503,062
--------------
METALS-NON FERROUS -- 0.8%
Aluminum Company of America..................... 632,400 44,505,150
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
Coltec Industries, Inc. (a)..................... 190,000 4,405,625
Donaldson, Co................................... 237,800 10,715,862
IDEX Corp....................................... 261,500 9,119,813
Mark IV Industries, Inc......................... 376,900 8,244,688
Trinity Industries, Inc......................... 227,000 10,129,875
Wolverine Tube, Inc. (a)........................ 164,600 5,102,600
York International Corp......................... 117,200 4,636,725
--------------
52,355,188
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.5%
Eastman Kodak Co................................ 120,000 7,297,500
Unilever N.V., ADR (United Kingdom)............. 334,000 20,854,125
--------------
28,151,625
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.5%
CBS Corp........................................ 892,600 26,275,913
--------------
OIL & GAS -- 3.0%
Basin Exploration, Inc. (a)..................... 75,700 1,343,675
Cabot Oil & Gas Corp. (Class "A" Stock)......... 385,700 7,497,044
Cross Timbers Oil Co............................ 417,400 10,408,913
Elf Aquitaine SA, ADR (France).................. 544,200 31,903,725
Enron Oil & Gas Co.............................. 210,600 4,462,088
Murphy Oil Corp................................. 120,900 6,551,269
Noble Affiliates, Inc........................... 426,300 15,027,075
Pioneer Natural Resources Co.................... 1,426,731 41,286,028
Seagull Energy Corp. (a)........................ 260,200 5,366,625
Total SA (Class "B" Stock) (France)............. 179,200 9,945,600
Unocal Corp..................................... 550,500 21,366,281
Western Gas Resources, Inc...................... 448,500 9,923,063
--------------
165,081,386
--------------
OIL & GAS SERVICES -- 3.0%
Apache Corp..................................... 704,200 24,691,013
Halliburton Co.................................. 844,100 43,840,444
J. Ray McDermott, SA (a)........................ 713,300 30,671,900
McDermott International, Inc.................... 1,345,700 49,286,263
Oryx Energy Co. (a)............................. 537,500 13,706,250
--------------
162,195,870
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 360,900 4,601,475
--------------
REAL ESTATE DEVELOPMENT -- 0.7%
Crescent Operating, Inc. (a).................... 71,240 1,745,380
Crescent Real Estate Equities, Inc.............. 712,400 28,050,750
Equity Residential Properties Trust............. 160,000 8,090,000
--------------
37,886,130
--------------
RETAIL -- 6.4%
Bombay Company, Inc. (a)........................ 605,900 2,802,288
Borders Group, Inc. (a)......................... 927,500 29,042,344
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Charming Shoppes, Inc. (a)...................... 3,532,600 $ 16,559,063
Consolidated Stores Corp. (a)................... 661,800 29,077,838
Costco Companies, Inc. (a)...................... 526,000 23,472,750
CVS Corp........................................ 223,000 14,285,938
Designs, Inc. (a)............................... 216,200 648,600
Dillards, Inc. (Class "A" Stock)................ 138,100 4,868,025
Federated Department Stores, Inc. (a)........... 342,800 14,761,825
Home Depot, Inc................................. 390,000 22,961,250
Jan Bell Marketing, Inc. (a).................... 658,700 1,646,750
K mart Corp. (a)................................ 2,646,900 30,604,781
Kroger Co. (a).................................. 575,200 21,246,450
Liz Claiborne, Inc.............................. 391,300 16,361,231
Phillips-Van Heusen Corp........................ 412,600 5,879,550
Rite Aid Corp................................... 341,400 20,035,913
Safeway, Inc. (a)............................... 576,300 36,450,975
Tandy Corp...................................... 203,800 7,859,038
The Limited, Inc................................ 837,400 21,353,700
The TJX Companies, Inc.......................... 637,200 21,903,750
Toys 'R' Us, Inc. (a)........................... 379,600 11,933,675
--------------
353,755,734
--------------
RUBBER -- 0.2%
Goodyear Tire & Rubber Co....................... 170,800 10,867,150
--------------
TELECOMMUNICATIONS -- 1.6%
Alcatel Alsthom, ADR (France)................... 543,800 13,764,938
Deutsche Telekom, ADR (Germany)................. 196,100 3,652,363
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 1,242,000 32,292,000
Tellabs, Inc. (a)............................... 422,500 22,339,688
WorldCom, Inc................................... 579,500 17,529,875
--------------
89,578,864
--------------
TEXTILES -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 316,400 8,107,750
Pillowtex Corp.................................. 78,333 2,731,856
Tultex Corp. (a)................................ 384,400 1,561,625
--------------
12,401,231
--------------
TOBACCO -- 1.0%
Bat Industries, PLC, ADR (United Kingdom)....... 458,600 8,598,750
Phillip Morris Co. Inc.......................... 1,034,900 46,893,906
--------------
55,492,656
--------------
TOYS -- 0.5%
Mattel, Inc..................................... 672,700 25,058,075
--------------
TRUCKING/SHIPPING -- 0.1%
Yellow Corp. (a)................................ 189,400 4,758,675
--------------
TOTAL COMMON STOCKS
(cost $2,741,915,742).......................................... 3,159,008,020
--------------

PREFERRED STOCKS -- 0.5%
FINANCIAL SERVICES -- 0.5%
Central Hispano Corp............................ 1,000,000 26,000,000
--------------
(cost $25,440,000)
</TABLE>

DECEMBER 31, 1997

<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS -- 35.8% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 2,875 $ 3,054,687
--------------
AIRLINES -- 2.3%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 24,379,695
10.375%, 02/01/11 (c)......................... Ba1 25,750 33,388,737
United Airlines, Inc.,
6.126%, 03/02/04.............................. Aa2 8,000 7,988,000
9.75%, 08/15/21............................... Baa3 10,125 12,956,659
10.67%, 05/01/04.............................. Baa3 19,500 23,372,310
11.21%, 05/01/14.............................. Baa3 17,500 24,540,425
--------------
126,625,826
--------------
APPAREL MANUFACTURING -- 0.4%
Nine West Group, Inc.,
8.375%, 08/15/05.............................. Ba2 25,000 23,937,500
--------------
ASSET-BACKED SECURITIES -- 0.4%
California Infrastructure,
6.17%, 03/25/03............................... Aaa 4,000 4,012,400
MBNA Master Credit Card Trust,
5.976%, 11/15/02.............................. Aaa 1,000 1,000,312
Standard Credit Card Master Trust,
5.95%, 10/07/04 (b)........................... Aaa 4,500 4,453,560
--------------
9,466,272
--------------
BANKS AND SAVINGS & LOANS -- 5.5%
Abbey National Treasury, (United Kingdom),
5.875%, 03/08/99.............................. Aa2 5,500 5,492,850
Banc One Corp.,
5.876%, 09/30/99.............................. Aa3 5,000 5,010,400
Banco Ganadero, SA, (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,500,750
Bangkok Bank, (Thailand),
7.25%, 09/15/05 (b)........................... Ba1 10,000 7,452,800
8.25%, 03/15/16............................... Ba1 7,500 5,250,000
8.375%, 01/15/27 (b).......................... Ba1 43,000 25,198,430
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 5,400 5,413,500
Bank of Boston N.A.,
5.973%, 01/25/99.............................. A2 2,500 2,507,600
Bankers Trust New York Corp.,
5.813%, 08/06/00.............................. A2 2,500 2,495,000
BT Securities Corp.,
6.125%, 02/24/00.............................. A3 5,000 4,955,000
Capital One Bank,
6.844%, 06/13/00.............................. Baa3 23,900 24,225,757
Central Hispano Financial Services, (Portugal),
6.25%, 04/28/05............................... A3 5,000 5,000,000
Chemical Banking,
6.075%, 02/28/00.............................. Aa3 6,000 6,009,240
Citicorp, M.T.N.,
6.045%, 05/15/00.............................. Aa3 10,000 10,031,800
First Chicago NBD Corp.,
5.986%, 06/10/02.............................. A1 10,000 9,989,600
Great Western Financial,
8.206%, 02/01/27.............................. Baa2 14,200 15,060,804
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B10

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Kansallis-Osake Pankki, (Finland),
8.65%, 12/01/49 (b)........................... A3 $ 9,000 $ 9,180,000
Key Bank N.A.
5.875%, 08/29/00.............................. Aa3 7,000 6,950,020
MBNA America Bank N.A.,
5.973%, 07/18/01.............................. Baa1 5,000 4,965,500
MBNA Corp.,
6.288%, 09/08/00.............................. Baa2 3,000 2,991,000
Merita Bank, Ltd.,
7.50%, 12/29/49 (b)........................... NR 12,000 12,312,000
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 8,700 8,700,000
6.60%, 12/10/07............................... A1 5,000 5,000,000
Nationsbank Corp.,
6.076%, 06/19/02.............................. A1 5,000 5,005,850
North Fork Bancorporation, Inc.,
8.00%, 12/15/27............................... Baa3 4,000 4,068,800
Norwest Corp.,
5.863%, 11/13/01.............................. Aa3 6,450 6,446,130
Okobank, (Finland),
7.20%, 10/29/49 (c)........................... A3 12,500 12,640,625
7.312%, 09/27/49 (b).......................... A3 18,750 19,031,250
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (b)........................... Aa3 5,000 5,032,600
Siam Commercila, (Thailand),
7.50%, 03/15/06 (b)........................... Ba1 14,500 9,425,000
Suntrust Bank, Inc.,
5.889%, 04/22/02.............................. A1 10,000 9,979,000
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49 (b).......................... A1 5,000 5,037,500
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16 (b)........................... Ba1 20,000 12,000,000
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 20,750 21,793,932
--------------
302,152,738
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.6%
Roger Cablesystems, Inc., (Canada)
10.00%, 03/15/05.............................. Ba3 2,000 2,200,000
Tele-Communications, Inc.,
6.656%, 12/20/00.............................. Ba1 5,000 5,012,500
7.375%, 02/15/00.............................. Ba1 6,000 6,115,800
7.875%, 08/01/13.............................. Ba1 43,750 47,056,187
8.25%, 01/15/03............................... Ba1 8,000 8,543,120
9.875%, 06/15/22.............................. Ba1 12,878 16,782,996
--------------
85,710,603
--------------
CHEMICALS -- 0.2%
Reliance Industries Ltd., (India),
9.375%, 06/24/26.............................. Baa3 12,000 12,045,000
--------------
</TABLE>
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CONSULTING -- 0.3%
Comdisco, Inc., M.T.N.,
6.11%, 08/04/99............................... Baa1 $ 12,500 $ 12,513,250
6.375%, 11/30/01.............................. Baa1 2,700 2,700,000
--------------
15,213,250
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,557,875
--------------
ENERGY -- 0.1%
Baltimore Gas & Electric,
5.886%, 03/15/99.............................. A2 4,000 4,004,080
--------------
FINANCIAL SERVICES -- 5.3%
Advanta Corp.,
6.99%, 10/18/99............................... Ba3 10,000 9,600,000
American General Finance, Inc.,
7.57%, 12/01/45............................... A2 5,000 5,178,500
Avco Financial Services,
5.915%, 11/17/99.............................. NR 3,500 3,498,950
Caterpillar Financial Services,
5.829%, 04/10/00.............................. A2 5,000 5,011,850
Conseco, Inc.,
8.70%, 11/15/26 (c)........................... Baa3 32,538 36,378,552
8.796%, 04/01/27.............................. Ba2 29,000 32,368,930
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 20,700 20,797,290
6.95%, 03/01/04............................... Baa2 7,500 7,650,000
7.00%, 06/15/00............................... Baa3 13,500 13,769,460
Ford Credit Europe PLC,
6.086%, 12/20/99.............................. A1 10,000 10,010,000
General Motors Acceptance Corp., M.T.N.,
5.813%, 10/30/00.............................. A3 10,000 9,941,250
Lehman Brothers Holdings, Inc.,
6.206%, 09/03/02.............................. Baa1 10,000 9,937,500
6.40%, 08/30/00 (c)........................... Baa1 93,250 93,133,437
Lumbermens Mutual Casualty Co.,
8.30%, 12/01/37............................... Baa1 23,100 24,486,000
9.15%, 07/01/26............................... Baa1 7,500 8,728,125
--------------
290,489,844
--------------
FOOD & BEVERAGE -- 0.5%
Archer Daniels,
6.95%, 12/15/2097............................. Aa3 19,700 19,956,888
Archer-Daniels-Midland Co.,
6.75%, 12/15/27............................... Aa3 5,000 5,008,650
--------------
24,965,538
--------------
FOREST PRODUCTS -- 0.4%
UPM-Kymmene Corp.,
7.45%, 11/26/27............................... Baa1 23,400 24,014,250
--------------
INVESTMENT BANKING -- 1.9%
Merrill Lynch Pierce, Fenner & Smith, Inc.,
5.935%, 11/14/00.............................. A3 10,000 9,966,250
Morgan Stanley Group, Inc.,
5.869%, 12/19/01.............................. A1 5,000 4,987,500
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B11

<PAGE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 1.9%
Total Access Communications Public Company Ltd.,
(Thailand),
8.375%, 11/04/06.............................. Ba2 $ 4,000 $ 1,920,000
WorldCom, Inc.,
7.55%, 04/01/04............................... Ba1 57,000 59,689,830
7.75%, 04/01/07............................... Ba1 20,000 21,477,800
7.75%, 04/01/27............................... Ba1 6,000 6,592,560
8.875%, 01/15/06.............................. Ba1 16,000 17,214,720
--------------
106,894,910
--------------
TOBACCO -- 2.4%
Philip Morris Co. Inc.,
7.20%, 02/01/07............................... A2 10,000 10,318,900
7.50%, 04/01/04............................... A2 50,000 52,363,500
RJR Nabisco, Inc.,
8.50%, 07/01/07............................... Baa3 12,750 13,592,138
8.75%, 04/15/04............................... Baa3 5,000 5,352,750
8.75%, 08/15/05............................... Baa3 12,500 13,486,625
8.75%, 07/15/07............................... Baa3 25,000 27,110,750
9.25%, 08/15/13............................... Baa3 7,000 7,854,350
--------------
130,079,013
--------------
UTILITIES -- 1.4%
Cleveland Electric Illumination,
7.88%, 11/01/17............................... Ba1 27,000 28,503,900
Consolidated Edison,
5.998%, 06/15/02.............................. A1 7,000 7,014,420
Hyder PLC, (United Kingdom),
6.75%, 12/15/17............................... Baa1 5,000 5,018,750
6.875%, 12/15/07.............................. Baa1 25,000 25,438,750
Hydro-Quebec, (Canada),
5.938%, 09/29/49.............................. A+ 6,250 5,519,531
Southern California Edison Co.,
6.38%, 09/25/08............................... Aaa 7,000 7,057,400
--------------
78,552,751
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19 (b)..................... 11,800 3,071,658
United States Treasury Bonds,
6.125%, 08/15/07.............................. 10,450 10,739,047
United States Treasury Notes,
5.875%, 09/30/02 (c).......................... 7,650 7,691,846
6.00%, 08/15/00............................... 2,750 2,769,773
6.375%, 08/15/27.............................. 37,910 39,983,298
--------------
64,255,622
--------------
FOREIGN GOVERNMENT BONDS -- 3.4%
Banco de Commercio Exterior de Colombia, S.A.,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. Baa3 5,500 5,623,750
Banque Cent De Tunisie, (Tunisia),
7.50%, 09/19/07............................... Baa3 13,600 12,716,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B12

<PAGE>

SHORT-TERM INVESTMENTS -- 5.8%
ASSET-BACKED SECURITIES -- 0.4%
Barton Capital Corp.,
5.95%, 02/09/98............................... P1 1,100 1,093,091
Centric Capital Corp.,
5.92%, 02/23/98............................... P1 1,000 991,449
Corporate Asset Funding Co., Inc.,
5.78%, 02/24/98............................... P1 5,400 5,354,049
Mont Blanc Capital Corp.,
5.82%, 02/13/98............................... P1 2,000 1,986,420
Restructured Asset Securities Enhanced Return,
5.958%, 08/28/98.............................. P1 4,000 4,000,000
Special Purpose Account Receivables Cooperative
Corp.,
5.80%, 03/26/98............................... P1 1,000 986,628
Strategic Money Market Trust,
5.91%, 12/16/98............................... P1 5,000 5,000,000
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Variable Funding Capital Corp.,
5.81%, 02/20/98............................... P1 $ 2,135 $ 2,118,116
5.88%, 01/29/98............................... P1 1,000 995,590
5.98%, 01/21/98............................... P1 1,225 1,221,134
--------------
23,746,477
--------------
BANK ACCEPTANCE -- 0.1%
Bank of Montreal, (Canada),
5.68%, 02/17/98............................... P1 4,000 3,970,969
--------------
BANK NOTES -- 0.2%
American Express Centurion Bank,
5.929%, 09/22/98.............................. P1 5,000 5,000,000
NBD Bank Michigan,
5.00%, 01/30/98............................... P1 3,000 2,997,534
US Bank, N.A.,
5.830%, 10/21/98.............................. P1 3,000 2,998,073
--------------
10,995,607
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 0.1%
Taubman Realty Group,
6.519%, 07/27/98.............................. P1 5,500 5,517,710
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 0.1%
Morgan Guaranty Trust Co.,
5.79%, 03/16/98............................... P1 3,000 3,000,157
Westdeutsche Landesbank Girozentral, (Germany),
5.82%, 08/03/98............................... P1 2,000 1,999,096
5.83%, 08/03/98............................... P1 3,000 2,998,731
--------------
7,997,984
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.4%
Canadian Imperial Bank of Commerce, (Canada),
5.80%, 03/02/98............................... P1 1,000 999,485
5.95%, 06/29/98............................... P1 3,500 3,498,858
Credit Agricole Indosuez, (France),
5.75%, 02/10/98............................... P1 5,000 5,000,000
Dresdner Bank, AG, (Germany),
5.95%, 10/20/98............................... P1 5,000 4,998,743
Royal Bank of Canada, (Canada),
5.91%, 06/17/98............................... P1 3,000 2,999,217
Societe Generale, (France),
6.19%, 05/06/98............................... P1 4,000 3,999,194
--------------
21,495,497
--------------
COMMERCIAL PAPER -- 1.4%
American General Finance Corp.,
5.72%, 03/13/98............................... P1 2,000 1,977,756
Aon Corp.,
5.79%, 03/13/98............................... P2 1,000 988,742
5.79%, 03/18/98............................... P2 1,048 1,035,358
Associates First Capital Corp.,
5.79%, 02/04/98............................... P1 1,000 994,692
Bank of New York,
5.75%, 02/06/98............................... P1 2,285 2,272,226
Barnett Bank, Inc.,
6.00%, 01/28/98............................... P1 3,000 2,987,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B13

<PAGE>

FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
BBL North America,
6.73%, 01/02/98............................... P1 $ 2,393 $ 2,393,000
Bell Atlantic Financial Services, Inc.,
6.08%, 01/09/98............................... P1 8,000 7,990,542
BP America, Inc.,
6.90%, 01/02/98............................... P1 8,000 8,000,000
Carnival Corp.,
5.83%, 01/30/98............................... P1 1,000 995,466
Duke Capital Corp.,
5.90%, 01/21/98............................... P2 1,900 1,894,084
First Chicago Financial Corp.,
5.73%, 02/26/98............................... P1 2,000 1,982,492
General Electric Capital Services, Inc.,
5.70%, 01/12/98............................... P1 5,000 4,992,083
General Motors Acceptance Corp.,
5.76%, 02/09/98............................... P1 4,000 3,975,680
ING America Insurance Holdings, Inc.,
5.74%, 04/03/98............................... P1 3,000 2,956,472
5.74%, 04/28/98............................... P1 2,000 1,963,009
Newell Co.,
6.80%, 01/02/98............................... P1 8,000 8,000,000
PHH Corp.,
6.75%, 01/02/98............................... P2 8,000 8,000,000
Safeco Corp.,
5.76%, 03/17/98............................... P2 3,000 2,964,480
Xerox Capital PLC,
5.75%, 02/05/98............................... P1 3,221 3,203,508
6.85%, 01/02/98............................... P1 3,804 3,804,000
Xerox Overseas Holdings PLC,
5.79%, 02/10/98............................... P1 996 989,753
--------------
74,360,343
--------------
FOREIGN GOVERNMENT OBLIGATIONS
Republic of Colombia, (Colombia),
7.125%, 05/11/98.............................. Ba1 2,700 2,727,000
--------------
OTHER CORPORATE OBLIGATIONS -- 0.5%
Beneficial Corp.,
9.125%, 02/15/98.............................. P1 2,715 2,724,705
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... BBB- 8,250 8,280,937
General Electric Capital Corp.,
13.50%, 01/20/98.............................. P1 3,000 3,010,899
General Motors Acceptance Corp.,
6.00%, 07/13/98............................... P1 1,000 1,000,400
5.786%, 09/21/98.............................. P1 3,500 3,497,158
IBM Credit Corp.,
5.65%, 02/27/98............................... P1 3,500 3,498,798
</TABLE>

DECEMBER 31, 1997
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co.,
6.34%, 03/09/98............................... P1 $ 1,000 $ 1,000,606
Textron Financial Corp.,
6.125%, 02/23/98.............................. A3 1,000 1,000,220
--------------
24,013,723
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bills,
4.95%, 01/15/98 (b)........................... 1,140 1,137,962
5.135%, 01/22/98 (b).......................... 3,000 2,991,442
5.19%, 01/22/98 (b)........................... 1,500 1,495,675
5.195%, 03/19/98 (c).......................... 370 365,942
5.275%, 01/22/98 (b).......................... 800 797,656
--------------
6,788,677
--------------
REPURCHASE AGREEMENT -- 2.5%
Joint Repurchase Agreement Account,
6.53%, 01/02/98
(Note 5).................................... 137,860 137,860,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $319,318,208)...................................................... 319,473,987
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,050,966,053; Note 6)............................................ 5,471,387,547
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (d)............................................................ (203,828)
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES -- 0.3%...................................................... 18,958,375
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,490,142,094
--------------
--------------
</TABLE>

The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
L.P. Limited Partnership
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)

(a) Non-income producing security.

(b) Security segregated as collateral for futures contracts.

(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities -- $100,311,229.

(d) Open futures contracts as of December 31, 1997 are as follows:

<TABLE>
<C> <S> <C> <C> <C> <C>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1997 DEPRECIATION
Long positions:
627 U.S. 5 yr T-Note Mar 98 $67,867,922 $68,107,875 $239,953
865 U.S. T-Bond Mar 98 $103,945,625 $104,205,469 $259,844
Short Position:
1,779 U.S. T-Bond Mar 98 $205,927,125 $207,989,344 $(2,062,219)
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

B14

<PAGE>

NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND THE FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.

NOTE 1: GENERAL

The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only two Portfolios: Conservative Balanced
Portfolio and Flexible Managed Portfolio. 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 ("contracts") issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the Portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.

NOTE 2: ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.

SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported 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 determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
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. Short-term
securities are valued at amortized cost.

REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).

FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:

(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.

(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.

Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.

Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates

B15

<PAGE>

on security transactions, and the difference between the amounts of dividends,
interest and foreign taxes recorded on the Series Fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized currency
gains or losses from valuing foreign currency denominated assets and liabilities
(other than investments) at fiscal year end exchange rates are reflected as a
component of net unrealized appreciation (depreciation) on investments and
foreign currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.

SHORT SALES: Conservative Balanced Portfolio and Flexible Managed Portfolio may
sell a security it does not own in anticipation of a decline in the market value
of that security (short sale). When a Portfolio makes a short sale, it must
borrow the security sold short and deliver it to the buyer. The proceeds of the
short sale will be retained by the broker-dealer through which it made the short
sale as collateral for its obligation to deliver the security upon conclusion of
the sale. The Portfolio may have to pay a fee to borrow the particular security
and may be obligated to remit any interest or dividends received on such
borrowed securities. A gain, limited to the price at which the Portfolio sold
the security short, or a loss, unlimited in magnitude, will be recognized upon
the termination of a short sale if the market price at termination is less than
or greater than, respectively, the proceeds originally received.

OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.

The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.

FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.

The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their

B16

<PAGE>

distributions annually. A portion of distributions received from REITs during
the period is estimated to be a return of capital and is recorded as a reduction
of their costs. During the year ended December 31, 1997, certain Portfolios
purchased securities from and sold securities to other Portfolios of the Series
Fund or other funds or accounts managed by The Prudential or its affiliates in
accordance with the provisions of Rule 17a-7 of the Investment Company Act of
1940. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.

CUSTODY FEE CREDITS: The Series Fund has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian. Such custody fee credits are presented as a reduction of gross
expenses in the accompanying Statement of Operations.

TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.

Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.

DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the
Portfolio. Each Portfolio will declare and distribute dividends from net
investment income, if any, quarterly and net capital gains, if any, at least
annually. Dividends and distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the fiscal year ended
December 31, 1997, the application of this statement increased (decreased)
paid-in capital in excess of par ("PC"), undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("GL") by the
following amounts:

<TABLE>
<CAPTION>
PC UNI G/L
-------- --------- ----------
<S> <C> <C> <C>
Conservative Balanced Portfolio........ $ 33,509 $ 48,752 $ (82,261)
Flexible Managed Portfolio............. -- 625,749 (625,749)
</TABLE>

Net investment income, net realized gains and net assets were not affected by
these reclassifications.

NOTE 3: AGREEMENTS

The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.

The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.

<TABLE>
<CAPTION>
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
<S> <C>
Conservative Balanced Portfolio........ 0.55%
Flexible Managed Portfolio............. 0.60
</TABLE>

B17

<PAGE>

The Prudential has agreed to refund to a Portfolio, the portion of the
investment advisory fee for that Portfolio equal to the amount that the
aggregate annual ordinary operating expenses (excluding interest, taxes and
brokerage commissions) exceeds 0.75% of the Portfolio's average daily net
assets. No refund was required for the fiscal year ended December 31, 1997.

PIC is an indirect, wholly-owned subsidiary of The Prudential.

The Series Fund entered into a credit agreement (the "Agreement") on October 28,
1997 with an unaffiliated lender. The maximum commitment under the Agreement is
$250,000,000. The Agreement expires on December 18, 1998. Interest on any such
borrowings will be at market rates. The purpose of the Agreement is to serve as
an alternative source of funding for capital share redemptions. The Series Fund
has not borrowed any amounts pursuant to the Agreement as of December 31, 1997.
The Series Fund pays a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly by the Series Fund.

NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES

For the fiscal year ended December 31, 1997, Prudential Securities Incorporated,
an indirect, wholly-owned subsidiary of The Prudential, earned $684,760 in
brokerage commissions from transactions executed on behalf of the Conservative
Balanced Portfolio and the Flexible Managed Portfolio as follows:

<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- -----------
<S> <C>
Conservative Balanced Portfolio........ $ 256,752
Flexible Managed Portfolio............. 428,008
-----------
$ 684,760
</TABLE>

NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT

The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$1,038,519,000 as of December 31, 1997. The Portfolios of the Series Fund with
cash invested in the joint accounts had the following principal amounts and
percentage participation in the account:

<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
--------------- ----------
<S> <C> <C>
Conservative Balanced Portfolio........ $ 81,783,000 7.88%
Flexible Managed Portfolio............. 137,860,000 13.28
All other portfolios (currently not
available to PRUvider)............... 818,876,000 78.84
--------------- ----------
$ 1,038,519,000 100.00%
</TABLE>

As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:

CIBC Oppenheimer, 6.10%, in the principal amount of $138,519,000, repurchase
price $138,566,045, due 1/2/98. The value of the collateral including accrued
interest was $141,862,492.

Salomon Smith Barney Inc., 6.75%, in the principal amount of $300,000,000,
repurchase price $300,112,500, due 1/2/98. The value of the collateral including
accrued interest was $306,560,575.

SBC Warburg Dillon Read Inc., 6.50%, in the principal amount of $300,000,000,
repurchase price $300,108,333, due 1/2/98. The value of the collateral including
accrued interest was $306,557,797.

UBS Securities Corp., 6.55%, in the principal amount of $300,000,000, repurchase
price $300,109,167, due 1/2/98. The value of the collateral including accrued
interest was $306,001,638.

B18

<PAGE>

NOTE 6: PORTFOLIO SECURITIES

The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1997 were
as follows:

Cost of Purchases:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Non-Government......................... $ 7,826,155,071 $ 8,194,217,051
Government............................. $ 5,017,442,019 $ 3,054,412,991
</TABLE>

Proceeds from Sales:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Non-Government......................... $ 7,823,232,061 $ 8,576,103,609
Government............................. $ 5,106,797,609 $ 3,018,431,969
</TABLE>

The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
----------------- -----------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $ 311,261,405 $ 565,581,079
Gross Unrealized Depreciation.......... 111,299,483 149,894,627
Total Net Unrealized................... 199,961,922 415,686,452
Tax Basis.............................. 4,496,062,195 5,055,701,095
</TABLE>

B19

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.76 0.66 0.63 0.53 0.49
Net realized and unrealized gains
(losses) on investments.............. 1.26 1.24 1.78 (0.68) 1.23
-------- -------- -------- -------- --------
Total from investment operations... 2.02 1.90 2.41 (0.15) 1.72
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.66) (0.64) (0.51) (0.47)
Distributions from net realized
gains................................ (1.81) (1.03) (0.56) (0.15) (0.58)
-------- -------- -------- -------- --------
Total distributions................ (2.57) (1.69) (1.20) (0.66) (1.05)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 13.45% 12.63% 17.27% (0.97)% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2
Ratios to average net assets:
Expenses............................. 0.56% 0.59% 0.58% 0.61% 0.60%
Net investment income................ 4.48% 4.13% 4.19% 3.61% 3.22%
Portfolio turnover rate................ 295% 295% 201% 125% 79%
Average commission rate paid per
share................................ $0.0563 $0.0554 N/A N/A N/A
</TABLE>

<TABLE>
<CAPTION>
FLEXIBLE MANAGED
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.59 0.57 0.56 0.47 0.57
Net realized and unrealized gains
(losses) on investments.............. 2.52 1.79 3.15 (1.02) 1.88
-------- -------- -------- -------- --------
Total from investment operations... 3.11 2.36 3.71 (0.55) 2.45
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.58) (0.58) (0.56) (0.45) (0.57)
Distributions from net realized
gains................................ (3.04) (1.85) (0.79) (0.46) (0.93)
-------- -------- -------- -------- --------
Total distributions................ (3.62) (2.43) (1.35) (0.91) (1.50)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 17.96% 13.64% 24.13% (3.16)% 15.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2
Ratios to average net assets:
Expenses............................. 0.62% 0.64% 0.63% 0.66% 0.66%
Net investment income................ 3.02% 3.07% 3.30% 2.90% 3.30%
Portfolio turnover rate................ 227% 233% 173% 124% 63%
Average commission rate paid per
share................................ $0.0569 $0.0563 N/A N/A N/A
</TABLE>

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

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

SEE NOTES TO FINANCIAL STATEMENTS.

B20

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Conservative Balanced and Flexible
Managed Portfolios (two of the fifteen portfolios that constitute The Prudential
Series Fund, Inc.; the "Portfolios") at December 31, 1997, the results of each
of their operations for the year then ended and the changes in each of their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
The financial highlights for each of the three years in the period ended
December 31, 1995 for each of the Portfolios were audited by other independent
accountants whose report thereon dated February 15, 1996 expressed an
unqualified opinion on those financial highlights.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 13, 1998

B21

<PAGE>

TAX INFORMATION

Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1997) as to the federal tax status of dividends paid by the Fund during such
fiscal year. Accordingly, we are advising you that in 1997, the Fund paid
dividends as follows:

<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
- ---------------------------------------------------------------------------------------
LONG-TERM CAPITAL GAINS
----------------------------
SHORT-TERM TOTAL
INCOME CAPITAL GAINS TAXED @ 28% TAXED @ 20% DIVIDENDS
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Conservative Balanced
Portfolio.................. $ 0.759 $ 0.585 $ 0.356 $ 0.874 $ 2.574
Flexible Managed Portfolio... 0.585 0.856 1.016 1.168 3.625
</TABLE>

B22

<PAGE>

BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.

<TABLE>
<S> <C> <C>
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., Ph.D. E. MICHAEL CAULFIELD
CHAIRMAN, PRINCIPAL, CEO,
THE PRUDENTIAL SERIES FUND, INC. KALUDIS CONSULTING GROUP PRUDENTIAL INVESTMENTS,
PRESIDENT, THE PRUDENTIAL SERIES
FUND, INC.
</TABLE>

SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)

B23

<PAGE>

PRUvider (sm)
Variable Appreciable Life (R)
Insurance

[LOGO] PRUDENTIAL

Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
SVAL-1SAI Ed. 5/98 CAT# 64M086G

<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.

REPRESENTATION WITH RESPECT TO CHARGES

Pruco Life Insurance Company represents that the fees and charges deducted under
the PRUvider Variable Appreciable Life Insurance Contracts registered by this
registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses to be incurred, and the risks assumed by the
depositor.

UNDERTAKING WITH RESPECT TO INDEMNIFICATION

The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.

Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") 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 65 pages.

The Statement of Additional Information consisting of 58 pages.

The undertaking to file reports.

The representation with respect to charges.

The undertaking with respect to indemnification.

The signatures.

Written consents of the following persons:

1. Deloitte & Touche LLP, independent auditors.

2. Price Waterhouse LLP, independent accountants.

3. Clifford E. Kirsch, Esq.

4. Nancy 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 Pruco Life Insurance
Company establishing the Pruco Life PRUvider Variable
Appreciable Account. (Note 6)

(2) Not Applicable.

(3) Distributing Contracts:

(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company.
(Note 6)

(b) Proposed form of Agreement between Pruco
Securities Corporation and independent brokers
with respect to the Sale of the Contracts.
(Note 6)

(4) Not Applicable.

(5) PRUvider Variable Appreciable Life Insurance Contract.
(Note 6)

(6) (a) Articles of Incorporation of Pruco Life
Insurance Company, as amended October 19, 1993.
(Note 2)

(b) By-laws of Pruco Life Insurance Company, as
amended May 6, 1997. (Note 7)

(7) Not Applicable.

(8) Not Applicable.

(9) Not Applicable.

(10) (a) Application Form. (Note 2)

(b) Supplement to the Application for PRUvider
Variable Appreciable Life Insurance Contract.
(Note 6)

(11) Form of Notice of Withdrawal Right. (Note 6)

(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(T)(b)(12)(iii) and
method of computing cash adjustment upon exercise of
right to exchange for fixed-benefit insurance pursuant
to Rule 6e-3(T)(b)(13)(v)(B). (Note 4)

(13) Available Contract Riders.

(a) Rider for Insured's Payment of Premium Benefit.
(Note 6)

(b) Rider for Applicant's Payment of Premium
Benefit. (Note 6)

(d) Rider for Option to Purchase Additional
Insurance on Life of Insured. (Note 6)

(e) Rider for Level Term Insurance Benefit on
Dependent Children. (Note 6)

(f) Rider for Level Term Insurance Benefit on
Dependent Children--from Term Conversions.
(Note 6)

II-2
<PAGE>

(g) Rider for Level Term Insurance Benefit on
Dependent Children--from Term Conversions or
Attained Age Change. (Note 6)

(h) Living Needs Benefit Rider

(i) for use in Florida. (Note 2)

(ii) for use in all approved jurisdictions
except Florida. (Note 2)

(i) Rider for Term Insurance Benefit on Life of
Insured--Decreasing Amount. (Note 6)

(j) Rider for Term Insurance Benefit on Life of
Insured Spouse--Decreasing Amount. (Note 6)

(k) Endorsement altering the Assignment provision
ORD 89224--94-P. (Note 6)

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. Indemnification Agreement. (Note 6)

8. Powers of Attorney.

(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer,
Esther H. Milnes, I. Edward Price (Note 5)
(b) Kiyofumi Sakaguchi (Note 6)
(c) James J. Avery, Jr. (Note 8)
(d) James M. Schlomann (Note 3)

27. Financial Data Schedule. (Note 1)

(Note 1) Filed herewith.

(Note 2) Incorporated by reference to Form S-6, Registration No.
333-07451, filed July 2, 1996 on behalf of the Pruco Life
Variable Appreciable Account.

(Note 3) Incorporated by reference to Post-Effective Amendment No. 4 to
Form S-1, Registration No. 33- 86780, filed April 9, 1998 on
behalf of the Pruco Life Variable Contract Real Property
Account.

(Note 4) Incorporated by reference to Post-Effective Amendment
No. 7 to this registration statement, filed April 25, 1996.

(Note 5) Incorporated by reference to Form 10-K, Registration No.
33-08698, filed March 31, 1997 on behalf of the Pruco Life
Variable Contract Real Property Account.

(Note 6) Incorporated by reference to Post-Effective Amendment No. 8 to
this Registration Statement, filed April 28, 1997.

(Note 7) Incorporated by reference to Form 10-Q, Registration No.
33-37587, filed August 15, 1997, on behalf of the Pruco Life
Insurance Company.

(Note 8) Incorporated by reference to Post-Effective Amendment No. 2 to
Form S-6, Registration No. 333- 07451, filed June 25, 1997 on
behalf of the Pruco Life Variable Appreciable Account.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life PRUvider Variable Appreciable Account, 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 effective date of the most recent Post-Effective Amendment to the
Registration Statement which included a prospectus 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 24th day of April, 1998.

(Seal) PRUCO LIFE PRUVIDER VARIABLE APPRECIABLE ACCOUNT
(Registrant)

By: PRUCO LIFE INSURANCE COMPANY
(Depositor)

Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
--------------------- ---------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 9 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 24th day of April, 1998.

SIGNATURE AND TITLE

/s/ *
- ------------------------------------------
Esther Milnes
President and Director

/s/ *
- ------------------------------------------
James M. Schlomann
Chief Accounting Officer and Comptroller

/s/ *
- ------------------------------------------
James J. Avery, Jr.
Director

/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------------------ -----------------------
William M. Bethke Thomas C. Castano
Director (Attorney-in-Fact)

/s/ *
- ------------------------------------------
Ira J. Kleinman
Director

/s/ *
- ------------------------------------------
Mendel A. Melzer
Director

/s/ *
- ------------------------------------------
I. Edward Price
Director

/s/ *
- ------------------------------------------
Kiyofumi Sakaguchi
Director

II-4
<PAGE>

EXHIBIT INDEX

Consent of Deloitte & Touche LLP, independent auditors Page II-6

Consent of Price Waterhouse LLP, independent accountants Page II-7

3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-8
legality of the securities being registered.

6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as Page II-9
to actuarial matters pertaining to the securities
being registered.

27. Financial Data Schedule. Page II-10

II-5

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Post-Effective Amendment No. 9 to Registration
Statement No. 33-49994 on Form S-6 of Pruco Life PRUvider Variable Appreciable
Account of Pruco Life Insurance Company (1) of our report dated February 15,
1996, relating to the financial statements of Pruco Life PRUvider Variable
Appreciable Account, and (2) of our report dated December 19, 1996 relating to
the consolidated financial statements of Pruco Life Insurance Company and
subsidiaries appearing in the Prospectus, which is part of such Registration
Statement, and (3) to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 24, 1998

II-6

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 9 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Pruco Life PRUvider Variable Appreciable Account,
which appears in such Prospectus.

We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 23, 1998, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.

We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated February
13, 1998, relating to the financial statements and financial highlights of the
Conservative Balanced and Flexible Managed Portfolios, two of the fifteen
portfolios that comprise The Prudential Series Fund, Inc., which appears in such
Statement of Additional Information.

We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in the Prospectus and "Experts" in the Statement of
Additional Information.

/s/ PRICE WATERHOUSE LLP

New York, New York
April 24, 1998

II-7

Exhibit 3

April 24, 1998

Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992

To Pruco Life Insurance Company:

In my capacity as Chief Legal Officer of Pruco Life Insurance Company ("Pruco
Life"), I have reviewed the establishment of the Pruco Life PRUvider Variable
Appreciable Account (the "Account") on July 10, 1992 by the Executive Committee
of the Board of Directors of Pruco Life as a separate account for assets
applicable to certain variable life insurance contracts, pursuant to the
provisions of Section 20-651 of the Arizona Insurance Code. I was responsible
for oversight of the preparation and review of the Registration Statement on
Form S-6, as amended, filed by Pruco Life with the Securities and Exchange
Commission (Registration No. 33-49994) 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) Pruco Life was duly organized under the laws of Arizona 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 Arizona law.

(3) The portion of the assets held in the Account equal to the
reserve and other liabilities for variable benefits under
the variable life insurance contracts is not chargeable
with liabilities arising out of any other business Pruco
Life may conduct.

(4) The variable life insurance contracts are legal and binding
obligations of Pruco Life 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,

/s/

Clifford E. Kirsch

II-8

Exhibit 6

April 24, 1998

Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992

To Pruco Life Insurance Company:

This opinion is furnished in connection with the registration by Pruco Life
Insurance Company of variable life insurance contracts ("Contracts") under the
Securities Act of 1933. The prospectus included in Post-Effective Amendment No.
9 to Registration Statement No. 33-49994 on Form S-6 describes the Contracts. I
have reviewed the Contract form 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
"Illustrations", based on the assumptions stated in the
illustrations, are consistent with the provisions of the
Contract. The rate structure of the Contract 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 Contract.

(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 Pruco Life and its parent company,
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 848 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,

/s/

Nancy D. Davis, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America

II-9

<ARTICLE> 6
<LEGEND>
PRUCO LIFE PRUvider VARIABLE APPRECIABLE ACCOUNT
</LEGEND>
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 214,108
<INVESTMENTS-AT-VALUE> 212,589
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212,727
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 13,229
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 212,727
<NET-ASSETS> 7,650
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,343
<OTHER-INCOME> 1,777
<EXPENSES-NET> 5,874
<NET-INVESTMENT-INCOME> 343
<REALIZED-GAINS-CURRENT> (6,859)
<APPREC-INCREASE-CURRENT> 26,701
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 33,083
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>