PROSPECTUS. PruLife Custom Premier VARIABLE UNIVERSAL LIFE INSURANCE. Pruco Life of New Jersey Variable Appreciable Account

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1 MAY 1, 2006 PROSPECTUS PruLife Custom Premier VARIABLE UNIVERSAL LIFE INSURANCE Pruco Life of New Jersey Variable Appreciable Account Pruco Life Insurance Company of New Jersey (in New Jersey and New York) Make Life Easier with e-delivery You can stop receiving printed prospectuses and start reviewing your variable life prospectus online by using e-delivery. To enroll, go to Our privacy notice, titled Important Privacy Information and Choices, is included at the end of this prospectus.

2 PROSPECTUS May 1, 2006 PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT PruLife Custom Premier This prospectus describes an individual flexible premium variable universal life insurance contract, the PruLife Custom Premier Contract (the Contract ) offered by Pruco Life Insurance Company of New Jersey ( Pruco Life of New Jersey, us, we, or our ), a stock life insurance company. Pruco Life of New Jersey is an indirect, whollyowned subsidiary of The Prudential Insurance Company of America. You may choose to invest your Contract's premiums and its earnings in one or more of 25 available variable investment options of the Pruco Life of New Jersey Variable Appreciable Account (the Account ): The Prudential Series Fund (the Series Fund ) Diversified Bond SP Growth Asset Allocation Equity SP Large Cap Value Global SP LSV International Value High Yield Bond SP Mid Cap Growth Jennison SP PIMCO High Yield Money Market SP PIMCO Total Return Stock Index SP Prudential U.S. Emerging Growth SP Aggressive Growth Asset Allocation SP Small Cap Growth SP AIM Core Equity SP Small Cap Value SP Balanced Asset Allocation SP Strategic Partners Focused Growth SP Conservative Asset Allocation SP T. Rowe Price Large Cap Growth SP Davis Value SP William Blair International Growth Janus Aspen Series Large Cap Growth Portfolio - Service Shares For a complete list of the 25 available variable investment options, their investment objectives, and their investment advisers, see The Funds. You may also choose to invest your Contract s premiums and its earnings in the fixed rate option, which pays a guaranteed interest rate. See The Fixed Rate Option. Please Read this Prospectus. Please read this prospectus before purchasing a PruLife Custom Premier variable universal life insurance Contract and keep it for future reference. Current prospectuses for each of the underlying mutual funds accompany this prospectus. These prospectuses contain important information about the mutual funds. Please read these prospectuses and keep them for reference. Neither the Securities and Exchange Commission ( SEC ) nor any state securities commission has approved or disapproved of these securities or determined that this Contract is a good investment, nor has the SEC determined that this prospectus is complete or accurate. It is a criminal offense to state otherwise. The Contract may be purchased through registered representatives located in banks and other financial institutions. Investment in a variable life insurance contract is subject to risk, including the possible loss of your money. An investment in PruLife Custom Premier is not a bank deposit and is not insured by the Federal Deposit Insurance Corporation ( FDIC ) or any other governmental agency. Pruco Life Insurance Company of New Jersey 213 Washington Street Newark, New Jersey Telephone: (800)

3 PROSPECTUS CONTENTS Page SUMMARY OF CHARGES AND EXPENSES... 1 Expenses other than Portfolio Expenses... 1 Portfolio Expenses... 3 SUMMARY OF THE CONTRACT AND CONTRACT BENEFITS...3 Brief Description of the Contract... 3 Target Term Rider Summary... 3 Types of Death Benefit Available Under the Contract... 4 Death Benefit Guarantee Information... 4 The Contract Fund... 5 Premium Payments... 5 Allocation of Premium Payments... 5 Investment Choices... 5 Transfers Among Investment Options... 5 Increasing or Decreasing Basic Insurance Amount... 6 Access to Contract Values... 6 Contract Loans... 6 Canceling the Contract ( Free-Look )... 7 SUMMARY OF CONTRACT RISKS... 7 Contract Values are not Guaranteed... 7 Increase in Charges... 7 Contract Lapse... 7 Risks of Using the Contract as a Short-Term Savings Vehicle... 7 Risks of Taking Withdrawals... 8 Limitations on Transfers... 8 Limitations and Charges on Surrender of the Contract... 8 Risks of Taking a Contract Loan... 9 Tax Consequences of Buying this Contract... 9 Replacement of the Contract SUMMARY OF RISKS ASSOCIATED WITH THE VARIABLE INVESTMENT OPTIONS Risks Associated with the Variable Investment Options Learn More about the Variable Investment Options GENERAL DESCRIPTIONS OF THE REGISTRANT, DEPOSITOR, AND PORTFOLIO COMPANIES Pruco Life Insurance Company of New Jersey The Pruco Life of New Jersey Variable Appreciable Account The Funds Service Fees Payable to Pruco Life of New Jersey Voting Rights Substitution of Variable Investment Options The Fixed Rate Option CHARGES AND EXPENSES Sales Load Charges Taxes Attributable to Premiums Cost of Insurance Monthly Deductions from the Contract Fund Daily Deduction from the Variable Investment Options Surrender Charges Transaction Charges Allocated Charges Charges After Age Portfolio Charges Charges for Optional Rider Coverage PERSONS HAVING RIGHTS UNDER THE CONTRACT Contract Owner Beneficiary... 20

4 OTHER GENERAL CONTRACT PROVISIONS Assignment Incontestability Misstatement of Age or Sex Settlement Options Suicide Exclusion RIDERS Target Term Rider Other Riders REQUIREMENTS FOR ISSUANCE OF A CONTRACT PREMIUMS Minimum Initial Premium Available Types of Premium Allocation of Premiums Transfers/Restrictions on Transfers Dollar Cost Averaging Auto-Rebalancing DEATH BENEFITS Contract Date When Proceeds Are Paid Death Claim Settlement Options Types of Death Benefit Changing the Type of Death Benefit Death Benefit Guarantee Increases in Basic Insurance Amount Decreases in Basic Insurance Amount CONTRACT VALUES Surrender of a Contract How a Contract's Cash Surrender Value Will Vary Loans Withdrawals LAPSE AND REINSTATEMENT TAXES Tax Treatment of Contract Benefits DISTRIBUTION AND COMPENSATION LEGAL PROCEEDINGS ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS ADDITIONAL INFORMATION DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION... 43

5 SUMMARY OF CHARGES AND EXPENSES Capitalized terms used in this prospectus are defined where first used or in the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS. Expenses other than Portfolio Expenses The following tables describe the maximum fees and expenses that you could pay when buying, owning, and surrendering the Contract. Generally, our current fees and expenses are lower than the maximum fees and expenses reflected in the following tables. For more information about fees and expenses, see CHARGES AND EXPENSES. The first table describes the maximum fees and expenses that you will pay at the time you buy the Contract, surrender the Contract, or transfer amounts between investment options. Transaction and Optional Rider Fees Charge When Charge is Deducted Amount Deducted Maximum Sales Charge on Premiums (Load) Deducted from premium payments. 6% of premium payment. Taxes Attributable to Premiums (1) Deducted from premium payments. 7.5% of premium payment. Surrender fees (2) Transfer fees Withdrawal fee Insurance Amount Change fee Upon lapse, surrender, or decrease in basic insurance amount. Each transfer exceeding 12 in any Contract year. Upon withdrawal. Upon change in basic insurance amount or Target Term Rider coverage. 90.0% of first year Sales Load Target Premium less premium for riders and extras. $25 Lesser of $25 and 2% of withdrawal amount. $25 Living Needs Benefit fee When benefit is paid. $150 (1) For these purposes, taxes attributable to premiums shall include any federal, state or local income, premium, excise, business tax, or any other type of charge (or component thereof) measured by or based upon the amount of premium received by Pruco Life of New Jersey. (2) The percentage varies by issue age and reduces annually to zero. The duration of the charge also varies by age ranging from ten years at ages 0-55 to three years at ages 69 and above. The second table describes the maximum Contract fees and expenses that you will pay periodically during the time you own the Contract, not including the Funds fees and expenses. Periodic Contract and Optional Rider Charges Other Than The Funds Operating Expenses Charge When Charge is Deducted Amount Deducted Cost of Insurance ( COI ) for the basic insurance amount. Minimum and Maximum Charges Initial COI for a representative Contract owner, male age 32 in the Preferred nonsmoker underwriting class, no riders. Monthly 1 From $.06 to $83.34 per $1,000 of net amount at risk. (1)(2) $0.13 per $1,000 of net amount at risk. (3)

6 Cost of Insurance ( COI ) for Target Term Rider coverage. Minimum and Maximum Charges Initial COI for a representative Contract owner, male age 32 in the Preferred nonsmoker underwriting class. Mortality and Expense Risk fees Additional Mortality fees for risk associated with certain health conditions, occupations, avocations, or aviation risks. Net interest on loans (5) Fee for basic insurance amount Minimum and Maximum Charges Basic insurance amount fee for a representative Contract owner, male age 32 in the Preferred non-smoker underwriting class, no riders. Fee for an increase to basic insurance amount Minimum and Maximum Charges Increase to basic insurance amount fee for a representative Contract owner, male age 32 in the Preferred non-smoker underwriting class, no riders. Fee for the Target Term Rider or an increase to the Target Term Rider Minimum and Maximum Charges Target Term Rider fee for a representative Contract owner, male age 32 in the Preferred non-smoker underwriting class. Fee for Accidental Death Benefit Rider Minimum and Maximum Charges Accidental Death Benefit Rider fee for a representative Contract owner, male age 32 in the Preferred non-smoker underwriting class. Monthly Daily Monthly Annually Monthly Monthly Monthly Monthly From $.06 to $83.34 per $1,000 of Target Term Rider death benefit. (1)(2) $0.13 per $1,000 of Target Term Rider death benefit. (3) Effective annual rate of 0.45% of assets in variable investment options. From $0.10 to $2.08 per $1,000 of basic insurance amount. (4) 1% for standard loans. 0.10% for preferred loans. $20 per Contract plus $0.03 to $1.12 per $1,000 of basic insurance amount. $20 plus $0.13 per $1,000 of basic insurance amount. $12 per increase segment plus $0.03 to $1.12 per $1,000 of increase. (1) $12 per increase segment plus $0.13 per $1,000 of increase. From $0.03 to $1.12 per $1,000 of Target Term Rider. (1) $0.13 per $1,000 of Target Term Rider. From $0.05 to $0.28 per $1,000 of coverage. (1) $0.07 per $1,000 of coverage. Fee for Children Level Term Rider (6) Monthly $.42 per $1,000 of coverage. 2

7 Fee for Enhanced Disability Benefit Rider (6) Minimum and Maximum Charges Enhanced Disability Benefit Rider fee for a representative Contract owner, male age 32 in the Preferred non-smoker underwriting class. Monthly From 5.56% to 10.44% of the greater of: 9% of the policy target premium or the total of monthly deductions. (1) 6.22% of the greater of: 9% of the policy target premium or the total of monthly deductions. (1) The charge varies based on the individual characteristics of the insured, including such characteristics as: age, sex, and underwriting class. (2) For example, the highest COI rate is for an insured who is a male/female age 99. (3) You may obtain more information about the particular COI charges that apply to you by contacting your Pruco Life of New Jersey representative. (4) The amount and duration of the charge will vary based on individual circumstances including issue age, type of risk, and the frequency of exposure to the risk. (5) The maximum loan rate reflects the net difference between a standard loan with an effective annual interest rate of 5% and an effective annual interest credit equal to 4%. Preferred loans are charged a lower effective annual interest rate. See Loans. (6) Duration of charge is limited. See CHARGES AND EXPENSES. Portfolio Expenses This table shows the minimum and maximum total operating expenses charged by the Funds that you will pay periodically during the time you own the Contract. More detail concerning each Funds fees and expenses is contained in the prospectus for each of the Funds. Total Annual Fund Operating Expenses Minimum Maximum (expenses that are deducted from the Funds assets, including management fees, any distribution [and/or service] (12b-1) fees, and other expenses, but not including reductions for any fee waiver or other reimbursements.) Brief Description of the Contract SUMMARY OF THE CONTRACT AND CONTRACT BENEFITS 0.38% 1.28% PruLife Custom Premier is a form of variable universal life insurance. A variable universal life insurance contract is a flexible form of life insurance. It has a death benefit and a Contract Fund, the value of which changes every day according to the investment performance of the investment options to which you have allocated your net premiums. You may invest net premiums in one or more of the 25 available variable investment options or in the fixed rate option. Although the value of your Contract Fund may increase if there is favorable investment performance in the variable investment options you select, investment returns in the variable investment options are NOT guaranteed. There is a risk that investment performance will be unfavorable and that the value of your Contract Fund will decrease. The risk will be different, depending upon which investment options you choose. You bear the risk of any decrease. If you select the fixed rate option, we credit your account with a declared rate of interest, but you assume the risk that the rate may change, although it will never be lower than an effective annual rate of 4%. Transfers from the fixed rate option may be restricted. The Contract is designed to be flexible to meet your specific life insurance needs. Within certain limits, the Contract will provide you with flexibility in determining the amount and timing of your premium payments. Some features and/or riders described in this prospectus may not be available in some states. Target Term Rider Summary This Contract may be issued with a Target Term Rider that could have a significant effect on the performance of your Contract. The Target Term Rider provides for a flexible term insurance benefit to attained age 100 on the life of the insured. You specify the initial amount of the Target Term Rider coverage, up to four times the base Contract's basic insurance amount. 3

8 A Contract with a Target Term Rider will offer higher cash values than an all-base Contract with the same initial death benefit and premium payments if we do not change our current charges. The cash values will be higher because the current sales expense charge attributable to the Target Term Rider is 2% rather than the 4% charge attributable to the Sales Load Target Premium under the base policy. We currently assess lower current Cost of Insurance ( COI ) and per $1,000 of insurance charges for the Target Term Rider. However, a Contract with a Target Term Rider offers the potential for a greater reduction of cash values and death benefits than an all-base Contract with the same death benefit if we raise our current charges to the maximum contractual level. There would be a greater reduction because guaranteed maximum charges attributable to the basic insurance amount and the Target Term Rider coverage amount are the same except for the per $1,000 of insurance portion of the monthly administrative charge which extends for 10 years on the rider and only five years on the base Contract. There are various factors to consider regarding a Target Term Rider. Pruco Life of New Jersey pays significantly lower commissions on a Contract with a Target Term Rider than on an all base Contract with the same initial death benefit and premium payments. This may provide a financial incentive for your Pruco Life of New Jersey representative to promote the sale of a Contract without a Target Term Rider. However, not all Contract benefits and guarantees are available on Contracts issued with a Target Term Rider. For additional information, see RIDERS. The surrender charge does not apply to a Target Term Rider. Types of Death Benefit Available Under the Contract There are three types of death benefit available. You may choose a Contract with a Type A (fixed) death benefit under which the death benefit generally remains at the basic insurance amount you initially chose. However, the Contract Fund (described below) may grow to a point where the death benefit may increase and vary with investment experience. If you choose a Type B (variable) Contract, your death benefit will vary with investment experience. For Type A and Type B death benefits, as long as the Contract is in-force, the death benefit will never be less than the basic insurance amount shown in your Contract. If you choose a Contract with a Type C (return of premium) death benefit, the death benefit is generally equal to the basic insurance amount plus the total premiums paid into the Contract, less withdrawals. With any type of death benefit, the death benefit may be increased to ensure that the Contract will satisfy the Internal Revenue Code s definition of life insurance. You may change your Contract s death benefit type after issue, however, if you choose a Type A or Type B death benefit at issue, you will not be able to change to a Type C death benefit thereafter. See Types of Death Benefit and Changing the Type of Death Benefit. Death Benefit Guarantee Information We agree to keep your Contract in-force for a specified period, and guarantee that your Contract will not lapse as a result of unfavorable investment performance, as long as your total premiums (reduced to reflect withdrawals) accumulated at 4% interest are at least equal to the Death Benefit Guarantee Values shown in your Contract. If you have an outstanding Contract loan, a Death Benefit Guarantee will not keep the Contract in-force. See Withdrawals and Loans. There are three separate guarantee periods, each associated with a corresponding level of premium payments. For example, payment of the Short-Term Premium at the beginning of each Contract year guarantees that your Contract will not lapse during the first five Contract years, assuming no loans or withdrawals. If your Contract was issued with a Type A or Type B death benefit, and you are paying the Target Premium at the beginning of each Contract year, we will guarantee your Contract against lapse until the later of the insured's age 65 or for 10 years after issue, whichever comes later, assuming no loans or withdrawals. See Death Benefit Guarantee and PREMIUMS. Finally, if your Contract was issued with a Type A or Type B death benefit and you are paying the Lifetime Premium at the beginning of each Contract year, we will guarantee your Contract against lapse for the insured's lifetime, assuming no loans or withdrawals. Contracts with the Target Term Rider or a Type C death benefit will have a Death Benefit Guarantee only for the first five years. Unless the Death Benefit Guarantee is in effect, the Contract will go into default if the Contract Fund less any Contract debt and less any applicable surrender charges falls to zero or less. Your Pruco Life of New Jersey representative can tell you the premium amounts you will need to pay to maintain these guarantees. 4

9 The Contract Fund Your Contract Fund value changes daily, reflecting: (1) increases or decreases in the value of the variable investment options; (2) interest credited on any amounts allocated to the fixed rate option; (3) interest credited on any loan; and (4) the daily asset charge for mortality and expense risks assessed against the variable investment options. The Contract Fund value also changes to reflect the receipt of premium payments, charges deducted from premium payments, and the monthly deductions described under CHARGES AND EXPENSES. Premium Payments Except for the minimum initial premium, and subject to a minimum of $25 per subsequent payment, you choose the timing and amount of premium payments. The Contract will remain in-force if the Contract Fund less any applicable surrender charges is greater than zero and more than any Contract debt. Paying insufficient premiums, poor investment results, or the taking of loans or withdrawals from the Contract will increase the possibility that the Contract will lapse. However, if the premiums you paid, accumulated at an effective annual rate of 4%, less withdrawals also accumulated at 4% ( Accumulated Net Payments ) are at least equal to the amounts shown in the Table of Death Benefit Guarantee Values in your Contract Data pages, and there is no Contract debt, we guarantee that your Contract will not lapse, even if investment experience is very unfavorable and the Contract Fund drops below zero. The length of time that the guarantee against lapse is available depends on your Contract's death benefit type. See PREMIUMS, Death Benefit Guarantee, and LAPSE AND REINSTATEMENT. If you pay more premium than permitted under section 7702A of the Internal Revenue Code, your Contract would be classified as a Modified Endowment Contract, which would affect the federal income tax treatment of loans and withdrawals. For more information, see Modified Endowment Contracts. Allocation of Premium Payments When you apply for the Contract, you tell us how to allocate your premiums. You may change the way in which subsequent premiums are allocated by giving written notice to a Service Office or by telephoning a Service Office, provided you are enrolled to use the Telephone Transfer System. See Allocation of Premiums. On the later of the Contract date and the end of the valuation period in which the initial premium is received, we deduct the charge for sales expenses and the charge for taxes attributable to premiums from the initial premium. Then the first monthly deductions are made, and the remainder of the initial premium and any other net premium received in Good Order at the Payment Office (the address on your bill) during the short-term cancellation right ( free-look ) period will be allocated to the Money Market investment option. At the end of the free-look period, these funds will be transferred out of the Money Market investment option and allocated among the variable investment options and/or the fixed rate option according to your current premium allocation. The charge for sales expenses and the charge for taxes attributable to premiums will also apply to all subsequent premium payments. The remainder of each subsequent premium payment will be invested as of the end of the valuation period in which it is received in Good Order at the Payment Office, in accordance with the allocation you previously designated. Investment Choices You may choose to invest your Contract's premiums and its earnings in one or more of 25 available variable investment options. You may also invest in the fixed rate option. See The Funds and The Fixed Rate Option. You may transfer money among your investment choices, subject to restrictions. See Transfers/Restrictions on Transfers. We may add or remove variable investment options in the future. Transfers Among Investment Options You may, up to 12 times each Contract year, transfer amounts among the variable investment options or to the fixed rate option. Additional transfers may be made only with our consent. Currently, we allow you to make additional transfers. For the first 20 transfers in a calendar year, you may transfer amounts by proper written notice to a Service Office, or by telephone, provided you are enrolled to use the Telephone Transfer System. After you have submitted 20 transfers in a calendar year, we will accept subsequent transfer requests only if they are in a form acceptable to us, bear an original signature in ink, and are sent to us by U.S. regular mail. Multiple transfers that occur during the same day, but prior to the end of the valuation period for that day, will be counted as a single transfer. 5

10 We may charge an administrative transaction fee of up to $25 for each transfer made exceeding 12 in any Contract year. No transaction fee is currently charged in connection with a transfer, but we reserve the right to charge such a fee. While you also may transfer amounts from the fixed rate option, certain restrictions may apply. We reserve the right to prohibit transfer requests we determine to be disruptive to the investment option or to the disadvantage of other Contract owners. Restrictions will be applied uniformly and will not be waived. In addition, you may use our dollar cost averaging feature or our automatic rebalancing feature. For additional information, please see Transfers/Restrictions on Transfers, Dollar Cost Averaging, and Auto-Rebalancing. Increasing or Decreasing Basic Insurance Amount Subject to conditions determined by us, after the issue of the Contract and after the first Contract anniversary, you may increase the amount of insurance by increasing the basic insurance amount of the Contract. When you do this, you create an additional coverage segment. Each coverage segment will be subject to its own monthly deductions and surrender charge and will have its own surrender charge period beginning on that segment s effective date. See Increases in Basic Insurance Amount and Surrender Charges. Subject to certain limitations, you also have the option of decreasing the basic insurance amount of your Contract after the issue of the Contract. See Decreases in Basic Insurance Amount. For Contracts with more than one coverage segment, a decrease in basic insurance amount will reduce each coverage segment based on the proportion of the coverage segment amount to the total of all coverage segment amounts in effect just before the change. A decrease in basic insurance amount may result in a surrender charge. See Surrender Charges. We may decline a decrease in the basic insurance amount if we determine it would cause the Contract to fail to qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue Code. In addition, if the basic insurance amount is decreased, or a significant premium is paid in conjunction with an increase, there is a possibility that the Contract will be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits. We may decline a decrease in the basic insurance amount if the Contract Fund value is less than any applicable partial surrender charges. No administrative processing charge is currently being made in connection with either an increase or a decrease in basic insurance amount. However, we reserve the right to charge such a fee in an amount of up to $25. See CHARGES AND EXPENSES. Access to Contract Values A Contract may be surrendered for its cash surrender value (the Contract Fund minus any Contract debt and minus any applicable surrender charge) while the insured is living. To surrender a Contract, we may require you to deliver or mail the Contract with a written request in a form that meets our needs, to a Service Office. The cash surrender value of a Contract will be determined as of the end of the valuation period in which such a request is received in a Service Office. Surrender of a Contract may have tax consequences. See Surrender of a Contract and Tax Treatment of Contract Benefits. Under certain circumstances, you may withdraw a part of the Contract's cash surrender value without surrendering the Contract. The amount withdrawn must be at least $500. There is an administrative processing fee for each withdrawal which is the lesser of: (a) $25 and; (b) 2% of the withdrawal amount. Withdrawal of the cash surrender value may have tax consequences. See Withdrawals and Tax Treatment of Contract Benefits. Contract Loans You may borrow money from us using your Contract as security for the loan, provided the Contract is not in default. The maximum loan amount is equal to the sum of (1) 90% of the portion of the cash value attributable to the variable investment options, and (2) the balance of the cash value, provided the Contract is not in default. The cash value is equal to the Contract Fund less any surrender charge. A Contract in default has no loan value. There is no minimum loan amount. See Loans. 6

11 Canceling the Contract ( Free-Look ) Generally, you may return the Contract for a refund within 10 days after you receive it (or within any longer period of time required by state law). In general, you will receive a refund of all premium payments made. However, if applicable law permits a market value free-look, you will receive the greater of (1) the Contract Fund (which includes any investment results) plus the amount of any charges that have been deducted or (2) all premium payments made (including premium payments made more than 10 days after you receive the Contract, but within any longer free-look period of time required by state law). A Contract returned according to this provision shall be deemed void from the beginning. Contract Values are not Guaranteed SUMMARY OF CONTRACT RISKS Your benefits (including life insurance) are not guaranteed, and may be entirely dependent on the investment performance of the variable investment options you select. The value of your Contract Fund rises and falls with the performance of the investment options you choose and the charges that we deduct. Poor investment performance could cause your Contract to lapse and you could lose your insurance coverage. However, payment of the death benefit may be guaranteed under the Death Benefit Guarantee feature. The variable investment options you choose may not perform to your expectations. Investing in the Contract involves risks including the possible loss of your entire investment. Only the fixed rate option provides a guaranteed rate of return. For more detail, please see Risks Associated with the Variable Investment Options and The Fixed Rate Option. Increase in Charges In several instances we will use the terms maximum charge and current charge. The maximum charge, in each instance, is the highest charge that we may make under the Contract. The current charge, in each instance, is the amount that we now charge, which may be lower than the maximum charge. If circumstances change, we reserve the right to increase each current charge, up to the maximum charge, without giving any advance notice. Contract Lapse Each month we determine the value of your Contract Fund. If the Contract Fund less any applicable surrender charges is zero or less, the Contract is in default unless it remains in-force under the Death Benefit Guarantee. See Death Benefit Guarantee. Your Contract will also be in default if at any time the Contract debt equals or exceeds the Contract Fund less any applicable surrender charges. Should either event occur, we will notify you of the required payment to prevent your Contract from terminating. See Loans. Your payment must be received at the Payment Office within the 61-day grace period after the notice of default is mailed or the Contract will end and have no value. See LAPSE AND REINSTATEMENT. If you have an outstanding loan when your Contract lapses, you may have taxable income as a result. See Tax Treatment of Contract Benefits - Pre-Death Distributions. Risks of Using the Contract as a Short-Term Savings Vehicle Because the Contract provides for an accumulation of a Contract Fund as well as a death benefit, you may wish to use it for various insurance planning purposes. Purchasing the Contract for such purposes may involve certain risks. For example, a life insurance contract could play an important role in helping you to meet the future costs of a child s education. The Contract s death benefit could be used to provide for education costs should something happen to you, and its investment features could help you accumulate savings. However, if the variable investment options you choose perform poorly, if you do not pay sufficient premiums, or if you access the values in your Contract through withdrawals or Contract loans, your Contract may lapse or you may not accumulate the funds you need. The Contract is designed to provide benefits on a long-term basis. Consequently, you should not purchase the Contract as a short-term investment or savings vehicle. Because of the long-term nature of the Contract, you should consider whether purchasing the Contract is consistent with the purpose for which it is being considered. 7

12 Risks of Taking Withdrawals If your Contract meets certain requirements, you may make withdrawals from your Contract s cash surrender value while the Contract is in-force. The amount withdrawn must be at least $500. The withdrawal amount is limited by the requirement that the cash surrender value after withdrawal may not be less than or equal to zero after deducting any charges associated with the withdrawal and an amount that we estimate will be sufficient to cover the Contract Fund deductions for two Monthly dates following the date of withdrawal. There is a transaction fee for each withdrawal which is the lesser of: (a) $25 and; (b) 2% of the withdrawal amount. Withdrawal of the cash surrender value may have tax consequences. See Tax Treatment of Contract Benefits. Whenever a withdrawal is made, the death benefit will immediately be reduced by at least the amount of the withdrawal. Withdrawals under Type B (variable) and Type C (return of premium) Contracts will not change the basic insurance amount. However, under a Type A (fixed) Contract, the withdrawal may require a reduction in the basic insurance amount, and if the death benefit was increased to meet the definition of life insurance, a reduction in Target Term Rider coverage amount may be required. A surrender charge may be deducted when any withdrawal causes a reduction in the basic insurance amount. See CHARGES AND EXPENSES. No withdrawal will be permitted under a Type A (fixed) Contract if it would result in a basic insurance amount of less than the minimum basic insurance amount. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT. It is important to note, however, that if the basic insurance amount is decreased, there is a possibility that the Contract might be classified as a Modified Endowment Contract. Accessing the values in your Contract through withdrawals may significantly affect current and future Contract values or death benefit proceeds and may increase the chance that your Contract will lapse. Before making any withdrawal that causes a decrease in basic insurance amount, you should consult with your tax adviser and your Pruco Life of New Jersey representative. See Withdrawals and Tax Treatment of Contract Benefits. Limitations on Transfers You may, up to 12 times each Contract year, transfer amounts among the variable investment options or to the fixed rate option. We may charge up to $25 for each transfer made exceeding 12 in any Contract year. Additional transfers may be made only with our consent. Currently, we allow you to make additional transfers. For the first 20 transfers in a calendar year, you may transfer amounts by proper written notice to a Service Office, or by telephone, provided you are enrolled to use the Telephone Transfer System. We use reasonable procedures to confirm that instructions given by telephone are genuine. However, we are not liable for following telephone instructions that we reasonably believe to be genuine. In addition, we 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. After you have submitted 20 transfers in a calendar year, we will accept subsequent transfer requests only if they are in a form acceptable to us, bear an original signature in ink, and are sent to us by U.S. regular mail. After you have submitted 20 transfers in a calendar year, a subsequent transfer request by telephone, fax, or electronic means will be rejected, even in the event that it is inadvertently processed. Currently, certain transfers effected systematically under either a dollar cost averaging or an automatic rebalancing program described in this prospectus do not count towards the limit of 12 transfers per Contract year or the limit of 20 transfers per calendar year. In the future, we may count such transfers towards the limit. Multiple transfers that occur during the same day, but prior to the end of the valuation period for that day, will be counted as a single transfer. Generally, only one transfer from the fixed rate option is permitted during each Contract year. The maximum amount per Contract you may transfer out of the fixed rate option each year is the greater of: (a) 25% of the amount in the fixed rate option; and (b) $2,000. We may modify your right to make transfers by restricting the number, timing and/or amount of transfers we find to be disruptive to the investment option or to the disadvantage of other Contract owners. We also reserve the right to prohibit transfer requests made by an individual acting under a power of attorney on behalf of more than one Contract owner. We will immediately notify you at the time of a transfer request if we exercise this right. Restrictions will be applied uniformly and will not be waived. See Transfers/Restrictions on Transfers. Limitations and Charges on Surrender of the Contract You may surrender your Contract at any time for its cash surrender value while the insured is living. We deduct a surrender charge from the surrender proceeds. In addition, the surrender of your Contract may have tax consequences. See Tax Treatment of Contract Benefits. 8

13 We will assess a surrender charge if, during the first 10 Contract years (or during the first 10 years of a coverage segment representing an increase in basic insurance amount), the Contract lapses, is surrendered, or the basic insurance amount is decreased (including as a result of a withdrawal or a death benefit type change). The surrender charge varies and is calculated as described in Surrender Charges. While the amount of the surrender charge decreases over time, it may be a substantial portion or even equal to your Contract Fund. Risks of Taking a Contract Loan Accessing the values in your Contract through Contract loans may significantly affect current and future Contract values or death benefit proceeds and may increase the chance that your Contract will lapse. Your Contract will be in default if, at any time, the Contract debt equals or exceeds the Contract Fund less any applicable surrender charges, even if the Death Benefit Guarantee is in effect. If the Contract lapses or is surrendered, the amount of unpaid Contract debt will be treated as a distribution and will be immediately taxable to the extent of the gain in the Contract. In addition, if your Contract is a Modified Endowment Contract for tax purposes, taking a Contract loan may have tax consequences. See Tax Treatment of Contract Benefits. Tax Consequences of Buying this Contract Your Contract is structured to meet the definition of life insurance under Section 7702 of the Internal Revenue Code. At issue, the Contract owner chooses one of the following definition of life insurance tests: (1) Cash Value Accumulation Test or (2) Guideline Premium Test. Under the Cash Value Accumulation Test, there is a minimum death benefit to cash value ratio. Under the Guideline Premium Test, there is a limit to the amount of premiums that can be paid into the Contract, as well as a minimum death benefit to cash value ratio. Consequently, we reserve the right to refuse to accept a premium payment that would, in our opinion, cause this Contract to fail to qualify as life insurance. We also have the right to refuse to accept any payment that increases the death benefit by more than it increases the Contract Fund. Although we believe that the Contract should qualify as life insurance for tax purposes, there are some uncertainties, particularly because the Secretary of Treasury has not yet issued permanent regulations that bear on this question. Accordingly, we reserve 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 qualify as life insurance. Current federal tax law generally excludes all death benefits from the gross income of the beneficiary of a life insurance contract. However, your death benefit could be subject to estate tax. In addition, you generally are not subject to taxation on any increase in the Contract value until it is withdrawn. Generally, you are taxed on surrender proceeds and the proceeds of any partial withdrawals only if those amounts, when added to all previous distributions, exceed the total premiums paid. Amounts received upon surrender or withdrawal (including any outstanding Contract loans) in excess of premiums paid are treated as ordinary income. Special rules govern the tax treatment of life insurance policies that meet the federal definition of a Modified Endowment Contract. The Contract could be classified as a Modified Endowment Contract if premiums in amounts that are too large are paid or a decrease in the basic insurance amount is made (or a rider removed). The addition of a rider or an increase in the basic insurance amount may also cause the Contract to be classified as a Modified Endowment Contract if a significant premium is paid in conjunction with an increase or the addition of a rider. We will notify you if a premium or a reduction in basic insurance amount would cause the Contract to become a Modified Endowment Contract, and advise you of your options. Under current tax law, death benefit payments under Modified Endowment Contracts, like death benefit payments under other life insurance contracts, generally are excluded from the gross income of the beneficiary. However, amounts you receive under the Contract before the insured's death, including loans and withdrawals, are included in income to the extent that the Contract Fund before surrender charges exceeds the premiums paid for the Contract increased by the amount of any loans previously included in income and reduced by any untaxed amounts previously received other than the amount of any loans excludible from income. An assignment of a Modified Endowment Contract is taxable in the same way. These rules also apply to pre-death distributions, including loans and assignments, made during the twoyear period before the time that the Contract became a Modified Endowment Contract. All Modified Endowment Contracts issued by us to you during the same calendar year are treated as a single Contract for purposes of applying these rules. See Tax Treatment of Contract Benefits. Any taxable income on pre-death distributions (including full surrenders) is subject to a penalty of 10 percent unless the amount is received on or after age 59½, on account of your becoming disabled or as a life annuity. It is presently unclear how the penalty tax provisions apply to Contracts owned by businesses. 9

14 Replacement of the Contract The replacement of life insurance is generally not in your best interest. In most cases, if you require additional life insurance coverage, the benefits of your existing contract can be protected by increasing the insurance amount of your existing contract, or by purchasing an additional contract. If you are considering replacing a contract, you should compare the benefits and costs of supplementing your existing contract with the benefits and costs of purchasing a new contract and you should consult with a tax adviser. SUMMARY OF RISKS ASSOCIATED WITH THE VARIABLE INVESTMENT OPTIONS You may choose to invest your Contract's premiums and its earnings in one or more of 25 available variable investment options. You may also invest in the fixed rate option. The fixed rate option is the only investment option that offers a guaranteed rate of return. See The Funds and The Fixed Rate Option. Risks Associated with the Variable Investment Options The separate account invests in the shares of one or more open-end management investment companies registered under the Investment Company Act of Each variable investment option has its own investment objective and associated risks, which are described in the accompanying Fund prospectuses. The income, gains, and losses of one variable investment option have no effect on the investment performance of any other variable investment option. We do not promise that the variable investment options will meet their investment objectives. Amounts you allocate to the variable investment options may grow in value, decline in value or grow less than you expect, depending on the investment performance of the variable investment options you choose. You bear the investment risk that the variable investment options may not meet their investment objectives. It is possible to lose your entire investment in the variable investment options. Although the Series Fund Money Market Portfolio is designed to be a stable investment option, it is possible to lose money in that Portfolio. For example, when prevailing short-term interest rates are very low, the yield on the Money Market Portfolio may be so low that, when separate account and Contract charges are deducted, you experience a negative return. See The Funds. Learn More about the Variable Investment Options Before allocating amounts to the variable investment options, you should read the current Fund prospectuses for detailed information concerning their investment objectives, strategies, and investment risks. GENERAL DESCRIPTIONS OF THE REGISTRANT, DEPOSITOR, AND PORTFOLIO COMPANIES Pruco Life Insurance Company of New Jersey Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey", us, we, or our ) is a stock life insurance company, organized on September 17, 1982 under the laws of the state of New Jersey. It is licensed to sell life insurance and annuities only in the states of New Jersey and New York. Pruco Life of New Jersey s principal Executive Office is located at 213 Washington Street, Newark, New Jersey The Pruco Life of New Jersey Variable Appreciable Account Pruco Life of New Jersey has established a separate account, the Pruco Life of New Jersey Variable Appreciable Account (the "Account") to hold the assets that are associated with the Contracts. The Account was established on January 13, 1984 under New Jersey law and is registered with the Securities and Exchange Commission ( SEC ) under the Investment Company Act of 1940 as a unit investment trust, which is a type of investment company. 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 of New Jersey's other assets. Pruco Life of New Jersey is the legal owner of the assets in the Account. Pruco Life of New Jersey 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 Contracts. In addition to these assets, the Account's assets may include funds contributed by Pruco Life of New Jersey to commence operation of the Account and may include accumulations of the charges we make against the Account. From time to time these additional assets will be transferred to Pruco Life of New Jersey's general 10

15 account. Pruco Life of New Jersey will consider any possible adverse impact the transfer might have on the Account before making any such transfer. Income, gains and losses credited to, or charged against, the Account reflect the Account s own investment experience and not the investment experience of Pruco Life of New Jersey s other assets. The assets of the Account may not be charged with liabilities that arise from any other business Pruco Life of New Jersey conducts. The obligations to Contract owners and beneficiaries arising under the Contracts are general corporate obligations of Pruco Life of New Jersey. Currently, you may invest in one or a combination of 25 available variable investment options. When you choose a variable investment option, we purchase shares of a mutual fund or a separate investment series of a mutual fund which are held as an investment for that option. We hold these shares in the Account. We may remove or add additional variable investment options in the future. The Account s financial statements are available in the Statement of Additional Information to this prospectus. The Funds Each of these Funds is detailed in separate prospectuses that are provided with this prospectus. You should read the Fund prospectuses before you decide to allocate assets to the variable investment options using that Fund. There is no assurance that the investment objectives of the variable investment options will be met. Listed below are the variable investment options in which the Account invests, their investment objectives, investment advisers and investment subadvisers: The Prudential Series Fund (the Series Fund ): Diversified Bond Portfolio: The investment objective is a high level of income over a longer term while providing reasonable safety of capital. The Portfolio normally invests at least 80% of its investable assets in high-grade debt obligations and high-quality money market investments. The Portfolio may invest up to 20% of its total assets in debt securities issued outside the U.S., by U.S. or foreign issuers whether or not such securities are denominated in the U.S. dollar. Equity Portfolio: The investment objective is long-term growth of capital. The Portfolio normally invests at least 80% of its investable assets in common stock of major established companies, as well as smaller companies that we believe offer attractive prospects of appreciation. The Portfolio may invest up to 30% of its total assets in foreign securities. Global Portfolio: The investment objective is long-term growth of capital. The Portfolio invests primarily in common stocks (and their equivalents) of foreign and U.S. companies. High Yield Bond Portfolio: The investment objective is a high total return. The Portfolio normally invests at least 80% of its investable assets in high-yield/high-risk debt securities. The Portfolio may invest up to 20% of its total assets in foreign debt obligations. Jennison Portfolio: The investment objective is long-term growth of capital. The Portfolio invests primarily in equity securities of major, established corporations that we believe offer above-average growth prospects. The Portfolio may invest up to 30% of its total assets in foreign securities. Money Market Portfolio: The investment objective is maximum current income consistent with the stability of capital and the maintenance of liquidity. The Portfolio invests in high- quality short-term money market instruments issued by the U.S. Government or its agencies, as well as by corporations and banks, both domestic and foreign. Stock Index Portfolio: The investment objective is investment results that generally correspond to the performance of publicly-traded common stocks. The Portfolio attempts to duplicate the price and yield of the Standard & Poor s 500 Composite Stock Price Index (the S&P 500 Index ) by investing at least 80% of its investable assets in S&P 500 stocks. SP Aggressive Growth Asset Allocation Portfolio: The investment objective is capital appreciation. The Portfolio invests primarily in domestic equity portfolios and international equity portfolios. SP AIM Core Equity Portfolio: The investment objective is growth of capital. The Portfolio invests at least 80% of its investable assets in equity securities, including convertible securities of established companies that have longterm above-average growth in earnings, and growth companies that the Portfolio managers believe have the 11

16 potential for above-average growth in earnings. The Portfolio may invest up to 20% of its total assets in foreign securities. SP Balanced Asset Allocation Portfolio: The investment objective is to provide a balance between current income and growth of capital. The Portfolio invests primarily in domestic equity portfolios, fixed income portfolios, and international equity portfolios. SP Conservative Asset Allocation Portfolio: The investment objective is to provide current income with low to moderate capital appreciation. The Portfolio invests primarily in domestic equity portfolios, fixed income portfolios, and international equity portfolios. SP Davis Value Portfolio: The investment objective is growth of capital. The Portfolio invests primarily in common stock of U.S. companies with market capitalizations of at least $5 billion. SP Growth Asset Allocation Portfolio: The investment objective is long-term growth of capital with consideration also given to current income. The Portfolio invests primarily in domestic equity portfolios, fixed income portfolios, and international equity portfolios. SP Large Cap Value Portfolio: The investment objective is long-term growth of capital. The Portfolio normally invests at least 80% of its investable assets in common stocks and securities convertible into common stock of companies with a total market capitalization of $5 billion or more. SP LSV International Value Portfolio: The investment objective is long-term capital appreciation. The Portfolio normally invests at least 80% of its investable assets in the equity securities of companies in developed countries outside the United States that are represented in the MSCI EAFE Index. SP Mid Cap Growth Portfolio: The investment objective is long-term growth of capital. The Portfolio normally invests at least 80% of its investable assets in common stocks and related securities, such as preferred stocks, convertible securities, and depositary receipts for those securities of companies with medium market capitalizations equaling or exceeding $250 million, but not exceeding the Russell Midcap TM Growth Index range at the time of investment. The Portfolio may invest in foreign securities (including emerging markets securities). SP PIMCO High Yield Portfolio: The investment objective is maximum total return, consistent with preservation of capital and prudent investment management. The Portfolio normally invests at least 80% of its investable assets in a diversified portfolio of high yield/high risk debt securities rated below high grade, but rated at least CCC by Moody s Investor Service, Inc. or Standard & Poor s Ratings Group ( S&P ), or, if unrated, determined by Pacific Investment Management Company ( PIMCO ) to be of comparable quality, subject to a maximum of 5% of its total assets invested in securities rated CCC. The Portfolio may invest up to 15% of its assets in non - U.S. denominated securities. SP PIMCO Total Return Portfolio: The investment objective is maximum total return, consistent with preservation of capital and prudent investment management. The Portfolio normally invests at least 65% of its assets in a diversified portfolio of fixed income instruments of varying maturities. SP Prudential U.S. Emerging Growth Portfolio: The investment objective is long-term capital appreciation. The Portfolio normally invests at least 80% of its investable assets in equity securities of small and medium sized U.S. companies that the adviser believes have the potential for above-average growth. SP Small Cap Growth Portfolio: The investment objective is long-term capital growth. The Portfolio normally invests at least 80% of its investable assets in common stocks of small-capitalization companies - those which have market capitalizations no larger than the largest capitalized company included in the Russell 2000 Index during the most recent 11- month period, plus the most recent data during the current month. SP Small Cap Value Portfolio (formerly SP Goldman Sachs Small Cap Value Portfolio): The investment objective is long-term growth of capital. The Portfolio normally invests at least 80% of its investable assets in equity securities of small capitalization companies with market capitalizations that do not exceed the greater of: $4 billion, or the highest month end market capitalization value of any common stock in the Russell 2000 Index during the preceding 12 months. The Portfolio may invest up to 25% of its assets in foreign securities. SP Strategic Partners Focused Growth Portfolio: The investment objective is long-term growth of capital. The Portfolio normally invests at least 65% of its total assets in equity-related securities of U.S. companies that the advisers believe to have strong capital appreciation potential. 12

17 SP T. Rowe Price Large Cap Growth Portfolio (formerly SP AllianceBernstein Large Cap Growth Portfolio): The investment objective is long-term growth of capital. The Portfolio invests at least 80% of its investable assets in common stocks of large cap companies. The Portfolio may invest up to 15% of its total assets in foreign securities. SP William Blair International Growth Portfolio: The investment objective is long-term growth of capital. The Portfolio normally invests at least 65% of its total assets in the common stock of foreign companies operating or based in at least five different countries. Prudential Investments LLC ( PI ), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the overall investment adviser for the Series Fund. PI will furnish investment advisory services in connection with the management of the Series Fund portfolios under a manager-of-managers approach. Under this structure, PI is authorized to select (with approval of the Series Fund s independent directors) one or more subadvisers to handle the actual day-to-day investment management of each Portfolio. PI is located at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey Jennison Associates LLC ( Jennison ), an indirect, wholly-owned subsidiary of Prudential Financial, Inc., serves as the subadviser for the Jennison Portfolio and the SP Prudential U.S. Emerging Growth Portfolio. Jennison serves as a subadviser for approximately 50% of the assets of the Equity Portfolio and for a portion of the SP Strategic Partners Focused Growth Portfolio. Jennison is located at 466 Lexington Avenue, New York, New York Prudential Investment Management, Inc. ( PIM ), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the subadviser for the Diversified Bond Portfolio, the High Yield Bond Portfolio, and the Money Market Portfolio. PIM is located at Gateway Center Two, 100 Mulberry Street, Newark, New Jersey Quantitative Management Associates LLC ( QMA ), an indirect, wholly-owned subsidiary of PIM, serves as the subadviser for the Stock Index Portfolio. QMA is located at Gateway Center Two, 100 Mulberry Street, Newark, New Jersey A I M Capital Management, Inc. ("A I M Capital") serves as the subadviser for the SP AIM Core Equity Portfolio. A I M Capital is located at 11 Greenway Plaza, Suite 100, Houston, Texas Alliance Capital Management, L.P. ("AllianceBernstein") serves as the subadviser for the SP AllianceBernstein Large Cap Growth Portfolio and a portion of the SP Strategic Partners Focused Growth Portfolio. AllianceBernstein is located at 1345 Avenue of the Americas, New York, New York Calamos Advisors LLC ( Calamos ) serves as the subadviser for the SP Mid Cap Growth Portfolio. Calamos, a registered investment advisor, is a wholly-owned subsidiary of Calamos Holdings LLC. Calamos is located at 1111 E. Warrenville Road, Naperville, Illinois Davis Advisers ( Davis ) serves as the subadviser for the SP Davis Value Portfolio. Davis is located at 2949 East Elvira Road, Suite 101, Tucson, Arizona Eagle Asset Management ( Eagle ) serves as subadviser for approximately 50% of the assets of the SP Small Cap Growth Portfolio. Eagle is a wholly-owned subsidiary of Raymond James Financial, Inc. Eagle is located at 880 Carillon Parkway, St. Petersburg, Florida Goldman Sachs Asset Management, L.P. ( GSAM ) serves as a subadviser for a portion of the assets of the SP Small Cap Value Portfolio. GSAM is a unit of the Investment Management Division of Goldman, Sachs & Co. ( Goldman Sachs ). GSAM is located at 32 Old Slip, 23rd Floor, New York, New York Hotchkis and Wiley Capital Management LLC ( Hotchkis and Wiley ) serves as the subadviser for approximately 50% of the assets of the SP Large Cap Value Portfolio. Hotchkis and Wiley is a registered investment adviser. Hotchkis and Wiley is located at 725 South Figueroa Street, Suite 3900, Los Angeles, California J.P. Morgan Investment Management, Inc. ( J.P. Morgan ) serves as the subadviser for approximately 50% of the assets of the SP Large Cap Value Portfolio. J.P. Morgan is an indirect, wholly-owned subsidiary of J.P. Morgan Chase & Co., a publicly held bank holding company and global financial services firm. J.P. Morgan is located at 522 Fifth Avenue, New York, New York LSV Asset Management ( LSV ) serves as the subadviser for the SP LSV International Value Portfolio and serves as a subadviser for approximately 25% of the assets of the Global Portfolio. LSV is located at One North Wacker Drive, Suite 4000, Chicago, Illinois

18 Marsico Capital Management, LLC ( Marsico ) serves as a subadviser for approximately 25% of the assets of the Global Portfolio. Marsico is an indirect, wholly-owned subsidiary of Bank of America Corporation. Marsico is located at th Street, Suite 1600, Denver, Colorado Neuberger Berman Management, Inc. ( Neuberger Berman ) serves as subadviser for approximately 50% of the assets of the SP Small Cap Growth Portfolio. Neuberger Berman is a wholly owned subsidiary of Neuberger Berman Inc. ( NBI ), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc. ("LBHI"). Neuberger Berman is located at 605 Third Avenue, New York, New York Pacific Investment Management Company LLC ( PIMCO ) serves as the subadviser for the SP PIMCO High Yield Portfolio and the SP PIMCO Total Return Portfolio. PIMCO is a majority-owned subsidiary of Allianz Global Investors of America L.P. ( AGI LP ). PIMCO is located at 840 Newport Center Drive, Newport Beach, California Salomon Brothers Asset Management, Inc. ( SaBAM ) serves as the subadviser for approximately 50% of the assets of the Equity Portfolio. SaBAM is a wholly-owned subsidiary of Legg Mason, Inc. SaBAM is located at 399 Park Avenue, New York, New York T. Rowe Price Associates, Inc. ( T. Rowe Price ) serves as a subadviser for approximately 25% of the assets of the Global Portfolio. T. Rowe Price is located at 100 East Pratt Street, Baltimore, Maryland William Blair & Company LLC ( William Blair ) serves as the subadviser for the SP William Blair International Growth Portfolio and serves as a subadviser for approximately 25% of the assets of the Global Portfolio. William Blair is located at 222 West Adams Street, Chicago, Illinois The SP Aggressive Growth Asset Allocation Portfolio, the SP Balanced Asset Allocation Portfolio, the SP Conservative Asset Allocation Portfolio, and the SP Growth Asset Allocation Portfolio, each invests only in shares of other underlying Fund portfolios, which are managed by the subadvisers of those portfolios. As an investment adviser, PI charges the Series Fund a daily investment management fee as compensation for its services. PI pays each subadviser out of the fee that PI receives from the Series Fund. Janus Aspen Series: Large Cap Growth Portfolio - Service Shares. The investment objective is long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio invests at least 80% of its net assets in common stocks of large-sized companies. Large-sized companies are those whose market capitalization falls within the range of companies in the Russell 1000 Index at the time of purchase. Janus Capital Management LLC ( Janus Capital ) is the investment adviser and is responsible for the day-to-day management of the Portfolio and other business affairs of the Portfolio. Janus Capital is located at 151 Detroit Street, Denver, Colorado The investment advisers or subadvisers for the Funds charge a daily investment management fee as compensation for their services. These fees are more fully described in the prospectus for each Fund. In the future, it may become disadvantageous for separate accounts of variable life insurance and variable annuity contracts to invest in the same underlying variable investment options. Neither the companies that invest in the Funds nor the Funds currently foresee any such disadvantage. The Board of Directors for each Fund 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. 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 variable investment option; or (4) differences between voting instructions given by variable life insurance and variable annuity Contract owners. A fund or portfolio may have a similar name, investment objective, or investment policy resembling those of a mutual fund managed by the same investment adviser or subadviser that is sold directly to the public. Despite such similarities, there can be no assurance that the investment performance of any such fund or portfolio will resemble that of the publicly available mutual fund. 14

19 Service Fees Payable to Pruco Life of New Jersey Pruco Life of New Jersey has entered into agreements with the investment adviser or distributor of the underlying funds. Under the terms of these agreements, Pruco Life of New Jersey provides administrative and support services to the portfolios for which it receives an annual fee that, as of May 1, 2006, ranges from 0.05% to 0.25% of the average assets allocated to the Fund or portfolio under the Contract from the investment adviser, distributor and/or the Fund. These agreements, including the fees paid and services provided, can vary for each underlying mutual fund whose portfolios are offered as investment options. Voting Rights We are the legal owner of the shares of the mutual funds associated with the variable investment options. However, we vote the shares of the mutual funds according to voting instructions we receive from Contract owners. We will mail you a proxy, which is a form you need to complete and return to us, to tell us how you wish us to vote. When we receive those instructions, we will vote all of the shares we own on your behalf in accordance with those instructions. We vote shares for which we do not receive instructions, and any other shares that we own in our own right, in the same proportion as the shares for which instructions are received. We may change the way your voting instructions are calculated if it is required by federal or state regulation. We may also elect to vote shares that we own in our own right if the applicable federal securities laws or regulations, or their current interpretation, change so as to permit us to do so. We may, if required by state insurance regulations, disregard voting instructions if they would require shares to be voted so as to cause a change in the sub-classification or investment objectives of one or more variable investment options or to approve or disapprove an investment advisory contract for the Fund. In addition, we may disregard voting instructions that would require changes in the investment policy or investment adviser of one or more of the variable investment options, provided that we reasonably disapprove such changes in accordance with applicable federal or state regulations. If we disregard Contract owner voting instructions, we will advise Contract owners of our action and the reasons for such action in the next available annual or semi-annual report. Substitution of Variable Investment Options We may substitute one or more of the variable investment options. We may also cease to allow investments in any existing variable investment options. We do this only if events such as investment policy changes or tax law changes make a variable investment option unsuitable. We would not do this without the approval of the Securities and Exchange Commission and necessary state insurance department approvals. You will be given specific notice in advance of any substitution we intend to make. The Fixed Rate Option You may choose to invest, initially or by transfer, all or part of your Contract Fund to the fixed rate option. This amount becomes part of Pruco Life of New Jersey 's general account. The general account consists of all assets owned by Pruco Life of New Jersey other than those in the Account and in other separate accounts that have been or may be established by Pruco Life of New Jersey. Subject to applicable law, Pruco Life of New Jersey has sole discretion over the investment of the general account assets, and Contract owners do not share in the investment experience of those assets. Instead, Pruco Life of New Jersey 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 of New Jersey declares periodically, but not less than an effective annual rate of 4%. Pruco Life of New Jersey is not obligated to credit interest at a rate higher than an effective annual rate of 4%, although we may do so. Transfers out of the fixed rate option are subject to strict limits. See Transfers/Restrictions on Transfers. The payment of any cash surrender value attributable to the fixed rate option may be delayed up to six months. See When Proceeds Are Paid. 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 Accordingly, interests in the fixed rate option are not subject to the provisions of these Acts, and Pruco Life of New Jersey has been advised that the staff of the SEC 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, be subject to certain generally applicable provisions of federal securities laws. CHARGES AND EXPENSES The total amount invested in the Contract Fund, at any time, consists of the sum of the amount credited to the variable investment options, the amount allocated to the fixed rate option, plus any interest credited on amounts allocated to the 15

20 fixed rate option, and the principal amount of any Contract loan plus the amount of interest credited to the Contract upon that loan. See Loans. Most charges, although not all, are made by reducing the Contract Fund. In several instances we use the terms "maximum charge" and "current charge." The "maximum charge", in each instance, is the highest charge that we may make under the Contract. The "current charge", in each instance, is the amount that we now charge, which may be lower than maximum charges. If circumstances change, we reserve the right to increase each current charge, up to the maximum charge, without giving any advance notice. Current charges deducted from premium payments and the Contract Fund may change from time to time, subject to maximum charges. In deciding whether to change any of these current charges, we will periodically consider factors such as mortality, persistency, expenses, taxes and interest and/or investment experience to see if a change in our assumptions is needed. Charges for taxes attributable to premiums will be set at one rate for all Contracts like this one. Changes in other charges will be by class. We will not recoup prior losses or distribute prior gains by means of these changes. This section provides a more detailed description of each charge that is described briefly in the charts beginning on page 1. Sales Load Charges We may charge up to 6% of premiums paid for sales expenses in all Contract years. This charge, often called a sales load, is deducted to compensate us for the costs of selling the Contracts, including commissions, advertising and the printing and distribution of prospectuses and sales literature. Our current sales load charge is 4% of premiums paid up to the amount of the Sales Load Target Premium and 2% of premiums paid in excess of this amount for the first 10 Contract years (or the first 10 years of a coverage segment representing an increase in basic insurance amount), and 0% thereafter. The Sales Load Target Premium may vary from the Target Premium, depending on the issue age and rating class of the insured, any extra risk charges, or additional riders. For Contracts issued on an unrated insured below age 56, the Sales Load Target Premium is generally equal to what the Target Premium for a Type A Contract would be if the insured was either in the Nonsmoker or Smoker rating class, and there were no extra risk charges or riders on the Contract. For Contracts issued on an unrated insured below age 56 in a more favorable rating class, the Sales Load Target Premium will be greater than the Target Premium, if there are no extra risk charges or riders on the Contract. For Contracts issued on insureds age 56 or greater or with substandard ratings, the Sales Load Target Premium will generally be less than the Target Premium. See PREMIUMS. Paying more than the Sales Load Target Premium in any of the first 10 Contract years could reduce your total sales load. For example, assume that a Contract with no riders or extra insurance charges has a Sales Load Target Premium of $ and the Contract owner would like to pay 10 premiums. If the Contract owner paid $1,768 (two times the amount of the Sales Load Target Premium) in every other Contract year up to the ninth year (i.e. in years 1, 3, 5, 7, 9), the total sales load charge would be $ If the Contract owner paid $ in each of the first 10 Contract years, the total sales load would be $ Attempting to structure the timing and amount of premium payments to reduce the potential sales load may increase the risk that your Contract will lapse without value. Delaying the payment of premium amounts to later years will adversely affect the Death Benefit Guarantee if the accumulated premium payments do not reach the Death Benefit Guarantee Values shown on your Contract Data pages. See Death Benefit Guarantee. In addition, there are circumstances where payment of premiums that are too large may cause the Contract to be characterized as a Modified Endowment Contract, which could be significantly disadvantageous. See Tax Treatment of Contract Benefits. Taxes Attributable to Premiums We may charge up to 7.5% for taxes attributable to premiums. For these purposes, taxes attributable to premiums includes any federal, state or local income, premium, excise, business tax or any other type of charge (or component thereof) measured by or based upon the amount of premium we receive. This charge is made up of two parts, which currently equal a total of 3.75% of the premiums received. The first part is a charge for state and local premium taxes. The current amount for this first part is 2.5% of the premium and is our estimate of the average burden of state taxes generally. Tax rates vary from jurisdiction to jurisdiction and generally range from 0% to 5%. The rate applies uniformly to all Contract owners without regard to location of residence. We may collect more for this charge than we actually pay for state and local premium taxes. 16

21 The second part is a charge for federal income taxes measured by premiums. The current amount for this second part is 1.25% of the premium. We believe that this charge is a reasonable estimate of an increase in Pruco Life of New Jersey s federal income taxes resulting from a change in the Internal Revenue Code. It is intended to recover this increased tax. Under current law, we may incur state and local taxes (in addition to premium taxes) in several states. Currently, 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, we may impose a corresponding charge against the Account. Cost of Insurance We deduct, monthly, a cost of insurance ("COI") charge proportionately (or as you directed, see Allocated Charges) from the dollar amounts held in each of the chosen investment options. The purpose of this charge is to provide insurance coverage. When an insured dies, the amount payable to the beneficiary (assuming there is no Contract debt) is larger than the Contract Fund - significantly larger if the insured dies in the early years of a Contract. The cost of insurance charges collected from all Contract owners enables us to pay this larger death benefit. The maximum COI charge is determined by multiplying the amount by which the Contract s death benefit exceeds the Contract Fund ("net amount at risk") under a Contract by maximum COI rates. The net amount at risk is affected by factors such as: investment performance, premium payments, and charges. The maximum COI rates are based upon the 1980 Commissioners Standard Ordinary ("CSO") Mortality Tables and an insured's current attained age, sex (except where unisex rates apply), smoker/non-smoker status, and extra rating class, if any. At most ages, our current COI rates are lower than the maximum rates. Current COI charges range from $0.03 to $83.34 per $1,000 of net amount at risk. For additional information regarding COI charges where there are two or more coverage segments in effect, see Increases in Basic Insurance Amount. Monthly Deductions from the Contract Fund We deduct the following monthly charges proportionately from the dollar amounts held in each of the chosen investment option[s] or you may select up to two variable investment options from which we deduct your Contract's monthly charges. See Allocated Charges. (a) We deduct an administrative charge based on the basic insurance amount. This charge is made up of two parts and is intended to compensate us for things like processing claims, keeping records, and communicating with Contract owners. Currently, the first part is $20 per Contract for the first two Contract years and $8 per Contract thereafter. However, we may charge up to $20 per Contract for the first two Contract years and $10 per Contract thereafter. Currently, the second part is an amount of up to $1.12 per $1,000 of the basic insurance amount for the first five Contract years and zero thereafter. The amount per $1,000 of basic insurance amount varies by sex, issue age, smoker/nonsmoker status, and extra rating class, if any. (b) If the Contract includes a coverage segment representing an increase in basic insurance amount, we deduct $12 per segment representing an increase in basic insurance amount for the first two years of each coverage segment and zero thereafter; plus, we currently charge up to $1.12 per $1,000 of each coverage segment for an increase in basic insurance amount for the first five years from the effective date of the increase and zero thereafter. The amount per $1,000 of increase in basic insurance amount varies by sex, issue age, smoker/nonsmoker status, extra rating class, if any, and the effective date of the increase. In either of the instances described above, the highest charge per thousand is $1.12 and applies to male and female smoker and non-smoker above age 74 at certain rating classes. The lowest charge per thousand is $0.03 and applies to female age 0-14, non-smoker at certain rating classes. The amount of the maximum charge that applies to a particular Contract is shown on the Contract Data pages under the heading Adjustments to the Contract Fund. The following table provides sample per thousand charges: Issue Age Male Male Female Female Non-Smoker Smoker Non-Smoker Smoker 35 $0.14 $0.23 $0.12 $ $0.24 $0.34 $0.19 $ $0.40 $0.45 $0.31 $ $0.67 $0.76 $0.53 $0.70 (c) You may add one or more riders to the Contract. Some riders are charged for separately. If you add such a rider to the basic Contract, additional charges will be deducted. See Charges for Optional Rider Coverage. 17

22 (d) If an insured is in a substandard risk classification (for example, a person with a health condition), additional charges will be deducted. The earnings of the Account are taxed as part of the operations of Pruco Life of New Jersey. Currently, no charge is being made to the Account for Pruco Life of New Jersey s federal income taxes, other than the 1.25% charge for federal income taxes measured by premiums. See Taxes Attributable to Premiums. We periodically review the question of a charge to the Account for Pruco Life of New Jersey s federal income taxes. We may charge such a fee in the future for any federal income taxes that would be attributable to the Contracts. Daily Deduction from the Variable Investment Options Each day we deduct a charge from the assets of the variable investment options in an amount equivalent to an effective annual rate of up to 0.45%. Currently, we charge 0.25%. This charge is intended to compensate us for assuming mortality and expense risks under the Contract. The mortality risk we assume is that insureds may live for shorter periods of time than we estimated when mortality charges were determined. The expense risk we assume is that expenses incurred in issuing and administering the Contract will be greater than we estimated in fixing our administrative charges. This charge is not assessed against amounts allocated to the fixed rate option. Surrender Charges We assess a surrender charge if, during the first 10 Contract years (or during the first 10 years of a coverage segment representing an increase in basic insurance amount), the Contract lapses, is surrendered, or the basic insurance amount is decreased (including as a result of a withdrawal or a death benefit type change). These surrender charges compensate us for costs associated with the Contracts, such as: processing applications, conducting examinations, determining insurability and the insured s rating class, and establishing records. The surrender charge is a percentage of the first year s Sales Load Target Premium, less premiums for riders, and is determined at the time the Contract is issued. A separate surrender charge is based on the first year s Sales Load Target Premium for each new coverage segment and is determined at the time each new coverage segment is issued. The percentage and duration of a surrender charge vary by issue age. For all issue ages 0-45, the maximum first year percentage is 90% of the Sales Load Target Premium, less premiums for riders, and is reduced annually at a constant rate to zero by the end of the 10 th Contract year. While the amount of the surrender charge decreases over time, it may be a substantial portion of, or even equal to, your Contract Fund. The chart below shows maximum percentages for all ages at the beginning of the first Contract year and the end of the last Contract year that a surrender charge may be payable. We do not deduct a surrender charge from the death benefit if the insured dies during this period. A schedule showing maximum surrender charges for a full surrender occurring each year that a surrender charge may be payable is found in the Contract Data pages of your Contract. Issue Age Percentages for Determining Surrender Charges Percentage of Sales Load Target Premium at start of year 1 Reducing annually to the end of year Issue Age Percentage of Sales Load Target Premium at start of year 1 Reducing annually to the end of year % % % % % % % % % % % % % % % % % % % % % % % % % % % % % 7 74 and above 30.0% 3 18

23 We will show a surrender charge threshold for each coverage segment in the Contract Data pages. This threshold amount is the segment s lowest coverage amount since its effective date. If during the first 10 Contract years (or during the first 10 years of a coverage segment representing an increase in basic insurance amount), the basic insurance amount is decreased (including as a result of a withdrawal or a change in type of death benefit), and the new basic insurance amount for any coverage segment is below the threshold for that segment, we will deduct a percentage of the surrender charge for that segment. The percentage will be the amount by which the new coverage segment is less than the threshold, divided by the basic insurance amount at issue. After this transaction, the threshold will be updated and a corresponding new surrender charge schedule will also be determined to reflect that portion of surrender charges deducted in the past. Transaction Charges (a) We may charge a transaction fee of up to $25 for each transfer exceeding 12 in any Contract year. (b) We currently charge a transaction fee equal to the lesser of $25 and 2% of the withdrawal amount in connection with each withdrawal. (c) We may charge a transaction fee of up to $25 for any change in basic insurance amount. (d) We may charge a transaction fee of up to $25 for any change in the Target Term Rider coverage amount for Contracts with this rider. (e) We currently charge a transaction fee of $150 for Living Needs Benefit payments. Allocated Charges You may select up to two variable investment options from which we deduct your Contract's monthly charges. Monthly charges include: (1) monthly administrative charges, (2) COI charges, (3) any rider charges, and (4) any charge for substandard risk classification. Allocations must be designated in whole percentages and total 100%. For example, 33% can be selected but 331/3% cannot. The fixed rate option is not available as one of your allocation options. See Monthly Deductions from the Contract Fund. If there are insufficient funds in one or both of your selected variable investment options to cover the monthly charges, the selected variable investment option(s) will be reduced to zero. Any remaining charge will be deducted from your other variable investment options and the fixed rate option proportionately to the dollar amount in each. Furthermore, if you do not specify an allocation of monthly charges, we will deduct monthly charges proportionately from all your variable investment options and the fixed rate option. Charges After Age 100 Beginning on the first Contract anniversary on or after the insured s 100 th birthday, we will no longer accept premiums or deduct monthly charges from the Contract Fund. You may continue the Contract until the insured's death, or until you surrender the Contract for its cash surrender value. You may continue to make transfers, loans and withdrawals, subject to the limitations on these transactions described elsewhere in this prospectus. We will continue to make daily deductions for mortality and expense risk charges, and investment advisory fees if you have amounts in the variable investment options. Any Contract loan will remain outstanding and continue to accrue interest until it is repaid. Portfolio Charges We deduct charges from and pay expenses out of the variable investment options as described in the Fund prospectuses. Charges for Optional Rider Coverage Accidental Death Benefit Rider - We deduct a monthly charge for this rider, which provides an additional death benefit if the insured s death is accidental. The current charge ranges from $0.05 to $0.28 per $1,000 of coverage based on issue age and sex of the insured, and is charged until the first Contract anniversary on or after the insured s 100 th birthday. Children Level Term Rider - We deduct a monthly charge for this rider, which provides term life insurance on all dependent children that are covered under this rider. The current charge is $0.42 per $1,000 of coverage and is charged until the earliest of: the primary insured s death, and the first Contract anniversary on or after the primary insured s 75 th birthday, or you notify us to discontinue the rider coverage. 19

24 Enhanced Disability Benefit Rider - We deduct a monthly charge for this rider, which provides invested premium amounts while the insured is totally disabled. The current charge is based on issue age, sex, and underwriting class of the insured. It ranges from 5.56% to 10.44% of the greater of: 9% of the Contract s Target Premium and the total of all monthly deductions, and is charged until the first Contract anniversary on or after the insured s 60 th birthday. Target Term Rider - We currently deduct a sales expense charge for the Target Term Rider. We may deduct a monthly charge for the administration of this rider, which provides a flexible term insurance benefit to attained age 100 on the life of the insured. We currently deduct a Cost of Insurance ( COI ) charge for this rider, which ranges from $0.01 to $83.34 per $1,000 of rider death benefit, which is generally lower than the COI charge per $1,000 deducted for the basic insurance amount, and is based on rider coverage duration, issue age, sex, and underwriting class of the insured. We currently do not deduct the monthly charge for the administration of this rider. Living Needs Benefit Rider - We deduct a $150 fee for this rider only if benefits are paid. Contract Owner PERSONS HAVING RIGHTS UNDER THE CONTRACT Generally, the Contract owner is the insured. There are circumstances when the Contract owner is not the insured. There may also be more than one Contract owner. If the Contract owner is not the insured or there is more than one Contract owner, they will be named in an endorsement to the Contract. This ownership arrangement will remain in effect unless you ask us to change it. You may change the ownership of the Contract by sending us a request in a form that meets our needs. We may ask you to send us the Contract to be endorsed. If we receive your request in a form that meets our needs, and the Contract if we ask for it, we will file and record the change, and it will take effect as of the date we receive your request. While the insured is living, the Contract owner is entitled to any Contract benefit and value. Only the Contract owner is entitled to exercise any right and privilege granted by the Contract or granted by us. For example, the Contract owner is entitled to surrender the Contract, access Contract values through loans or withdrawals, assign the Contract, and to name or change the beneficiary. Beneficiary The beneficiary is entitled to receive any benefit payable on the death of the insured. You may designate or change a beneficiary by sending us a request in a form that meets our needs. We may ask you to send us the Contract to be endorsed. If we receive your request in a form that meets our needs, and the Contract if we ask for it, we will file and record the change and it will take effect as of the date we receive your request. However, if we make any payment(s) before we receive the request, we will not have to make the payment(s) again. When we are made aware of an assignment, we will recognize the assignee s rights before any claim payments are made to the beneficiary. When a beneficiary is designated, any relationship shown is to the insured, unless otherwise stated. Assignment OTHER GENERAL CONTRACT PROVISIONS This Contract may not be assigned if the assignment would violate any federal, state or local law or regulation prohibiting sex distinct rates for insurance. Generally, the Contract may not be assigned to an employee benefit plan or program without our consent. We assume no responsibility for the validity or sufficiency of any assignment. We will not be obligated to comply with any assignment unless we receive a copy at a Service Office. Incontestability We will not contest the Contract after it has been in-force during the insured s lifetime for two years from the issue date, the reinstatement date, or the effective date of any change made to the Contract that requires our approval and would increase our liability. Misstatement of Age or Sex If the insured's stated age or sex or both are incorrect in the Contract, we will adjust the death benefit payable and any amount to be paid, as required by law, to reflect the correct age and sex. Any such benefit will be based on what the most recent deductions from the Contract Fund would have provided at the insured's correct age and sex. 20

25 Settlement Options The Contract grants to most Contract owners, or to the beneficiary, a variety of optional ways of receiving Contract proceeds, other than in a lump sum. Any Pruco Life of New Jersey representative authorized to sell this Contract can explain these options upon request. Suicide Exclusion Generally, if the insured, whether sane or insane, dies by suicide within two years from the Contract date, the Contract will end and we will return the premiums paid, less any Contract debt, and less any withdrawals. Generally, if the insured, whether sane or insane, dies by suicide after two years from the issue date, but within two years of the effective date of an increase in the basic insurance amount, we will pay, as to the increase in amount, no more than the sum of the premiums paid on and after the effective date of an increase. Target Term Rider RIDERS The Target Term Rider (not available in New York) provides a flexible term insurance benefit to attained age 100 on the life of the insured. If you elect to have the Target Term Rider, you specify the amount of Target Term Rider coverage you desire, from $5,000 up to four times the Contract's basic insurance amount. This amount is called the rider coverage amount and is the maximum death benefit payable under the rider. The minimum Target Term Rider coverage amount is $5,000 and requires a minimum basic insurance amount of $100,000 for the base Contract. However, the basic insurance amount and the Target Term Rider coverage amount, combined, must be equal to a minimum total insurance amount of $250,000. After issue, while the rider is in-force, you may increase the rider coverage amount, subject to a minimum increase amount of $25,000 and underwriting requirements we determine. The rider coverage amount after the increase cannot exceed four times the Contract's basic insurance amount. You may also decrease your rider coverage amount after issue, subject to a minimum amount of $10,000 per decrease. However, we will not reduce the Target Term Rider coverage amount below $5,000, unless you request to discontinue your Target Term Rider Coverage. The Target Term Rider death benefit fluctuates as the base Contract's death benefit changes under certain circumstances described below. When the Contract Fund has not grown to the point where the base Contract's death benefit is increased to satisfy the Internal Revenue Code s definition of life insurance, the rider death benefit equals the rider coverage amount. However, if the Contract Fund has grown to the point where the base Contract s death benefit begins to vary as required by the Internal Revenue Code's definition of life insurance, the rider s death benefit will decrease (or increase) dollar for dollar as the base Contract s death benefit increases (or decreases). The rider death benefit will never increase beyond the rider coverage amount. It is possible, however, for the Contract Fund and, consequently, the base Contract s death benefit to grow to the point where the rider death benefit is reduced to zero. If you have a Type A death benefit and you take a withdrawal, the Target Term Rider coverage amount may require a reduction, if the death benefit was increased to meet the definition of life insurance. $500,000 Basic Insurance Amount and $500,000 Target Term Rider Type A Death Benefit $1,500,000 $1,200,000 $900,000 $600,000 Rider Death Benefit Base Contract Death $300,000 Benefit $ Policy Year You should consider the following factors when purchasing a Contract with a Target Term Rider: 21

26 A Contract with a Target Term Rider will offer a higher cash value than an all base Contract with the same initial death benefit and premium payments if we continue to deduct current charges. The cash values are higher because: (1) the Sales Load Target Premium is lower for a Contract with a Target Term Rider than for an all base Contract with the same death benefit and this results in lower current sales expense charges, (2) the monthly administrative charge is also lower for a Contract with a Target Term Rider than for an all base Contract with the same death benefit because we currently do not deduct the monthly administrative charge for the Target Term Rider, and (3) the current Cost of Insurance charge per $1,000 for the Target Term Rider is generally lower than the Cost of Insurance charge per $1,000 for the basic insurance amount. Additionally, we do not apply a surrender charge to the Target Term Rider. However, a Contract with a Target Term Rider offers the potential for lower cash values and death benefits than an all base Contract with the same death benefit if we raise our current charges to the maximum contractual level. For example, maximum charges under the Contract and Target Term Rider are the same, except for the monthly administrative charge, which extends for 10 years on the rider and only five years on the base Contract. Other factors to consider are: The Death Benefit Guarantee for Contracts issued with a Target Term Rider is limited to five years. If it is important to you to have a Death Benefit Guarantee period longer than five years, you may want to purchase a Contract without a Target Term Rider. See Death Benefit Guarantee. The Accidental Death Benefit, as described below, does not apply to any portion of the death benefit that is attributable to a Target Term Rider. If it is important to you to have the maximum amount of Accidental Death Benefit allowed under your Contract, you may want to purchase a Contract without a Target Term Rider. The Enhanced Disability Benefit, as described below, is unavailable on Contracts with a Target Term Rider. If it is important to you to have the Enhanced Disability Benefit, you may want to purchase a Contract without a Target Term Rider. The Living Needs Benefit, as described below, does not apply to the portion of the death benefit that is attributable to a Target Term Rider. If it is important to you that the Living Needs Benefit applies to the entire death benefit, you may want to purchase a Contract without a Target Term Rider. The rider coverage amount terminates at the insured s age 100. If it is important that you maintain a desired level of coverage amount after the insured s attained age 100, you may want to purchase a Contract without a Target Term Rider. Pruco Life of New Jersey pays significantly lower commissions on a Contract with a Target Term Rider than on an all base Contract with the same initial death benefit and premium payments. This may provide a financial incentive for your Pruco Life of New Jersey representative to promote the sale of a Contract without a Target Term Rider. Some of the factors outlined above can have effects on the financial performance of a Contract, including the amount of the Contract's cash value and death benefit. It is important that you ask your Pruco Life of New Jersey representative to provide illustrations based on different combinations of basic insurance amount and rider coverage amount. You and your Pruco Life of New Jersey representative can then discuss how these combinations may address your objectives. Other Riders Contract owners may be able to obtain extra fixed benefits, which may require additional charges. These optional insurance benefits will be described in what is known as a "rider" to the Contract. Charges applicable to the riders will be deducted from the Contract Fund on each Monthly date. The amounts of these benefits do not depend on the performance of the Account, although they will no longer be available if the Contract lapses. Certain restrictions may apply and are clearly described in the applicable rider. A Pruco Life of New Jersey representative can explain all of these extra benefits further. We will provide samples of the provisions upon receiving a written request. Accidental Death Benefit Rider - The Accidental Death Benefit Rider provides an additional death benefit that is payable if the insured's death is accidental, as defined in the benefit provision. This benefit will end on the earliest of: the end of the day before the first Contract anniversary on or after the insured s 100 th birthday and the first Monthly date on or after the date a request to discontinue the Rider is received in Good Order at a Service Office. Children Level Term Rider - The Children Level Term Rider provides term life insurance coverage on the life of the insured's children. The rider coverage will end on the earliest of: (1) the primary insured s death, (2) the first Contract anniversary on or after the primary insured s 75 th birthday, (3) the first Monthly date on or after the date a request to 22

27 discontinue the Rider is received in Good Order at a Service Office, (4) the first Contract anniversary on or after the child s 25 th birthday, and (5) the date a rider is converted to a new Contract. Enhanced Disability Benefit Rider - The Enhanced Disability Benefit Rider pays certain amounts into the Contract if the insured is totally disabled, as defined in the benefit provision. This rider is not available with death benefit Type C (return of premium) Contracts or Contracts with the Target Term Rider benefit. The rider coverage will end as of the first Contract anniversary on or after the insured s 60 th birthday. Living Needs Benefit Rider - The Living Needs Benefit SM Rider is available on your Contract. The benefit may vary by state. There is no charge for adding the benefit to a Contract. However, an administrative charge (not to exceed $150) will be made at the time the Living Needs Benefit is paid. The Living Needs Benefit does not apply to the portion of the death benefit that is attributable to a Target Term Rider. Subject to state regulatory approval, the Living Needs Benefit allows you 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 not be less than the Contract s cash surrender value. One or both of the following options may be available. A Pruco Life of New Jersey representative should be consulted as to whether additional options may be available. The Terminal Illness Option is available on the Living Needs Benefit Rider if the insured is diagnosed as terminally ill with a life expectancy of six months or less. When satisfactory evidence is provided, we will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contract owner may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for six 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. The Nursing Home Option is available on the Living Needs Benefit Rider after the insured has been confined to an eligible nursing home for six 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, we will provide an accelerated payment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contract owner 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 two), depending upon the age of the insured. If the insured dies before all of the payments have been made, the present value of the remaining payments will be paid to the beneficiary designated in the Living Needs Benefit claim form in a single sum. Subject to state approval, 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. We reserve the right to determine the minimum amount that may be accelerated. No benefit will be payable if you are required to elect it in order to meet the claims of creditors or to obtain a government benefit. We can furnish details about the amount of Living Needs Benefit that is available to an eligible Contract owner, and the effect on the Contract if less than the entire death benefit is accelerated. You should consider whether adding this settlement option is appropriate in your 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 Contracts, the Living Needs Benefit is excluded from income if the insured is terminally ill or chronically ill as defined in any applicable tax law (although the exclusion in the latter case may be limited). You should consult a tax adviser before electing to receive this benefit. Receipt of a Living Needs Benefit payment may also affect your eligibility for certain government benefits or entitlements. REQUIREMENTS FOR ISSUANCE OF A CONTRACT Generally, the Contract may be issued on insureds through age 90 for death benefit Types A and B, through age 70 for death benefit Type C. Currently, the minimum basic insurance amount for Contracts without a Target Term Rider is $75,000 ($50,000 for insureds below the issue age of 18, $100,000 for insureds issue ages 76-80, and $200,000 for insureds issue ages 81 and above). The minimum basic insurance amount for Contracts issued with a Type C (return of premium) death benefit is $250,000. See Types of Death Benefit. For Contracts with a Target Term Rider, the minimum total Target Coverage Amount (basic insurance amount plus any Target Term Rider coverage amount combined) is $250,000. Furthermore, if the Target Term Rider is added to the Contract, the minimum basic insurance amount of the base Contract is $100,000, while the minimum Target Term Rider coverage amount is $5,000. See RIDERS. We may change the minimum basic insurance amounts of the Contracts we will issue. 23

28 We require evidence of insurability, which may include a medical examination, before issuing any Contract. Preferred Best non-smokers are offered more favorable cost of insurance rates than smokers. We charge a higher cost of insurance rate and/or an extra amount if an additional mortality risk is involved. These are the current underwriting requirements. We reserve the right to change them on a non-discriminatory basis. Minimum Initial Premium PREMIUMS The Contract offers flexibility in paying premiums. The minimum initial premium is due on or before the Contract date. It is the premium needed to start the Contract. The minimum initial premium is equal to 9% of the Target Premium, including all extras, riders, and Enhanced Disability Benefit premium for Type A and Type B death benefit Contracts without the Target Term Rider. The minimum initial premium is equal to 9% of the Short-Term Premium for Type A and Type B death benefit Contracts with the Target Term Rider benefit and all Type C death benefit Contracts. There is no insurance under the Contract unless the minimum initial premium is paid. Thereafter, you decide when to make premium payments and, subject to a $25 minimum, in what amounts. We may require an additional premium if adjustments to premium payments exceed the minimum initial premium or there are Contract Fund charges due on or before the payment date. We reserve the right to refuse to accept any payment that increases the death benefit by more than it increases the Contract Fund. Furthermore, there are circumstances under which the payment of premiums in amounts that are too large may cause the Contract to be characterized as a Modified Endowment Contract, which could be significantly disadvantageous. If you make a payment that would cause the Contract to be characterized as a Modified Endowment Contract, we will send you a letter to advise you of your options. Generally, you have 60 days from when we received your payment to remove the excess premiums and any accrued interest. If you choose not to remove the excess premium and accrued interest, your Contract will become permanently characterized as a Modified Endowment Contract. We will not accept a premium payment that exceeds the Guideline Premium limit if your Contract uses the Guideline Premium definition of life insurance. See Tax Treatment of Contract Benefits. Generally, your initial net premium is applied to your Contract as of the Contract date. If we do not receive your initial premium before the Contract date, we apply the initial premium to your Contract as of the end of the valuation period in which it is received in Good Order at the Payment Office. Available Types of Premium After the minimum initial premium is paid, no other specific premiums are required and you have a certain amount of flexibility with respect to the amount and timing for future premium payments. Several suggested patterns of premiums are described below. Contracts with no riders or extra risk charges will have level premiums for each premium type described below. Understanding them may help you understand how the Contract works. Short-Term Premiums are premiums that, if paid at the beginning of each Contract year, will keep the Contract inforce during the first five Contract years, regardless of investment performance and assuming no loans or withdrawals. If you choose to continue the Death Benefit Guarantee beyond this period, you will have to begin paying premiums higher than the Short-Term Premium. However, not all Contracts offer the Death Benefit Guarantee beyond five Contract years. Target Premiums are premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force until the insured's age 65, or if later, during the first 10 Contract years, regardless of investment performance and assuming no loans or withdrawals. If you choose to continue the Death Benefit Guarantee beyond this period, you will have to begin paying premiums substantially higher than the Target Premium. However, not all Contracts offer the Death Benefit Guarantee for this period or beyond. Lifetime Premiums are premiums that, if paid at the beginning of each Contract year, will keep the Contract inforce during the lifetime of the insured, regardless of investment performance and assuming no loans or withdrawals (not applicable to all Contracts). The length of the Death Benefit Guarantee depends on your Contract s death benefit type, the definition of life insurance test selected at issue, and whether you choose to have the Target Term Rider benefit. See Death Benefit Guarantee. When you purchase a Contract, your Pruco Life of New Jersey representative can tell you the Short-Term, Target, and Lifetime Premium amounts. We can bill you for the amount you select annually, semi-annually, or quarterly. Because the Contract is a flexible premium Contract, there are no scheduled premium due dates. When you receive a premium notice, you are not required to pay this amount. The Contract will remain in-force if: (1) the Contract Fund, less any applicable surrender 24

29 charges, is greater than zero and more than any Contract debt or (2) you have paid sufficient premiums, on an accumulated basis, to meet the Death Benefit Guarantee conditions and Contract debt is not equal to or greater than the Contract Fund, less any applicable surrender charges. You may also pay premiums automatically through preauthorized monthly electronic fund transfers from a bank checking account. If you elect to use this feature, you choose the day of the month on which premiums will be paid and the premium amount. We will then draft the same amount from your account on the same date each month. When you apply for the Contract, you and your Pruco Life of New Jersey representative should discuss how frequently you would like to be billed (if at all) and for what amount. Allocation of Premiums On the later of the Contract date and the end of the valuation period in which the initial premium is received, we deduct the charge for sales expenses and the charge for taxes attributable to premiums from the initial premium. Then the first monthly deductions are made, and the remainder of the initial premium and any other net premium received in Good Order at the Payment Office during the short-term cancellation right ( free-look ) period will be allocated to the Money Market investment option. At the end of the free-look period, these funds, adjusted for any investment results, will be transferred out of the Money Market investment option and allocated among the variable investment options and/or the fixed rate option according to your current premium allocation. The transfer from the Money Market investment option immediately following the free-look period will not be counted as one of your 12 free transfers per Contract year or the 20 transfers per calendar year described under Transfers/Restrictions on Transfers. If the first premium is received before the Contract date, there will be a period during which the Contract owner's initial premium will not be invested. The charge for sales expenses and the charge for taxes attributable to premiums will also apply to all subsequent premium payments. The remainder of each subsequent premium payment will be invested as of the end of the valuation period in which it is received in Good Order at the Payment Office, in accordance with the allocation you previously designated. The valuation period means the period of time from one determination of the value of the amount invested in a variable investment options to the next. Such determinations are made when the net asset values of the portfolios of the variable investment options are calculated, which would be as of the close of regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time). Provided the Contract is not in default, you may change the way in which subsequent premiums are allocated by giving written notice to a Service Office or by telephoning a Service Office, provided you are enrolled to use the Telephone Transfer System. There is no charge for reallocating future premiums. All percentage allocations must be in whole numbers. For example, 33% can be selected but 33⅓% cannot. Of course, the total allocation to all selected investment options must equal 100%. Transfers/Restrictions on Transfers You may, up to 12 times each Contract year, transfer amounts among the variable investment options or to the fixed rate option. Additional transfers may be made only with our consent. Currently, we will allow you to make additional transfers. For the first 20 transfers in a calendar year, you may transfer amounts by proper written notice to a Service 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 Contracts that are assigned, depending on the terms of the assignment. See Assignment. After you have submitted 20 transfers in a calendar year, we will accept subsequent transfer requests only if they are in a form acceptable to us, bear an original signature in ink, and are sent to us by U.S. regular mail. After you have submitted 20 transfers in a calendar year, a subsequent transfer request by telephone, fax or electronic means will be rejected, even in the event that it is inadvertently processed. Multiple transfers that occur during the same day, but prior to the end of the valuation period for that day, will be counted as a single transfer. There is no transaction charge for the first 12 transfers per Contract year among investment options. We may charge up to $25 for each transfer made exceeding 12 in any Contract year. Currently, certain transfers effected systematically under a dollar cost averaging or an automatic rebalancing program do not count towards the limit of 12 transfers per Contract year or the limit of 20 transfers per calendar year. In the future, we may count such transfers towards the limit. Transfers out of the Money Market investment option will not be made until after the free-look period. Such transfers and any transfers due to any fund closures or mergers will not be considered towards the 12 transfers per Contract year or the 20 transfers per calendar year. 25

30 Transfers among variable investment options will take effect as of the end of the valuation period in which a transfer request is received in Good Order at a Service Office. The request may be in terms of dollars, such as a request to transfer $5,000 from one variable investment option to another, or may be in terms of a percentage reallocation among variable investment options. In the latter case, as with premium reallocations, the percentages must be in whole numbers. We will use reasonable procedures, such as asking you to provide certain personal information provided on your application for insurance, to confirm that instructions given by telephone are genuine. We will not be held liable for following telephone instructions that we reasonably believe to be genuine. We 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. Only one transfer from the fixed rate option will be permitted during each Contract year. The maximum amount per Contract you may transfer out of the fixed rate option each year is the greater of: (a) 25% of the amount in the fixed rate option; and (b) $2,000. We may change these limits in the future or waive these restrictions for limited periods of time in a non-discriminatory way, (e.g., when interest rates are declining). The Contract was not designed for professional market timing organizations, other organizations, or individuals using programmed, large, or frequent transfers. Large or frequent transfers among variable investment options in response to short-term fluctuations in markets, sometimes called market timing, can make it very difficult for Fund advisers/subadvisers to manage the variable investment options. Large or frequent transfers may cause the Fund to hold more cash than otherwise necessary, disrupt management strategies, increase transaction costs, or affect performance to the disadvantage of other Contract owners. If we (in our own discretion) believe that a pattern of transfers or a specific transfer request, or group of transfer requests, may have a detrimental effect on the performance of the variable investment options, or we are informed by a Fund (e.g., by the Fund s adviser/sub-advisers) that the purchase or redemption of shares in the variable investment option must be restricted because the Fund believes the transfer activity to which such purchase or redemption relates would have a detrimental effect on the performance of the affected variable investment option, we may modify your right to make transfers by restricting the number, timing, and amount of transfers. We reserve the right to prohibit transfer requests made by an individual acting under a power of attorney on behalf of more than one Contract owner. We will immediately notify you at the time of a transfer request if we exercise this right. Any restrictions on transfers will be applied uniformly to all persons who own Contracts like this one, and will not be waived, except as described above with respect to transfers from the fixed rate option. However, due to the discretion involved in any decision to exercise our right to restrict transfers, it is possible that some Contract owners may be able to effect transactions that could affect Fund performance to the disadvantage of other Contract owners. In addition, Contract owners who own variable life insurance or variable annuity Contracts that do not impose the transfer restrictions described above, might make more numerous and frequent transfers than Contract owners who are subject to such limitations. Contract owners who are not subject to the same transfer restrictions may have the same underlying variable investment options available to them, and unfavorable consequences associated with such frequent trading within the underlying variable investment option (e.g., greater portfolio turnover, higher transaction costs, or performance or tax issues) may affect all Contract owners. Although our transfer restrictions are designed to prevent excessive transfers, they are not capable of preventing every potential occurrence of excessive transfer activity. Dollar Cost Averaging As an administrative practice, we are currently offering a feature called Dollar Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a percentage of the amount designated for use under the DCA option will be transferred periodically from the DCA Money Market investment option into other variable investment options available under the Contract, excluding the fixed rate option. You may choose to have periodic transfers made monthly or quarterly. DCA transfers will not begin until the end of the free-look period. Each automatic transfer will take effect as of the end of the valuation period on the date coinciding with the periodic timing you designate provided the New York Stock Exchange is open on that date. If the New York Stock Exchange is not open on that date, or if the date does not occur in that particular month, the transfer will take effect as of the end of the valuation period, which immediately follows that date. Automatic transfers will continue until: (1) $50 or less remains of the amount designated for Dollar Cost Averaging, at which time the remaining amount will be transferred; or (2) you give us notification of a change in DCA allocation or cancellation of the feature. Currently, a transfer that occurs under the DCA feature is not counted towards the 20 transfers permitted each calendar year or the 12 free transfers permitted each Contract year. We reserve the right to change this practice, modify the requirements, or discontinue the feature. 26

31 Auto-Rebalancing As an administrative practice, we are currently offering a feature called Auto-Rebalancing. This feature allows you to automatically rebalance variable investment option assets at specified intervals based on percentage allocations that you choose. For example, suppose your initial investment allocation of variable investment options X and Y is split 40% and 60%, respectively. Then, due to investment results, that split changes. You may instruct that those assets be rebalanced to your original or different allocation percentages. Auto-Rebalancing is not available until the end of the free-look period. Auto-Rebalancing can be performed on a quarterly, semi-annual, or annual basis. Each rebalance will take effect as of the end of the valuation period on the date coinciding with the periodic timing you designate, provided the New York Stock Exchange is open on that date. If the New York Stock Exchange is not open on that date, or if the date does not occur in that particular month, the transfer will take effect as of the end of the valuation period immediately following that date. The fixed rate option cannot participate in this administrative procedure. Currently, a transfer that occurs under the Auto-Rebalancing feature is not counted towards the 20 transfers permitted each calendar year or the 12 free transfers permitted each Contract year. We reserve the right to change this practice, modify the requirements, or discontinue the feature. Contract Date DEATH BENEFITS There is no insurance under this Contract until the minimum initial premium is paid. If a medical examination is required, the Contract date will ordinarily be the date the examination is completed. Under certain circumstances, we may allow the Contract to be backdated up to six months prior to the application date for the purpose of lowering the insured's issue age. This may be advantageous for some Contract owners as a lower issue age may result in lower current charges. When Proceeds Are Paid Generally, we will pay any death benefit, cash surrender value, loan proceeds or withdrawal within seven days after all the documents required for such a payment are received at a Service Office. 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 Service Office. However, we may delay payment of proceeds from the variable investment option[s] and the variable portion of the death benefit due under the Contract if the disposal 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. We have the right to delay payment of the cash surrender value attributable to the fixed rate option for up to six months (or a shorter period if required by applicable law). We will pay interest of at least 3% per year if such a payment is delayed for more than 30 days (or a shorter period if required by applicable law). Death Claim Settlement Options The beneficiary may choose to receive death claim proceeds by any of the settlement options described in the Contract or by payment of a lump sum amount. In addition to the settlement options described in your Contract, the beneficiary may choose the payment of death claim proceeds, by way of Prudential's retained asset settlement option (the "Alliance Account"). Upon verification of a death claim, Prudential will provide a kit to the beneficiary, which includes: (1) an account certificate describing the death claim proceeds, the current interest rate, and the terms of the Alliance Account; (2) a guide that explains how the Alliance Account works; and (3) checks and a checkbook, that the beneficiary can use to access the available amount of death claim proceeds. Any Pruco Life of New Jersey representative authorized to sell this Contract can explain this option upon request. Types of Death Benefit You may select from three types of death benefit at issue. A Contract with a Type A (fixed) death benefit has a death benefit, which will generally equal the basic insurance amount. Favorable investment results and additional premium payments will generally increase the cash surrender value and decrease the net amount at risk and result in lower charges. This type of death benefit does not vary with the investment performance of the investment options you selected, except when the premiums you pay or favorable investment performance causes the Contract Fund to grow to the point where we may increase the death benefit to ensure that the Contract will satisfy the Internal Revenue Code s definition of life insurance. See How a Contract's Cash Surrender Value Will Vary. 27

32 A Contract with a Type B (variable) death benefit has a death benefit, which will generally equal the basic insurance amount plus the Contract Fund. Favorable investment performance and additional premium payments will generally increase your Contract's death benefit and cash surrender value. However, the increase in the cash surrender value for a Type B (variable) Contract may be less than the increase in cash surrender value for a Type A (fixed) Contract because a Type B Contract has a greater cost of insurance charge due to a greater net amount at risk. As long as the Contract is not in default there have been no withdrawals, and there is no Contract debt, the death benefit may not fall below the basic insurance amount stated in the Contract. We may increase the death benefit to ensure that the Contract will satisfy the Internal Revenue Code s definition of life insurance. See How a Contract's Cash Surrender Value Will Vary. A Contract with a Type C (return of premium) death benefit has a death benefit, which will generally equal the basic insurance amount plus the total premiums paid into the Contract. This death benefit type allows the beneficiary, in effect, to recover the cost of the Contract, upon the death of the insured. Favorable investment performance and payment of additional premiums will generally increase the Contract's cash surrender value. However, the increase in the cash surrender value for a Type C (return of premium) Contract may be less than the increase in cash surrender value for a Type A (fixed) Contract because a Type C Contract has a greater cost of insurance charge due to a greater net amount at risk. The increase in cash surrender value for a Type C (return of premium) Contract may be more or less than the increase in cash surrender value for a Type B (variable) Contract depending on earnings and the amount of any withdrawals. If you take a withdrawal, it is possible for a Type C Contract s death benefit to fall below the basic insurance amount. We may increase the death benefit to ensure that the Contract will satisfy the Internal Revenue Code s definition of life insurance. See How a Contract s Cash Surrender Value Will Vary. Contract owners of Type A (fixed) Contracts should note that any withdrawal may result in a reduction of the basic insurance amount, a reduction in the Target Term Rider death benefit, and the deduction of any applicable surrender charges. We will not allow you to make a withdrawal that will decrease the basic insurance amount below the minimum basic insurance amount. For Type B (variable) Contracts and Type C (return of premium) Contracts, withdrawals will not change the basic insurance amount. See Withdrawals. The way in which the cash surrender value and death benefit will change depends significantly upon the investment results that are actually achieved. Changing the Type of Death Benefit You may change the type of death benefit any time after issue and subject to our approval. We will increase or decrease the basic insurance amount so that the death benefit immediately after the change matches the death benefit immediately before the change. The basic insurance amount after a change may not be lower than the minimum basic insurance amount applicable to the Contract. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT. We may deduct a transaction charge of up to $25 for any change in the basic insurance amount, although we do not currently do so. A type change that reduces the basic insurance amount may result in the assessment of surrender charges. See CHARGES AND EXPENSES. If you are changing your Contract s type of death benefit from a Type A (fixed) to a Type B (variable) death benefit, we will reduce the basic insurance amount by the amount in your Contract Fund on the date the change takes place. If you are changing from a Type A (fixed) to a Type C (return of premium) death benefit, we will change the basic insurance amount by subtracting the total premiums paid on your Contract minus total withdrawals on the date the change takes effect. This change is only available to Contracts that were issued with a Type C death benefit and subsequently changed to a Type A death benefit. If you are changing from a Type B (variable) to a Type A (fixed) death benefit, we will increase the basic insurance amount by the amount in your Contract Fund on the date the change takes place. If you are changing from a Type B (variable) to a Type C (return of premium) death benefit, we first find the difference between: (1) the amount in your Contract Fund and (2) the total premiums paid on this Contract minus total withdrawals, determined on the date the change takes effect. If (1) is larger than (2), we will increase the basic insurance amount by that difference. If (2) is larger than (1), we will reduce the basic insurance amount by that difference. This change is only available to Contracts that were issued with a Type C death benefit and subsequently changed to a Type B death benefit. If you are changing from a Type C (return of premium) to a Type A (fixed) death benefit, we will change the basic insurance amount by adding the total premiums paid minus total withdrawals to this Contract on the date the change takes place. If you are changing from a Type C (return of premium) to a Type B (variable) death benefit, we first find the difference between: (1) the amount in your Contract Fund and (2) the total premiums paid on this Contract minus total 28

33 withdrawals, determined on the date the change takes effect. If (2) is larger than (1), we will increase the basic insurance amount by that difference. If (1) is larger than (2), we will reduce the basic insurance amount by that difference. The following chart illustrates the changes in basic insurance amount with each change of death benefit type described above. The chart assumes a $50,000 Contract Fund and a $300,000 death benefit. For changes to and from a Type C death benefit, the chart assumes $40,000 in total premiums minus total withdrawals. Basic Insurance Amount FROM Type A $300,000 Type B $250,000 Type C $260,000 Type B $250,000 Type A $300,000 Type A $300,000 TO Type C $260,000 Type C $260,000 Type B $250,000 To request a change, fill out an application for change, which can be obtained from your Pruco Life of New Jersey representative or a Service Office. If the change is approved, we will recompute the Contract's charges and appropriate tables and send you new Contract Data pages. We may require you to send us your Contract before making the change. There may be circumstances under which a change in the death benefit type may cause the Contract to be classified as a Modified Endowment Contract, which could be significantly disadvantageous. See Tax Treatment of Contract Benefits. Death Benefit Guarantee If you pay a sufficient amount of premium on an accumulated basis, we will guarantee that your Contract will not lapse as a result of unfavorable investment performance, and a death benefit will be paid upon the death of the insured, even if your Contract Fund value drops to zero. Withdrawals and outstanding Contract loans may adversely affect the status of the Death Benefit Guarantee. See Withdrawals and Loans. At the Contract date and on each Monthly date, during the Death Benefit Guarantee period shown on your Contract Data pages, we calculate your Contract's Accumulated Net Payments as of that date. Accumulated Net Payments equal the premiums you paid, accumulated at an effective annual rate of 4%, less withdrawals also accumulated at 4%. We also calculate Death Benefit Guarantee Values. These are values used solely to determine if a Death Benefit Guarantee is in effect. These are not cash values that you can realize by surrendering the Contract, nor are they payable death benefits. The Contract Data pages in your Contract contain a table of Death Benefit Guarantee Values, calculated as of Contract anniversaries. Values for non-anniversary Monthly dates will reflect the number of months elapsed between Contract anniversaries. On each Monthly date, we will compare your Accumulated Net Payments to the Death Benefit Guarantee Value during the Death Benefit Guarantee period shown on your Contract Data pages. If your Accumulated Net Payments equal or exceed the Death Benefit Guarantee Value, and the Contract debt does not equal or exceed the Contract Fund less any applicable surrender charges, then the Contract is kept in-force, regardless of the amount in the Contract Fund. The Short-Term Premiums, Target Premiums, and Lifetime Premiums are payments that correspond to the Death Benefit Guarantee Values shown on your Contract Data pages. For example, payment of the Short-Term Premium at the beginning of each Contract year guarantees that your Contract will not lapse during the first five Contract years, assuming no loans or withdrawals. However, payment of the Short-Term Premium after this period will not assure that your Contract's Accumulated Net Payments will continue to meet the Death Benefit Guarantee Values and prevent the Contract from lapsing. See PREMIUMS. If you want a Death Benefit Guarantee to last longer than five years, you should expect to pay at least the Target Premium at the start of each Contract year. Paying the Target Premium at the beginning of each Contract year guarantees your Contract against lapse until the insured's age 65 or for 10 years after issue, whichever comes later, assuming no loans or withdrawals. However, payment of the Target Premium after this Death Benefit Guarantee period, will not assure that your Contract's Accumulated Net Payments will continue to meet the Death Benefit Guarantee Values and prevent the Contract from lapsing. 29

34 If you want a Death Benefit Guarantee to last the lifetime of the insured, then you should expect to pay at least the Lifetime Premium at the start of each Contract year. Paying the Lifetime Premium at the beginning of each Contract year guarantees your Contract against lapse for the insured's lifetime, assuming no loans or withdrawals. The following table provides sample Short-Term, Target, and Lifetime Premiums (to the nearest dollar) for basic insurance amounts dated on or after May 1, The examples assume: (1) the insured is a male, Preferred Best, with no extra risk or substandard ratings; (2) a $250,000 basic insurance amount; (3) no extra benefit riders have been added to the Contract; and (4) the Cash Value Accumulation Test has been elected for definition of life insurance testing. Age of insured at issue Illustrative Annual Premiums Type of Death Benefit Chosen Short-Term Premium Target Premium Lifetime Premium 40 Type A (Fixed) $1,125 $2,138 $4, Type B (Variable) $1,210 $2,220 $14, Type C (Return of Premium) $1,130 N/A N/A 60 Type A (Fixed) $3,363 $7,158 $12, Type B (Variable) $4,415 $7,218 $33, Type C (Return of Premium) $4,163 N/A N/A 80 Type A (Fixed) $16,203 $39,345 $47, Type B (Variable) $22,353 $43,980 $83, Type C (Return of Premium) N/A N/A N/A Paying the Short-Term, Target, or Lifetime Premiums at the start of each Contract year is one way of reaching the Death Benefit Guarantee Values; it is certainly not the only way. The Death Benefit Guarantee allows considerable flexibility as to the timing of premium payments. Your Pruco Life of New Jersey representative can supply sample illustrations of various premium amount and frequency combinations that correspond to the Death Benefit Guarantee Values. When determining what premium amounts to pay and the frequency of your payments, you should consider carefully the value of maintaining the Death Benefit Guarantee. If you desire the Death Benefit Guarantee until the later of the insured's age 65 or 10 years after issue, you may prefer to pay at least the Target Premium in all years, rather than paying the lower Short-Term Premium in the first five years. If you pay only enough premium to meet the Death Benefit Guarantee Values in the first five years, you will need to pay more than the Target Premium at the beginning of the 6th year in order to continue the Death Benefit Guarantee. Similarly, if you desire the Death Benefit Guarantee for lifetime protection, you may prefer to pay generally higher premiums in all years, rather than trying to make such payments on an as needed basis. For example, if you pay only enough premium to meet the Death Benefit Guarantee Values until the later of the insured's age 65 or 10 years after issue, a substantial amount may be required to meet the subsequent Death Benefit Guarantee Values and continue the guarantee. In addition, it is possible that the payment required to continue the guarantee beyond this period could exceed the premium payments allowed to be paid without causing the Contract to become a Modified Endowment Contract. See Tax Treatment of Contract Benefits. Not all Contracts will have the Death Benefit Guarantee available in all years. Type A and Type B Contracts with the Cash Value Accumulation Test elected for definition of life insurance testing will have the Death Benefit Guarantee available for the lifetime of the insured. However, Type A and Type B Contracts with the Guideline Premium Test elected for definition of life insurance testing will have the Death Benefit Guarantee available until the insured's age 65 or for 10 years after issue, whichever is later. Furthermore, Type C Contracts with either the Cash Value Accumulation Test or Guideline Premium Test elected for definition of life insurance testing, will only have the Death Benefit Guarantee available for the first five Contract years. Contracts with the Target Term Rider will also have the Death Benefit Guarantee available for only the first five Contract years. Your Contract Data pages will show Death Benefit Guarantee Values for the duration available with your Contract. See Types of Death Benefit and Tax Treatment of Contract Benefits. 30

35 Increases in Basic Insurance Amount After your first Contract anniversary, you may increase the amount of insurance by increasing the basic insurance amount of the Contract, thus, creating an additional coverage segment. The increase will be subject to the underwriting requirements we determine. The following conditions must be met: (1) you must ask for the change in a form that meets our needs; (2) the amount of the increase must be at least equal to the minimum increase in basic insurance amount shown under Contract Limitations in your Contract Data pages; (3) you must prove to us that the insured is insurable for any increase; (4) the Contract must not be in default; (5) we must not be paying premiums into the Contract as a result of the insured's total disability; and (6) if we ask you to do so, you must send us the Contract to be endorsed. If we approve the change, we will send you new Contract Data pages showing the amount and effective date of the change and the recomputed charges, values and limitations. If the insured is not living on the effective date, the change will not take effect. Currently, no transaction charge is being made in connection with an increase in basic insurance amount. However, we reserve the right to charge such a fee in an amount of up to $25. The Sales Load Target Premium is calculated separately for each coverage segment. When premiums are paid, each payment is allocated to each coverage segment based on the proportion of the Sales Load Target Premium in each segment to the total Sales Load Target Premiums of all segments. Currently, the sales load charge for each segment is equal to 4% of the allocated premium paid in each Contract year up to the Sales Load Target Premium and 2% of allocated premiums paid in excess of this amount for the first 10 Contract years; 0% thereafter. See the definition of Contract year for an increase in basic insurance amount under DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS. Each coverage segment will have its own surrender charge period beginning on that segment s effective date and its own surrender charge threshold. The surrender charge threshold is the segment s lowest coverage amount since its effective date. See Decreases in Basic Insurance Amount and Surrender Charges. The maximum COI rates for a coverage segment representing an increase in basic insurance amount are based upon 1980 CSO Mortality Tables, the age at the effective date of the increase and the number of years since then, sex (except where unisex rates apply), underwriting class, smoker/nonsmoker status, and extra rating class, if any. The net amount at risk for the whole Contract (the death benefit minus the Contract Fund) is allocated to each coverage segment based on the proportion of its basic insurance amount to the total of all coverage segments. In addition, the attained age factor for a Contract with an increase in basic insurance amount is based on the insured's attained age for the initial coverage segment. Short-term premiums for increases to Contracts issued prior to May 1, 2002 will differ from increases to Contracts issued on or after May 1, 2002 due to COI rate changes. If you elect to increase the basic insurance amount of your Contract, you will receive a "free-look" right that will apply only to the increase in basic insurance amount, not the entire Contract. This right is comparable to the right afforded to the purchaser of a new Contract, except that, any cost of insurance charge for the increase in the basic insurance amount will be returned to the Contract Fund instead of a refund of premium. Generally, the "free-look" right must be exercised no later than 10 days after receipt of the Contract with an increase. Payment of a significant premium in conjunction with an increase in basic insurance amount may cause the Contract to be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits. Therefore, before increasing the basic insurance amount, you should consult with your tax adviser and your Pruco Life of New Jersey representative. Decreases in Basic Insurance Amount You have the option of decreasing the basic insurance amount of your Contract without withdrawing any cash surrender value. If a change in circumstances causes you to determine that your amount of insurance is greater than needed, a decrease will reduce your insurance protection and the monthly deductions for the cost of insurance. The following conditions must be met: (1) the amount of the decrease must be at least equal to the minimum decrease in the basic insurance amount shown under Contract Limitations in your Contract Data pages; 31

36 (2) the basic insurance amount after the decrease must be at least equal to the minimum basic insurance amount shown under Contract Limitations in your Contract Data pages; (3) the Contract Fund, after the decrease, must be at least equal to any applicable surrender charges; and (4) if we ask you to do so, you must send us the Contract to be endorsed. If we approve the decrease, we will send you new Contract Data pages showing the amount and effective date of the change and the recomputed charges, values, and limitations. Currently, no transaction charge is being made in connection with a decrease in the basic insurance amount. However, we reserve the right to charge such a fee in an amount of up to $25. For Contracts with more than one coverage segment, a decrease in basic insurance amount will reduce each coverage segment based on the proportion of each coverage segment amount to the total of all coverage segment amounts before the decrease. Each coverage segment will have its own surrender charge threshold equal to the segment s lowest coverage amount since its effective date. If the decrease in basic insurance amount reduces a coverage segment to an amount less than its surrender charge threshold, we will deduct a surrender charge. See Surrender Charges. We may decline a decrease in the basic insurance amount if we determine it would cause the Contract to fail to qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue Code. See Tax Treatment of Contract Benefits. It is important to note, however, that if the basic insurance amount is decreased, there is a possibility that the Contract will be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits. You should consult with your tax adviser and your Pruco Life of New Jersey representative before requesting any decrease in basic insurance amount. Surrender of a Contract CONTRACT VALUES You may surrender your Contract at any time for its cash surrender value (referred to as net cash value in the Contract) while the insured is living. To surrender your Contract, we may require you to deliver or mail the following items in Good Order to a Service Office; the Contract, a signed request for surrender, and any tax withholding information required under federal or state law. Generally, we will pay your Contract s cash surrender value within seven days after all the documents required for such a payment are received in Good Order at a Service Office. Surrender of a Contract may have tax consequences. See Tax Treatment of Contract Benefits. Additional requirements exist if you are exchanging your Contract for a new one at another insurance company. Specifically, a properly signed assignment to change ownership of your Contract to the new insurer and a request for surrender, signed by an authorized officer of the new insurer. The new insurer should submit these documents directly to Pruco Life by sending them in Good Order to our Customer Value Service Center in Minneapolis. Generally, we will pay your Contract s cash surrender value to the new insurer within seven days after all the documents required for such a payment are received in Good Order at our Customer Value Service Center. How a Contract's Cash Surrender Value Will Vary The cash surrender value will be determined as of the end of the valuation period in which a surrender request is received in Good Order at a Service Office. The Contract's cash surrender value on any date will be the Contract Fund less any applicable surrender charges and less any Contract debt. The Contract Fund value changes daily, reflecting: (1) increases or decreases in the value of the variable investment option[s]; (2) interest credited on any amounts allocated to the fixed rate option; (3) interest credited on any loan; and (4) the daily asset charge for mortality and expense risks assessed against the variable investment options. The Contract Fund value also changes to reflect the receipt of premium payments after any charges are deducted and the monthly deductions described under CHARGES AND EXPENSES. Upon request, we will tell you the cash surrender value of your Contract. It is possible for the cash surrender value of a Contract to decline to zero because of unfavorable investment performance or outstanding Contract debt. The tables on pages T1 through T3 in this prospectus illustrate approximately what the cash surrender values would be for representative Contracts paying certain premium amounts and assuming hypothetical uniform investment results in the Fund portfolios. All three of the tables assume maximum charges will be used throughout the lifetime of the insured. See ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS. 32

37 Loans You may borrow an amount up to the current loan value of your Contract less any existing Contract debt using the Contract as the only security for the loan. The loan value at any time is equal to the sum of (1) 90% of the portion of the cash value attributable to the variable investment options and (2) the balance of the cash value, provided the Contract is not in default. The cash value is equal to the Contract Fund less any surrender charge. A Contract in default has no loan value. There is no minimum loan amount. Interest charged on a loan accrues daily. We charge interest on the full loan amount, including all unpaid interest. Interest is due on each Contract anniversary or when the loan is paid back, whichever comes first. If interest is not paid when due, we will increase the loan amount by any unpaid interest. We charge interest at an effective annual rate of 5% for standard loans. A portion of any amount you borrow on or after the 10th Contract anniversary may be considered a preferred loan. The maximum preferred loan amount is the total amount you may borrow minus the total net premiums paid (net premiums equal premiums paid less total withdrawals, if any). If the net premium amount is less than zero, we will, for purposes of this calculation, consider it to be zero. On the tenth Contract anniversary and each Contract anniversary thereafter, if the insured is living and the Contract is not in default, any existing loan amount will automatically be converted to a preferred loan to the extent that there is a preferred loan amount available. Preferred loans are charged interest at an effective annual rate of 4.10%. When a loan is made, an amount equal to the loan proceeds is transferred out of the variable investment options and/or the fixed rate option, as applicable. Unless you ask us to take the loan amount from specific variable investment options and we agree, the reduction will be made in the same proportions as the value in each variable investment option and the fixed rate option bears to the total value of the Contract. While a loan is outstanding, the amount that was transferred will continue to be treated as part of the Contract Fund. It will be credited with interest at an effective annual rate of 4%. On each Monthly date, we will increase the portion of the Contract Fund in the investment options by interest credits accrued on the loan since the last Monthly date. The net interest rate spread of a standard loan is 1% and the net interest rate spread of a preferred loan is 0.10%. The Contract debt is the amount of all outstanding loans plus any interest accrued but not yet due. If, on any Monthly date, the Contract debt equals or exceeds the Contract Fund less any applicable surrender charges, the Contract will go into default. The Death Benefit Guarantee will not prevent default under those circumstances. We will notify you of a 61-day grace period, 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. If the Contract lapses or is surrendered, the amount of unpaid Contract debt will be treated as a distribution and will be immediately taxable to the extent of gain in the Contract. Reinstatement of the Contract after lapse will not eliminate the taxable income, which we are required to report to the Internal Revenue Service. See LAPSE AND REINSTATEMENT and Tax Treatment of Contract Benefits - Pre-Death Distributions. Loans you take against the Contract are ordinarily treated as debt and are not considered distributions subject to tax. However, you should know that the Internal Revenue Service may take the position that the loan should be treated as a distribution for tax purposes because of the relatively low differential between the loan interest rate and the Contract s crediting rate. Distributions are subject to income tax. Were the Internal Revenue Service to take this position, we would take reasonable steps to attempt to avoid this result, including modifying the Contract s loan provisions, but cannot guarantee that such efforts would be successful. A loan will not cause the Contract to lapse as long as Contract debt does not equal or exceed the Contract Fund, less any applicable surrender charges. Loans from Modified Endowment Contracts may be treated for tax purposes as distributions of income. See Tax Treatment of Contract Benefits. Any Contract debt will directly reduce a Contract's cash surrender value and will be subtracted from the death benefit to determine the amount payable. In addition, even if the loan is fully repaid, it may have an effect on future death benefits because the investment results of the selected investment options will apply only to the amount remaining invested under those options. The longer the loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If investment results are greater than the rate being credited on the 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. When you repay all or part of a loan, we will increase the portion of the Contract Fund in the investment options by the amount of the loan you repay plus interest credits accrued on the loan since the last transaction date. We will use the investment option you designate or the investment allocation for future premium payments as of the loan payment date. If loan interest is paid when due, it will not change the portion of the Contract Fund allocated to the investment options. We reserve the right to change the manner in which we allocate loan repayments. 33

38 Withdrawals You may withdraw a portion of the Contract's cash surrender value without surrendering the Contract, subject to the following restrictions: (a) Your Contract s cash surrender value after the withdrawal may not be less than or equal to zero after deducting any charges associated with the withdrawal. (b) The cash surrender value after the withdrawal must be an amount that we estimate will be sufficient to cover two months of Contract Fund deductions. (c) The withdrawal amount must be at least $500. There is a transaction fee for each withdrawal, which is the lesser of: (a) $25 and; (b) 2% of the withdrawal amount. A withdrawal may not be repaid except as a premium subject to the applicable charges. Upon request, we will tell you how much you may withdraw. Withdrawal of the cash surrender value may have tax consequences. See Tax Treatment of Contract Benefits. Whenever a withdrawal is made, the death benefit will immediately be reduced by at least the amount of the withdrawal. Withdrawals under Type B (variable) and Type C (return of premium) Contracts, will not change the basic insurance amount. However, under a Type A (fixed) Contract, the withdrawal may require a reduction in the basic insurance amount and Target Term Rider coverage amount. If a decrease in basic insurance amount reduces a coverage segment below its surrender charge threshold, a surrender charge may be deducted. See Surrender Charges. No withdrawal will be permitted under a Type A (fixed) Contract if it would result in a basic insurance amount of less than the minimum basic insurance amount shown under Contract Limitations in your Contract Data pages. It is important to note, however, that if the basic insurance amount is decreased, there is a possibility that the Contract might be classified as a Modified Endowment Contract. Before making any withdrawal that causes a decrease in basic insurance amount, you should consult with your tax adviser and your Pruco Life of New Jersey representative. See Tax Treatment of Contract Benefits. Currently, we will provide an authorization form if your withdrawal request causes a decrease in basic insurance amount that results in your Contract being classified as a Modified Endowment Contract. The authorization form will confirm that you are aware of your Contract becoming a Modified Endowment Contract if the transaction is completed. We will complete the transaction and send a confirmation notice after we receive the completed authorization form in Good Order at a Service Office. When a withdrawal is made, the Contract Fund is reduced by the withdrawal amount and any charges associated with the withdrawal. An amount equal to the reduction in the Contract Fund will be withdrawn proportionally from the investment options unless you direct otherwise. Withdrawal of any portion of the cash surrender value increases the risk that the Contract Fund may be insufficient to provide Contract benefits. If such a withdrawal is followed by unfavorable investment experience, the Contract may go into default. Withdrawals may also affect whether a Contract is kept in-force under the Death Benefit Guarantee, since withdrawals decrease your Accumulated Net Payments. See Death Benefit Guarantee. Generally, we will pay any withdrawal amount within seven days after all the documents required for such a payment are received in Good Order at a Service Office. See When Proceeds Are Paid. A Contract returned during the free-look period shall be deemed void from the beginning, and not considered a surrender or withdrawal. LAPSE AND REINSTATEMENT We will determine the value of the Contract Fund on each Monthly date. If the Contract Fund less any applicable surrender charges is zero or less, the Contract is in default unless it remains in-force under the Death Benefit Guarantee, assuming there are no outstanding loans. See Death Benefit Guarantee. Separately, if the Contract debt ever grows to be equal to or more than the Contract Fund less any applicable surrender charges, the Contract will be in default. Should this happen, we will send you a notice of default setting forth the payment which we estimate will keep the Contract in-force for three months from the date of default. This payment must be received at the Payment Office within the 61-day grace period after the notice of default is mailed or the Contract will end and have no value. A Contract that lapses with an outstanding Contract loan may have tax consequences. See Tax Treatment of Contract Benefits. 34

39 A Contract that ended in default may be reinstated within five years after the date of default, if the following conditions are met: (1) renewed evidence of insurability is provided on the insured; (2) submission of certain payments sufficient to bring the Contract up to date plus a premium that we estimate will cover all charges and deductions for the next three months; and (3) any Contract debt with interest to date is restored or paid back. If the Contract debt is restored and the debt with interest would exceed the loan value of the reinstated Contract, the excess must be paid to us before reinstatement. The reinstatement date will be the date we approve your request. We will deduct all required charges from your payment and the balance will be placed into your Contract Fund. If we approve the reinstatement, we will credit the Contract Fund with an amount equal to the surrender charge applicable as of the date of reinstatement. Tax Treatment of Contract Benefits TAXES This summary provides general information on the federal income tax treatment of the Contract. It is not a complete statement of what the federal income taxes will be in all circumstances. It is based on current law and interpretations, which may change. It does not cover state taxes or other taxes. It is not intended as tax advice. You should consult your own tax adviser for complete information and advice. Treatment as Life Insurance. The Contract must meet certain requirements to qualify as life insurance for tax purposes. These requirements include certain definitional tests and rules for diversification of the Contract s investments. For further information on the diversification requirements, see Taxation of the Fund in the statement of additional information for the Series Fund. In order to meet the definition of life insurance rules for federal income tax purposes, the Contract must satisfy one of the two following tests: (1) Cash Value Accumulation Test or (2) Guideline Premium Test. At issue, the Contract owner chooses which of these two tests will apply to their Contract. This choice cannot be changed thereafter. Under the Cash Value Accumulation Test, the Contract must maintain a minimum ratio of death benefit to cash value. Therefore, in order to ensure that the Contract qualifies as life insurance, the Contract's death benefit may increase as the Contract Fund value increases. The death benefit, at all times, must be at least equal to the Contract Fund multiplied by the applicable attained age factor. A listing of attained age factors can be found on your Contract Data pages. Under the Guideline Premium Test, there is a limit as to the amount of premium that can be paid into the Contract in relation to the death benefit. In addition, there is a minimum ratio of death benefit to cash value associated with this test. This ratio, however, is less than the required ratio under the Cash Value Accumulation Test. Therefore, the death benefit required under this test is generally lower than that of the Cash Value Accumulation Test. The selection of the definition of life insurance test most appropriate for you is dependent on several factors, including the insured s age at issue, actual Contract earnings, and whether or not the Contract is classified as a Modified Endowment Contract. You should consult your own tax adviser for complete information and advice with respect to the selection of the definition of life insurance test. We believe we have taken adequate steps to insure that the Contract qualifies as life insurance for tax purposes. Generally speaking, this means that: you will not be taxed on the growth of the funds in the Contract, unless you receive a distribution from the Contract, or if the Contract lapses or is surrendered, and the Contract's death benefit will generally be income tax free to your beneficiary. However, your death benefit may be subject to estate taxes. we may refuse to accept any payment that increases the death benefit by more than it increases the Contract Fund. Although we believe that the Contract should qualify as life insurance for tax purposes, there are some uncertainties, particularly because the Secretary of Treasury has not yet issued permanent regulations that bear on this question. Accordingly, we reserve 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 qualify as life insurance. 35

40 Pre-Death Distributions. The tax treatment of any distribution you receive before the insured s death depends on whether the Contract is classified as a Modified Endowment Contract. Contracts Not Classified as Modified Endowment Contracts If you surrender the Contract or allow it to lapse, you will be taxed on the amount you received in excess of the premiums you paid less the untaxed portion of any prior withdrawals. For this purpose, you will be treated as receiving any portion of the cash surrender value used to repay Contract debt. In other words, you will immediately have taxable income to the extent of gain in the Contract. Reinstatement of the Contract after lapse will not eliminate the taxable income, which we are required to report to the Internal Revenue Service. The tax consequences of a surrender may differ if you take the proceeds under an income payment settlement option. Generally, you will be taxed on a withdrawal to the extent the amount you receive exceeds the premiums you paid for the Contract less the untaxed portion of any prior withdrawals. However, under some limited circumstances, in the first 15 Contract years, all or a portion of a withdrawal may be taxed if the Contract Fund exceeds the total premiums paid less the untaxed portions of any prior withdrawals, even if total withdrawals do not exceed total premiums paid. Extra premiums for optional benefits and riders generally do not count in computing the premiums paid for the Contract for the purposes of determining whether a withdrawal is taxable. Loans you take against the Contract are ordinarily treated as debt and are not considered distributions subject to tax. However, you should know that the Internal Revenue Service may take the position that the preferred loan should be treated as a distribution for tax purposes because of the relatively low differential between the loan interest rate and Contract s crediting rate. Were the Internal Revenue Service to take this position, we would take reasonable steps to avoid this result, including modifying the Contract s loan provisions. Modified Endowment Contracts The rules change if the Contract is classified as a Modified Endowment Contract. The Contract could be classified as a Modified Endowment Contract if premiums in amounts that are too large are paid or a decrease in the basic insurance amount is made (or a rider removed). The addition of a rider or an increase in the basic insurance amount may also cause the Contract to be classified as a Modified Endowment Contract if a significant premium is paid in conjunction with an increase or the addition of a rider. We will notify you if a premium or a change in basic insurance amount would cause the Contract to become a Modified Endowment Contract, and advise you of your options. You should first consult a tax adviser and your Pruco Life of New Jersey representative if you are contemplating any of these steps. If the Contract is classified as a Modified Endowment Contract, then amounts you receive under the Contract before the insured's death, including loans and withdrawals, are included in income to the extent that the Contract Fund before surrender charges exceeds the premiums paid for the Contract increased by the amount of any loans previously included in income and reduced by any untaxed amounts previously received other than the amount of any loans excludible from income. An assignment of a Modified Endowment Contract is taxable in the same way. These rules also apply to pre-death distributions, including loans and assignments, made during the two-year period before the time that the Contract became a Modified Endowment Contract. Any taxable income on pre-death distributions (including full surrenders) is subject to a penalty of 10 percent unless the amount is received on or after age 59½, on account of your becoming disabled or as a life annuity. It is presently unclear how the penalty tax provisions apply to Contracts owned by businesses. All Modified Endowment Contracts issued by us to you during the same calendar year are treated as a single Contract for purposes of applying these rules. Investor Control. Treasury Department regulations do not provide specific guidance concerning the extent to which you may direct your investment in the particular variable investment options without causing you, instead of Pruco Life of New Jersey, to be considered the owner of the underlying assets. Because of this uncertainty, we reserve the right to make such changes as we deem necessary to assure that the Contract qualifies as life insurance for tax purposes. Any such changes will apply uniformly to affected Contract owners and will be made with such notice to affected Contract owners as is feasible under the circumstances. Withholding. You must affirmatively elect that no taxes be withheld from a pre-death distribution. Otherwise, the taxable portion of any amounts you receive will be subject to withholding. You are not permitted to elect out of withholding if you do not provide a social security number or other taxpayer identification number. You may be subject to penalties under the estimated tax payment rules if your withholding and estimated tax payments are insufficient to cover the tax due. 36

41 Other Tax Considerations. If you transfer or assign the Contract to someone else, there may be gift, estate and/or income tax consequences. If you transfer the Contract to a person two or more generations younger than you (or designate such a younger person as a beneficiary), there may be Generation Skipping Transfer tax consequences. 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. Your individual situation or that of your beneficiary will determine the federal estate taxes and the state and local estate, inheritance and other taxes due if you or the insured dies. Business-Owned Life Insurance. If a business, rather than an individual, is the owner of the Contract, there are some additional rules. Business Contract owners generally cannot deduct premium payments. Business Contract owners generally cannot take tax deductions for interest on Contract debt paid or accrued after October 13, 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 these loans is limited to a prescribed interest rate and a maximum aggregate loan amount of $50,000 per key insured person. The corporate alternative minimum tax also applies to business-owned life insurance. This is an indirect tax on additions to the Contract Fund or death benefits received under business-owned life insurance policies. DISTRIBUTION AND COMPENSATION Pruco Securities, LLC ( Prusec ), an indirect wholly-owned subsidiary of Prudential Financial, acts as the principal underwriter of the Contract. Prusec, organized on September 22, 2003 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 is a successor company to Pruco Securities Corporation, established on February 22, 1971.) Prusec s principal business address is 751 Broad Street, Newark, New Jersey Prusec serves as principal underwriter of the variable insurance Contracts issued by Pruco Life of New Jersey. The Contract is sold by registered representatives of Prusec who are also our appointed insurance agents under state insurance law. The Contract may also be sold through other broker-dealers authorized by Prusec and applicable law to do so. Prusec received gross distribution revenue for its individual variable life products of $95,241,637 in 2005, $114,496,331 in 2004 and $116,853,430 in Prusec passes through the gross distribution revenue it receives to broker-dealers for their sales and does not retain any portion of it in return for its services as distributor for the policies. However, Prusec does retain a portion of compensation it receives with respect to sales by its representatives. Prusec retained compensation of $15,018,502 in 2005, $10,572,253 in 2004 and $12,087,173 in Prusec offers the Contract on a continuous basis. On July 1, 2003, Prudential Financial combined its retail securities brokerage and clearing operations with those of Wachovia Corporation ( Wachovia ) and formed Wachovia Securities Financial Holdings, LLC ( Wachovia Securities ), a joint venture headquartered in Richmond, Virginia. Prudential Financial has a 38% ownership interest in the joint venture, while Wachovia owns the remaining 62%. Wachovia Securities is a national retail brokerage organization providing securities brokerage and financial advisory services to individuals and businesses. Wachovia and Wachovia Securities are key distribution partners for certain products of Prudential Financial affiliates, including individual life insurance, mutual funds, and individual annuities that are distributed through their financial advisors, bank channel and independent channel. In addition, Prudential Financial is a service provider to the managed account platform and certain wrap-fee programs offered by Wachovia Securities. Compensation (commissions, overrides, and any expense reimbursement allowance) is paid to broker-dealers that are registered under the Exchange Act and/or entities that are exempt from such registration ( firms ) according to one or more schedules. The individual representative will receive all or a portion of the compensation, depending on the practice of the firm. Compensation is based on a premium value referred to as the Commissionable Target Premium. The Commissionable Target Premium is equal to the first year's surrender charge (which is found in your Contract Data pages) divided by the Percentage of Sales Load Target Premium at start of year one from the table in the Surrender Charges section of this prospectus, plus the premium for any riders other than the Target Term Rider. The Commissionable Target Premium will vary by issue age, sex, smoker/non smoker, substandard rating class, and any riders selected by the Contract owner, with the exception of the Target Term Rider. Pruco Life of New Jersey pays significantly lower compensation on a Contract with a Target Term Rider than on an all base Contract with the same initial death benefit and premium payments because the Target Term Rider is not used in the determination of the Commissionable Target Premium. Broker-dealers will receive compensation of up to 99% of premiums received in the first 12 months following the Contract Date on total premiums received since issue up to the Commissionable Target Premium and 9% on premiums received in years two through four, and 6% in years five through 10 up to the Commissionable Target Premium in each Contract year. Moreover, broker-dealers will receive compensation of up to 4% on premiums received in year one, 9% on premiums received in years two through four, and 6% in years five through 10 to the extent that premiums in any year exceed the Commissionable Target Premium. Broker-dealers will also receive compensation in years two and beyond of up to 0.25% of the Contract Fund, net of Contract debt. 37

42 If the basic insurance amount is increased, broker-dealers will receive compensation of up to 99% on premiums received up to the Commissionable Target Premium for the increase received in the first 12 months following the effective date of the increase and 9% of premiums received in years two through four, and 6% in years five through 10 up to the Commissionable Target Premium for the increase. Moreover, broker-dealers will receive compensation of up to 4% on premiums received in year one, 9% on premiums received in years two through four, and 6% in years five through 10 following the effective date of the increase to the extent that premiums in any year exceed the Commissionable Target Premium. Prusec registered representatives who sell the Contract are also our life insurance agents, and may be eligible for various cash bonuses and insurance benefits and non-cash compensation programs that we or our affiliates offer such as conferences, trips, prizes and awards, subject to applicable regulatory requirements. In some circumstances and to the extent permitted by applicable regulatory requirements, we may also reimburse certain sales and marketing expenses. In addition, in an effort to promote the sale of our variable products (which may include the placement of our Contracts on a preferred or recommended company or product list and/or access to a broker-dealer s registered representatives), we or Prusec may enter into compensation arrangements with certain broker-dealer firms authorized by Prusec to sell the Contract, or branches of such firms, with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing and/or administrative and/or other services they provide to us or our affiliates. To the extent permitted by NASD rules and other applicable laws and regulations, Prusec may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be offered to all firms, and the terms of such arrangements may differ between firms. You should note that firms and individual registered representatives and branch managers within some firms participating in one of these compensation arrangements might receive greater compensation for selling the Contract than for selling a different Contract that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to a variable life insurance product, any such compensation will be paid by us, and will not result in any additional charge to you or to the separate account. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Contract. LEGAL PROCEEDINGS Pruco Life of New Jersey is subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and proceedings generally applicable to business practices in the industries in which we operate. In our insurance operations, we are subject to class action lawsuits and individual lawsuits involving a variety of issues, including sales practices, underwriting practices, claims payment and procedures, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, return of premiums or excessive premium charges and breaching fiduciary duties to customers. In our annuity operations, we are subject to litigation involving class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Pruco Life of New Jersey s litigation and regulatory matters are subject to many uncertainties, and given the complexity and scope, the outcomes cannot be predicted. It is possible that the results of operations or the cash flow of the Pruco Life of New Jersey in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of litigation and regulatory matters. Management believes, however, that the ultimate outcome of all pending litigation and regulatory matters should not have a material adverse effect on the Pruco Life of New Jersey s financial position. ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS The following tables (pages T1 through T3) show how a Contract s death benefit and cash surrender values change with the investment experience of the Account. They are "hypothetical" because they are based, in part, upon several assumptions, which are described below. All three tables assume the following: a Contract bought by a 32 year old male, Preferred non-smoker, with no extra risks or substandard ratings, and no extra benefit riders added to the Contract. 38

43 a given premium amount is paid on each Contract anniversary and no loans are taken. maximum contractual charges, before any fee waivers, reimbursement of expenses, or expense reductions, if any, have been made since issue. the Contract Fund has been invested in equal amounts in each of the 25 portfolios of the Funds and no portion of the Contract Fund has been allocated to the fixed-rate option. The first table (page T1) assumes: (1) a Type A (fixed) Contract has been purchased, (2) a $100,000 basic insurance amount, and (3) a Cash Value Accumulation Test has been elected for definition of life insurance testing. The second table (page T2) assumes: (1) a Type A (fixed) Contract has been purchased, (2) a $100,000 basic insurance amount, and (3) a Guideline Premium Test has been elected for definition of life insurance testing. The third table (page T3) assumes: (1) a Type B (variable) Contract has been purchased, (2) a $100,000 basic insurance amount, and (3) a Cash Value Accumulation Test has been elected for definition of life insurance testing. Finally, there are three assumptions, shown separately, about the average investment performance of the portfolios. The first is that there will be a uniform 0% gross rate of return with the average value of the Contract Fund uniformly adversely affected by very unfavorable investment performance. The other two assumptions are that investment performance will be at a uniform gross annual rate of 6% and 12%. Actual returns will fluctuate from year to year. In addition, death benefits and cash surrender values would be different from those shown if investment returns averaged 0%, 6%, and 12% but fluctuated from those averages throughout the years. Nevertheless, these assumptions help show how the Contract values will change with investment experience. The first column in the following tables shows the Contract year. The second column, to provide context, shows what the aggregate amount would be if the premiums had been invested to earn interest, after taxes, at 4% compounded annually. The next three columns show the death benefit payable in each of the years shown for the three different assumed investment returns. The last three columns show the cash surrender value payable in each of the years shown for the three different assumed investment returns. The death benefits and cash surrender values shown reflect the deduction of all expenses and charges both from the Funds and under the Contract. A gross return (as well as the net return) is shown at the top of each column. The gross return represents the combined effect of investment income and capital gains and losses, realized or unrealized, of the portfolios before any reduction is made for investment advisory fees or other Fund expenses. The net return reflects average total annual expenses of the 25 portfolios of 0.81% and the daily deduction from the Contract Fund of 0.45% per year. Assuming maximum charges, gross returns of 0%, 6%, and 12% are the equivalent of net returns of -1.26%, 4.74%, and 10.74%, respectively. The actual fees and expenses of the portfolios associated with a particular Contract may be more or less than 0.81% and will depend on which variable investment options are selected. The Contract allows you to invest your net premium dollars in a variety of professionally managed funds. Fluctuating investment returns in these funds, together with the actual pattern of your premium payments, our Contract charges, and any loans and withdrawals you may make will generate different Contract values than those illustrated, even if the averages of the investment rates of return over the years were to match those illustrated. We strongly recommend periodic Contract reviews with your Pruco Life of New Jersey representative. Reviews are an excellent way to monitor the performance of the Contract against your expectations and to identify adjustments that may be necessary to meet your needs. If you are considering the purchase of a variable life insurance contract from another insurance company, you should not rely upon these tables for comparison purposes. A comparison between two tables, each showing values for a 32 year old man using maximum charges, may be useful for a 32 year old man, but would be inaccurate if made for insureds of other issue ages, sex, or rating class. Your Pruco Life of New Jersey representative can provide you with a hypothetical illustration using current charges for your own issue age, sex, and rating class. 39

44 End of Policy Year Premiums Accumulated at 4% Interest Per Year PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE CASH VALUE ACCUMULATION TEST TYPE A (FIXED) DEATH BENEFIT MALE PREFERRED NON-SMOKER ISSUE AGE 32 $100,000 BASIC INSURANCE AMOUNT ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS IN ALL YEARS USING MAXIMUM CHARGES Death Benefit (1) 0% Gross (-1.26% Net) 6% Gross (4.74% Net) ILLUSTRATIONS Assuming Hypothetical Gross (and Net) Annual Investment Return of 12% Gross (10.74% Net) 0% Gross (-1.26% Net) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 6% Gross (4.74% Net) 12% Gross (10.74% Net) 1 $1,248 $100,000 $100,000 $100,000 $0 $0 $0 2 $2,546 $100,000 $100,000 $100,000 $267 $388 $514 3 $3,896 $100,000 $100,000 $100,000 $922 $1,153 $1,406 4 $5,300 $100,000 $100,000 $100,000 $1,562 $1,945 $2,380 5 $6,760 $100,000 $100,000 $100,000 $2,188 $2,763 $3,443 6 $8,278 $100,000 $100,000 $100,000 $2,951 $3,767 $4,766 7 $9,857 $100,000 $100,000 $100,000 $3,695 $4,803 $6,213 8 $11,499 $100,000 $100,000 $100,000 $4,418 $5,873 $7,798 9 $13,207 $100,000 $100,000 $100,000 $5,119 $6,977 $9, $14,984 $100,000 $100,000 $100,000 $5,797 $8,115 $11, $24,989 $100,000 $100,000 $100,000 $8,496 $14,040 $23, $37,163 $100,000 $100,000 $109,739 $10,317 $20,819 $43, $51,974 $100,000 $100,000 $163,060 $10,871 $28,412 $75, $69,994 $100,000 $100,000 $234,159 $9,366 $36,585 $125, $91,918 $100,000 $100,000 $329,920 $4,146 $44,829 $199, $118,592 $0 (2) $100,000 $457,126 $0 (2) $52,430 $310, $151,045 $0 $100,000 $631,864 $0 $57,686 $471, $190,528 $0 $100,000 $868,278 $0 $57,363 $700, $238,567 $0 $100,000 $1,196,686 $0 $38,929 $1,022, $297,012 $0 $0 (2) $1,659,261 $0 $0 (2) $1,481, $368,120 $0 $0 $2,304,908 $0 $0 $2,174, $417,981 $0 $0 $2,834,951 $0 $0 $2,779,364 (1) Assumes no Contract loan has been made. (2) Based on a gross return of 0%, the contract would go into default in policy year 38, unless an additional premium payment was made. Based on a gross return of 6%, the contract would go into default in policy year 58, unless an additional premium payment was 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%, 6%, 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 of New Jersey or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T1

45 End of Policy Year Premiums Accumulated at 4% Interest Per Year PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE GUIDELINE PREMIUM TEST TYPE A (FIXED) DEATH BENEFIT MALE PREFERRED NON-SMOKER ISSUE AGE 32 $100,000 BASIC INSURANCE AMOUNT ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS IN ALL YEARS USING MAXIMUM CHARGES Death Benefit (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.26% Net) 6% Gross (4.74% Net) 12% Gross (10.74% Net) 0% Gross (-1.26% Net) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 6% Gross (4.74% Net) 12% Gross (10.74% Net) 1 $1,248 $100,000 $100,000 $100,000 $0 $0 $0 2 $2,546 $100,000 $100,000 $100,000 $267 $388 $514 3 $3,896 $100,000 $100,000 $100,000 $922 $1,153 $1,406 4 $5,300 $100,000 $100,000 $100,000 $1,562 $1,945 $2,380 5 $6,760 $100,000 $100,000 $100,000 $2,188 $2,763 $3,443 6 $8,278 $100,000 $100,000 $100,000 $2,951 $3,767 $4,766 7 $9,857 $100,000 $100,000 $100,000 $3,695 $4,803 $6,213 8 $11,499 $100,000 $100,000 $100,000 $4,418 $5,873 $7,798 9 $13,207 $100,000 $100,000 $100,000 $5,119 $6,977 $9, $14,984 $100,000 $100,000 $100,000 $5,797 $8,115 $11, $24,989 $100,000 $100,000 $100,000 $8,496 $14,040 $23, $37,163 $100,000 $100,000 $100,000 $10,317 $20,819 $43, $51,974 $100,000 $100,000 $113,095 $10,871 $28,412 $77, $69,994 $100,000 $100,000 $169,821 $9,366 $36,585 $132, $91,918 $100,000 $100,000 $264,723 $4,146 $44,829 $222, $118,592 $0 (2) $100,000 $415,209 $0 (2) $52,430 $367, $151,045 $0 $100,000 $637,097 $0 $57,686 $606, $190,528 $0 $100,000 $1,045,505 $0 $57,363 $995, $238,567 $0 $100,000 $1,690,725 $0 $38,929 $1,610, $297,012 $0 $0 (2) $2,667,059 $0 $0 (2) $2,564, $368,120 $0 $0 $4,219,006 $0 $0 $4,219, $417,981 $0 $0 $5,733,001 $0 $0 $5,733,001 (1) Assumes no Contract loan has been made. (2) Based on a gross return of 0%, the contract would go into default in policy year 38, unless an additional premium payment was made. Based on a gross return of 6%, the contract would go into default in policy year 58, unless an additional premium payment was 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%, 6%, 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 of New Jersey or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T2

46 End of Policy Year Premiums Accumulated at 4% Interest Per Year PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE CASH VALUE ACCUMULATION TEST TYPE B (VARIABLE) DEATH BENEFIT MALE PREFERRED NON-SMOKER ISSUE AGE 32 $100,000 BASIC INSURANCE AMOUNT ASSUME PAYMENT OF $1,200 ANNUAL PREMIUMS IN ALL YEARS USING MAXIMUM CHARGES Death Benefit (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.26% Net) 6% Gross (4.74% Net) 12% Gross (10.74% Net) 0% Gross (-1.26% Net) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 6% Gross (4.74% Net) 12% Gross (10.74% Net) 1 $1,248 $100,481 $100,526 $100,571 $0 $0 $0 2 $2,546 $100,950 $101,070 $101,196 $264 $384 $510 3 $3,896 $101,526 $101,757 $102,009 $916 $1,147 $1,399 4 $5,300 $102,086 $102,467 $102,900 $1,553 $1,934 $2,366 5 $6,760 $102,631 $103,202 $103,877 $2,173 $2,745 $3,419 6 $8,278 $103,311 $104,120 $105,111 $2,930 $3,739 $4,730 7 $9,857 $103,970 $105,068 $106,465 $3,665 $4,763 $6,160 8 $11,499 $104,607 $106,046 $107,949 $4,379 $5,818 $7,720 9 $13,207 $105,220 $107,054 $109,575 $5,067 $6,901 $9, $14,984 $105,806 $108,091 $111,356 $5,730 $8,015 $11, $24,989 $108,311 $113,705 $123,182 $8,311 $13,705 $23, $37,163 $109,911 $119,919 $141,885 $9,911 $19,919 $41, $51,974 $110,078 $126,221 $171,283 $10,078 $26,221 $71, $69,994 $107,984 $131,578 $219,308 $7,984 $31,578 $117, $91,918 $102,112 $133,848 $309,600 $2,112 $33,848 $187, $118,592 $0 (2) $129,404 $429,513 $0 (2) $29,404 $292, $151,045 $0 $111,123 $594,173 $0 $11,123 $443, $190,528 $0 $0 (2) $816,917 $0 $0 (2) $658, $238,567 $0 $0 $1,126,300 $0 $0 $962, $297,012 $0 $0 $1,562,048 $0 $0 $1,394, $368,120 $0 $0 $2,170,231 $0 $0 $2,047, $417,981 $0 $0 $2,637,176 $0 $0 $2,537,176 (1) Assumes no Contract loan has been made. (2) Based on a gross return of 0%, the contract would go into default in policy year 37, unless an additional premium payment was made. Based on a gross return of 6%, the contract would go into default in policy year 47, unless an additional premium payment was 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%, 6%, 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 of New Jersey or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T3

47 ADDITIONAL INFORMATION Pruco Life of New Jersey has filed a registration statement with the SEC under the Securities Act of 1933, relating to the offering described in this prospectus. This prospectus does not include all 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 Public Reference Room at 100 F Street, N.E., Washington, D.C , or by telephoning (202) , upon payment of a prescribed fee. To reduce costs, we now generally send only a single copy of prospectuses and shareholder reports to each household ("householding"), in lieu of sending a copy to each Contract owner that resides in the household. You should be aware that you can revoke or "opt out" of householding at any time by calling You may contact us directly for further information. Our address and telephone number are on the inside front cover of this prospectus. 40

48 DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS Accumulated Net Payments - The actual premium payments you make, accumulated at an effective annual rate of 4%, less any withdrawals you make, also accumulated at an effective annual rate of 4%. attained age - The insured's age on the Contract date plus the number of years since then. For any coverage segment effective after the Contract date, the insured's attained age is the issue age of that segment plus the length of time since its effective date. basic insurance amount - The amount of life insurance as shown in the Contract, not including riders. cash surrender value - The amount payable to the Contract owner upon surrender of the Contract. It is equal to the Contract Fund minus any Contract debt and minus any applicable surrender charge. Also referred to in the Contract as "Net Cash Value." Contract - The variable universal life insurance Contract described in this prospectus. Contract anniversary - The same date as the Contract date in each later year. Contract date - The date the Contract is effective, as specified in the Contract. Contract debt - The principal amount of all outstanding loans plus any interest accrued thereon. Contract Fund - The total amount credited to a specific Contract. On any date it is equal to the sum of the amounts in all the variable investment options and the fixed rate option, and the principal amount of any Contract debt plus any interest earned thereon. Contract owner - You. Unless a different owner is named in the application, the owner of the Contract is the insured. Contract year - A year that starts on the Contract date or on a Contract anniversary. For any coverage segment representing an increase, Contract year is a year that starts on the effective date of the increase (referred to as Target year in the Contract). coverage segment - The basic insurance amount at issue is the first coverage segment. For each increase in basic insurance amount, a new coverage segment is created for the amount of the increase. death benefit - If the Contract is not in default, this is the amount we will pay upon the death of the insured, assuming no Contract debt. Death Benefit Guarantee - Sufficient premium payments, on an accumulated basis, will guarantee that your Contract will not lapse for a specified duration and a death benefit will be paid upon the death of the insured, regardless of investment experience and assuming no loans. See Death Benefit Guarantee. fixed rate option - An investment option under which interest is accrued daily at a rate that we declare periodically, but not less than an effective annual rate of 4%. Funds - Mutual funds with separate portfolios. One or more of the available Fund portfolios may be chosen as an underlying investment for the Contract. Good Order - An instruction received at our Service Office utilizing such forms, signatures, and dating as we require, which is sufficiently clear and complete and for which we do not need to exercise any discretion to follow such instructions. Lifetime Premiums - Premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force during the lifetime of the insured, regardless of investment performance and assuming no loans or withdrawals. Monthly date - The Contract date and the same date in each subsequent month. Pruco Life Insurance Company of New Jersey - Pruco Life of New Jersey, us, we, our. The company offering the Contract. Sales Load Target Premium - A premium that is used to determine sales load based on issue age and rating class of the insured, and any extra risk charges or riders, if applicable. separate account - Amounts under the Contract that are allocated to the variable investment options held by us in a separate account called the Pruco Life of New Jersey Variable Appreciable Account (the "Account"). The separate account is set apart from all of the general assets of Pruco Life Insurance Company of New Jersey. Short-Term Premiums - Premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force during the first five Contract years, regardless of investment performance and assuming no loans or withdrawals. Target Premiums - Premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force until the insured s age 65, or if later, during the first 10 Contract years, regardless of investment performance and assuming no loans or withdrawals. Target Term Rider - A Rider that provides a flexible term insurance benefit to attained age 100 on the life of the insured. 41

49 valuation period - The period of time from one determination of the value of the amount invested in a variable investment option to the next. Such determinations are made when the net asset values of the portfolios of the Funds are calculated, which would be as of the close of regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time). variable investment options - The portfolios of the mutual funds available under this Contract, whose shares are held in the separate account. you - The owner of the Contract. 42

50 To Learn More About PruLife Custom Premier To learn more about the PruLife Custom Premier variable universal life Contract, you can request a copy of the Statement of Additional Information ( SAI ), dated May 1, 2006, or view it online at See the Table of Contents of the SAI below. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Page GENERAL INFORMATION AND HISTORY... 1 Description of Pruco Life Insurance Company of New Jersey... 1 Control of Pruco Life Insurance Company of New Jersey... 1 State Regulation... 1 Records... 1 Services and Third Party Administration Agreements... 1 INITIAL PREMIUM PROCESSING... 2 ADDITIONAL INFORMATION ABOUT OPERATION OF CONTRACTS... 3 Legal Considerations Relating to Sex-Distinct Premiums and Benefits... 3 How a Type A (Fixed) Contract's Death Benefit Will Vary... 3 How a Type B (Variable) Contract's Death Benefit Will Vary... 4 How a Type C (Return of Premium) Contract s Death Benefit Will Vary... 5 Reports to Contract Owners... 6 UNDERWRITING PROCEDURES... 6 ADDITIONAL INFORMATION ABOUT CHARGES... 7 Charges for Increases in Basic Insurance Amount... 7 ADDITIONAL INFORMATION ABOUT CONTRACTS IN DEFAULT... 7 SERVICE FEES PAYABLE TO PRUCO LIFE OF NEW JERSEY... 7 DISTRIBUTION AND COMPENSATION... 7 EXPERTS... 8 PERFORMANCE DATA... 8 Average Annual Total Return... 8 Non-Standard Total Return... 8 Money Market Subaccount Yield... 8 FINANCIAL STATEMENTS

51 The SAI is legally a part of this prospectus, both of which are filed with the Securities and Exchange Commission ( SEC ) under the Securities Act of 1933, Registration No All of these filings can be reviewed and copied at the SEC s Public Reference Room in Washington, D.C. Information on the operation of the public reference room may be obtained by calling the Commission at (202) The SEC also maintains a Web site ( that contains the PruLife Custom Premier SAI, material incorporated by reference, and other information about Pruco Life of New Jersey. Copies of these materials can also be obtained, upon payment of duplicating fees, from the SEC s Public Reference Room, 100 F Street, N.E., Washington, D.C You can call us at to ask us questions, request information about the Contract, and obtain copies of the Statement of Additional Information, personalized illustrations, or other documents. You can also view the Statement of Additional Information located with the prospectus at or request a copy by writing to us at: Pruco Life Insurance Company of New Jersey 213 Washington Street Newark, New Jersey Investment Company Act of 1940: Registration No

52 ADVANCED SERIES TRUST AST International Value Portfolio AST Advanced Strategies Portfolio THE PRUDENTIAL SERIES FUND Global Portfolio SP International Value Portfolio PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 2007 SUPPLEMENT DATED JUNE 20, 2007 Robert Vishny has announced his intention to retire from LSV Asset Management, effective on or about December 31, Josef Lakonishok, Menno Vermeulen and Puneet Mansharamani will continue to serve as portfolio managers following Mr. Vishny s retirement. To reflect this change, effective on or about December 31, 2007, all references and information pertaining to Mr. Vishny contained in the Prospectus or Statement of Additional Information are deleted. ASTSUP1 PSFSUP2

53 THE PRUDENTIAL SERIES FUND Supplement dated March 12, 2007 to Prospectus dated May 1, 2006 This Supplement sets forth certain changes to the Prospectus, dated May 1, 2006, of The Prudential Series Fund (the Fund) with respect to the indicated Portfolios of the Fund. Capitalized terms used in this Supplement and not otherwise defined herein have the meanings given to them in the Fund s Prospectus. The Portfolios discussed in this Supplement may not be available under your variable contract. For more information about the Portfolios available under your contract, please refer to your contract prospectus. The following should be read in conjunction with the Fund s Prospectus and should be retained for future reference. I. Investment Policy Changes The Board of the Trustees of the Fund (the Board) recently approved investment policy changes for the Portfolios referenced below. Such changes will become effective on or about May 1, A. SP International Value Portfolio The investment and geographic focus for the SP International Value Portfolio will change as described below. The Portfolio currently invests at least 80% of its investable assets in issuers located in developed countries that are represented in the MSCI EAFE Index. Under the revised investment policies, the Portfolio will: (i) have a non-fundamental policy to invest, under normal circumstances, at least 80% of the value of its assets in equity securities and (ii) invest at least 65% of its net assets in the equity securities of foreign companies in at least three different countries. The Portfolio will not change its policy of investing at least 80% of the value of its assets in equity securities unless it provides 60 days prior written notice to contract owners. Current Investment and Geographic Focus The Portfolio normally invest at least 80% of the Portfolio s investable assets (net assets plus borrowings made for investment purposes) in the equity securities of companies in developed countries outside the United States that are represented in the MSCI EAFE Index. The MSCI EAFE Index tracks stocks in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Revised Investment and Geographic Focus The Portfolio will have a non-fundamental policy to invest, under normal circumstances, at least 80% of the value of its assets in equity securities. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. To achieve the Portfolio s investment objective, the Portfolio will invest at least 65% of its net assets in the equity securities of foreign companies in at least three different countries, without limit as to the amount of Portfolio assets that may be invested in any single country. A company is considered to be a foreign company if it satisfies at least one of the following criteria: its securities are traded principally on stock exchanges in one or more foreign countries; it derives 50% or more of its total revenue from goods produced, sales made or services performed in one or more foreign countries; it maintains 50% or more of its assets in one or more foreign countries; it is organized under the laws of a foreign country; or its principal executive office is located in a foreign country. The Portfolio may invest anywhere in the world, including North America, Western Europe, the United Kingdom and the Pacific Basin. The companies in which the Portfolio invests may be of any size. The primary risks associated with these changes are the risks of loss from: (i) increased investments in emerging markets securities and (ii) increased geographic concentration. Foreign investing involves special risks including currency risk and the possibility of substantial volatility due to adverse political, economic, financial or other developments. Foreign securities may also be less liquid and harder to value than U.S. securities. These risks are greater for investments in the emerging markets in which the Portfolio may invest. In addition, because the Portfolio may invest a large portion of its assets in a single country or region of the world pursuant to the revised investment policies, the Portfolio s investments can be geographically concentrated. This can result in more pronounced risks based upon economic conditions that affect a single country or region more or less than other countries or regions. B. SP PIMCO Total Return Bond Portfolio, SP PIMCO High Yield Portfolio, and SP Diversified Conservative Growth Portfolio Pacific Investment Management Company LLC (PIMCO) serves as a subadviser for all or a portion of the assets of the above-referenced Portfolios. With respect to these assets, PIMCO currently hedges at least 75% of each Portfolio s exposure to foreign currencies to reduce currency risk. The Board approved a revised investment policy that would permit each Portfolio to have foreign currency exposure not exceeding 20% of the total assets directly managed by PIMCO. In addition, with respect to futures contracts, each Portfolio currently covers any open positions by segregating or earmarking liquid assets in an amount equal to a specified percentage of the market value of the futures contract. However, with respect to money market futures contracts, (which are cash settled contracts and are marked to market on a daily basis), the revised investment policy will permit each Portfolio to segregate or earmark liquid assets in an amount equal to the

54 Portfolio's daily marked to market (net) obligation, if any, (or in other words the Portfolio's daily net liability, if any). These changes may result in increased currency risk, foreign markets risk, and derivatives risk for the Portfolios. C. SP AIM Core Equity Portfolio The Board approved increasing the Portfolio s ability to invest in foreign securities from 20% of its assets to 25% of its assets. The Portfolio does not expect to experience any material changes in its current investment strategy or operations. II. Addition of Secondary Performance Benchmarks The Board approved the addition of secondary performance benchmarks for the Portfolios listed below. The Portfolios current broadbased securities market indexes, primary custom blended indexes, and new secondary custom blended indexes are listed below. Portfolio Name SP Balanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio Broad-Based Securities Market Index S&P 500 Index S&P 500 Index S&P 500 Index Primary Custom Blended Index Russell 3000 Index: 48% MSCI EAFE Index: 12% Lehman Bros Aggregate Bond Index: 40% Russell 3000 Index: 32% MSCI EAFE Index: 8% Lehman Bros Aggregate Bond Index: 60% Russell 3000 Index: 64% MSCI EAFE Index: 16% Lehman Bros Aggregate Bond Index: 20% Secondary Custom Blended Index S&P 500 Index: 60% Lehman Bros Aggregate Bond Index: 40% S&P 500 Index: 40% Lehman Bros Aggregate Bond Index: 60% S&P 500 Index: 80% Lehman Bros Aggregate Bond Index: 20% PSFSUP9

55 DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO SP PIMCO TOTAL RETURN PORTFOLIO, EACH A SERIES OF THE PRUDENTIAL SERIES FUND SUPPLEMENT DATED FEBRUARY 13, 2007 TO THE PROSPECTUS DATED MAY 1, 2006 This supplement amends the current Prospectus of each of the above-referenced portfolios (each a "Fund" and together the "Funds"), and is in addition to any other supplement(s) to each Fund's current Prospectus. Each Fund s Prospectus is amended by adding the following disclosure: The Manager recently reevaluated the financial statement presentation of certain derivative instruments held by the Funds, which are commonly referred to as inverse floaters, under the provisions of Statement of Financial Accounting Standards No. 140 ("FAS 140"). The application of the provisions of FAS 140 entailed a reclassification of transactions in which a Fund sells a municipal bond to a special purpose trust in order to create an inverse floater which the Fund receives from such trust in a financing transaction. The trust also issues floating rate notes to third parties. The Fund receives interest payments on inverse floaters that bear an inverse relationship to the interest paid on the floating rate notes. These transactions were previously classified as a sale for financial statement presentation purposes. While such inverse floaters expose the Fund to leverage risk, they do not constitute borrowings for purposes of the Fund s restrictions on borrowings. The application of the provisions of FAS 140 with respect to inverse floaters otherwise acquired by the Fund is not currently subject to this reevaluation. Although the Manager believes that the Fund's historical accounting treatment of inverse floaters has been consistent with prevailing mutual fund industry accounting practices, it has analyzed the impact of applying FAS 140 to the reporting and presentation of the Funds inverse floaters in each Fund s financial statements, including each Fund's Financial Highlights, and has concluded that the cumulative impact of this change of accounting treatment was not material to prior financial statements. Future financial statements for the Fund will reflect the application of the provisions of FAS 140, regardless of materiality. Pursuant to FAS 140, the Fund will record interest on the full amount of the municipal bonds held in the special purpose trusts as interest income and the Fund also will record the interest to holders of the floating rate certificates and fees associated with the trust as interest expense in the Statement of Operations. This change will cause the Fund s expense ratio to increase. However, neither the Fund s net income nor its distributions to shareholders is impacted since the increase in interest expense will be offset by a corresponding amount of increased income on the bonds now deemed to be owned by the Fund (instead of only the interest the Fund received on the inverse floater certificates it held directly). To the extent that the Fund owns such inverse floaters as of the financial reporting period end, another important change pursuant to FAS 140 is that the Fund's gross assets would increase by the par amount of the floating rate certificates issued by the affected special purpose trusts, with a corresponding increase in the Fund's liabilities. The Fund's net assets and net asset value per share should not be affected by this change in accounting because the increase in gross assets will be offset by a corresponding increase in liabilities. PSFSUP5

56 THE PRUDENTIAL SERIES FUND Supplement dated August 25, 2006 to the Prospectus dated May 1, 2006 This supplement sets forth certain changes to the prospectus of The Prudential Series Fund (the Fund ) dated May 1, 2006 with respect to the indicated Portfolios of the Fund. The Portfolios discussed in this supplement may not be available under your variable contract. For more information about the Portfolios available under your contract, please refer to your contract prospectus. The following should be read in conjunction with the Fund s Prospectus and should be retained for future reference. I. Changes to Investment Policies Effective on or about August 25, 2006, selected investment policies for certain Portfolios of the Fund will change. The changes are specifically discussed below: SP Strategic Partners Focused Growth Portfolio. The number of securities that may be held by the portion of the Portfolio subadvised by AllianceBernstein is increased. To reflect this change, the indicated sections of the Prospectus are revised as follows: The explanation of the Portfolio s investment strategies appearing in the section of the Prospectus entitled Investment Objectives and Principal Strategies of the Portfolios SP Strategic Partners Focused Growth Portfolio is deleted and replaced with the following: We normally invest at least 65% of the Portfolio s total assets in equity-related securities of U.S. companies that the advisers believe to have strong capital appreciation potential. The Portfolio s strategy is to combine the efforts of two investment advisers and to invest in the favorite security selection ideas of both. Each investment adviser to the Portfolio utilizes a growth style: Jennison selects approximately 20 securities and AllianceBernstein, L.P. selects approximately 30 securities. The portfolio managers build a portfolio with stocks in which they have the highest confidence and may invest more than 5% of the Portfolio s assets in any one issuer. The Portfolio is nondiversified, meaning it can invest a relatively high percentage of its assets in a small number of issuers. Investing in a nondiversified portfolio, particularly a portfolio investing in approximately 50 equityrelated securities, involves greater risk than investing in a diversified portfolio because a loss resulting from the decline in the value of one security may represent a greater portion of the total assets of a nondiversified portfolio. The Portfolio may actively and frequently trade its portfolio securities. While we make every effort to achieve our objective, we cannot guarantee success and it is possible that you could lose money. This Portfolio is subadvised by Jennison and AllianceBernstein L.P. The second and third paragraphs of the section of the Prospectus entitled More Detailed Information on How the Portfolios Invest Investment Objectives and Policies SP Strategic Partners Focused Growth Portfolio are deleted and replaced with the following: The Portfolio normally invests at least 65% of its total assets in equity-related securities of U.S. companies that are believed to have strong capital appreciation potential. The Portfolio s strategy is to combine the efforts of two investment advisers and to invest in the favorite stock selection ideas of both. Each investment subadviser to the Portfolio utilizes a growth style: Jennison selects approximately 20 securities and AllianceBernstein selects approximately 30 securities. The portfolio managers build a portfolio with stocks in which they have the highest confidence and may invest more than 5% of the Portfolio s assets in any one issuer. The Portfolio may actively and frequently trade its portfolio securities. The Portfolio is a non-diversified mutual fund portfolio. This means that the Portfolio may invest in a relatively high percentage of net assets in a small number of issuers. Investing in a nondiversified mutual fund, particularly a fund investing in approximately 50 equity-related securities, involves greater risk than investing in a diversified fund because a loss resulting from the decline in the value of one security may represent a greater portion of the total assets of a nondiversified fund. SP PIMCO Total Return Portfolio. The permitted amount of Portfolio assets that may be invested in foreign securities is increased. To reflect this change, the third paragraph of the section of the Prospectus entitled More Detailed Information on How the Portfolios Invest Investment Objectives and Policies SP PIMCO Total Return Portfolio is deleted and replaced with the following: PSFSUP1

57 The Portfolio may invest up to 30% of its assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. The Portfolio will normally hedge at least 75% of its exposure to foreign currency to reduce the risk of loss due to fluctuations in currency exchange rates. Diversified Conservative Growth Portfolio. Equity Portfolio Jennison Portfolio Jennison 20/20 Focus Portfolio. Natural Resources Portfolio Value Portfolio The disclosure for each Portfolio pertaining to American Depositary Receipts (ADRs) is hereby revised to state that for the purpose of investing in foreign securities, as permitted for each Portfolio, we do not consider ADRs and other similar receipts or shares traded in U.S. markets to be foreign securities. II. Market Capitalization Definition Changes Effective on or about August 25, 2006, the market capitalization definitions utilized by certain of the Fund s Portfolios in connection with their investment policies will change. We use market capitalization ranges for the relevant index as of the time of a security s purchase. The changes are specifically set out in the following table: Portfolio Name Current Definition New Definition Equity Portfolio Major established companies are those with over $5 billion in market capitalization. The Portfolio considers major established companies to be those companies with market capitalizations within the market capitalization range of the Russell SP Davis Value Portfolio SP Small Cap Value Portfolio SP Mid-Cap Growth Portfolio SP Large Cap Value Portfolio SP Prudential U.S. Emerging Growth Portfolio The Portfolio invests primarily in stocks of U.S. companies with market capitalizations of at least $5 billion. The Portfolio generally defines small capitalization companies as those with market capitalizations that do not exceed the greater of: (i) $4 billion or (ii) the highest month-end market capitalization value of any common stock in the Russell 2000 Index during the preceding 12 months. Medium market capitalization companies are defined by the Portfolio as companies with market capitalizations equaling or exceeding $250 million but not exceeding the top of the Russell Midcap Growth Index range at the time of the Portfolio s investment. The Portfolio generally defines large capitalization companies as those with a total market capitalization of at least $5 billion or more. The Portfolio considers small and medium-sized companies to be those with market capitalizations that are less than the largest capitalization of the Standard and Poor s Mid Cap 400 Stock Index as of the end of a calendar quarter Index. The Portfolio invests primarily in stocks of U.S. companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. The Portfolio generally defines small capitalization companies as those companies with market capitalizations within the market capitalization range of the Russell 2000 Value Index. The Portfolio generally defines medium market capitalization companies as those companies with market capitalizations within the market capitalization range of the Russell Midcap Growth Index. The Portfolio generally defines large capitalization companies as those companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. The Portfolio generally defines small and medium-sized companies to be those companies with market capitalizations within the market capitalization range of the Russell Midcap Growth Index. PSFSUP1

58 III. Benchmark Index Changes Natural Resources Portfolio. Effective on or about August 25, 2006, the Lipper Natural Resources Fund Index is added as a supplemental benchmark index. To reflect the change, the table of average annual total returns appearing in the section of the Prospectus entitled Evaluating Performance is hereby replaced with the following: Natural Resources Portfolio Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Since Class II Inception ** Class I Shares 55.91% 23.74% 18.78% N/A Class II Shares N/A N/A N/A 50.56% S&P 500 Index*** 4.91% 0.54% 9.07% 9.28% Lipper Natural Resources Fund 46.37% 15.18% 14.80% 37.48% Index**** Lipper Variable Insurance Products (VIP) Natural Resources Funds Average***** 37.38% 16.90% 13.04% 42.26% *The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. **Returns of Portfolios in existence for less than one year are not annualized. Portfolio (Class I) inception: 5/1/88. Portfolio (Class II) inception: 4/28/05. ***The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month end return to the inception date of the Portfolio s Class II shares. ****The Lipper Natural Resources Fund Index is an unmanaged, equally-weighted index of the largest mutual funds in the Lipper Natural Resources category of funds. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month end return to the inception date of the Portfolio s Class II shares. *****The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month end return to the inception date of the Portfolio s Class II shares. Diversified Conservative Growth Portfolio. Effective on or about August 25, 2006, the current Diversified Conservative Growth Custom Blended Index utilized by the Portfolio will change. The Portfolio is changing the benchmark to create a more neutral custom blend for performance comparison purposes while retaining the underlying 40/60 split between stocks and bonds. To reflect the change, the table of average annual total returns appearing in the section of the Prospectus entitled Evaluating Performance is hereby replaced with the following: PSFSUP1

59 Diversified Conservative Growth Portfolio Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (5/3/99) Class I Shares 7.04% 6.10% 6.06% S&P 500 Index** 4.91% 0.54% 0.54% Prior Diversified Conservative Growth 3.56% 5.42% 4.83% Custom Blended Index*** Diversified Conservative Growth Custom 4.00% 4.49% 4.61% Blended Index**** Lipper Variable Insurance Products (VIP) Income Funds Average***** 4.13% 5.08% 4.40% *The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. **The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. ***The Prior Diversified Conservative Growth Custom Blended Index consists of the Standard & Poor s Barra Value Index (15%), the Standard & Poor s Barra Growth Index (15%), the Russell 2000 Value Index (5%), the Russell 2000 Growth Index (5%), the Lehman Brothers Aggregate Bond Index (40%), and the Lehman Brothers High Yield Bond Index (20%). These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Diversified Conservative Growth Custom Blended Index consists of the Russell 3000 Index (40%) and the Lehman Brothers Aggregate Index (60%). These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *****The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. IV. New Portfolio Manager: Government Income Portfolio Effective on or about August 25, 2006, Peter Cordrey is a co-portfolio manager of the Government Income Portfolio. To reflect this change, the section of the Prospectus entitled How the Fund is Managed Investment Subadvisers Portfolio Managers Government Income Portfolio is hereby deleted and replaced with the following: Robert Tipp, Richard Piccirillo and Peter Cordrey of PIM-Fixed Income co-manage the Portfolio. Robert Tipp, CFA, is Managing Director and Chief Investment Strategist at PIM-Fixed Income. He has managed the Portfolio since Mr. Tipp is also portfolio manager for Asset-Liability, TIPs, and Global Bond strategies, and is co-portfolio manager of Core Plus, US Government, and Municipal Bond strategies. Previously, Mr. Tipp served as co-head of Prudential Financial s institutional fixed income business. Before joining Prudential PSFSUP1

60 Financial in 1991, Mr. Tipp was a Director in the Portfolio Strategies Group at First Boston Corporation. Prior to that, he was a senior analyst at the Allstate Research & Planning Center, and managed fixed income and equity derivative strategies at Wells Fargo Investment Advisors. Mr. Tipp has 22 years of investment experience. Richard Piccirillo, Vice President and portfolio manager for PIM-Fixed Income s Global Liquidity Team, has managed the Portfolio since He has specialized in mortgage-backed securities since joining Prudential Financial in Mr. Piccirillo also specializes in structured products and is one of the lead portfolio managers for our multisector core fixed income accounts. Before joining Prudential Financial, Mr. Piccirillo was a fixed income analyst with Fischer Francis Trees & Watts, and an analyst at Smith Barney. He has 15 years of investment experience. Peter Cordrey is Managing Director and Head of PIM-Fixed Income s Global Liquidity Team, the group responsible for managing U.S. government and foreign government securities, mortgage-backed securities, U.S. agencies and fixed-income derivative products. He has managed the Portfolio since Mr. Cordrey specializes in government products, including agencies, as well as futures, interest rates, and swaps. Prior to joining Prudential Financial in 1996, he traded Treasuries, agencies and STRIPs for nine years as a Director of Government Securities at Merrill Lynch. Mr. Cordrey also worked as the head trader on the zero coupon desk at Lehman Brothers for two years. He received an AB in Economics from Princeton University and an MBA in Finance from Columbia University. V. Portfolio Manager: Equity Portfolio Kevin Caliendo is no longer a portfolio manager for the portion of the Portfolio subadvised by Salomon Brothers Asset Management, Inc. All references to Mr. Caliendo are hereby deleted. VI. New Portfolio Name & New Subadviser: SP LSV International Value Portfolio The name of the Portfolio will change on or about November 13, 2006 to SP International Value Portfolio. Effective on or about November 13, 2006, all references to SP LSV International Value Portfolio are replaced by references to SP International Value Portfolio. Effective on or about November 17, 2006, Thornburg Investment Management, Inc. ( Thornburg ) will join LSV Asset Management ( LSV ) as a subadviser to the SP International Value Portfolio. To reflect the addition of Thornburg as a subadviser, the indicated sections of the Prospectus are revised effective on or about November 17, 2006: The section of the Prospectus entitled Investment Objectives and Principal Strategies of the Portfolios is hereby revised by deleting the discussion pertaining to the SP International Value Portfolio and substituting the following: SP International Value Portfolio Investment Objective: long-term capital appreciation We normally invest at least 80% of the Portfolio s investable assets (net assets plus borrowings made for investment purposes) in the equity securities of companies in developed countries outside the United States that are represented in the MSCI EAFE Index. There is a risk that value stocks will perform differently from the market as a whole and other types of stocks and can continue to be undervalued by the markets for long periods of time. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. This Portfolio is subadvised by LSV Asset Management (LSV) and Thornburg Investment Management, Inc. (Thornburg). The section of the Prospectus entitled More Detailed Information on How the Portfolios Invest is hereby revised by deleting the discussion pertaining to the SP International Value Portfolio and substituting the following: PSFSUP1

61 SP International Value Portfolio The investment objective of this Portfolio is long-term capital appreciation. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio invests primarily in equity securities of companies represented in the MSCI EAFE Index. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. LSV uses proprietary investment models to manage the Portfolio in a bottom-up security selection approach combined with overall portfolio risk management. The primary components of the investment models are: 1) indicators of fundamental undervaluation, such as high dividend yield, low price-to-cash flow ratio or low price-to-earnings ratio, 2) indicators of past negative market sentiment, such as poor past stock price performance, 3) indicators of recent momentum, such as high recent stock price performance, and 4) control of incremental risk relative to the benchmark index. All such indicators are measured relative to the overall universe of non-u.s., developed market equities. This investment strategy can be described as a contrarian value approach. The objective of the strategy is to outperform the unhedged U.S. Dollar total return (net of foreign dividend withholding taxes) of the MSCI EAFE Index. The Portfolio may invest in equity securities from any of the countries comprising the MSCI EAFE Index. The Portfolio will typically hold at least 100 stocks and will generally align its country weightings with those of the MSCI EAFE Index. LSV intends to keep the Portfolio s assets as fully invested in non-u.s. equities as practicable at all times, except as needed to accommodate the Portfolio s liquidity needs. Thornburg uses individual company and industry analysis to make investment decisions. The principal focus is on traditional or "basic" value stocks. The portfolio may include stocks that in Thornburg's opinion provide value in a broader or different context. The relative proportions of these different types of securities will vary over time. Stocks are grouped into three categories: Basic Value, Consistent Earners, and Emerging Franchises. Basic Value stocks are financially sound companies with well-established businesses that are selling at low valuations relative to the company's net assets or potential earning power. Consistent Earners are companies with steady earnings and dividend growth that are selling at attractive valuations and are priced below historical norms. Emerging Franchises are value-priced companies in the process of establishing a leading position in a product, service, or market that is expected to grow at an above average rate. Generally, the majority of the portfolio will be invested in Basic Value and Consistent Earners. Debt securities are considered for investment when Thornburg believes them to be more attractive than equity alternatives. Among specific factors considered in identifying undervalued securities for inclusion in the portfolio are: price/earnings ratio, price to book value, price/cash flow ratio, debt/capital ratio, dividend yield, dividend history, security and consistency of revenue stream, undervalued assets, relative earnings growth potential, industry growth potential, industry leadership, dividend growth potential, franchise value and potential for favorable developments. Like all equity securities, the market values of securities held by the Portfolio can fluctuate significantly, reflecting the business performance of the issuing company, investor perception or general economic or financial market movements. As a fund that invests primarily in the securities of foreign issuers, the risk and degree of share price fluctuation of the Portfolio may be greater than a fund investing primarily in domestic securities. Investments in foreign securities involve different risks that U.S. investments, including fluctuations in currency exchange rates, unstable political and economic PSFSUP1

62 structures, reduced availability of public information, and lack of uniform financial reporting and regulatory practices such as those that apply to U.S. issuers. Foreign investments of the Portfolio may include securities issued by companies locating in developing countries. Developing countries are subject to more economic, political and business risk than major industrialized nations, and the securities they issue are expected to be more volatile and more uncertain as to payment of interest and principal. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Convertible securities. Warrants. Foreign securities. Options (on stock, debt, stock indices, foreign currencies, and futures). Futures contracts. Forward foreign currency exchange contracts. Interest rate swaps. Loan participations. Reverse repurchase agreements. Dollar rolls. When-issued and delayed delivery securities Short sales. Illiquid securities. The Portfolio may from time to time adopt a temporary defensive position in response to extraordinary adverse political, economic or stock market events. The Portfolio may invest up to 100% of its assets in U.S. or foreign government money market investments, or other short-term bonds that offer comparable safety, if the situation warrants. To the extent the Portfolio might adopt such a position over the course of its duration, the Portfolio may not meet its goal of long-term capital appreciation. The Portfolio is co-managed by LSV and Thornburg. LSV is responsible for managing approximately 60% of the Portfolio, and Thornburg is responsible for managing approximately 40% of the Portfolio. The section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby revised by deleting the information pertaining to LSV and substituting the following: LSV Asset Management (LSV) serves as the subadviser for a portion of the SP International Value Portfolio and for approximately 25% of the Global Portfolio. Formed in 1994, LSV is a quantitative value equity manager providing active asset management for institutional clients through the application of proprietary models. As of December 31, 2005, LSV had approximately $51.8 billion in assets under management. The address of LSV is One North Wacker Drive, Suite 4000, Chicago, Illinois The section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby revised by adding the following information pertaining to Thornburg: Thornburg Investment Management, Inc. ( Thornburg ), 119 East Marcy Street, Santa Fe, New Mexico 87501, serves as the subadviser for a portion of the SP International Value Portfolio. Thornburg is an independent, employee-owned investment management firm. The firm was founded in 1982 and began providing investment management services to clients in Thornburg uses a fundamental, bottom-up approach to investing which centers on the intrinsic value of each investment. Thornburg advises the Thornburg family of mutual funds and manages separate portfolios for select individuals and institutions. As of March 31, 2006, Thornburg had approximately $22.5 billion in assets under management. The section of the Prospectus entitled How the Fund is Managed Portfolio Managers is hereby revised by deleting the information pertaining to the SP LSV International Value Portfolio and substituting the following: PSFSUP1

63 SP International Value Portfolio The LSV segment of the Portfolio is co-managed by Josef Lakonishok, Robert Vishny, Menno Vermeulen, CFA and Puneet Mansharamani, CFA. Mr. Lakonishok has served as CEO, Partner and Portfolio Manager for LSV since its founding in He has more than 25 years of investment and research experience. In addition to his duties at LSV, Mr. Lakonishok serves as the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign. Mr. Vishny has served as a Partner and Portfolio Manager of LSV since its founding in He has more than 18 years of investment and research experience. Mr. Vermeulen has served as a Portfolio Manager and Senior Quantitative Analyst of LSV since 1995 and a Partner since He has more than 13 years of investment experience. Prior to joining LSV, Mr. Vermuelen served as a portfolio manager for ABP Investments. Mr. Mansharamani is a Partner and Portfolio Manager since January Mr. Mansharamani has previously served as a Quantitative Analyst of LSV since He has more than 7 years of investment experience. Prior to joining LSV. Mr. Mansharamani was an Analyst at Institutional Trust National City Corporation. Messrs. Lakonishok, Vishny and Vermeulen have managed the LSV portion of the Portfolio since LSV became a subadviser to the Portfolio in November Mr. Mansharamani joined the portfolio management team in January The portfolio managers responsible for the day-to-day management of the Thornburg portion of the SP International Value Portfolio are William V. Fries, CFA, a Managing Director of Thornburg, Wendy Trevisani, a Managing Director of Thornburg, and Lei Wang, CFA, also a Managing Director of Thornburg, who serve as co-portfolio managers.. Mr. Fries serves as the lead portfolio manager for the segment of the Portfolio advised by Thornburg. Before joining Thornburg in May 1995, Mr. Fries managed equity mutual funds for 16 years with another mutual fund management company. Before joining Thornburg in March 1999, Ms. Trevisani served as an institutional sales representative for Salomon Smith Barney in both New York City and London. Ms. Trevisani holds an MBA degree with a concentration in Finance from Columbia University, and a BA in International Relations from Bucknell University. Lei Wang joined Thornburg Investment Management in 2004 as an Associate Portfolio Manager. Prior to joining Thornburg, Mr. Wang served as a research analyst at Enso Capital Management LLC in New York City. He has also worked as a Financial Associate at Deutsche Bank in both London and New York City. Previously, Mr. Wang was an Analyst with The People's Bank of China (China's central bank) in Shanghai, China. He completed his BA and MA at East China Normal University and received his MBA in Finance from New York University. He has earned the right to use the CFA designation and is a member of the CFA Institute and Security Analyst Society of New York. VII. New Portfolio Name & New Subadviser: SP William Blair International Growth Portfolio The name of the Portfolio will change on or about November 13, 2006 to SP International Growth Portfolio. Effective on or about November 13, 2006, all references to SP William Blair International Growth Portfolio are replaced by references to SP International Growth Portfolio. Effective on or about November 17, 2006, Marsico Capital Management LLC ( Marsico ) will join William Blair & Company LLC ( William Blair ) as a subadviser to the SP International Growth Portfolio. To reflect the addition of Marsico as a subadviser, the indicated sections of the Prospectus are revised effective on or about November 17, 2006: PSFSUP1

64 The section of the Prospectus entitled Investment Objectives and Principal Strategies of the Portfolios SP International Value Portfolio is hereby revised by deleting the existing information and substituting the following: SP International Growth Portfolio Investment Objective: long-term growth of capital We invest primarily in equity-related securities of foreign issuers. The Portfolio invests primarily in the common stock of large and medium-sized foreign companies, although it may also invest in companies of all sizes. Under normal circumstances, the Portfolio invests at least 65% of its total assets in common stock of foreign companies operating or based in at least five different countries. The Portfolio looks primarily for stocks of companies whose earnings are growing at a faster rate than other companies or which offer attractive growth potential. These companies typically have characteristics such as above average growth in earnings and cash flow, improving profitability, strong balance sheets, management strength and strong market share for its products. The Portfolio also tries to buy such stocks at attractive prices in relation to their growth prospects. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. This Portfolio is advised by William Blair & Company LLC and Marsico Capital Management LLC. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk growth stock risk portfolio turnover risk The section of the Prospectus entitled More Detailed Information on How the Portfolios Invest Investment Objectives and Principal Strategies SP International Growth Portfolio is hereby revised by deleting all information are substituting the following: SP International Growth Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. The Portfolio invests primarily in equity related securities of foreign companies. A company is considered to be a foreign company if it satisfies at least one of the following criteria: its securities are traded principally on stock exchanges in one or more foreign countries; it derives 50% or more of its total revenue from goods produced, sales made or services performed in one or more foreign countries; it maintains 50% or more of its assets in one or more foreign countries; it is organized under the laws of a foreign country; or its principal executive office is located in a foreign country. The Portfolio invests in about 60 securities of primarily non-u.s. growth companies whose shares appear attractively valued on a relative and absolute basis. The Portfolio looks for companies that have above-average actual and potential earnings growth over the long term and strong financial and operational characteristics. The Portfolio selects stocks on the basis of individual company research. Thus, country, currency and industry weightings are primarily the result of individual stock selections. Although the Portfolio may invest in companies of all sizes, the Portfolio typically focuses on large and medium sized companies. Under normal conditions, the Portfolio intends to invest at least 65% of its total assets in the equity-related securities of foreign companies in at least five foreign countries. The Portfolio may invest anywhere in the world, including North America, Western Europe, the United Kingdom and the Pacific Basin, but generally not the U.S. PSFSUP1

65 The principal type of equity-related security in which the Portfolio invests is common stock. In addition to common stock, the Portfolio may invest in other equityrelated securities that include, but are not limited to, preferred stock, rights that can be exercised to obtain stock, warrants and debt securities or preferred stock convertible or exchangeable for common or preferred stock and master limited partnerships. The Portfolio may also invest in American Depositary Receipts (ADRs), which we consider to be equity-related securities. In deciding which stocks to purchase for the Portfolio, William Blair looks for growth companies that have both strong fundamentals and appear to be attractively valued relative to their growth potential. William Blair uses a bottom-up approach in selecting securities for the Portfolio, which means that they select stocks based on individual company research, rather than allocating by country or sector. In researching which stocks to buy, William Blair looks at a company s basic financial and operational characteristics as well as compare the company s stock price to the price of stocks of other companies that are its competitors, absolute historic valuation levels for that company s stock, its earnings growth and the price of existing portfolio holdings. Another important part of William Blair s research process is to have regular contact with management of the companies that they purchase in order to confirm earnings expectations and to assess management s ability to meet its stated goals. Although the Portfolio may invest in companies of all sizes, it typically focuses on large and medium sized companies. Generally, William Blair looks for companies that have one or more of the following characteristics: actual and potential growth in earnings and cash flow; actual and improving profitability; strong balance sheets; management strength; and strong market share for the company s products. In addition, William Blair looks for companies whose securities appear to be attractively valued relative to: each company s peer group; absolute historic valuations; and existing holdings of the Portfolio. Generally, they consider selling a security when there is an identifiable change in a company s fundamentals or when expectations of future earnings growth become fully reflected in the price of that security. In selecting investments for the portfolio, Marsico uses an approach that combines top-down macro-economic analysis with bottom-up stock selection. The top-down approach may take into consideration macro-economic factors such as, without limitation, interest rates, inflation, demographics, the regulatory environment, and the global competitive landscape. In addition, Marsico may also examine other factors that may include, without limitation, the most attractive global investment opportunities, industry consolidation, and the sustainability of financial trends observed. As a result of the top-down analysis, Marsico seeks to identify sectors, industries and companies that may benefit from the overall trends Marsico has observed. Marsico then looks for individual companies or securities with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company or security may be a suitable investment, Marsico may focus on any of a number of different attributes that may include, without limitation, the company s specific market expertise or dominance; its franchise durability and pricing power; solid fundamentals (e.g., a strong balance sheet, improving returns on equity, the ability to generate free cash flow, apparent use of conservative accounting standards, and transparent financial disclosure); strong and ethical management; commitment to shareholder interests; reasonable valuations in the context of projected growth rates; and other indications that a company or security may be an attractive investment prospect. This process is called bottom-up stock selection. The Portfolio may invest in bonds, money market instruments and other fixed income obligations. Generally, the Portfolio will purchase only Investment-Grade fixed income investments. This means the obligations have received one of the four highest quality ratings determined by Moody s Investors Service, Inc. (Moody s), or Standard & Poor s Ratings Group (S&P), or one of the other nationally recognized statistical rating organizations (NRSROs). Obligations rated in the fourth category (Baa for Moody s or BBB for S&P) have speculative characteristics and are subject to a greater risk of loss of PSFSUP1

66 principal and interest. On occasion, the Portfolio may buy instruments that are not rated, but that are of comparable quality to the investment-grade bonds described above. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity securities, stock indexes and foreign currencies. Purchase and sell futures contracts on stock indexes, debt securities, interest rate indexes and foreign currencies and options on these futures contracts. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. Borrow up to 33% of the value of the Portfolio s total assets. Short sales against-the-box. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. In response to adverse market, economic or political conditions, the portfolio may temporarily invest up to 100% of its assets in money market instruments or in the stock and other equity-related securities of U.S. companies. Investing heavily in money market instruments limits the ability to achieve capital appreciation, but may help to preserve the portfolio s assets when global or international markets are unstable. When the portfolio is temporarily invested in equity-related securities of U.S. companies, the portfolio may achieve capital appreciation, although not through investment in foreign companies. This Portfolio is co-managed by William Blair and Marsico. William Blair is responsible for managing approximately 90% of the Portfolio, and Marsico is responsible for managing approximately 10% of the Portfolio. The section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby revised by deleting the information pertaining to William Blair and substituting the following: William Blair & Company LLC (William Blair) serves as the subadviser for a portion of the SP International Growth Portfolio and approximately 25% of the Global Portfolio. Since the founding of the firm in 1935, William Blair has been dedicated to researching, financing and investing in high quality growth companies through four primary divisions: investment banking, sales and trading, asset management and private capital. As of December 31, 2005, William Blair managed approximately $33.6 billion in assets. The address of William Blair is 222 West Adams Street, Chicago, Illinois The section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby revised by deleting the information pertaining to Thornburg and substituting the following: Marsico Capital Management, LLC (Marsico), th Street, Suite 1600, Denver, CO 80202, serves as a subadviser for approximately 25% of the assets of the Global Portfolio and a portion of the SP International Growth Portfolio. Marsico was organized in September 1997 as a registered investment adviser and became a wholly-owned indirect subsidiary of Bank of America Corporation in January Marsico provides investment management services to other mutual funds and private accounts and, as of December 31, 2005, had approximately $63 billion under management. Thomas F. Marsico is the founder and Chief Executive Officer of Marsico The section of the Prospectus entitled How the Fund is Managed Portfolio Managers is hereby revised by deleting the information pertaining to the SP William Blair International Growth Portfolio and substituting the following: PSFSUP1 SP International Growth Portfolio W. George Grieg is responsible for the day-to-day management of the segment of the Portfolio managed by William Blair. Mr. Grieg is a principal of William Blair and joined the firm in 1996 as an international portfolio manager. Mr. Grieg has managed the Portfolio since William Blair became the Portfolio s subadviser in May 2004.

67 James G. Gendelman is the portfolio manager for the segment of the Portfolio managed by Marsico. Prior to joining Marsico in May of 2000, Mr. Gendelman spent thirteen years as a Vice President of International Sales for Goldman, Sachs & Co. He holds a bachelor s degree in Accounting from Michigan State University and an MBA in Finance from the University of Chicago. Mr. Gendelman was a certified public accountant for Ernst & Young from 1983 to VIII. Portfolio Managers: SP Asset Allocation Portfolios The section of the Prospectus entitled How the Fund is Managed Portfolio Managers is supplemented effective on or about September 15, 2006 by adding the following information pertaining to the SP Asset Allocation Portfolios: PI uses a team to manage each of the SP Asset Allocation Portfolios (the Portfolios ). The portfolio managers of the Asset Allocation Team with overall responsibility for determining the asset allocation strategy of the Portfolios are listed below. Christopher D. Piros, Ph.D., CFA, a member of the Asset Allocation Team, has overall responsibility for the management of the Portfolios. Dr. Piros also directs the capital market, investment strategy, and economic research functions of PI s Strategic Investment Research Group ( SIRG ). Prior to joining Prudential, he was a Senior Vice President and Portfolio Manager with MFS Investment Management ( ) and an Executive-in-Residence at the Boston University School of Management ( ). He has also served on the finance faculty of Duke University s Fuqua School of Business. He is a graduate of Northwestern University and holds a Ph.D. in Economics from Harvard University. Michael Lenarcic, PhD, is a member of the Asset Allocation Team. In addition to serving as a portfolio manager for the Portfolios, Dr. Lenarcic is a Managing Director of Quantitative Management Associates LLC (QMA). Previously, he was a vice president at Wilshire Associates, a leading pension consulting firm, where he was head of the Asset Allocation Division. Earlier, Dr. Lenarcic was an assistant professor at Northeastern University where he taught Finance and Economics. He earned a BA in Business Administration from Kent State University, and holds an AM and PhD in Business Economics from Harvard University. Ted Lockwood is a member of the Asset Allocation Team. In addition to serving as a portfolio manager for the Portfolios, Ted is a Managing Director of QMA. Previously, Ted was with AT&T and a member of the technical staff at AT&T Bell Laboratories. Ted graduated summa cum laude with a BE in Engineering from Stony Brook University and received an MS in Engineering and an MBA in Finance from Columbia University. James G. Russell, CIMA, CFA, is head of the Investment Research Team. In addition to serving as a portfolio manager for the Portfolios, Mr. Russell has overall responsibility for PI s investment research efforts. Prior to joining Prudential Investments in 2000, Mr. Russell managed the asset management and asset allocation businesses at Diversified Investment Advisors, a $60 billion institutional asset management firm, and managed a division of Evaluation Associates Incorporated, a national investment management consulting organization. He is a graduate of Colgate University. IX. Fees and Expenses The section of the Prospectus entitled Fees And Expenses Of The Portfolios is hereby revised by deleting footnote (3) to the table titled Class I Shares--Annual Fund Operating Expenses and substituting new footnote (3) as set forth below: (3) Effective as of July 1, 2006, Prudential Investments LLC has voluntarily agreed waive a portion of its management fee and/or limit total expenses (expressed as a PSFSUP1

68 percentage of total assets) for certain Portfolios of the Fund, as set forth in the table below. These arrangements may be discontinued or otherwise modified at any time. Portfolio Conservative Balanced Diversified Bond Equity Flexible Managed Government Income High Yield Bond Jennison Money Market Natural Resources Small Capitalization Stock Stock Index Value SP AIM Core Equity SP Large-Cap Value SP LSV International Value SP Mid-Cap Growth SP PIMCO High Yield SP PIMCO Total Return SP Prudential U.S. Emerging Growth SP Small-Cap Growth SP Small-Cap Value SP Strategic Partners Focused Growth SP T. Rowe Price Large-Cap Growth SP William Blair International Growth Fee Waiver and/or Expense Limitation Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 1.00% of total assets Limit Portfolio expenses to 0.90% of total assets Limit Portfolio expenses to 1.10% of total assets Limit Portfolio expenses to 1.00% of total assets Limit Portfolio expenses to 0.82% of total assets Limit Portfolio expenses to 0.76% of total assets Limit Portfolio expenses to 0.90% of total assets Limit Portfolio expenses to 1.15% of total assets Limit Portfolio expenses to 1.05% of total assets Limit Portfolio expenses to 1.25% of total assets Limit Portfolio expenses to 1.06% of total assets Limit Portfolio expenses to 1.24% of total assets The section of the Prospectus entitled Fees And Expenses Of The Portfolios is hereby revised by deleting footnote (3) to the table titled Class II Shares--Annual Fund Operating Expenses and substituting new footnote (3) as set forth below: PSFSUP1 (3) Effective as of July 1, 2006, Prudential Investments LLC has voluntarily agreed waive a portion of its management fee and/or limit total expenses (expressed as a percentage of total assets) for certain Portfolios of the Fund, as set forth in the table below. These expense limitations do not include the Rule 12b-1 fee and the

69 administration fee applicable to Class II shares and may be discontinued or otherwise modified at any time. Portfolio Equity Jennison Natural Resources Value SP Prudential U.S. Emerging Growth SP Strategic Partners Focused Growth SP William Blair International Growth Fee Waiver and/or Expense Limitation Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.75% of total assets Limit Portfolio expenses to 0.90% of total assets Limit Portfolio expenses to 1.25% of total assets Limit Portfolio expenses to 1.24% of total assets PSFSUP1

70 PROSPECTUS May 1, 2006 THE PRUDENTIAL SERIES FUND Diversified Bond Portfolio Equity Portfolio Global Portfolio High Yield Bond Portfolio Jennison Portfolio Money Market Portfolio Stock Index Portfolio SP AIM Core Equity Portfolio SP Davis Value Portfolio SP Large Cap Value Portfolio SP LSV International Value Portfolio SP Mid Cap Growth Portfolio SP PIMCO High Yield Portfolio SP PIMCO Total Return Portfolio SP Prudential U.S. Emerging Growth Portfolio SP Small Cap Growth Portfolio SP Small Cap Value Portfolio SP Strategic Partners Focused Growth Portfolio SP T. Rowe Price Large Cap Growth Portfolio SP William Blair International Growth Portfolio SP Aggressive Growth Asset Allocation Portfolio SP Balanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Fund is an investment vehicle for life insurance companies ( Participating Insurance Companies ) writing variable annuity contracts and variable life insurance policies. Shares of the Fund may also be sold directly to certain tax-deferred retirement plans. Each variable annuity contract and variable life insurance policy involves fees and expenses not described in this Prospectus. Please read the Prospectus for the variable annuity contract or variable life insurance policy for information regarding the contract or policy, including its fees and expenses. The Fund received an order from the Securities and Exchange Commission permitting its Investment Manager, subject to approval by its Board of Directors, to change subadvisers without shareholder approval. For more information, please see this Prospectus under How the Fund is Managed.

71 Table of Contents 1 INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES OF THE PORTFOLIOS 11 PRINCIPAL RISKS 14 EVALUATING PERFORMANCE 38 FEES AND EXPENSES OF INVESTING IN THE PORTFOLIOS 40 MORE DETAILED INFORMATION ON HOW THE PORTFOLIOS INVEST Investment Objectives and Policies Diversified Bond Portfolio Equity Portfolio Global Portfolio High Yield Bond Portfolio Jennison Portfolio Money Market Portfolio Stock Index Portfolio SP AIM Core Equity Portfolio SP Davis Value Portfolio SP Large Cap Value Portfolio SP LSV International Value Portfolio SP Mid Cap Growth Portfolio SP PIMCO High Yield Portfolio SP PIMCO Total Return Portfolio SP Prudential U.S. Emerging Growth Portfolio SP Small Cap Growth Portfolio SP Small Cap Value Portfolio(1) SP Strategic Partners Focused Growth Portfolio SP T. Rowe Price Large Cap Growth Portfolio(2) SP William Blair International Growth Portfolio SP Asset Allocation Portfolios SP Aggressive Growth Asset Allocation Portfolio SP Balanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio 66 MORE DETAILED INFORMATION ABOUT OTHER INVESTMENTS AND STRATEGIES USED BY THE PORTFOLIOS American Depositary Receipts Asset-Backed Securities Collateralized Debt Obligations Convertible Debt and Convertible Preferred Stock Credit Default Swaps Credit-Linked Securities Derivatives Dollar Rolls Equity Swaps Event-Linked Bonds Forward Foreign Currency Exchange Contracts Futures Contracts (1) Formerly, SP Goldman Sachs Small Cap Value Portfolio (2) Formerly, SP AllianceBernstein Large Cap Growth Portfolio i

72 Interest Rate Swaps Joint Repurchase Account Loans and Assignments Mortgage-Related Securities Options Private Investments in Public Equity Real Estate Investment Trusts Repurchase Agreements Reverse Repurchase Agreements Short Sales Short Sales Against-the-Box Swap Options Swaps Total Return Swaps When-Issued and Delayed Delivery Securities 70 HOW THE FUND IS MANAGED Board of Directors Investment Adviser Investment Subadvisers Portfolio Managers 84 HOW TO BUY AND SELL SHARES OF THE FUND Frequent Purchases or Redemptions of Fund Shares Net Asset Value Distributor 87 OTHER INFORMATION Change in Federal Income Tax Status and Related Reorganization Federal Income Taxes Federal Income Taxes Monitoring for Possible Conflicts Disclosure of Portfolio Holdings 88 FINANCIAL HIGHLIGHTS (For more information see back cover) ii

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74 This prospectus provides information about The Prudential Series Fund (the Fund), which consists of 32 separate portfolios (each, a Portfolio). The Fund offers two classes of shares in each Portfolio: Class I and Class II. Class I shares are sold only to separate accounts of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively, Prudential) as investment options under variable life insurance and variable annuity contracts (the Contracts). (A separate account keeps the assets supporting certain insurance contracts separate from the general assets and liabilities of the insurance company.) Class II shares are offered only to separate accounts of non- Prudential insurance companies for the same types of Contracts. Not every Portfolio is available under every Contract. The prospectus for each Contract lists the Portfolios currently available through that Contract. This section highlights key information about each Portfolio. Additional information follows this summary and is also provided in the Fund s Statement of Additional Information (SAI). INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES OF THE PORTFOLIOS The following summarizes the investment objectives, principal strategies and principal risks for each of the Portfolios. A Portfolio may have a similar name or an investment objective and investment policies closely resembling those of a mutual fund managed by the same investment adviser that is sold directly to individual investors. Despite such similarities, there can be no assurance that the investment performance of any Portfolio will track that of its retail fund counterpart. We describe each of the terms listed as principal risks in the section entitled Principal Risks which follows this section. While we make every effort to achieve the investment objective for each Portfolio, we can t guarantee success and it is possible that you could lose money. Diversified Bond Portfolio Investment Objective: high level of income over a longer term while providing reasonable safety of capital. We look for investments that we think will provide a high level of current income, but which are not expected to involve a substantial risk of loss of capital through default. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in high-grade debt obligations and high-quality money market investments. We may purchase securities that are issued outside the U.S. by foreign or U.S. issuers. In addition, we may invest a portion of the Portfolio s assets in high-yield/high-risk debt securities, which are riskier than high-grade securities. We may invest up to 20% of the Portfolio s total assets in debt securities issued outside the U.S. by U.S. or foreign issuers whether or not such securities are denominated in the U.S. dollar. These securities are included in the limits described above for debt obligations that may or may not be high grade. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: credit risk derivatives risk foreign investment risk high yield risk interest rate risk leveraging risk liquidity risk management risk market risk prepayment risk Equity Portfolio Investment Objective: long-term growth of capital. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in common stock of major established companies as well as smaller companies that we believe offer 1

75 attractive prospects of appreciation. The Portfolio may invest up to 30% of its total assets in foreign securities. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk Global Portfolio Investment Objective: long-term growth of capital. The Portfolio invests primarily in common stocks (and their equivalents) of foreign and U.S. companies. Each subadviser for the Portfolio generally will use either a growth approach or a value approach in selecting either foreign or U.S. common stocks. The target asset allocation, area of geographic focus, and primary investment style for each subadviser are set forth below. Subadviser Target Asset Allocation of Global Portfolio s Assets Primary Geographic Focus and Asset Class Investment Style William Blair... 25% Foreign Equity Growth-oriented LSV... 25% Foreign Equity Value-oriented Marsico... 25% U.S. Equity Growth-oriented T. Rowe Price... 25% U.S. Equity Value-oriented Generally, the Portfolio invests in at least three countries, including the U.S., but may invest up to 35% of its assets in companies located in any one country. The 35% limitation does not apply to U.S investments. The Portfolio may invest in emerging markets securities. The actual allocation to each subadviser may vary from the target allocation listed above. The Portfolio may change the target allocations. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk currency risk High Yield Bond Portfolio Investment Objective: a high total return. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in high-yield/high-risk debt securities. Such securities have speculative characteristics and are riskier than high-grade securities. The Portfolio may invest up to 20% of its total assets in foreign debt obligations. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. 2

76 Principal Risks: credit risk derivatives risk foreign investment risk high yield risk interest rate risk leveraging risk liquidity risk management risk market risk prepayment risk Jennison Portfolio Investment Objective: long-term growth of capital. We invest primarily in equity securities of major, established corporations that we believe offer above-average growth prospects. The Portfolio may invest up to 30% of its total assets in foreign securities. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk Money Market Portfolio Investment Objective: maximum current income consistent with the stability of capital and the maintenance of liquidity. We invest in high-quality, short-term money market instruments issued by the U.S. Government or its agencies, as well as by corporations and banks, both domestic and foreign. The Portfolio will invest only in instruments that mature in thirteen months or less, and which are denominated in U.S. dollars. While we make every effort to achieve our objective, we can t guarantee success. Principal Risks: credit risk interest rate risk management risk An investment in the Money Market Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the Portfolio seeks to maintain a net asset value of $10 per share, it is possible to lose money by investing in the Portfolio. Stock Index Portfolio Investment Objective: investment results that generally correspond to the performance of publicly-traded common stocks. With the price and yield performance of the Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) as our benchmark, we normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in S&P 500 stocks. The S&P 500 Index represents more than 70% of the total market value of all publicly-traded common stocks and is widely viewed as representative of publicly-traded common stocks as a whole. The Portfolio is not managed in the traditional sense of using market and economic analyses to select stocks. Rather, the 3

77 portfolio manager purchases stocks in proportion to their weighting in the S&P 500 Index. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk market risk SP AIM Core Equity Portfolio Investment Objective: growth of capital. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in equity securities, including convertible securities of established companies that have long-term above-average growth in earnings and growth companies that the portfolio managers believe have the potential for aboveaverage growth in earnings. In complying with this 80% requirement, the Portfolio s investments may include synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the Portfolio s direct investments and may include warrants, futures, options, exchange-traded funds and American Depositary Receipts (ADRs). The portfolio manager considers whether to sell a particular security when they believe the security no longer has aboveaverage earnings growth potential or the capacity to generate income. The Portfolio may invest up to 20% of its total assets in foreign securities. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk credit risk derivatives risk foreign investment risk interest rate risk liquidity risk leveraging risk management risk market risk SP Davis Value Portfolio Investment Objective: growth of capital. We invest primarily in common stock of U.S. companies with market capitalizations of at least $5 billion. The portfolio managers perform extensive research to try to identify businesses that possess characteristics which they believe foster the creation of long-term value, such as proven management, a durable franchise and business model, and sustainable competitive advantages. The portfolio managers seek common stock that can be purchased at attractive valuations relative to their intrinsic value. Our goal is to invest in companies for the long term. The portfolio managers will consider selling a security if they believe its price exceeds their estimates of intrinsic value, or if the ratio of risks and rewards associated with owning the security is no longer attractive. There is a risk that value stocks will perform differently from the market as a whole and other types of stocks and can continue to be undervalued by the markets for long periods of time. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk foreign company risk management risk market risk 4

78 SP Large Cap Value Portfolio Investment Objective: long-term growth of capital. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in common stocks and securities convertible into common stock of companies. The Portfolio generally defines large capitalization companies as those with a total market capitalization of $5 billion or more (measured at the time of purchase). There is a risk that value stocks will perform differently from the market as a whole and other types of stocks and can continue to be undervalued by the markets for long periods of time. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk portfolio turnover risk SP LSV International Value Portfolio Investment Objective: long-term capital appreciation. We normally invest at least 80% of the Portfolio s investable assets (net assets plus borrowings made for investment purposes) in the equity securities of companies in developed countries outside the United States that are represented in the MSCI EAFE Index. There is a risk that value stocks will perform differently from the market as a whole and other types of stocks and can continue to be undervalued by the markets for long periods of time. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. This Portfolio is subadvised by LSV Asset Management (LSV). Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk SP Mid Cap Growth Portfolio Investment Objective: long-term growth of capital. We invest, under normal market conditions, at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts for those securities. These securities typically are of medium market capitalizations, which Calamos Advisors LLC (Calamos) believes have above-average growth potential. Medium market capitalization companies are defined by the Portfolio as companies with market capitalizations equaling or exceeding $250 million but not exceeding the top of the Russell Midcap Growth Index range at the time of the Portfolio s investment. This Index is a widely recognized, unmanaged index of mid cap common stock prices. Companies whose market capitalizations fall below $250 million or exceed the top of the Russell Midcap Growth Index range after purchase continue to be considered mediumcapitalization companies for purposes of the Portfolio s 80% investment policy. The Portfolio s investments may include securities listed on a securities exchange or traded in the over-the-counter markets. Calamos uses both bottom-up and topdown analysis in managing the Portfolio. This means that securities are selected based upon fundamental analysis (such as an analysis of earnings, cash flows, competitive position and management s abilities), as well as a top-down approach of 5

79 diversification by industry and company while paying attention to macro-level investment themes. The Portfolio may invest in foreign securities (including emerging markets securities). The Portfolio is expected to engage in active and frequent trading to achieve its principal investment strategies. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk portfolio turnover risk SP PIMCO High Yield Portfolio Investment Objective: maximum total return, consistent with preservation of capital and prudent investment management. We invest under normal circumstances at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in a diversified portfolio of high-yield/high-risk debt securities rated below high grade but rated at least CCC by Moody s Investor Service, Inc. (Moody s) or Standard & Poor s Ratings Group (S&P), or, if unrated, determined by Pacific Investment Management Company (PIMCO) to be of comparable quality, subject to a maximum of 5% of total Portfolio assets invested in securities rated CCC. The remainder of the Portfolio s assets may be invested in high grade fixed-income instruments. The duration of the Portfolio normally varies within a two- to six-year time frame based on PIMCO s forecast for interest rates. The Portfolio may invest without limit in U.S. dollar-denominated securities of foreign issuers. The Portfolio may invest up to 15% of its assets in non-u.s.-dollar-denominated securities. The Portfolio normally will hedge at least 75% of its exposure to foreign curency to reduce the risk of loss due to fluctuations in currency exchange rates. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: credit risk derivatives risk foreign investment risk high yield risk interest rate risk leveraging risk liquidity risk management risk market risk prepayment risk SP PIMCO Total Return Portfolio Investment Objective: maximum total return, consistent with preservation of capital and prudent investment management. We invest under normal circumstances at least 65% of its assets in a diversified portfolio of fixed-income instruments of varying maturities. The portfolio duration of this Portfolio normally varies within a three- to six-year time frame based on PIMCO s forecast for interest rates. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. 6

80 Principal Risks: credit risk derivatives risk foreign investment risk high yield risk interest rate risk leveraging risk liquidity risk management risk market risk prepayment risk SP Prudential U.S. Emerging Growth Portfolio Investment Objective: long-term capital appreciation. We invest under normal circumstances at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in equity securities of small- and medium-sized U.S. companies that Jennison Associates LLC ( Jennison ) believes have the potential for above-average growth. The Portfolio also may use derivatives to hedge or to improve the Portfolio s returns. The Portfolio may actively and frequently trade its portfolio securities. High portfolio turnover results in higher transaction costs and can affect the Portfolio s performance. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk portfolio turnover risk SP Small Cap Growth Portfolio Investment Objective: long-term capital growth. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in common stocks of small capitalization companies. The fund considers a company to be a small capitalization company if it has a market capitalization, at the time of purchase, no larger than the largest capitalized company included in the Russell 2000 Index during the most recent 11-month period (based on month-end data) plus the most recent data during the current month. We are primarily looking for companies in the developing stages of their life cycles, which are currently priced below our estimation of their potential, have earnings which may be expected to grow faster than the U.S. economy in general, and/or offer the potential for accelerated earnings growth due to rapid growth of sales, new products, management changes, and/or structural changes in the economy. Investments in small, developing companies carry greater risk than investments in larger, more established companies. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. This Portfolio is advised by Neuberger Berman Asset Management and Eagle Asset Management. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk 7

81 liquidity risk management risk market risk smaller company risk SP Small Cap Value Portfolio (formerly, SP Goldman Sachs Small Cap Value Portfolio) Investment Objective: long-term growth of capital. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in the equity securities of small capitalization companies. The 80% requirement applies at the time the Portfolio invests its assets. The Portfolio generally defines small capitalization companies as those with market capitalizations that do not exceed the greater of: (i) $4 billion or (ii) the highest month-end market capitalization value of any common stock in the Russell 2000 Index during the preceding 12 months. The Portfolio may invest up to 25% of its assets in foreign securities. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk portfolio turnover risk smaller company risk SP Strategic Partners Focused Growth Portfolio Investment Objective: long-term growth of capital. We normally invest at least 65% of the Portfolio s total assets in equity-related securities of U.S. companies that the advisers believe to have strong capital appreciation potential. The Portfolio s strategy is to combine the efforts of two investment advisers and to invest in the favorite security selection ideas of both. Each investment adviser to the Portfolio utilizes a growth style to select approximately 20 securities. The portfolio managers build a portfolio with stocks in which they have the highest confidence and may invest more than 5% of the Portfolio s assets in any one issuer. The Portfolio is nondiversified, meaning it can invest a relatively high percentage of its assets in a small number of issuers. Investing in a nondiversified portfolio, particularly a portfolio investing in approximately 40 equity-related securities, involves greater risk than investing in a diversified portfolio because a loss resulting from the decline in the value of one security may represent a greater portion of the total assets of a nondiversified portfolio. The Portfolio may actively and frequently trade its portfolio securities. While we make every effort to achieve our objective, we cannot guarantee success and it is possible that you could lose money. This Portfolio is subadvised by Jennison and AllianceBernstein L.P. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk portfolio turnover risk 8

82 SP T. Rowe Price Large Cap Growth Portfolio (formerly, SP AllianceBernstein Large Cap Growth Portfolio) Investment Objective: long term growth of capital. We normally invest at least 80% of the Portfolio s investable assets (net assets plus any borrowings made for investment purposes) in common stocks of large cap companies. A large cap company is defined as one whose market capitalization is larger than the median market capitalization of companies in the Russell 1000 Growth Index, a widely used benchmark of the largest domestic growth stocks. As of December 31, 2005, such median market capitalization was $5.202 billion and is subject to change. The market capitalization of companies in the Portfolio and the Russell 1000 Growth Index will change over time; the Portfolio will not automatically sell or cease to purchase stock of a company it already owns just because the company s market capitalization falls below this level. In selecting securities, T. Rowe Price uses a growth approach. T. Rowe Price generally looks for companies with an above-average rate of earnings and cash flow growth and a lucrative niche in the economy that gives them the ability to sustain earnings momentum even during times of slow economic growth. As growth investors, T. Rowe Price believes that when a company increases its earnings faster than both inflation and the overall economy, the market will eventually reward it with a higher stock price. Up to 15% of the Portfolio s total assets may be invested in foreign securities. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. Principal Risks: company risk derivatives risk foreign investment risk growth stock risk leveraging risk management risk market risk SP William Blair International Growth Portfolio Investment Objective: long-term growth of capital. We invest primarily in equity-related securities of foreign issuers. This means the Portfolio looks for investments that William Blair & Company thinks will increase in value over a period of years. The Portfolio invests primarily in the common stock of large and medium-sized foreign companies. Under normal circumstances, the Portfolio invests at least 65% of its total assets in common stock of foreign companies operating or based in at least five different countries. The Portfolio looks primarily for stocks of companies whose earnings are growing at a faster rate than other companies. These companies typically have characteristics such as above average growth in earnings and cash flow, improving profitability, strong balance sheets, management strength and strong market share for its products. The Portfolio also tries to buy such stocks at attractive prices in relation to their growth prospects. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. This Portfolio is advised by William Blair & Company LLC. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk 9

83 SP Asset Allocation Portfolios SP Aggressive Growth Asset Allocation Portfolio SP Balanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio Prudential Investments LLC ( PI or the Manager ) may: (i) invest the assets of each SP Asset Allocation Portfolio in any Portfolio of the Fund (other than another SP Asset Allocation Portfolio), the AST Marsico Capital Growth Portfolio of American Skandia Trust ( AST ), and the AST LSV International Value Portfolio of AST (collectively, the Underlying Portfolios), (ii) change allocations among Underlying Portfolios when deemed necessary or appropriate, and (iii) effect the rebalancing of SP Asset Allocation Portfolio assets when deemed necessary appropriate. Investment Objectives: The investment objective of each SP Asset Allocation Portfolio is to obtain the highest potential total return consistent with the specified level of risk tolerance. The definition of risk tolerance level is not a fundamental policy and, therefore, can be changed by the Fund s Board of Directors at any time. Each SP Asset Allocation Portfolio seeks to achieve its investment objective by investing in one or more mutual funds as described below. Each SP Asset Allocation Portfolio may invest in any other Portfolio of the Fund (other than another SP Asset Allocation Portfolio), the AST Marsico Capital Growth Portfolio of American Skandia Trust (AST), and the AST LSV International Value Portfolio of AST (collectively, the Underlying Portfolios). Each SP Asset Allocation Portfolio also may invest in government securities and cash for cash management purposes. The SP Asset Allocation Portfolios actively allocate their respective assets by investing in combinations of Underlying Portfolios. Each SP Asset Allocation Portfolio intends its strategy of investing in combinations of Underlying Portfolios to result in investment diversification that an investor could otherwise achieve only by holding numerous investments. SP Asset Allocation Portfolio assets are expected to be invested in several Underlying Portfolios at any time. Each SP Asset Allocation Portfolio has a distinctive risk/return balance. Certain SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in equity securities while other SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in debt securities/money market instruments as set forth below. Relative Investment Focus* Equity Securities Debt Securities / Money Market Instruments SP Aggressive Growth Asset Allocation SP Growth Asset Allocation SP Balanced Asset Allocation SP Conservative Asset Allocation * Not intended to represent actual allocations among Underlying Portfolios or asset classes. The Manager may, at any time, change an SP Asset Allocation Portfolio s allocation of assets among Underlying Portfolios based on its assessment of macroeconomic, market, financial, security valuation, and other factors. The Manager also may rebalance an SP Asset Allocation Portfolio s investments to cause such investments to match the Underlying Portfolio allocation at any time. 10

84 The performance of each SP Asset Allocation Portfolio depends on how its assets are allocated and reallocated between the Underlying Portfolios. A principal risk of investing in each SP Asset Allocation Portfolio is that the Manager will make less than optimal decisions regarding allocation of assets in the Underlying Portfolios. Because each of the SP Asset Allocation Portfolios generally invests all of its assets in Underlying Portfolios, the risks associated with each SP Asset Allocation Portfolio are closely related to the risks associated with the securities and other investments held by the Underlying Portfolios. The ability of each SP Asset Allocation Portfolio to achieve its investment objective will depend on the ability of the Underlying Portfolios to achieve their investment objectives. For more information on the Underlying Portfolios, please refer to their investment summaries included in this Prospectus. Investors should choose an SP Asset Allocation Portfolio by determining which risk tolerance level most closely corresponds to their individual planning needs, objectives and comfort based on the information below. While each SP Asset Allocation Portfolio will try to achieve its objective, we can t guarantee success and it is possible that you could lose money. PRINCIPAL RISKS Although we try to invest wisely, all investments involve risk. Like any mutual fund, an investment in a Portfolio could lose value, and you could lose money. The following summarizes the principal risks of investing in the Portfolios. Company risk. The price of the stock of a particular company can vary based on a variety of factors, such as the company s financial performance, changes in management and product trends, and the potential for takeover and acquisition. This is especially true with respect to equity securities of smaller companies, whose prices may go up and down more than equity securities of larger, more established companies. Also, since equity securities of smaller companies may not be traded as often as equity securities of larger, more established companies, it may be difficult or impossible for a Portfolio to sell securities at a desirable price. Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Credit risk. Debt obligations are generally subject to the risk that the issuer may be unable to make principal and interest payments when they are due. There is also the risk that the securities could lose value because of a loss of confidence in the ability of the borrower to pay back debt. Non-investment grade debt also known as high-yield bonds and junk bonds have a higher risk of default and tend to be less liquid than higher-rated securities. Derivatives risk. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, interest rate or index. The Portfolios typically use derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. A Portfolio may also use derivatives for leverage, in which case their use would involve leveraging risk. A Portfolio s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks described elsewhere, such as liquidity risk, interest rate risk, market risk, credit risk and management risk. They also involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. Foreign investment risk. Investing in foreign securities generally involves more risk than investing in securities of U.S. issuers. Foreign investment risk includes the specific risks described below: Currency risk. Changes in currency exchange rates may affect the value of foreign securities held by a Portfolio and the amount of income available for distribution. If a foreign currency grows weaker relative to the U.S. dollar, the value of securities denominated in that foreign currency generally decreases in terms of U.S. dollars. If a Portfolio does not correctly anticipate changes in exchange rates, its share price could decline as a result. In addition, certain hedging activities may cause the Portfolio to lose money and could reduce the amount of income available for distribution. Emerging market risk. To the extent that a Portfolio invests in emerging markets to enhance overall returns, it may face higher political, information, and stock market risks. In addition, profound social changes and business practices that depart from norms in developed countries economies have sometimes hindered the orderly growth of emerging economies and their stock markets in the past. High levels of debt may make emerging economies heavily reliant on foreign capital and vulnerable to capital flight. 11

85 Foreign market risk. Foreign markets, especially those in developing countries, tend to be more volatile than U.S. markets and are generally not subject to regulatory requirements comparable to those in the U.S. Because of differences in accounting standards and custody and settlement practices, investing in foreign securities generally involves more risk than investing in securities of U.S. issuers. Information risk. Financial reporting standards for companies based in foreign markets usually differ from those in the United States. Since the numbers themselves sometimes mean different things, the sub-advisers devote much of their research effort to understanding and assessing the impact of these differences upon a company s financial conditions and prospects. Liquidity risk. Stocks that trade less can be more difficult or more costly to buy, or to sell, than more liquid or active stocks. This liquidity risk is a factor of the trading volume of a particular stock, as well as the size and liquidity of the entire local market. On the whole, foreign exchanges are smaller and less liquid than the U.S. market. This can make buying and selling certain shares more difficult and costly. Relatively small transactions in some instances can have a disproportionately large effect on the price and supply of shares. In certain situations, it may become virtually impossible to sell a stock in an orderly fashion at a price that approaches an estimate of its value. Political developments. Political developments may adversely affect the value of a Portfolio s foreign securities. Political risk. Some foreign governments have limited the outflow of profits to investors abroad, extended diplomatic disputes to include trade and financial relations, and imposed high taxes on corporate profits. Regulatory risk. Some foreign governments regulate their exchanges less stringently, and the rights of shareholders may not be as firmly established. Growth stock risk. Investors often expect growth companies to increase their earnings at a certain rate. If these expectations are not met, investors can punish the stocks inordinately, even if earnings do increase. In addition, growth stocks typically lack the dividend yield that can cushion stock prices in market downturns. High-yield risk. Portfolios that invest in high yield securities and unrated securities of similar credit quality (commonly known as junk bonds ) may be subject to greater levels of interest rate, credit and liquidity risk than Portfolios that do not invest in such securities. High-yield securities are considered predominantly speculative with respect to the issuer s continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for high-yield securities and reduce a Portfolio s ability to sell its high-yield securities (liquidity risk). Industry/sector risk. Portfolios that invest in a single market sector or industry can accumulate larger positions in single issuers or an industry sector. As a result, the Portfolio s performance may be tied more directly to the success or failure of a smaller group of portfolio holdings. Interest rate risk. Fixed income securities are subject to the risk that the securities could lose value because of interest rate changes. For example, bonds tend to decrease in value if interest rates rise. Debt obligations with longer maturities sometimes offer higher yields, but are subject to greater price shifts as a result of interest rate changes than debt obligations with shorter maturities. Initial public offering (IPO) risk. The prices of securities purchased in initial public offerings (IPOs) can be very volatile. The effect of IPOs on the performance of a Portfolio depends on a variety of factors, including the number of IPOs the Portfolio invests in relative to the size of the Portfolio and whether and to what extent a security purchased in an IPO appreciates or depreciates in value. As a Portfolio s asset base increases, IPOs often have a diminished effect on a Portfolio s performance. Leveraging risk. Certain transactions may give rise to a form of leverage. Such transactions may include, among others, reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment contracts. The use of derivatives may also create leveraging risks. To mitigate leveraging risk, a sub-adviser can segregate liquid assets or otherwise cover the transactions that may give rise to such risk. The use of leverage may cause a Portfolio to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a Portfolio to be more volatile than if the Portfolio had not been leveraged. This volatility occurs because leveraging tends to exaggerate the effect of any increase or decrease in the value of a Portfolio s securities. 12

86 Liquidity risk. Liquidity risk exists when particular investments are difficult to purchase or sell. A Portfolio s investments in illiquid securities may reduce the returns of the Portfolio, because it may be unable to sell the illiquid securities at an advantageous time or price. Portfolios with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Management risk. Actively managed investment portfolios are subject to management risk. Each subadviser will apply investment techniques and risk analyses in making investment decisions for the Portfolios, but there can be no guarantee that these will produce the desired results. Market risk. Common stocks are subject to market risk stemming from factors independent of any particular security. Investment markets fluctuate. All markets go through cycles, and market risk involves being on the wrong side of a cycle. Factors affecting market risk include political events, broad economic and social changes, and the mood of the investing public. You can see market risk in action during large drops in the stock market. If investor sentiment turns gloomy, the price of all stocks may decline. It may not matter that a particular company has great profits and its stock is selling at a relatively low price. If the overall market is dropping, the values of all stocks are likely to drop. Generally, the stock prices of large companies are more stable than the stock prices of smaller companies, but this is not always the case. Smaller companies often offer a smaller range of products and services than large companies. They may also have limited financial resources and may lack management depth. As a result, stocks issued by smaller companies may fluctuate in value more than the stocks of larger, more established companies. Mortgage risk. A Portfolio that purchases mortgage related securities is subject to certain additional risks. Rising interest rates tend to extend the duration of mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Portfolio that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In addition, mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Portfolio because the Portfolio will have to reinvest that money at the lower prevailing interest rates. Portfolio turnover risk. A Portfolio s investments may be bought and sold relatively frequently. A high turnover rate may result in higher brokerage commissions and lower returns. Prepayment risk. A Portfolio that purchases mortgage-related securities or asset-backed securities is subject to additional risks. The underlying mortgages or assets may be prepaid, partially or completely, generally during periods of falling interest rates, which could adversely affect yield to maturity and could require the Portfolio to reinvest in lower yielding securities. Short sale risk. A Portfolio that enters into short sales, which involves selling a security it does not own in anticipation that the security s price will decline, exposes the Portfolio to the risk that it will be required to buy the security sold short (also known as covering the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Portfolio. Small company risk. The shares of small companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of these securities and on a Portfolio s ability to sell these securities. In the case of small cap technology companies, the risks associated with technology company stocks, which tend to be more volatile than other sectors, are magnified. 13

87 EVALUATING PERFORMANCE A number of factors including risk can affect how a Portfolio performs. The bar charts and tables below demonstrate the risk of investing in a Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Diversified Bond Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a market index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% 9.72% 8.57% 7.15% 6.98% 7.07% 7.49% 5.59% 4.40% 3.28% -0.74% Best Quarter Worst Quarter 4.39% (2 nd quarter of 1997) 2.54% (2 nd quarter of 2004) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 3.28% 6.07% 5.91 % Lehman Brothers U.S. Aggregate Bond Index** 2.43% 5.87% 6.16 % Lipper Variable Insurance Products (VIP) Intermediate Investment Grade Debt Funds Average*** 1.99% 5.60% 5.62 % * ThePortfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Lehman Brothers U.S. Aggregate Bond Index is comprised of more than 5,000 government and corporate bonds. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 14

88 Equity Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 30.00% 20.00% 10.00% 0.00% % % % 24.66% 31.65% 18.52% 11.47% 9.34% 12.49% 9.93% 3.28% % % Best Quarter Worst Quarter 16.81% (2 nd quarter of 2003) 17.48% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 11.47% 2.16% 7.64 % S&P 500 Index** 4.91% 0.54% 9.07 % Russell 1000 Index*** 6.27% 1.07% 9.29 % Lipper Variable Insurance Products (VIP) Large Cap Core Funds Average**** 5.77% 0.48% 7.27 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Russell 1000 Index consists of the 1000 largest securities in the Russell 3000 Index. The Russell 3000 Index consists of the 3000 largest companies, as determined by market capitalization. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 15

89 Global Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a market index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 60.00% 40.00% 20.00% 0.00% % % 48.27% 34.07% 19.69% 25.08% 9.59% 16.06% 6.98% % % % Best Quarter Worst Quarter 31.05% (4 th quarter of 1999) 21.45% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 16.06% 1.01% 7.47 % MSCI World Index** 9.49% 2.18% 7.04 % Lipper Variable Insurance Products (VIP) Global Growth Funds Average*** 12.92% 2.88% 9.22 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Morgan Stanley Capital International World Index (MSCI World Index) is a weighted index comprised of approximately 1,500 companies listed on the stock exchanges of the U.S., Europe, Canada, Australasia and the Far East. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 16

90 High Yield Bond Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a market index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% % 11.39%13.78% 4.61% -2.36% -7.91% -0.44% 1.50% 25.04% 10.30% 3.41% Best Quarter Worst Quarter 8.91% (2 nd quarter of 2003) 9.50% (3 rd quarter of 1998) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 3.41% 7.58% 5.56 % Lehman Brothers U.S. Corporate High Yield Bond Index** 2.74% 8.85% 6.54 % Lehman Brothers High Yield 2% Issuer Capped Index*** 2.76% 9.12% 6.70 % Lipper Variable Insurance Products (VIP) High Current Yield Funds Average**** 2.56% 7.12% 5.62 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Lehman Brothers U.S. Corporate High Yield Bond Index is made up of over 700 non-investment grade bonds. The index is an unmanaged index that includes the reinvestment of all interest but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Portfolio. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Portfolio no longer uses this index. *** The Lehman Brothers High Yield 2% Issuer Capped Index is made up of over 700 non-investment grade bonds. However, the representation of any single bond issuer is restricted to a maximum of 2% of the total index. The index is an unmanaged index that includes the reinvestment of all interest but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Portfolio. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Portfolio has changed from the Lehman Brothers U.S. Corporate High Yield Bond Index to Lehman Brothers High Yield 2% Issuer Capped Index because the Lehman Brothers High Yield 2% Issuer Capped Index better represents the composition of the Portfolio. In particular, the Portfolio generally maintains positions of 2% or less per issuer (although the Portfolio may hold positions of greater than that amount). **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 17

91 Jennison Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 60.00% 40.00% 20.00% 0.00% % % 31.71% 37.46% 41.76% 30.25% 14.41% 9.63% 14.55% % % % Best Quarter Worst Quarter 29.46% (4 th quarter of 1998) 19.83% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 14.55% 1.58% 8.43% S&P 500 Index** 4.91% 0.54% 9.07% Russell 1000 Growth Index*** 5.26% 3.58% 6.73% Lipper Variable Insurance Products (VIP) Large-Cap Growth Funds Average**** 7.33% 3.18% 7.24% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Russell 1000 Growth Index consists of those securities included in the Russell 1000 Index that have a greater-thanaverage growth orientation. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 18

92 Money Market Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a group of similar mutual funds. Past performance does not assure that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 5.24% 5.41% 5.39% 4.98% 6.20% 4.22% 2.85% 1.52% 0.84% 1.01% Best Quarter Worst Quarter 1.59% (3 rd quarter of 2000) 0.18% (2 nd quarter of 2004) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 2.85% 2.05% 3.73% Lipper Variable Insurance Products (VIP) Money Market Funds 2.69% 1.85% 3.55% Average** * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 7-Day Yield* (as of 12/31/05) Money Market Portfolio** % Average Money Market Fund** % * The Portfolio s yield is after deduction of expenses and does not include Contract charges. ** Source: imoneynet, Inc. as of 12/27/05, based on the imoneynet Prime Retail Universe. 19

93 Stock Index Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 30.00% 20.00% 10.00% 0.00% % % % 32.83% 28.42% 22.57% 20.54% -9.03% % % 28.18% 10.45% 4.54% Best Quarter Worst Quarter 21.44% (4 th quarter of 1998) 17.25% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years 10 Years Class I Shares 4.54% 0.25% 8.79% S&P 500 Index** 4.91% 0.54% 9.07% Lipper Variable Insurance Products (VIP) S&P 500 Objective Funds Average*** 4.52% 0.16% 8.74% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 20

94 SP AIM Core Equity Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % % 23.69% 8.79% 4.63% % % Best Quarter Worst Quarter 14.69% (2 nd quarter of 2003) 21.41% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 4.63% 1.59% 4.65% S&P 500 Index** 4.91% 0.54% 1.03% Russell 1000 Index*** 6.27% 1.07% 0.81% Lipper Variable Insurance Products (VIP) Large Cap Core Funds Average**** 5.77% 0.48% 1.74% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 1000 Index consists of the 1000 largest companies included in the Russell 3000 Index. The Russell 3000 Index consists of the 3000 largest companies, as determined by market capitalization. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 21

95 SP Davis Value Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % 29.40% 12.53% 9.52% % % Best Quarter Worst Quarter 17.06% (2 nd quarter of 2003) 13.69% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 9.52% 3.78% 3.91 % S&P 500 Index** 4.91% 0.54% 1.03 % Russell 1000 Value Index*** 7.05% 5.28% 5.73 % Lipper Variable Insurance Products (VIP) Multi Cap 6.30% 4.87% 5.42 % Value Funds Average**** Lipper Variable Insurance Products (VIP) Large Cap Value Funds Average**** 4.82% 2.95% 3.95 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** TheStandard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 1000 Value Index consists of those companies in the Russell 1000 Index that have a less-than-average growth orientation. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar monthend return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 22

96 SP Large Cap Value Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future % 20.00% 10.00% 0.00% % Annual Returns* (Class I Shares) -8.65% % 26.76% 17.75% 6.64% % Best Quarter Worst Quarter 15.25% (2 nd quarter of 2003) 17.90% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 6.64% 3.99% 4.71 % Russell 1000 Index** 6.27% 1.07% 0.81 % Russell 1000 Value Index*** 7.05% 5.28% 5.73 % Lipper Variable Insurance Products (VIP) Large-Cap Value 4.82% 2.95% 3.95 % Funds Average**** Lipper Variable Insurance Products (VIP) Multi-Cap Value Funds Average**** 6.30% 4.87% 5.42 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Russell 1000 Index consists of the 1000 largest companies in the Russell 3000 Index. The Russell 3000 Index consists of the 3000 largest companies, as determined by market capitalization. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 1000 Value Index measures the performance of those Russell 1000 companies that have a less-than-average growth orientation. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. Although Lipper classifies the Portfolio in the Multi-Cap Value Funds Average, the returns for the Large-Cap Value Funds Average are also shown, because the management of the portfolios in the Large-Cap Value Funds Average is more consistent with the management of the Portfolio. 23

97 SP LSV International Value Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % % 27.37% 15.80% 13.77% % % Best Quarter Worst Quarter 15.48% (2 nd quarter of 2003) 17.91% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 13.77% 1.61% 0.51 % MSCI EAFE Index** 13.54% 4.55% 3.79 % Lipper Variable Insurance Products (VIP) International Value Funds Average*** 13.16% 5.97% 5.92 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index is a weighted, unmanaged index of performance that reflects stock price movements in Europe, Australasia, and the Far East. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 24

98 SP Mid Cap Growth Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 60.00% 40.00% 20.00% 0.00% % % % 40.10% 19.55% 5.26% % % Best Quarter Worst Quarter 29.37% (4 th quarter of 2001) 33.97% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 5.26% 5.64% 5.76 % Russell Midcap Index** 12.65% 8.45% 7.29 % Russell Midcap Growth Index*** 12.10% 1.38% 3.67 % Lipper Variable Insurance Products (VIP) Mid Cap Growth 10.61% 0.49% 3.95 % Funds Average**** Lipper Variable Insurance Products (VIP) Multi Cap Growth Funds Average**** 10.80% 2.37% 6.18 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Russell Midcap Index consists of the 800 smallest securities in the Russell 1000 Index, as ranked by total market capitalization. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell Midcap Growth Index consists of those securities in the Russell Midcap Index that have a greater-than-average growth orientation. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. Although Lipper classifies the Portfolio in the Multi Cap Growth Funds Average, the returns for the Mid- Cap Growth Funds Average are also shown, because the management of the portfolios in the Mid-Cap Growth Funds Average is more consistent with the management of the Portfolio. 25

99 SP PIMCO High Yield Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a market index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 22.41% 9.32% 3.97% 4.03% 0.15% Best Quarter Worst Quarter 8.00% (4 th quarter of 2002) 4.15% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 4.03% 7.71% 7.68% Merrill Lynch U.S. High Yield Master II BB-B Rated 2.74% 8.39% 6.58% Index** Merrill Lynch U.S. High Yield Master II BB-B Rated 3.39% 8.28% 7.08% Index with 2% Issuer Constraint*** Lehman Brothers Intermediate BB Corporate Bond 2.81% 7.52% 7.13% Index**** Lipper Variable Insurance Products (VIP) High Current Yield Funds Average**** 2.56% 7.12% 5.55% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Merrill Lynch U.S. High Yield Master II BB-B Rated Index is an unmanaged index that includes high yield bonds across the maturity spectrum, within the BB-B rated spectrum, included in the below-investment-grade universe. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio no longer uses this index. *** The Merrill Lynch U.S. High Yield Master II BB-B Rated Index with 2% Issuer constraint is an unmanaged index that includes high yield bonds across the maturity spectrum, within the BB-B rated spectrum, included in the below-investment-grade universe. However, the representation of any single bond issuer is restricted to a maximum of 2% of the total index. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio has changed from the Merrill Lynch U.S. High Yield Master II BB-B Rated Index to the Merrill Lynch High Yield Master II BB-B Rated Index with 2% Issuer constraint because the Merrill Lynch High Yield Master II BB-B Rated Index with 2% Issuer constraint better reflects the composition of the Portfolio. In particular, the Portfolio generally maintains positions of 2% or less per issuer (although the Portfolio may hold positions of greater than that amount). **** The Lehman Brothers Intermediate BB Corporate Bond Index is an unmanaged index comprised of various fixed income securities rated BB. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. ***** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 26

100 SP PIMCO Total Return Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a market index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 8.66% 9.39% 5.85% 5.28% 2.39% Best Quarter Worst Quarter 5.69% (3 rd quarter of 2001) 2.04% (2 nd quarter of 2004) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 2.39% 6.28% 6.96% Lehman Brothers U.S. Aggregate Bond Index** 2.43% 5.87% 6.42% Lipper Variable Insurance Products (VIP) Intermediate Investment Grade Debt Funds Average*** 1.99% 5.60% 6.07% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index comprised of more than 5,000 government and corporate bonds. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 27

101 SP Prudential U.S. Emerging Growth Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 60.00% 40.00% 20.00% 0.00% % % 42.09% 21.39% 17.77% % % Best Quarter Worst Quarter 24.62% (2 nd quarter of 2003) 27.97% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Class I Shares 17.77% 2.56 % S&P MidCap 400 Index** 12.56% 8.60 % Russell Midcap Growth Index*** 12.10% 1.38 % Lipper Variable Insurance Products (VIP) Mid Cap Growth Funds Average**** 10.61% 0.49 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s MidCap 400 Composite Stock Price Index (S&P MidCap 400 Index) an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry group representation gives a broad look at how mid cap stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses.. *** The Russell Midcap Growth Index consists of those securities in the Russell Midcap Index that have a greater-thanaverage growth orientation. The Russell Midcap Index consists of the 800 smallest securities in the Russell 1000 Index, as ranked by total market capitalization. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 28

102 SP Small Cap Growth Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 34.71% 20.00% 0.00% % % % -0.92% 2.48% % Best Quarter Worst Quarter 25.50% (4 th quarter of 2001) 26.36% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 2.48% 4.61% 7.52 % Russell 2000 Index** 4.55% 8.22% 6.36 % Russell 2000 Growth Index*** 4.15% 2.28% 2.13 % Lipper Variable Insurance Products (VIP) Small Cap Growth Funds Average**** 7.50% 1.06% 2.05 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 2000 Growth Index consists of those companies in the Russell 2000 Index that have a greater-than-average growth orientation. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 29

103 SP Small Cap Value Portfolio (formerly, SP Goldman Sachs Small Cap Value Portfolio) A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 30.00% 20.00% 10.00% 0.00% % % 33.11% 20.69% 3.11% 4.61% % Best Quarter Worst Quarter 15.70% (2 nd quarter of 2003) 19.18% (3 rd quarter of 2002) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 4.61% 8.21% 9.98 % Russell 2500 Index** 8.11% 9.14% 7.91 % Russell 2000 Value Index*** 4.71% 13.55% % Lipper Variable Insurance Products (VIP) Small-Cap Value 7.56% 13.83% % Funds Average**** Lipper Variable Insurance Products (VIP) Small-Cap Core Funds Average**** 5.35% 8.21% 7.40 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, which represents approximately 17% of the total market capitalization of the Russell 3000 Index. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 2000 Value Index measures the performance of Russell 2000 companies with higher price-to-book ratios. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. Although Lipper classifies the Portfolio in the Small-Cap Core Funds Average, the returns for the Small-Cap Value Funds Average are also shown, because the management of the portfolios in the Small-Cap Value Funds Average is more consistent with the management of the Portfolio. 30

104 SP Strategic Partners Focused Growth Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % % 25.84% 15.29% % 10.58% % Best Quarter Worst Quarter 13.30% (4 th quarter of 2001) 19.07% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Class I Shares 15.29% 0.28% S&P 500 Index** 4.91% 0.54% Russell 1000 Growth Index*** 5.26% 3.58% Lipper Variable Insurance Products (VIP) Large Cap Growth Funds Average**** 7.33% 3.18% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how mid cap stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Russell 1000 Growth Index consists of those Russell 1000 securities that have a greater-than-average growth orientation. The Russell 1000 Index consists of the 1000 largest securities in the Russell 3000 Index. The Russell 3000 Index consists of the 3000 largest U.S. securities, as determined by total market capitalization. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 31

105 SP T. Rowe Price Large Cap Growth Portfolio (formerly, SP AllianceBernstein Large Cap Growth Portfolio) A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. T. Rowe Price began managing the Portfolio on December 5, Performance prior to this time is attributable to other portfolio managers. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % % % 23.86% 16.64% 6.10% % % Best Quarter Worst Quarter 14.58% (4 th quarter of 2001) 16.82% (3 rd quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 16.64% 2.06% 4.81 % Russell 1000 Index** 6.27% 1.07% 0.81 % Russell 1000 Growth Index*** 5.26% 3.58% 7.73 % Lipper Variable Insurance Products (VIP) Large Cap Growth Funds Average**** 7.33% 3.18% 6.27 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Russell 1000 Index consists of the 1000 largest companies in the Russell 3000 Index. The Russell 3000 Index consists of the 3000 largest companies, as determined by market capitalization. These returns do not include the effect of investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** The Russell 1000 Growth Index consists of those securities included in the Russell 1000 Index that have a greater-thanaverage growth orientation. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 32

106 SP William Blair International Growth Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 20.00% 0.00% % % % 39.57% 16.54% 16.39% % Best Quarter Worst Quarter 19.14% (2 nd quarter of 2003) 20.59% (1 st quarter of 2001) * These annual returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Class I Shares 16.39% 1.16% MSCI EAFE Index*** 13.54% 4.55% Lipper Variable Insurance Products (VIP) International Growth Funds Average**** 15.36% 2.23% * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Morgan Stanley Capital International (MSCI) Europe, Australasia Far East (EAFE) Index is a weighted, unmanaged index of performance that reflects stock price movements in Europe, Australasia, and the Far East. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. *** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. 33

107 SP Aggressive Growth Asset Allocation Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 40.00% 30.00% 20.00% 10.00% 0.00% % % % 32.77% % 14.76% 10.48% % Best Quarter Worst Quarter 17.65% (2 nd quarter of 2003) 18.08% (3 rd quarter of 2001) * These annual returns do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 10.48% 1.46% 0.07 % S&P 500 Index** 4.91% 0.54% 1.03 % Prior Aggressive Growth AA Custom Blended Index*** 9.23% 4.45% 2.82 % Current Aggressive Growth AA Custom Blended Index*** 7.64% 2.21% 0.55 % Lipper Variable Insurance Products (VIP) Multi Cap Core Funds Average**** 6.66% 1.72% 0.66 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** Prior Aggressive Growth AA Custom Blended Index consists of the Russell 1000 Value Index (17.5%), the Russell 1000 Growth Index (17.5%), the Russell 2000 Value Index (17.5%), the Russell Midcap Growth Index (17.5%), and the MSCI EAFE Index (30%). Current Aggressive Growth AA Custom Blended Index consists of the Russell 3000 Index (80%) and MCSI EAFE Index (20%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio has changed the composition of its customized benchmark to better represent the composition of the Portfolio. The new customized benchmarks are designed to set established percentages to provide a relative performance comparison covering both asset allocation and the performance of the underlying Portfolios. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 34

108 SP Balanced Asset Allocation Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with market indexes and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % 22.87% 11.09% 7.60% -5.99% % Best Quarter Worst Quarter 11.68% (2 nd quarter of 2003) 9.62% (3 rd quarter of 2001) * These annual returns do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 7.60% 4.05% 3.56 % S&P 500 Index** 4.91% 0.54% 1.03 % Prior Balanced AA Custom Blended Index*** 6.10% 4.78% 3.84 % Current Balanced AA Custom Blended Index*** 5.63% 4.01% 3.21 % Lipper Variable Insurance Products (VIP) Balanced Funds Average**** 4.78% 3.33% 2.93 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** Prior Balanced AA Custom Blended Index consists of the Russell 1000 Value Index (17.5%), the Russell 1000 Growth Index (17.5%), the Russell 2500 Value Index (7.5%), the Russell Midcap Growth Index (7.5%), the Lehman Brothers U.S. Aggregate Bond Index (30%), the Lehman Brothers Intermediate BB Index (10%) and the MSCI EAFE Index (10%). Current Balanced AA Custom Blended Index consists of the Russell 3000 Index (48%), the Lehman Brothers U.S. Aggregate Bond Index (40%) and the MSCI EAFE Index (12%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio has changed the composition of its customized benchmark to better represent the composition of the Portfolio. The new customized benchmarks are designed to set established percentages to provide a relative performance comparison covering both asset allocation and the performance of the underlying Portfolios. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 35

109 SP Conservative Asset Allocation Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with market indexes and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% % 16.49% 8.89% 5.91% -0.23% -5.88% Best Quarter Worst Quarter 8.59% (2 nd quarter of 2003) 5.30% (3 rd quarter of 2002) * These annual returns do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 5.91% 4.76% 4.67 % S&P 500 Index** 4.91% 0.54% 1.03 % Prior Conservative AA Custom Blended Index*** 3.98% 4.97% 4.54 % Current Conservative AA Custom Blended Index*** 4.58% 4.74% 4.38 % Lipper Variable Insurance Products (VIP) Income Funds Average**** 4.13% 5.08% 4.84 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** Prior Conservative AA Custom Blended Index consists of the Russell 1000 Value Index (15%), the Russell 1000 Growth Index (15%), the Russell 2000 Value Index (2.5%), the Lehman Brothers Aggregate Bond Index (55%), the Lehman Brothers Intermediate BB Index (10%) and the Russell Midcap Growth Index (2.5%). Current Conservative AA Custom Blended Index consists of the Russell 3000 Index (32%), Lehman Brothers U.S. Aggregate Bond Index (60%) and MSCI EAFE Index (8%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio has changed the composition of its customized benchmark to better represent the composition of the Portfolio. The new customized benchmarks are designed to set established percentages to provide a relative performance comparison covering both asset allocation and the performance of the underlying Portfolios. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 36

110 SP Growth Asset Allocation Portfolio A number of factors including risk can affect how the Portfolio performs. The bar chart and table below demonstrate the risk of investing in the Portfolio by showing how the Portfolio s average annual returns compare with market indexes and a group of similar mutual funds. Past performance does not mean that the Portfolio will achieve similar results in the future. Annual Returns* (Class I Shares) 30.00% 20.00% 10.00% 0.00% % % 28.27% 13.05% 9.24% % % Best Quarter Worst Quarter 14.52% (2 nd quarter of 2003) 13.64% (3 rd quarter of 2001) * These annual returns do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. See the accompanying Contract prospectus. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. Average Annual Returns* (as of 12/31/05) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 9.24% 2.95% 1.89 % S&P 500 Index** 4.91% 0.54% 1.03 % Prior Growth AA Custom Blended Index*** 7.94% 4.68% 3.38 % Current Growth AA Custom Blended Index*** 6.64% 3.16% 1.93 % Lipper Variable Insurance Products (VIP) Multi Cap Core Funds Average**** 6.66% 1.72% 0.66 % * The Portfolio s returns are after deduction of expenses and do not include Contract charges. If Contract charges were included, the annual returns would have been lower than those shown. During certain periods shown, fee waivers and/or expense reimbursements may be in effect. Without such fee waivers and/or expense reimbursements, the returns for the Portfolio would have been lower. ** The Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index) an unmanaged index of 500 stocks of large U.S. companies gives a broad look at how stock prices have performed. These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. *** Prior Growth AA Custom Blended Index consists of the Russell 1000 Value Index (17.5%), the Russell 1000 Growth Index (17.5%), the Russell 2500 Value Index (12.5%), the Russell Midcap Growth Index (12.5%) the Lehman Brothers Aggregate Bond Index (12.5%) the Lehman Brothers Intermediate BB Index (7.5%), and the MSCI EAFE Index (20%). Current Growth AA Custom Blended Index consists of the Russell 3000 Index (64%), the Lehman Brothers U.S. Aggregate Bond Index (20%) and the MSCI EAFE Index (16%). These returns do not include the effect of any investment management expenses. These returns would have been lower if they included the effect of these expenses. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. The Portfolio has changed the composition of its customized benchmark to better represent the composition of the Portfolio. The new customized benchmarks are designed to set established percentages to provide a relative performance comparison covering both asset allocation and the performance of the underlying Portfolios. **** The Lipper Average is calculated by Lipper Analytical Services, Inc. and reflects the return of certain portfolios underlying variable life and annuity products. The returns are net of investment fees and fund expenses but not product charges. These returns would have been lower if they included the effect of product charges. The Since Inception return reflects the closest calendar month-end return to the inception date of the Portfolio. 37

111 FEES AND EXPENSES OF INVESTING IN THE PORTFOLIOS Investors incur certain fees and expenses in connection with an investment in the Fund s Portfolios. The following table shows the fees and expenses that you may incur if you invest in Class I shares of the Portfolios through a variable Contract. The table does not include Contract charges. Because Contract charges are not included, the total fees and expenses that you will incur will be higher than the fees and expenses set forth in the following table. See the accompanying Contract prospectus for more information about Contract changes. CLASS I SHARES Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets) Shareholder Fees (fees paid directly from your investment) Total Annual Portfolio Operating Expenses Management Fees(1) Distribution (12b-1) Fees Other Expenses Diversified Bond Portfolio N/A 0.40% None 0.05 % 0.45% Equity Portfolio N/A 0.45 None Global Portfolio N/A 0.75 None High Yield Bond Portfolio N/A 0.55 None Jennison Portfolio N/A 0.60 None Money Market Portfolio N/A 0.40 None Stock Index Portfolio N/A 0.35 None (1) SP AIM Core Equity Portfolio N/A 0.85 None (2) SP Davis Value Portfolio N/A 0.75 None SP Large Cap Value Portfolio N/A 0.80 None SP LSV International Value Portfolio N/A 0.90 None (2)(3) SP Mid Cap Growth Portfolio N/A 0.80 None (2) SP PIMCO High Yield Portfolio N/A 0.60 None SP PIMCO Total Return Portfolio N/A 0.60 None SP Prudential U.S. Emerging Growth Portfolio N/A 0.60 None SP Small Cap Growth Portfolio N/A 0.95 None SP Small Cap Value Portfolio N/A 0.90 None SP Strategic Partners Focused Growth Portfolio N/A 0.90 None (2)(3) SP T. Rowe Price Large Cap Growth Portfolio N/A 0.90 None (2)(3) SP William Blair International Growth Portfolio N/A 0.85 None SP Aggressive Growth Asset Allocation Portfolio N/A 0.83(4) None (5) SP Balanced Asset Allocation Portfolio N/A 0.75(4) None (5) SP Conservative Asset Allocation Portfolio N/A 0.74(4) None (5) SP Growth Asset Allocation Portfolio N/A 0.79(4) None (5) (1) The management fee rate shown is based on each Portfolio s net assets as of the close of the Portfolio s fiscal year, excluding the Asset Allocation Portfolios (see note 4 below). The Stock Index Portfolio s management fee schedule includes fee breakpoints, which reduce the Portfolio s effective management fee as assets increase. Changes in Portfolio assets may result in increases or decreases in the Portfolio s effective management fee. The Portfolio s management fee, as a percentage of daily net assets, is as follows: 0.35% up to and including $4 billion; and 0.30% over $4 billion. 38

112 (2) The Portfolio s total actual annual operating expenses for the year ended December 31, 2005 were less than the amount shown in the table due to fee waivers, reimbursement of expenses and expense offset arrangements (the Arrangements ). The Arrangements are voluntary and may be terminated by the Manager at any time. In addition, the Arrangements may be modified periodically. After accounting for the Arrangements, the Portfolio s actual annual operating expenses for the fiscal year ended December 31, 2005 were as follows: 1.00% for SP AIM Core Equity Portfolio, 1.00% for SP Mid Cap Growth Portfolio, 1.06% for SP T. Rowe Price Large Cap Growth Portfolio and 1.07% for the SP Strategic Partners Focused Growth Portfolio. The SP LSV International Value Portfolio had an Arrangement in place that did not affect the Portfolio s actual annual operating expenses for the fiscal year ended December 31, (3) Some of the Arrangements that were effective during 2005 have been modified or eliminated. Had the Arrangements in place as of January 1, 2006 been effective throughout 2005, the Portfolios total actual annual operating expenses for the year ended December 31, 2005 would have been as follows: 1.06% for SP T. Rowe Price Large Cap Growth Portfolio, 1.10% for SP LSV International Value Portfolio and 1.25% for the SP Strategic Partners Focused Growth Portfolio. The Arrangements for SP AIM Core Equity Portfolio and SP Mid Cap Growth Portfolio were neither modified nor eliminated as of January 1, (4) Each Asset Allocation Portfolio invests only in shares of other underlying Fund Portfolios. The management fees shown for each Asset Allocation Portfolio is based on the weighted average of the management fees (before the Arrangements as discussed herein) borne by the underlying Fund Portfolios according to the allocation percentage targets in place at December 31, 2005 plus a 0.05% annual management fee paid to the Manager. The only management fee directly paid by the Asset Allocation Portfolios is the 0.05% fee paid to the Manager. (5) Although the Asset Allocation Portfolios do not incur any expenses directly other than the 0.05% fee paid to the Manager, shareholders indirectly bear the expenses of the underlying Fund Portfolios in which the Asset Allocation Portfolios invest. The Total Annual Portfolio Operating Expenses figures shown include (a) management fees based on the weighted average of the management fees (before the Arrangements as discussed herein) borne by the underlying Fund Portfolios according to the allocation percentage targets in place at December 31, 2005, (b) Other Expenses based on the weighted average of the Other Expenses of the underlying Fund Portfolios according to the allocation percentage targets in place at December 31, 2005, and (c) the 0.05% fee paid to the Manager. 39

113 Example The following Example, which reflects the Portfolio operating expenses listed in the preceding tables, is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The following example does not include the effect of Contract charges. Because Contract Charges are not included, the total fees and expenses that you will incur will be higher than the example set forth in the following table. For more information about Contract charges see the accompanying Contract prospectus. The Example assumes that you invest $10,000 in a Portfolio for the time periods indicated. The Example also assumes that your investment has a 5% return each year, that the Portfolio s total operating expenses remain the same, and that no expense waivers and reimbursements are in effect. Although your actual costs may be higher or lower, based on these assumptions your costs would be: CLASS I SHARES 1 Year 3 Years 5 Years 10 Years Diversified Bond Portfolio $ 46 $ 144 $ 252 $ 567 Equity Portfolio Global Portfolio ,014 High Yield Bond Portfolio Jennison Portfolio Money Market Portfolio Stock Index Portfolio SP AIM Core Equity Portfolio ,545 SP Davis Value Portfolio ,014 SP Large Cap Value Portfolio ,025 SP LSV International Value Portfolio ,294 SP Mid Cap Growth Portfolio ,248 SP PIMCO High Yield Portfolio SP PIMCO Total Return Portfolio SP Prudential U.S. Emerging Growth Portfolio SP Small Cap Growth Portfolio ,283 SP Small Cap Value Portfolio ,190 SP Strategic Partners Focused Growth Portfolio ,386 SP T. Rowe Price Large Cap Growth Portfolio ,409 SP William Blair International Growth Portfolio ,201 SP Aggressive Growth Asset Allocation Portfolio ,131 SP Balanced Asset Allocation Portfolio ,049 SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio ,084 MORE DETAILED INFORMATION ON HOW THE PORTFOLIOS INVEST Investment Objectives and Policies We describe each Portfolio s investment objective and policies below. We describe certain investment instruments that appear in bold lettering below in the section entitled More Detailed Information About Other Investments and Strategies Used by the Portfolios. Although we make every effort to achieve each Portfolio s objective, we can t guarantee success and it is possible that you could lose money. Unless otherwise stated, each Portfolio s investment objective is a fundamental policy that cannot be changed without shareholder approval. The Board of Directors can change investment policies that are not fundamental. An investment in a Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. 40

114 Diversified Bond Portfolio The investment objective of this Portfolio is a high level of income over a longer term while providing reasonable safety of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. To achieve our objective, we normally invest at least 80% of the Portfolio s investable assets in intermediate and longterm debt obligations that are rated investment grade and high quality money market instruments. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. In general, the value of debt obligations moves in the opposite direction as interest rates if a bond is purchased and then interest rates go up, newer bonds will be worth more relative to existing bonds because they will have a higher rate of interest. We will adjust the mix of the Portfolio s short-term, intermediate-term and long-term debt obligations in an attempt to benefit from price appreciation when interest rates go down and to incur smaller declines when interest rates go up. Investment grade debt securities are those that major rating services, like Standard and Poor s Ratings Group (S&P) or Moody s Investor Service, Inc. (Moody s), have rated within one of their four highest rating categories. The Portfolio may continue to hold a debt obligation if it is downgraded below investment grade after it is purchased or if it is no longer rated by a major rating service. We may also invest up to 20% of the Portfolio s investable assets in lower rated securities which are riskier and considered speculative. These securities are sometimes referred to as junk bonds. We may also invest in instruments that are not rated, but which we believe are of comparable quality to the instruments described above. Debt obligations are basically written promises to repay a debt. The terms of repayment vary among the different types of debt obligations, as do the commitments of other parties to honor the obligations of the issuer of the security. The types of debt obligations in which we can invest include U.S. Government securities, mortgage-related securities, asset-backed securities, and corporate bonds. The Portfolio may invest without limit in debt obligations issued or guaranteed by the U.S. Government and government-related entities. An example of a debt security that is backed by the full faith and credit of the U.S. Government is an obligation of the Government National Mortgage Association (Ginnie Mae). In addition, we may invest in U.S. Government securities issued by other government entities, like the Federal National Mortgage Association (Fannie Mae) and the Student Loan Marketing Association (Sallie Mae) which are not backed by the full faith and credit of the U.S. Government. Instead, these issuers have the right to borrow from the U.S. Treasury to meet their obligations. The Portfolio may also invest in the debt securities of other government-related entities, like the Farm Credit System, which depend entirely upon their own resources to repay their debt. We may invest up to 20% of the Portfolio s total assets in debt securities issued outside the U.S. by U.S. or foreign issuers whether or not such securities are denominated in the U.S. dollar. The Portfolio may also invest in convertible debt warrants and convertible and non-convertible preferred stock of any rating. The Portfolio will not acquire any common stock except by converting a convertible security or exercising a warrant. No more than 10% of the Portfolio s total assets will be held in common stocks, and those will usually be sold as soon as a favorable opportunity arises. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. We may also invest in loans or assignments arranged through private negotiations between a corporation which is the borrower and one or more financial institutions that are the lenders. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Collateralized debt obligations (CDOs) and other credit-related asset-backed securities. No more than 5% of the Portfolio s assets may be invested in CDOs. Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. 41

115 Purchase and sell options on debt securities and financial indexes; purchase and sell interest rate and interest rate swap futures contracts and options on those contracts. Forward foreign currency exchange contracts; and purchase securities on a when-issued or delayed delivery basis. Short sales. No more than 25% of the Portfolio s net assets may be used as collateral or segregated for purposes of securing a short sale obligation. The Portfolio may also enter into short sales against-the-box. Swap agreements including interest rate, credit default, currency exchange rate and total return swaps. The Portfolio may also invest in option swaps. Credit-linked securities, which may be linked to one or more underlying credit default swaps. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. The Portfolio may also invest up to 30% of its net assets in reverse repurchase agreements and dollar rolls. The Portfolio will not use more than 30% of its net assets in connection with reverse repurchase transactions and dollar rolls. Under normal conditions, the Portfolio may invest a portion of its assets in high-quality money market instruments. In response to adverse market conditions or when restructuring the Portfolio, we may temporarily invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in these securities limits our ability to achieve our investment objective, but can help to preserve the value of the Portfolio s assets when markets are unstable. The Portfolio is managed by Prudential Investment Management, Inc. Equity Portfolio The investment objective of this Portfolio is long term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. We normally invest at least 80% of the Portfolio s investable assets in common stock of major established companies (over $5 billion in market capitalization) as well as smaller companies. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. Up to 20% of the Portfolio s investable assets may be invested in short-, intermediate- or long-term debt obligations, convertible and nonconvertible preferred stock and other equity-related securities. Up to 5% of these investable assets may be rated below investment grade. These securities are considered speculative and are sometimes referred to as junk bonds. In deciding which stocks to buy, the advisers use a blend of investment styles. Jennison invests in stocks that may be undervalued given the company s earnings, assets, cash flow and dividends, and also invests in companies experiencing some or all of the following: a price/earnings ratio lower than earnings per share growth, strong market position, improving profitability and distinctive attributes such as unique marketing ability, strong research and development, new product flow, and financial strength. Although Jennison s allocation between growth and value will vary over time, it is expected to be approximately 50/50 over a full market cycle. SaBAM will use a core approach with respect to 50% of the Portfolio s assets, which seeks to combine certain aspects of the value approach with certain aspects of the growth approach. As a result, the Portfolio may invest in stocks that may be undervalued given the company s earnings, assets, cash flow and dividends and also may invest in companies experiencing some or all of the following: a price/ earnings ratio lower than earnings per share growth, strong market position, improving profitability and distinctive attributes such as unique marketing ability, strong research and development, new product flow, and financial strength. Up to 30% of the Portfolio s total assets may be invested in foreign securities, including money market instruments, equity securities and debt obligations. For these purposes, we do not consider American Depositary Receipts (ADRs) as foreign securities. We may also pursue the following types of investment strategies and/or invest in the following types of securities: Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity securities, stock indexes and foreign currencies. Purchase and sell stock index and foreign currency futures contracts and options on these futures contracts. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. 42

116 Short sales against-the-box. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. Equity and/or debt securities of Real Estate Investment Trusts (REITs). Under normal circumstances, the Portfolio may invest a portion of its assets in money market instruments. In addition, we may temporarily invest up to 100% of the Portfolio s assets in money market instruments in response to adverse market conditions or when restructuring the Portfolio. Investing heavily in these securities limits our ability to achieve our investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. The Portfolio is co-managed by Jennison and SaBAM. Jennison and SaBAM are each responsible for managing approximately 50% of the Portfolio s assets. GEAM served as a subadviser to the Portfolio from 2001 to December 5, Global Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio invests primarily in common stocks (and their equivalents) of foreign and U.S. companies. Each subadviser for the Portfolio generally will use either a growth approach or a value approach in selecting either foreign or U.S. common stocks. The target asset allocation, area of geographic focus, and primary investment style for each subadviser are set forth below. Subadviser Target Asset Allocation of Global Portfolio s Assets Primary Geographic Focus and Asset Class Investment Style William Blair... 25% Foreign Equity Growth-oriented LSV... 25% Foreign Equity Value-oriented Marsico... 25% U.S. Equity Growth-oriented T. Rowe Price... 25% U.S. Equity Value-oriented William Blair uses fundamental research to identify foreign companies with market capitalizations over $100 million that have above-average prospective growth, evidence of sustainability of future growth, above-average profitability and reinvestment of internal capital, and conservative capital structure. LSV employs a proprietary model and other quantitative methods in an attempt to pick undervalued stocks with high near-term appreciation potential. Cash flow-toprice ratios, book-to-market ratios and certain past performance measures are some of the important variables reviewed by LSV in its investment process. In selecting investments for the Portfolio, Marsico uses an approach that combines top-down macroeconomic analysis with bottom-up stock selection. The top-down approach may take into consideration macroeconomic factors such as interest rates, inflation, demographics, the regulatory environment and the global competitive landscape. As a result of the top-down analysis, Marsico seeks to identify sectors, industries and companies that may benefit from the overall trends Marsico has observed. Marsico then looks for individual companies (generally companies with market capitalizations of a least $4 billion) with earnings growth potential that may not be recognized by the market at large. In particular, Marsico may focus on any of a number of different attributes that may include the company s specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals, strong and ethical management, commitment to shareholder interests, and reasonable valuations in the context of projected growth rates. This process is called bottom-up stock selection. T. Rowe Price invests primarily in common stocks of large companies that appear to be undervalued, and in securities that are expected to produce dividend income. T. Rowe Price typically employs a value approach in selecting investments. T. Rowe Price s in-house research team seeks to identify companies that appear to be undervalued by various measures and may be temporarily out of favor but have good prospects for capital appreciation and dividend growth. The actual allocation to each subadviser may vary from the target allocation listed above. The Portfolio may change the target allocations. This Portfolio is intended to provide investors with the opportunity to invest in companies located throughout the world. As set forth above, the Portfolio invests approximately 50% of its assets in the equity and equity-related securities of foreign companies and approximately 50% of its assets in the equity and equity-related securities of U.S. companies. Generally, the Portfolio invests in at least three countries, including the U.S., but may invest up to 35% of its assets in 43

117 companies located in any one country. The 35% limitation does not apply to U.S investments. The Portfolio may invest in emerging markets securities. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity securities, stock indexes and foreign currencies. Purchase and sell futures contracts on stock indexes, debt securities, interest rate indexes and foreign currencies and options on these futures contracts. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. Equity swaps. The Portfolio may also lend its portfolio securities to brokers, dealers and other financial institutions to earn income. Short sales against-the-box. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. Equity and/or debt securities issued by Real Estate Investment Trusts (REITs). The Portfolio may invest up to 100% of its assets in money market instruments in response to adverse market conditions or when we are restructuring the Portfolio. Investing heavily in money market securities limits our ability to achieve our investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. The Portfolio is co-managed by William Blair, LSV, Marsico, and T. Rowe Price. William Blair, LSV, Marsico, and T. Rowe Price are each responsible for managing approximately 25% of the Portfolio s assets. The Global Portfolio was managed by Jennison from 2001 to December 5, High Yield Bond Portfolio The investment objective of this Portfolio is a high total return. While we make every effort to achieve our objective, we can t guarantee success and, it is possible that you could lose money. We invest primarily in high-yield/high risk debt securities, which are often referred to as high-yield bonds or junk bonds. High-yield bonds and junk bonds are riskier than higher rated bonds. Normally, we will invest at least 80% of the Portfolio s investable assets in medium to lower rated debt securities. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. Lower rated and comparable unrated securities tend to offer better yields than higher rated securities with the same maturities because the issuer s financial condition may not have been as strong as that of higher rated issuers. Changes in the perception of the creditworthiness of the issuers of lower rated securities tend to occur more frequently and in a more pronounced manner than for issuers of higher rated securities. The Portfolio may invest up to 20% of its total assets in U.S. dollar denominated debt securities issued outside the U.S. by foreign and U.S. issuers. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Common stock, debt securities, convertible debt and preferred stock. Loans or assignments arranged through private negotiations between a corporation which is the borrower and one or more financial institutions that are the lenders. Asset-backed securities. Collateralized debt obligations (CDOs) and other credit-related asset-backed securities. No more than 5% of the Portfolio s assets may be invested in CDOs. Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on debt securities. 44

118 Purchase and sell interest rate and interest rate swap futures contracts and options on these futures contracts. Purchase securities on a when-issued or delayed delivery basis. PIK bonds. Short sales. No more than 25% of the Portfolio s net assets may be used as collateral or segregated for purposes of securing a short sale obligation. The Portfolio may also enter into short sales against-the-box. Swap agreements; including interest rate, credit default, currency exchange rate and total return swaps. The Portfolio may also invest in options on swaps. Credit-linked securities, which may be linked to one or more underlying credit default swaps. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. We may also invest in Reverse repurchase agreements and dollar rolls. The Portfolio may invest up to 30% of its assets in these instruments. Under normal circumstances, the Portfolio may invest in money market instruments. In response to adverse market conditions or when we are restructuring the Portfolio, we may temporarily invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in money market securities limits our ability to achieve our investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. The Portfolio is managed by Prudential Investment Management, Inc. Jennison Portfolio The investment objective of this Portfolio is to achieve long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. We normally invest at least 65% of the Portfolio s total assets in equity-related securities of companies that exceed $1 billion in market capitalization at the time of investment and that we believe have above-average growth prospects. We may also invest in common stocks, preferred stocks and other equity-related securities of companies that are undergoing changes in management, in product and/or in marketing dynamics which we believe have not yet been reflected in reported earnings or recognized by investors. We select stocks on a company-by-company basis using fundamental analysis and look for companies with some or all of the following: high sales growth, high unit growth, high or improving returns on assets and equity and a strong balance sheet. Often the companies we choose have a defendable competitive position, enduring business franchise, differentiated product or service and/or proven management team. In addition to common stocks and preferred stocks, we may invest in debt securities and mortgage-related securities. These securities may be rated as low as Baa by Moody s or BBB by S&P (or if unrated, of comparable quality in our judgment). The Portfolio may also invest in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities. Up to 30% of the Portfolio s assets may be invested in foreign equity and equity-related securities. For these purposes, we do not consider American Depositary Receipts (ADRs) as foreign securities. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity securities, stock indexes and foreign currencies. Purchase and sell stock index and foreign currency futures contracts and options on those futures contracts. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. Equity swap agreements. Short sales against-the-box. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. 45

119 Equity and/or debt securities issued by Real Estate Investment Trusts (REITs). In response to adverse market conditions or when restructuring the Portfolio, we may invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in money market securities limits our ability to achieve our investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. The Portfolio is managed by Jennison. Money Market Portfolio The investment objective of this Portfolio is to seek the maximum current income that is consistent with stability of capital and maintenance of liquidity. While we make every effort to achieve our objective, we can t guarantee success. We invest in a diversified portfolio of short-term debt obligations of the U.S. Government, its agencies and instrumentalities, as well as commercial paper, asset backed securities, funding agreements, certificates of deposit, floating and variable rate demand notes, notes and other obligations issued by banks, corporations and other companies (including trust structures), and obligations issued by foreign banks, companies or foreign governments. The net asset value for the Portfolio will ordinarily remain issued at $10 per share because dividends are declared and reinvested daily. The price of each share remains the same, but when dividends are declared, the value of your investment grows. We make investments that meet the requirements of specific rules for money market mutual funds, such as Investment Company Act of 1940 (Investment Company Act) Rule 2a-7. As such, we will not acquire any security with a remaining maturity exceeding thirteen months, and we will maintain a dollar-weighted average portfolio maturity of 90 days or less. In addition, we will comply with the diversification, quality and other requirements of Rule 2a-7. This means, generally, that the instruments that we purchase present minimal credit risk and are of eligible quality. Eligible quality for this purpose means a security is: (1) rated in one of the two highest short-term rating categories by at least two major rating services (or if only one major rating service has rated the security, as rated by that service); or (2) if unrated, of comparable quality in our judgment. All securities that we purchase will be denominated in U.S. dollars. Commercial paper is short-term debt obligations of banks, corporations and other borrowers. The obligations are usually issued by financially strong businesses and often include a line of credit to protect purchasers of the obligations. An asset-backed security is a loan or note that pays interest based upon the cash flow of a pool of assets, such as mortgages, loans and credit card receivables. Funding agreements are contracts issued by insurance companies that guarantee a return of principal, plus some amount of interest. When purchased by money market funds, funding agreements will typically be short-term and will provide an adjustable rate of interest. Certificates of deposit, time deposits and bankers acceptances are obligations issued by or through a bank. These instruments depend upon the strength of the bank involved in the borrowing to give investors comfort that the borrowing will be repaid when promised. We may purchase debt securities that include demand features, which allow us to demand repayment of a debt obligation before the obligation is due or matures. This means that longer term securities can be purchased because of our expectation that we can demand repayment of the obligation at a set price within a relatively short period of time, in compliance with the rules applicable to money market mutual funds. The Portfolio may also purchase floating rate and variable rate securities. These securities pay interest at rates that change periodically to reflect changes in market interest rates. Because these securities adjust the interest they pay, they may be beneficial when interest rates are rising because of the additional return the Portfolio will receive, and they may be detrimental when interest rates are falling because of the reduction in interest payments to the Portfolio. The securities that we may purchase may change over time as new types of money market instruments are developed. We will purchase these new instruments, however, only if their characteristics and features follow the rules governing money market mutual funds. We may also use alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. There is no guarantee that these strategies will work, that the instruments necessary to implement these strategies will be available, or that the Portfolio will not lose money. 46

120 The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Purchase securities on a when-issued or delayed delivery basis. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. Reverse repurchase agreements (the Portfolio may invest up to 10% of its net assets in these instruments). The Portfolio is managed by Prudential Investment Management, Inc. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the Portfolio seeks to preserve the value of an investment at $10 per share, it is possible to lose money by investing in the Portfolio. Stock Index Portfolio The investment objective of this Portfolio is to achieve investment results that generally correspond to the performance of publicly-traded common stocks. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. To achieve our objective, we use the performance of the Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index). Under normal conditions, we attempt to invest in all 500 stocks represented in the S&P 500 Index in proportion to their weighting in the Standard & Poor s 500 Composite Stock Price Index. The S&P 500 Index is a marketweighted index, which represents more than 70% of the market value of all publicly-traded common stocks. We will normally invest at least 80% of the Portfolio s investable assets in S&P 500 Index stocks, but we will attempt to remain as fully invested in the S&P 500 Index stocks as possible in light of cash flow into and out of the Portfolio. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. To manage investments and redemptions in the Portfolio, we may temporarily hold cash or invest in high-quality money market instruments. To the extent we do so, the Portfolio s performance will differ from that of the S&P 500 Index. We attempt to minimize differences in the performance of the Portfolio and the S&P 500 Index by using stock index futures contracts, options on stock indexes and options on stock index futures contracts. The Portfolio will not use these derivative securities for speculative purposes or to hedge against a decline in the value of the Portfolio s holdings. We may also use alternative investment strategies including derivatives to try to improve the Portfolio s returns or for short-term cash management. There is no guarantee that these strategies will work, that the instruments necessary to implement these strategies will be available, or that the Portfolio will not lose money. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Purchase and sell options on stock indexes. Purchase and sell stock futures contracts and options on those futures contracts. Purchase and sell exchange-traded fund shares. Short sales and short sales against-the-box. No more than 5% of the Portfolio s total assets may be used as collateral or segregated for purposes of securing a short sale obligation. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. Equity and/or debt securities issued by Real Estate Investment Trusts (REITs). The Portfolio is managed by Quantitative Management Associates LLC. Prior to July 1, 2004, the Portfolio was managed by Prudential Investment Management, Inc. A stock s inclusion in the S&P 500 Index in no way implies S&P s opinion as to the stock s attractiveness as an investment. The portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representations regarding the advisability of investing in the portfolio. Standard & Poor s, Standard & Poor s 500 and 500 are trademarks of McGraw Hill. 47

121 SP AIM Core Equity Portfolio The investment objective of this Portfolio is growth of capital. This investment objective is non-fundamental, meaning that we can change the objective without seeking a vote of contract owners. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio normally invests at least 80% of its investable assets in equity securities, including convertible securities, of established companies that have long-term above-average growth in earnings and growth companies that the portfolio managers believe have the potential for above-average growth in earnings. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. In complying with this 80% requirement, the Portfolio s investments may include synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the Portfolio s direct investments, and may include warrants, futures, options, exchange-traded funds and American Depositary Receipts (ADRs). The Portfolio may invest in corporate debt securities. Corporations issue debt securities of various types, including bonds and debentures (which are long-term), notes (which may be short- or long-term), bankers acceptances (indirectly secured borrowings to facilitate commercial transactions) and commercial paper (short-term unsecured notes). The Portfolio may also invest in convertible securities whose values will be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted. Specifically, since these types of convertible securities pay fixed interest and dividends, their values may fall if interest rates rise and rise if market interest rates fall. Additionally, an issuer may have the right to buy back certain of the convertible securities at a time and price that is unfavorable to the Portfolio. The values of fixed rate income securities tend to vary inversely with changes in interest rates, with longer-term securities generally being more volatile than shorter-term securities. Corporate securities frequently are subject to call provisions that entitle the issuer to repurchase such securities at a predetermined price prior to their stated maturity. In the event that a security is called during a period of declining interest rates, the Portfolio may be required to reinvest the proceeds in securities having a lower yield. In addition, in the event that a security was purchased at a premium over the call price, the Portfolio will experience a capital loss if the security is called. Adjustable rate corporate debt securities may have interest rate caps and floors. The Portfolio may invest in securities issued or guaranteed by the United States Government or its agencies or instrumentalities. These include Treasury securities (bills, notes, bonds and other debt securities) which differ only in their interest rates, maturities and times of issuance. U.S. Government agency and instrumentality securities include securities which are supported by the full faith and credit of the U.S. Government, securities that are supported by the right of the agency to borrow from the U.S. Treasury, securities that are supported by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality, and securities that are supported only by the credit of such agencies. While the U.S. Government may provide financial support to such U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so. The U.S. Government, its agencies and instrumentalities do not guarantee the market value of their securities. The value of such securities fluctuates inversely to interest rates. The Portfolio may hold up to 20% of its assets in foreign securities. Such investments may include American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and other securities representing underlying securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. The Portfolio has authority to deal in foreign exchange between currencies of the different countries in which it will invest either for the settlement of transactions or as a hedge against possible variations in the foreign exchange rates between those currencies. This may be accomplished through direct purchases or sales of foreign currency, purchases of futures contracts with respect to foreign currency (and options thereon), and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange-traded futures contracts. 48

122 The Portfolio may also pursue certain types of investment strategies and/or invest in certain types of securities including but not limited to the following: Equity and/or debt securities issued by Real Estate Investment Trusts (REITs). Such investments will not exceed 15% of the total assets of the Portfolio. Purchase and sell options on futures contracts or forward contracts which are denominated in a particular foreign currency to hedge the risk of fluctuations in the value of another currency. Reverse repurchase agreements. The Portfolio may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions without liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements; or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Purchase securities of unseasoned issuers. Securities in such issuers may provide opportunities for long term capital growth. Greater risks are associated with investments in securities of unseasoned issuers than in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies. Securities of other investment companies to the extent permitted by the Investment Company Act, and rules and regulations thereunder, and if applicable, exemptive orders granted by the SEC. Purchase and sell stock index futures contracts and related options on stock index futures; and purchase and sell futures contracts on foreign currencies and related options on foreign currency futures contracts. Preferred stock, convertible debt and convertible preferred stock. Forward foreign currency exchange contracts. Restricted securities. Repurchase agreements. Dollar rolls. Warrants. When-issued and delayed delivery securities. Options on stock and debt securities, options on stock indexes, and options on foreign currencies. Equity-linked derivative products designed to replicate the composition and performance of particular indices. Examples of such products include S&P Depositary Receipts, World Equity Benchmark Series, NASDAQ 100 tracking shares, Dow Jones Industrial Average Instruments and Optimised Portfolios as Listed Securities. Investments in equity-linked derivatives involve the same risk associated with a direct investment in the types of securities included in the indices such products are designed to track. There can be no assurance that the trading price of the equity-linked derivatives will equal the underlying value of the basket of securities purchased to replicate a particular index or that such basket will replicate the index. Investments in equity-linked derivatives may constitute investment in other investment companies. U.S. Government securities. Short sales against-the-box (no more than 10% of the Portfolio s total assets may be deposited or pledged as collateral for short sales at any one time). In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the Portfolio may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. The Portfolio may borrow for emergency or temporary purposes. As a result, the Portfolio may not achieve its investment objective. The Portfolio is managed by A I M Capital Management, Inc. SP Davis Value Portfolio The investment objective of this Portfolio is growth of capital. While we will make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio invests primarily in common stocks of U.S. companies with market capitalizations of at least $5 billion. It may also invest in securities of foreign companies, companies with smaller capitalizations, and companies whose shares are subject to controversy. 49

123 Over the years, Davis has developed a list of characteristics that it believes allows companies to expand earnings over the long term and manage risk. While few companies possess all of these characteristics at any given time, Davis Advisors searches for companies that demonstrate a majority or an appropriate mix of these characteristics. First Class Management Proven track record Significant personal ownership in business Intelligent allocation of capital Smart application of technology to improve business and lower costs Strong Financial Condition and Profitability Strong balance sheet Low cost structure/low debt High after-tax returns on capital High quality of earnings Strategic Positioning for the Long Term Non-obsolete products/services Dominant or growing market share in a growing market Global presence and brand names Davis Advisors emphasizes individual stock selection and believes that the ability to evaluate management is critical. Davis Advisors routinely visits managers at their places of business in order to gain insight into the relative value of different businesses. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Equity and/or debt securities issued by Real Estate Investment Trusts (REITs). The Portfolio uses short-term investments to maintain flexibility while evaluating long-term opportunities. The Portfolio also may use short-term investments for temporary defensive purposes. In the event the portfolio managers anticipate a decline in the market values of common stock of large capitalization domestic companies, they may reduce the risk by investing in short-term securities until market conditions improve. Unlike common stocks, short-term investments will not appreciate in value when the market advances. In such a circumstance, the short-term investments will not contribute to the Portfolio s investment objective. The Portfolio is managed by Davis Advisors. SP Large Cap Value Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio normally invests at least 80% of its investable assets in common stocks and securities convertible into common stocks. The Portfolio generally defines large capitalization companies as those with a total market capitalization of $5 billion or more (measured at the time of purchase). The Portfolio will not change this policy unless it provides 60 days written notice to contract owners. The Portfolio seeks to achieve its objective through investments primarily in equity securities of large capitalization companies that are believed to be undervalued and have an above-average potential to increase in price, given the company s sales, earnings, book value, cash flow and recent performance. The Portfolio may invest in debt obligations for their appreciation potential, including debt obligations issued by the U.S. Treasury, debt obligations issued or guaranteed by the U.S. Government, and debt obligations issued by U.S. and foreign companies that are rated at least A by Standard & Poor s or by Moody s or the equivalent by another major rating service. 50

124 The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Preferred stock and bonds that have attached warrants. Convertible debt and convertible preferred stock. Asset-backed securities. Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity or debt securities, stock indexes and foreign currencies. Purchase and sell stock index and foreign currency futures contracts and options on these futures contracts. Swaps. Repurchase agreements. In response to adverse market, economic or political conditions, the Portfolio may temporarily invest up to 100% of its assets in money market instruments or U.S. Government securities. Investing heavily in these securities limits our ability to achieve the Portfolio s investment objective, but can help preserve the Portfolio s assets when the markets are unstable. The Portfolio is co-managed by J.P. Morgan Investment Management Inc. (J.P. Morgan), Hotchkis and Wiley Capital Management LLC (Hotchkis and Wiley), and Dreman Value Management LLC (Dreman). J.P. Morgan, Hotchkis and Wiley, and Dreman are each responsible for managing approximately 50%, 20% and 30%, respectively, of the Portfolio s assets. SP LSV International Value Portfolio The investment objective of this Portfolio is long-term capital appreciation. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio invests primarily in equity securities of companies represented in the MSCI EAFE Index. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. LSV uses proprietary investment models to manage the Portfolio in a bottom-up security selection approach combined with overall portfolio risk management. The primary components of the investment models are: 1) indicators of fundamental undervaluation, such as high dividend yield, low price-to-cash flow ratio or low price-to-earnings ratio, 2) indicators of past negative market sentiment, such as poor past stock price performance, 3) indicators of recent momentum, such as high recent stock price performance, and 4) control of incremental risk relative to the benchmark index. All such indicators are measured relative to the overall universe of non-u.s., developed market equities. This investment strategy can be described as a contrarian value approach. The objective of the strategy is to outperform the unhedged U.S. Dollar total return (net of foreign dividend withholding taxes) of the MSCI EAFE Index. The Portfolio may invest in equity securities from any of the countries comprising the MSCI EAFE Index. The Portfolio will typically hold at least 100 stocks and will generally align its country weightings with those of the MSCI EAFE Index. LSV intends to keep the Portfolio s assets as fully invested in non-u.s. equities as practicable at all times, except as needed to accommodate the Portfolio s liquidity needs. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Convertible securities. Warrants. Foreign securities. Options (on stock, debt, stock indices, foreign currencies, and futures). Futures contracts. Forward foreign currency exchange contracts. Interest rate swaps. Loan participations. Reverse repurchase agreements. Dollar rolls. When-issued and delayed delivery securities 51

125 Short sales. Illiquid securities. The Portfolio may from time to time adopt a temporary defensive position in response to extraordinary adverse political, economic or stock market events. The Portfolio may invest up to 100% of its assets in U.S. or foreign government money market investments, or other short-term bonds that offer comparable safety, if the situation warrants. To the extent the Portfolio might adopt such a position over the course of its duration, the Portfolio may not meet its goal of long-term capital appreciation. The Portfolio is managed by LSV Asset Management. Prior to November 22, 2004, the Portfolio was managed by Deutsche Asset Management Investment Services Limited. SP Mid Cap Growth Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible you could lose money. The Portfolio invests, under normal market conditions, at least 80% of its investable assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts for those securities, of companies with medium market capitalizations that are believed to have above-average growth potential. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. Medium market capitalization companies are defined by the Portfolio as companies with market capitalizations equaling or exceeding $250 million but not exceeding the top of the Russell Midcap Growth Index range at the time of the Portfolio s investment. This Index is a widely recognized, unmanaged index of mid cap common stock prices. Companies whose market capitalizations fall below $250 million or exceed the top of the Russell Midcap Growth Index range after purchase continue to be considered medium-capitalization companies for purposes of the fund s 80% investment policy. As of December 31, 2005, the top of the Russell Midcap Growth Index range was approximately $ billion. The Portfolio s investments may include securities listed on a securities exchange or traded in the over-the-counter markets. The investment adviser uses a bottom-up and top-down, analysis in managing the Portfolio. This means that securities are selected based upon fundamental analysis (such as an analysis of earnings, cash flows, competitive position and management s abilities) as well as top-down approach of diversification by industry and company, and paying attention to macro-level investment themes. The Portfolio may invest in foreign securities (including emerging markets securities) through which it may have exposure to foreign currencies. The Portfolio is expected to engage in active and frequent trading to achieve its principal investment strategies. Generally, the Portfolio will invest no more than (i) 20% of its net assets in foreign securities and (ii) 10% in lower rated bonds, and the Portfolio will not lend more than 30% of the value of its securities. The Portfolio may also utilize various strategies and invest in a variety of debt securities, equity securities, and other instruments, including the following types of securities and strategies: Corporate debt. Lower-rated bonds. U.S. Government securities. Variable and floating rate obligations. Zero coupon bonds. Deferred interest bonds. PIK bonds. Depository receipts. Emerging markets equity securities. Forward contracts. Futures contracts. Securities issued by investment companies. Options (on currencies, futures, securities, and stock indices). Repurchase agreements. Restricted securities. 52

126 Short sales and short sales against-the-box. Short-term debt. Warrants. When-issued and delayed delivery securities. The Portfolio may borrow for temporary purposes. In response to adverse market conditions or when restructuring the Portfolio, the investment adviser may invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in these securities limits the ability to achieve the investment objective, but can help to preserve the Portfolio s assets when markets are unstable. The Portfolio is managed by Calamos Advisors LLC. SP PIMCO High Yield Portfolio The investment objective of this Portfolio is high total return. While we make every effort to achieve our objective, we can t guarantee success and, it is possible that you could lose money. Under normal circumstances, the Portfolio invests at least 80% of its net assets in high-yield/high-risk bonds, which are often referred to as junk bonds. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. The Portfolio may invest up to 15% of its total assets in derivative instruments, such as options, futures contracts or swaps. The Portfolio may also invest in mortgage-related securities or asset-backed securities. The Portfolio may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The total return sought by the Portfolio consists of income earned on the Portfolio s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates or improving credit fundamentals for a particular sector or security. In selecting securities for the Portfolio, PIMCO develops an outlook for interest rates, currency exchange rates and the economy; analyzes credit and call risks, and uses other security selection techniques. The proportion of a Portfolio s assets committed to investment in securities with particular characteristics (such as quality, sector, interest rate or maturity) varies based on PIMCO s outlook for the U.S. economy and the economies of other countries in the world, the financial markets and other factors. PIMCO attempts to identify areas of the bond market that are undervalued relative to the rest of the market. PIMCO identifies these areas by grouping bonds into the following sectors: money markets, governments, corporates, mortgages, asset-backed and international. Sophisticated proprietary software then assists in evaluating sectors and pricing specific securities. Once investment opportunities are identified, PIMCO will shift assets among sectors depending upon changes in relative valuations and credit spreads. There is no guarantee that PIMCO s security selection techniques will produce the desired results. The Portfolio may invest in Brady Bonds, which are described below in the section on the SP PIMCO Total Return Portfolio. The Portfolio may also invest in the following types of debt obligations: commercial paper, bank certificates of deposit, fixed time deposits and bankers acceptances, obligations of non-u.s. governments or their sub-divisions, agencies and government-sponsored enterprises, international agencies or supranational entities, debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, mortgage-backed and other asset-backed securities, structured notes, including hybrid or indexed securities and loan participations, delayed funding loans and revolving credit facilities. Securities rated lower than Baa by Moody s Investors Service, Inc. (Moody s) or lower than BBB by Standard & Poor s Ratings Services (S&P) are sometimes referred to as high-yield or junk bonds. Investing in high-yield debt securities involves special risks in addition to the risks associated with investments in higher-rated fixed income securities. While offering a greater potential opportunity for capital appreciation and higher yields, high-yield debt securities typically entail greater potential price volatility and may be less liquid than higher-rated securities. High-yield debt securities may be regarded as predominantly speculative with respect to the issuer s continuing ability to meet principal and interest payments. They may also be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-rated securities. 53

127 The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Swap agreements, including interest rate, credit default, currency exchange rate and total return swaps. Preferred stock. Debt from emerging markets. Event-linked bonds. Inflation-indexed bonds issued by both governments and corporations. Convertible debt and convertible preferred stock securities. Short sales. Securities issued on a when-issued or delayed delivery basis (the Portfolio may make contracts to purchase such securities for a fixed price at a future date beyond normal settlement time (forward commitment). Repurchase Agreements and Reverse repurchase agreements. Dollar rolls. Illiquid securities (up to 15% of the Portfolio s net assets may be invested in these instruments). Securities issued by other investment companies (up to 10% of the Portfolio s assets may be invested in such securities). As a shareholder of an investment company, a Portfolio may indirectly bear service and other fees which are in addition to the fees the Portfolio pays its service providers. Long and short credit default swaps. The Portfolio may also enter into, or acquire participations in, delayed funding loans and revolving credit facilities, which are described in the section on SP PIMCO Total Return Portfolio. For the purpose of achieving income, each Portfolio may lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. For temporary or defensive purposes, the Portfolio may invest without limit in U.S. debt securities, including taxable securities and short-term money market securities, when PIMCO deems it appropriate to do so. When the Portfolio engages in such strategies, it may not achieve its investment objective. The Portfolio is managed by Pacific Investment Management Company LLC (PIMCO). SP PIMCO Total Return Portfolio The Investment objective of this Portfolio is a high total return. This investment objective is non-fundamental, meaning that we can change the investment objective without seeking a vote of contract owners. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio invests primarily in investment grade debt securities. It may also invest up to 10% of its assets in highyield/high risk securities (also known as junk bonds ) rated B or higher by Moody s or S&P or, if unrated, determined by PIMCO to be of comparable quality. The Portfolio may invest up to 20% of its assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. The Portfolio will normally hedge at least 75% of its exposure to foreign currency to reduce the risk of loss due to fluctuations in currency exchange rates. The Portfolio may invest all of its assets in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities. The Portfolio may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The total return sought by the Portfolio consists of income earned on the Portfolio s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates or improving credit fundamentals for a particular sector or security. In selecting securities for a Portfolio, PIMCO develops an outlook for interest rates, currency exchange rates and the economy, analyzes credit and call risks, and uses other security selection techniques. The proportion of a Portfolio s assets committed to investment in securities with particular characteristics (such as quality, sector, interest rate or maturity) varies based on PIMCO s outlook for the U.S. economy and the economies of other countries in the world, the financial markets and other factors. 54

128 PIMCO attempts to identify areas of the bond market that are undervalued relative to the rest of the market. PIMCO identifies these areas by grouping bonds into the following sectors: money markets, governments, corporates, mortgages, asset-backed and international. Sophisticated proprietary software then assists in evaluating sectors and pricing specific securities. Once investment opportunities are identified, PIMCO will shift assets among sectors depending upon changes in relative valuations and credit spreads. There is no guarantee that PIMCO s security selection techniques will produce the desired results. The Portfolio may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with a debt restructuring. Investments in Brady Bonds may be viewed as speculative. Brady Bonds acquired by the Portfolio may be subject to restructuring arrangements or to requests for new credit, which may cause the Portfolio to suffer a loss of interest or principal on any of its holdings. The Portfolio may invest in the following types of debt securities: commercial paper, bank certificates of deposit, fixed time deposits and bankers acceptances, obligations of non-u.s. governments or their sub-divisions, agencies and government-sponsored enterprises, international agencies or supranational entities, debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, mortgage-backed and other asset-backed securities, structured notes, including hybrid or indexed securities and loan participations, delayed funding loans and revolving credit facilities. The Portfolio may invest in inflation-indexed bonds issued by both governments and corporations, which are fixedincome securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal. The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Swap agreements, including interest rate, credit default, currency exchange rate, total return and swap spreadlock swaps. Preferred stock. Debt from emerging markets. Forward foreign currency exchange contracts. Event-linked bonds. Convertible debt and convertible preferred stock. Short sales. Securities issued on a when-issued or delayed delivery basis, and contracts to purchase such securities for a fixed price at a future date beyond normal settlement time (forward commitments). Repurchase Agreements and Reverse Repurchase Agreements. Dollar rolls. Illiquid securities (up to15% of the Portfolio s assets may be invested in these instruments). Securities of other investment companies (up to 10% of the Portfolio s assets may be invested in these instruments). As a shareholder of an investment company, the Portfolio may indirectly bear service and other fees which are in addition to the fees the Portfolio pays its service providers. Long and short credit default swaps. 55

129 The Portfolio may also enter into, or acquire participations in, delayed funding loans and revolving credit facilities, in which a lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. These commitments may have the effect of requiring a Portfolio to increase its investment in a company at a time when it might not otherwise decide to do so (including at a time when the company s financial condition makes it unlikely that such investments will be repaid). To the extent that a Portfolio is committed to advance additional investments, it will segregate assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Directors in an amount sufficient to meet such commitments. Delayed loans and revolving credit facilities are subject to credit, interest rate and liquidity risk and the risks of being a lender. For the purpose of achieving income, each Portfolio may lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. For temporary or defensive purposes, the Portfolio may invest without limit in U.S. debt securities, including taxable securities and short-term money market securities, when PIMCO deems it appropriate to do so. When the Portfolio engages in such strategies, it may not achieve its investment objective. The Portfolio is managed by Pacific Investment Management Company LLC (PIMCO). SP Prudential U.S. Emerging Growth Portfolio The investment objective of this Portfolio is long-term capital appreciation. While we make every effort to achieve its objective, we can t guarantee success, and it is possible that you could lose money. In deciding which equities to buy, the Portfolio uses what is known as a growth investment style. This means the Portfolio invests in companies that it believes could experience superior sales or earnings growth. In pursuing this objective, the Portfolio normally invests at least 80% of the Portfolio s investable assets in equity securities of small and medium-sized U.S. companies with the potential for above-average growth. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. The Portfolio considers small and medium-sized companies to be those with market capitalizations that are less than the largest capitalization of the Standard and Poor s Mid Cap 400 Stock Index as of the end of a calendar quarter. As of December 31, 2005, this number was approximately $14.6 billion. We use the market capitalization measurements used by S&P at time of purchase. In addition to buying equities, the Portfolio may invest in other equity-related securities. Equity-related securities include American Depositary Receipts (ADRs); common stocks; nonconvertible preferred stocks; warrants and rights that can be exercised to obtain stock; investments in various types of business ventures, including partnerships and joint ventures; Real Estate Investment Trusts (REITs); and similar securities. The Portfolio also may buy convertible debt securities and convertible preferred stock. These are securities that the Portfolio can convert into the company s common stock or some other equity security. The Portfolio will only invest in investment-grade convertible securities. Generally, the Portfolio considers selling a security when, in the opinion of the investment adviser, the stock has experienced a fundamental disappointment in earnings; it has reached an intermediateterm price objective and its outlook no longer seems sufficiently promising; a relatively more attractive stock emerges; or the stock has experienced adverse price movements. The Portfolio can invest up to 20% of investable assets in equity securities of companies with larger or smaller market capitalizations than previously noted. The Portfolio may participate in the initial public offering (IPO) market. IPO investments may increase the Portfolio s total returns. As the Portfolio s assets grow, the impact of IPO investments will decline, which may reduce the Portfolio s total returns. The Portfolio can invest up to 35% of total assets in foreign securities, including stocks and other equity-related securities, money market instruments and other investment-grade fixed-income securities of foreign issuers, including those in developing countries. For purposes of the 35% limit, the Portfolio does not consider ADRs and other similar receipts or shares to be foreign securities. The Portfolio can invest up to 20% of investable assets in investment-grade corporate or government obligations. Investment-grade obligations are rated in one of the top four long-term quality ratings by a major rating service (such as Baa/BBB or better by Moody s Investors Service, Inc. or Standard & Poor s Ratings Group (S&P), respectively). The 56

130 Portfolio also may invest in obligations that are not rated, but which it believes to be of comparable quality. Obligations rated in the fourth category (Baa/BBB) have speculative characteristics. These lower-rated obligations are subject to a greater risk of loss of principal and interest. Generally, fixed-income securities provide a fixed rate of return, but provide less opportunity for capital appreciation than investing in stocks. The Portfolio will purchase money market instruments only in one of the two highest short-term quality ratings of a major rating service. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Repurchase agreements. Foreign currency forward contracts. Derivative strategies. Securities issued by agencies of the U.S. Government or instrumentalities of the U.S. Government. These obligations, including those which are guaranteed by Federal agencies or instrumentalities, may or may not be backed by the full faith and credit of the United States. Mortgage-related securities, including those which represent undivided ownership interests in pools of mortgages. The U.S. Government or the issuing agency or instrumentality guarantees the payment of interest on and principal of these securities. However, the guarantees do not extend to the yield or value of the securities nor do the guarantees extend to the yield or value of the Portfolio s shares. Purchase and write (sell) put and call options on securities, stock indexes and currencies that are traded on U.S. or foreign securities exchanges or in the over-the-counter market. Financial futures contracts and options thereon which are traded on a commodities exchange or board of trade. The Portfolio also follows certain policies when it borrows money (the Portfolio can borrow up to 20% of the value of its total assets); and holds illiquid securities (the Portfolio may hold up to 15% of its net assets in illiquid securities, including securities with legal or contractual restrictions on resale, those without a readily available market and repurchase agreements with maturities longer than seven days). Although it is not one of the Portfolio s principal strategies, the Portfolio has historically frequently traded its portfolio securities. For the fiscal years ended December 31, 2005 and 2004, the Portfolio s turnover rates were 142% and 212% respectively. Future portfolio turnover could be higher or lower. Portfolio turnover is generally the percentage found by dividing the lesser of portfolio purchases or sales by the monthly average value of the portfolio. High portfolio turnover (100% or more) results in higher brokerage commissions and other transaction costs and can affect the Portfolio s performance. In response to adverse market, economic or political conditions, the Portfolio may temporarily invest up to 100% of the Portfolio s assets in cash or money market instruments. Investing heavily in these securities limits the Portfolio s ability to achieve capital appreciation, but can help to preserve its assets when the equity markets are unstable. The Portfolio is managed by Jennison. SP Small Cap Growth Portfolio The investment objective of this Portfolio is long-term capital growth. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. Under normal circumstances, the Portfolio will invest at least 80% of its investable assets in common stocks of small capitalization companies. The fund considers a company to be a small capitalization company if it has a market capitalization, at the time of purchase, no larger than the largest capitalized company included in the Russell 2000 Index during the most recent 11-month period (based on month-end data) plus the most recent data during the current month. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. The subadvisers are primarily looking for companies in the developing stages of their life cycles, which are currently priced below the subadvisers estimation of their potential, have earnings which may be expected to grow faster than the U.S. economy in general, and/or offer earnings growth due to rapid growth of sales, new products, management changes, and/or structural changes in the economy. The Portfolio may invest up to 25% of its assets in securities of non-u.s. issuers. Securities of Canadian issuers and American Depositary Receipts (ADRs) are not subject to this 25% limitation. 57

131 The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Derivatives. A derivative is a financial instrument whose value is derived, in some manner, from the price of another security, index, asset or rate. Derivatives include options and futures contracts, among a wide range of other instruments. Repurchase agreements. Debt securities. Convertible securities High yield or junk bonds. Warrants. Forward foreign currency exchange contracts. Interest rate swaps. When-issued and delayed delivery securities. Short sales against-the-box. U.S. Government securities. Brady Bonds. Illiquid securities. In response to adverse market conditions or when restructuring the Portfolio, the subadvisers may invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in these securities limits the ability to achieve the investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. The Portfolio is co-managed by Neuberger Berman Asset Management (Neuberger Berman) and Eagle Asset Management (Eagle). Neuberger Berman and Eagle are each responsible for managing approximately 50% of the Portfolio s assets. Prior to May 1, 2005, the Portfolio was managed on an interim basis by BlackRock Advisors, Inc. from January 31, 2005 to April 30, Prior to January 31, 2005, the Portfolio was managed by State Street Research and Management Company. SP Small Cap Value Portfolio (formerly, SP Goldman Sachs Small Cap Value Portfolio) The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success and it is possible that you could lose money. The Portfolio normally invests at least 80% of its investable assets in the equity securities of small capitalization companies. The Portfolio will not change this policy unless it provides 60 days written prior notice to contract owners. The Portfolio generally defines small capitalization companies as those with market capitalizations that do not exceed the greater of: (i) $4 billion or (ii) the highest month-end market capitalization value of any common stock in the Russell 2000 Index during the preceding 12 months. The Portfolio may invest up to 25% of its assets in foreign securities. The Portfolio seeks to achieve its objective through investments primarily in equity securities of small capitalization companies that are believed to be undervalued in the marketplace. In deciding which stocks to buy, each subadviser uses what is known as a value investment style. GSAM seeks to identify: Well-positioned businesses that have: i. Attractive returns on capital; ii. Sustainable earnings and cash flow; iii. Strong company management focused on long-term returns to shareholders; Attractive valuation opportunities where: i. The intrinsic value of the business is not reflected in the stock price. Price and Prospects. All successful investing should thoughtfully weigh two important attributes of a stock: price and prospects. Since most value managers tend to focus almost exclusively on price, they often underestimate the importance of 58

132 prospects. GSAM believes a company s prospective ability to generate high cash flow and returns on capital will strongly influence investment success. Uncertainty creates opportunity. Some stock price declines truly reflect a permanently disadvantaged business model. These stocks are the value traps that mire price-oriented investors. Other stock price declines merely reflect near-term market volatility. Through GSAM s proprietary research and strong valuation discipline, it seeks to purchase wellpositioned, cash generating businesses run by shareholder-oriented managements at a price low enough to provide a healthy margin of safety. Avoiding value traps. GSAM believes the key to successful investing in the small cap value space is to avoid the losers or value traps. Academic studies have shown that small cap value has historically outperformed other asset classes, but with higher volatility and less liquidity. By focusing on stock selection within sectors and avoiding the losers, GSAM believes that it can participate in the long-term performance of small cap value with much less risk than other managers. SaBAM emphasizes individual security selection while spreading the Portfolio s investments among industries and sectors. SaBAM uses both quantitative and fundamental methods to identify stocks of smaller capitalization companies it believes have a high probability of outperforming other stocks in the same industry or sector. SaBAM uses quantitative parameters to select a universe of smaller capitalized companies that fit the fund s general investment criteria. In selecting individual securities from within this range, the manager looks for value attributes, such as: (i) low stock price relative to earnings, book value and cash flow and (ii) high return on invested capital. SaBAM also uses quantitative methods to identify catalysts and trends that might influence the Portfolio s industry or sector focus, or SaBAM s individual security selection. Under normal conditions, there will be an approximately equal division of the Portfolio s assets between the subadvisers. All daily cash inflows (that is, purchases and reinvested distributions) and outflows (that is, redemptions and expense items) will usually be divided between the subadvisers as the Manager deems appropriate. There will be a periodic rebalancing of each segment s assets to take account of market fluctuations in order to maintain the approximately equal allocation. As a consequence, the Manager may allocate assets from the portfolio segment that has appreciated more to the other. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Derivative strategies to reduce certain risks of its investments and to enhance income. Purchase and sell options on equity securities or stock indices. Purchase and sell foreign currency options on U.S. exchanges or U.S. over-the-counter markets. Purchase and sell stock index futures contracts and options on these futures contracts for certain hedging and risk management purposes. New financial products and risk management techniques continue to be developed, and the Portfolio may use these new investments and techniques to the extent consistent with its investment objective and policies. Forward foreign currency exchange contracts. Preferred stock and bonds that have attached warrants and convertible debt and convertible preferred stock. Swaps. Repurchase agreements. REITs. Private Investments in Public Equity PIPES. The Portfolio may, for temporary defensive purposes or pending other investments, invest in high-quality, short-term debt obligations of banks, corporations or the U.S. government. While the Portfolio is in a defensive position, its ability to achieve its investment objective of long-term growth of capital will be limited. The Portfolio is co-managed by Goldman Sachs Asset Management, L.P. ( GSAM ) and Salomon Brothers Asset Management Inc. ( SaBAM ). GSAM and SaBAM are each responsible for managing approximately 50% of the Portfolio s assets. From January 20, 2004 to December 5, 2005, GSAM managed 100% of the Portfolio s assets. 59

133 SP Strategic Partners Focused Growth Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success, and it is possible that you could lose money. The Portfolio normally invests at least 65% of its total assets in equity-related securities of U.S. companies that are believed to have strong capital appreciation potential. The Portfolio s strategy is to combine the efforts of two investment advisers and to invest in the favorite stock selection ideas of both. Each investment adviser to the Portfolio utilizes a growth style to select approximately 20 securities. The portfolio managers build a portfolio with stocks in which they have the highest confidence and may invest more than 5% of the Portfolio s assets in any one issuer. The Portfolio may actively and frequently trade its portfolio securities. The Portfolio is a non-diversified mutual fund portfolio. This means that the Portfolio may invest in a relatively high percentage of net assets in a small number of issuers. Investing in a nondiversified mutual fund, particularly a fund investing in approximately 40 equity-related securities, involves greater risk than investing in a diversified fund because a loss resulting from the decline in the value of one security may represent a greater portion of the total assets of a nondiversified fund. The primary equity-related securities in which the Portfolio invests are common stocks. Generally, each investment adviser will consider selling or reducing a stock position when, in its opinion, the stock has experienced a fundamental disappointment in earnings; it has reached an intermediate-term price objective and its outlook no longer seems sufficiently promising; a relatively more attractive stock emerges; or the stock has experienced adverse price movement. A price decline of a stock does not necessarily mean that an investment adviser will sell the stock at that time. During market declines, either investment adviser may add to positions in favored stocks, which can result in a somewhat more aggressive strategy, with a gradual reduction of the number of companies in which the adviser invests. Conversely, in rising markets, either investment adviser may reduce or eliminate fully valued positions, which can result in a more conservative investment strategy, with a gradual increase in the number of companies represented in the adviser s portfolio segment. In deciding which stocks to buy, each investment adviser uses what is known as a growth investment style. This means that each adviser will invest in stocks they believe could experience superior sales or earnings growth. The Portfolio may buy common stocks of companies of every size small-, medium- and large capitalization although its investments are mostly in medium- and large capitalization stocks. The Portfolio intends to be fully invested, holding less than 5% of its total assets in cash under normal market conditions. Under normal conditions, there will be an approximately equal division of the Portfolio s assets between the two investment advisers. All daily cash inflows (that is, purchases and reinvested distributions) and outflows (that is, redemptions and expense items) will usually be divided between the two investment advisers as the portfolio manager deems appropriate. There will be a periodic rebalancing of each segment s assets to take account of market fluctuations in order to maintain the approximately equal allocation. As a consequence, the manager may allocate assets from the portfolio segment that has appreciated more to the other. The management of and investment decisions for AllianceBernstein s portion of the portfolio are made by AllianceBernstein s US Large Cap Growth Team, which is responsible for management of all of AllianceBernstein s US Large Cap Growth accounts. The US Large Cap Growth Investment Team relies heavily on the fundamental analysis and research of the Adviser s large internal research staff. While all members of the team work jointly to determine the investment strategy, including security selection, Mr. Scott Wallace is responsible for the day-to-day management of the Fund s portfolio. Jennison s portfolio managers invest in mid-size and large companies experiencing some or all of the following: high sales growth, high unit growth, high or improving returns on assets and equity and a strong balance sheet. These companies generally trade at higher prices relative to their current earnings. Reallocations may result in additional costs since sales of securities may result in higher portfolio turnover. Also, because each investment adviser selects portfolio securities independently, it is possible that a security held by one portfolio segment may also be held by the other portfolio segment of the Portfolio or that the two advisers may simultaneously favor the same industry. The Manager will monitor the overall portfolio to ensure that any such overlaps do not create an unintended industry concentration. In addition, if one investment adviser buys a security as the other adviser sells it, the net position of the Portfolio in the security may be approximately the same as it would have been with a single portfolio and no such sale and purchase, but the Portfolio will have incurred additional costs. The portfolio manager will consider these costs 60

134 in determining the allocation of assets. The portfolio manager will consider the timing of reallocation based upon the best interests of the Portfolio and its shareholders. The Portfolio may invest up to 20% of its total assets in foreign securities, including stocks and other equity-related securities, money market instruments and other fixed-income securities of foreign issuers. The Portfolio does not consider ADRs and other similar receipts or shares to be foreign securities. The Portfolio may temporarily hold cash or invest in high-quality foreign or domestic money market instruments pending investment of proceeds from new sales of Portfolio shares or to meet ordinary daily cash needs subject to the policy of normally investing at least 65% of the Portfolio s assets in equity-related securities. In response to adverse market, economic, political or other conditions, the Portfolio may temporarily invest up to 100% of its assets in money market instruments. Investing heavily in these securities limits the ability to achieve the investment objective, but can help to preserve the Portfolio s assets when the equity markets are unstable. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Repurchase agreements. Purchase and write (sell) put and call options on securities indexes that are traded on U.S. or foreign securities exchanges or in the over-the-counter market to try to enhance return or to hedge the Portfolio s portfolio. The Portfolio may write covered put and call options to generate additional income through the receipt of premiums, purchase put options in an effort to protect the value of a security that it owns against a decline in market value and purchase call options in an effort to protect against an increase in the price of securities it intends to purchase. The Portfolio also may purchase put and call options to offset previously written put and call options of the same series. The Portfolio will write only covered options. The Portfolio may purchase and sell stock index futures contracts and related options on stock index futures. The Portfolio may purchase and sell futures contracts on foreign currencies and related options on foreign currency futures contracts. Securities issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. Government. Not all U.S. Government securities are backed by the full faith and credit of the United States. Some are supported only by the credit of the issuing agency. Futures contracts and options on futures contracts for certain bona fide hedging, return enhancement and risk management purposes. Purchase put and call options and write (sell) covered put and call options on futures contracts that are traded on U.S. and foreign exchanges. Short sales. Derivatives to try to improve the Portfolio s returns. The Portfolio may use hedging techniques to try to protect the Portfolio s assets. We cannot guarantee that these strategies will work, that the instruments necessary to implement these strategies will be available, or that the Portfolio will not lose money. Nonconvertible preferred stocks. Convertible debt and convertible preferred stock. American Depositary Receipts (ADRs). Warrants and rights that can be exercised to obtain stock. Investments in various types of business ventures, including partnerships and joint ventures. Equity and debt securities issued by Real Estate Investment Trusts (REITs). The Portfolio also follows certain policies when it borrows money (the Portfolio can borrow up to 33% of the value of its total assets); and holds illiquid securities (the Portfolio may hold up to 15% of its net assets in illiquid securities, including securities with legal or contractual restrictions on resale, those without a readily available market and repurchase agreements with maturities longer than seven days). The Portfolio is subject to certain investment restrictions that are fundamental policies, which means they cannot be changed without shareholder approval. For more information about these restrictions, see the SAI. It is not a principal strategy of the Portfolio to actively and frequently trade its portfolio securities to achieve its investment objective. Nevertheless, the Portfolio may have an annual portfolio turnover rate of up to 200%. Portfolio turnover is generally the percentage found by dividing the lesser of portfolio purchases and sales by the monthly average 61

135 value of the portfolio. High portfolio turnover (100% or more) results in higher brokerage commissions and other costs and can affect the Portfolio s performance. The Portfolio is managed by Jennison and AllianceBernstein L.P SP T. Rowe Price Large Cap Growth Portfolio (formerly, SP AllianceBernstein Large Cap Growth Portfolio) The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we cannot guarantee success, and it is possible that you could lose money. Under normal circumstances, the Portfolio invests at least 80% of its investable assets in common stocks of large cap companies. A large cap company is defined as one whose market capitalization is larger than the median market capitalization of companies in the Russell 1000 Growth Index, a widely used benchmark of the largest domestic growth stocks. As of December 31, 2005, such median market capitalization was $5.202 billion and is subject to change. The market capitalization of companies in the Portfolio and the Russell 1000 Growth Index will change over time; the Portfolio will not automatically sell or cease to purchase stock of a company it already owns just because the company s market capitalization falls below this level. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. The Portfolio also may invest up to 20% of its investable assets in convertible debt and convertible preferred stock and up to 15% of its total assets in equity securities of non-u.s. companies. In selecting securities, T. Rowe Price uses a growth approach. T. Rowe Price generally looks for companies with an above-average rate of earnings and cash flow growth and a lucrative niche in the economy that gives them the ability to sustain earnings momentum even during times of slow economic growth. As growth investors, T. Rowe Price believes that when a company increases its earnings faster than both inflation and the overall economy, the market will eventually reward it with a higher stock price. The Portfolio may invest in a wide variety of equity securities (up to 15% of the Portfolio s total assets), including large cap stocks, convertible and preferred securities, warrants and rights. The Portfolio may also invest in foreign securities, including foreign equity securities, and other securities that represent interests in foreign equity securities, such as European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs). The Portfolio may invest in American Depositary Receipts (ADRs), which are not subject to the 15% limitation on foreign securities. The Portfolio may also invest in derivatives and in short term investments, including money market securities, short term U.S. Government obligations, repurchase agreements, commercial paper, banker s acceptances and certificates of deposit. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Purchase and sell exchange-traded index options and stock index future contracts. Write covered exchange-traded call options on its securities of up to 15% of its total assets, and purchase and sell exchange-traded call and put options on common stocks written by others of up to, for all options, 10% of its total assets. Short sales against-the-box of up to 15% of net Portfolio assets. Illiquid securities (up to 10% of net Portfolio assets). In response to adverse market conditions or when restructuring the Portfolio, T. Rowe Price may invest up to 100% of the Portfolio s assets in money market instruments. Investing heavily in these securities limits the ability to achieve the investment objective, but can help to preserve the Portfolio s assets when the markets are unstable. In pursuing its investment objective T. Rowe Price has the discretion to purchase some securities that do not meet its normal investment criteria, as described above, when it perceives an unusual opportunity for gain. These special situations might arise when T. Rowe Price believes a security could increase in value for a variety of reasons, including a change in management, an extraordinary event, or a temporary imbalance in the supply of or demand for the securities. The Portfolio may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities. The Portfolio is managed by T. Rowe Price Associates, Inc. AllianceBernstein served as a subadviser to the Portfolio from inception to December 5,

136 SP William Blair International Growth Portfolio The investment objective of this Portfolio is long-term growth of capital. While we make every effort to achieve our objective, we can t guarantee success and, it is possible that you could lose money. The Portfolio invests primarily in equity related securities of foreign companies. A company is considered to be a foreign company if it satisfies at least one of the following criteria: its securities are traded principally on stock exchanges in one or more foreign countries; it derives 50% or more of its total revenue from goods produced, sales made, or services performed in one or more foreign countries; it maintains 50% or more of its assets in one or more foreign countries; it is organized under the laws of a foreign country; or its principal executive office is located in a foreign country. The Portfolio primarily invests in non-u.s. growth companies whose shares appear attractively valued on a relative and absolute basis. The Portfolio looks for companies that have above-average actual and potential earnings growth over the long term and strong financial and operational characteristics. The Portfolio selects stocks on the basis of individual company research. Thus, country, currency and industry weightings are primarily the result of individual stock selections. Although the Portfolio may invest in companies of all sizes, the Portfolio typically focuses on large and medium-sized companies. Under normal conditions, the Portfolio intends to invest at least 65% of its total assets in the equity-related securities of foreign companies in at least five foreign countries. The Portfolio may invest anywhere in the world, including North America, Western Europe, the United Kingdom and the Pacific Basin, but generally not the U.S. The principal type of equity-related security in which the Portfolio invests is common stock. In addition to common stock, the Portfolio may invest in other equity-related securities that include, but are not limited to, preferred stock, rights that can be exercised to obtain stock, warrants, debt securities or preferred stock convertible or exchangeable for common or preferred stock, and master limited partnerships. The Portfolio may also invest in American Depositary Receipts (ADRs), which we consider to be equity-related securities. In deciding which stocks to purchase for the Portfolio, William Blair looks for growth companies that have both strong fundamentals and appear to be attractively valued relative to their growth potential. William Blair uses a bottom-up approach in selecting securities for the Portfolio, which means that it selects stocks based on individual company research, rather than allocating by country or sector. In researching which stocks to buy, William Blair looks at a company s basic financial and operational characteristics, company s stock price compared to the price of stocks of other companies that are its competitors, absolute historic valuation levels for that company s stock, its earnings growth and the price of existing portfolio holdings. Another important part of William Blair s research process is regular contact with management of the companies in which it invests to confirm earnings expectations and to assess management s ability to meet its stated goals. Although the Portfolio may invest in companies of all sizes, it typically focuses on large and medium-sized companies. Generally, William Blair looks for companies that have one or more of the following characteristics: actual and potential growth in earnings and cash flow; actual and improving profitability; strong balance sheets; management strength; and strong market share for the company s products. In addition, William Blair looks for companies whose securities appear to be attractively valued relative to: each company s peer group; absolute historic valuations; and existing holdings of the Portfolio. Generally, they consider selling a security when there is an identifiable change in a company s fundamentals or when expectations of future earnings growth become fully reflected in the price of that security. The Portfolio may invest in bonds, money market instruments and other fixed income obligations. Generally, the Portfolio will purchase only investment grade fixed income investments. This means the obligations have received one of the four highest quality ratings determined by Moody s Investors Service, Inc. (Moody s), or Standard & Poor s Ratings Group (S&P), or one of the other nationally recognized statistical rating organizations (NRSROs). Obligations rated in the fourth category (Baa for Moody s or BBB for S&P) have speculative characteristics and are subject to a greater risk of loss of principal and interest. On occasion, the Portfolio may buy instruments that are not rated, but that are of comparable quality to the investment-grade bonds described above. 63

137 The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for short-term cash management. Purchase and sell options on equity securities, stock indexes and foreign currencies. Purchase and sell futures contracts on stock indexes, debt securities, interest rate indexes and foreign currencies and options on these futures contracts. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. Borrow up to 33% of the value of the Portfolio s total assets. Short sales against-the-box. Repurchase agreements. The Portfolio may participate with certain other Portfolios of the Fund in a joint repurchase account under an order obtained from the SEC. In response to adverse market, economic or political conditions, the portfolio may temporarily invest up to 100% of its assets in money market instruments or in the stock and other equity-related securities of U.S. companies. Investing heavily in money market instruments limits the ability to achieve capital appreciation, but may help to preserve the portfolio s assets when global or international markets are unstable. When the portfolio is temporarily invested in equity-related securities of U.S. companies, the portfolio may achieve capital appreciation, although not through investment in foreign companies. This Portfolio is managed by William Blair & Company LLC. SP Asset Allocation Portfolios SP Aggressive Growth Asset Allocation Portfolio SP Balanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio There are four SP Asset Allocation Portfolios. The investment objective of each SP Asset Allocation Portfolio is to obtain the highest potential total return consistent with the specified level of risk tolerance. The definition of risk tolerance level is not a fundamental policy and, therefore, can be changed by the Fund s Board of Trustees at any time. Investors should choose an SP Asset Allocation Portfolio by determining which risk tolerance level most closely corresponds to their individual planning needs, objectives and comfort based on the information below. While each SP Asset Allocation Portfolio will try to achieve its objective, we can t guarantee success, and it is possible that you could lose money. The SP Asset Allocation Portfolios are designed for: the investor who wants to maximize total return potential, but lacks the time, or expertise to do so effectively; the investor who does not want to watch the financial markets in order to make periodic exchanges among Portfolios; and/or the investor who wants to take advantage of the risk management features of an asset allocation program. Each SP Asset Allocation Portfolio seeks to achieve its investment objective by investing in one or more mutual funds as described below. Each SP Asset Allocation Portfolio may invest in any other Portfolio of the Fund (other than another SP Asset Allocation Portfolio), the AST Marsico Capital Growth Portfolio of American Skandia Trust (AST), and the AST LSV International Value Portfolio of AST (collectively, the Underlying Portfolios). AST is an open-end management investment company co-managed by the Manager and its affiliate, American Skandia Investment Services, Inc. under a manager-of-managers approach. Each SP Asset Allocation Portfolio also may invest in government securities and cash for cash management purposes. The Fund may, in the future, seek exemptive relief from the provisions of the Investment Company Act of If such relief is granted, the SP Asset Allocation Portfolios may invest in other securities, including exchange traded funds and derivatives. The SP Asset Allocation Portfolios actively allocate their respective assets by investing in combinations of Underlying Portfolios. Each SP Asset Allocation Portfolio intends its strategy of investing in combinations of Underlying Portfolios to 64

138 result in investment diversification that an investor could otherwise achieve only by holding numerous investments. SP Asset Allocation Portfolio assets are expected to be invested in several Underlying Portfolios at any time. Each SP Asset Allocation Portfolio has a distinctive risk/return balance. Certain SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in equity securities while other SP Asset Allocation Portfolios will be focused more heavily on Underlying Portfolios that invest primarily in debt securities/money market instruments as set forth below. Relative Investment Focus* Equity Securities Debt Securities / Money Market Instruments SP Balanced Asset Allocation SP Aggressive Growth Asset Allocation SP Growth Asset Allocation SP Conservative Asset Allocation * Not intended to represent actual allocations among Underlying Portfolios or asset classes. The Manager may, at any time, change an SP Asset Allocation Portfolio s allocation of assets among Underlying Portfolios based on its assessment of macroeconomic, market, financial, security valuation, and other factors. The Manager also may rebalance an SP Asset Allocation Portfolio s investments to cause such investments to match the Underlying Portfolio allocation at any time. Up to 100% of an SP Asset Allocation Portfolio s assets may be invested temporarily in cash or cash equivalents and such Portfolio may otherwise deviate from its customary investment strategies in response to extraordinary adverse political, economic, financial, or stock market events. Temporary investments may include U.S. or foreign government obligations, commercial paper, bank obligations, and repurchase agreements. While an SP Asset Allocation Portfolio is in a defensive position, the opportunity to achieve its investment objective of total return will be limited. Shares of the Underlying Portfolios may be sold for a variety of reasons, such as to effect a change in Underlying Portfolio allocations, to secure gains or limit losses, or to re-deploy assets to more promising opportunities. The performance of each SP Asset Allocation Portfolio depends on how its assets are allocated and reallocated between the Underlying Portfolios. A principal risk of investing in each SP Asset Allocation Portfolio is that the Manager will make less than optimal decisions regarding allocation of assets in the Underlying Portfolios. Because each of the SP Asset Allocation Portfolios generally invests all of its assets in Underlying Portfolios, the risks associated with each SP Asset Allocation Portfolio are closely related to the risks associated with the securities and other investments held by the Underlying Portfolios. The ability of each SP Asset Allocation Portfolio to achieve its investment objective will depend on the ability of the Underlying Portfolios to achieve their investment objectives. In addition, the officers and Directors of the Fund also presently have responsibilities with respect to AST, the SP Asset Allocation Portfolios, and all of the Underlying Portfolios. Therefore conflicts may arise as those persons fulfill their responsibilities to the Fund, AST, the SP Asset Allocation Portfolios, and the Underlying Portfolios. For more information on the Underlying Portfolios other than the AST Marsico Capital Growth Portfolio and AST LSV International Value Portfolio, please refer to their investment summaries included in this Prospectus. For more information on the AST Marsico Capital Growth Portfolio and AST LSV International Value Portfolio, please see below. The AST Marsico Capital Growth Portfolio invests primarily in the common stocks of large companies (typically companies that have a market capitalization in the range of $4 billion or more) that are selected for their growth potential. The Portfolio will normally hold a core position of between 35 and 50 common stocks. The Portfolio may hold a limited number of additional common stocks at times such as when the portfolio manager is accumulating new positions, phasing out and replacing existing positions, or responding to exceptional market conditions. In selecting investments for the Portfolio, the subadviser uses an approach that combines top-down macroeconomic analysis with bottom-up stock selection. The Portfolio s core investments generally are comprised of well-known, established growth companies. However, the Portfolio also may typically include more aggressive growth companies, and companies undergoing significant changes: 65

139 e.g., the introduction of a new product line, the appointment of a new management team, or an acquisition. As a result, the Portfolio may invest in certain companies for relatively short periods of time. Such short-term activity may cause the Portfolio to incur higher transaction costs (which may adversely affect the Portfolio s performance) and may increase taxable distributions for shareholders. The AST LSV International Value Portfolio will invest, under normal circumstances, at least 80% of the value of its assets in equity securities. The Portfolio pursues its investment objective by primarily investing in the equity securities of foreign companies that are represented in the MSCI EAFE Index. The MSCI EAFE Index tracks stocks in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. This Portfolio s investment strategy can be described as a contrarian value approach. The objective of the strategy is to outperform the unhedged U.S. Dollar total return (net of foreign dividend withholding taxes) of the MSCI EAFE Index. * * * MORE DETAILED INFORMATION ABOUT OTHER INVESTMENTS AND STRATEGIES USED BY THE PORTFOLIOS As indicated in the descriptions of the Portfolios above, we may invest in the following types of securities and/or use the following investment strategies to increase a Portfolio s return or protect its assets if market conditions warrant. American Depositary Receipts (ADRs) Certificates representing the right to receive foreign securities that have been deposited with a U.S. bank or a foreign branch of a U.S. bank. Asset-Backed Securities An asset-backed security is a type of pass-through instrument that pays interest based upon the cash flow of an underlying pool of assets, such as automobile loans or credit card receivables. Asset-backed securities may also be collateralized by a portfolio of corporate bonds, including junk bonds, or other securities. Collateralized Debt Obligations (CDOs) A CDO is a security backed by an underlying portfolio of debt obligations, typically including one or more of the following types of investments: high yield securities, investment grade securities, bank loans, futures or swaps. A CDO provides a single security that has the economic characteristics of a diversified portfolio. The cash flows generated by the collateral are used to pay interest and principal to investors. Convertible Debt and Convertible Preferred Stock A convertible security is a security for example, a bond or preferred stock that may be converted into common stock of the same or different issuer. The convertible security sets the price, quantity of shares and time period in which it may be so converted. Convertible stock is senior to a company s common stock but is usually subordinated to debt obligations of the company. Convertible securities provide a steady stream of income which is generally at a higher rate than the income on the company s common stock but lower than the rate on the company s debt obligations. At the same time, convertible securities offer through their conversion mechanism the chance to participate in the capital appreciation of the underlying common stock. The price of a convertible security tends to increase and decrease with the market value of the underlying common stock. Credit Default Swaps In a credit default swap, the Portfolio and another party agree to exchange payment of the par (or other agreed-upon) value of a referenced debt obligation in the event of a default on that debt obligation in return for a periodic stream of payments over the term of the contract provided no event of default has occurred. See also Swaps defined below. Credit-Linked Securities Credit linked securities are securities that are collateralized by one or more credit default swaps on corporate credits. The Portfolio has the right to receive periodic interest payments from the issuer of the creditlinked security at an agreed-upon interest rate, and a return of principal at the maturity date. See also Credit Default Swaps defined above. 66

140 Derivatives A derivative is an instrument that derives its price, performance, value, or cash flow from one or more underlying securities or other interests. Derivatives involve costs and can be volatile. With derivatives, the investment adviser tries to predict whether the underlying interest a security, market index, currency, interest rate or some other benchmark will go up or down at some future date. We may use derivatives to try to reduce risk or to increase return consistent with a Portfolio s overall investment objective. The adviser will consider other factors (such as cost) in deciding whether to employ any particular strategy, or use any particular instrument. Any derivatives we use may not fully offset a Portfolio s underlying positions and this could result in losses to the Portfolio that would not otherwise have occurred. Dollar Rolls Dollar rolls involve the sale by the Portfolio of a security for delivery in the current month with a promise to repurchase from the buyer a substantially similar but not necessarily the same security at a set price and date in the future. During the roll period, the Portfolio does not receive any principal or interest on the security. Instead, it is compensated by the difference between the current sales price and the price of the future purchase, as well as any interest earned on the cash proceeds from the original sale. Equity Swaps In an equity swap, the Portfolio and another party agree to exchange cash flow payments that are based on the performance of equities or an equity index. See also Swaps defined below. Event-Linked Bonds Event-linked bonds are fixed income securities for which the return of principal and payment of interest is contingent on the non-occurrence of a specific trigger event, such as a hurricane, earthquake, or other physical or weather-related phenomenon. If a trigger event occurs, a Portfolio may lose a portion or all of its principal invested in the bond. Event-linked bonds often provide for an extension of maturity to process and audit loss claims where a trigger event has, or possibly has, occurred. An extension of maturity may increase volatility. Event-linked bonds may also expose the Portfolio to certain unanticipated risks including credit risk, adverse regulatory or jurisdictional interpretations, and adverse tax consequences. Event-linked bonds may also be subject to liquidity risk. Foreign Currency Forward Contracts A foreign currency forward contract is an obligation to buy or sell a given currency on a future date at a set price. When a Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when a Portfolio anticipates the receipt in a foreign currency of dividends or interest payments on a security which it holds, the Portfolio may desire to lock-in the U.S. dollar price of the security or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. By entering into a forward contract for a fixed amount of dollars, for the purchase or sale of the amount of foreign currency involved in the underlying transactions, the Portfolio will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received. At the maturity of a forward contract, a Portfolio may either sell the security and make delivery of the foreign currency or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract with the same currency trader obligating it to purchase, on the same maturity date, the same amount of the foreign currency. Futures Contracts A futures contract is an agreement to buy or sell a set quantity of an underlying product at a future date, or to make or receive a cash payment based on the value of a securities index. When a futures contract is entered into, each party deposits with a futures commission merchant (or in a segregated account) approximately 5% of the contract amount. This is known as the initial margin. Every day during the futures contract, either the buyer or the futures commission merchant will make payments of variation margin. In other words, if the value of the underlying security, index or interest rate increases, then the buyer will have to add to the margin account so that the account balance equals approximately 5% of the value of the contract on that day. The next day, the value of the underlying security, index or interest rate may decrease, in which case the borrower would receive money from the account equal to the amount by which the account balance exceeds 5% of the value of the contract on that day. A stock index futures contract is an agreement between the buyer and the seller of the contract to transfer an amount of cash equal to the daily variation margin of the contract. No physical delivery of the underlying stocks in the index is made. Interest Rate Swaps In an interest rate swap, the Portfolio and another party agree to exchange interest payments. For example, the Portfolio may wish to exchange a floating rate of interest for a fixed rate. We would enter into that type of a swap if we think interest rates are going down. See also Swaps defined below. 67

141 Joint Repurchase Account In a joint repurchase transaction, uninvested cash balances of various Portfolios are added together and invested in one or more repurchase agreements. Each of the participating Portfolios receives a portion of the income earned in the joint account based on the percentage of its investment. Loans and Assignments Loans are privately negotiated between a corporate borrower and one or more financial institutions. The Portfolio acquires interests in loans directly (by way of assignment from the selling institution) or indirectly (by way of the purchase of a participation interest from the selling institution. Purchasers of loans depend primarily upon the creditworthiness of the borrower for payment of interest and repayment of principal. If scheduled interest or principal payments are not made, the value of the instrument may be adversely affected. Interests in loans are also subject to additional liquidity risks. Loans are not generally traded in organized exchange markets but are traded by banks and other institutional investors engaged in loan syndications. Consequently, the liquidity of a loan will depend on the liquidity of these trading markets at the time that the Portfolio sells the loan. In assignments, the Portfolio will have no recourse against the selling institution, and the selling institution generally makes no representations about the underlying loan, the borrowers, the documentation or the collateral. In addition, the rights against the borrower that are acquired by the Portfolio may be more limited than those held by the assigning lender. Mortgage-Related Securities Mortgage-related securities are usually pass-through instruments that pay investors a share of all interest and principal payments from an underlying pool of fixed or adjustable rate mortgages. We may invest in mortgage-related securities issued and guaranteed by the U.S. Government or its agencies like the Federal National Mortgage Association (Fannie Maes) and the Government National Mortgage Association (Ginnie Maes) and debt securities issued (but not guaranteed) by the Federal Home Loan Mortgage Company (Freddie Macs). Private mortgagerelated securities that are not guaranteed by U.S. Governmental entities generally have one or more types of credit enhancement to ensure timely receipt of payments and to protect against default. Mortgage-related securities include collateralized mortgage obligations, multi-class pass through securities and stripped mortgage-backed securities. A collateralized mortgage-backed obligation (CMO) is a security backed by an underlying portfolio of mortgages or mortgage-backed securities that may be issued or guaranteed by entities such as banks, U.S. Governmental entities or broker-dealers. A multi-class pass-through security is an equity interest in a trust composed of underlying mortgage assets. Payments of principal and interest on the mortgage assets and any reinvestment income provide the money to pay debt service on the CMO or to make scheduled distributions on the multi-class pass-through security. A stripped mortgagebacked security (MBS strip) may be issued by U.S. Governmental entities or by private institutions. MBS strips take the pieces of a debt security (principal and interest) and break them apart. The resulting securities may be sold separately and may perform differently. MBS strips are highly sensitive to changes in prepayment and interest rates. Options A call option on stock is a short-term contract that gives the option purchaser or holder the right to acquire a particular equity security for a specified price at any time during a specified period. For this right, the option purchaser pays the option seller a certain amount of money or premium which is set before the option contract is entered into. The seller or writer of the option is obligated to deliver the particular security if the option purchaser exercises the option. A put option on stock is a similar contract. In a put option, the option purchaser has the right to sell a particular security to the option seller for a specified price at any time during a specified period. In exchange for this right, the option purchaser pays the option seller a premium. Options on debt securities are similar to stock options except that the option holder has the right to acquire or sell a debt security rather than an equity security. Options on stock indexes are similar to options on stocks, except that instead of giving the option holder the right to receive or sell a stock, it gives the holder the right to receive an amount of cash if the closing level of the stock index is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. The amount of cash the holder will receive is determined by multiplying the difference between the index s closing price and the option s exercise price, expressed in dollars, by a specified multiplier. Unlike stock options, stock index options are always settled in cash, and gain or loss depends on price movements in the stock market generally (or a particular market segment, depending on the index) rather than the price movement of an individual stock. Private Investments in Public Equity (PIPEs) A PIPE is an equity security in a private placement that are issued by issuers who have outstanding, publicly-traded equity securities of the same class. Shares in PIPEs generally are not registered with the SEC until after a certain time period from the date the private sale is completed. This restricted period can last many months. Until the public registration process is completed, PIPEs are restricted as to resale and the Fund 68

142 cannot freely trade the securities. Generally, such restrictions cause the PIPEs to be illiquid during this time. PIPEs may contain provisions that the issuer will pay specified financial penalties to the holder if the issuer does not publicly register the restricted equity securities within a specified period of time, but there is no assurance that the restricted equity securities will be publicly registered, or that the registration will remain in effect. Real Estate Investment Trusts (REITs) A REIT is a company that manages a portfolio of real estate to earn profits for its shareholders. Some REITs acquire equity interests in real estate and then receive income from rents and capital gains when the buildings are sold. Other REITs lend money to real estate developers and receive interest income from the mortgages. Some REITs invest in both types of interests. Repurchase Agreements In a repurchase transaction, the Portfolio agrees to purchase certain securities and the seller agrees to repurchase the same securities at an agreed upon price on a specified date. This creates a fixed return for the Portfolio. Reverse Repurchase Agreements In a reverse repurchase transaction, the Portfolio sells a security it owns and agrees to buy it back at a set price and date. During the period the security is held by the other party, the Portfolio may continue to receive principal and interest payments on the security. Short Sales In a short sale, we sell a security we do not own to take advantage of an anticipated decline in the stock s price. The Portfolio borrows the stock for delivery and if it can buy the stock later at a lower price, a profit results. Short Sales Against-the-Box A short sale against-the-box means the Portfolio owns securities identical to those sold short. Swap Options A swap option is a contract that gives a counterparty the right (but not the obligation) to enter into a swap agreement or to shorten, extend cancel or otherwise modify an existing swap agreement at some designated future time on specified terms. See also Options defined above. Swaps Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. Credit Default Swaps, Equity Swaps, Interest Rate Swaps and Total Return Swaps are four types of swap agreements. Total Return Swaps In a total return swap, payment (or receipt) of an index s total return is exchanged for the receipt (or payment) of a floating interest rate. See also Swaps defined above. When-Issued and Delayed Delivery Securities With when-issued or delayed delivery securities, the delivery and payment can take place a month or more after the date of the transaction. A Portfolio will make commitments for whenissued transactions only with the intention of actually acquiring the securities. A Portfolio s custodian will maintain in a segregated account, liquid assets having a value equal to or greater than such commitments. If the Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other security, incur a gain or loss. Except for the Money Market Portfolio, each Portfolio also follows certain policies when it borrows money (each Portfolio may borrow up to 5% of the value of its total assets, except that SP Large Cap Value Portfolio and SP Small Cap Value Portfolio may each borrow up to 33% of their total assets); lends its securities; and holds illiquid securities (a Portfolio may hold up to 15% of its net assets in illiquid securities, including securities with legal or contractual restrictions on resale, those without a readily available market and repurchase agreements with maturities longer than seven days). If the Portfolio were to exceed this limit, the investment adviser would take prompt action to reduce a Portfolio s holdings in illiquid securities to no more than 15% of its net assets, as required by applicable law. A Portfolio is subject to certain investment restrictions that are fundamental policies, which means they cannot be changed without shareholder approval. For more information about these restrictions, see the Statement of Additional Information (SAI). The Money Market Portfolio also follows certain policies when it borrows money (the Portfolio may borrow up to 5% of the value of its total assets) and holds illiquid securities (the Portfolio may hold up to 10% of its net assets in illiquid securities, including securities with legal or contractual restrictions on resale, those without a readily available market and repurchase agreements with maturities longer than seven days). If the Portfolio were to exceed this limit, the investment adviser would take prompt action to reduce the Portfolio s holdings in illiquid securities to no more than 10% of its net assets, as required by applicable law. The Portfolio is subject to certain investment restrictions that are fundamental 69

143 policies, which means they cannot be changed without shareholder approval. For more information about these restrictions, see the SAI. We will consider other factors (such as cost) in deciding whether to employ any particular strategy or use any particular instrument. For more information about these strategies, see the SAI, Investment Objectives and Policies of the Portfolios. HOW THE FUND IS MANAGED Board of Directors The Board of Directors oversees the actions of the Investment Adviser, the Subadvisers and the Distributor and decides on general policies. The Board also oversees the Fund s officers who conduct and supervise the daily business operations of the Fund. Investment Adviser Prudential Investments LLC (PI), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the overall investment adviser for the Fund. PI is located at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey PI and its predecessors have served as manager and administrator to investment companies since As of December 31, 2005, PI served as the investment manager to all of the Prudential U.S. and offshore investment companies, and as manager or administrator to closed-end investment companies, with aggregate assets of approximately $94.9 billion. The Fund uses a manager-of-managers structure. Under this structure, PI is authorized to select (with approval of the Fund s independent directors) one or more subadvisers to handle the actual day-to-day investment management of each Portfolio. PI monitors each subadviser s performance through quantitative and qualitative analysis, and periodically reports to the Fund s board of directors as to whether each subadviser s agreement should be renewed, terminated or modified. PI also is responsible for allocating assets among the subadvisers if a Portfolio has more than one subadviser. In those circumstances, the allocation for each subadviser can range from 0% to 100% of a Portfolio s assets, and PI can change the allocations without board or shareholder approval. The Fund will notify contract owners of any new subadviser or any material changes to any existing subadvisory agreement. 70

144 The following chart lists the total annualized investment advisory fees paid by the Fund to PI in 2005 for each of the Fund s Portfolios. Total advisory fees as % Portfolio of average net assets Diversified Bond 0.40 Equity 0.45 Global 0.75 High Yield Bond 0.55 Jennison 0.60 Money Market 0.40 Stock Index 0.35 SP AIM Core Equity 0.85 SP Davis Value 0.75 SP Large Cap Value 0.80 SP LSV International Value 0.90 SP Mid Cap Growth 0.80 SP PIMCO High Yield 0.60 SP PIMCO Total Return 0.60 SP Prudential U.S. Emerging Growth 0.60 SP Small Cap Growth 0.95 SP Small Cap Value 0.90 SP Strategic Partners Focused Growth 0.90 SP T. Rowe Price Large Cap Growth 0.90 SP William Blair International Growth 0.85 SP Aggressive Growth Asset Allocation 0.83 * SP Balanced Asset Allocation 0.75 * SP Conservative Asset Allocation 0.74 * SP Growth Asset Allocation 0.79 * * Each Asset Allocation Portfolio invests only in shares of other underlying Fund Portfolios. The management fee shown for each Asset Allocation Portfolio is based on the weighted average of the management fees (before the Arrangements as discussed herein) borne by the underlying Fund Portfolios according to the allocation percentage targets in place at December 31, 2005, plus a 0.05% annual management fee paid to the Investment Adviser. The only management fee directly paid by the Asset Allocation Portfolios is the 0.05% fee paid to the Investment Adviser. Investment Subadvisers Each Portfolio has one or more subadvisers providing the day-to-day investment management of the Portfolio. PI pays each subadviser out of the fee that PI receives from the Fund. Jennison Associates LLC (Jennison) serves as the subadviser for the following Portfolios: Natural Resources Portfolio Jennison Portfolio Jennison 20/20 Focus Portfolio SP Prudential U.S. Emerging Growth Portfolio Value Portfolio Diversified Conservative Growth Portfolio (portion) Equity Portfolio (portion) SP Strategic Partners Focused Growth Portfolio (portion) 71

145 Jennison is an indirect, wholly-owned subsidiary of Prudential Financial, Inc. As of December 31, 2005, Jennison managed in excess of $72 billion in assets for institutional, mutual fund and certain other clients. The address of Jennison is 466 Lexington Avenue, New York, New York Prudential Investment Management, Inc. (PIM) serves as the subadviser for the following Portfolios: Conservative Balanced Portfolio (portion) Diversified Bond Portfolio Flexible Managed Portfolio (portion) Government Income Portfolio High Yield Bond Portfolio Money Market Portfolio Diversified Conservative Growth Portfolio (portion) PIM is a wholly owned subsidiary of Prudential Financial, Inc. As of December 31, 2005, PIM had approximately $220.3 billion in assets under management. The address of PIM is Gateway Center Two, 100 Mulberry Street, Newark, New Jersey PIM s Fixed Income (PIM-Fixed Income) unit is the principal public fixed income asset management unit of PIM and is responsible for the management of the PIM Portfolios and Portfolio segments. Quantitative Management Associates LLC (QMA) serves as the subadviser for the following Portfolios: Conservative Balanced Portfolio (portion) Flexible Managed Portfolio (portion) Small Capitalization Stock Portfolio Stock Index Portfolio QMA is a wholly owned indirect subsidiary of Prudential Investment Management, Inc. (PIM). As of December 31, 2005, QMA had approximately $52.4 billion in assets under management. The address of QMA is Gateway Center Two, 100 Mulberry Street, Newark, New Jersey A I M Capital Management, Inc. (AIM Capital) serves as the subadviser for the SP AIM Core Equity Portfolio. AIM Capital, a registered investment adviser, is an indirect, wholly-owned subsidiary of AMVESCAP, PLC, an international investment management company based in London, with money managers in Europe, South America and the Far East. AIM Capital, together with its affiliates, advised or managed approximately 148 investment portfolios as of December 31, 2005, encompassing a broad range of investment objectives. AIM Capital uses a team approach to investment management. As of December 31, 2005, AIM Capital and its affiliates managed approximately $128 billion in assets. The address of AIM Capital is 11 Greenway Plaza, Suite 100, Houston, Texas AllianceBernstein L.P. (AllianceBernstein) serves as the subadviser for a portion of the SP Strategic Partners Focused Growth Portfolio. AllianceBernstein has helped investors build and preserve wealth through disciplined investment strategies for over 35 years. AllianceBernstein is a globally recognized leader in growth, value, fixed income, and style-blend investing. AllianceBernstein s success has been driven by its commitment to industry-leading fundamental research and the belief that a research-oriented approach to investing produces the best investment results over the long term for all clients large institutions, private clients and individual mutual fund investors. AllianceBernstein s assets under management totaled $579 billion, as of December 31, The address of AllianceBernstein is 1345 Avenue of the Americas, New York, New York Calamos Advisors LLC (Calamos) serves as the subadviser to the SP Mid Cap Growth Portfolio. Calamos, a registered investment adviser, is a wholly-owned subsidiary of Calamos Holdings LLC. As of December 31, 2005, Calamos managed approximately $44 billion in assets for institutions, individuals, investment companies and hedge funds. The address of Calamos is 2020 Calamous Court, Naperville, Illinois Davis Advisors (Davis) serves as the subadviser to the SP Davis Value Portfolio. As of December 31, 2005, Davis managed approximately $72 billion in assets. The address of Davis is 2949 East Elvira Road, Suite 101, Tucson, Arizona

146 Dreman Value Management LLC (Dreman) serves as subadviser for approximately 30% of the assets of the SP Large Cap Value Portfolio. As of December 31, 2005, Dreman had approximately $14.5 billion under management Dreman is located at Harborside Financial Center, Plaza 10, Suite 800, Jersey City, NJ Eagle Asset Management (Eagle) serves as subadviser for approximately 50% of the assets of the SP Small Cap Growth Portfolio. Eagle is a wholly-owned subsidiary of Raymond James Financial, Inc. that was founded in Eagle employs approximately 44 investment professionals, and has approximately $11.5 billion in assets under management as of December 31, The address of Eagle is 880 Carillon Parkway, St. Petersburg, Florida Goldman Sachs Asset Management, L.P. (GSAM) serves as the subadviser to the SP Small Cap Value Portfolio. GSAM, along with other units of the Investment Management Division of Goldman, Sachs & Company (Goldman Sachs), managed approximately $496.1 billion in assets as of December 31, The address of GSAM is 32 Old Slip, 23 rd floor, New York, New York Hotchkis and Wiley Capital Management LLC (Hotchkis and Wiley) serves as the subadviser for approximately 20% of the assets of the SP Large Cap Value Portfolio. Hotchkis and Wiley is a registered investment adviser, the primary members of which are HWCap Holdings, a limited liability company whose members are primarily employees of Hotchkis and Wiley and Stephens-H&W, LLC, a limited liability company whose primary member is Stephens Group, Inc., a diversified holding company. As of December 31, 2005, Hotchkis and Wiley had over $29.6 billion in assets under management. The address of Hotchkis and Wiley is 725 South Figueroa Street, 39 th Floor, Los Angeles, California J.P. Morgan Investment Management Inc. (J.P. Morgan) serves as the subadviser for approximately 50% of the assets of the SP Large Cap Value Portfolio. J.P. Morgan is an indirect wholly-owned subsidiary of J.P. Morgan Chase & Co., a publicly held bank holding company and global financial services firm. JP Morgan manages assets for governments, corporations, endowments, foundations and individuals worldwide. As of December 31, 2005, J.P. Morgan and its affiliated companies had approximately $846 billion in assets under management worldwide. The address of J.P. Morgan is 522 Fifth Avenue, New York, New York LSV Asset Management (LSV) serves as the subadviser for the SP LSV International Value Portfolio and for approximately 25% of the Global Portfolio. Formed in 1994, LSV is a quantitative value equity manager providing active asset management for institutional clients through the application of proprietary models. As of December 31, 2005, LSV had approximately $51.8 billion in assets under management. The address of LSV is One North Wacker Drive, Suite 4000, Chicago, Illinois Marsico Capital Management, LLC ( Marsico ), th Street, Suite 1600, Denver, CO 80202, serves as a subadviser for approximately 25% of the assets of the Global Portfolio. Marsico was organized in September 1997 as a registered investment adviser and became a wholly-owned indirect subsidiary of Bank of America Corporation in January Marsico provides investment management services to other mutual funds and private accounts and, as of December 31, 2005, had approximately $63 billion under management. Thomas F. Marsico is the founder and Chief Executive Officer of Marsico. Neuberger Berman Management, Inc. (Neuberger Berman) serves as subadviser for approximately 50% of the assets of the SP Small Cap Growth Portfolio. Neuberger Berman is a wholly owned subsidiary of Neuberger Berman Inc. ( NBI ), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc. ( LBHI ). LBHI, which trades on the New York Stock Exchange under the ticker symbol LEH through its subsidiaries (LBHI and its subsidiaries collectively Lehman Brothers ), is one of the leading global investment banks, serving institutional, corporate, government and high net worth individual clients. Lehman Brothers, which is a registered broker-dealer, futures commission merchant and investment adviser, provides a full array of capital markets products, investment banking services and investment management and advisory services worldwide. Neuberger Berman and its affiliates had approximately $148.9 billion in assets under management as of December 31, The address of Neuberger Berman is 605 Third Avenue, New York, NY Pacific Investment Management Company LLC (PIMCO) serves as the subadviser for the following Portfolios: Diversified Conservative Growth Portfolio (portion) SP PIMCO Total Return Portfolio SP PIMCO High Yield Portfolio. 73

147 Pacific Investment Management Company LLC ( PIMCO ), a Delaware limited liability company, is a majority-owned subsidiary of Allianz Global Investors of America L.P., ( AGI LP ). Allianz Aktiengesellschaft ( Allianz AG ) is the indirect majority owner of AGI LP. Allianz AG is a European-based, multinational insurance and financial services holding company. As of December 31, 2005, PIMCO managed over $594.1 billion in assets. The address of PIMCO is 840 Newport Center Drive, Newport Beach, California Salomon Brothers Asset Management Inc (SaBAM) serves as a subadviser for a portion of the assets of the Equity Portfolio and the SP Small Cap Value Portfolio. SaBAM was established in 1988 and together with affiliates in London, Tokyo and Hong Kong, provides a broad range of fixed income and equity investment services to individuals and institutional clients throughout the world. SaBAM is a wholly-owned subsidiary of Legg Mason, Inc. As of December 31, 2005, SaBAM managed over $88.57 billion in total assets. SaBAM s principal address is 399 Park Avenue, New York, New York T. Rowe Price Associates, Inc. ( T. Rowe Price ) 100 East Pratt Street, Baltimore, Maryland 21202, serves as a subadviser for the SP T. Rowe Price Large Cap Growth Portfolio and for approximately 25% of the assets of the Global Portfolio. As of December 31, 2005, the firm and its affiliates managed approximately $269.5 billion in assets. William Blair & Company LLC (William Blair) serves as the subadviser for the SP William Blair International Growth Portfolio and approximately 25% of the Global Portfolio. Since the founding of the firm in 1935, William Blair has been dedicated to researching, financing and investing in high quality growth companies through four primary divisions: investment banking, sales and trading, asset management and private capital. As of December 31, 2005, William Blair managed approximately $33.6 billion in assets. The address of William Blair is 222 West Adams Street, Chicago, Illinois Portfolio Managers The Statement of Additional Information (SAI) provides additional information about each Portfolio Manager s compensation, other accounts managed by each Portfolio Manager, and each Portfolio Manager s ownership of shares of the Fund s Portfolios. Diversified Bond Portfolio Steven Kellner, Robert Tipp, and David Bessey of PIM-Fixed Income are primarily responsible for the day-to-day management of the Portfolio. Steven Kellner, CFA, is Managing Director and Head of Credit Related Strategies for PIM-Fixed Income, including U.S. Investment Grade Corporate Bonds, High Yield, Emerging Markets, and Bank Loans. He also is a senior portfolio manager for Investment Grade Corporate Bonds and is co-portfolio manager for Core Plus strategies. He has managed the Diversified Bond Portfolio since Previously, Mr. Kellner managed U.S. corporate bonds for Prudential Financial s proprietary fixed income portfolios. He joined Prudential Financial in 1986 and has 20 years of investment experience. Robert Tipp, CFA, is Managing Director and Chief Investment Strategist for PIM-Fixed Income. He has managed the Portfolio since He is also portfolio manager for Asset-Liability, TIPs, and Global Bond strategies, and is co-portfolio manager of Core Plus, U.S. Government, and Municipal Bond strategies. Previously, Mr. Tipp served as co-head of Prudential Financial s institutional fixed income business. Before joining Prudential Financial in 1991, Mr. Tipp was a Director in the Portfolio Strategies Group at First Boston Corporation. Prior to that, he was a senior analyst at the Allstate Research & Planning Center, and managed fixed income and equity derivative strategies at Wells Fargo Investment Advisors. Mr. Tipp has 22 years of investment experience. David Bessey is Managing Director and Head of the Emerging Markets Team. Mr. Bessey is also co-portfolio manager for all Core Plus Fixed Income strategies. He has managed the Diversified Bond Portfolio since From 1994 to 1999, Mr. Bessey was a senior portfolio manager for emerging markets portfolios and U.S. investment grade assets. Previously, he developed asset allocation strategies for insurance portfolios and managed Prudential Financial s long-term funding book. Mr. Bessey joined Prudential Financial in 1989 and has 16 years of investment experience. 74

148 Equity Portfolio Spiros Sig Segalas, Blair A. Boyer and David A. Kiefer, CFA, are the portfolio managers of the portion of the Portfolio managed by Jennison. Mr. Segalas, Mr. Boyer and Mr. Kiefer generally have final authority over all aspects of the portion of the Portfolio s investment portfolio managed by Jennison, including but not limited to, purchases and sales of individual securities, portfolio construction, risk assessment and management of cash flows. Spiros Sig Segalas was a founding member of Jennison in 1969 and is currently a Director, President and Chief Investment Officer of Jennison. He received his B.A. from Princeton University in 1955 and is a member of The New York Society of Security Analysts, Inc. He has managed the portion of the Portfolio managed by Jennison since February Blair A. Boyer is a Managing Director of Jennison, which he joined in March In January 2003, Mr. Boyer joined the growth equity team, after co-managing international equity portfolios since joining Jennison. During his tenure as an international equity portfolio manager, he managed the Jennison International Growth Fund from its inception in March Mr. Boyer managed international equity portfolios at Arnhold & S. Bleichroeder, Inc. from 1989 to Prior to that, he was a research analyst and then a senior portfolio manager in the Verus Capital division at Bleichroeder. Mr. Boyer graduated from Bucknell University in 1983 with a B.A. in Economics. He received a M.B.A. in Finance from New York University in He has managed the portion of the Portfolio managed by Jennison since January David A. Kiefer, CFA, is a Managing Director of Jennison, which he joined in September He was appointed Jennison s Head of Large Cap Value Equity in January 2004, having managed diversified large capitalization portfolios since 1998 and large cap blend equity assets since He managed the Prudential Utility Fund, now known as the Jennison Utility Fund, from 1994 to June He joined Prudential s management training program in From 1988 to 1990, Mr. Kiefer worked at Prudential Power Funding Associates, making loans to the energy industry. He then left to attend business school, rejoining Prudential in equity asset management in Mr. Kiefer earned a B.S. from Princeton University and a M.B.A. from Harvard Business School. He has managed the portion of the Portfolio managed by Jennison since August The portfolio managers for the portion of the Portfolio managed by Jennison are supported by other Jennison portfolio managers, research analysts and investment professionals. Jennison typically follows a team approach in providing such support to the portfolio managers. The teams are generally organized along product strategies (e.g., large cap growth, large cap value) and meet regularly to review the portfolio holdings and discuss security purchase and sales activity of all accounts in the particular product strategy. Team members provide research support, make securities recommendations and support the portfolio managers in all activities. Members of the team may change from time to time. Michael Kagan, a Managing Director of SaBAM, has been responsible for the day-to-day management of the portion of the Portfolio advised by SaBAM since February Mr. Kagan has been with SaBAM since Kevin Caliendo, a Managing Director of SaBAM, has co-managed the portion of the Portfolio advised by SaBAM since November Mr. Caliendo has been with SaBAM since From 2001 to 2002, Mr. Caliendo was a Healthcare Equity Analyst and Convertible Bond Fund Portfolio Manager for SAC Capital Advisors, LLC and from , he was a Convertible Bond Analyst of the Healthcare sector for Wachovia Securities. Global Portfolio W. George Greig, is responsible for the day-to-day management of the portion of the Portfolio advised by William Blair. Mr. Greig, a principal of William Blair, has headed the firm s international investment management team since He serves as the Portfolio Manager for the William Blair International Growth Fund as well as leading the Portfolio Team on separately managed portfolios. Before joining William Blair, he headed international equities for PNC Bank in Philadelphia from 1995 to 1996 and previously served as Investment Director with London-based Framlington Group PLC as well as managing global and emerging markets funds there. He has over twenty-five years of experience in domestic and international investment research and portfolio management. Education: B.S., Massachusetts Institute of Technology; M.B.A., Wharton School of the University of Pennsylvania. Josef Lakonishok, Robert Vishny, Menno Vermeulen and Puneet Mansharamani are responsible for the day-to-day management of the portion of the Global Portfolio advised by LSV since December Mr. Mansharamani joined the portfolio management team in January

149 Josef Lakonishok has served as CEO, Partner and Portfolio Manager for LSV since its founding in He has more than 25 years of investment and research experience. In addition to his duties at LSV, Mr. Lakonishok serves as the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign. Robert Vishny has served as Partner and Portfolio Manager of LSV since its founding in He has more than 18 years of investment and research experience. Menno Vermeulen, CFA, has served as a Portfolio Manager and Senior Quantitative Analyst of LSV since 1995 and a Partner since He has mpre than 13 years of investment and research experience. Prior to joining LSV, Mr. Vermeulen served as a portfolio manager for ABP Investments. Puneet Mansharamani, CFA, is a Partner and Portfolio Manager of LSV since January Mr. Mansharamani has previously served as a Quantitative Analyst of LSV since He has more than 7 years of investment experience. Prior to joining LSV, Mr. Mansharamani was an Analyst at Institutional Trust National City Corporation. Thomas F. Marsico is responsible for the day-to-day management of the portion of the Global Portfolio advised by Marsico since December Mr. Marsico is the Chief Investment Officer of Marsico and has over 20 years of experience as a securities analyst and a portfolio manager. Brian Rogers, David Giroux, and John Linehan are responsible for the day-to-day management of the portion of the Global Portfolio advised by T. Rowe Price. Brian Rogers is the Chief Investment Officer of T. Rowe Price Group, Inc. In addition he manages major institutional equity portfolios and serves as President of the Equity Income Fund. He serves on the Board of Directors of T. Rowe Price Group and is a member of the Management Committee. His other responsibilities include serving on the Equity, Fixed Income, International, and Asset Allocation committees. Prior to joining the firm in 1982, Brian was employed by Bankers Trust Company. He earned an A.B. from Harvard College and an M.B.A. from Harvard Business School. David Giroux is Vice President of T. Rowe Price Group, Inc. He is also a Portfolio Manager and Research Analyst in the Equity Division following automotive, electrical equipment, industrial manufacturing, and building materials/products industries. David is a Vice President and Investment Advisory Committee member of the Dividend Growth Fund, Value Fund, Capital Appreciation Fund, Capital Opportunity Fund, Growth & Income Fund, and Equity Income Fund. Prior to joining the firm in 1998, he worked as a Commercial Credit Analyst with Hillsdale National Bank. David earned a B.A. in Finance and Political Economy with honors from Hillsdale College. He also earned the Chartered Financial Analyst accreditation. John Linehan is a Vice President of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc. He is also a Portfolio Manager in the Equity Division. John is President of the Value Fund and Chairman of the fund s Investment Advisory Committee. He also co-manages several of the firm s separate account portfolios as a member of the Large-Cap Strategy Team and is the Lead Portfolio Manager for the SICAV U.S. Large-Cap Value Equity Fund. In addition, John is also a Vice President and member of the Investment Advisory Committee of the Equity Income Fund, New Era Fund and Global Stock Fund. In addition, he is a Vice President of the Capital Appreciation Fund. John joined the firm in 1998 and has nine years of previous investment experience at Bankers Trust and E.T. Petroleum. He earned a B.A. from Amherst College and an M.B.A. from Stanford University where he was the Henry Ford II Scholar, an Arjay Miller Scholar, and the winner of the Alexander A. Robichek Award in Finance. He has also earned the Chartered Financial Analyst accreditation. High Yield Bond Portfolio The Portfolio is managed by the High Yield Team at PIM-Fixed Income. The Team is headed by Paul Appleby and also includes portfolio managers David Bessey, Richard Burns, Stephen Haeckel, Terence Wheat, and Michael Collins. Paul Appleby, CFA, is Managing Director and Head of PIM-Fixed Income s High Yield Team. He oversees all portfolio management and trading activities for high yield portfolios. Previously, Mr. Appleby was Director of Credit Research and Chief Equity Strategist for Prudential Financial s proprietary portfolios. He also was a high yield credit analyst and worked in Prudential Financial s private placement group. Mr. Appleby joined Prudential Financial in 1987 and has 19 years of investment experience. He has managed the Portfolio since David Bessey is Managing Director and Head of PIM-Fixed Income s Emerging Markets Team. Mr. Bessey is also senior portfolio manager for all Core Plus Fixed Income strategies and specializes in the emerging markets sector for the 76

150 High Yield Team. From 1994 to 1999, Mr. Bessey was a senior portfolio manager for emerging markets portfolios and $US investment grade assets. Previously, he developed asset allocation strategies for insurance portfolios and managed Prudential Financial s long-term funding book. Prior to joining Prudential Financial in 1989, Mr. Bessey was a project manager on various engineering projects in the United States, Asia, and Latin America. Mr. Bessey joined Prudential Financial in 1989 and has 16 years investment experience and has 23 years of overall investment experience. He has managed the Portfolio since May Richard Burns, CFA, is Principal and portfolio manager on PIM-Fixed Income s High Yield Team. He is responsible for proprietary high yield portfolios and specializes in the telecommunications, energy, and cable sectors. Mr. Burns joined Prudential Financial in 1986 as a research analyst. Prior to joining Prudential Financial, Mr. Burns worked in public accounting at Peat, Marwick, and Mitchell and at Colgate Palmolive. He has managed the Portfolio since 1999 and has 23 years of overall investment experience. Stephen Haeckel is Principal and portfolio manager on PIM-Fixed Income s High Yield Team. Mr. Haeckel specializes in the media, industrials, homebuilders, and transportation sectors. Before joining the High Yield Team in 1999, Mr. Haeckel was credit analyst with PIM-Fixed Income. He also worked in the Corporate Finance and Financial Restructuring groups, managing Prudential Financial s private investments. Mr. Haeckel served on the Board of Directors of three private companies in conjunction with the Financial Restructuring Group. He joined Prudential Financial in Previously, he was an Investment Officer at MONY Capital Management. Mr. Haeckel has managed the Portfolio since 1999 and has 18 years investment experience. Terence Wheat, CFA, is Principal and portfolio manager on PIM-Fixed Income s High Yield Team. Prior to assuming his current position in 2005, Mr. Wheat spent 12 years as a credit analyst in PIM-Fixed Income s Credit Research Group, where he was responsible for the consumer products, gaming and leisure, retail, supermarkets, and textile/apparel industries. Mr. Wheat covered high yield bonds from 1998 to 2003, and investment grade issues from 1993 to Earlier, he worked for Prudential s Financial Management Group and Individual Insurance Unit. Mr. Wheat joined Prudential Financial in 1988 and has 18 years of investment experience. Michael J. Collins, CFA, is Principal on PIM-Fixed Income s High Yield Team, responsible for investment strategy and risk management. Prior to his current role, Mr. Collins was Senior Investment Strategist, covering all fixed income sectors. Previously, he was a credit research analyst with Prudential. He also developed proprietary quantitative international interest rate and currency valuation models for our global bond unit. Mr. Collins began his career at Prudential Financial in 1986 as a software applications designer. He has managed the Portfolio since 2001 and has 13 years of investments experience. Jennison Portfolio Michael A. Del Balso, Spiros Sig Segalas and Kathleen A. McCarragher are the portfolio managers of the Portfolio. Mr. Del Balso generally has final authority over all aspects of the Portfolio s investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio construction, risk assessment and management of cash flows. Michael A. Del Balso joined Jennison in May 1972 and is currently a Managing Director of Jennison. He is also Jennison s Director of Research for Growth Equity. Mr. Del Balso graduated from Yale University in 1966 and received his M.B.A. from Columbia University in He is a member of The New York Society of Security Analysts, Inc. He has managed the Portfolio since April Spiros Sig Segalas was a founding member of Jennison in 1969 and is currently a Director, President and Chief Investment Officer of Jennison. He received his B.A. from Princeton University in 1955 and is a member of The New York Society of Security Analysts, Inc. He has managed the Portfolio since February Kathleen A. McCarragher joined Jennison in May 1998 and is a Managing Director of Jennison. She is also Jennison s Head of Growth Equity. Prior to joining Jennison, she was employed at Weiss, Peck & Greer L.L.C. for six years as a Managing Director and the Director of Large Cap Growth Equities. Ms. McCarragher graduated summa cum laude from the University of Wisconsin with a B.B.A. in 1977 and received her M.B.A. from Harvard Business School in She has managed the Portfolio since February The portfolio managers for the Portfolio are supported by other Jennison portfolio managers, research analysts and investment professionals. Jennison typically follows a team approach in providing such support to the portfolio managers. 77

151 The teams are generally organized along product strategies (e.g., large cap growth, large cap value) and meet regularly to review the portfolio holdings and discuss security purchase and sales activity of all accounts in the particular product strategy. Team members provide research support, make securities recommendations and support the portfolio managers in all activities. Members of the team may change from time to time. Money Market Portfolio Joseph M. Tully, Manolita Brasil, Robert Browne and Douglas Spratley of PIM-Fixed Income are primarily responsible for the day-to-day management of the Portfolio. Joseph M. Tully, Managing Director, has managed the Portfolio since Prior to joining Prudential Financial in 1987, he worked for Merrill Lynch Asset Management as portfolio manager and senior bank credit analyst, and was an assistant national bank examiner for the Office of the Comptroller of the Currency. Mr. Tully has 20 years of experience managing short-term fixed income investments, and 22 years of total investment experience. Manolita Brasil is Vice President and portfolio manager and has managed the Portfolio since In addition, Ms. Brasil coordinates credit research for commercial paper and other short-term instruments. She has been managing money market portfolios for PIM-Fixed Income since Previously, she managed the money markets support staff. Ms. Brasil joined Prudential Financial in 1979 and has 18 years of investment experience. Robert T. Browne is Vice President and portfolio managerand has managed the Portfolio since Before assuming his current position in 1995, he spent two years analyzing and trading currency and global bonds, and handling operations, marketing, compliance and business planning functions. Mr. Browne joined Prudential Financial in 1989 and has 12 years of total investment experience. Douglas Spratley, CFA, is a Senior Associate and portfolio manager, responsible for managing short-term portfolios and trading repurchase agreements. Prior to assuming his current position in 1998, Mr. Spratley was an investment analyst for the Prudential Capital Group. He joined Prudential in 1992 and has 10 years of investment experience. Stock Index Portfolio QMA typically follows a team approach in the management of its portfolios. John W. Moschberger, CFA, is a Managing Director of QMA and is the member of QMA s portfolio management team primarily responsible for the day-today management of the Portfolio. John has managed both retail and institutional account portfolios benchmarked against the S&P 500, S&P 600, Russell 2000, Topix, MSCI EAFE, and MSCI Kokusai. He is also responsible for trading foreign and domestic equities and foreign exchange and derivative instruments. He joined QMA s predecessor in John earned a BS in Finance from the University of Delaware, and an MBA from Fairleigh Dickinson University. He has managed the Portfolio since SP AIM Core Equity Portfolio Ronald S. Sloan, Senior Portfolio Manager, is primarily responsible for the day-to-day management of the Portfolio. He has been responsible for the Portfolio since Mr. Sloan joined AIM Capital in 1998 from Verissimo Research and Management, where he served as president since He is a Chartered Financial Analyst and is assisted by the Mid/Large Cap Core Team, which may be comprised of portfolio managers, research analysts and other investment professionals of the advisor. Team members provide research support and make securities recommendations with respect to the fund s portfolio, but do not have day-to-day management responsibilities with respect to the fund s portfolio. Members of the team may change from time to time. SP Davis Value Portfolio Christopher C. Davis and Kenneth Charles Feinberg are primarily responsible for the day-to-day management of the Portfolio. Christopher C. Davis is President of Davis New York Venture Fund, Inc. and manages or co-manages other equity funds advised by Davis Advisors. He has been portfolio manager of Davis New York Venture Fund since October From September 1989 to September 1995, he was Assistant Portfolio Manager and research analyst working with Shelby M.C. Davis. He has managed the Portfolio since its inception in September

152 Kenneth Charles Feinberg has been the co-portfolio manager of Davis New York Venture Fund with Christopher C. Davis since May He also co-manages other equity funds advised by Davis Advisors. Mr. Feinberg was a research analyst at Davis Advisors beginning in December 1994, and he was Assistant Vice President of Investor Relations for Continental Corp. from 1988 to He has managed the Portfolio since its inception in September SP Large Cap Value Portfolio Raffaele Zingone and Terance Chen are primarily responsible for the day-to-day management of the portion of the Portfolio managed by J.P. Morgan. Mr. Zingone, Vice President of J.P. Morgan, is a portfolio manager in the U.S. Equity Group. He joined J.P. Morgan in Mr. Chen, Vice President of J.P. Morgan, is a portfolio manager in the U.S. Equity Group. He joined J.P. Morgan in Mr. Dimig, Vice President of J.P. Morgan, is a client portfolio manager in the U.S. Equity Group. He joined J.P. Morgan in Mr. Zingone has managed the Portfolio since January Mr. Chen has managed the Portfolio since May Mr. Dimig has managed the Portfolio since January Hotchkis and Wiley also manages institutional separate accounts and is the adviser and subadviser to other mutual funds. The investment process is the same for similar accounts, including the Portfolio and is driven by team-oriented, indepth, fundamental research. The investment research staff is organized by industry coverage and supports all of the accounts managed in each of the sub-advisor s investment strategies. Weekly research meetings provide a forum where analysts and portfolio managers discuss current investment ideas within their assigned industries. Generally, the entire investment team, or a sub-set of the team, then debates the merits of recommendations, taking into account the prevailing market environment, the portfolio s current composition, and the relative value of alternative investments. The culmination of this process is the formation of a target portfolio for each investment strategy representing the best investment ideas with appropriate weights for each of the holdings. For the portion of the Portfolio managed by Hotchkis and Wiley, Hotchkis and Wiley has identified the five portfolio managers with the most significant responsibility for the Portfolio s assets. Each individual has managed the portion of the Portfolio assigned to Hotchkis and Wiley since January This list does not include all members of the investment team. Sheldon Lieberman Mr. Lieberman participates in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. He has authority to direct trading activity on the Portfolio. Mr. Lieberman, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1994 as Portfolio Manager and Analyst. George Davis Mr. Davis participates in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. He has authority to direct trading activity on the Portfolio. Mr. Davis, currently Principal, Portfolio Manager and Chief Executive Officer of Hotchkis and Wiley, joined Hotchkis and Wiley in 1988 as Portfolio Manager and Analyst. Joe Huber Mr. Huber participates in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. He is jointly responsible for the day-to-day management of the Portfolio s cash flows, which includes directing the Portfolio s purchases and sales to ensure that the Portfolio s holdings remain reflective of the target portfolio. Mr. Huber, currently Principal, Portfolio Manager and Director of Research of Hotchkis and Wiley joined Hotchkis and Wiley in 2000 as Portfolio Manager and Analyst and soon thereafter became the Director of Research. Patricia McKenna Ms. McKenna participates in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. She has authority to direct trading activity on the Portfolio. Ms. McKenna, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1995 as Portfolio Manager and Analyst. Stan Majcher Mr. Majcher participates in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. He is jointly responsible for the day-to-day management of the Portfolio s cash flows, which includes directing the Portfolio s purchases and sales to ensure that the Portfolio s holdings remain reflective of the target portfolio. Mr. Majcher, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1996 as Analyst and became Portfolio Manager in David N. Dreman and Nelson Woodard are the portfolio managers for the portion of the Portfolio managed by Dreman. 79

153 David N. Dreman. Chairman and Chief Investment Officer of Dreman Value Management, L.L.C. and Co-Lead Portfolio Manager. Began investment career in Founder, Dreman Value Management, L.L.C. Mr. Dreman will serve as the lead portfolio manager. Mr. Dreman is the founder, and Chairman of Dreman Value Management, L.L.C. and also the firm s Chief Investment Officer. Dreman Value Management, L.L.C., with $11 billion under management, focuses on the assets of mutual funds, pension, foundation and endowment funds, as well as high net-worth individuals. The Scudder- Dreman High Return Equity Fund, managed by Mr. Dreman, has been ranked as number one in the Equity-Income group by Lipper Analytical Services since the fund s inception in March 18, Mr. Dreman founded his first investment firm, Dreman Value Management, Inc., in 1977 and served as its President and then Chairman to 1995, followed by a similar role at Dreman Value Advisors, Inc. from 1995 to Nelson Woodard. Co-Lead Portfolio Manager. Began investment career in PhD, University of Virginia. Mr. Woodard will serve as the co-lead portfolio manager. Nelson P. Woodard received his BA in Mathematics and Economics and MA in Economics as well as his Ph.D. in Econometrics and Public Finance at the University of Virginia. Mr. Woodard is a Managing Director and Senior Portfolio Manager with Dreman Value Management LLC and currently serves as the co-lead portfolio manager for the Scudder-Dreman Small Cap Value Fund. From July 2000 through November 2001 he was Vice President of Asset Allocation and Quantitative Analysis at Prudential Investments. From January 1997 to July of 2000, he was a Managing Director of Dreman Value Management. Prior to joining Dreman, he was a Director of the Quantitative Finance program at the College of Business at James Madison University from 1993 to 1996 and an Instructor at the Anderson School of Management at the University of New Mexico from 1989 to Previously, Mr. Woodard had been the Director of Research at Investment Strategy Management in Charlottesville, Virginia. From he served as a consultant for Dreman Value Advisors, Inc. and as a Research Fellow for the Dreman Foundation. SP LSV International Value Portfolio The Portfolio is co-managed by Josef Lakonishok, Robert Vishny, Menno Vermeulen, CFA and Puneet Mansharamani, CFA. Mr. Lakonishok has served as CEO, Partner and Portfolio Manager for LSV since its founding in He has more than 25 years of investment and research experience. In addition to his duties at LSV, Mr. Lakonishok serves as the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign. Mr. Vishny has served as a Partner and Portfolio Manager of LSV since its founding in He has more than 18 years of investment and research experience. Mr. Vermeulen has served as a Portfolio Manager and Senior Quantitative Analyst of LSV since 1995 and a Partner since He has more than 13 years of investment experience. Prior to joining LSV, Mr. Vermuelen served as a portfolio manager for ABP Investments. Mr. Mansharamani is a Partner and Portfolio Manager since January Mr. Mansharamani has previously served as a Quantitative Analyst of LSV since He has more than 7 years of investment experience. Prior to joining LSV. Mr. Mansharamani was an Analyst at Institutional Trust National City Corporation. Messrs. Lakonishok, Vishny and Vermeulen have managed the Portfolio since LSV became the Portfolio s subadviser in November Mr. Mansharamani joined the portfolio management team in January SP Mid Cap Growth Portfolio John P. Calamos, President, CEO and Co-Chief Investment Officer of Calamos, Nick P. Calamos, Senior Executive Vice President and Co-Chief Investment Officer of Calamos, and John P. Calamos, Jr., Executive Vice President of Calamos, are primarily responsible for the day-to-day management of the Portfolio. Each has been with Calamos since John P. Calamos and Nick P. Calamos have managed money together at Calamos or a related entity for over 20 years. They have managed the Portfolio since Calamos became the Portfolio s subadviser in December

154 SP PIMCO High Yield Portfolio Raymond G. Kennedy is a Managing Director, portfolio manager and senior member of PIMCO s investment strategy group. He manages High Yield funds and oversees bank loan trading and collateralized debt obligations and heads the global high yield business for PIMCO. Mr. Kennedy joined the firm in 1996, previously having been associated with the Prudential Insurance Company of America as a private placement asset manager, where he was responsible for investing and managing a portfolio of investment grade and high yield privately placed fixed income securities. Prior to that, he was a consultant for Andersen Consulting (now Accenture) in Los Angeles and London. He has twenty years of investment management experience and holds a bachelor s degree from Stanford University and an MBA from the Anderson Graduate School of Management at the University of California, Los Angeles. SP PIMCO Total Return Portfolio Pacific Investment Management Company LLC (PIMCO). Chris Dialynas is responsible for the day-to-day management of the portfolio s assets. William H. Gross heads PIMCO s investment committee, which is responsible for the development of major investment themes and which sets targets for various portfolio characteristics in accounts managed by PIMCO, including the portfolio. Chris Dialynas is a Managing Director, portfolio manager, and a senior member of PIMCO s investment strategy group. He joined PIMCO in Mr. Dialynas has written extensively and lectured on the topic of fixed income investing. He served on the Editorial Board of The Journal of Portfolio Management and was a member of Fixed Income Curriculum Committee of the Association for Investment Management and Research. He has twenty-five years of investment experience and holds a bachelor s degree in economics from Pomona College, and holds an MBA in finance from The University of Chicago Graduate School of Business. Mr. Dialynas has managed the Portfolio since July William H. Gross, CFA, managing director and chief investment officer, was a founding partner of PIMCO in Mr. Gross has over 30 years of investment experience and is the author of Bill Gross on Investing. Mr. Gross has an MBA from UCLA Graduate School of Business. SP Prudential U.S. Emerging Growth Portfolio John P. Mullman, CFA, is the portfolio manager of the Portfolio and has final authority over all aspects of the Portfolio s investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio construction, risk assessment and management of cash flows. John P.Mullman, CFA, is a Managing Director of Jennison. He has been in the investment business since 1987, when he joined Prudential. Prior to joining Jennison in August 2000, Mr. Mullman managed institutional portfolios with Prudential. He earned his B.A. in Economics from the College of the Holy Cross in 1982 and his M.B.A. from Yale University in He is also a member of The New York Society of Security Analysts, Inc. He has managed the Portfolio since August The portfolio manager for the Portfolio is supported by other Jennison portfolio managers, research analysts and investment professionals. Jennison typically follows a team approach in providing such support to the portfolio managers. The teams are generally organized along product strategies (e.g., large cap growth, large cap value) and meet regularly to review the portfolio holdings and discuss security purchase and sales activity of all accounts in the particular product strategy. Team members provide research support, make securities recommendations and support the portfolio managers in all activities. Members of the team may change from time to time. SP Small Cap Growth Portfolio Michael Fasciano, CFA, is responsible for the day-to-day management of the portion of the Portfolio advised by Neuberger Berman. Mr. Fasciano has been a managing director of Neuberger Berman since From 1986 through 2001, Mr. Fasciano was President of Fasciano Company, Inc. From 1983 to 1986, Mr. Fasciano was an analyst with BCS Financial Corporation. Mr. Fasciano has managed the portion of the Portfolio advised by Neuberger Berman since May Bert Boksen, Senior Vice President and Managing Director of Eagle, is responsible for the portion of the Portfolio advised by Eagle Asset Management. Mr. Boksen received a B.A. degree in business from City College of New York in 1970 and his M.B.A. in Finance from St. John s University in Mr. Boksen is a Chartered Financial Analyst, and has 81

155 been a Senior Vice President of Eagle since April He has portfolio management responsibilities for the Small Cap Growth Equity accounts. Mr. Boksen was appointed a Managing Director of Eagle in June Prior to joining Eagle, Mr. Boksen was Senior Vice President and Chief Investment Officer of Raymond James & Associates, Inc. where he was Chairman of the Raymond James Focus Committee. SP Small Cap Value Portfolio (formerly, SP Goldman Sachs Small Cap Value Portfolio) GSAM employs a team-based approach to managing its portion of the Portfolio. The portfolio managers primarily responsible for the day-to-day management of the Portfolio are Chip Otness, Lisa Parisi, David Berdon, Scott Carroll, Kelly Flynn, and Edward Perkin. James (Chip) B. Otness, CFA: Managing Director; Portfolio Manager Chip is a Portfolio Manager on the US Value Team, where he oversees the portfolio construction and investment research for the firm s Small Cap Value accounts. Chip joined Goldman Sachs Asset Management in Chip started his career at J.P. Morgan where he spent 28 years. When he left J.P. Morgan, he was a Managing Director and ran J.P. Morgan Small Cap Institutional Group, responsible for growing and managing $3.6 billion in assets. Chip brings to GSAM 35 years of fundamental-driven research and investment management experience, 20 years of that managing small cap funds. He received a BA in Economics from Harvard University. Chip is a CFA charter holder. Lisa Parisi, CFA: Managing Director; Portfolio Manager Lisa is a Portfolio Manager on the US Value Team, where she has broad research responsibilities across the value strategies. Lisa joined Goldman Sachs Asset Management in Previously, Lisa started a small cap value strategy for John A. Levin & Co. In addition, she was a managing director at Valenzuela Capital, where she developed a small cap value product and co-managed a mid cap value product. She started her career working at Lazard Freres on the Small Cap Value Team and has also worked at Royce Associates and Trust Company of the West. Lisa has 20 years of industry experience. She received a BBA from Adelphi University and an MBA in Finance from the Stern School of Business at New York University. Lisa is a CFA charter holder. David Berdon: Vice President; Portfolio Manager David is a Portfolio Manager on the US Value Team, where he has broad research responsibilities across the value strategies. Before joining Goldman Sachs Asset Management in 2001, David was a Vice President for Business Development and Strategic Alliances at Soliloquy Inc., and a Principal Consultant at Diamond Technology Partners. Prior to that, he was an Analyst at Chase Manhattan Bank and Morgan Stanley. David has eight years of industry experience. He received a BA in Government and Law from Lafayette College and an MBA in Finance from the Wharton School of Business at the University of Pennsylvania. Dolores Bamford, CFA: Managing Director; Portfolio Manager Dolores is a Portfolio Manager for the US Value Team, where she has broad research responsibility across the value portfolios. Prior to her arrival at Goldman Sachs Asset Management in 2002, Dolores was a Portfolio Manager at Putnam Investments for various products since While at Putnam she was a Portfolio Manager for a variety of Funds including the Putnam Convertible Income-Growth Fund, and the Global Resources Fund. Dolores has 16 years of industry experience. She received a BA from Wellesley College and an MS from MIT Sloan School of Management. Dolores is a CFA charter holder. Scott Carroll, CFA: Vice President; Portfolio Manager Scott is a Portfolio Manager on the US Value Team, where he has broad research responsibilities across the value portfolios. Before joining Goldman Sachs Asset Management in 2002, Scott spent over five years at Van Kampen Funds, where he had portfolio management and analyst responsibilities for a Growth and Income and Equity Income funds. Prior to Van Kampen, Scott spent three years at Lincoln Capital Management as an Equity Analyst and two years as a Senior Auditor at Pittway Corporation. Scott has 14 years of industry experience. He received a BS in Accounting from Northern Illinois University and an MBA from the University of Chicago Graduate School of Business. Scott is a CFA charter holder. Kelly Flynn: Vice President; Portfolio Manager Kelly is a Portfolio Manager for the US Value Team, where he has broad research responsibilities across value the strategies. Prior to joining Goldman Sachs Asset Management in 2002, Kelly spent 3 years at Lazard Asset Management as a Portfolio Manager for Small Cap/SMID Cap Value products. Before Lazard, Kelly was a small cap value Portfolio Manager at 1838 Investment Advisors. Previously, he worked for Edgewater Private Equity Fund as a Research Analyst and 82

156 for First Boston in the Mergers and Acquisitions Department. Kelly has 14 years of industry experience. He received a BA from Harvard and an MBA from the Wharton School of Business at the University of Pennsylvania. Edward Perkin: Vice President; Portfolio Manager Edward is a Portfolio Manager on the US Value Team, where he has broad research responsibilities across the value strategies. Edward joined Goldman Sachs Asset Management in Previously, Edward worked in research at Fidelity Investments and Gabelli Asset Management while attending business school. Prior to that, he worked as a Senior Research Analyst at Fiserv. Edward has 10 years of industry experience. He received a BA from the University of California, Santa Barbara and an MBA from Columbia Business School. Peter Hable is responsible for the day-to-day management of the portion of the Portfolio advised by SaBAM. Mr. Hable has more than 22 years of investment industry experience and is a managing director of SaBAM. Mr. Hable has a B.S. in Economics from Southern Methodist University and an MBA from the University of Pennsylvania s Wharton School of Finance. He has been with SaBAM since SP Strategic Partners Focused Growth Portfolio The management of and investment decisions for the portion of the Portfolio managed by AllianceBernstein are made by AllianceBernstein s US Large Cap Growth Team, which is responsible for management of all of AllianceBernstein s US Large Cap Growth accounts. The US Large Cap Growth Investment Team relies heavily on the fundamental analysis and research of the Adviser s large internal research staff. While all members of the team work jointly to determine the investment strategy, including security selection, Mr. Scott Wallace is responsible for day-to-day management of the portion of the Portfolio managed by AllianceBernstein. Mr. Wallace joined AllianceBernstein as a US Large Cap Growth portfolio manager in Prior to joining the firm, he was with JP Morgan for 15 years, where he was a managing director and held a variety of roles in the U.S. and abroad, most recently as head of equities in Japan. Mr. Wallace has a BA from Princeton University. CFA Charterholder. Location: Chicago Spiros Sig Segalas and Kathleen A. McCarragher are the portfolio managers of the portion of the Portfolio managed by Jennison. Mr. Segalas generally has final authority over all aspects of the portion of the Portfolio s investment portfolio managed by Jennison, including but not limited to, purchases and sales of individual securities, portfolio construction, risk assessment and management of cash flows. Spiros Sig Segalas was a founding member of Jennison in 1969 and is currently a Director, President and Chief Investment Officer of Jennison. He received his B.A. from Princeton University in 1955 and is a member of The New York Society of Security Analysts, Inc. He has managed the portion of the Portfolio managed by Jennison since its inception in August Kathleen A. McCarragher joined Jennison in May 1998 and is a Managing Director of Jennison. She is also Jennison s Head of Growth Equity. Prior to joining Jennison, she was employed at Weiss, Peck & Greer L.L.C. for six years as a Managing Director and the Director of Large Cap Growth Equities. Ms. McCarragher graduated summa cum laude from the University of Wisconsin with a B.B.A. in 1977 and received her M.B.A. from Harvard Business School in She has managed the portion of the Portfolio managed by Jennison since its inception in August The portfolio managers for the portion of the Portfolio managed by Jennison are supported by other Jennison portfolio managers, research analysts and investment professionals. Jennison typically follows a team approach in providing such support to the portfolio managers. The teams are generally organized along product strategies (e.g., large cap growth, large cap value) and meet regularly to review the portfolio holdings and discuss security purchase and sales activity of all accounts in the particular product strategy. Team members provide research support, make securities recommendations and support the portfolio managers in all activities. Members of the team may change from time to time. SP T. Rowe Price Large Cap Growth Portfolio (formerly SP AllianceBernstein Large Cap Growth Portfolio) Robert W. Sharps is responsible for the day-to-day management of the Portfolio since December Mr. Sharps is a Vice President of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc. He is also the lead Portfolio Manager on the Large-Cap Growth Strategy Team in the Equity Division. Mr. Sharps serves as Executive Vice President and an Investment Advisory Committee member of the Growth Stock Fund. In addition, Mr. Sharps is a Vice President and Investment Advisory Committee member of the Blue Chip Growth Fund, Financial Services Fund, Growth & Income Fund, and New America Growth Fund. He is also a member of the Investment Advisory Committee of the Tax-Efficient 83

157 Growth Fund. Prior to joining the firm in 1997, Mr. Sharps was a Senior Consultant at KPMG Peat Marwick. He earned a B.S., summa cum laude, in Accounting from Towson University and an M.B.A. in Finance from the Wharton School, University of Pennsylvania. Mr. Sharps has also earned the Chartered Financial Analyst designation and Certified Public Accountant accreditation. SP William Blair International Growth Portfolio W. George Grieg is responsible for the day-to-day management of the Portfolio. Mr. Grieg is a principal of William Blair and joined the firm in 1996 as an international portfolio manager. Mr. Grieg has managed the Portfolio since William Blair became the Portfolio s subadviser in May SP Asset Allocation Portfolios For the four Asset Allocation Portfolios, PI invests in shares of other Fund Portfolios according to the percentage allocations discussed in this prospectus. HOW TO BUY AND SELL SHARES OF THE FUND The Fund offers two classes of shares in each Portfolio Class I and Class II. Each Class participates in the same investments within a given Portfolio, but the Classes differ as far as their charges. Class I shares are sold only to separate accounts of Prudential as investment options under certain variable annuity and variable life insurance Contracts. Class II is offered only to separate accounts of non-prudential insurance companies as investment options under certain of their Contracts. Please refer to the accompanying Contract prospectus to see which Portfolios are available through your Contract. The way to invest in the Portfolios is through certain variable life insurance and variable annuity contracts. Together with this prospectus, you should have received a prospectus for such a Contract. You should refer to that prospectus for further information on investing in the Portfolios. Both Class I and Class II shares of a Portfolio are sold without any sales charge at the net asset value of the Portfolio. Class II shares, however, are subject to an annual distribution or 12b-1 fee of 0.25% of the average daily net assets of Class II. Under the distribution plan adopted by the Fund for Class II shares, Class II of each Portfolio pays to Prudential Investment Management Services LLC (PIMS) a distribution or 12b-1 fee at the annual rate of 0.25% of the average daily net assets of Class II. This fee pays for distribution services for Class II shares. Because these fees are paid out of the Portfolio s assets on an ongoing basis, over time these fees will increase the cost of your investment in Class II shares and may cost you more than paying other types of sales charges. Class II shares are also subject to an administration fee of 0.15% of the average daily net assets of Class II. Class I shares do not have a distribution or administration fee. Shares are redeemed for cash within seven days of receipt of a proper notice of redemption or sooner if required by law. There is no redemption charge. We may suspend the right to redeem shares or receive payment when the New York Stock Exchange (NYSE) is closed (other than weekends or holidays), when trading on the NYSE is restricted, or as permitted by the SEC. Frequent Purchases or Redemptions of Fund Shares The Fund is part of the group of investment companies advised by PI that seeks to prevent patterns of frequent purchases and redemptions of shares by its investors (the PI funds ). Each Asset Allocation Portfolio discussed in this prospectus, which invests primarily in one or more Underlying Portfolios, may as a result own a significant portion of the shares of one or more Underlying Portfolios. To the extent shares of the Underlying Portfolios are held by the Asset Allocation Portfolios, the Underlying Portfolios policies and procedures designed to discourage or prevent frequent trading by investors are enforced by the Asset Allocation Funds rather than by the Underlying Portfolios. Transactions by the Asset Allocation Portfolios may be disruptive to the management of an Underlying Portfolio. For example, in order to handle large flows of cash in and out of an Asset Allocation Portfolio, the Investment Managers may need to allocate more assets to cash or other short-term investments or redeem shares of an Underlying Portfolio. Reallocations in the Underlying Portfolios by an Asset Allocation Portfolio in furtherance of an Asset Allocation Portfolio s investment objective are not considered to be frequent or short-term trading. 84

158 Frequent purchases and redemptions may adversely affect performance and the interests of long-term investors. When an investor engages in frequent or short-term trading, the PI funds may have to sell portfolio securities to have the cash necessary to pay the redemption amounts. This can happen when it is not advantageous to sell any securities, so the PI funds performance may be hurt. When large dollar amounts are involved, frequent trading can also make it difficult to use long-term investment strategies because the PI funds cannot predict how much cash they will have to invest. In addition, if a PI fund is forced to liquidate investments due to short-term trading activity, it may incur increased brokerage and tax costs. Similarly, the PI funds may bear increased administrative costs as a result of the asset level and investment volatility that accompanies patterns of short-term trading. Moreover, frequent or short-term trading by certain investors may cause dilution in the value of PI fund shares held by other investors. PI funds that invest in foreign securities may be particularly susceptible to frequent trading, because time zone differences among international stock markets can allow an investor engaging in short-term trading to exploit fund share prices that may be based on closing prices of foreign securities established some time before the fund calculates its own share price. PI funds that invest in certain fixed income securities, such as high-yield bonds or certain asset-backed securities, may also constitute effective vehicles for an investor s frequent trading strategies. The Boards of Directors of the PI funds, including the Fund, have adopted policies and procedures designed to discourage or prevent frequent trading by investors. The policies and procedures for the Fund are limited, however, because Prudential and other insurance companies maintain the individual contract owner accounts for investors in the Fund s Portfolios. In particular, each insurance company submits to the Fund transfer agent aggregate orders combining the transactions of many investors, and therefore the Fund and its transfer agent cannot monitor investments by individual investors. The policies and procedures require the Fund to communicate in writing to each investing insurance company that the Fund expects the insurance company to impose restrictions on transfers by contract owners. In addition, the Fund receives reports on the trading restrictions imposed by Prudential and its affiliates on variable contract owners investing in the Portfolios, and the Fund monitors the aggregate cash flows received from unaffiliated insurance companies. The Fund also employs fair value pricing procedures to deter frequent trading. Finally, the Fund and its transfer agent reserve the right to reject all or a portion of a purchase order from an investing insurance company. If a purchase order is rejected, the purchase amount will be returned to the insurance company. Investors seeking to engage in frequent trading activities may use a variety of strategies to avoid detection and, despite the efforts of the Fund and the insurance companies to prevent such trading, there is no guarantee that the Fund or the insurance companies will be able to identify these investors or curtail their trading practices. Therefore, some Fund investors may be able to engage in frequent trading, and, if they do, the other Fund investors would bear any harm caused by that frequent trading. The Fund does not have any arrangements intended to permit trading in contravention of the policies described above. Each SP Asset Allocation Portfolio discussed in this prospectus, which invests primarily in one or more Underlying Portfolios, may, as a result, own a significant portion of the shares of one or more Underlying Portfolios. To the extent shares of the Underlying Portfolios are held by the SP Asset Allocation Portfolios, the Underlying Portfolios policies and procedures designed to discourage or prevent frequent trading by investors are enforced by the SP Asset Allocation Portfolios rather than by the Underlying Portfolios. Transactions by the SP Asset Allocation Portfolios may be disruptive to the management of an Underlying Portfolio. For example, in order to handle large flows of cash in and out of an SP Asset Allocation Portfolio, the Managers may need to allocate more assets to cash or other short-term investments or redeem shares of an Underlying Portfolio. Reallocations in the Underlying Portfolios by an Asset Allocation Portfolio in furtherance of an SP Asset Allocation Portfolios investment objective are not considered to be frequent or short-term trading. For information about the trading limitations applicable to you, please see the prospectus for your variable contract or contact your insurance company. Net Asset Value Any purchase or sale of Portfolio shares is made at the net asset value, or NAV, of such shares. The price at which a purchase or redemption is made is based on the next calculation of the NAV after the order is received in good order. The NAV of each share class of each Portfolio is determined on each day the NYSE is open for trading as of the close of the exchange s regular trading session (which is generally 4:00 p.m. New York time). The NYSE is closed on most national holidays and Good Friday. The Fund does not price, and shareholders will not be able to purchase or redeem, the Fund s 85

159 shares on days when the NYSE is closed but the primary markets for the Fund s foreign securities are open, even though the value of these securities may have changed. Conversely, the Fund will ordinarily price its shares, and shareholders may purchase and redeem shares, on days that the NYSE is open but foreign securities markets are closed. The securities held by each of the Fund s portfolios are valued based upon market quotations or, if not readily available, at fair value as determined in good faith under procedures established by the Fund s Board of Directors. The Fund may use fair value pricing if it determines that a market quotation is not reliable based, among other things, on market conditions that occur after the quotation is derived or after the closing of the primary market on which the security is traded, but before the time that the NAV is determined. This use of fair value pricing most commonly occurs with securities that are primarily traded outside of the U.S., because such securities present time-zone arbitrage opportunities when events or conditions affecting the prices of specific securities or the prices of securities traded in such markets generally occur after the close of the foreign markets but prior to the time that a Portfolio determines its NAV. The Fund may also use fair value pricing with respect to U.S. traded securities if, for example, trading in a particular security is halted and does not resume before a Portfolio calculates its NAV or the exchange on which a security is traded closes early. In addition, fair value pricing is used for securities where the pricing agent or principal market maker does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Manager (or Subadviser) does not represent fair value. Different valuation methods may result in differing values for the same security. The fair value of a portfolio security that a Portfolio uses to determine its NAV may differ from the security s published or quoted price. If a Portfolio needs to implement fair value pricing after the NAV publishing deadline but before shares of the Portfolio are processed, the NAV you receive or pay may differ from the published NAV price. For purposes of computing the Fund s NAV, we will value the Fund s futures contracts 15 minutes after the close of regular trading on the NYSE. Except when we fair value securities, we normally value each foreign security held by the Fund as of the close of the security s primary market. Fair value pricing procedures are designed to result in prices for a Portfolio s securities and its NAV that are reasonable in light of the circumstances which make or have made market quotations unavailable or unreliable, and to reduce arbitrage opportunities available to short-term traders. There is no assurance, however, that fair value pricing will more accurately reflect the market value of a security than the market price of such security on that day or that it will prevent dilution of a Portfolio s NAV by short-term traders. The NAV for each of the Portfolios other than the Money Market Portfolio is determined by a simple calculation. It s the total value of a Portfolio (assets minus liabilities) divided by the total number of shares outstanding. The NAV for the Money Market Portfolio will ordinarily remain at $10 per share. (The price of each share remains the same but you will have more shares when dividends are declared.) To determine a Portfolio s NAV, its holdings are valued as follows: Equity Securities for which the primary market is on an exchange (whether domestic or foreign) shall be valued at the last sale price on such exchange or market on the day of valuation or, if there was no sale on such day, at the mean between the last bid and asked prices on such day or at the last bid price on such day in the absence of an asked price. Securities included within the NASDAQ market shall be valued at the NASDAQ official closing price (NOCP) on the day of valuation, or if there was no NOCP issued, at the last sale price on such day. Securities included within the NASDAQ market for which there is no NOCP and no last sale price on the day of valuation shall be valued at the mean between the last bid and asked prices on such day or at the last bid price on such day in the absence of an asked price. Equity securities that are not sold on an exchange or NASDAQ are generally valued by an independent pricing agent or principal market maker. A Portfolio may own securities that are primarily listed on foreign exchanges that trade on weekends or other days when the Portfolios do not price their shares. Therefore, the value of a Portfolio s assets may change on days when shareholders cannot purchase or redeem Portfolio shares. All Short-term debt Securities held by the Money Market Portfolio are valued at amortized cost. Short-term debt securities with remaining maturities of 12 months or less held by the Conservative Balanced and Flexible Managed Portfolios are valued on an amortized cost basis. The amortized cost valuation method is widely used by mutual funds. It means that the security is valued initially at its purchase price and then decreases in value by equal amounts each day until the security matures. It almost always results in a value that is extremely close to the actual market value. The Fund s Board 86

160 of Directors has established procedures to monitor whether any material deviation between valuation and market value occurs and if so, will promptly consider what action, if any, should be taken to prevent unfair results to Contract owners. For each Portfolio other than the Money Market Portfolio, and except as discussed above for the Conservative Balanced and Flexible Managed Portfolios, short-term debt securities, including bonds, notes, debentures and other debt securities, and money market instruments such as certificates of deposit, commercial paper, bankers acceptances and obligations of domestic and foreign banks, with remaining maturities of more than 60 days, for which market quotations are readily available, are valued by an independent pricing agent or principal market maker (if available, otherwise a primary market dealer). Short-term debt Securities with remaining maturities of 60 days or less are valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of PI or a subadviser, does not represent fair value. Convertible debt securities that are traded in the over-the-counter market, including listed convertible debt securities for which the primary market is believed by PI or a subadviser to be over-the-counter, are valued at the mean between the last bid and asked prices provided by a principal market maker (if available, otherwise a primary market dealer). Other debt securities those that are not valued on an amortized cost basis are valued using an independent pricing service. Options on stock and stock indexes that are traded on a national securities exchange are valued at the last sale price on such exchange on the day of valuation or, if there was no such sale on such day, at the mean between the most recently quoted bid and asked prices on such exchange. Futures contracts and options on futures contracts are valued at the last sale price at the close of the commodities exchange or board of trade on which they are traded. If there has been no sale that day, the securities will be valued at the mean between the most recently quoted bid and asked prices on that exchange or board of trade. Forward currency exchange contracts are valued at the cost of covering or offsetting such contracts calculated on the day of valuation. Securities which are valued in accordance herewith in a currency other than U.S. dollars shall be converted to U.S. dollar equivalents at a rate obtained from a recognized bank, dealer or independent service on the day of valuation. Over-the-counter (OTC) options are valued at the mean between bid and asked prices provided by a dealer (which may be the counterparty). A subadviser will monitor the market prices of the securities underlying the OTC options with a view to determining the necessity of obtaining additional bid and ask quotations from other dealers to assess the validity of the prices received from the primary pricing dealer. Distributor Prudential Investment Management Services LLC (PIMS) distributes the Fund s shares under a Distribution Agreement with the Fund. PIMS principal business address is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey The Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act covering Class II shares. These 12b-1 fees do not apply to Class I. OTHER INFORMATION Change in Federal Income Tax Status and Related Reorganization Each Portfolio of the Fund recently changed its federal income tax status from a regulated investment company to a partnership. In effecting that conversion, the Fund was reorganized from a Maryland corporation to a Delaware statutory trust. The conversion and the reorganization together are referred to as the Transactions. The investment objectives, policies, restrictions, net asset values per share, service providers, fiscal years, and investment portfolios of the Portfolios did not change as a result of the Transactions. In addition, the Fund obtained opinions of counsel that the Transactions had no adverse federal income tax consequences for the Portfolios or Contract owners. All fees and expenses incurred in connection with the completion of the Transactions were borne by Prudential Investments LLC (the Manager ) and its affiliates. Additionally, the Manager and its affiliates bore all transitional costs and will bear any ongoing incremental increases in Portfolio fees and expenses that are charged to the Fund by its service providers and that are directly attributable to the Transactions. 87

161 The Transactions were effected on or about January 1, The Transactions have not changed each Portfolio s practice of distributing its net income and capital gains to its shareholders of record (that is, the insurance company separate accounts) as described in the Taxation of the Fund section of the SAI. All references relating to the Portfolios status as regulated investment companies and their compliance with related requirements are hereby deleted. The Fund has been re-named The Prudential Series Fund. The Prudential Series Fund, a Delaware trust, hereby expressly adopts the registration statement of The Prudential Series Fund, Inc., a Maryland corporation. Federal Income Taxes Each Asset Allocation Portfolio currently intends to be treated as a partnership for federal income tax purposes. As a result, each Asset Allocation Portfolio s income, gains, losses, deductions, and credits will be passed through pro rata directly to the participating insurance companies and retain the same character for federal income tax purposes. The Asset Allocation Portfolios intend to distribute substantially all their net investment income and gains. Distributions will be made to the various separate accounts of the Participating Insurance Companies in the form of additional shares (not in cash). Holders of variable annuity contracts or variable life insurance policies should consult the prospectuses of their respective contracts or policies for information on the federal income tax consequences to such holders. In addition, variable contract owners may wish to consult with their own tax advisors as to the tax consequences of investments in the Trust, including the application of state and local taxes. Monitoring For Possible Conflicts The Fund sells its shares to fund variable life insurance contracts and variable annuity contracts and is authorized to offer its shares to qualified retirement plans. Because of differences in tax treatment and other considerations, it is possible that the interest of variable life insurance contract owners, variable annuity contract owners and participants in qualified retirement plans could conflict. The Fund will monitor the situation and in the event that a material conflict did develop, the Fund would determine what action, if any, to take in response. Disclosure of Portfolio Holdings A description of the Fund s policies and procedures with respect to the disclosure of each Portfolio s portfolio securities is described in the Fund s SAI and on the Fund s website at FINANCIAL HIGHLIGHTS The financial highlights which follow will help you evaluate the financial performance of each Portfolio available under your Contract. The total return in each chart represents the rate that a shareholder earned on an investment in that share class of the Portfolio, assuming reinvestment of all dividends and other distributions. The charts do not reflect any charges under any variable contract. Because Contract Charges are not included, the actual return that you will receive will be lower than the total return in each chart. The information is for Class I shares and for Class II shares as applicable for the periods indicated. The financial highlights for the years ended December 31, 2005 and 2004 were part of the financial statements audited by KPMG LLP, the Fund s independent registered public accounting firm, whose reports on these financial statements were unqualified. The financial highlights for the periods presented through December 31, 2003 were part of financial statements audited by another independent registered public accounting firm whose reports on those financial statements were unqualified. 88

162 Financial Highlights Diversified Bond Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments.. (0.20) Total from investment operations Less Dividends and Distributions: Dividends from net investment income... (0.59) (0.50) (0.45) (1.27) (0.71) Distributions from net realized gains... (0.08) Tax return of capital distributions... (0.01) Total dividends and distributions... (0.67) (0.50) (0.45) (1.28) (0.71) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 5.59% 7.49 % 7.07% 6.98% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 1,230.6 $ 1,283.7 $ 1,418.0 $ 1,370.3 $ 1,400.7 Ratios to average net assets: Expenses % 0.45% 0.44 % 0.44% 0.44% Net investment income % 4.57% 4.02 % 5.25% 6.35% Portfolio turnover rate % 382% 706 % 595% 257% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-1

163 Financial Highlights Equity Portfolio Class I Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (4.75) (2.83) Total from investment operations (4.58) (2.65) Less Dividends and Distributions: Dividends from net investment income... (0.23) (0.27) (0.18) (0.16) (0.18) Distributions from net realized gains... (1.18) Total dividends and distributions... (0.23) (0.27) (0.18) (0.16) (1.36) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 9.93% 31.65% (22.34)% (11.18)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 4,283.9 $ 4,135.7 $ 4,012.3 $ 3,273.6 $ 4,615.9 Ratios to average net assets: Expenses % 0.48% 0.49% 0.48 % 0.49% Net investment income % 1.29% 0.96% 0.88 % 0.84% Portfolio turnover rate... 77% 50% 54% 54 % 153% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-2

164 Financial Highlights Global Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (3.87) (3.58) Total from investment operations (3.80) (3.49) Less Dividends and Distributions: Dividends from net investment income... (.10) (.15) (.05) (.14) (.06) Distributions in excess of net investment income... Distributions from net realized gains... (4.77) Total dividends and distributions... (.10) (.15) (.05) (.14) (4.83) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 9.59% 34.07% (25.14)% (17.64)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ $ Ratios to average net assets: Expenses %.84%.87%.82%.84% Net investment income....77%.67%.78%.47%.58% Portfolio turnover rate % 128% 88% 75 % 67% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. High Yield Bond Portfolio Year Ended December 31, (a) 2001 Per Share Operating Performance: Net Asset Value, beginning of year... $ 5.42 $ 5.29 $ 4.59 $ 5.40 $ 6.14 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments.... (.20) (.21) (.62) Total from investment operations (.04) Less Distributions: Dividends from net investment income... (.37) (.39) (.42) (.89) (.70) Net Asset Value, end of year.... $ 5.23 $ 5.42 $ 5.29 $ 4.59 $ 5.40 Total Investment Return(a) % 10.30% 25.04% 1.50% (.44)% Ratios/Supplemental Data: Net assets, end of year (000,000)... $ 1,635.7 $ 1,595.7 $ 1,466.7 $ 1,128.6 $ Ratios to average net assets: Expenses %.59%.60%.58%.60% Net investment income % 7.42% 8.11% 9.36% 10.93% Portfolio turnover rate... 56% 65% 93% 77% 84% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-3

165 Financial Highlights Jennison Portfolio Class I Year Ended December 31, 2005(b) Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (5.78) (4.22) Total from investment operations (5.75) (4.18) Less Dividends and Distributions: Dividends from net investment income... (0.02) (0.08) (0.04) (0.03) (0.03) Distributions from net realized gains... (0.19) Total dividends and distributions... (0.02) (0.08) (0.04) (0.03) (0.22) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 9.63% 30.25% (30.95)% (18.25)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 2,297.0 $ 2,044.1 $ 1,772.4 $ 1,388.8 $ 2,186.9 Ratios to average net assets: Expenses % 0.64% 0.64% 0.61 % 0.64% Net investment income % 0.50% 0.28% 0.21 % 0.18% Portfolio turnover rate... 57% 74% 69% 74 % 86% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Calculated based upon average shares during the year. Money Market Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income From Investment Operations: Net investment income and realized gains Dividends and distributions... (.28) (.10) (.08) (.15) (.41) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 1.01%.84% 1.52% 4.22% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ 1,366.6 $ 1,501.9 Ratios to average net assets: Expenses %.45%.44%.43%.43% Net investment income % 1.01%.84% 1.52% 3.86% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-4

166 Financial Highlights Stock Index Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (7.34) (5.05) Total from investment operations (6.97) (4.69) Less Dividends and Distributions: Dividends from net investment income... (.47) (.49) (.37) (.36) (.35) Distributions from net realized gains... (.77) (.51) (.93) (.22) (1.98) Total dividends and distributions... (1.24) (1.00) (1.30) (.58) (2.33) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 10.45% 28.18% (22.19)% (12.05)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 3,212.7 $ 3,094.7 $ 2,940.9 $ 2,352.3 $ 3,394.1 Ratios to average net assets: Expenses %.38%.37%.37%.39% Net investment income % 1.64% 1.42% 1.25 % 1.02% Portfolio turnover rate... 7% 3% 2% 4 % 3% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-5

167 Financial Highlights SP AIM Core Equity Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 7.36 $ 6.80 $ 5.52 $ 6.51 $ 8.41 Income From Investment Operations: Net investment income (loss) (c) Net realized and unrealized gains (losses) on investments (1.01) (1.90) Total from investment operations (0.99) (1.90) Less Dividends: Dividends from net investment income... (0.08) (0.03) (0.02) Net Asset Value, end of year.... $ 7.62 $ 7.36 $ 6.80 $ 5.52 $ 6.51 Total Investment Return(a) % 8.79% 23.69% (15.21)% (22.68)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 34.2 $ 31.8 $ 22.8 $ 13.9 $ 10.2 Ratios to average net assets(b): Expenses % 1.00% 1.00% 1.00 % 1.00% Net investment income (loss) % 1.27% 0.70% 0.45 % (0.02)% Portfolio turnover rate... 69% 68% 37% 116 % 65% (a) (b) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all years shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income (loss) ratios would have been 1.28% and 0.70%, respectively, for the year ended December 31, 2005, 1.48% and 0.79%, respectively, for the year ended December 31, 2004, and 1.72% and (0.02)%, respectively for the year ended December 31, 2003, 1.79% and (0.34)%, respectively, for the year ended December 31, 2002, 2.55% and (1.57)%, respectively for the year ended December 31, (c) Less than $0.005 per share. F-6

168 Financial Highlights SP Davis Value Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ 9.80 $ 7.62 $ 9.04 $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (1.47) (1.11) Total from investment operations (1.42) (1.06) Less Dividends and Distributions: Dividends from net investment income... (0.10) (0.04) (0.05) (c) (0.05) Distributions from net realized gains... (1.11) Total dividends and distributions... (1.21) (0.04) (0.05) (0.05) Net Asset Value, end of year.... $ $ $ 9.80 $ 7.62 $ 9.04 Total Investment Return(a) % 12.53% 29.40% (15.70)% (10.46)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ $ 94.4 Ratios to average net assets: Expenses % 0.82% 0.82% 0.83%(b) 0.83%(b) Net investment income % 0.89% 0.80% 0.82%(b) 0.64%(b) Portfolio turnover rate... 14% 34% 7% 22% 17% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income (loss) ratios would have been 0.87% and 0.78%, respectively, for the year ended December 31, 2002 and 1.03% and 0.43%, respectively, for the year ended December 31, (c) Less than $0.005 per share. F-7

169 Financial Highlights SP Large Cap Value Portfolio Year Ended December 31, (d) Per Share Operating Performance: Net Asset Value, beginning of year... $ $ 9.90 $ 7.81 $ 9.44 $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (1.62) (0.99) Total from investment operations (1.54) (0.90) Less Distributions: Dividends from net investment income... (0.10) (0.08) (0.09) (0.10) Dividends from net realized gains... (0.30) Tax Return of Capital... (c) Total distributions... (0.40) (0.08) (0.09) (0.10) Net Asset Value, end of year.... $ $ $ 9.90 $ 7.81 $ 9.44 Total Investment Return(a) % 17.75% 26.76% (16.37)% (8.65)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ 72.9 $ 38.3 $ 23.7 Ratios to average net assets: Expenses % 0.86% 0.90%(b) 0.90 %(b) 0.90%(b) Net investment income % 1.53% 1.32%(b) 1.22 %(b) 1.18%(b) Portfolio turnover rate... 62% 77% 73% 96 % 61% (a) 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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income (loss) ratios would have been 1.11% and 1.11%, respectively, for the year ended December 31, 2003 and 1.31% and 0.81%, respectively, for the year ended December 31, 2002, and 1.98% and 0.10%, respectively, for the year ended December 31, (c) Less than $0.005 per share. (d) Calculated based upon weighted average shares outstanding during the year. F-8

170 Financial Highlights SP LSV International Value Portfolio Year Ended December 31, 2005(c) (c) Per Share Operating Performance: Net Asset Value, beginning of year... $ 8.84 $ 7.67 $ 6.08 $ 7.35 $ 9.44 Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (1.31) (2.09) Total from investment operations (1.27) (2.04) Less Dividends and Distributions: Dividends from net investment income... (0.04) (0.04) (0.05) (0.05) Dividends from net realized gains... (0.83) Total dividends and distributions... (0.87) (0.04) (0.05) (0.05) Net Asset Value, end of year.... $ 9.08 $ 8.84 $ 7.67 $ 6.08 $ 7.35 Total Investment Return(a) % 15.80% 27.37% (17.17)% (22.07)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ 46.4 $ 24.7 Ratios to average net assets: Expenses % 1.10%(b) 1.10%(b) 1.10%(b) 1.10%(b) Net investment income % 0.69%(b) 0.89%(b) 0.55%(b) 0.61%(b) Portfolio turnover rate... 18% 159% 87% 141% 155% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been 1.23% and 0.55%, respectively, for the year ended December 31, 2004, 1.30% and 0.69%, respectively, for the year ended December 31, 2003, 1.77% and (0.12)%, respectively, for the year ended December 31, 2002, and 3.27% and (1.56)%, respectively, for the year ended December 31, (c) Calculated based upon weighted average shares outstanding during the period. F-9

171 Financial Highlights SP Mid-Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 6.85 $ 5.73 $ 4.09 $ 7.62 $ 9.69 Income From Investment Operations: Net investment (loss)... (0.03) (0.03) (0.02) (0.02) (0.01) Net realized and unrealized gains (losses) on investments (3.51) (2.01) Total from investment operations (3.53) (2.02) Less Distributions: Dividends from net investment income... (0.01) Dividends from net realized gains... (0.04) Total distributions... (0.05) Net Asset Value, end of year.... $ 7.21 $ 6.85 $ 5.73 $ 4.09 $ 7.62 Total Investment Return(a) % 19.55% 40.10% (46.33)% (20.93)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ 58.9 $ 18.3 $ 15.9 Ratios to average net assets(b): Expenses % 1.00% 1.00% 1.00% 1.00% Net investment (loss)... (0.56)% (0.68)% (0.73)% (0.59)% (0.20)% Portfolio turnover rate... 94% 79% 73% 255% 93% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been 1.02% and (0.58)%, respectively, for the year ended December 31, 2005, 1.07% and (0.75)%, respectively, for the year ended December 31, 2004, 1.34% and (1.07)%, respectively, for the year ended December 31, 2003, 1.68% and (1.27)%, respectively, for the year ended December 31, 2002 and 2.11% and (1.31)%, respectively, for the year ended December 31, F-10

172 Financial Highlights SP PIMCO High Yield Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ 9.17 $ 9.81 $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments.... (0.27) (0.64) (0.21) Total from investment operations Less Distributions: Dividends from net investment income... (0.68) (0.70) (0.65) (0.64) (0.59) Dividends from net realized gains... (0.15) (0.10) Total distributions... (0.83) (0.80) (0.65) (0.64) (0.59) Net Asset Value, end of year.... $ $ $ $ 9.17 $ 9.81 Total Investment Return(a) % 9.32% % 0.15% 3.97% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ $ 52.0 Ratios to average net assets: Expenses % 0.68% 0.72 % 0.82% 0.82%(b) Net investment income % 6.68% 6.97 % 7.79% 7.44%(b) Portfolio turnover rate... 89% 53% 74 % 108% 105% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income ratios would have been 1.08% and 7.18%, respectively, for the year ended December 31, F-11

173 Financial Highlights SP PIMCO Total Return Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments.... (0.10) Total from investment operations Less Distributions: Dividends from net investment income... (0.54) (0.23) (0.28) (0.28) (0.34) Dividends from net realized gains... (0.20) (0.21) (0.25) (c) (0.25) Total distributions... (0.74) (0.44) (0.53) (0.28) (0.59) Net Asset Value, end of year.... $ $ $ $ $ Total Investment Return(a) % 5.28% 5.85 % 9.39% 8.66% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 1,538.2 $ 1,099.0 $ $ $ Ratios to average net assets: Expenses % 0.65% 0.65 % 0.67% 0.76%(b) Net investment income % 2.01% 2.19 % 3.02% 3.69%(b) Portfolio turnover rate % 590% 656 % 574% 718% (a) 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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense ratios would have been 0.82% and 3.63%, respectively, for the year ended December 31, (c) Less than $0.005 per share. F-12

174 Financial Highlights SP Prudential U.S. Emerging Growth Portfolio Class I Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 8.07 $ 6.65 $ 4.68 $ 6.89 $ 8.38 Income (Loss) From Investment Operations: Net investment loss... (.02) (.05) (.02) (.02) (.01) Net realized and unrealized gains (losses) on investments (2.19) (1.48) Total from investment operations (2.21) (1.49) Less Dividends and Distributions: Dividends from net investment income... (c) Distributions from net realized gains... (1.34) (c) Total dividends and distributions... (1.34) (c) Net Asset Value, end of year.... $ 7.87 $ 8.07 $ 6.65 $ 4.68 $ 6.89 Total Investment Return(a) % 21.39% 42.09% (32.08)% (17.78)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ 51.0 $ 31.2 Ratios to average net assets: Expenses....80%.78%.80%.90%(b).90%(b) Net investment loss... (.28)% (.53)% (.56)% (.48)%(b) (.37)%(b) Portfolio turnover rate % 212% 213% 299% 258% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been.98% and (.56)%, respectively, for the year ended December 31, 2002, 1.41% and (.88)%, respectively, for the year ended December 31, (c) Less than $0.005 per share. F-13

175 Financial Highlights SP Small Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 6.46 $ 6.52 $ 4.84 $ 6.94 $ 8.38 Income From Investment Operations: Net investment loss... (0.04) (0.03) (0.03) (0.03) (0.02) Net realized and unrealized gains (losses) on investments (0.03) 1.71 (2.07) (1.42) Total from investment operations (0.06) 1.68 (2.10) (1.44) Net Asset Value, end of year.... $ 6.62 $ 6.46 $ 6.52 $ 4.84 $ 6.94 Total Investment Return(a) % (.92)% 34.71% (30.26)% (17.18)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ 35.0 $ 12.5 $ 8.4 Ratios to average net assets(b): Expenses % 1.09% 1.15%(b) 1.15%(b) 1.15%(b) Net investment loss... (0.44)% (.82)% (0.72)%(b) (0.73)%(b) (0.28)%(b) Portfolio turnover rate % 240% 122% 109% 83% (a) (b) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been 1.78% and (1.35)%, respectively for the year ended December 31, 2003, 2.30% and (1.89)%, respectively, for the year ended December 31, 2002, and 2.84% and (1.97)%, respectively, for the year ended December 31, F-14

176 Financial Highlights SP Small Cap Value Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ 9.68 $ $ Income From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (1.68) 0.26 Total from investment operations (1.63) 0.34 Less Dividends and Distributions: Dividends from net investment income... (0.08) (0.02) (c) (0.05) (0.11) Dividends from net realized gains... (1.75) (c) Total dividends and distributions... (1.83) (0.02) 0.00 (0.05) (0.11) Net Asset Value, end of year.... $ $ $ $ 9.68 $ Total Investment Return(a) % 20.69% % (14.38)% 3.11% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ 99.2 $ 47.4 Ratios to average net assets: Expenses % 0.96% 1.04 % 1.05%(b) 1.05%(b) Net investment income % 0.69% 0.37 % 0.69%(b) 1.08%(b) Portfolio turnover rate % 127% 90 % 116% 89% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income ratios would have been 1.10% and 0.64%, respectively, for the year ended December 31, 2002, and 1.56% and 0.57%, respectively, for the year ended December 31, (c) Less than $0.005 per share. F-15

177 Financial Highlights SP Strategic Partners Focused Growth Portfolio Class I Year Ended December 31, (c) Per Share Operating Performance: Net Asset Value, beginning of year... $ 7.00 $ 6.33 $ 5.03 $ 6.73 $ 7.94 Income From Investment Operations: Net investment loss... (0.03) (b) (0.01) (0.01) (0.01) Net realized and unrealized gains (losses) on investments (1.69) (1.20) Total from investment operations (1.70) (1.21) Net Asset Value, end of year.... $ 8.07 $ 7.00 $ 6.33 $ 5.03 $ 6.73 Total Investment Return(a) % 10.58% 25.84% (25.26)% (15.32)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 38.3 $ 30.1 $ 21.6 $ 10.8 $ 7.7 Expenses %(d) 1.01%(d) 1.01%(d) 1.01 %(d) 1.01%(d) Net investment loss... (0.44)%(d) (0.01)%(d) (0.28)%(d) (0.30)%(d) (0.16)%(d) Portfolio turnover rate % 84% 93% 62 % 116% (a) 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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Less than $0.005 per share (c) (d) Calculated based upon weighted average shares outstanding during the year. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been 1.14 and (0.51)%, respectively, for the year ended December 31, 2005, 1.28% and (0.28)%, respectively, for the year ended December 31, 2004, 1.65% and (0.92)%, respectively, for the year ended December 31, 2003, 1.98% and (1.28)%, respectively for the year ended December 31, 2002 and 2.61% and (1.76)%, respectively, for the year ended December 31, F-16

178 Financial Highlights SP T. Rowe Price Large Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 6.61 $ 6.23 $ 5.03 $ 7.31 $ 8.55 Income From Investment Operations: Net investment income (loss)... (0.03) (0.01) 0.00(c) (0.01) (0.01) Net realized and unrealized gains (losses) on investments (2.27) (1.23) Total from investment operations (2.28) (1.24) Less Distributions: Dividends from net investment income... Dividends from net realized gains... Tax return of capital distributions... (c) Total distributions... (c) Net Asset Value, end of year.... $ 7.71 $ 6.61 $ 6.23 $ 5.03 $ 7.31 Total Investment Return(a) % 6.10% 23.86% (31.19)% (14.47)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 73.8 $ 65.7 $ $ 57.7 $ 35.9 Ratios to average net assets: Expenses %(b) 1.08% 1.06% 1.10%(b) 1.10%(b) Net investment income (loss)... (0.38)%(b) (0.14)% (0.11)% (0.27)%(b) (0.08)%(b) Portfolio turnover rate % 122% 38% 34% 47% (a) (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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the expense and net investment loss ratios would have been 1.16% and (0.48)%, respectively, for the year ended December 31, 2005, 1.19% and (0.35)%, respectively, for the year ended December 31, 2002, 1.57% and (0.55)%, respectively and for the year ended December 31, (c) Less than $0.005 per share. F-17

179 Financial Highlights SP William Blair International Growth Portfolio Class I Year Ended December 31, (c) Per Share Operating Performance: Net Asset Value, beginning of year... $ 6.85 $ 5.89 $ 4.22 $ 5.45 $ 8.50 Income From Investment Operations: Net investment income (loss) Net realized and unrealized gains (losses) on investments (1.24) (3.05) Total from investment operations (1.23) (3.03) Less Distributions: Dividends from net investment income... (0.04) (0.01) Dividends from net realized gains... (0.31) (0.02) Total distributions... (0.35) (0.01) (0.02) Net Asset Value, end of year.... $ 7.55 $ 6.85 $ 5.89 $ 4.22 $ 5.45 Total Investment Return(a) % 16.54% 39.57% (22.57)% (35.64)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ $ 34.9 $ 19.9 Expenses % 1.02% 1.15% 1.24%(b) 1.24%(b) Net investment income (loss) % 0.50% 0.56% 0.26%(b)(d) 0.31%(b)(d) Portfolio turnover rate... 99% 137% 121% 108% 86% (a) (b) (c) 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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income ratios would have been 1.40% and 0.10%, respectively, for the year ended December 31, 2002 and 1.86% and (0.30)%, respectively, for the year ended December 31, Calculated based upon weighted average shares outstanding during the year. (d) Includes custody fee credits of 0.02% and 0.12% for the year ended December 31, 2002 and the year ended December 31, 2001, respectively. If the Portfolio had not earned custodian fee credits, the annual net investment income would have been 0.24% and 0.19%, respectively for the year ended December 31, 2002 and the year ended December 31, F-18

180 Financial Highlights SP Aggressive Growth Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 8.98 $ 7.83 $ 5.90 $ 7.58 $ 9.33 Income (Loss) From Investment Operations: Net investment income (b).02 Net realized and unrealized gains (losses) on investments (1.68) (1.69) Total from investment operations (1.68) (1.67) Less Dividends and Distributions: Dividends from net investment income... (.02) (b) (b) (.02) Distributions from net realized gains... (.35) (.06) Total dividends and distributions... (.37) (.08) Net Asset Value, end of year.... $ 9.50 $ 8.98 $ 7.83 $ 5.90 $ 7.58 Total Investment Return(a) % 14.76% 32.77% (22.16)% (17.92)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ $ $ 60.6 $ 15.1 $ 7.5 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income %.27%.16%.06%.39% Portfolio turnover rate... 26% 60% 22% 26% 62% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Less than $0.005 per share. SP Balanced Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ 9.66 $ 7.96 $ 9.02 $ 9.80 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.16) (.73) Total from investment operations (1.05) (.59) Less Dividends and Distributions: Dividends from net investment income... (.10) (.08) (.10) (.14) Distributions from net realized gains... (.37) (.01) (.01) (.05) Total dividends and distributions... (.47) (.09) (.10) (.01) (.19) Net Asset Value, end of year.... $ $ $ 9.66 $ 7.96 $ 9.02 Total Investment Return(a) % 11.09% 22.87% (11.67)% (5.99)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 1,372.0 $ $ $ $ 66.1 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 1.37% 1.83% 1.96% 3.26% Portfolio turnover rate... 21% 48% 12% 22% 35% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. F-19

181 Financial Highlights SP Conservative Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ 9.16 $ 9.77 $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (.73) (.24) Total from investment operations (.57) (.03) Less Distributions: Dividends from net investment income... (.16) (.16) (.16) (.03) (.16) Distributions from net realized gains... (.39) (.03) (.01) (.01) (.04) Total distributions... (.55) (.19) (.17) (.04) (.20) Net asset value, end of year... $ $ $ $ 9.16 $ 9.77 Total Investment Return(a) % 8.89% 16.49% (5.88)% (.23)% Ratios/Supplemental Data: Net assets, end of year (000,000)... $ $ $ $ $ 47.9 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 1.86% 2.60% 2.79% 4.76% Portfolio turnover rate... 24% 47% 22% 25% 29% (a) 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 and does not reflect the effect of insurance contract charges. Total investment returns for periods of less than one full year are not annualized. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. SP Growth Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 9.80 $ 8.71 $ 6.84 $ 8.27 $ 9.52 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gains (losses) on investments (1.49) (1.21) Total from investment operations (1.43) (1.12) Less Dividends and Distributions: Dividends from net investment income... (0.06) (0.04) (0.05) (0.08) Distributions from net realized gains... (0.36) (b) (0.05) Total dividends and distributions... (0.42) (0.04) (0.05) (0.13) Net Asset Value, end of year.... $ $ 9.80 $ 8.71 $ 6.84 $ 8.27 Total Investment Return(a) % 13.05% 28.27% (17.26)% (11.77)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 1,212.0 $ $ $ 96.4 $ 46.8 Ratios to average net assets: Expenses % 0.05% 0.05% 0.05% 0.05% Net investment income % 0.94% 1.10% 1.12% 1.71% Portfolio turnover rate... 18% 53% 18% 24% 43% (a) 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 and does not reflect the effect of insurance contract charges. Total return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total returns for all periods shown. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would be lower. Past performance is no guarantee of future results. (b) Less than $0.005 per share. F-20

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184 Mailing Address The Prudential Series Fund Gateway Center Three 100 Mulberry Street Newark, NJ Investment Manager Prudential Investments LLC Gateway Center Three 100 Mulberry Street Newark, NJ Subadvisers Jennison Associates LLC Prudential Investment Management, Inc. Quantitative Management Associates LLC A I M Capital Management, Inc. AllianceBernstein L.P. Calamos Advisors LLC Davis Advisors Dreman Value Management LLC Eagle Asset Management Goldman Sachs Asset Management, L.P. Hotchkis and Wiley Capital Management LLC J.P. Morgan Investment Management Inc. LSV Asset Management Marsico Capital Management, LLC Neuberger Berman Management, Inc. Pacific Investment Management Company, LLC T. Rowe Price Associates, Inc. Salomon Brothers Asset Management Inc William Blair & Company LLC Independent Registered Public Accounting Firm KPMG LLP 345 Park Avenue New York, NY Legal Counsel Goodwin Procter LLP 901 New York Avenue, N.W. Washington, DC Counsel to the Independent Directors Bell, Boyd & Lloyd LLC 70 West Madison Street Chicago, IL 60602

185 INVESTOR INFORMATION SERVICES: Shareholder inquiries should be made by calling (800) or by writing to The Prudential Series Fund at Gateway Center Three, 100 Mulberry Street, Newark, NJ Additional information about the Portfolios is included in a Statement of Additional Information, which is incorporated by reference into this Prospectus. Additional information about the Portfolios investments is available in the annual and semi-annual reports to holders of variable annuity contracts and variable life insurance policies. In the annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected each Portfolio s performance during its last fiscal year. The Statement of Additional Information and additional copies of annual and semi-annual reports are available without charge by calling the above number. The Statement of Additional Information and the annual and semi-annual reports are also available without charge on the Fund s website at Delivery of Prospectus and Other Documents to Households. To lower costs and eliminate duplicate documents sent to your address, the Fund, in accordance with applicable laws and regulations, may begin mailing only one copy of the Fund s prospectus, prospectus supplements, annual and semi-annual reports, proxy statements and information statements, or any other required documents to your address even if more than one shareholder lives there. If you have previously consented to have any of these documents delivered to multiple investors at a shared address, as required by law, and you wish to revoke this consent or would otherwise prefer to continue to receive your own copy, you should call the number above, or write to the Fund at the above address. The Fund will begin sending individual copies to you within thirty days of revocation. The information in the Fund s filings with the Securities and Exchange Commission (including the Statement of Additional Information) is available from the Commission. Copies of this information may be obtained, upon payment of duplicating fees, by electronic request to publicinfo@sec.gov or by writing the Public Reference Section of the Commission, Washington, DC The information can also be reviewed and copied at the Commission s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the Commission at Finally, information about the Fund is available on the EDGAR database on the Commission s internet site at Investment Company File Act No

186 Janus Aspen Series Service Shares Supplement dated March 23, 2007 to Currently Effective Prospectus The following information replaces in its entirety the fifth bullet point under Other Types of Investments in the General Portfolio Policies section of the Prospectus: short sales against the box and naked (uncovered) short sales (no more than 10% of a Portfolio s assets may be invested in naked short sales), with the exception of the Risk-Managed Portfolios, which do not intend to invest in short sales JANUSSUP105 Ed. 3/2007

187 May 1, 2006 Janus Aspen Series Large Cap Growth Portfolio Service Shares Prospectus The Securities and Exchange Commission has not approved or disapproved of these securities or passed on the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

188 This Prospectus describes Large Cap Growth Portfolio, a series of Janus Aspen Series (the Trust ). Janus Capital Management LLC ( Janus Capital ) serves as investment adviser to the Portfolio. The Portfolio currently offers two classes of shares. The Service Shares (the Shares ) are offered by this Prospectus in connection with investment in and payments under variable annuity contracts and variable life insurance contracts (collectively, variable insurance contracts ), as well as certain qualified retirement plans. Janus Aspen Series Service Shares sells and redeems its Shares at net asset value without sales charges, commissions, or redemption fees. Each variable insurance contract involves fees and expenses that are not described in this Prospectus. See the accompanying contract prospectus for information regarding contract fees and expenses and any restrictions on purchases or allocations. This Prospectus contains information that a prospective purchaser of a variable insurance contract or plan participant should consider in conjunction with the accompanying separate account prospectus of the specific insurance company product before allocating purchase payments or premiums to the Portfolio.

189 TABLE OF CONTENTS RISK/RETURN SUMMARY Large Cap Growth Portfolio ***************************************************************** 2 FEES AND EXPENSES ************************************************************************ 4 PRINCIPAL INVESTMENT STRATEGIES AND RISKS Frequently asked questions about principal investment strategies *********************************** 5 Risks ************************************************************************************ 6 Frequently asked questions about certain risks ************************************************** 6 General portfolio policies ******************************************************************* 7 MANAGEMENT OF THE PORTFOLIO Investment adviser ************************************************************************* 10 Management expenses ********************************************************************** 11 Investment personnel ********************************************************************** 11 OTHER INFORMATION *********************************************************************** 12 DISTRIBUTIONS AND TAXES ****************************************************************** 15 SHAREHOLDER S GUIDE Pricing of portfolio shares ******************************************************************* 16 Distribution fee *************************************************************************** 17 Purchases ******************************************************************************** 17 Redemptions ***************************************************************************** 17 Excessive trading ************************************************************************** 18 Shareholder communications **************************************************************** 20 FINANCIAL HIGHLIGHTS ********************************************************************* 21 GLOSSARY OF INVESTMENT TERMS *********************************************************** 22 Table of contents 1

190 RISK/RETURN SUMMARY LARGE CAP GROWTH PORTFOLIO Large Cap Growth Portfolio (the Portfolio ) is designed for long-term investors who primarily seek growth of capital and who can tolerate the greater risks associated with common stock investments. Investment Objective Large Cap Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio s Trustees may change this objective or the Portfolio s principal investment strategies without a shareholder vote. The Portfolio has a policy of investing at least 80% of its net assets in the type of securities suggested by its name, as described below. The Portfolio will notify you in writing at least 60 days before making any changes to this policy. If there is a material change to the Portfolio s objective or principal investment strategies, you should consider whether the Portfolio remains an appropriate investment for you. There is no guarantee that the Portfolio will meet its objective. Principal Investment Strategies The Portfolio pursues its objective by investing, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in common stocks of large-sized companies. Large-sized companies are those whose market capitalization falls within the range of companies in the Russell 1000 Index at the time of purchase. The market capitalizations within the index will vary, but as of March 31, 2006, they ranged from approximately $688 million to $387 billion. For the Portfolio s 80% investment policy, assets are measured at the time of purchase. The portfolio manager applies a bottom up approach in choosing investments. In other words, the portfolio manager looks at companies one at a time to determine if a company is an attractive investment opportunity and if it is consistent with the Portfolio s investment policies. If the portfolio manager is unable to find such investments, the Portfolio s uninvested assets may be held in cash or similar investments, subject to the Portfolio s specific investment policies. Within the parameters of its specific investment policies, the Portfolio may invest without limit in foreign equity and debt securities, which may include investments in emerging markets. The Portfolio will limit its investment in highyield/high-risk bonds (also called junk bonds) to 20% or less of its net assets. Main Investment Risks The biggest risk is that the Portfolio s returns may vary, and you could lose money. The Portfolio is designed for longterm investors interested in an equity portfolio, including common stocks. Common stocks tend to be more volatile than many other investment choices. The value of the Portfolio s holdings may decrease if the value of an individual company or multiple companies in the Portfolio decreases. The value of the Portfolio s holdings could also decrease if the stock market goes down regardless of how well the individual companies perform. If the value of the Portfolio s holdings decreases, the Portfolio s net asset value ( NAV ) will also decrease, which means if you sell your shares in the Portfolio you may lose money. To the extent the Portfolio invests in foreign securities, returns and NAV may be affected to a large degree by fluctuations in currency exchange rates or political or economic changes in a particular country. To the extent the Portfolio invests in high-yield/high-risk bonds, returns and NAV may be affected by factors such as economic changes, political changes, or developments specific to the company that issued the bond. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 2 Janus Aspen Series

191 Performance Information The following information provides some indication of the risks of investing in the Portfolio by showing how the Portfolio s performance has varied over time. The Portfolio s Service Shares commenced operations on December 31, The returns shown for the Service Shares for periods prior to December 31, 1999 reflect the historical performance of a different class of shares (the Institutional Shares), restated based on the Service Shares estimated fees and expenses (ignoring any fee and expense limitations). The bar chart depicts the change in performance from year to year during the periods indicated, but does not include charges or expenses attributable to any insurance product, which would lower the performance illustrated. The Portfolio does not impose any sales or other charges that would affect total return computations. Total return figures include the effect of the Portfolio s expenses. The table compares the average annual returns for the Service Shares of the Portfolio for the periods indicated to broad-based securities market indices. The indices are not available for direct investment. Large Cap Growth Portfolio Service Shares Annual returns for periods ended 12/ % 35.59% 18.14% 22.49% 31.49% (14.75)% (24.90)% (26.72)% 4.25% 4.01% % 45% 30% 15% 0% (15)% (30)% Best Quarter: 4th % Worst Quarter: 3rd-2001 (24.83)% Average annual total return for periods ended 12/31/05 Since Inception 1 year 5 years 10 years (9/13/93) Large Cap Growth Portfolio Service Shares 4.01% (4.74)% 6.50% 7.99% Russell 1000 Growth Index (1) 5.26% (3.58)% 6.73% 8.78% (reflects no deduction for fees or expenses) S&P 500 Index (2) 4.91% 0.54% 9.07% 10.41% (reflects no deduction for fees or expenses) (1) The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. (2) The S&P 500 Index is the Standard & Poor s Composite Index of 500 stocks, a widely recognized, unmanaged index of common stock prices. The Portfolio s past performance does not necessarily indicate how it will perform in the future. Risk/return summary 3

192 FEES AND EXPENSES The following table describes the shareholder fees and annual fund operating expenses that you may pay if you buy and hold Shares of the Portfolio. All of the fees and expenses shown were determined based on net assets as of the fiscal year ended December 31, All expenses are shown without the effect of expense offset arrangements. Shareholder fees are those paid directly from your investment and may include sales loads, redemption fees, or exchange fees. The Portfolio is a no-load investment, so you will generally not pay any shareholder fees when you buy or sell Shares of the Portfolio. However, each variable insurance contract involves fees and expenses not described in this Prospectus. See the accompanying contract prospectus for information regarding contract fees and expenses and any restrictions on purchases or allocations. Annual fund operating expenses are paid out of the Portfolio s assets and include fees for portfolio management, maintenance of shareholder accounts, shareholder servicing, accounting, and other services. You do not pay these fees directly but, as the example shows, these costs are borne indirectly by all shareholders. This table and the example are designed to assist participants in qualified plans that invest in the Shares of the Portfolio in understanding the fees and expenses that you may pay as an investor in the Shares. Owners of variable insurance contracts that invest in the Shares should refer to the variable insurance contract prospectus for a description of fees and expenses, as the table and example do not reflect deductions at the separate account level or contract level for any charges that may be incurred under a contract. Inclusion of these charges would increase the fees and expenses described below. Annual Fund Operating Expenses (deducted from Portfolio assets) Management Distribution Other Total Annual Fund Fee (1) (12b-1) Fees (2) Expenses Operating Expenses Large Cap Growth Portfolio 0.64% 0.25% 0.02% 0.91% (1) The Management Fee is the investment advisory fee paid by the Portfolio to Janus Capital. (2) Because the 12b-1 fee is charged as an ongoing fee, over time the fee will increase the cost of your investment and may cost you more than paying other types of sales charges. EXAMPLE: This example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year, and that the Portfolio s operating expenses remain the same. Since no sales load applies, the results apply whether or not you redeem your investment at the end of each period. Although your actual costs may be higher or lower, based upon these assumptions your costs would be as follows: 1 Year 3 Years 5 Years 10 Years Large Cap Growth Portfolio $ 93 $ 290 $ 504 $ 1,120 4 Janus Aspen Series

193 PRINCIPAL INVESTMENT STRATEGIES AND RISKS The Portfolio has a similar investment objective and similar principal investment strategies to Janus Fund. Although it is anticipated that the Portfolio and its corresponding retail fund will hold similar securities, differences in asset size, cash flow needs, and other factors may result in differences in investment performance. The expenses of the Portfolio and its corresponding retail fund are expected to differ. The variable contract owner will also bear various insurance related costs at the insurance company level. You should review the accompanying separate account prospectus for a summary of fees and expenses. The Portfolio invests, under normal circumstances, at least 80% of its net assets in common stocks of large-sized companies. Janus Fund can invest in companies of any size, although it generally invests in larger, more established companies. This section takes a closer look at the Portfolio s principal investment strategies and certain risks of investing in the Portfolio. Strategies and policies that are noted as fundamental cannot be changed without a shareholder vote. Other, nonfundamental strategies and policies can be changed by the Trustees without prior notice to shareholders. Please carefully review the Risks section of this Prospectus for a discussion of risks associated with certain investment techniques. We have also included a Glossary of Investment Terms with descriptions of investment terms used throughout this Prospectus. FREQUENTLY ASKED QUESTIONS ABOUT PRINCIPAL INVESTMENT STRATEGIES The following questions and answers are designed to help you better understand the Portfolio s principal investment strategies. 1. How are common stocks selected for the Portfolio? Unless its investment objective or policies prescribe otherwise, the Portfolio may invest substantially all of its assets in common stocks if the investment personnel believe that common stocks will appreciate in value. The investment personnel generally take a bottom up approach to selecting companies. This means that they seek to identify individual companies with earnings growth potential that may not be recognized by the market at large. The investment personnel make this assessment by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. The Portfolio may sell a holding if, among other things, the security reaches the investment personnel s price target, if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks, or if the investment personnel find a better investment opportunity. The Portfolio may also sell a holding to meet redemptions. Realization of income is not a significant consideration when choosing investments for the Portfolio. Income realized on the Portfolio s investments may be incidental to its objective. 2. Are the same criteria used to select foreign securities? Generally, yes. The investment personnel seek companies that meet their selection criteria, regardless of where a company is located. Foreign securities are generally selected on a stock-by-stock basis without regard to any defined allocation among countries or geographic regions. However, certain factors such as expected levels of inflation, government policies influencing business conditions, the outlook for currency relationships, and prospects for economic growth among countries, regions, or geographic areas may warrant greater consideration in selecting foreign securities. There are no limitations on the countries in which the Portfolio may invest and the Portfolio may at times have significant foreign exposure. 3. What does market capitalization mean? Market capitalization is the most commonly used measure of the size and value of a company. It is computed by multiplying the current market price of a share of the company s stock by the total number of its shares outstanding. As noted previously, market capitalization is an important investment criterion for the Portfolio. Principal investment strategies and risks 5

194 RISKS Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is the risk that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. If this occurs, the Portfolio s share price may also decrease. The Portfolio s performance may also be significantly affected, positively or negatively, by certain types of investments, such as foreign securities, derivative investments, non-investment grade bonds, initial public offerings ( IPOs ), or companies with relatively small market capitalizations. IPOs and other types of investments may have a magnified performance impact on a portfolio with a small asset base. A portfolio may not experience similar performance as its assets grow. Janus Capital manages accounts which may engage in short sales. The simultaneous management of long and short portfolios creates potential conflicts of interest, including the risk that short sale activity could adversely affect the market value of long positions (and vice versa), the risk arising from sequential orders in long and short positions, and the risks associated with receiving opposing orders at the same time. FREQUENTLY ASKED QUESTIONS ABOUT CERTAIN RISKS The following questions and answers are designed to help you better understand some of the risks of investing in the Portfolio. 1. The Portfolio may invest in smaller or newer companies. Does this create any special risks? Many attractive investment opportunities may be smaller, start-up companies offering emerging products or services. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers because they may lack depth of management, be unable to generate funds necessary for growth or potential development, or be developing or marketing new products or services for which markets are not yet established and may never become established. In addition, such companies may be insignificant factors in their industries and may become subject to intense competition from larger or more established companies. Securities of smaller or newer companies may have more limited trading markets than the markets for securities of larger or more established issuers, or may not be publicly traded at all, and may be subject to wide price fluctuations. Investments in such companies tend to be more volatile and somewhat more speculative. 2. How could the Portfolio s investments in foreign securities affect its performance? Unless otherwise limited by its specific investment policies, the Portfolio may invest without limit in foreign securities either indirectly (e.g., depositary receipts) or directly in foreign markets, including emerging markets. Investments in foreign securities, including those of foreign governments, may involve greater risks than investing in domestic securities because the Portfolio s performance may depend on factors other than the performance of a particular company. These factors include: ) Currency Risk. As long as the Portfolio holds a foreign security, its value will be affected by the value of the local currency relative to the U.S. dollar. When the Portfolio sells a foreign denominated security, its value may be worth less in U.S. dollars even if the security increases in value in its home country. U.S. dollar-denominated securities of foreign issuers may also be affected by currency risk due to the overall impact of exposure to the issuer s local currency. ) Political and Economic Risk. Foreign investments may be subject to heightened political and economic risks, particularly in emerging markets which may have relatively unstable governments, immature economic structures, national policies restricting investments by foreigners, different legal systems, and economies based on only a few industries. In some countries, there is the risk that the government may take over the assets or operations of a company or that the government may impose taxes or limits on the removal of the Portfolio s assets from that country. 6 Janus Aspen Series

195 ) Regulatory Risk. There may be less government supervision of foreign markets. As a result, foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices applicable to domestic issuers and there may be less publicly available information about foreign issuers. ) Market Risk. Foreign securities markets, particularly those of emerging market countries, may be less liquid and more volatile than domestic markets. Certain markets may require payment for securities before delivery and delays may be encountered in settling securities transactions. In some foreign markets, there may not be protection against failure by other parties to complete transactions. Such factors may hinder the Portfolio s ability to buy and sell emerging market securities in a timely manner, affecting the Portfolio s investment strategies and potentially affecting the value of the Portfolio. ) Transaction Costs. Costs of buying, selling, and holding foreign securities, including brokerage, tax, and custody costs, may be higher than those involved in domestic transactions. 3. Are there special risks associated with investments in high-yield/high-risk bonds? High-yield/high-risk bonds (or junk bonds) are bonds rated below investment grade by the primary rating agencies such as Standard & Poor s, Fitch, and Moody s or are unrated bonds of similar quality. The value of lower quality bonds generally is more dependent on credit risk and default risk than investment grade bonds. Issuers of highyield/high-risk bonds may not be as strong financially as those issuing bonds with higher credit ratings and are more vulnerable to real or perceived economic changes, political changes, or adverse developments specific to the issuer. In addition, the junk bond market can experience sudden and sharp price swings. The secondary market on which high-yield securities are traded may be less liquid than the market for investment grade securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. When secondary markets for high-yield securities are less liquid than the market for investment grade securities, it also may be more difficult to value the securities because valuation may require more research, and elements of judgment may play a larger role in the valuation because there is less reliable, objective data available. Please refer to the Explanation of Rating Categories section of the Statement of Additional Information for a description of bond rating categories. 4. How does the Portfolio try to reduce risk? The Portfolio may use futures, options, swap agreements, and other derivative instruments individually or in combination to hedge or protect its portfolio from adverse movements in securities prices and interest rates. The Portfolio may also use a variety of currency hedging techniques, including the use of forward currency contracts, to manage currency risk. There is no guarantee that derivative investments will benefit the Portfolio. The Portfolio s performance could be worse than if the Portfolio had not used such instruments. 5. What is industry risk? Industry risk is the possibility that a group of related stocks will decline in price due to industry-specific developments. Companies in the same or similar industries may share common characteristics and are more likely to react similarly to industry-specific market or economic developments. The Portfolio s investments, if any, in multiple companies in a particular industry increase the Portfolio s exposure to industry risk. GENERAL PORTFOLIO POLICIES Unless otherwise stated, the following general policies apply to the Portfolio. Except for the Portfolio s policies with respect to investments in illiquid securities and borrowing, the percentage limitations included in these policies and elsewhere in this Prospectus normally apply only at the time of purchase of a security. So, for example, if the Portfolio exceeds a limit as a result of market fluctuations or the sale of other securities, it will not be required to dispose of any securities. Principal investment strategies and risks 7

196 Cash Position The Portfolio may not always stay fully invested in stocks or bonds. For example, when the investment personnel believe that market conditions are unfavorable for profitable investing, or when they are otherwise unable to locate attractive investment opportunities, the Portfolio s cash or similar investments may increase. In other words, cash or similar investments generally are a residual they represent the assets that remain after the Portfolio has committed available assets to desirable investment opportunities. When the Portfolio s investments in cash or similar investments increase, it may not participate in market advances or declines to the same extent that it would if the Portfolio remained more fully invested in stocks or bonds. In addition, the Portfolio may temporarily increase its cash position under certain unusual circumstances, such as to protect its assets or maintain liquidity in certain circumstances, for example, to meet unusually large redemptions. The Portfolio s cash position may also increase temporarily due to unusually large cash inflows. Under unusual circumstances such as these, the Portfolio may invest up to 100% of its assets in cash or similar investments. In this case, the Portfolio may not achieve its investment objective. Other Types of Investments Unless otherwise stated within its specific investment policies, the Portfolio may also invest in other types of domestic and foreign securities and use other investment strategies, as described in the Glossary of Investment Terms. These securities and strategies are not principal investment strategies of the Portfolio. If successful, they may benefit the Portfolio by earning a return on the Portfolio s assets or reducing risk; however, they may not achieve the Portfolio s objective. These securities and strategies may include: ) debt securities ) indexed/structured securities ) high-yield/high-risk bonds (20% or less of the Portfolio s assets) ) options, futures, forwards, swap agreements, participatory notes, exchange-traded funds, and other types of derivatives individually or in combination for hedging purposes or for nonhedging purposes such as seeking to enhance return; such techniques may also be used to gain exposure to the market pending investment of cash balances or to meet liquidity needs ) short sales against the box and naked short sales (no more than 8% of the Portfolio s assets may be invested in naked short sales) ) securities purchased on a when-issued, delayed delivery, or forward commitment basis Illiquid Investments The Portfolio may invest up to 15% of its net assets in illiquid investments. An illiquid investment is a security or other position that cannot be disposed of quickly in the normal course of business. For example, some securities are not registered under U.S. securities laws and cannot be sold to the U.S. public because of SEC regulations (these are known as restricted securities ). Under procedures adopted by the Portfolio s Trustees, certain restricted securities may be deemed liquid, and will not be counted toward this 15% limit. Foreign Securities Unless otherwise stated within its specific investment policies, the Portfolio may invest without limit in foreign equity and debt securities. The Portfolio may invest directly in foreign securities denominated in a foreign currency and not publicly traded in the United States. Other ways of investing in foreign securities include depositary receipts or shares and passive foreign investment companies. 8 Janus Aspen Series

197 Special Situations The Portfolio may invest in companies that demonstrate special situations or turnarounds, meaning companies that have experienced significant business problems but are believed to have favorable prospects for recovery. For example, a special situation or turnaround may arise when, in the opinion of the Portfolio s investment personnel, the securities of a particular issuer will be recognized and appreciate in value due to a specific development with respect to that issuer. Special situations may include significant changes in a company s allocation of its existing capital, a restructuring of assets, or a redirection of free cash flows. For example, issuers undergoing significant capital changes may include companies involved in spin-offs, sales of divisions, mergers or acquisitions, companies emerging from bankruptcy, or companies initiating large changes in their debt to equity ratio. Developments creating a special situation might include, among others, a new product or process, a technological breakthrough, a management change or other extraordinary corporate event, or differences in market supply of and demand for the security. The Portfolio s performance could suffer if the anticipated development in a special situation investment does not occur or does not attract the expected attention. Securities Lending The Portfolio may seek to earn additional income through securities lending. The Portfolio may lend its portfolio securities to parties (typically brokers or other financial institutions) who need to borrow securities in order to complete certain transactions such as covering short sales, avoiding failures to deliver securities, or completing arbitrage activities. There is a risk of delay in recovering a loaned security and/or a risk of loss in collateral rights if the borrower fails financially. Portfolio Turnover In general, the Portfolio intends to purchase securities for long-term investment, although, to a limited extent, the Portfolio may purchase securities in anticipation of relatively short-term price gains. Short-term transactions may also result from liquidity needs, securities having reached a price or yield objective, changes in interest rates or the credit standing of an issuer, or by reason of economic or other developments not foreseen at the time of the investment decision. The Portfolio may also sell one security and simultaneously purchase the same or a comparable security to take advantage of short-term differentials in bond yields or securities prices. Portfolio turnover is affected by market conditions, changes in the size of the Portfolio, the nature of the Portfolio s investments, and the investment style of the investment personnel. Changes are made in the Portfolio s holdings whenever the investment personnel believe such changes are desirable. Portfolio turnover rates are generally not a factor in making buy and sell decisions. Increased portfolio turnover may result in higher costs for brokerage commissions, dealer mark-ups, and other transaction costs. Higher costs associated with increased portfolio turnover may offset gains in the Portfolio s performance. The Financial Highlights section of this Prospectus shows the Portfolio s historical turnover rates. Principal investment strategies and risks 9

198 MANAGEMENT OF THE PORTFOLIO INVESTMENT ADVISER Janus Capital Management LLC, 151 Detroit Street, Denver, Colorado , is the investment adviser to the Portfolio. Janus Capital is responsible for the day-to-day management of the Portfolio s investment portfolio and furnishes continuous advice and recommendations concerning the Portfolio s investments. Janus Capital provides certain administrative and other services, and is responsible for the other business affairs of the Portfolio. Janus Capital (together with its predecessors) has served as investment adviser to Janus Fund since 1970 and currently serves as investment adviser to all of the Janus funds, acts as subadviser for a number of private-label mutual funds, and provides separate account advisory services for institutional accounts. Janus Capital furnishes certain administrative, compliance, and accounting services for the Portfolio, and may be reimbursed by the Portfolio for its costs in providing those services. In addition, employees of Janus Capital and/or its affiliates serve as officers of the Trust and Janus Capital provides office space for the Portfolio and pays the salaries, fees, and expenses of all Portfolio officers and those Trustees who are considered interested persons of Janus Capital. From its own assets, Janus Capital or its affiliates may make payments based on current assets to selected insurance companies, qualified plan service providers, or other financial intermediaries that were instrumental in the acquisition or retention of accounts for the Portfolio or that performed services with respect to contract owners and plan participants. The amount of these payments is determined from time to time by Janus Capital, may be substantial, and may differ among such intermediaries. Eligibility requirements for such payments to institutional intermediaries are determined by Janus Capital and/or its affiliates. Janus Capital or its affiliates may pay fees, from their own assets, to selected insurance companies, qualified plan service providers, and other financial intermediaries for providing recordkeeping, subaccounting, transaction processing, and other shareholder or administrative services (including payments for processing transactions via National Securities Clearing Corporation ( NSCC ) or other means) in connection with investments in the Janus funds. These fees are in addition to any fees that may be paid by the Janus funds for these types of or other services. In addition, Janus Capital or its affiliates may also share certain marketing expenses with, or pay for or sponsor informational meetings, seminars, client awareness events, support for marketing materials, or business building programs for such intermediaries to raise awareness of the Portfolio. Participating insurance companies that purchase the Portfolio s Shares may perform certain administrative services relating to the Portfolio and Janus Capital or the Portfolio may pay those companies for such services. The receipt of (or prospect of receiving) payments described above are not intended to, but may provide a financial intermediary and its salespersons with an incentive to favor sales of Janus funds shares over sales of other mutual funds (or non-mutual fund investments), or to favor sales of one class of Janus funds shares over sales of another Janus funds share class, with respect to which the financial intermediary does not receive such payments or receives them in a lower amount. These payment arrangements will not, however, change the price a contract owner or plan participant pays for shares or the amount that a Janus fund receives to invest on behalf of the contract owner or plan participant. You may wish to consider whether such arrangements exist when evaluating any recommendations to purchase or sell Shares of the Portfolio. 10 Janus Aspen Series

199 MANAGEMENT EXPENSES The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The Portfolio s advisory agreement details the investment advisory fee and other expenses that the Portfolio must pay. The Portfolio incurs expenses not assumed by Janus Capital, including the distribution and shareholder servicing fees, transfer agent and custodian fees and expenses, legal and auditing fees, printing and mailing costs of sending reports and other information to existing shareholders, and Independent Trustees fees and expenses. The Portfolio is subject to the following investment advisory fee schedule (expressed as an annual rate). Average Daily Investment Advisory Net Assets Fee (%) Portfolio of Portfolio (annual rate) Large Cap Growth Portfolio All Asset Levels 0.64 For the fiscal year ended December 31, 2005, the Portfolio paid Janus Capital an investment advisory fee of 0.64% based on the Portfolio s average net assets. A discussion regarding the basis for the Board of Trustees approval of the Portfolio s investment advisory agreement is included in the Portfolio s semiannual and annual reports to shareholders. INVESTMENT PERSONNEL PORTFOLIO MANAGER David J. Corkins is Executive Vice President and Portfolio Manager of Large Cap Growth Portfolio, which he has managed since February Mr. Corkins was Portfolio Manager of Growth and Income Portfolio from May 1998 to December He is also Portfolio Manager of other Janus accounts. He joined Janus Capital in 1995 as a research analyst. Mr. Corkins holds a Bachelor of Arts degree in English and Russian from Dartmouth and he received his Master s degree in Business Administration from Columbia University. Information about the compensation structure, other accounts managed, and the range of ownership of securities for the Portfolio s investment personnel is included in the SAI. Management of the Portfolio 11

200 OTHER INFORMATION Classes of Shares The Portfolio currently offers two classes of shares, one of which, the Service Shares, is offered pursuant to this Prospectus. The Shares offered by this Prospectus are available only in connection with investment in and payments under variable insurance contracts, as well as certain qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants. Institutional Shares of the Portfolio are offered only in connection with investment in and payments under variable insurance contracts, as well as certain qualified retirement plans. Because the expenses of each class may differ, the performance of each class is expected to differ. If you would like additional information about the Institutional Shares, please call Closed Fund Policies The Portfolio may discontinue sales of its shares to new investors if its management and the Trustees believe that continued sales may adversely affect the Portfolio s ability to achieve its investment objective. If sales of the Portfolio are discontinued to new investors, it is expected that existing shareholders invested in the Portfolio would be permitted to continue to purchase shares through their existing Portfolio accounts and to reinvest any dividends or capital gains distributions in such accounts, absent highly unusual circumstances. In addition, it is expected that existing or new participants in employer-sponsored retirement plans, including employees of Janus Capital Group Inc. ( JCGI ) and any of its subsidiaries covered under the JCGI retirement plan, that currently offer one or more portfolios as an investment option would be able to direct contributions to that portfolio through their plan, regardless of whether they invested in such portfolio prior to its closing. In addition, in the case of certain mergers or reorganizations, retirement plans would be able to add a closed portfolio as an investment option. Such mergers, reorganizations, acquisitions, or other business combinations are those in which one or more companies involved in such transaction currently offers the Portfolio as an investment option, and any company that as a result of such transaction becomes affiliated with the company currently offering the Portfolio (as a parent company, subsidiary, sister company, or otherwise). Such companies may request to add the Portfolio as an investment option under its retirement plan. In addition, new accounts may be permitted in a closed portfolio for certain plans and programs offered in connection with employer-sponsored retirement plans where the retirement plan has an existing account in the closed portfolio. Requests will be reviewed by management on an individual basis, taking into consideration whether the addition of the Portfolio may negatively impact existing Portfolio shareholders. Janus Capital encourages its employees, particularly members of the investment team, to own shares of the Janus funds. Accordingly, upon prior approval of Janus Capital s senior management team, members of the Janus investment team may open new accounts in a closed fund. Pending Legal Matters In the fall of 2003, the Securities and Exchange Commission ( SEC ), the Office of the New York State Attorney General ( NYAG ), the Colorado Attorney General ( COAG ), and the Colorado Division of Securities ( CDS ) announced that they were investigating alleged frequent trading practices in the mutual fund industry. On August 18, 2004, Janus Capital announced that it had reached final settlements with the SEC, the NYAG, the COAG, and the CDS related to such regulators investigations into Janus Capital s frequent trading arrangements. A number of civil lawsuits were brought against Janus Capital and certain of its affiliates, the Janus funds, and related entities and individuals based on allegations similar to those announced by the above regulators and were filed in several state and federal jurisdictions. Such lawsuits alleged a variety of theories for recovery including, but not limited to, the federal securities laws, other federal statutes (including ERISA), and various common law doctrines. The Judicial Panel on Multidistrict Litigation transferred these actions to the U.S. District Court for the District of Maryland (the Court ) for coordinated proceedings. On September 29, 2004, five consolidated amended complaints were filed in that Court that generally include: (i) claims by a putative class of investors in certain Janus funds asserting claims on behalf of the investor class; (ii) derivative claims by investors in certain Janus funds ostensibly on 12 Janus Aspen Series

201 behalf of such funds; (iii) claims on behalf of participants in the Janus 401(k) plan; (iv) claims brought on behalf of shareholders of Janus Capital Group Inc. ( JCGI ) on a derivative basis against the Board of Directors of JCGI; and (v) claims by a putative class of shareholders of JCGI asserting claims on behalf of the shareholders. Each of the five complaints initially named JCGI and/or Janus Capital as a defendant. In addition, the following were also named as defendants in one or more of the actions: Janus Investment Fund ( JIF ), Janus Aspen Series ( JAS ), Janus Adviser Series ( JAD ), Janus Distributors LLC, Enhanced Investment Technologies, LLC ( INTECH ), Bay Isle Financial LLC ( Bay Isle ), Perkins, Wolf, McDonnell and Company, LLC ( Perkins ), the Advisory Committee of the Janus 401(k) plan, and the current or former directors of JCGI. On August 25, 2005, the Court entered orders dismissing most of the claims asserted against Janus Capital and its affiliates by fund investors (actions (i) and (ii) described above), except certain claims under Section 10(b) of the Securities Exchange Act of 1934 and under Section 36(b) of the Investment Company Act of The complaint in the 401(k) plan class action (action (iii) described above) was voluntarily dismissed, but was refiled using a new named plaintiff and asserting claims similar to the initial complaint. On February 27, 2006, the court issued an order announcing its intent to dismiss the claims asserted against Janus Capital and its affiliates that were brought on behalf of JCGI s corporate shareholders (action (v) above). As a result of the above events, JCGI, Janus Capital, the Advisory Committee of the Janus 401(k) plan, and the current or former directors of JCGI are the remaining defendants in one or more of the actions. The Attorney General s Office for the State of West Virginia filed a separate market timing related civil action against Janus Capital and several other non-affiliated mutual fund companies, claiming violations under the West Virginia Consumer Credit and Protection Act. The civil action requests certain monetary penalties, among other relief. This action has been removed to federal court and transferred to the Multidistrict Litigation case in the U.S. District Court of Baltimore, Maryland described above. In addition, the Auditor of the State of West Virginia, in his capacity as securities commissioner, has issued an order indicating an intent to initiate administrative proceedings against most of the defendants in the market timing cases (including Janus Capital) and seeking disgorgement and other monetary relief based on similar market timing allegations. In addition to the market timing actions described above, Janus Capital is a defendant in a consolidated lawsuit in the U.S. District Court for the District of Colorado challenging the investment advisory fees charged by Janus Capital to certain Janus funds. The action was filed in 2004 by fund investors asserting breach of fiduciary duty under Section 36(b) of the Investment Company Act of The plaintiffs seek declaratory and injunctive relief and an unspecified amount of damages. In 2001, Janus Capital s predecessor was also named as a defendant in a class action suit in the U.S. District Court for the Southern District of New York, alleging that certain underwriting firms and institutional investors violated antitrust laws in connection with initial public offerings. The U.S. District Court dismissed the plaintiff s antitrust claims in November 2003, however, the U.S. Court of Appeals vacated that decision and remanded it for further proceedings. Additional lawsuits may be filed against certain of the Janus funds, Janus Capital, and related parties in the future. Janus Capital does not currently believe that these pending actions will materially affect its ability to continue providing services it has agreed to provide to the Janus funds. Conflicts of Interest The Shares offered by this Prospectus are available only to variable annuity and variable life separate accounts of insurance companies that are unaffiliated with Janus Capital and to certain qualified retirement plans. Although the Portfolio does not currently anticipate any disadvantages to policy owners because the Portfolio offers its Shares to such entities, there is a possibility that a material conflict may arise. The Trustees monitor events in an effort to identify any disadvantages or material irreconcilable conflicts and to determine what action, if any, should be taken in response. If a material disadvantage or conflict is identified, the Trustees may require one or more insurance company separate accounts or qualified plans to withdraw its investments in the Portfolio or substitute Shares of another Other information 13

202 Portfolio. If this occurs, the Portfolio may be forced to sell its securities at disadvantageous prices. In addition, the Portfolio may refuse to sell its Shares to any separate account or qualified plan or may suspend or terminate the offering of the Portfolio s Shares if such action is required by law or regulatory authority or is in the best interests of the Portfolio s shareholders. It is possible that a qualified plan investing in the Portfolio could lose its qualified plan status under the Internal Revenue Code, which could have adverse tax consequences on insurance company separate accounts investing in the Portfolio. Janus Capital intends to monitor such qualified plans and the Portfolio may discontinue sales to a qualified plan and require plan participants with existing investments in the Portfolio to redeem those investments if a plan loses (or in the opinion of Janus Capital is at risk of losing) its qualified plan status. Distribution of the Portfolio The Portfolio is distributed by Janus Distributors LLC ( Janus Distributors ), which is a member of the National Association of Securities Dealers, Inc. ( NASD ). To obtain information about NASD member firms and their associated persons, you may contact NASD Regulation, Inc. at or the Public Disclosure Hotline at An investor brochure containing information describing the Public Disclosure Program is available from NASD Regulation, Inc. 14 Janus Aspen Series

203 DISTRIBUTIONS AND TAXES DISTRIBUTIONS To avoid taxation of the Portfolio, the Internal Revenue Code requires the Portfolio to distribute all or substantially all of its net investment income and any net capital gains realized on its investments at least annually. The Portfolio s income from certain dividends, interest, and any net realized short-term capital gains are paid to shareholders as ordinary income dividends. Net realized long-term capital gains are paid to shareholders as capital gains distributions, regardless of how long you have held shares of the Portfolio. Distributions are made at the class level, so they may vary from class to class within a single Portfolio. Distribution Schedule Dividends for the Portfolio are normally declared and distributed in June and December. Capital gains distributions are normally declared and distributed in June. However, in certain situations it may be necessary for a Portfolio to declare and distribute capital gains distributions in December. If necessary, dividends and net capital gains may be distributed at other times as well. How Distributions Affect the Portfolio s NAV Distributions are paid to shareholders as of the record date of a distribution of the Portfolio, regardless of how long the shares have been held. Undistributed dividends and net capital gains are included in the Portfolio s daily NAV. The share price of the Portfolio drops by the amount of the distribution, net of any subsequent market fluctuations. For example, assume that on December 31, the Portfolio declared a dividend in the amount of $0.25 per share. If the Portfolio s share price was $10.00 on December 30, the Portfolio s share price on December 31 would be $9.75, barring market fluctuations. TAXES Taxes on Distributions Because Shares of the Portfolio may be purchased only through variable insurance contracts and qualified plans, it is anticipated that any income dividends or net capital gains distributions made by the Portfolio will be exempt from current taxation if left to accumulate within the variable insurance contract or qualified plan. Generally, withdrawals from such contracts or plans may be subject to ordinary income tax and, if made before age 59 1 /2, a 10% penalty tax may be imposed. The tax status of your investment depends on the features of your qualified plan or variable insurance contract. Further information may be found in your plan documents or in the prospectus of the separate account offering such contract. Taxation of the Portfolio Dividends, interest, and some gains received by the Portfolio on foreign securities may be subject to foreign tax withholding or other foreign taxes. If the Portfolio is eligible, it may from year to year make the election permitted under Section 853 of the Internal Revenue Code to pass through such taxes to shareholders as a foreign tax credit. If such an election is not made, any foreign taxes paid or accrued will represent an expense to the Portfolio. The Portfolio does not expect to pay any federal income taxes because it intends to meet certain requirements of the Internal Revenue Code. In addition, because the Shares of the Portfolio are sold in connection with variable insurance contracts, the Portfolio intends to qualify under the Internal Revenue Code with respect to the diversification requirements related to the tax-deferred status of insurance company separate accounts. Distributions and taxes 15

204 SHAREHOLDER S GUIDE Investors may not purchase or redeem Shares of the Portfolio directly. Shares may be purchased or redeemed only through variable insurance contracts offered by the separate accounts of participating insurance companies or through qualified retirement plans. Refer to the prospectus for the participating insurance company s separate account or your plan documents for instructions on purchasing or selling of variable insurance contracts and on how to select the Portfolio as an investment option for a contract or a qualified plan. With certain limited exceptions, the Portfolio is available only to U.S. citizens or residents. PRICING OF PORTFOLIO SHARES The per share NAV for each class is computed by dividing the total value of assets allocated to the class, less liabilities allocated to that class, by the total number of shares outstanding for the class. The Portfolio s NAV is calculated as of the close of the regular trading session of the New York Stock Exchange ( NYSE ) (normally 4:00 p.m. New York time) each day that the NYSE is open ( business day ). However, the NAV may be calculated earlier if trading on the NYSE is restricted, or as permitted by the SEC. Because foreign securities markets may operate on days that are not business days in the United States, the value of the Portfolio s holdings may change on days when you will not be able to purchase or redeem the Portfolio s shares to the extent that Portfolio is invested in such markets. All purchases and sales will be duly processed at the NAV next calculated after your request is received in good order by the Portfolio or its agent. In order to receive a day s price, your order must be received in good order by the Portfolio (or insurance company or plan sponsor) or its agent by the close of the regular trading session of the NYSE. Securities held by the Portfolio are generally valued at market value. Certain short-term instruments maturing within 60 days or less are valued at amortized cost, which approximates market value. If a market quotation is not readily available or is deemed unreliable, or if an event that is expected to affect the value of a portfolio security occurs after the close of the principal exchange or market on which that security is traded, and before the close of the NYSE, the fair value of a security (except for short-term instruments maturing within 60 days or less) will be determined in good faith under policies and procedures established by and under the supervision of the Portfolio s Board of Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) when significant events occur which may affect the securities of a single issuer, such as mergers, bankruptcies, or significant issuer-specific developments; (ii) when significant events occur which may affect an entire market, such as natural disasters or significant governmental actions; and (iii) when non-significant events occur such as markets closing early or not opening, security trading halts, or pricing of nonvalued securities and restricted or nonpublic securities. The Portfolio may use a systematic fair valuation model provided by an independent pricing service to value foreign equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and of the NYSE. While fair value pricing may be more commonly used with foreign equity securities, it may also be used with, among other things, thinly-traded domestic securities or fixed-income securities. Due to the subjective nature of fair value pricing, the Portfolio s value for a particular security may be different from the last quoted market price. Fair value pricing may reduce arbitrage activity involving the frequent buying and selling of mutual fund shares by investors seeking to take advantage of a perceived lag between a change in the value of a mutual fund s portfolio securities and the reflection of such change in the Portfolio s NAV, as further described in the Excessive Trading section of this Prospectus. While mutual funds that invest in foreign securities may be at a greater risk for arbitrage activity, such activity may also arise in mutual funds which do not invest in foreign securities, for example, when trading in a security held by a Portfolio is halted and does not resume prior to the time the Portfolio calculates its NAV (referred to as stale pricing ). Portfolios that hold thinly-traded securities, such as certain smallcapitalization securities, may be subject to attempted use of arbitrage techniques. To the extent that a Portfolio s valuation of a security is different from the security s market value, short-term arbitrage traders may dilute the NAV of a Portfolio, which negatively impacts long-term shareholders. The Portfolio s fair value pricing and excessive trading policies and procedures may not completely eliminate short-term trading in certain omnibus accounts and other accounts traded through intermediaries. 16 Janus Aspen Series

205 The value of the securities of other open-end funds held by the Portfolio, if any, will be calculated using the NAV of such underlying funds, and the prospectuses for such open-end funds explain the circumstances under which they use fair value pricing and the effects of using fair value pricing. DISTRIBUTION FEE Distribution and Shareholder Servicing Plan Under a distribution and shareholder servicing plan (the Plan ) adopted in accordance with Rule 12b-1 under the 1940 Act, the Shares may pay Janus Distributors, the Trust s distributor, a fee at an annual rate of up to 0.25% of the average daily net assets of the Shares of the Portfolio. Under the terms of the Plan, the Trust is authorized to make payments to Janus Distributors for remittance to insurance companies and qualified plan service providers as compensation for distribution and services performed by such entities. Because 12b-1 fees are paid out of the Portfolio s assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. PURCHASES Purchases of Shares may be made only by the separate accounts of insurance companies for the purpose of funding variable insurance contracts or by qualified plans. Refer to the prospectus of the appropriate insurance company separate account or your plan documents for information on how to invest in the Shares of the Portfolio. Participating insurance companies and certain other designated organizations are authorized to receive purchase orders on the Portfolio s behalf. As discussed under Investment Adviser, Janus Capital and its affiliates may make payments to selected insurance companies, qualified plan service providers, or other financial intermediaries that were instrumental in the acquisition of the accounts in the Portfolio or that provide services in connection with investments in the Portfolio. You may wish to consider such arrangements when evaluating any recommendation of the Portfolio. The Portfolio reserves the right to reject any purchase order, including exchange purchases, for any reason. The Portfolio is not intended for excessive trading. For more information about the Portfolio s policy on excessive trading, see Excessive Trading. The Portfolio may discontinue sales to a qualified plan and require plan participants with existing investments in the Shares to redeem those investments if the plan loses (or in the opinion of Janus Capital, is at risk of losing) its qualified plan status. REDEMPTIONS Redemptions, like purchases, may be effected only through the separate accounts of participating insurance companies or through qualified plans. Please refer to the appropriate separate account prospectus or plan documents for details. Shares of the Portfolio may be redeemed on any business day on which the Portfolio s NAV is calculated. Redemptions are duly processed at the NAV next calculated after your redemption order is received in good order by the Portfolio or its agent. Redemption proceeds will normally be sent the business day following receipt of the redemption order, but in no event later than seven days after receipt of such order. Redemptions In-Kind Shares normally will be redeemed for cash, although the Portfolio retains the right to redeem some or all of its shares in-kind under unusual circumstances, in order to protect the interests of remaining shareholders, or to accommodate a request by a particular shareholder that does not adversely affect the interest of the remaining shareholders, by delivery of securities selected from its assets at its discretion. However, the Portfolio is required to redeem shares solely for cash up to the lesser of $250,000 or 1% of the NAV of the Portfolio during any 90-day period for any one shareholder. Should redemptions by any shareholder exceed such limitation, the Portfolio will have the option of redeeming the excess in cash or in-kind. In-kind payment means payment will be made in portfolio securities rather Shareholder s guide 17

206 than cash. If this occurs, the redeeming shareholder might incur brokerage or other transaction costs to convert the securities to cash. EXCESSIVE TRADING Excessive Trading Policies and Procedures The Board of Trustees has adopted policies and procedures with respect to short-term and excessive trading of Portfolio shares ( excessive trading ). The Portfolio is intended for long-term investment purposes only and the Portfolio will take reasonable steps to attempt to detect and deter excessive trading. Transactions placed in violation of the Portfolio s excessive trading policies may be cancelled or revoked by the Portfolio by the next business day following receipt by the Portfolio. The trading history of accounts determined to be under common ownership or control within any of the Janus funds may be considered in enforcing these policies and procedures. As described below, however, the Portfolio may not be able to identify all instances of excessive trading or completely eliminate the possibility of excessive trading. In particular, it may be difficult to identify excessive trading in certain omnibus accounts and other accounts traded through intermediaries (such as insurance companies or plan sponsors). By their nature, omnibus accounts, in which purchases and sales of the Portfolio s shares by multiple investors are aggregated by the intermediary and presented to the Portfolio on a net basis, may effectively conceal the identity of individual investors and their transactions from the Portfolio and its agent. The Portfolio attempts to deter excessive trading through at least the following methods: ) fair valuation of securities as described under Pricing of Portfolio Shares; and ) redemption fees as described under Redemption Fee (where applicable on certain classes of certain Portfolios). The Portfolio monitors Portfolio share transactions, subject to the limitations described below. Generally, a purchase of the Portfolio s shares followed by the redemption of the Portfolio s shares within a 90-day period may result in enforcement of the Portfolio s excessive trading policies and procedures with respect to future purchase orders, provided that the Portfolio reserves the right to reject any purchase request as explained above. If the Portfolio detects excessive trading, the Portfolio may suspend or permanently terminate the exchange privilege (if permitted by your insurance company or plan sponsor) of the account and may bar future purchases into the Portfolio and any of the other Janus funds by such investor. The Portfolio s excessive trading policies generally do not apply to a money market portfolio, although money market portfolios at all times reserve the right to reject any purchase request (including exchange purchases, if permitted by your insurance company or plan sponsor) for any reason without prior notice. The Portfolio s Board of Trustees may approve from time to time a redemption fee to be imposed by any Janus fund, subject to 60 days notice to shareholders of that fund. Investors who place transactions through the same insurance company or plan sponsor on an omnibus basis may be deemed part of a group for the purpose of the Portfolio s excessive trading policies and procedures and may be rejected in whole or in part by the Portfolio. The Portfolio, however, cannot always identify or reasonably detect excessive trading that may be facilitated by insurance companies or plan sponsors or made difficult to identify through the use of omnibus accounts by those intermediaries that transmit purchase, exchange, and redemption orders to the Portfolio, and thus the Portfolio may have difficulty curtailing such activity. Transactions accepted by an insurance company or plan sponsor in violation of the Portfolio s excessive trading policies may be cancelled or revoked by the Portfolio by the next business day following receipt by the Portfolio. In an attempt to detect and deter excessive trading in omnibus accounts, the Portfolio or its agent may require intermediaries to impose restrictions on the trading activity of accounts traded through those intermediaries. Such restrictions may include, but are not limited to, requiring that trades be placed by U.S. mail, prohibiting purchases for a designated period of time (typically 30 to 90 days) by investors who have recently redeemed Portfolio shares, 18 Janus Aspen Series

207 requiring intermediaries to report information about customers who purchase and redeem large amounts, and similar restrictions. The Portfolio s ability to impose such restrictions with respect to accounts traded through particular intermediaries may vary depending on the systems capabilities, applicable contractual and legal restrictions, and cooperation of those intermediaries. Certain transactions in Portfolio shares, such as periodic rebalancing (no more frequently than quarterly) or those which are made pursuant to systematic purchase, exchange, or redemption programs generally do not raise excessive trading concerns and normally do not require application of the Portfolio s methods to detect and deter excessive trading. The Portfolio also reserves the right to reject any purchase request (including exchange purchases) by any investor or group of investors for any reason without prior notice, including, in particular, if the trading activity in the account(s) is deemed to be disruptive to the Portfolio. For example, the Portfolio may refuse a purchase order if the Portfolio s investment personnel believe they would be unable to invest the money effectively in accordance with the Portfolio s investment policies or the Portfolio would otherwise be adversely affected due to the size of the transaction, frequency of trading, or other factors. The Portfolio s policies and procedures regarding excessive trading may be modified at any time by the Portfolio s Board of Trustees. Excessive Trading Risks Excessive trading may present risks to the Portfolio s long-term shareholders. Excessive trading into and out of the Portfolio may disrupt portfolio investment strategies, may create taxable gains to remaining Portfolio shareholders, and may increase Portfolio expenses, all of which may negatively impact investment returns for all remaining shareholders, including long-term shareholders. Portfolios that invest in foreign securities may be at a greater risk for excessive trading. Investors may attempt to take advantage of anticipated price movements in securities held by a portfolio based on events occurring after the close of a foreign market that may not be reflected in the portfolio s NAV (referred to as price arbitrage ). Such arbitrage opportunities may also arise in portfolios which do not invest in foreign securities, for example, when trading in a security held by a portfolio is halted and does not resume prior to the time the portfolio calculates its NAV (referred to as stale pricing ). Portfolios that hold thinly-traded securities, such as certain small-capitalization securities, may be subject to attempted use of arbitrage techniques. To the extent that the Portfolio s valuation of a security differs from the security s market value, short-term arbitrage traders may dilute the NAV of the Portfolio, which negatively impacts long-term shareholders. Although the Portfolio has adopted fair valuation policies and procedures intended to reduce the Portfolio s exposure to price arbitrage, stale pricing, and other potential pricing inefficiencies, under such circumstances there is potential for short-term arbitrage trades to dilute the value of Portfolio shares. Although the Portfolio takes steps to detect and deter excessive trading pursuant to the policies and procedures described in this Prospectus and approved by the Board of Trustees, there is no assurance that these policies and procedures will be effective in limiting excessive trading in all circumstances. For example, the Portfolio may be unable to completely eliminate the possibility of excessive trading in certain omnibus accounts and other accounts traded through intermediaries. Omnibus accounts may effectively conceal the identity of individual investors and their transactions from the Portfolio and its agent. This makes the Portfolio s identification of excessive trading transactions in the Portfolio through an omnibus account difficult and makes the elimination of excessive trading in the account impractical without the assistance of the intermediary. Moreover, the contract between an insurance company and the owner of a variable insurance contract may govern the frequency with which the contract owner may cause the insurance company to purchase or redeem shares of the Portfolio. Although the Portfolio encourages intermediaries to take necessary actions to detect and deter excessive trading, some intermediaries may be unable or unwilling to do so, and accordingly, the Portfolio cannot eliminate completely the possibility of excessive trading. Shareholder s guide 19

208 Shareholders that invest through an omnibus account should be aware that they may be subject to the policies and procedures of their insurance company or plan sponsor with respect to excessive trading in the Portfolio. AVAILABILITY OF PORTFOLIO HOLDINGS INFORMATION The non-money market portfolios portfolio holdings (excluding cash equivalents, derivatives, and short positions), consisting of at least the names of the holdings, are generally available monthly, with a 30-day lag, on They are posted to the website within approximately two business days after month-end. The money market portfolio s portfolio holdings are generally available monthly, with no lag, on They are posted to the website within approximately six business days after month-end. All of the portfolios holdings remain available until a Form N-CSR or Form N-Q is filed with the SEC for the period that includes the date as of which the website information is current. The portfolios portfolio holdings can be found on in Profiles & Performance under the Characteristics tab. In addition, the Portfolio s top portfolio holdings in order of position size and as a percentage of the total portfolio, are published monthly with a 30-day lag, and quarterly with a 15-day lag, on The Portfolio discloses its top ten portfolio holdings. Security breakdowns (such as industry, sector, regional, market capitalization, and asset allocation breakdowns, as applicable) for the Portfolio are published monthly with a 30-day lag, and quarterly with a 15-day lag, on The Portfolio s top portfolio holdings, as well as the non-money market portfolios security breakdowns, are posted to the website within approximately two business days after the end of the applicable period and remain available until the following period s information is posted. Specific portfolio level performance attribution information and statistics for the Portfolio will be made available to any person monthly upon request, with a 30-day lag, following the posting of the Portfolio s portfolio holdings on Notwithstanding the foregoing, Janus Capital may exclude from publication all or any portion of portfolio holdings or change the time periods of disclosure as deemed necessary to protect the interests of the portfolios. A summary of the portfolio holdings disclosure policies and procedures, which includes a discussion of any exceptions, is contained in the Portfolio s SAI. Complete schedules of the Portfolio s holdings as of the end of the Portfolio s first and third fiscal quarters are filed with the SEC within 60 days of the end of such quarters on Form N-Q. The Portfolio s Form N-Q: (i) is available on the SEC s website at (ii) may be reviewed and copied at the SEC s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling SEC-0330); and (iii) is available without charge, upon request, by calling Janus at (toll free). Complete schedules of the Portfolio s holdings as of the end of the Portfolio s second and fourth fiscal quarters are included in the Portfolio s semiannual and annual reports which are filed with the SEC within 60 days of the end of such quarters. The semiannual reports are filed on Form type N-CSRS and the annual reports are filed on Form type N-CSR. Shareholder reports containing such portfolio holdings are available to shareholders through their insurance company or plan sponsor and are also available at SHAREHOLDER COMMUNICATIONS Your insurance company or plan sponsor is responsible for providing annual and semiannual reports, including the financial statements of the Portfolio that you have authorized for investment. These reports show the Portfolio s investments and the market value of such investments, as well as other information about the Portfolio and its operations. Please contact your insurance company or plan sponsor to obtain these reports. The Trust s fiscal year ends December Janus Aspen Series

209 FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Service Shares financial performance through December 31 of the fiscal years shown. Items Net asset value, beginning of period through Net asset value, end of period reflect financial results for a single Portfolio Share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Service Shares of the Portfolio (assuming reinvestment of all dividends and distributions) but do not include charges and expenses attributable to any insurance product. If these charges and expenses had been included, the performance for the periods shown would be lower. Large Cap Growth Portfolio Service Shares Years ended December Net asset value, beginning of period $19.85 $19.04 $14.48 $19.76 $26.36 Income from investment operations: Net investment income/(loss) (0.02) (0.04) (0.03) (0.04) (0.02) Net gain/(loss) on securities (both realized and unrealized) (5.24) (6.54) Total from investment operations (5.28) (6.56) Less distributions: Dividends (from net investment income) (0.03) Distributions (from capital gains) (0.04) Total distributions (0.03) (0.04) Net asset value, end of period $20.62 $19.85 $19.04 $14.48 $19.76 Total return 4.01% 4.25% 31.49% (26.72)% (24.90)% Net assets, end of period (in thousands) $157,041 $183,028 $211,100 $177,327 $237,012 Average net assets for the period (in thousands) $163,753 $191,544 $188,994 $219,594 $160,200 Ratio of gross expenses to average net assets (1)(2) 0.91% 0.92% 0.92% 0.92% 0.91% Ratio of net expenses to average net assets (3) 0.91% 0.91% 0.92% 0.92% 0.91% Ratio of net investment income/(loss) to average net assets 0.06% (0.11)% (0.13)% (0.33)% (0.20)% Portfolio turnover rate 87% 33% 24% 36% 48% (1) The expense ratio reflects expenses prior to any expense offset arrangements. (2) The effect of non-recurring costs assumed by Janus Capital is included in the ratio of gross expenses to average net assets and was less than 0.01%. (3) The expense ratio reflects expenses after any expense offset arrangements. Financial highlights 21

210 GLOSSARY OF INVESTMENT TERMS This glossary provides a more detailed description of some of the types of securities, investment strategies, and other instruments in which the Portfolio may invest. The Portfolio may invest in these instruments to the extent permitted by its investment objective and policies. The Portfolio is not limited by this discussion and may invest in any other types of instruments not precluded by the policies discussed elsewhere in this Prospectus. I. EQUITY AND DEBT SECURITIES Bank loans include institutionally-traded floating and fixed-rate debt securities generally acquired as a participation interest in a loan originated by a lender or other financial institution, or as an assignment of a portion of a loan previously attributable to a different lender. Bonds are debt securities issued by a company, municipality, government, or government agency. The issuer of a bond is required to pay the holder the amount of the loan (or par value of the bond) at a specified maturity and to make scheduled interest payments. Commercial paper is a short-term debt obligation with a maturity ranging from 1 to 270 days issued by banks, corporations, and other borrowers to investors seeking to invest idle cash. A Portfolio may purchase commercial paper issued in private placements under Section 4(2) of the Securities Act of Common stocks are equity securities representing shares of ownership in a company and usually carry voting rights and earn dividends. Unlike preferred stock, dividends on common stock are not fixed but are declared at the discretion of the issuer s board of directors. Convertible securities are preferred stocks or bonds that pay a fixed dividend or interest payment and are convertible into common stock at a specified price or conversion ratio. Debt securities are securities representing money borrowed that must be repaid at a later date. Such securities have specific maturities and usually a specific rate of interest or an original purchase discount. Depositary receipts are receipts for shares of a foreign-based corporation that entitle the holder to dividends and capital gains on the underlying security. Receipts include those issued by domestic banks (American Depositary Receipts), foreign banks (Global or European Depositary Receipts), and broker-dealers (depositary shares). Equity securities generally include domestic and foreign common stocks; preferred stocks; securities convertible into common stocks or preferred stocks; warrants to purchase common or preferred stocks; and other securities with equity characteristics. Exchange-traded funds are index-based investment companies which hold substantially all of their assets in securities with equity characteristics. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations. Fixed-income securities are securities that pay a specified rate of return. The term generally includes short- and longterm government, corporate, and municipal obligations that pay a specified rate of interest, dividends, or coupons for a specified period of time. Coupon and dividend rates may be fixed for the life of the issue or, in the case of adjustable and floating rate securities, for a shorter period. High-yield/high-risk bonds are bonds that are rated below investment grade by the primary rating agencies (i.e., BB+ or lower by Standard & Poor s and Fitch, and Ba or lower by Moody s). Other terms commonly used to describe such bonds include lower rated bonds, non-investment grade bonds, and junk bonds. Mortgage- and asset-backed securities are shares in a pool of mortgages or other debt. These securities are generally pass-through securities, which means that principal and interest payments on the underlying securities (less servicing fees) are passed through to shareholders on a pro rata basis. These securities involve prepayment risk, which is the risk that the underlying mortgages or other debt may be refinanced or paid off prior to their maturities during periods of declining interest rates. In that case, the Portfolio may have to reinvest the proceeds from the securities at a lower 22 Janus Aspen Series

211 rate. Potential market gains on a security subject to prepayment risk may be more limited than potential market gains on a comparable security that is not subject to prepayment risk. Mortgage dollar rolls are transactions in which a Portfolio sells a mortgage-related security, such as a security issued by GNMA, to a dealer and simultaneously agrees to purchase a similar security (but not the same security) in the future at a pre-determined price. A dollar roll can be viewed as a collateralized borrowing in which a Portfolio pledges a mortgage-related security to a dealer to obtain cash. Pass-through securities are shares or certificates of interest in a pool of debt obligations that have been repackaged by an intermediary, such as a bank or broker-dealer. Passive foreign investment companies (PFICs) are any foreign corporations which generate certain amounts of passive income or hold certain amounts of assets for the production of passive income. Passive income includes dividends, interest, royalties, rents, and annuities. To avoid taxes and interest that a Portfolio must pay if these investments are profitable, the Portfolio may make various elections permitted by the tax laws. These elections could require that a Portfolio recognize taxable income, which in turn must be distributed, before the securities are sold and before cash is received to pay the distributions. Pay-in-kind bonds are debt securities that normally give the issuer an option to pay cash at a coupon payment date or give the holder of the security a similar bond with the same coupon rate and a face value equal to the amount of the coupon payment that would have been made. Preferred stocks are equity securities that generally pay dividends at a specified rate and have preference over common stock in the payment of dividends and liquidation. Preferred stock generally does not carry voting rights. Real estate investment trust (REIT) is an investment trust that operates through the pooled capital of many investors who buy its shares. Investments are in direct ownership of either income property or mortgage loans. Rule 144A securities are securities that are not registered for sale to the general public under the Securities Act of 1933, but that may be resold to certain institutional investors. Standby commitment is a right to sell a specified underlying security or securities within a specified period of time and at an exercise price equal to the amortized cost of the underlying security or securities plus accrued interest, if any, at the time of exercise, that may be sold, transferred, or assigned only with the underlying security or securities. A standby commitment entitles the holder to receive same day settlement, and will be considered to be from the party to whom the investment company will look for payment of the exercise price. Step coupon bonds are high-quality issues with above-market interest rates and a coupon that increases over the life of the bond. They may pay monthly, semiannual, or annual interest payments. On the date of each coupon payment, the issuer decides whether to call the bond at par, or whether to extend it until the next payment date at the new coupon rate. Strip bonds are debt securities that are stripped of their interest (usually by a financial intermediary) after the securities are issued. The market value of these securities generally fluctuates more in response to changes in interest rates than interest-paying securities of comparable maturity. Tender option bonds are relatively long-term bonds that are coupled with the option to tender the securities to a bank, broker-dealer, or other financial institution at periodic intervals and receive the face value of the bond. This investment structure is commonly used as a means of enhancing a security s liquidity. U.S. Government securities include direct obligations of the U.S. Government that are supported by its full faith and credit. Treasury bills have initial maturities of less than one year, Treasury notes have initial maturities of one to ten years, and Treasury bonds may be issued with any maturity but generally have maturities of at least ten years. U.S. Government securities also include indirect obligations of the U.S. Government that are issued by federal agencies and government sponsored entities. Unlike Treasury securities, agency securities generally are not backed by the full faith Glossary of investment terms 23

212 and credit of the U.S. Government. Some agency securities are supported by the right of the issuer to borrow from the Treasury, others are supported by the discretionary authority of the U.S. Government to purchase the agency s obligations, and others are supported only by the credit of the sponsoring agency. Variable and floating rate securities have variable or floating rates of interest and, under certain limited circumstances, may have varying principal amounts. Variable and floating rate securities pay interest at rates that are adjusted periodically according to a specified formula, usually with reference to some interest rate index or market interest rate (the underlying index ). The floating rate tends to decrease the security s price sensitivity to changes in interest rates. Warrants are securities, typically issued with preferred stock or bonds, which give the holder the right to buy a proportionate amount of common stock at a specified price. The specified price is usually higher than the market price at the time of issuance of the warrant. The right may last for a period of years or indefinitely. Zero coupon bonds are debt securities that do not pay regular interest at regular intervals, but are issued at a discount from face value. The discount approximates the total amount of interest the security will accrue from the date of issuance to maturity. The market value of these securities generally fluctuates more in response to changes in interest rates than interest-paying securities. II. FUTURES, OPTIONS, AND OTHER DERIVATIVES Credit default swaps are a specific kind of counterparty agreement that allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments. Equity-linked structured notes are debt securities which combine the characteristics of common stock and the sale of an option. The return component is based on the performance of a single equity security, a basket of equity securities, or an equity index and the sale of an option which is recognized as income. Equity-linked structured notes are typically offered in limited transactions to financial institutions by investment banks, examples of which include performance equity-linked redemption quarterly pay securities ( PERQS ), yield-enhanced securities ( YES ), and yieldenhanced equity-linked debt securities ( YEELDS ). There is no guaranteed return of principal with these securities. The appreciation potential of these securities may be limited by a maximum payment or call right and can be influenced by many unpredictable factors. Forward contracts are contracts to purchase or sell a specified amount of a financial instrument for an agreed upon price at a specified time. Forward contracts are not currently exchange-traded and are typically negotiated on an individual basis. A Portfolio may enter into forward currency contracts for investment purposes or to hedge against declines in the value of securities denominated in, or whose value is tied to, a currency other than the U.S. dollar or to reduce the impact of currency appreciation on purchases of such securities. It may also enter into forward contracts to purchase or sell securities or other financial indices. Futures contracts are contracts that obligate the buyer to receive and the seller to deliver an instrument or money at a specified price on a specified date. The Portfolio may buy and sell futures contracts on foreign currencies, securities, and financial indices including indices of U.S. Government, foreign government, equity, or fixed-income securities. A Portfolio may also buy options on futures contracts. An option on a futures contract gives the buyer the right, but not the obligation, to buy or sell a futures contract at a specified price on or before a specified date. Futures contracts and options on futures are standardized and traded on designated exchanges. Indexed/structured securities are typically short- to intermediate-term debt securities whose value at maturity or interest rate is linked to currencies, interest rates, equity securities, indices, commodity prices, or other financial indicators. Such securities may be positively or negatively indexed (e.g., their value may increase or decrease if the reference index or instrument appreciates). Indexed/structured securities may have return characteristics similar to 24 Janus Aspen Series

213 direct investments in the underlying instruments and may be more volatile than the underlying instruments. The Portfolio bears the market risk of an investment in the underlying instruments, as well as the credit risk of the issuer. Interest rate swaps involve the exchange by two parties of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments). Inverse floaters are debt instruments whose interest rate bears an inverse relationship to the interest rate on another instrument or index. For example, upon reset, the interest rate payable on the inverse floater may go down when the underlying index has risen. Certain inverse floaters may have an interest rate reset mechanism that multiplies the effects of change in the underlying index. Such mechanism may increase the volatility of the security s market value. Options are the right, but not the obligation, to buy or sell a specified amount of securities or other assets on or before a fixed date at a predetermined price. A Portfolio may purchase and write put and call options on securities, securities indices, and foreign currencies. A Portfolio may purchase or write such options individually or in combination. Participatory notes are derivative securities which are linked to the performance of an underlying Indian security and which allow investors to gain market exposure to Indian securities without trading directly in the local Indian market. III. OTHER INVESTMENTS, STRATEGIES, AND/OR TECHNIQUES Repurchase agreements involve the purchase of a security by the Portfolio and a simultaneous agreement by the seller (generally a bank or dealer) to repurchase the security from the Portfolio at a specified date or upon demand. This technique offers a method of earning income on idle cash. These securities involve the risk that the seller will fail to repurchase the security, as agreed. In that case, the Portfolio will bear the risk of market value fluctuations until the security can be sold and may encounter delays and incur costs in liquidating the security. Reverse repurchase agreements involve the sale of a security by the Portfolio to another party (generally a bank or dealer) in return for cash and an agreement by the Portfolio to buy the security back at a specified price and time. This technique will be used primarily to provide cash to satisfy unusually high redemption requests, or for other temporary or emergency purposes. Short sales in which the Portfolio may engage may be of two types, short sales against the box or naked short sales. Short sales against the box involve selling either a security that the Portfolio owns, or a security equivalent in kind or amount to the security sold short that the Portfolio has the right to obtain, for delivery at a specified date in the future. Naked short sales involve selling a security that the Portfolio borrows and does not own. The Portfolio may enter into a short sale to hedge against anticipated declines in the market price of a security or to reduce portfolio volatility. If the value of a security sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain. For naked short sales, the Portfolio will incur a loss if the value of a security increases during this period because it will be paying more for the security than it has received from the purchaser in the short sale. If the price declines during this period, the Portfolio will realize a short-term capital gain. Although the Portfolio s potential for gain as a result of a short sale is limited to the price at which it sold the security short less the cost of borrowing the security, its potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. When-issued, delayed delivery, and forward commitment transactions generally involve the purchase of a security with payment and delivery at some time in the future i.e., beyond normal settlement. A Portfolio does not earn interest on such securities until settlement and bears the risk of market value fluctuations in between the purchase and settlement dates. New issues of stocks and bonds, private placements, and U.S. Government securities may be sold in this manner. Glossary of investment terms 25

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215 You can make inquiries and request other information, including a Statement of Additional Information, Annual Report, or Semiannual Report, free of charge, by contacting your insurance company or plan sponsor, or by contacting a Janus representative at The Portfolio s Statement of Additional Information and most recent Annual and Semiannual Reports are also available, free of charge, on Additional information about the Portfolio s investments is available in the Portfolio s Annual and Semiannual Reports. In the Portfolio s Annual and Semiannual Reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Portfolio s performance during its last fiscal period. Other information is also available from financial intermediaries that sell Shares of the Portfolio. The Statement of Additional Information provides detailed information about the Portfolio and is incorporated into this Prospectus by reference. You may review and copy information about the Portfolio (including the Portfolio s Statement of Additional Information) at the Public Reference Room of the SEC or get text only copies, after paying a duplicating fee, by sending an electronic request by to publicinfo@sec.gov or by writing to or calling the Public Reference Room, Washington, D.C ( ). Information on the operation of the Public Reference Room may also be obtained by calling this number. You may also obtain reports and other information about the Portfolio from the Electronic Data Gathering Analysis and Retrieval (EDGAR) Database on the SEC s website at Detroit Street Denver, CO The Trust s Investment Company Act File No. is

216 Important Privacy Information and Choices Please read this Notice. It is from the Prudential Financial companies listed on the next page, and it applies to your relationships with us. It describes how we handle information about you, how we protect it, and the choices you have. Information We Collect We collect information about you so we can serve you and offer products to you. It includes information: You give us (such as name, address, Social Security number, income). About the Prudential products you have (such as the kinds of products you have with us, account balances, amount of insurance). Others give us (such as medical information for life insurance applications, creditworthiness information from credit reports, employee identifying information for group products, such as Social Security number). From visits to our websites (such as data from web forms, site visit data, and data from web cookies ). We call this information customer data. Protecting Customer Information The only persons who are authorized to have access to customer data are those who need it to do their jobs. They must protect it and keep it confidential. We maintain physical, electronic, and procedural safeguards that comply with federal and state regulations to protect customer data. Sharing Information Inside Prudential We may share the customer data described above with other Prudential Financial businesses, such as our insurance companies and agencies, our broker-dealers, and our banks. We may share it to serve you or maintain your account, or so our companies can tell you about other products or services. Other Reasons Information Is Shared We may share the customer data described above with other companies that perform services for us or on our behalf. This includes firms that provide mailing or marketing services for us, or develop and maintain software for us. We may also share it with financial firms outside Prudential, such as banks or securities brokers or dealers, when we have agreements to jointly sponsor or offer other financial products. We do this only if the applicable federal or state law allows the disclosure. Medical and driving record information is never shared for this purpose. We may disclose it as permitted or required by law, for example, to law enforcement officials, in response to subpoenas, to regulators, or to prevent fraud. Employers and others have relationships with us to provide services in connection with benefits that they provide for their employees or members, for example, group insurance policies or 401(k) plans. They may limit our sharing of customer data about their employees or members. When they do, we honor those restrictions. It s Your Choice We may share customer data within the Prudential family to tell you about other Prudential products and services. We may also share it with non-prudential firms to jointly sponsor or offer other financial products. Customers tell us they want this information. If you don t want us to share customer data about you for those offers, please let us know. We call this opting out. We may mail information about other products or services to you, or we may call you to tell you about them. If you would rather not receive information in these ways, please tell us. You can do that using the attached form. Mail it to the address or call us at the toll-free number provided. We will process your request as quickly as possible. It may take us four to six weeks in some cases for marketing campaigns that have already started. If you ask to be removed from our mailing lists for corporate offers, we will continue to send you information about your policies and accounts. We may include inserts about other products or services in these mailings. Opting out will not affect your relationship with your Prudential Professional. We are mailing this Notice to the address we have for you. If there is more than one owner of a product or account, we send this Notice to the same address that we use to mail statements. Each owner may opt out for himself or herself, and may also opt out for the other owners. The law requires us to send Notices at least once a year. If you have more than one Prudential product or service, you may receive multiple copies of this Notice. If you do choose to opt out, you only need to tell us once. We will honor your choices until you tell us to change them. Former Customers If your relationship with us ends, we will continue to handle information about you as this Notice describes. To Reach Us, Write or Call Customer Privacy Prudential Financial PO Box 9047 Millville, NJ (800) Prudential, Prudential Financial and the Prudential Financial logo are service marks of The Prudential Insurance Company of America, Newark, NJ and its affiliates. Your Financial Security, Your Satisfaction & Your Privacy The Prudential Insurance Company of America Privacy 0001 Ed. 2/ Broad Street, Newark, NJ

217 Many Prudential Financial companies are required to send privacy notices to their customers. This notice is being provided to customers of the Prudential Financial companies listed below: Insurance Companies Prudential Insurance Company of America, The Pruco Life Insurance Company Pruco Life Insurance Company of New Jersey Insurance Agencies Prudential Direct Insurance Agency of Massachusetts, Inc. Prudential Direct, Inc. Prudential General Agency of Ohio, Inc. Prudential General Insurance Agency of Florida, Inc. Prudential General Insurance Agency of Kentucky, Inc. Prudential General Insurance Agency of Massachusetts, Inc. Prudential General Insurance Agency of Mississippi, Inc. Prudential General Insurance Agency of Nevada, Inc. Prudential General Insurance Agency of New Mexico, Inc. Prudential General Agency of Texas, Inc. Prudential General Insurance Agency of Wyoming, Inc. Prudential Insurance Agency, LLC Prudential Insurance Brokerage, Inc. Broker-Dealers and Registered Investment Advisers Pru Global Securities, LLC Pruco Securities, LLC Pramerica Asset Management, Inc. Prudential Equity Investors, Inc. Prudential Investment Management, Inc. Prudential Investment Management Services LLC Prudential Investments LLC Prudential Equity Group, LLC Bank and Trust Companies Prudential Bank & Trust, F.S.B. Prudential Trust Company Investment Companies and Other Investment Vehicles Cash Accumulation Trust High Yield Income Fund, Inc., The JennisonDryden Mutual Funds MoneyMart Assets, Inc. Nicholas-Applegate Fund, Inc. Prudential Capital Partners, L.P. Prudential Equity Investors III, L.P. Prudential Financial Derivatives, LLC Prudential Institutional Liquidity Portfolio, Inc. Strategic Partners Mutual Funds Target Portfolio Trust, The

218 Check each box according to your preference: Your Privacy Preferences Do not share customer data about me within the Prudential family to offer me products or services, or with other financial firms to jointly offer me products or services. Do not send me separate offers by mail for products or services. Do not call me at the telephone number below to tell me about products and services. Account/Policy number as it appears on your statement Print your name and address as it appears on your statement Name (First, middle initial, last name) Address City State Zip code Telephone number Additional account/policy numbers Additional Owner Name (First, middle initial, last name) Address City State Zip code Telephone number Additional Owner Name (First, middle initial, last name) Address City State Zip code Telephone number Mail or call: Customer Privacy Prudential Financial PO Box 9047 Millville, NJ (800) The Prudential Insurance Company of America Your Financial Security, Your Satisfaction & Your Privacy 751 Broad Street, Newark, NJ Privacy 0001 Ed. 2/2006

219 PruLife Custom Premier VARIABLE UNIVERSAL LIFE INSURANCE PruLife Custom Premier is issued by Pruco Life Insurance Company in all states except New Jersey and New York, where it is issued by Pruco Life Insurance Company of New Jersey, 213 Washington Street, Newark, NJ , and is offered through Pruco Securities, LLC, 751 Broad Street Newark, NJ All are Prudential Financial, Inc. companies. PruLife is a registered mark of Prudential. Prudential Financial and the Rock logo are registered service marks of The Prudential Insurance Company of America, and its affiliates. For online access to your policy information, visit If you would like to receive this document through the internet next time, please enroll for electronic delivery at now. Pruco Life Insurance Company of New Jersey 213 Washington Street, Newark, NJ Telephone: VUL2NJ ED 5/2006