PROSPECTUS. MPremier SM VUL VARIABLE UNIVERSAL LIFE INSURANCE. Pruco Life Variable Universal Account. Pruco Life Insurance Company

Transcription

1 MAY 1, 2007 PROSPECTUS MPremier SM VUL VARIALE UNIVERSAL LIFE INSURANCE Pruco Life Variable Universal Account Pruco Life Insurance Company Our Privacy Notice is included at the end of this prospectus.

2 PROSPECTUS May 1, 2007 PRUCO LIFE VARIALE UNIVERSAL ACCOUNT MPremier SM VUL This prospectus describes an individual flexible premium variable universal life insurance contract, the MPremier SM VUL Contract (the Contract ) offered by Pruco Life Insurance Company ( Pruco Life, us we, or our ), a stock life insurance company. Pruco Life is a wholly-owned 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 28 available variable investment options of the Pruco Life Variable Universal Account (the Account ): The Prudential Series Fund (the Series Fund ) Diversified ond SP Growth Asset Allocation Equity SP International Growth Global SP International Value High Yield ond SP Large Cap Value Jennison SP Mid Cap Growth Money Market SP PIMCO High Yield Stock Index SP PIMCO Total Return SP Aggressive Growth Asset Allocation SP Prudential U.S. Emerging Growth SP AIM Core Equity SP Small Cap Growth SP alanced Asset Allocation SP Small Cap Value SP Conservative Asset Allocation SP Strategic Partners Focused Growth SP Davis Value SP T. Rowe Price Large Cap Growth M Fund, Inc. randes International Equity Fund Frontier Capital Appreciation Fund usiness Opportunity Value Fund Turner Core Growth Fund For a complete list of the 28 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 an MPremier SM VUL 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 MPremier SM VUL 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 213 Washington Street Newark, New Jersey Telephone: (800)

3 TALE OF CONTENTS SUMMARY OF CHARGES AND EXPENSES...1 Expenses other than Portfolio Expenses...1 Portfolio Expenses...3 SUMMARY OF THE CONTRACT AND CONTRACT ENEFITS...3 rief Description of the Contract...3 Target Term Rider Summary...4 Types of Death enefit Available Under the Contract...4 Limited No-Lapse Guarantee Information...4 The Contract Fund...5 Premium Payments...5 Allocation of Premium Payments...5 Investment Choices...5 Transfers Among Investment Options...6 Increasing or Decreasing asic Insurance Amount...6 Access to Contract Values...6 Contract Loans...7 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...8 Risks of Taking Withdrawals...8 Limitations on Transfers...8 Limitations and Charges on Surrender of the Contract...9 Risks of Taking a Contract Loan...9 Tax Consequences of uying this Contract...9 Replacement of the Contract...10 SUMMARY OF RISKS ASSOCIATED WITH THE VARIALE INVESTMENT OPTIONS...10 Risks Associated with the Variable Investment Options...10 Learn More about the Variable Investment Options...10 GENERAL DESCRIPTIONS OF THE REGISTRANT, DEPOSITOR, AND PORTFOLIO COMPANIES...10 Pruco Life Insurance Company...10 The Pruco Life Variable Universal Account...11 The Funds...11 Service Fees Payable to Pruco Life...15 Voting Rights...15 Substitution of Variable Investment Options...16 The Fixed Rate Option...16 CHARGES AND EXPENSES...16 Sales Load Charges...16 Premium ased Administrative Charge...17 Cost of Insurance...17 Monthly Deductions from the Contract Fund...17 Daily Deduction from the Variable Investment Options...18 Surrender Charges...18 Transaction Charges...19 Allocated Charges...19 Charges After Age Portfolio Charges...20 Charges for Optional Rider Coverage...20 PERSONS HAVING RIGHTS UNDER THE CONTRACT...20 Contract Owner...20 eneficiary...20 Page

4 OTHER GENERAL CONTRACT PROVISIONS...21 Assignment...21 Incontestability...21 Misstatement of Age or Sex...21 Settlement Options...21 Suicide Exclusion...21 RIDERS...21 Target Term Rider...21 Other Riders...23 REQUIREMENTS FOR ISSUANCE OF A CONTRACT...24 PREMIUMS...24 Minimum Initial Premium...24 Available Types of Premium...24 Allocation of Premiums...25 Transfers/Restrictions on Transfers...25 Dollar Cost Averaging...27 Auto-Rebalancing...27 DEATH ENEFITS...27 Contract Date...27 When Proceeds Are Paid...28 Death Claim Settlement Options...28 Types of Death enefit...28 Changing the Type of Death enefit...29 Limited No-Lapse Guarantee...30 Increases in asic Insurance Amount...31 Decreases in asic Insurance Amount...32 CONTRACT VALUES...33 Surrender of a Contract...33 How a Contract's Cash Surrender Value Will Vary...33 Loans...33 Withdrawals...35 LAPSE AND REINSTATEMENT...36 TAXES...36 Tax Treatment of Contract enefits...36 DISTRIUTION AND COMPENSATION...38 LEGAL PROCEEDINGS...40 ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH ENEFITS, AND ACCUMULATED PREMIUMS...40 ADDITIONAL INFORMATION...42 DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...43 TALE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...45

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. Maximum Sales Charge on Premiums (Load) Transaction and Optional Rider Fees Charge When Charge is Deducted Amount Deducted Premium ased Administrative Charge Surrender fees (1) Transfer fees Withdrawal fee Insurance Amount Change fee Deducted from premium payments. Deducted from premium payments. 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. 12% of premium payment. 7.5% of premium payment. 15% of the Sales Load Target Premium less premium for riders and extras. $25 Lesser of $25 and 2% of withdrawal amount. Living Needs enefit fee When benefit is paid. $150 Enhanced Cash Value Rider fee One time charge applied on first month of processing. (1) The percentage varies by age and reduces to zero by the end of the eighth year. $25 $0.01 per $1,000 of basic insurance amount. 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 Fund s 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 45 in the Non-Smoker Plus underwriting class, no riders. Monthly From $0.08 to $83.34 per $1,000 of net amount at risk. (1)(2) $0.29 per $1,000 of net amount at risk. (3) 1

6 Cost of Insurance ( COI ) for Target Term Rider coverage. Minimum and Maximum Charges Initial COI for a representative Contract owner, male age 45 in the Non-Smoker Plus 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 asic insurance amount fee for a representative Contract owner, male age 45 in the Non-Smoker Plus 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 45 in the Non-Smoker Plus 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 45 in the Non-Smoker Plus underwriting class. Monthly Daily Monthly Annually Monthly Monthly Monthly From $0.08 to $83.34 per $1,000 of Target Term Rider death benefit. (1)(2) $0.29 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 $0.08 to $2.20 per $1,000 of basic insurance amount. $20 plus $0.44 per $1,000 of basic insurance amount. $12 per increase segment plus $0.08 to $2.20 per $1,000 of increase. $12 per increase segment plus $0.44 per $1,000 of increase. From $0.09 to $2.21 per $1,000 of Target Term Rider. (1) $0.45 per $1,000 of Target Term Rider. 2

7 Fee for Accidental Death enefit Rider Minimum and Maximum Charges Accidental Death enefit Rider fee for a representative Contract owner, male age 45 in the Non- Smoker Plus underwriting class. Monthly From $0.05 to $0.28 per $1,000 of coverage. (1) $0.09 per $1,000 of coverage. Fee for Children Level Term (6) Rider Monthly $0.42 per $1,000 of coverage. Fee for Enhanced Disability enefit Rider Minimum and Maximum Charges Enhanced Disability enefit Rider fee for a representative Contract owner, male age 45 in the Non- Smoker Plus underwriting class. Monthly From 6.9% to 10% of the greater of: 9% of the policy target premium or the total of monthly deductions. (1) 8.7% 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 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 4% and an effective annual interest credit equal to 3%. 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.) 0.37% 1.29% rief Description of the Contract SUMMARY OF THE CONTRACT AND CONTRACT ENEFITS MPremier VUL 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 28 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 3

8 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 3%. 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. 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 lower than the 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 is higher for Target Term Rider. There are various factors to consider regarding the Target Term Rider. Pruco Life 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 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 the Target Term Rider. Types of Death enefit 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 (variable) Contract, your death benefit will vary with investment experience. For Type A and Type 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, accumulated at an interest rate (between 0% and 8%; in ½% increments) chosen by the Contract owner. The death benefit on a Type C Contract is limited to the basic insurance amount plus an amount equal to: the Contract Fund plus the Type C Limiting Amount (the sum of the initial basic insurance amount plus any initial Target Term Rider coverage amount) multiplied by the Type C Death enefit Factor, both located in the Contract Limitations section of your Contract. 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 death benefit at issue, you will not be able to change to a Type C death benefit thereafter. Also, if you change a Type C death benefit to a Type A or Type death benefit after issue, you will not be able to change back to a Type C death benefit. See Types of Death enefit and Changing the Type of Death enefit. Limited No-Lapse 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 Limited No-Lapse Guarantee Values shown in your Contract. If you have an outstanding Contract loan the Limited No-Lapse Guarantee will not keep the Contract in-force. See Withdrawals and Loans. 4

9 There are two separate guarantee periods, both associated with a corresponding level of premium payments. For example, payment of the Short-Term No-Lapse Guarantee Premium at the beginning of each Contract year guarantees that your Contract will not lapse during the first 10 Contract years, assuming no loans or withdrawals. If your Contract was issued with a Type A or Type death benefit, and you are paying the Limited No-Lapse Guarantee Premium at the beginning of each Contract year, we will guarantee your Contract against lapse until the later of the insured's age 80 or for 10 years after issue, whichever comes later, assuming no loans or withdrawals. Contracts with a type C death benefit will only have a No Lapse Guarantee for the first five years. See Limited No-Lapse Guarantee and PREMIUMS. Unless the Limited No-Lapse 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 representative can tell you the premium amounts you will need to pay to maintain these guarantees. 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 Limited No- Lapse 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. See PREMIUMS, Limited No-Lapse 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 premium based administrative charge 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 10 day period following your receipt of the Contract will be allocated to the Money Market investment option. After the tenth day, 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 charge for sales expenses and the premium based administrative charge 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 28 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. 5

10 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. 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 determined to be disruptive to the investment option or to the disadvantage of other Contract owners. Restrictions will be applied in a uniform manner 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 asic 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 asic 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 asic 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 enefits. 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 enefits. 6

11 If you surrender the Contract while it is in-force, you may be eligible to receive an Additional Amount upon full surrender of the Contract for its surrender value. This option is not available in states where it is not approved. See Surrender of a Contract. 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 enefits. 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) 99% 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. The minimum loan amount you may borrow is generally $500, but may be lower in some states. See Loans. 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, less any applicable federal and/or state income tax withholding. 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), less any applicable federal and/or state income tax withholding. 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 Limited No-Lapse Guarantee feature. See Limited No-Lapse Guarantee. 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 Limited No-Lapse Guarantee. See Limited No-Lapse 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 enefits - Pre-Death Distributions. 7

12 Risks of Using the Contract as a Short-Term Savings Vehicle ecause 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. ecause 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. 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 net cash 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 enefits. Whenever a withdrawal is made, the death benefit will immediately be reduced by at least the amount of the withdrawal. Withdrawals under Type (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. efore making any withdrawal that causes a decrease in basic insurance amount, you should consult with your tax adviser and your Pruco Life representative. See Withdrawals and Tax Treatment of Contract enefits. 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. 8

13 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 enefits. We will assess a surrender charge if, during the first eight Contract years (or during the first eight 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 Limited No-Lapse 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 enefits. Tax Consequences of uying 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, 9

14 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. 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 enefits. 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. 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 VARIALE INVESTMENT OPTIONS You may choose to invest your Contract's premiums and its earnings in one or more of 28 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 efore 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 Pruco Life Insurance Company ("Pruco Life", us, we, or our ) is a stock life insurance company, organized on December 23, 1971 under the laws of the state of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam, and in all states except New York. Pruco Life s principal Executive Office is located at 213 Washington Street, Newark, New Jersey

15 The Pruco Life Variable Universal Account Pruco Life has established a separate account, the Pruco Life Variable Universal Account (the "Account") to hold the assets that are associated with the Contracts. The Account was established on April 17, 1989 under Arizona 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's other assets. Pruco Life is the legal owner of the assets in the Account. Pruco Life will maintain assets in the Account with a total market value at least equal to the reserve and other liabilities relating to the variable benefits attributable to the Contracts. In addition to these assets, the Account's assets may include funds contributed by Pruco Life to commence operation of the Account and may include accumulations of the charges we make against the Account. From time to time these additional assets will be transferred to Pruco Life's general account. Pruco Life 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 s other assets. The assets of the Account may not be charged with liabilities that arise from any other business Pruco Life conducts. The obligations to Contract owners and beneficiaries arising under the Contracts are general corporate obligations of Pruco Life. Currently, you may invest in one or a combination of 28 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 ond 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 ond 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. 11

16 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 potential for above-average growth in earnings. The Portfolio may invest up to 25% of its total assets in foreign securities. SP alanced 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 within the market capitalization range of the Russell 1000 Value Index. 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 International Growth Portfolio (formerly SP William lair 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 large and medium-sized foreign companies operating or based in at least five different countries, which may include countries with emerging markets. SP International Value Portfolio (formerly SP LSV International Value Portfolio): The investment objective is longterm capital appreciation. The Portfolio normally invests at least 80% of its investable assets in equity securities. 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 market capitalizations within the market capitalization range of the Russell 1000 Value 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 above average growth potential that have market capitalizations within the market capitalization range of the Russell Midcap TM Growth Index range measured at the time of purchase. 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. dollardenominated 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. 12

17 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: 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 within the market capitalization range of the Russell 2000 Value Index. 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 and equity-related securities of U.S. companies that the advisers believe to have strong capital appreciation potential. SP T. Rowe Price 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 with market capitalizations larger than the median market capitalization of companies in the Russell 1000 Growth Index. The Portfolio may invest up to 15% of its total assets in foreign securities. Prudential Investments LLC ( PI ), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the overall investment manager for the Series Fund. PI will furnish investment advisory services and administrative 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 also 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 ), an indirect, wholly-owned subsidiary of Prudential Financial, Inc., serves as the subadviser for the Diversified ond Portfolio, the High Yield ond Portfolio, and the Money Market Portfolio. PIM is located at Gateway Center Two, 100 Mulberry Street, Newark, New Jersey Quantitative Management Associates LLC ( QMA ), a 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 Allianceernstein, L.P. ("Allianceernstein") serves as a subadviser for a portion of the assets of the SP Strategic Partners Focused Growth Portfolio. Allianceernstein 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 2020 Calamos Court, Naperville, Illinois Clearridge Advisors LLC ( Clearridge ) serves as a subadviser for approximately 50% of the assets of the Equity Portfolio and serves as a subadviser for a portion of the assets of the SP Small Cap Value Portfolio. Clearridge is located at 100 Light Street, altimore, Maryland 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 Dreman Value Management LLC ( Dreman ) serves as a subadviser for approximately 30% of the assets of the SP Large Cap Value Portfolio. Dreman is located at Harborside Financial Center, Plaza 10, Suite 800, Jersey City, New Jersey 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

18 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 a subadviser for approximately 20% 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, 39 th Floor, Los Angeles, California J.P. Morgan Investment Management, Inc. ( J.P. Morgan ) serves as a 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 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 Marsico Capital Management, LLC ( Marsico ) serves as a subadviser for a portion of the assets of the SP International Growth Portfolio and serves as a subadviser for approximately 25% of the assets of the Global Portfolio. Marsico is an indirect, wholly-owned subsidiary of ank of America Corporation. Marsico is located at th Street, Suite 1600, Denver, Colorado Neuberger erman Management, Inc. ( Neuberger erman ) serves as a subadviser for approximately 50% of the assets of the SP Small Cap Growth Portfolio. Neuberger erman is a wholly owned subsidiary of Neuberger erman Inc. ( NI ), which is a wholly owned subsidiary of Lehman rothers Holdings Inc. ("LHI"). Neuberger erman 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 each, California T. Rowe Price Associates, Inc. ( T. Rowe Price ) serves as the subadviser for the SP T. Rowe Price Large Cap Growth Portfolio and serves as a subadviser for approximately 25% of the assets of the Global Portfolio. T. Rowe Price is located at 100 East Pratt Street, 10 th Floor, altimore, Maryland Thornburg Investment Management, Inc. ( Thornburg ) serves as a subadviser for a portion of the assets of the SP International Value Portfolio. Thornburg is located at 119 East Marcy Street, Santa Fe, New Mexico William lair & Company LLC ( William lair ) serves as a subadviser for a portion of the assets of the SP International Growth Portfolio and serves as a subadviser for approximately 25% of the assets of the Global Portfolio. William lair is located at 222 West Adams Street, Chicago, Illinois The SP Aggressive Growth Asset Allocation Portfolio, the SP alanced 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. M Fund, Inc.: randes International Equity Fund: The investment objective is long-term capital appreciation. The fund invests primarily in equity securities of foreign issuers, including common stocks, preferred stock and securities that are convertible into common stocks. The fund focuses on stocks with capitalizations of $1 billion or more. The fund also may invest in emerging market securities and non-dollar securities. The fund s sub-adviser is randes Investment Partners, L.P. usiness Opportunity Value Fund: The investment objective is long-term capital appreciation. The fund invests primarily in equity securities of U.S. issuers in the large-to-medium capitalization segment of the U.S. stock market. The fund may invest up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by American Depositary Receipts (ADRs). The fund s sub-adviser is Iridian Asset Management LLC. Frontier Capital Appreciation Fund: The investment objective is to seek the maximum capital appreciation. The fund invests primarily in the common stocks of U.S. companies of all sizes, with emphasis on stock companies with 14

19 capitalizations that are consistent with the capitalizations of those companies found in the Russell 2500 Stock Index. The fund may invest up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by American Depositary Receipts (ADRs). The fund s sub-adviser is Frontier Capital Management Company, LLC. Turner Core Growth Fund: The investment objective is long-term capital appreciation. The fund invests primarily in the common stocks of U.S. companies that the sub-advisor believes have strong earnings growth potential. The fund may invest up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by American Depositary Receipts (ADRs). The fund s sub-adviser is Turner Investment Partners, Inc. M Financial Investment Advisers, Inc. ( MFIA ) is the investment adviser of the M Fund, Inc. MFIA s business address is M Financial Plaza, Suite 900, 1125 NW Couch Street, Suite 900, Portland, Oregon 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 oard 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. Service Fees Payable to Pruco Life Pruco Life has entered into agreements with the investment adviser or distributor of the underlying funds. Under the terms of these agreements, Pruco Life provides administrative and support services to the portfolios for which it receives an annual fee that, as of May 1, 2007, ranges from zero to 0.05% 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. 15

20 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's general account. The general account consists of all assets owned by Pruco Life other than those in the Account and in other separate accounts that have been or may be established by Pruco Life. Subject to applicable law, Pruco Life has sole discretion over the investment of the general account assets, and Contract owners do not share in the investment experience of those assets. Instead, Pruco Life guarantees that the part of the Contract Fund allocated to the fixed rate option will accrue interest daily at an effective annual rate that Pruco Life declares periodically, but not less than an effective annual rate of 3%. Pruco Life is not obligated to credit interest at a rate higher than an effective annual rate of 3%, 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. ecause 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 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 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. Premium based administrative charges 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 12% 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 9.75% of premiums paid up to the amount of the Sales Load Target Premium and 4% 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 3% thereafter. The Sales Load Target Premium may vary from the Limited No-Lapse Guarantee Premium, depending on the issue age and rating class of the insured, any extra risk charges, or additional riders. See PREMIUMS. 16

21 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 Limited No-Lapse Guarantee if the accumulated premium payments do not reach the Limited No- Lapse Guarantee Values shown on your Contract Data pages. See Limited No-Lapse 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 enefits. Premium ased Administrative Charge We may charge up to 7.5% for a premium based administrative charge, which 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% (but may exceed 5% in some instances). 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. 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 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/nonsmoker 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 $0.08 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 asic 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 all years. Currently, the second part is an amount of up to $2.20 per $1,000 of the basic insurance amount for the first eight Contract years and zero thereafter. The 17

22 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 $2.20 per $1,000 of each coverage segment for an increase in basic insurance amount for the first eight 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 $1,000 is $2.20 in all years and applies to male age 75. The lowest charge per thousand is $0.08 and applies to female age 18, nonsmoker 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 Nonsmoker Smoker Nonsmoker Smoker 35 $0.26 $0.30 $0.21 $ $0.44 $0.53 $0.36 $ $0.78 $0.95 $0.62 $ $1.43 $1.76 $1.11 $1.22 (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. (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. Currently, no charge is being made to the Account for Pruco Life s federal income taxes, other than the 1.25% charge for federal income taxes measured by premiums. See Premium ased Administrative Charge. We periodically review the question of a charge to the Account for Pruco Life 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%. 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 eight Contract years (or during the first eight 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. The maximum first year percentage is 15% of the Sales Load Target Premium, less premiums for riders, and is reduced to zero by the end of the 8th 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. 18

23 Issue Age Percentag e at start of years 1-3 Percentages for Determining Surrender Charges Percentag e at start of year 4 Percentag e at start of year 5 Percentag e at start of year 6 19 Percentag e at start of year 7 Percentag e at start of year 8 Percentag e at start of year % 13% 10% 8% 5% 2% 0% % 13% 10% 8% 5% 2% 0% % 12% 10% 8% 5% 2% 0% 75 and above 12% 12% 10% 8% 5% 2% 0% 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 eight Contract years (or during the first eight 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. If we are processing a full surrender of your Contract, and your Contract includes the Enhanced Cash Value rider and is not in default, we will determine an Additional Amount by multiplying the total surrender charge by a factor. We will add that Additional Amount to the cash surrender value. This Additional Amount is not payable when your Contract is surrendered in connection with a 1035 Exchange. The Additional Amount is available in states where it is approved. 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 enefit 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 eginning 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.

24 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 enefit 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, the first Contract anniversary on or after the primary insured s 75 th birthday, or you notify us to discontinue the rider coverage. Enhanced Cash Value Rider - We deduct a one time charge from the first monthly deduction on the Contract for this rider, which provides an Additional Amount upon full surrender of the Contract for its surrender value. The current charge is $0.01 per $1,000 of basic insurance amount. Enhanced Disability enefit 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. It ranges from 6.9% to 10% of the greater of: 9% of the Contract s Limited No-Lapse Guarantee 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 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 $0.02 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 enefit 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. eneficiary 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. 20

25 OTHER GENERAL CONTRACT PROVISIONS Assignment 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. 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 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 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. 21

26 $500,000 asic Insurance Amount and $500,000 Target Term Rider Type A Death enefit $1,500,000 $1,200,000 $900,000 $600,000 Rider Death enefit $300,000 ase Contract Death enefit $ Policy Year You should consider the following factors when purchasing a Contract with a Target Term Rider: 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, it is possible for maximum monthly administrative charges for a Contract with a Target Term Rider to be greater than an all base Contract. Other factors to consider are: The Accidental Death enefit, 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 enefit allowed under your Contract, you may want to purchase a Contract without a Target Term Rider. The Enhanced Disability enefit, as described below, is unavailable on Contracts with a Target Term Rider. If it is important to you to have the Enhanced Disability enefit, you may want to purchase a Contract without a Target Term Rider. The Living Needs enefit, 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 enefit 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 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 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 representative to provide illustrations based on different combinations of basic insurance amount and rider coverage amount. You and your Pruco Life representative can then discuss how these combinations may address your objectives. 22

27 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 representative can explain all of these extra benefits further. We will provide samples of the provisions upon receiving a written request. Accidental Death enefit Rider - The Accidental Death enefit 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 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 Cash Value Rider - The Enhanced Cash Value Rider provides an Additional Amount upon full surrender of the Contract for its surrender value, but is not payable when the Contract is surrendered in connection with a 1035 exchange. This rider can only be elected at the time the Contract is issued, and can not be removed after the Contract is issued. Enhanced Disability enefit Rider - The Enhanced Disability enefit 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 enefit Rider - The Living Needs enefit SM Rider is available on your Contract in states where it is approved. 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 enefit is paid. The Living Needs enefit 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 enefit 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 representative should be consulted as to whether additional options may be available. The Terminal Illness Option is available on the Living Needs enefit 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 enefit. 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 enefit claim form in a single sum. The Nursing Home Option is available on the Living Needs enefit 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 enefit. 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 enefit 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 enefit. 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 enefit that is available to an eligible Contract owner, and the effect on the Contract if less than the entire death benefit is accelerated. 23

28 You should consider whether adding this settlement option is appropriate in your given situation. Adding the Living Needs enefit to the Contract has no adverse consequences; however, electing to use it could. With the exception of certain business-related Contracts, the Living Needs enefit 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 enefit 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 age 18 through age 90 for death benefit Types A and, through age 85 for death benefit Type C. Currently, for issue age 18 through age 80 the minimum basic insurance amount for Contracts without a Target Term Rider is $100,000 for death benefit Type A and, and $250,000 for death benefit Type C. For issue age 81 through age 90 the minimum basic insurance amount is $250,000. See Types of Death enefit. 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, for death benefit Type A and, and $250,000 for death benefit Type C, 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. We require evidence of insurability, which may include a medical examination, before issuing any Contract. Preferred est nonsmokers 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 Short-Term No- Lapse Guarantee Premium, including all extras, riders, and Enhanced Disability enefit premium. 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 enefits. 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. Two 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 No-Lapse Guarantee Premiums are premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force during the first 10 Contract years, regardless of investment performance and assuming no loans or withdrawals. If you choose to continue the Limited No-Lapse Guarantee beyond this period, you will have to begin paying premiums higher than the Short-Term No-Lapse Guarantee Premium. However, not all Contracts offer the Limited No-Lapse Guarantee beyond 10 Contract years. 24

29 Limited No-Lapse Guarantee Premiums are premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force until the insured's age 80, or if later, during the first 10 Contract years, regardless of investment performance and assuming no loans or withdrawals. However, not all Contracts offer the Limited No- Lapse Guarantee for this period. The length of the Limited No-Lapse Guarantee depends on your Contract s death benefit type. See Limited No-Lapse Guarantee. When you purchase a Contract, your Pruco Life representative can tell you the Limited No-Lapse Guarantee and Short-Term No-Lapse Guarantee Premium amounts. Contracts with no riders or extra risk charges will have level premiums. We can bill you for the amount you select annually, semi-annually, or quarterly. ecause 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 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 Limited No-Lapse 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 pre-authorized 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 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 premium based administrative charge 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 10 day period following your receipt of the Contract will be allocated to the Money Market investment option. After the tenth day, 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 on the tenth day following receipt of the Contract 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 premium based administrative charge 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. 25

30 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 10 days after you receive the Contract. 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. 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 in a uniform manner 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. The Funds have adopted their own policies and procedures with respect to excessive trading of their respective shares, and we reserve the right to enforce these policies and procedures. The prospectuses for the Funds describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Under SEC rules, we are required to: (1) enter into a written agreement with each portfolio or its principal underwriter that obligates us to provide to the Fund promptly upon request certain information about the trading activity of individual Contract owners, and (2) execute instructions from the Fund to restrict or prohibit further purchases or transfers by specific Contract owners who violate the excessive trading policies established by the Fund. In addition, 26

31 you should be aware that some Funds may receive omnibus purchase and redemption orders from other insurance companies or intermediaries such as retirement plans. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and/or individual retirement plan participants. The omnibus nature of these orders may limit the Funds in their ability to apply their excessive trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the Funds (and thus Contract owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the Funds. A Fund also may assess a short term trading fee in connection with a transfer out of the variable investment option investing in that Fund that occurs within a certain number of days following the date of allocation to the variable investment option. Each Fund determines the amount of the short term trading fee and when the fee is imposed. The fee is retained by or paid to the Fund and is not retained by us. The fee will be deducted from your Contract Value to the extent allowed by law. At present, no Fund has adopted a short-term trading fee. 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 Monthly date after 10 days following your receipt of the Contract. 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. 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 Monthly date after 10 days following your receipt of the Contract. 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 ENEFITS 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. 27

32 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 representative authorized to sell this Contract can explain this option upon request. Types of Death enefit 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. A Contract with a Type (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 (variable) Contract may be less than the increase in cash surrender value for a Type A (fixed) Contract because a Type 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 less withdrawals, both accumulated at an interest rate (between 0% and 8%; in ½% increments) chosen by the Contract owner to the date of death. The death benefit on a Type C Contract is limited to the basic insurance amount plus an amount equal to the: Type C Limiting Amount multiplied by the Type C Death enefit Factor plus the Contract Fund. See the Contract Limitations section of your Contract. Within limits, this death benefit type allows the beneficiary, in effect, to recover the cost of the Contract, plus a predetermined rate of return, 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 (variable) Contract depending on earnings, the Type C interest rate you chose, 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 28

33 minimum basic insurance amount. For Type (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 enefit 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 (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 (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 C (return of premium) to a Type A (fixed) death benefit, we will change the basic insurance amount by adding the lesser of (a) the total premiums paid minus total withdrawals to this Contract, both accumulated with interest at the rate(s) displayed in your Contract Data pages and (b) the Contract Fund before deduction of any monthly charge due on that date plus the product of the Type C Limiting Amount multiplied by the Type C Death enefit Factor. The Type C Limiting Amount and the Type C Death enefit Factor are both found in the Contract Limitations section of your Contract Data pages. If you are changing from a Type C (return of premium) to a Type (variable) death benefit, we first find the difference between: (1) the Contract Fund and (2) the lesser of (a) the total premiums paid minus total withdrawals to this Contract both accumulated with interest at the rate(s) displayed in your Contract Data pages and (b) the Contract Fund before deduction of any monthly charge due on that date plus the product of the Type C Limiting Amount multiplied by the Type C Death enefit Factor. The Type C Limiting Amount and the Type C Death enefit Factor are both found in the Contract Limitations section of your Contract Data pages. 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. You may change your Contract s death benefit type after issue, however, if you choose a Type A or Type death benefit at issue, you will not be able to change to a Type C death benefit thereafter. If you change a Type C death benefit to a Type A or Type death benefit after issue, you will not be able to change back to a Type C death benefit. 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 from a Type C death benefit, the chart assumes $40,000 in total premiums minus total withdrawals and the rate chosen to accumulate premiums is 0%. asic Insurance Amount FROM Type A Type TO Type C $300,000 $250,000 N/A Type Type A Type C $250,000 $300,000 N/A Type C Type A Type $260,000 $300,000 $250,000 To request a change, fill out an application for change, which can be obtained from your Pruco Life 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 29

34 Modified Endowment Contract, which could be significantly disadvantageous. See Tax Treatment of Contract enefits. Limited No-Lapse 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 Limited No-Lapse Guarantee. See Withdrawals and Loans. At the Contract date and on each Monthly date, during the Limited No-Lapse 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 Limited No-Lapse Guarantee Values. These are values used solely to determine if a Limited No- Lapse 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 Limited No-Lapse 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 Limited No-Lapse Guarantee Value during the Limited No-Lapse Guarantee period shown on your Contract Data pages. If your Accumulated Net Payments equal or exceed the Limited No-Lapse 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. Short-Term No-Lapse Guarantee Premiums, and Limited No-Lapse Guarantee Premiums are payments that correspond to the Limited No-Lapse Guarantee Values shown on your Contract Data pages. For example, payment of the Short-Term No-Lapse Guarantee Premium at the beginning of each Contract year guarantees that your Contract will not lapse during the first 10 Contract years, assuming no loans or withdrawals. However, continued payment of the Short-Term No-Lapse Guarantee Premium after year 10 will not assure that your Contract's Accumulated Net Payments will continue to meet the Limited No-Lapse Guarantee Values and prevent the Contract from lapsing. See PREMIUMS. If you want a Limited No-Lapse Guarantee to last longer than 10 years, you should expect to pay at least the Limited No-Lapse Guarantee Premium at the start of each Contract year. Paying the Limited No-Lapse Guarantee Premium at the beginning of each Contract year guarantees your Contract against lapse until the insured's age 80 or for 10 years after issue, whichever comes later, assuming no loans or withdrawals. The following table provides sample Short-Term No-Lapse Guarantee Premiums and Limited No-Lapse Guarantee Premiums (to the nearest dollar) for basic insurance amounts. The examples assume: (1) the insured is a male, Preferred est, 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. 30

35 Age of insured at issue Illustrative Annual Premiums Type of Death enefit Chosen Short-Term No-Lapse Guarantee Premium Limited No-Lapse Guarantee Premium 40 Type A (Fixed) $1, $3, Type (Variable) $1, $4, Type C (Return of Premium) $1, N/A 60 Type A (Fixed) $4, $8, Type (Variable) $5, $10, Type C (Return of Premium) $8, N/A 80 Type A (Fixed) $20, $20, Type (Variable) $22, $22, Type C (Return of Premium) $100, N/A Paying the Short-Term No-Lapse Guarantee Premiums or Limited No-Lapse Guarantee Premiums at the start of each Contract year is one way of reaching the Limited No-Lapse Guarantee Values; it is certainly not the only way. The Limited No-Lapse Guarantee allows considerable flexibility as to the timing of premium payments. Your Pruco Life representative can supply sample illustrations of various premium amount and frequency combinations that correspond to the Limited No-Lapse Guarantee Values. When determining what premium amounts to pay and the frequency of your payments, you should consider carefully the value of maintaining the Limited No-Lapse Guarantee. If you desire the Limited No-Lapse Guarantee until the later of the insured's age 80 or 10 years after issue, you may prefer to pay at least the Limited No-Lapse Guarantee Premium in all years, rather than paying the lower Short-Term No-Lapse Guarantee Premium in the first 10 years. If you pay only the Short-Term No-Lapse Guarantee Premium in the first 10 years, you will need to pay more than the Limited No-Lapse Guarantee Premium at the beginning of the 11th year in order to continue the Limited No-Lapse Guarantee. Not all Contracts will have the Limited No-Lapse Guarantee available until the later of the insured's age 80 or 10 years after issue. Type C Contracts will have a Limited No-Lapse Guarantee for only 10 Contract years. Your Contract Data pages will show Limited No-Lapse Guarantee Values for the duration available with your Contract. See Types of Death enefit and Tax Treatment of Contract enefits. Increases in asic 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. Contracts with the 31

36 Enhanced Cash Value rider will not be charged again for this feature when there is an increase in basic insurance amount. 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. The current sales load charge for each segment is equal to 9.75% of the allocated premium paid in each Contract year up to the Sales Load Target Premium and 4% of allocated premiums paid in excess of this amount for the first 10 Contract years; 3% 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 asic 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. 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 enefits. Therefore, before increasing the basic insurance amount, you should consult with your tax adviser and your Pruco Life representative. Decreases in asic 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; (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 enefits. 32

37 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 enefits. You should consult with your tax adviser and your Pruco Life 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 enefits. Additional requirements exist if you are exchanging your Contract for a new one at another insurance company. We specifically require 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. If you surrender the Contract while it is in-force, you may be eligible to receive an Additional Amount upon full surrender of the Contract for its cash surrender value. The Additional Amount will be equal to the surrender charge as of the date of surrender multiplied by an Additional Amount Factor. Currently this factor is 1.0. However, we may reduce the factor to zero. To be eligible for the Additional Amount, the following conditions must be met: (1) the Contract must not be in default; (2) you must ask for the surrender in a signed written request; (3) the surrender must not be the subject of an exchange pursuant to Section 1035 of the United States Internal Revenue Code; (4) you must have purchased The Rider for Payment of An Additional Amount Upon Surrender. The Additional Amount will not be available for Contracts that are in default at the end of the grace period and the premium required to bring the Contract out of default has not been paid. 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 plus any Additional Amount upon surrender. 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 T4 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 four of the tables assume maximum charges will be used throughout the lifetime of the insured. See ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH ENEFITS, AND ACCUMULATED PREMIUMS. 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) 99% of the portion of 33

38 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. The minimum loan amount you may borrow is generally $500, but may be lower in some states. 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 4% 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 3.10%. 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 3%. 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 Limited No-Lapse 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 enefits - 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 enefits. 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. Loan repayments are applied to reduce the total outstanding Contract debt, which is equal to the principal plus accrued interest. Interest accrues daily on the total outstanding Contract debt, and making a loan repayment will reduce the amount of interest accruing. Loan repayments will be applied towards the loan according to when they are received. Loan interest is due 21 days prior to your Contract anniversary. If we receive your loan repayment within 21 days prior to your Contract anniversary, we will apply the repayment towards interest due on a standard loan first, then towards the interest due on a preferred 34

39 loan, if applicable. Any loan repayment amount exceeding the interest due is applied towards the existing principal amount of a standard loan first, then towards the principal amount of a preferred loan, if applicable. If we receive your loan repayment at any time outside of 21 days prior to your Contract anniversary, we will apply the repayment towards the principal amount of a standard loan first, then to the principal amount of a preferred loan, if applicable. We will apply the remainder of the loan repayment towards the interest due on a standard loan, then towards the interest due on a preferred loan, if applicable. 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 apply the loan repayment to the investment allocation used for future premium payments as of the loan repayment 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. 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 enefits. Whenever a withdrawal is made, the death benefit will immediately be reduced by at least the amount of the withdrawal. Withdrawals under Type (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. efore making any withdrawal that causes a decrease in basic insurance amount, you should consult with your tax adviser and your Pruco Life representative. See Tax Treatment of Contract enefits. 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 Limited No-Lapse Guarantee, since withdrawals decrease your Accumulated Net Payments. See Limited No-Lapse 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. 35

40 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 Limited No-Lapse Guarantee, assuming there are no outstanding loans. See Limited No-Lapse 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 enefits. 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 enefits 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: 36

41 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. 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 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. 37

42 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, to be considered the owner of the underlying assets. ecause 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. 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. usiness-owned Life Insurance. If a business, rather than an individual, is the owner of the Contract, there are some additional rules. usiness Contract owners generally cannot deduct premium payments. usiness 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. For business-owned life insurance coverage issued after August 17, 2006, death benefits will generally be taxable as ordinary income to the extent it exceeds cost basis. Life insurance death benefits will continue to be generally income tax free if, prior to policy issuance, the employer provided a prescribed notice to the proposed insured/employee, obtained the employee's consent to the life insurance, and one of the following requirements is met: (a) the insured was an employee at any time during the 12-month period prior to his or her death; (b) the insured was a director or highly compensated employee or individual (as defined in the Code) at the time the policy was issued; or (c) the death benefits are paid to the insured's heirs or his or her designated beneficiaries (other than the employer), either directly as a death benefit or received from the purchase of an equity (or capital or profits) interest in the applicable policyholder. Annual reporting and record keeping requirements will apply to employers maintaining such businessowned life insurance. DISTRIUTION 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 road Street, Newark, New Jersey Prusec serves as principal underwriter of the variable insurance Contracts issued by Pruco Life. The Contract is sold through broker-dealers authorized by Prusec and applicable law to do so, and may also be sold by registered representatives of Prusec. Prusec received gross distribution revenue for its variable life insurance products of $91,615,140 in 2006, $95,241,637 in 2005, and $114,496,331 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 $11,528,129 in 2006, $15,018,502 in 2005, and $10,572,253 in Prusec offers the Contract on a continuous basis. 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. The amount of compensation we pay varies, depending upon, among other factors, the product type and the features and/or riders that are attached to the Contract. Compensation paid in respect of this product may exceed compensation payable in respect to comparable products or carriers. Moreover, certain Contract features or 38

43 riders may involve commissions or compensation that differ from compensation payable in respect of base or standard contractual features. 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 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. roker-dealers will receive compensation of up to 145.8% of premiums received in the first 24 months following the Contract Date on total premiums received since issue up to the Commissionable Target Premium, 12.9% on premiums received in year two in excess of the first year's Commissionable Target Premium up to the second year's Commissionable Target Premium, 12.9% on premiums received in years three through 10, and 3.5% on premiums received in years 11 and beyond up to the Commissionable Target Premium in each Contract year. Moreover, brokerdealers will receive compensation of up to 5.5% on premiums received in any of the first 10 years, and 3.5% on premiums received in years 11 and beyond to the extent that premiums in that year exceed the Commissionable Target Premium. roker-dealers will also receive compensation in years four through 10 of up to 0.23% of the Contract Fund net of Contract debt, and 0.11% in years 11 and beyond. If the basic insurance amount is increased, broker-dealers will receive compensation of up to 145.8% 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, 12.9% of premiums received in years two through 10, and 3.5% on premiums received in years 11 and beyond, up to the Commissionable Target Premium for the increase. Moreover, broker-dealers will receive compensation of up to 5.5% on premiums received in any of the first 10 years, and 3.5% on premiums received in years 11 and beyond following the effective date of the increase to the extent that premiums in that year exceed the Commissionable Target Premium. Agents who sell this Contract are members of firms that in turn are stockholders of M Financial Group. As a stockholder, the agent s firm (a Member Firm ) shares in the profits of M Financial Group via periodic stock dividends. M Financial Group also maintains an incentive compensation plan, to which it annually distributes to Member Firms or their agents, most of M Financial Group s consolidated net profits. Generally, distributions under the plan are averaged among the various Member Firms, lines of business, and cost centers of M Financial Group. However, a significant portion of the plan distributions are made in proportion to the revenue that a Member Firm generates. Distributions of dividends and incentive compensation by M Financial Group to Member Firms, or their selling agents, are in addition to compensation paid by Prusec to authorized broker-dealers. Many Member Firms remit these distributions to their owners or individual agents, and in some cases, in proportion to the amount of business they generate. Override commissions received by M Financial Group could indirectly provide incentives to agents to recommend this product over similar products or services that do not produce override commissions paid to M Financial Group. Potential reinsurance profits received by M Financial Group could also indirectly provide incentives to agents to recommend this product over similar products or services that do not result in reinsurance profits for M Financial Group. 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 selling agents), 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 selling agents 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. 39

44 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, selling agents, 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. M Financial Group or its subsidiaries receive fees payable in respect of underlying investment options from some of the Funds that are investment options under this Contract, or from a Fund s investment adviser or portfolio manager, to the extent you allocate cash value to that Fund. In addition, M Financial Investment Advisers, Inc., an affiliate of M Financial Group, is the investment adviser to certain of the Funds and receives investment advisory fees with respect to assets invested in those Funds. Fees payable to M Financial Group in respect of assets allocated to one Fund may exceed fees payable in respect of assets placed in another Fund. 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, broker-dealer, or an affiliate authorized to sell this Contract, can provide you with more information about the compensation arrangements that apply upon the sale of the Contract. LEGAL PROCEEDINGS Pruco Life s litigation and regulatory matters are subject to legal and regulatory actions in the ordinary course of its businesses, which may include class action lawsuits. Pending legal and regulatory actions include proceedings relating to aspects of the businesses and operations that are specific to Pruco Life and that are typical of the businesses in which Pruco Life operates. Class action and individual lawsuits may involve a variety of issues and/or allegations, which include sales practices, underwriting practices, claims payment and procedures, premium charges, policy servicing and breach of fiduciary duties to customers. Pruco Life may also be subject to litigation arising out of its general business activities, such as its investments and third party contracts. In certain of these matters, the plaintiffs may seek large and/or indeterminate amounts, including punitive or exemplary damages. Stewart v. Prudential, et al. is a lawsuit brought in the Circuit Court of the First Judicial District of Hinds County, Mississippi by the beneficiaries of an alleged life insurance policy against Pruco Life and Prudential. The complaint alleges that the Prudential defendants acted in bad faith when they failed to pay a death benefit on an alleged contract of insurance that was never delivered. In February 2006, the jury awarded the plaintiffs $1.4 million in compensatory damages and $35 million in punitive damages. Motions for a new trial, judgment notwithstanding the verdict and remittitur, were denied in June Pruco Life s appeal with the Mississippi Supreme Court is pending. Pruco Life 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 Pruco Life in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of litigation and regulatory matters, depending, in part, upon the results of operations or cash flow for such period. Management believes, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on Pruco Life s financial position. ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH ENEFITS, AND ACCUMULATED PREMIUMS The following tables (pages T1 through T4) 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 four tables assume the following: a Contract bought by a 45 year old male, Non-Smoker Plus, with no extra risks or substandard ratings, and no extra benefit riders added to the Contract. 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 28 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 $1,000,000 basic insurance amount, and (3) a Cash Value Accumulation Test has been elected for definition of life insurance testing. 40

45 The second table (page T2) assumes: (1) a Type A (fixed) Contract has been purchased, (2) a $500,000 basic insurance amount and a $500,000 Target Term Rider has been added to the Contract, and (3) a Cash Value Accumulation Test has been elected for definition of life insurance testing. The third table (page T3) assumes: (1) a Type A (fixed) Contract has been purchased, (2) a $1,000,000 basic insurance amount, and (3) a Guideline Premium Test has been elected for definition of life insurance testing. The fourth table (page T4) assumes: (1) a Type (variable) Contract has been purchased, (2) a $1,000,000 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 28 portfolios of 0.82%, 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 -1.27%, 4.73% and 10.73%, respectively. The actual fees and expenses of the portfolios associated with a particular Contract may be more or less than 0.82% 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 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 45 year old man using maximum charges, may be useful for a 45 year old man, but would be inaccurate if made for insureds of other issue ages, sex, or rating class. Your Pruco Life representative can provide you with a hypothetical illustration using current charges for your own issue age, sex, and rating class. 41

46 End of Policy Year Premiums Accumulated at 4% Interest Per Year MPREMIER VUL CASH VALUE ACCUMULATION TEST TYPE A (FIXED) DEATH ENEFIT MALE NON-SMOKER PLUS ISSUE AGE 45 $1,000,000 ASIC INSURANCE AMOUNT ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS USING MAXIMUM CHARGES Death enefit (1) 0% Gross (-1.27% Net) 6% Gross (4.73% Net) ILLUSTRATIONS Assuming Hypothetical Gross (and Net) Annual Investment Return of 12% Gross (10.73% Net) 0% Gross (-1.27% Net) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 6% Gross (4.73% Net) 12% Gross (10.73% Net) 1 $56,919 $1,000,000 $1,000,000 $1,000,000 $32,213 $34,575 $36,942 2 $116,115 $1,000,000 $1,000,000 $1,000,000 $66,366 $73,295 $80,519 3 $177,679 $1,000,000 $1,000,000 $1,000,000 $99,946 $113,727 $128,675 4 $241,705 $1,000,000 $1,000,000 $1,000,000 $133,288 $156,293 $182,264 5 $308,293 $1,000,000 $1,000,000 $1,000,000 $166,226 $200,925 $241,702 6 $377,544 $1,000,000 $1,000,000 $1,000,000 $198,413 $247,377 $307,299 7 $449,565 $1,000,000 $1,000,000 $1,000,000 $230,169 $296,088 $380,123 8 $467,547 $1,000,000 $1,000,000 $1,001,373 $217,543 $300,573 $411,752 9 $486,249 $1,000,000 $1,000,000 $1,048,825 $204,351 $304,662 $446, $505,699 $1,000,000 $1,000,000 $1,102,882 $190,355 $308,127 $483, $615,260 $1,000,000 $1,000,000 $1,440,916 $110,474 $318,773 $727, $748,558 $1,000,000 $1,000,000 $1,900,632 $1,557 $307,811 $1,098, $910,735 $1,000,000 $1,000,000 $2,540,757 $0 $247,291 $1,649, $1,108,049 $1,000,000 $1,000,000 $3,411,708 $0 $70,302 $2,454, $1,348,111 $1,000,000 $1,000,000 $4,604,517 $0 $0 $3,597, $1,640,183 $0 (2) $0 (2) $6,255,240 $0 (2) $0 (2) $5,212, $1,995,533 $0 $0 $8,537,166 $0 $0 $7,488, $2,427,871 $0 $0 $11,776,444 $0 $0 $10,804, $2,953,877 $0 $0 $16,373,199 $0 $0 $16,052,156 (1) Assumes no Contract loan has been made. (2) ased on a gross return of 0%, the contract would go into default in policy year 36, unless an additional premium payment was made. ased on a gross return of 6%, the contract would go into default in policy year 36, 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 or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T1

47 End of Policy Year MPREMIER VUL CASH VALUE ACCUMULATION TEST TYPE A (FIXED) DEATH ENEFIT MALE NON-SMOKER PLUS ISSUE AGE 45 $1,000,000 TARGET COVERAGE AMOUNT($500,000 ASIC INSURANCE AMOUNT, $500,000 SUPPLEMENTAL INSURANCE AMOUNT) ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS USING MAXIMUM CHARGES Death enefit (1) Cash Surrender Value (1) Premiums Accumulated at 4% Interest Per Year Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.27% Net) 6% Gross (4.73% Net) 12% Gross (10.73% Net) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.27% Net) 6% Gross (4.73% Net) 12% Gross (10.73% Net) 1 $56,919 $1,000,000 $1,000,000 $1,000,000 $33,403 $35,763 $38,128 2 $116,115 $1,000,000 $1,000,000 $1,000,000 $67,498 $74,419 $81,635 3 $177,679 $1,000,000 $1,000,000 $1,000,000 $101,020 $114,783 $129,714 4 $241,705 $1,000,000 $1,000,000 $1,000,000 $134,138 $157,113 $183,051 5 $308,293 $1,000,000 $1,000,000 $1,000,000 $166,770 $201,420 $242,142 6 $377,544 $1,000,000 $1,000,000 $1,000,000 $198,733 $247,628 $307,466 7 $449,565 $1,000,000 $1,000,000 $1,000,000 $230,184 $296,007 $379,922 8 $467,547 $1,000,000 $1,000,000 $1,000,000 $217,253 $300,155 $411,168 9 $486,249 $1,000,000 $1,000,000 $1,046,727 $203,839 $303,985 $445, $505,699 $1,000,000 $1,000,000 $1,100,500 $189,786 $307,353 $482, $615,260 $1,000,000 $1,000,000 $1,436,869 $109,627 $317,413 $725, $748,558 $1,000,000 $1,000,000 $1,894,438 $408 $305,618 $1,095, $910,735 $1,000,000 $1,000,000 $2,531,691 $0 $243,794 $1,643, $1,108,049 $1,000,000 $1,000,000 $3,398,809 $0 $64,449 $2,445, $1,348,111 $1,000,000 $1,000,000 $4,586,432 $0 $0 $3,583, $1,640,183 $0 (2) $0 (2) $6,230,032 $0 (2) $0 (2) $5,191, $1,995,533 $0 $0 $8,502,151 $0 $0 $7,458, $2,427,871 $0 $0 $11,727,553 $0 $0 $10,759, $2,953,877 $0 $0 $16,304,670 $0 $0 $15,984,971 (1) Assumes no Contract loan has been made. (2) ased on a gross return of 0%, the contract would go into default in policy year 36, unless an additional premium payment was made. ased on a gross return of 6%, the contract would go into default in policy year 36, 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 or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T2

48 End of Policy Year Premiums Accumulated at 4% Interest Per Year MPREMIER VUL GUIDELINE PREMIUM TEST TYPE A (FIXED) DEATH ENEFIT MALE NON-SMOKER PLUS ISSUE AGE 45 $1,000,000 ASIC INSURANCE AMOUNT ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3) USING MAXIMUM CHARGES Death enefit (1) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.27% Net) 6% Gross (4.73% Net) 12% Gross (10.73% Net) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.27% Net) 6% Gross (4.73% Net) 12% Gross (10.73% Net) 1 $56,919 $1,000,000 $1,000,000 $1,000,000 $32,213 $34,575 $36,942 2 $116,115 $1,000,000 $1,000,000 $1,000,000 $66,366 $73,295 $80,519 3 $177,679 $1,000,000 $1,000,000 $1,000,000 $99,946 $113,727 $128,675 4 $241,705 $1,000,000 $1,000,000 $1,000,000 $133,288 $156,293 $182,264 5 $293,281 $1,000,000 $1,000,000 $1,000,000 $154,700 $188,698 $228,774 6 $305,012 $1,000,000 $1,000,000 $1,000,000 $143,253 $188,128 $243,875 7 $317,213 $1,000,000 $1,000,000 $1,000,000 $131,661 $187,287 $260,440 8 $329,901 $1,000,000 $1,000,000 $1,000,000 $119,688 $185,924 $278,411 9 $343,097 $1,000,000 $1,000,000 $1,000,000 $107,084 $183,775 $297, $356,821 $1,000,000 $1,000,000 $1,000,000 $93,604 $180,576 $318, $434,128 $1,000,000 $1,000,000 $1,000,000 $15,041 $149,791 $453, $528,183 $1,000,000 $1,000,000 $1,000,000 $0 $76,642 $672, $642,615 $0 (2) $0 (2) $1,215,158 $0 (2) $0 (2) $1,047, $781,839 $0 $0 $1,784,406 $0 $0 $1,667, $951,227 $0 $0 $2,825,770 $0 $0 $2,691, $1,157,313 $0 $0 $4,535,804 $0 $0 $4,319, $1,408,049 $0 $0 $7,192,184 $0 $0 $6,849, $1,713,106 $0 $0 $11,092,151 $0 $0 $10,982, $2,084,256 $0 $0 $18,245,733 $0 $0 $18,245,733 (1) Assumes no Contract loan has been made. (2) ased on a gross return of 0%, the contract would go into default in policy year 21, unless an additional premium payment was made. ased on a gross return of 6%, the contract would go into default in policy year 23, unless an additional premium payment was made. (3) The Guideline Premium Test limits the premium payable in policy year 5 to $40,296, and zero in years 6 and 7. 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 or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T3

49 End of Policy Year Premiums Accumulated at 4% Interest Per Year MPREMIER VUL CASH VALUE ACCUMULATION TEST TYPE (VARIALE) DEATH ENEFIT MALE NON-SMOKER PLUS ISSUE AGE 45 $1,000,000 ASIC INSURANCE AMOUNT ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS USING MAXIMUM CHARGES Death enefit (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 0% Gross (-1.27% Net) 6% Gross (4.73% Net) 12% Gross (10.73% Net) 0% Gross (-1.27% Net) Cash Surrender Value (1) Assuming Hypothetical Gross (and Net) Annual Investment Return of 6% Gross (4.73% Net) 12% Gross (10.73% Net) 1 $56,919 $1,034,599 $1,036,952 $1,039,311 $32,079 $34,432 $36,791 2 $116,115 $1,068,481 $1,075,367 $1,082,546 $65,961 $72,847 $80,026 3 $177,679 $1,101,636 $1,115,292 $1,130,103 $99,116 $112,772 $127,583 4 $241,705 $1,134,044 $1,156,768 $1,182,416 $131,860 $154,584 $180,232 5 $308,293 $1,165,684 $1,199,838 $1,239,964 $164,004 $198,158 $238,284 6 $377,544 $1,196,516 $1,244,527 $1,303,255 $195,172 $243,183 $301,911 7 $449,565 $1,226,492 $1,290,851 $1,372,843 $225,652 $290,011 $372,003 8 $467,547 $1,212,054 $1,292,671 $1,400,544 $211,718 $292,335 $400,208 9 $486,249 $1,197,186 $1,293,944 $1,430,565 $197,186 $293,944 $430, $505,699 $1,181,822 $1,294,572 $1,463,080 $181,822 $294,572 $463, $615,260 $1,095,239 $1,284,107 $1,670,457 $95,239 $284,107 $670, $748,558 $1,000,000 $1,235,209 $1,974,799 $0 $235,209 $974, $910,735 $0 (2) $1,112,739 $2,411,701 $0 (2) $112,739 $1,411, $1,108,049 $0 $0 (2) $3,024,003 $0 $0 (2) $2,024, $1,348,111 $0 $0 $3,853,247 $0 $0 $2,853, $1,640,183 $0 $0 $4,957,557 $0 $0 $3,957, $1,995,533 $0 $0 $6,385,827 $0 $0 $5,385, $2,427,871 $0 $0 $8,254,459 $0 $0 $7,254, $2,953,877 $0 $0 $9,330,950 $0 $0 $8,330,950 (1) Assumes no Contract loan has been made. (2) ased on a gross return of 0%, the contract would go into default in policy year 21, unless an additional premium payment was made. ased on a gross return of 6%, the contract would go into default in policy year 28, 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 or the Funds that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. T4

50 ADDITIONAL INFORMATION Pruco Life 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. 42

51 DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS Additional Amount - An amount equal to the Contract s surrender charge multiplied by an Additional Amount Factor, which may be payable if you surrender the Contract while it is in-force and the conditions described in Surrender of a Contract, are met. 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 plus any Additional Amount upon surrender. 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. 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 3%. 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. Limited No-Lapse 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 Limited No- Lapse Guarantee. Limited No-Lapse Guarantee Premiums - Premiums that, if paid at the beginning of each Contract year, will keep a Type A or Type Contract in-force until the insured s age 80, or if later, during the first 10 Contract years, 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 - Pruco Life, 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 Variable Universal Account (the "Account"). The separate account is set apart from all of the general assets of Pruco Life Insurance Company. Short-Term No-Lapse Guarantee Premiums - Premiums that, if paid at the beginning of each Contract year, will keep the Contract in-force 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. 43

52 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. 44

53 To Learn More About MPremier SM VUL To learn more about the MPremier SM VUL variable universal life Contract, you can request a copy of the Statement of Additional Information ( SAI ), dated May 1, 2007, or view it online at See the Table of Contents of the SAI below. TALE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Page GENERAL INFORMATION AND HISTORY...1 Description of Pruco Life Insurance Company...1 Control of Pruco Life Insurance Company...1 State Regulation...1 Records...1 Services and Third Party Administration Agreements...1 INITIAL PREMIUM PROCESSING...2 ADDITIONAL INFORMATION AOUT OPERATION OF CONTRACTS...3 Legal Considerations Relating to Sex-Distinct Premiums and enefits...3 How a Type A (Fixed) Contract's Death enefit Will Vary...3 How a Type (Variable) Contract's Death enefit Will Vary...4 How a Type C (Return of Premium) Contract s Death enefit Will Vary...5 Reports to Contract Owners...6 UNDERWRITING PROCEDURES...6 ADDITIONAL INFORMATION AOUT CHARGES...7 Charges for Increases in asic Insurance Amount...7 ADDITIONAL INFORMATION AOUT CONTRACTS IN DEFAULT...7 DISTRIUTION AND COMPENSATION...7 EXPERTS...7 PERFORMANCE DATA...8 Average Annual Total Return...8 Non-Standard Total Return...8 Money Market Subaccount Yield...8 FINANCIAL STATEMENTS

54 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 MPremier SM VUL SAI, material incorporated by reference, and other information about Pruco Life. 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 213 Washington Street Newark, New Jersey Investment Company Act of 1940: Registration No

55 THE PRUDENTIAL SERIES FUND Supplement dated March 25, 2008 to Prospectus dated May 1, 2007 This Supplement sets forth certain changes to the Prospectus of The Prudential Series Fund (the Fund), dated May 1, 2007, 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. This Supplement supersedes the Supplement dated March 20, 2008 in all respects. The following should be read in conjunction with the Fund s Prospectus and should be retained for future reference. Pending Reorganizations for Certain SP Portfolios The beneficial shareholders of each SP Portfolio listed below recently approved the reorganization of that SP Portfolio with, and into, the corresponding Portfolio of Advanced Series Trust (each, an AST Portfolio). SP Portfolio (Target Fund) SP Small Cap Growth Portfolio SP T. Rowe Price Large Cap Growth Portfolio SP Large Cap Value Portfolio SP AIM Core Equity Portfolio AST Portfolio (Acquiring Fund) AST Small-Cap Growth Portfolio AST T. Rowe Price Large-Cap Growth Portfolio AST Large-Cap Value Portfolio AST Marsico Capital Growth Portfolio Subject to the satisfaction of certain customary closing conditions, all of the assets of each SP Portfolio will be transferred to, and all of the liabilities of each SP Portfolio will be assumed by, the corresponding AST Portfolio. In connection therewith, each whole and fractional share of each SP Portfolio will be exchanged for whole and fractional shares of equal dollar value of the corresponding AST Portfolio, the outstanding shares of the SP Portfolios will be cancelled, and the SP Portfolios will be liquidated and terminated. The four reorganizations are expected to occur as of the close of business on the New York Stock Exchange on Friday May 2, As a result, each SP Portfolio will be closed to all purchases of shares (other than share purchases from the reinvestment of dividends and distributions) and exchanges into such funds beginning as of the close of business on May 2, Purchases and exchanges into a SP Portfolio after the close of business on May 2, 2008 will be blocked. PSFSUP8

56 The Prudential Series Fund Supplement dated November 29, 2007 to Prospectus dated May 1, 2007 This supplement sets forth certain changes to the Prospectus of The Prudential Series Fund (the Fund), dated May 1, 2007, 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. SP Aggressive Growth Asset Allocation Portfolio, SP alanced Asset Allocation Portfolio, SP Conservative Asset Allocation Portfolio, and SP Growth Asset Allocation Portfolio The oard of Trustees of the Fund recently approved allowing the four above-referenced asset allocation portfolios to invest in the AST Western Asset Core Plus ond Portfolio of Advanced Series Trust (the Core Plus ond Portfolio). Western Asset Management Company (Western Asset) and Western Asset Management Company Limited (WAML) serve as the Sub-Advisors for the Core Plus ond Portfolio. The investment objective of the Core Plus ond Portfolio will be to maximize total return, consistent with prudent investment management and liquidity needs, by investing to obtain the average duration specified for the Core Plus ond Portfolio. No assurance can be given that the Core Plus ond Portfolio will achieve its investment objective. The Core Plus ond Portfolio will invest in a portfolio of fixed-income securities of various maturities and, under normal market conditions, will invest at least 80% of its net assets in debt and fixed-income securities. To achieve its investment objective, the Core Plus ond Portfolio may invest in a variety of securities and instruments, including: (1) U.S. Government Obligations; (2) corporate obligations ( corporate obligations include, without limitation, preferred stock, convertible securities, zero coupon securities and pay-in-kind securities); (3) inflation-indexed securities; (4) mortgage- and other asset-backed securities; (5) obligations of non-u.s. issuers, including obligations of non-u.s. governments, international agencies or supranational organizations; (6) fixed-income securities of non-governmental U.S. or non-u.s. issuers; (7) taxable municipal obligations; (8) variable and floating rate debt securities; (9) commercial paper and other short-term investments; (10) certificates of deposit, time deposits, and bankers acceptances; (11) loan participations and assignments; (12) structured notes; and (13) repurchase agreements. Duration refers to the range within which the average modified duration of the Core Plus ond Portfolio is expected to fluctuate. Modified duration measures the expected sensitivity of market price to changes in interest rates, taking into account the effects of structural complexities (for example, some bonds can be prepaid by the issuer). The target average modified duration of the Core Plus ond Portfolio is expected to range within 30% of the duration of the domestic bond market as a whole (normally three to six years, although this may vary). Therefore, the range within which the average modified duration of the Core Plus ond Portfolio is expected to fluctuate is generally 2.5 to 7 years. The Core Plus ond Portfolio s average modified duration may fall outside of its expected average modified duration range due to market movements. If this happens, Western Asset and WAML will take action to bring the Core Plus ond Portfolio s average modified duration back within the Portfolio s expected average modified duration range within a reasonable period of time. The Core Plus ond Portfolio may invest up to 15% of its net assets in debt securities that are rated, at the time of purchase, below investment grade, but at least -/3, or if unrated, are determined by Western Asset or WAML to be of comparable quality. For purposes of the foregoing credit quality policy, the Core Plus ond Portfolio will consider a security to be rated below investment grade if it is not rated aa/ or above by at least one nationally recognized rating agency (or, if unrated, is determined by Western Asset or WAML to be of comparable quality). Securities rated below investment grade are commonly known as junk bonds or high-yield securities. The Core Plus ond Portfolio also may invest: (i) up to 25% of its total assets in the securities of foreign issuers, including emerging markets issuers, and (ii) up to 20% of its total assets in non-u.s. dollar denominated securities. PSFSUP6

57 The Prudential Series Fund Supplement dated November 27, 2007 to Prospectus dated May 1, 2007 This supplement sets forth certain changes to the Prospectus of The Prudential Series Fund (the Fund), dated May 1, 2007, 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. Proposed Reorganizations The oards of Trustees of the Fund and Advanced Series Trust recently approved the four fund reorganizations described below. Target Fund SP AIM Core Equity Portfolio of The Prudential Series Fund SP Small Cap Growth Portfolio of The Prudential Series Fund SP T. Rowe Price Large Cap Growth Portfolio of The Prudential Series Fund SP Large Cap Value Portfolio of The Prudential Series Fund Acquiring Fund AST Marsico Capital Growth Portfolio of Advanced Series Trust AST Small-Cap Growth Portfolio of Advanced Series Trust AST T. Rowe Price Large-Cap Growth Portfolio of Advanced Series Trust AST Large-Cap Value Portfolio of Advanced Series Trust Pursuant to these proposals, the assets and liabilities of each Target Fund would be exchanged for shares of the corresponding Acquiring Fund. The Acquiring Fund shares to be received by Target Fund shareholders in a reorganization will be equal in value to the Target Fund shares held by such shareholders immediately prior to the reorganization. Each reorganization transaction is subject to approval by the beneficial shareholders of the relevant Target Fund. It is anticipated that proxy statements/prospectuses relating to these transactions will be mailed to Target Fund shareholders on or about February 2008 and that the special meetings of Target Fund shareholders will be held on or about March Shareholder approval of any one reorganization is not contingent upon shareholder approval of any other reorganization. Under the terms of the reorganization proposals, shareholders of a Target Fund would become shareholders of the corresponding Acquiring Fund. No sales charges would be imposed in connection with the reorganizations. The Acquiring Funds and the Target Funds anticipate obtaining opinions of special tax counsel that the reorganization transactions will not result in any adverse federal income tax consequences to any Acquiring Fund, any Target Fund, or their respective shareholders. Adoption of Redemption in Kind Procedures The oard of Trustees of the Fund (the oard) recently adopted redemption in kind procedures. The Fund may pay the redemption price to certain affiliated shareholders (for example, the insurance company separate accounts holding Fund shares) in whole or in part by a distribution in-kind of securities from the relevant investment portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the Securities and Commission and procedures adopted by the oard. Securities will be readily marketable and will be valued in the same manner as in a regular redemption. If shares are redeemed in kind, the recipient will incur transaction costs in converting such assets into cash. These procedures govern the redemption by the shareholder of record, generally an insurance company separate account. The procedures do not affect payments by an insurance company to a contract owner under a variable contract. PSFSUP4

58 THE PRUDENTIAL SERIES FUND SP Asset Allocation Portfolios Supplement dated October 26, 2007 To Prospectuses and Statements of Additional Information dated May 1, 2007 rian Ahrens has replaced James G. Russell as a portfolio manager for each of the SP Asset Allocation Portfolios. All references and information pertaining to Mr. Russell appearing in the prospectus and Statement of Additional Information are hereby deleted. To further reflect this change, information pertaining to Mr. Ahrens is hereby added as noted below: The section of each Prospectus entitled How the Fund is Managed Portfolio Managers is amended by adding the following discussion pertaining to Mr. Ahrens to the existing discussions pertaining to the SP Asset Allocation Portfolios: rian Ahrens is the Senior Vice President and Head of the Strategic Investment Research Group of Prudential Investments. His staff of professionals is responsible for over 150 managers and 400 different investment styles that represent approximately $110 billion in total assets. Mr. Ahrens has been with Prudential for over 15 years. Most recently he worked for Prudential Securities on their Fixed Income Sales/Trading Desk where he was an Associate Vice President. Mr. Ahrens earned his M..A. in Finance from the Stern School of usiness at New York University. He graduated from James Madison University with a double major in Finance and German. He is series 7, series 24 and series 63 certified, CIMA certified, and presently a candidate for the CFA. The section of Part I of each Statement of Additional Information entitled Management & Advisory Arrangements Additional Information About the Portfolio Managers Other Accounts and Fund Ownership is amended by adding to the tables for each of the SP Asset Allocation Portfolios the following information pertaining to Mr. Ahrens. Information pertaining to Mr. Ahrens is furnished as of June 30, 2007: SP Aggressive Growth Asset Allocation Portfolio Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$15,190,147,818 None None None SP alanced Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$13,999,479,784 None None None Ownership of Fund Securities Ownership of Fund Securities PSFSUP101 PSFSUP5

59 SP Conservative Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$14,775,305,529 None None None SP Growth Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$14,108,291,142 None None None Ownership of Fund Securities Ownership of Fund Securities PSFSUP101 PSFSUP5

60 THE PRUDENTIAL SERIES FUND SP Asset Allocation Portfolios ADVANCED SERIES TRUST AST Dynamic Asset Allocation Portfolios Supplement dated October 26, 2007 To Prospectuses and Statements of Additional Information dated May 1, 2007 rian Ahrens has replaced James G. Russell as a portfolio manager for each of the SP Asset Allocation Portfolios and each of the AST Dynamic Asset Allocation Portfolios. All references and information pertaining to Mr. Russell appearing in the prospectus and Statement of Additional Information are hereby deleted. To further reflect this change, information pertaining to Mr. Ahrens is hereby added as noted below: The section of each Prospectus entitled How the Fund is Managed Portfolio Managers is amended by adding the following discussion pertaining to Mr. Ahrens to the existing discussions pertaining to the SP Asset Allocation Portfolios and the AST Dynamic Asset Allocation Portfolios: rian Ahrens is the Senior Vice President and Head of the Strategic Investment Research Group of Prudential Investments. His staff of professionals is responsible for over 150 managers and 400 different investment styles that represent approximately $110 billion in total assets. Mr. Ahrens has been with Prudential for over 15 years. Most recently he worked for Prudential Securities on their Fixed Income Sales/Trading Desk where he was an Associate Vice President. Mr. Ahrens earned his M..A. in Finance from the Stern School of usiness at New York University. He graduated from James Madison University with a double major in Finance and German. He is series 7, series 24 and series 63 certified, CIMA certified, and presently a candidate for the CFA. The section of Part I of each Statement of Additional Information entitled Management & Advisory Arrangements Additional Information About the Portfolio Managers Other Accounts and Fund Ownership is amended by adding to the tables for each of the SP Asset Allocation Portfolios and the AST Dynamic Asset Allocation Portfolios the following information pertaining to Mr. Ahrens. Information pertaining to Mr. Ahrens is furnished as of June 30, 2007: SP Aggressive Growth Asset Allocation Portfolio Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$15,190,147,818 None None None SP alanced Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$13,999,479,784 None None None ASTPSFSUP1 Ownership of Fund Securities Ownership of Fund Securities

61 SP Conservative Asset Allocation Portfolio Registered Investment Companies Vehicles Portfolio Managers Other Pooled Investment Other Accounts rian Ahrens 8/$14,775,305,529 None None None SP Growth Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$14,108,291,142 None None None AST Aggressive Asset Allocation Portfolio Registered Investment Companies Vehicles Portfolio Managers Other Pooled Investment Other Accounts rian Ahrens 8/$14,882,500,028 None None None AST Capital Growth Asset Allocation Portfolio Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$9,889,922,285 None None None SP alanced Asset Allocation Portfolio Registered Investment Companies Portfolio Managers Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$11,233,741,636 None None None AST Conservative Asset Allocation Portfolio Portfolio Managers Registered Investment Companies Other Pooled Investment Vehicles Other Accounts rian Ahrens 8/$14,228,186,515 None None None AST Preservation Asset Allocation Portfolio Registered Investment Companies Vehicles Portfolio Managers Other Pooled Investment Other Accounts rian Ahrens 8/$14,892,465,863 None None None Ownership of Fund Securities Ownership of Fund Securities Ownership of Fund Securities Ownership of Fund Securities Ownership of Fund Securities Ownership of Fund Securities Ownership of Fund Securities ASTPSFSUP1

62 THE PRUDENTIAL SERIES FUND Supplement dated August 15, 2007 to the Prospectus dated May 1, 2007 This supplement sets forth certain changes to the Prospectus of The Prudential Series Fund (the Fund) dated May 1, 2007 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. SP Mid Cap Growth Portfolio: New Subadviser Effective on or about November 19, 2007, Neuberger erman Management, Inc. (Neuberger erman) will replace Calamos Advisors LLC as the subadviser to the SP Mid Cap Growth Portfolio. To reflect the appointment of Neuberger erman as a subadviser, the indicated sections of the Prospectus are revised effective on or about November 19, 2007: The section of the Prospectus entitled Investment Objectives & Principal Strategies of the Portfolios -- SP Mid Cap Growth Portfolio is hereby deleted in its entirety and replaced with the following: SP Mid Cap Growth Portfolio Investment Objective: to seek capital growth. The Portfolio will invest, under normal circumstances, at least 80% of its net assets in common stocks of midcapitalization companies. For purposes of the Portfolio, a mid-capitalization company is defined as a company whose market capitalization is within the range of market capitalizations of companies in the Russell Midcap Growth Index. As of June 30, 2007, the average market capitalization of the companies in the Russell Midcap Growth Index was $9.034 billion and the median market capitalization was $4.814 billion. The Portfolio seeks to reduce risk by diversifying among many companies, industries and sectors. The subadviser employs a disciplined investment strategy when selecting growth stocks. Using fundamental research and quantitative analysis, the subadviser looks for fast-growing companies with above average sales and competitive returns on equity relative to their peers. In doing so, the subadviser analyzes such factors as: financial condition (such as debt to equity ratio); market share and competitive leadership of the company's products; earnings growth relative to competitors; and market valuation in comparison to a stock's own historical norms and the stocks of other mid-cap companies. The subadviser follows a disciplined selling strategy and may sell a stock when it fails to perform as expected or when other opportunities appear more attractive. 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 erman Management, Inc. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk PSFSUP3

63 management risk market risk portfolio turnover risk The section of the Prospectus entitled MORE DETAILED INFORMATION ON HOW THE PORTFOLIOS INVEST--Investment Objectives & Policies-- SP Mid Cap Growth Portfolio is hereby deleted in its entirety and replaced with the following: SP Mid-Cap Growth Portfolio Investment Objective: to seek capital growth. Principal Investment Policies and Risks: The Portfolio will have a non-fundamental policy to invest, under normal circumstances, at least 80% of the value of its assets in common stocks of mid-capitalization companies. The 80% investment requirement applies at the time the Portfolio invests its assets. The Portfolio seeks to reduce risk by diversifying among many companies, industries and sectors. The subadviser employs a disciplined investment strategy when selecting growth stocks. Using fundamental research and quantitative analysis, the subadviser looks for fast-growing companies with above average sales and competitive returns on equity relative to their peers. In doing so, the subadviser analyzes such factors as: financial condition (such as debt to equity ratio); market share and competitive leadership of the company's products; earnings growth relative to competitors; and market valuation in comparison to a stock's own historical norms and the stocks of other mid-cap companies. The subadviser follows a disciplined selling strategy, and may sell a stock when it fails to perform as expected, or when other opportunities appear more attractive. As with any fund investing primarily in equity securities, the Portfolio is subject to the risk that the value of the equity securities in the Portfolio will decline. As a fund that invests primarily in mid-cap companies, the Portfolio's risk and share price fluctuation can be expected to be more than that of many funds investing primarily in large-cap companies, but less than that of many funds investing primarily in small-cap companies. Mid-cap stocks may fluctuate more widely in price than the market as a whole, may underperform other types of stocks when the market or the economy is not robust, or fall in price or be difficult to sell during market downturns. In addition, the Portfolio's growth investment program will generally involve greater risk and price fluctuation than funds that invest in more undervalued securities. ecause the prices of growth stocks tend to be based largely on future expectations, these stocks historically have been more sensitive than value stocks to bad economic news and negative earnings surprises. Other Investments: Although equity securities are normally the Portfolio's primary investments, it may invest in preferred stocks and convertible securities, as well as the types of securities described below. Fixed Income Securities. The Portfolio may also invest in investment grade fixed income or debt securities. If the quality of any fixed income securities held by the Portfolio deteriorates so that they are no longer investment grade, the Portfolio will sell such securities in an orderly manner so that its holdings of such securities do not exceed 5% of its net assets. Foreign Securities. The Portfolio may invest up to 10% of the value of its total assets, measured at the time of investment, in equity and debt securities that are denominated in foreign currencies. There is no limitation on the percentage of the Portfolio's assets that may be invested in securities of foreign companies that are denominated in PSFSUP3

64 U.S. dollars. In addition, the Portfolio may enter into foreign currency transactions, including forward foreign currency contracts and options on foreign currencies, to manage currency risks, to facilitate transactions in foreign securities, and to repatriate dividend or interest income received in foreign currencies. Covered Call Options. The Portfolio may try to reduce the risk of securities price or exchange rate changes (hedge) or generate income by writing (selling) covered call options against securities held in its portfolio, and may purchase call options in related closing transactions. Real Estate Investment Trusts (REITs). The Portfolio may invest in REITs. REITs are pooled investment vehicles which invest primarily in real estate or real estate loans. Temporary Investments. When the Portfolio anticipates unusual market or other conditions, it may temporarily depart from its objective of capital growth and invest substantially in high-quality short-term investments. This could help the Portfolio avoid losses but may mean lost opportunities. The section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby amended by deleting Calamos Advisors LLC from the table entitled Investment Subadvisers and substituting Neuberger erman Investment Management, Inc. The description of Calamos Advisors LLC appearing in the section of the Prospectus entitled How the Fund is Managed Investment Subadvisers is hereby deleted in its entirety and replaced with the following. Neuberger erman Management Inc. (Neuberger erman) is a wholly owned subsidiary of Neuberger erman Inc. ("NI"), which is a wholly owned subsidiary of Lehman rothers Holdings Inc. ("LHI"). LHI, which trades on the New York Stock Exchange under the ticker symbol "LEH" through its subsidiaries (LHI and its subsidiaries collectively "Lehman rothers"), is one of the leading global investment banks, serving institutional, corporate, government and high net worth individual clients. Lehman rothers, 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 erman and its affiliates had approximately $134 billion in assets under management as of March 31, Neuberger erman's address is 605 Third Avenue, New York, New York The discussion of portfolio managers pertaining to the SP Mid Cap Growth Portfolio appearing in the section of the Prospectus entitled How the Fund is Managed Portfolio Managers is hereby deleted and the following new discussion is substituted: SP Mid Cap Growth Portfolio The Portfolio is managed by Kenneth J. Turek, CFA. Mr. Turek is a managing director and portfolio manager on Neuberger erman s Growth Equity team. He joined the firm in Previously, he spent five years as a vice president and senior portfolio manager in institutional asset management at Northern Trust. Additionally, Mr. Turek was a portfolio manager at National Investment Services and Chief Investment Officer at Cole Taylor ank. He began his investment career in 1985 at Northern Trust. He received his.a. from the University of Wisconsin at Madison and an M..A. from DePaul University. II. Fees and Expenses of the Portfolios The section of the Prospectus entitled Fees And Expenses Of The Portfolios is hereby revised by deleting footnote (2) to the table titled Class I Shares: Annual Portfolio Operating Expenses and substituting new footnote (2) as set forth below: (2) Effective as of July 1, 2007, Prudential Investments LLC has voluntarily agreed to waive a portion of their management fee and/or limit expenses (expressed as a percentage of average daily net 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. PSFSUP3

65 Portfolio Fee Waiver and/or Expense Limitation Government Income Limit Portfolio expenses to 0.75% Stock Index Limit Portfolio expenses to 0.75% Value Limit Portfolio expenses to 0.75% SP AIM Core Equity Limit Portfolio expenses to. 1.00% SP Mid Cap Growth Limit Portfolio expenses to. 1.00% SP Small Cap Value Limit Portfolio expenses to 1.05% SP Strategic Partners Focused Growth Limit Portfolio expenses to 1.25% SP International Growth Limit Portfolio expenses to 1.24% 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 Portfolio Operating Expenses and substituting new footnote (3) as set forth below: (3) Effective as of July 1, 2007, Prudential Investments LLC has voluntarily agreed to waive a portion of their management fee and/or limit expenses (expressed as a percentage of average daily net 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 Fee Waiver and/or Expense Limitation Value Limit Portfolio expenses to 0.75% SP Strategic Partners Focused Growth Limit Portfolio expenses to 1.25% SP International Growth Limit Portfolio expenses to 1.24% III. Jennison 20/20 Focus Portfolio: Investment Policy Changes Effective on or about August 15, 2007, the Portfolio s non-fundamental policy of investing in up to 20 value securities and up to 20 growth securities will change. To reflect this change, the indicated sections of the Prospectus are revised effective on or about August 15, The section of the Prospectus entitled Risk/Return Summary Investment Objectives & Principal Strategies of the Portfolios is revised by deleting the discussion pertaining to the Jennison 20/20 Focus Portfolio and substituting the following new discussion: Jennison 20/20 Focus Portfolio Investment Objective: long-term growth of capital We invest primarily in approximately 40 (which may temporarily range up to 45) equity and equity-related securities of U.S. companies that are selected by the Portfolio's two portfolio managers (approximately 20 by each) as having strong capital appreciation potential. Each portfolio manager is responsible for selecting the securities within his discipline. The value portfolio manager seeks to invest in companies valued at a discount to their true worth, as defined by the value of their earnings, free cash flow, assets, private market value, or some combination of these factors, which also possess identifiable catalysts which can help unlock their true worth. The growth portfolio manager seeks to invest in companies with growth in units, revenues, cash flows and/or earnings; defendable competitive positions and enduring business franchises that offer a differentiated product and/or service; proven management teams; robust balance sheets; PSFSUP3

66 high or improving return on equity; above average return on assets or invested capital; sustainable earnings growth superior to the market average and duration of that growth rate; and appropriate valuations. Up to 20% of the Portfolio's total assets may be invested in foreign securities. As noted above, the Portfolio may, on a temporary basis, hold up to 45 securities, as circumstances warrant. Such circumstances may include situations where it is determined that the price and/or liquidity to support the sale of a security held by the Portfolio is not currently available. 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 The section of the Prospectus titled More Detailed Information on How the Portfolios Invest Investment Objectives & Policies is revised by deleting the second paragraph of the discussion pertaining to the Jennison 20/20 Focus Portfolio and substituting the following new discussion: The Portfolio provides a dual perspective on the equity market by combining value and growth investment styles in one concentrated portfolio of approximately 20 value stocks and approximately 20 growth stocks that the two portfolio managers identify as having strong capital appreciation potential. Each portfolio manager is responsible for selecting the securities within his discipline. The value portfolio manager seeks to invest in companies valued at a discount to their true worth, as defined by the value of their earnings, free cash flow, assets, private market value, or some combination of these factors, that also possess identifiable catalysts which can help unlock their true worth. The growth portfolio manager seeks to invest in companies with growth in units, revenues, cash flows and/or earnings; defendable competitive positions and enduring business franchises that offer a differentiated product and/or service; proven management teams; robust balance sheets; high or improving return on equity; above average return on assets or invested capital; sustainable earnings growth superior to the market average and duration of that growth rate, and appropriate valuations. Due to the Portfolio s concentrated nature, an investment in this Portfolio may be riskier than an investment in a more widely diversified fund. Typically, the Portfolio will be investing in approximately 40 securities (which may temporarily range up to 45 securities). The portfolio managers recognize that prudent stock selection in this concentrated portfolio is especially important. The portfolio managers purchase stocks in which they have a high level of conviction for outperformance in the intermediate and long term with limited downside potential in the short term. The Portfolio aims to be fully invested, under normal market conditions, but may accumulate cash and other short-term investments in such amounts and for such temporary periods of time as market conditions dictate. PSFSUP3

67 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

68 The Prudential Series Fund P RO S P E C T U S M a y 1, 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 has received an order from the Securities and Exchange Commission permitting its Investment Manager, subject to approval by its oard of Trustees, to change subadvisers without shareholder approval. For more information, please see this Prospectus under "How the Fund is Managed." 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.

69 This prospectus discusses the following Portfolios of The Prudential Series Fund: Diversified ond Portfolio Equity Portfolio Global Portfolio High Yield ond Portfolio Jennison Portfolio Money Market Portfolio Stock Index Portfolio SP AIM Core Equity Portfolio SP Davis Value Portfolio SP International Growth Portfolio SP International Value Portfolio SP Large Cap 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 Aggressive Growth Asset Allocation Portfolio SP alanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio PSF-VUL-2 2

70 Table of Contents 4 INTRODUCTION 4 About the Fund and its Portfolios 5 RISK/RETURN SUMMARY 5 Investment Objectives & Principal Strategies of the Portfolios 15 Principal Risks 18 Introduction to Past Performance 19 Past Performance: Diversified ond Portfolio through Money Market Portfolio 25 Past Performance: Stock Index Portfolio through SP Strategic Partners Focused Growth Portfolio 38 Past Performance: SP T. Rowe Price Large Cap Growth Portfolio through SP Asset Allocation Portfolios 43 Fees and Expenses of the Portfolios 45 Example 46 MORE DETAILED INFORMATION ON HOW THE PORTFOLIOS INVEST 46 Investment Objectives & Policies 71 MORE DETAILED INFORMATION AOUT OTHER INVESTMENTS & STRATEGIES USED Y THE PORTFOLIOS 71 Additional Investments & Strategies 75 HOW THE FUND IS MANAGED 75 oard of Trustees 75 Investment Manager 75 Investment Management Fees 76 Investment Subadvisers 79 Portfolio Managers 91 HOW TO UY AND SELL SHARES OF THE PORTFOLIOS 91 Purchasing Shares of the Portfolios 91 Frequent Purchases or Redemptions of Portfolio Shares 92 Net Asset Value 94 Distributor 95 OTHER INFORMATION 95 Federal Income Taxes 95 Monitoring for Possible Conflicts 95 Disclosure of Portfolio Holdings 96 FINANCIAL HIGHLIGHTS 96 Introduction ACK COVER

71 INTRODUCTION AOUT THE FUND AND ITS PORTFOLIOS This prospectus provides information about The Prudential Series Fund (the Fund), which consists of 32 separate portfolios (each, a Portfolio). The Portfolios of the Fund which are discussed in this prospectus are listed on the inside front cover. 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. The Risk/Return Summary which follows highlights key information about each Portfolio. Additional information follows this summary and is also provided in the Fund s Statement of Additional Information (SAI). 4

72 RISK/RETURN SUMMARY INVESTMENT OJECTIVES & PRINCIPAL STRATEGIES OF THE PORTFOLIOS Diversified ond 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. Prinicpal 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 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: 5

73 Global Portfolio: Subadviser Allocations Target Asset Allocation Primary Geographic Focus & Asset Class Investment Style William lair 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 Principal Risks: company risk derivatives risk foreign investment risk growth stock risk leveraging risk management risk market risk currency risk High Yield ond 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. 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 6

74 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 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 above-average 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 above-average earnings growth potential or the capacity to generate income. The Portfolio may invest up to 25% 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 7

75 SP Davis Value Portfolio Investment Objective: growth of capital. We invest primarily in common stock of U.S. companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. 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 SP International Growth Portfolio (formerly, SP William lair 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, which may include countries with emerging markets. 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. Principal Risks: company risk currency risk derivatives risk foreign investment risk growth stock risk leveraging risk management risk market risk portfolio turnover risk SP International Value Portfolio (formerly, 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 equity securities. 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 8

76 derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk 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 market capitalizations within the market capitalization range of the Russell 1000 Value Index (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 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 within the market capitalization range of the Russell Midcap Growth Index (measured at the time of purchase). 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 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 a topdown approach of 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 derviatives 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. 9

77 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. 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 mortgage risk portfolio turnover risk prepayment risk short sales risk SP PIMCO Total Return Portfolio Investment Objective: maximum total return, consistent with preservation of capital and prudent investment management. Under normal circumstances, at least 65% of the net assets are invested 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. Principal Risks: credit risk derivatives risk foreign investment risk high yield risk interest rate risk leveraging risk liquidity risk management risk market risk mortgage risk portfolio turnover risk prepayment risk short sales 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 believes have the potential for above-average growth. The Portfolio generally defines small and medium-sized companies to be those companies within the market capitalization range of the Russell Midcap Growth Index (measured at the time of purchase). 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 10

78 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. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk liquidity risk management risk market risk smaller company risk SP 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 companies with market capitalizations within the market capitalization range of the Russell 2000 Value Index. 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 credit risk derivatives risk foreign investment risk interest rate leveraging risk liquidity risk management risk market risk portfolio turnover risk 11

79 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 and 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 Associates LLC selects approximately 20 securities and Allianceernstein 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 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 Associates LLC and Allianceernstein L.P. Principal Risks: company risk derivatives risk foreign investment risk leveraging risk management risk market risk nondiversification risk portfolio turnover risk SP T. Rowe Price 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 January 31, 2007, such median market capitalization was approximately $5.7 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. While most assets will be invested in U.S. common stocks, other securities may also be purchased, including foreign stocks, futures and options, in keeping with the Portfolio s objective. 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 12

80 SP Asset Allocation Portfolios SP Aggressive Growth Asset Allocation Portfolio SP alanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio SP Growth Asset Allocation Portfolio 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 is not a fundamental policy and, therefore, can be changed by the Fund s oard of Trustees at any time. The SP Asset Allocation Portfolios are funds of funds. That means that each SP Asset Allocation Portfolio invests primarily in one or more mutual funds as described below. Other mutual funds in which in which an SP Asset Allocation Portfolio may invest are collectively referred to as the Underlying Portfolios. Consistent with the investment objectives and policies of the SP Asset Allocation Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the SP Asset Allocation Portfolios. Currently, the only Underlying Portfolios in which the SP Asset Allocation Portfolios are authorized to invest are other Portfolios of the Fund, the AST Marsico Capital Growth Portfolio of Advanced Series Trust (AST), the AST International Value Portfolio of AST, and certain money market funds advised by Prudential Invesments LLC ( PI or the Manager ) or its affiliates. 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 alanced Asset Allocation SP Growth Asset Allocation SP Conservative Asset Allocation SP Aggressive Growth 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. The SP Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each SP Asset Allocation Portfolio is now permitted under current law to invest in securities as defined under the Investment Company Act of 1940, including shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, or any put, call, straddle, option, or privilege on any security or on any group or index of securities. 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. ecause 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 13

81 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. 14

82 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. Commodity risk. A Portfolio s investments in commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional equity and debt securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, acts of terrorism, livestock disease, embargoes, tariffs, and international economic, political and regulatory developments. 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. 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. ecause 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 15

83 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 highyield 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 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. License risk. Certain Portfolios rely on licenses from third parties to the relevant subadviser that permit the use of the intellectual property of such parties in connection with the investment strategies for those Portfolios. Such licenses may be terminated by the licensors under certain circumstances, and as a result, a Portfolio may lose its ability to use the licensed name and/or the licensed investment strategy. Accordingly, in the event a license is terminated, it may have a significant effect on the operation of the affected Portfolio. 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 16

84 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. Nondiversification risk. The chance that a Portfolio s performance may be disproportionately hurt by the performance of relatively few securities. A Portfolio which is non-diversified may invest more of its assets in a smaller number of issuers than a diversified Portfolio. Concentrating investments may result in greater potential losses for Portfolios investing in a broader variety of issuers. A Portfolio may be more susceptible to adverse developments affecting a single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments. 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. Real Estate risk. Certain Portfolios may invest in REITs and real estate-linked derivative instruments. Such on emphasis on these types of investments will subject a Portfolio to risks similar to those associated with direct ownership of real estate, including losses from casualty or condemnation, and changes in local and general economic conditions, supply and demand, interest rates, zoning laws, regulatory limitations on rents, property taxes, and operating expenses. An investment in a real estate-linked derivative instrument that is linked to the value of a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse changes to the tax laws, or failure by the REIT to qualify for tax-free pass-through of income under the Internal Revenue Code of In addition, some REITs have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. 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. Theoretically, the amount of these losses can be unlimited, although for fixed-income securities an interest rate of 0% forms an effective limit on how high a securities price would be expected to rise. Although certain Portfolios may try to reduce risk by holding both long and short positions at the same time, it is possible that a Portfolio s securities held long will decline in value at the same time that the value of the Portfolio s securities sold short increases, thereby increasing the potential for loss. 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. Value stock risk. A Portfolio s investments in value stocks carry the risk that the market will not recognize a security s intrinsic value for a long time or that a stock believed to be undervalued may actually be appropriately priced. 17

85 INTRODUCTION TO PAST PERFORMANCE A number of factors including risk can affect how a Portfolio performs. The bar charts and tables on the following pages demonstrate the risk of investing in each Portfolio by showing how returns can change from year to year and by showing how each Portfolio s average annual returns compare with a stock index and a group of similar mutual funds. Past performance does not mean that a Portfolio will achieve similar results in the future. The annual returns and average annual returns shown in the charts and tables on the following pages are after deduction of expenses and do not include Contract charges. If Contract charges were included, the returns shown would have been lower than those shown. Consult your Contract prospectus for information about Contract charges. 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 a Portfolio would have been lower. 18

86 PAST PERFORMANCE: DIVERSIFIED OND PORTFOLIO THROUGH MONEY MARKET PORTFOLIO Diversified ond Portfolio Annual Returns (Class I Shares) 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0-1% -2% est Quarter Worst Quarter 4.40% (2nd quarter of 1997) -2.54% (2nd quarter of 2004) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Class I Shares 4.98% 5.67% 5.97% Lehman rothers U.S. Aggregate ond Index* 4.33% 5.06% 6.24% Lipper Variable Insurance Products (VIP) Intermediate Investment Grade Debt Funds Average** 4.14% 4.90% 5.81% *The Lehman rothers U.S. Aggregate ond 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. 19

87 Equity Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% -30% est Quarter Worst Quarter 16.81% (2nd quarter of 2003) % (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Since Class II Inception* Class I Shares 12.57% 7.12% 7.09% N/A Class II Shares 12.13% 6.70% N/A 2.95% S&P 500 Index** 15.78% 6.18% 8.42% 2.41% Russell 1000 Index*** 15.46% 6.82% 8.64% 2.97% Lipper Variable Insurance Products (VIP) Large Cap Core Funds Average**** 13.31% 5.22% 6.71% 1.98% *Portfolio (Class II) inception: 5/4/99. **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 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 "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. 20

88 Global Portfolio Annual Returns (Class I Shares) 60% 45% 30% 15% % -30% % est Quarter Worst Quarter 31.05% (4th quarter of 1999) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Class I Shares 19.65% 8.84% 7.46% MSCI World Index (ND)* 20.07% 9.97% 7.64% MSCI World Index (GD)* 20.65% 10.49% 8.08% Lipper Variable Insurance Products (VIP) Global Growth Funds Average** 18.78% 10.54% 8.95% *The Morgan Stanley Capital International 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. The Portfolio no longer utilizes the MSCI World Index (ND), and instead now utilizes the MSCI World Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI World Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmarks for the Porfolio. 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. 21

89 High Yield ond Portfolio Annual Returns (Class I Shares) 40% 30% % 10% 0-10% % est Quarter Worst Quarter 8.91% (2nd quarter of 2003) -9.50% (3rd quarter of 1998) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Class I Shares 10.25% 9.80% 5.45% Lehman rothers U.S. Corporate High Yield ond Index* 11.85% 10.18% 6.59% Lehman rothers High Yield 2% Issuer Capped Index** 10.76% 10.20% 6.63% Lipper Variable Insurance Products (VIP) High Current Yield Funds Average*** 9.96% 8.94% 5.35% *The Lehman rothers U.S. Corporate High Yield ond 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 rothers 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 rothers U.S. Corporate High Yield ond Index to Lehman rothers High Yield 2% Issuer Capped Index because the Lehman rothers 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. 22

90 Jennison Portfolio Annual Returns (Class I Shares) 60% 45% 30% % % -30% % est Quarter Worst Quarter 29.46% (4th quarter of 1998) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Since Class II Inception* Class I Shares 1.79% 2.83% 7.17% N/A Class II Shares 1.37% 2.41% N/A -4.78% S&P 500 Index** 15.78% 6.18% 8.42% 1.89% Russell 1000 Growth Index*** 9.07% 2.69% 5.44% -4.27% Lipper Variable Insurance Products (VIP) Large-Cap Growth Funds Average**** 6.30% 2.70% 6.09% -2.63% *Portfolio (Class II) inception: 2/10/00. **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 Russell 1000 Growth Index consists of those securities included in the Russell 1000 Index that have a greater-than-average 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 "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. 23

91 Money Market Portfolio Annual Returns (Class I Shares) 10% 5% est Quarter Worst Quarter 1.59% (3rd quarter of 2000) 0.18% (2nd quarter of 2004) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Class I Shares 4.74% 2.20% 3.69% Lipper Variable Insurance Products (VIP) Money Market Funds Average* 4.54% 1.99% 3.50% *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 12/31/06) Money Market Portfolio* 4.98% Average Money Market Fund** 4.54% *The Portfolio's yield is after deduction of expenses and does not include contract charges. **Source: imoneynet, Inc. as of December 26, 2006, based on the imoneynet Prime Retail Universe. 24

92 PAST PERFORMANCE: STOCK INDEX PORTFOLIO THROUGH SP STRATEGIC PARTNERS FOCUSED GROWTH PORTFOLIO Stock Index Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% -30% est Quarter Worst Quarter 21.44% (4th quarter of 1998) % (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years 10 Years Class I shares 15.54% 5.88% 8.15% S&P 500 Index* 15.78% 6.18% 8.42% Lipper Variable Insurance Products (VIP) S&P 500 Objective Funds Average** 15.38% 5.78% 8.11% *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. 25

93 SP AIM Core Equity Portfolio Annual Returns (Class I Shares) 30% 20% % % -20% -30% est Quarter Worst Quarter 14.69% (2nd quarter of 2003) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 16.05% 6.74% -1.62% S&P 500 Index* 15.78% 6.18% 1.49% Russell 1000 Growth Index** 15.46% 6.82% 1.63% Lipper Variable Insurance Products (VIP) Large Cap Core Funds Average*** 13.31% 5.22% 0.90% *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 Growth 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. 26

94 SP Davis Value Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% % est Quarter Worst Quarter 17.06% (2nd quarter of 2003) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 15.02% 9.11% 5.60% S&P 500 Index* 15.78% 6.18% 1.49% Russell 1000 Value Index** 22.25% 10.86% 8.21% Lipper Variable Insurance Products (VIP) Multi Cap Value Funds Average*** 17.30% 8.99% 7.27% Lipper Variable Insurance Products (VIP) Large Cap Value Funds Average*** 19.01% 7.73% 6.61% *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 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 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 within the Multi Cap Value Funds Average, the returns for the Large Cap Value Funds Average are also shown, because the management of the portfolios included in the Large Cap Value Funds Average is more consistent with the management of the Portfolio. 27

95 SP International Growth Portfolio Annual Returns (Class I Shares) 60% 45% % 15% % -30% -45% est Quarter Worst Quarter 19.14% (2nd quarter of 2003) % (1st quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Class I Inception* Since Class II Inception* Class I Shares 21.05% 12.15% -0.47% N/A Class II Shares 20.42% 11.69% N/A -0.55% MSCI EAFE Index (ND)** 26.34% 14.98% 7.11% 7.11% MSCI EAFE Index (GD)** 26.86% 15.43% 7.51% 7.51% Lipper Variable Insurance Products (VIP) International Growth Funds Average*** 24.61% 13.89% 4.41% 4.41% *Portfolio (Class I) inception: 9/22/00. Portfolio (Class II) inception: 10/4/00. **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. The Portfolio no longer utilizes the MSCI EAFE Index (ND), and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmarks for the Porfolio. 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. 28

96 SP International Value Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% -30% est Quarter Worst Quarter 15.48% (2nd quarter of 2003) % (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 29.09% 12.40% 4.60% MSCI EAFE Index (ND)* 26.34% 14.98% 7.11% MSCI EAFE Index (GD)* 26.86% 15.43% 7.51% Lipper Variable Insurance Products (VIP) International Value Funds Average** 26.89% 15.88% 9.23% *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. The Portfolio no longer utilizes the MSCI EAFE Index (ND), and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the Porfolio. 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

97 SP Large Cap Value Portfolio Annual Returns (Class I Shares) 40% 30% % % % % -30% est Quarter Worst Quarter 15.25% (2nd quarter of 2003) % (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 18.47% 9.54% 6.79% Russell 1000 Index* 15.46% 6.82% 1.63% Russell 1000 Value Index** 22.25% 10.86% 8.21% Lipper Variable Insurance Products (VIP) Large-Cap Value Funds Average*** 19.01% 7.73% 6.61% Lipper Variable Insurance Products (VIP) Multi-Cap Value Funds Average*** 17.30% 8.99% 7.27% *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. 30

98 SP Mid Cap Growth Portfolio Annual Returns (Class I Shares) 60% 45% % 15% 0-15% % % -60% est Quarter Worst Quarter 29.37% (4th quarter of 2001) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares -1.94% -1.49% -5.16% Russell Midcap Index* 15.26% 12.88% 8.52% Russell Midcap Growth Index** 10.66% 8.22% -1.51% Lipper Variable Insurance Products (VIP) Mid Cap Growth Funds Average*** 8.63% 6.00% -2.00% Lipper Variable Insurance Products (VIP) Multi Cap Growth Funds Average*** 7.70% 4.78% -3.91% *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. 31

99 SP PIMCO High Yield Portfolio Annual Returns (Class I Shares) 25% % 15% 10% % est Quarter Worst Quarter 8.00% (4th quarter of 2002) -4.15% (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 9.51% 8.83% 7.97% Merrill Lynch U.S. High Yield Master II - Rated Index with 2% Issuer Constraint* 9.29% 9.06% 7.42% Lehman rothers Intermediate Corporate ond Index** 9.65% 7.42% 7.53% Lipper Variable Insurance Products (VIP) High Current Yield Funds Average*** 9.96% 8.94% 6.22% *The Merrill Lynch U.S. High Yield Master II - Rated Index with 2% Issuer constraint is an unmanaged index that includes high yield bonds across the maturity spectrum, within the - 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 Lehman rothers Intermediate Corporate ond Index is an unmanaged index comprised of various fixed income securities rated. 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

100 SP PIMCO Total Return Portfolio Annual Returns (Class I Shares) 15% 10% % est Quarter Worst Quarter 5.69% (3rd quarter of 2001) -2.04% (2nd quarter of 2004) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 3.68% 5.29% 6.43% Lehman rothers U.S. Aggregate ond Index* 4.33% 5.06% 6.08% Lipper Variable Insurance Products (VIP) Intermediate Investment Grade Debt Funds Average** 4.14% 4.90% 5.88% *The Lehman rothers U.S. Aggregate ond 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. 33

101 SP Prudential U.S. Emerging Growth Portfolio Annual Returns (Class I Shares) 60% 45% % 15% % -30% -45% est Quarter Worst Quarter 24.62% (2nd quarter of 2003) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Class I Inception* Since Class II Inception* Class I Shares 9.59% 8.62% 0.67% N/A Class II Shares 9.10% 8.20% N/A 5.62% S&P MidCap 400 Index** 10.32% 10.89% 7.84% 9.54% Russell Midcap Growth Index*** 10.66% 8.22% -1.51% 5.77% Lipper Variable Insurance Products (VIP) Mid Cap Growth Funds Average**** 8.63% 6.00% -2.00% 3.68% *Portfolio (Class I) inception: 9/22/00. Portfolio (Class II) inception: 7/9/01. **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 "Since Inception" return reflects the closest calendar month-end return to the inception date of the Portfolio's Class II shares. ***The Russell Midcap Growth Index consists of those securities in the Russell Midcap Index that have a greater-than-average 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 "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. 34

102 SP Small Cap Growth Portfolio Annual Returns (Class I Shares) 45% 30% % % -30% % est Quarter Worst Quarter 25.50% (4th quarter of 2001) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 12.39% 1.40% -4.60% Russell 2000 Index* 18.37% 11.39% 8.19% Russell 2000 Growth Index** 13.35% 6.93% 0.20% Lipper Variable Insurance Products (VIP) Small Cap Growth Funds Average*** 11.12% 5.51% -0.50% *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. 35

103 SP Small Cap Value Portfolio Annual Returns (Class I Shares) 40% 30% % % % -20% est Quarter Worst Quarter 15.70% (2nd quarter of 2003) % (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 14.60% 10.52% 10.70% Russell 2500 Index* 16.17% 12.19% 9.19% Russell 2000 Value Index** 20.18% 15.51% 15.42% Lipper Variable Insurance Products (VIP) Small-Cap Value Funds Average*** 17.31% 13.71% 14.46% Lipper Variable Insurance Products (VIP) Small-Cap Core Funds Average*** 15.23% 10.28% 8.99% *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. 36

104 SP Strategic Partners Focused Growth Portfolio Annual Returns (Class I Shares) 40% 30% 20% 10% % % % -40% est Quarter Worst Quarter 13.30% (4th quarter of 2001) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Class I Inception* Since Class II Inception* Class I Shares -0.66% 3.54% 3.47% N/A Class II Shares -1.07% 3.13% N/A -1.32% S&P 500 Index** 15.78% 6.18% 1.49% 2.94% Russell 1000 Growth Index*** 9.07% 2.69% -5.23% -1.58% Lipper Variable Insurance Products (VIP) Large Cap Growth Funds Average**** 6.30% 2.70% -4.17% -1.50% *Portfolio (Class I) inception: 9/22/00. Portfolio (Class II) inception: 1/12/01. **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 "Since Inception" return reflects the closest calendar month-end return to the inception date of the Portfolio's Class I and Class II shares. ***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 "Since Inception" return reflects the closest calendar month-end return to the inception date of the Portfolio's Class I and 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 I and Class II shares. 37

105 PAST PERFORMANCE: SP T. ROWE PRICE LARGE CAP GROWTH PORTFOLIO THROUGH SP ASSET ALLOCATION PORTFOLIOS SP T. Rowe Price Large Cap Growth Portfolio Annual Returns (Class I Shares) 40% 30% 20% % 0-10% % -30% -40% est Quarter Worst Quarter 14.58% (4th quarter of 2001) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 5.91% 2.21% -3.18% Russell 1000 Index* 15.46% 6.82% 1.63% Russell 1000 Growth Index** 9.07% 2.69% -5.23% Lipper Variable Insurance Products (VIP) Large Cap Growth Funds Average*** 6.30% 2.70% -4.17% *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-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. 38

106 SP Aggressive Growth Asset Allocation Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% -30% est Quarter Worst Quarter 17.65% (2nd quarter of 2003) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 14.27% 8.41% 2.21% S&P 500 Index* 15.78% 6.18% 1.49% Former Aggressive Growth AA Custom lended Index** 17.80% 8.73% 3.13% Current Aggressive Growth AA Custom lended Index** 17.89% 8.82% 3.21% Lipper Variable Insurance Products (VIP) Multi Cap Core Funds Average*** 14.45% 6.69% 2.83% *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 former Aggressive Growth AA Custom lended Index consists of the Russell 3000 Index (80%) and MCSI EAFE Index (ND) (20%). The current Aggressive Growth AA Custom lended Index consists of the Russell 3000 Index (80%) and MSCI EAFE Index (GD) (20%). The Aggressive Growth AA Custom lended Index no longer utilizes the MSCI EAFE Index (ND) and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the Porfolio. 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. 39

107 SP alanced Asset Allocation Portfolio Annual Returns (Class I Shares) 30% 20% % % % est Quarter Worst Quarter 11.68% (2nd quarter of 2003) -9.62% (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 10.69% 7.50% 4.66% S&P 500 Index* 15.78% 6.18% 1.49% Former Primary alanced AA Custom lended Index** 12.29% 7.50% 4.61% Current Primary alanced AA Custom lended Index** 12.35% 7.55% 4.66% Secondary alanced AA Custom lended Index*** 11.11% 5.98% 3.61% Lipper Variable Insurance Products (VIP) Mixed-Asset Target Allocation Growth Funds Average**** 11.67% 6.37% 3.76% *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 former Primary alanced AA Custom lended Index consists of the Russell 3000 Index (48%), the Lehman rothers U.S. Aggregate ond Index (40%) and the MSCI EAFE Index (ND) (12%). The current Primary alanced AA Custom lended Index consists of the Russell 3000 Index (48%), the Lehman rothers U.S. Aggregate ond Index (40%) and the MSCI EAFE Index (GD) (12%). The Primary alanced AA Custom lended Indexes no longer utilize the MSCI EAFE Index (ND) and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the Porfolio. 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 Secondary alanced AA Custom lended Index consists of the Standard & Poor's 500 Index (60%) and the Lehman rothers Aggregate ond Index (40%). 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. 40

108 SP Conservative Asset Allocation Portfolio Annual Returns (Class I Shares) 20% 15% % 5% % -10% est Quarter Worst Quarter 8.59% (2nd quarter of 2003) -5.30% (3rd quarter of 2002) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 8.67% 6.56% 5.29% S&P 500 Index* 15.78% 6.18% 1.49% Former Primary Conservative AA Custom lended Index** 9.60% 6.76% 5.20% Current Primary Conservative AA Custom lended Index** 9.63% 6.79% 5.24% Secondary Conservative AA Custom lended Index*** 8.82% 5.75% 4.53% Lipper Variable Insurance Products (VIP) Mixed-Asset Target Allocation Moderate Funds Average**** 10.88% 6.43% 4.38% *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 former Primary Conservative AA Custom lended Index consists of the Russell 3000 Index (32%), Lehman rothers U.S. Aggregate ond Index (60%) and MSCI EAFE Index (ND) (8%). The current Primary Conservative AA Custom lended Index consists of the Russell 3000 Index (32%), Lehman rothers U.S. Aggregate ond Index (60%) and MSCI EAFE Index (GD) (8%). The Primary Conservative AA Custom lended Index no longer utilizes the MSCI EAFE Index (ND) and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the Porfolio. 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 Secondary Conservative AA Custom lended Index consists of the Standard & Poor's 500 Index (40%) and the Lehman rothers Aggregate ond Index (60%). 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. 41

109 SP Growth Asset Allocation Portfolio Annual Returns (Class I Shares) 40% 30% % 10% % -20% % est Quarter Worst Quarter 14.52% (2nd quarter of 2003) % (3rd quarter of 2001) Average Annual Returns (as of 12/31/06) 1 Year 5 Years Since Inception (9/22/00) Class I Shares 12.88% 8.15% 3.56% S&P 500 Index* 15.78% 6.18% 1.49% Former Primary Growth AA Custom lended Index** 15.03% 8.15% 3.92% Current Primary Growth AA Custom lended Index** 15.10% 8.22% 3.98% Secondary Growth AA Custom lended Index*** 13.43% 6.12% 2.59% Lipper Variable Insurance Products (VIP) Multi Cap Core Funds Average**** 14.45% 6.69% 2.83% *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 former Primary Growth AA Custom lended Index consists of the Russell 3000 Index (64%), the Lehman rothers U.S. Aggregate ond Index (20%) and the MSCI EAFE Index (ND) (16%). The current Primary Growth AA Custom lended Index consists of the Russell 3000 Index (64%), the Lehman rothers U.S. Aggregate ond Index (20%) and the MSCI EAFE Index (GD) (16%). The Primary Growth AA Custom lended Index no longer utilizes the MSCI EAFE Index (ND) and instead now utilizes the MSCI EAFE Index (GD). The ND (net dividends) and GD (gross dividends) versions of the MSCI EAFE Index differ in that ND returns reflect the impact of the maximum withholding taxes on reinvested dividends while the GD version does not reflect the impact of withholding taxes on reinvested dividends. ased on a recommendation of the Fund's Manager, the oard determined that the GD version of the benchmark, which generally reflects higher returns, is a more appropriate benchmark for the Porfolio. 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 Secondary Growth AA Custom lended Index consists of the Standard & Poor's 500 Index (80%) and the Lehman rothers Aggregate ond 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 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. 42

110 FEES AND EXPENSES OF THE PORTFOLIOS Class I shares. 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 fees and expenses shown below are based on the fees and expenses incurred in the year ended December 31, 2006 (except as explained in the footnotes) and are expressed as a percentage of the average daily net assets of each Portfolio. The table does not include Contract charges. ecause 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 charges. Class I Shares: Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets) Shareholder Fees (fees paid directly from your investment) Management Fees Distribution (12b-1) Fees Other Expenses Acquired Portfolio Fees and Expenses 1 Total Annual Portfolio Operating Expenses 2 Diversified ond Portfolio None 0.40 None Equity Portfolio None 0.45 None Global Portfolio None 0.75 None High Yield ond Portfolio None 0.55 None Jennison Portfolio None 0.60 None Money Market Portfolio None 0.40 None Stock Index Portfolio None None SP AIM Core Equity Portfolio None 0.85 None SP Davis Value Portfolio None 0.75 None SP International Growth Portfolio None 0.85 None SP International Value Portfolio None 0.90 None SP Large Cap Value Portfolio None 0.80 None SP Mid Cap Growth Portfolio None 0.80 None SP PIMCO High Yield Portfolio None 0.60 None SP PIMCO Total Return Portfolio None 0.60 None SP Prudential U.S. Emerging Growth Portfolio None 0.60 None SP Small Cap Growth Portfolio None 0.95 None SP Small Cap Value Portfolio None 0.90 None SP Strategic Partners Focused Growth Portfolio None 0.90 None SP T. Rowe Price Large Cap Growth Portfolio None 0.90 None SP Aggressive Growth Asset Allocation Portfolio None 0.05 None % 0.98 SP alanced Asset Allocation Portfolio None 0.05 None SP Conservative Asset Allocation Portfolio None 0.05 None SP Growth Asset Allocation Portfolio None 0.05 None Each Asset Allocation Portfolio invests in shares of other Portfolios of the Fund and the Advanced Series Trust (the Acquired Portfolios). In addition, each Portfolio may invest otherwise uninvested cash in the Dryden Core Investment Fund (Money Market and/or Short-Term ond Series). Investors in an Asset Allocation Portfolio or other Portfolio indirectly bear the fees and expenses of the Acquired Portfolios and/or Dryden Core Investment Fund. The expenses shown in the column "Acquired Portfolio Fees and Expenses" represent a weighted average of the expense ratios of the Acquired Portfolios and/or Dryden Core Investment Fund, in which the Asset Allocation Portfolios or other Portfolios invested during the year ended December 31, The Asset Allocation Portfolios do not pay any transaction fees when they purchase and redeem shares of the Acquired Portfolios. Where "Acquired Portfolio Fees and Expenses" are less than 0.01%, such expenses are included in the column titled "Other Expenses." This may cause the Total Annual Portfolio Operating Expenses to differ from those set forth in the Financial Highlights tables of the respective Portfolios. 2 Prudential Investments LLC has voluntarily agreed to waive a portion of its management fee and/or limit total expenses (expressed as an annual percentage of average daily net assets) for certain Portfolios of the Fund. These arrangements, which are set forth as follows, may be discontinued or otherwise modified at any time. Diversified ond Portfolio: 0.75%; Equity Portfolio: 0.75%; High Yield ond Portfolio: 0.75%; Jennison Portfolio: 0.75%; Money Market Portfolio: 0.75%; Stock Index Portfolio: 0.75%; SP AIM Core Equity Portfolio: 1.00%; SP Large Cap Value Portfolio: 0.90%; SP International Value Portfolio: 1.00%; SP International Growth Portfolio: 1.24%; SP Mid Cap Growth Portfolio: 1.00%; SP PIMCO High Yield Portfolio: 0.82%; SP PIMCO Total Return Portfolio: 0.76%; SP Prudential U.S. Emerging Growth Portfolio: 0.90%; SP Small Cap Growth Portfolio: 1.15%; SP Small Cap Value Portfolio: 1.05%; SP Strategic Partners Focused Growth Portfolio: 1.25%; SP T. Rowe Price Large Cap Growth Portfolio: 1.06%. 43

111 3 Effective March 1, 2007, each of the Asset Allocation Portfolios became responsible for the payment of its own "Other Expenses," including, without limitation, custodian fees, legal fees, trustee fees and audit fees, in accordance with the terms of the management agreement. Prior to that time, Prudential Investments LLC or an affiliate paid the "other expenses" of the Asset Allocation Portfolios. The table reflects an annualized estimate of the "Other Expenses" of the Asset Allocation Portfolios for the year ended December 31, 2006 had the current arrangement been in place during that year. 4 The Portfolio's contractual management fee rate is as follows: 0.35% for average net assets up to $4 billion, and 0.30% for average net assets in excess of $4 billion. 44

112 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. ecause 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 (including the indirect expenses of any acquired portfolios in which the Portfolio invests), 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: Expense Example: Class I Shares 1 Year 3 Years 5 Years 10 Years Diversified ond Portfolio $46 $144 $252 $567 Equity Portfolio $48 $151 $263 $591 Global Portfolio $86 $268 $466 $1,037 High Yield ond Portfolio $59 $186 $324 $726 Jennison Portfolio $64 $202 $351 $786 Money Market Portfolio $44 $138 $241 $542 Stock Index Portfolio $38 $119 $208 $468 SP AIM Core Equity Portfolio $131 $409 $708 $1,556 SP Davis Value Portfolio $83 $259 $450 $1,002 SP International Growth Portfolio $99 $309 $536 $1,190 SP International Value Portfolio $101 $315 $547 $1,213 SP Large Cap Value Portfolio $85 $265 $460 $1,025 SP Mid Cap Growth Portfolio $93 $290 $504 $1,120 SP PIMCO High Yield Portfolio $72 $224 $390 $871 SP PIMCO Total Return Portfolio $67 $211 $368 $822 SP Prudential U.S. Emerging Growth Portfolio $68 $214 $373 $835 SP Small Cap Growth Portfolio $116 $362 $628 $1,386 SP Small Cap Value Portfolio $98 $306 $531 $1,178 SP Strategic Partners Focused Growth Portfolio $118 $368 $638 $1,409 SP T. Rowe Price Large Cap Growth Portfolio $121 $378 $654 $1,443 SP Aggressive Growth Asset Allocation Portfolio $100 $312 $542 $1,201 SP alanced Asset Allocation Portfolio $85 $265 $460 $1,025 SP Conservative Asset Allocation Portfolio $81 $252 $439 $978 SP Growth Asset Allocation Portfolio $89 $278 $482 $1,073 45

113 MORE DETAILED INFORMATION ON HOW THE PORTFOLIOS INVEST INVESTMENT OJECTIVES & POLICIES We describe each Portfolio s investment objective and policies on the following pages. 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. The assets of certain Portfolios are independently managed by more than one subadviser under a multi-manager structure. Pursuant to the multi-manager structure, the investment manager, Prudential Investments LLC (PI), determines and allocates a portion of each multi-manager Portfolio s assets to each of the subadvisers to that Portfolio. The allocations will be reviewed by PI periodically and may be altered or adjusted by PI without prior notice. Such adjustments will be reflected in the annual update to the prospectus. Although each subadviser of a given multi-manager Portfolio may follow, under normal circumstances, a similar policy of investing (for example, at least 80% mid-capitalization companies), each subadviser expects to utilize different investment strategies to achieve the Portfolio s objective. The current asset allocations and principal investment strategies for each subadviser are summarized below. 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 oard of Trustees 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. 46

114 Diversified ond 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 long-term 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 & 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 shortterm cash management. Purchase and sell options on debt securities and financial indexes; purchase and sell 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. 47

115 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 as well as smaller companies. The Portfolio will not change this policy unless it provides 60 days prior written notice to contract owners. The Portfolio considers major established companies to be those companies with market capitalizations within the market capitalization range of the Russell 1000 Index (measured as of the time of purchase). As of December 31, 2006, the market capitalization range of the Russell 1000 Index was $1.1 billion to $463.6 billion. 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 investment subadvisers 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. Clearridge Advisors LLC 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) and similar receipts or shares traded in U.S. markets 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 shortterm 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. 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. 48

116 The Portfolio is co-managed by Jennison and Clearridge Advisors, LLC (Clearridge). As of February 28, 2007, Jennison and Clearridge were each responsible for managing approximately 50% of the Portfolio s assets. 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. Prudential Investments LLC (PI) utilizes a top-down, macro-driven investment process for managing the Portfolio s allocations among the subadvisers. The target asset allocation, area of geographic focus, and primary investment style for each subadviser are set forth below: Global Portfolio: Subadviser Allocations Subadviser Target Asset Allocation Primary Geographic Focus & Asset Class Investment Style William lair 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 lair 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-to-price 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 macro-economic analysis with bottom-up stock selection. The topdown 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. 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. In selecting investments, T. Rowe Price generally looks for one or more of the following: low price/earnings, price/book value, price/sales, or price/cash flow ratios relative to the S&P 500, the company s peers, or its own historic norm; low stock price relative to a company s underlying asset values; companies that may benefit from restructuring activity; and/or a sound balance sheet and other positive financial characteristics. 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 companies located in any one country. The 35% limitation does not apply to U.S investments. The Portfolio may invest in emerging markets securities. For these purposes, we do not 49

117 consider American Depositary Receipts (ADRs) and similar receipts or shares traded in the U.S. markets 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 shortterm 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 lair & Company LLC, LSV Asset Management, Marsico Capital Management LLC, and T. Rowe Price Associates, Inc. William lair, LSV, Marsico, and T. Rowe Price are each responsible for managing approximately 25% of the Portfolio s assets. High Yield ond 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 shortterm cash management. Purchase and sell options on debt securities. 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. 50

118 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. (PIM). 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 and 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 aa by Moody s or 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) and similar receipts or shares traded in U.S. markets 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 shortterm 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. 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 Associates LLC (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 51

119 foreign banks, companies or foreign governments. The net asset value for the Portfolio will ordinarily remain at $10 per share because dividends are declared and reinvested daily. The price of each share remains the same, but when dividends are declared, the value of your investment grows. We make investments that meet the requirements of specific rulesfor 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 rulesapplicable 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. ecause 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 rulesgoverning 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. 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 (PIM). 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 publiclytraded 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. 52

120 To achieve our objective, we use the performance of the Standard & Poor s 500 Composite Stock Price Index (S&P 500 Index). We aim to hold the same security composition as the S&P 500 Index, with the exception of Prudential Financial, Inc. stock. 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 market-weighted 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 (ETFs). 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 (QMA). A stock s inclusion in the S&P 500 Index in no way implies S&P s opinion as to the stock s attractiveness as an investment. The portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representations regarding the advisability of investing in the portfolio. Standard & Poor s, Standard & Poor s 500 and 500 are trademarks of McGraw Hill. SP AIM 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 53

121 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 25% of its assets in foreign securities. Such investments may include 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. For these purposes, we do not consider American Depositary Receipts (ADRs) and similar receipts or shares traded in U.S. markets as foreign securities. 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. 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 rulesand 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 enchmark 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. 54

122 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 within the market capitalization range of the Russell 1000 Value Index (measured as of the time of purchase). As of December 31, 2006 the market capitalization range of the Russell 1000 Value Index was $1.3 billion to $463.6 billion. The Portfolio may also invest in securities of foreign companies, companies with smaller capitalizations, and companies whose shares are subject to controversy. 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). Substantial Investments in securities that are principally engaged in the financial services sector. 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 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 55

123 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 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, the Pacific asin and emerging market countries, but generally not the U.S. The principal type of equity-related security in which the Portfolio invests is common stock. In addition to common stock, the Portfolio may invest in other equity-related securities that include, but are not limited to, preferred stock, rights that can be exercised to obtain stock, warrants and debt securities or preferred stock convertible or exchangeable for common or preferred stock and master limited partnerships. The Portfolio may also invest in American Depositary Receipts (ADRs) and other similar depositary receipts and shares, which we consider to be equity-related securities. In deciding which stocks to purchase for the Portfolio, William lair looks for growth companies that have both strong fundamentals and appear to be attractively valued relative to their growth potential. William lair 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 lair 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 lair 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 lair 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 lair 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 (aa for Moody s or for S&P) have speculative characteristics and are subject to a greater risk of loss of principal and interest. On occasion, the Portfolio may 56

124 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: 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. Alternative investment strategies including derivatives to try to improve the Portfolio s returns, to protect its assets or for shortterm cash management. Forward foreign currency exchange contracts. Purchase securities on a when-issued or delayed delivery basis. orrow 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 lair and Marsico. As of February 28, 2007, William lair was responsible for managing approximately 70% of the Portfolio, and Marsico was responsible for managing approximately 30% of the Portfolio. 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, 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 a 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. The Portfolio may invest anywhere in the world, including North America, Western Europe, the United Kingdom and the Pacific asin. The companies in which the Portfolio may invest may be of any size. 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: asic Value, Consistent Earners, and Emerging Franchises. 57

125 asic 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 asic 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 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. As of February 28, 2007, LSV was responsible for managing approximately 40% of the Portfolio, and Thornburg was responsible for managing approximately 60% of the Portfolio. Under normal conditions, the Manager will determine the division of assets and cash flows for the SP International Value Portfolio among the applicable subadvisers. All daily cash inflows (that is, purchases and reinvested distributions) and outflows (that is, redemptions and expense items) will be divided among the applicable subadvisers as the Manager deems appropriate. The Manager may change the target allocation of assets among the applicable subadvisers, transfer assets between the applicable subadvisers, or change the allocation of cash inflows or cash outflows among the applicable subadvisers for any reason and at any time without prior notice. As a consequence, the Manager may allocate assets or cash flows from a portfolio segment that has appreciated more to another portfolio segment. 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. 58

126 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 companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index (measured at the time of purchase). As of December 31, 2006, the market capitalization range of the Russell 1000 Value Index was $1.3 billion to $463.6 billion. 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. 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 shortterm 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). As of February 28, 2007, J.P. Morgan, Hotchkis and Wiley, and Dreman were each responsible for managing approximately 50%, 20% and 30%, respectively, of the Portfolio s assets. 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 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 within the market capitalization range of the Russell Midcap Growth Index (measured as of the time of purchase). As of January 31, 2007, the market capitalization range of the Russell Midcap Growth Index was approximately $1.1 billion to $19.9 billion. Companies whose market capitalizations fall below 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. 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, with a focus on 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. 59

127 Lower-rated bonds. U.S. Government securities. Variable and floating rate obligations. Zero coupon bonds. Deferred interest bonds. PIK bonds. Depositary 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. 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 rady onds, 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, loan participations and assignments, delayed funding loans and revolving credit facilities. The Portfolio may invest up to 15% of its assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. Foreign currency exposure (from non-u.s. dollar-denominated securities or currencies) normally will be limited to 20% of the Portfolio s total assets. 60

128 Securities rated lower than aa by Moody s Investors Service,Inc. (Moody s) or lower than 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. 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 sectionon 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 high-yield/high risk securities (also known as junk bonds ) rated 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 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. Foreign currency exposure (from non-u.s. dollar-denominated securities or currencies) normally will be limited to 20% of the Fund s total assets. 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 61

129 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 rady onds, 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 rady onds may be viewed as speculative. rady onds 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, loan participations and assignments, delayed funding loans and revolving credit facilities. The Portfolio may invest in inflation-indexed bonds issued by both governments and corporations, which are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal. The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity. The Portfolio may 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 spreadlockswaps. 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. 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 oard of Trustees 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. 62

130 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 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 (measured as of the time of purchase). As of December 31, 2006, the market capitalization range of the Russell Midcap Growth Index was $1.1 billion to $21.4 billion. 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, the cash value of common stock or some other equity security. The Portfolio will only invest in investment-grade convertible securities. Generally, the Portfolio considers selling a security when, in the opinion of the investment adviser, the stock has experienced a fundamental disappointment in earnings; it has reached an intermediate-term price objective and its outlook no longer seems sufficiently promising; a relatively more attractive stock emerges; or the stock has experienced adverse price movements. 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 aa/ or better by Moody s Investors Service,Inc. or Standard & Poor s Ratings Group (S&P), respectively). The Portfolio also may invest in obligations that are not rated, but which it believes to be of comparable quality. Obligations rated in the fourth category (aa/) 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. 63

131 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, 2006, 2005 and 2004, the Portfolio s turnover rates were 70%, 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 Associates LLC (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 Portfolio 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. The Portfolio may also pursue the following types of investment strategies and/or invest in the following types of securities: Derivatives. 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. rady onds. 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 erman Management Inc. (Neuberger erman) and Eagle Asset Management (Eagle). As of February 28, 2007, Neuberger erman and Eagle were each responsible for managing approximately 50% of the Portfolio s assets. 64

132 SP 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 within the market range of the Russell 2000 Value Index (measured as of the time of purchase). As of January 31, 2007, the market capitalization range of the Russell 2000 Value Index was approximately $82 million to $3.4 billion. 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 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 well-positioned, 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. y 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. Clearridge emphasizes individual security selection while spreading the Portfolio s investments among industries and sectors. Clearridge 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. Clearridge uses quantitative parameters to select a universe of smaller capitalized companies that fit the Portfolio s general investment criteria. In selecting individual securities from within this range, Clearridge 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. Clearridge also uses quantitative methods to identify catalysts and trends that might influence the Portfolio s industry or sector focus, or Clearridge 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 than 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. 65

133 Equity and/or debt securities of Real Estate Investment Trusts (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 Clearridge Advisors, LLC ( Clearridge ). As of February 28, 2007, GSAM and Clearridge were each responsible for managing approximately 50% of the Portfolio s assets. 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 and 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 Allianceernstein 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. 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 subadviser will sell the stock at that time. During market declines, either investment subadviser 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 subadviser 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 subadviser uses what is known as a growth investment style. This means that each subadviser 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 Allianceernstein s portion of the portfolio are made by Allianceernstein s US Large Cap Growth Team, which is responsible for management of all of Allianceernstein 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. 66

134 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 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 and 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 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 Associates LLC (Jennison) and Allianceernstein L.P. 67

135 SP T. Rowe Price 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 January 31, 2007, such median market capitalization was $5.7 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, including large cap stocks, convertible and preferred securities, warrants and rights. The Portfolio may also invest in foreign securities (up to 15% of the Portfolio s total assets), 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. SP Asset Allocation Portfolios SP Aggressive Growth Asset Allocation Portfolio SP alanced 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 68

136 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 oard 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 Portfolios is a fund of funds. That means that each SP Asset Allocation Portfolio invests primarily in one or more mutual funds as described below. Other mutual funds in which in which an SP Asset Allocation Portfolio may invest are collectively referred to as the Underlying Portfolios. Consistent with the investment objectives and policies of the SP Asset Allocation Portfolios, other mutual funds may from time to time may be added to, or removed from, the list of Underlying Portfolios that may be used in connection with the SP Asset Allocation Portfolios. Currently, the only Underlying Portfolios in which the SP Asset Allocation Portfolios are authorized to invest are other Portfolios of the Fund, the AST Marsico Capital Growth Portfolio of Advanced Series Trust (AST), the AST International Value Portfolio of AST and certain money market funds advised by the Manager or its affiliates. AST is an open-end management investment company co-managed by the Manager and its affiliate, AST Investment Services, Inc. under a manager-of-managers approach. 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 alanced Asset Allocation SP Growth Asset Allocation SP Conservative Asset Allocation SP Aggressive Growth 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. The SP Asset Allocation Portfolios are not limited to investing exclusively in shares of the Underlying Portfolios. Each SP Asset Allocation Portfolio is now permitted under current law to invest in securities as defined under the Investment Company Act of For these purposes, the term securities includes, without limitation, shares of common or preferred stock, warrants, security futures, notes, bonds, debentures, any put, call, straddle, option, or privilege on any security or on any group or index of securities, or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency. 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. 69

137 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. ecause 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 Trustees 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 International Value Portfolio, please refer to their investment summaries included in this Prospectus. The investment objectives and policies of the AST International Value Portfolio are substantially similar to the investment objectives and policies of the SP International Value Portfolio. For more information on the AST Marsico Capital Growth 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 topdown macroeconomic analysis with bottom-up stock selection. The Portfolio s core investments generally are comprised of wellknown, established growth companies. However, the Portfolio also may typically include more aggressive growth companies, and companies undergoing significant changes: 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. 70

138 MORE DETAILED INFORMATION AOUT OTHER INVESTMENTS & STRATEGIES USED Y THE PORTFOLIOS ADDITIONAL INVESTMENTS & STRATEGIES 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-acked 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, the cash value of common stock or some other security 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 credit-linked security at an agreed-upon interest rate, and a return of principal at the maturity date. See also Credit Default Swaps defined above. 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 onds 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 71

139 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. y 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. 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 mortgage-related securities that are not guaranteed by U.S. Governmental entities generally have one or more types of credit enhancement to ensure timely receipt of payments and to protect against default. Mortgage-related securities include collateralized mortgage obligations, multi-class pass through securities and stripped mortgagebacked 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. 72

140 Payments of principal and interest on the mortgage assets and any reinvestment income provide the money to pay debt service on the CMO or to make scheduled distributions on the multi-class pass-through security. A stripped mortgage-backed security (MS strip) may be issued by U.S. Governmental entities or by private institutions. MS 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. MS 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 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-ox A short sale against the box involves selling a security that the Portfolio owns, or has the right to obtain without additional costs, for delivery at a specified date in the future. A Portfolio may make a short sale against the box to hedge against anticipated declines in the market price of a portfolio security. If the value of the security sold short increases instead, the Portfolio loses the opportunity to participate in the gain. 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) 73

141 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 when-issued transactions only with the intention of actually acquiring the securities. A Portfolio s custodian will maintain in a segregated account, liquid assets having a value equal to or greater than such commitments. If the Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other security, incur a gain or loss. 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 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. 74

142 HOW THE FUND IS MANAGED OARD OF TRUSTEES The oard of Trustees oversees the actions of the Investment Manager, the Subadvisers and the Distributor and decides on general policies. The oard also oversees the Fund s officers who conduct and supervise the daily business operations of the Fund. INVESTMENT MANAGER Prudential Investments LLC (PI), a wholly-owned subsidiary of Prudential Financial,Inc., serves as the overall investment manager 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, 2006, 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 $106.6 billion. The Fund uses a manager-of-managers structure. Under this structure, PI is authorized to select (with approval of the Fund s independent trustees) 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. A discussion regarding the basis for the oard s approval of the Fund s investment advisory agreements is available in the Fund s semiannual report (for agreements approved during the six-month period ended June 30), and in the Fund s annual report (for agreements approved during the six-month period ended December 31). INVESTMENT MANAGEMENT FEES The following chart lists the total effective annualized investment management fees paid by each Portfolio of the Fund to PI during 2006: Investment Management Fees Paid by the Portfolios Portfolio Total investment management fees as % of average net assets Diversified ond Portfolio 0.40% Equity Portfolio 0.45% Global Portfolio 0.75% High Yield ond Portfolio 0.55% Jennison Portfolio 0.60% Money Market Portfolio 0.40% Stock Index Portfolio % SP AIM Core Equity Portfolio 0.85% SP Davis Value Portfolio 0.75% SP International Growth Portfolio 0.85% SP International Value Portfolio 0.90% SP Large Cap Value Portfolio 0.80% SP Mid Cap Growth Portfolio 0.80% SP PIMCO High Yield Portfolio 0.60% SP PIMCO Total Return Portfolio 0.60% SP Prudential U.S. Emerging Growth Portfolio 0.60% SP Small Cap Growth Portfolio 0.95% SP Small Cap Value Portfolio 0.90% SP Strategic Partners Focused Growth Portfolio 0.90% SP T. Rowe Price Large Cap Growth Portfolio % SP Aggressive Growth Asset Allocation Portfolio 0.05% SP alanced Asset Allocation Portfolio 0.05% 75

143 SP Conservative Asset Allocation Portfolio 0.05% SP Growth Asset Allocation Portfolio 0.05% 1 The Portfolio's contractual management fee rate is as follows: 0.35% for average net assets up to $4 billion, and 0.30% for average net assets in excess of $4 billion. 2 Represents effective fee after waiver. The contractual fee rate is 0.90% of average net assets. INVESTMENT SUADVISERS Each Portfolio of the Fund has one more more investment subadvisers providing the day-to-day investment management of the Portfolio. PI pays each investment subadviser out of the fee that PI receives from the Fund. The investment subadvisers for each Portfolio of the Fund are listed in the table below: Investment Subadvisers Portfolio Diversified ond Portfolio Equity Portfolio Global Portfolio High Yield ond Portfolio Jennison Portfolio Money Market Portfolio Stock Index Portfolio SP AIM Core Equity Portfolio SP Davis Value Portfolio SP International Growth Portfolio SP International Value Portfolio SP Large Cap 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 Aggressive Growth Asset Allocation Portfolio SP Growth Asset Allocation Portfolio SP alanced Asset Allocation Portfolio SP Conservative Asset Allocation Portfolio Investment Subadviser PIM Jennison Associates LLC (Jennison) Clearridge Advisors, LLC William lair & Company LLC LSV Asset Management Marsico Capital Management, LLC T. Rowe Price Associates PIM Jennison PIM QMA A I M Capital Management, Inc. Davis Advisors William lair & Company LLC Marsico Capital Management, LLC LSV Asset Management Thornburg Investment Management Inc. J.P Morgan Investment Management, Inc. Hotchkis and Wiley Capital Management LLC Dreman Value Management LLC Calamos Advisors LLC PIMCO PIMCO Jennison Neuberger erman Management Inc. Eagle Asset Management Goldman Sachs Asset Management, L.P. Clearridge Advisors, LLC Jennison Allianceernstein L.P. T. Rowe Price Associates, Inc. Prudential Investments LLC (Adviser) Prudential Investments LLC (Adviser) Prudential Investments LLC (Adviser) Prudential Investments LLC (Adviser) 76

144 Descriptions of each subadviser are set out below: Jennison Associates LLC (Jennison) is an indirect, wholly-owned subsidiary of Prudential Financial, Inc. As of December 31, 2006 Jennison managed in excess of $77 billion in assets for institutional, mutual fund and certain other clients. Jennison s address is 466 Lexington Avenue, New York, New York Prudential Investment Management, Inc. (PIM) is an indirect, wholly-owned subsidiary of Prudential Financial, Inc. As of December 31, 2006 PIM had approximately $242.3 billion in assets under management. PIM s address is Gateway Center Two, 100 Mulberry Street, Newark, New Jersey Quantitative Management Associates LLC (QMA) is a wholly owned subsidiary of Prudential Investment Management, Inc. (PIM). QMA s address is Gateway Center Two, 100 Mulberry Street, Newark, New Jersey A I M Capital Management, Inc. (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 uses a team approach to investment management. As of December 31, 2006, AIM Capital and its affiliates managed approximately $149 billion in assets. AIM Capital s address is 11 Greenway Plaza, Suite 100, Houston, Texas Allianceernstein L.P. (Allianceernstein) has helped investors build and preserve wealth through disciplined investment strategies for over 35 years. Allianceernstein is a globally recognized leader in growth, value, fixed income, and style-blend investing. Allianceernstein 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. Allianceernstein s assets under management totaled $717 billion, as of December 31, Allianceernstein s address is 1345 Avenue of the Americas, New York, New York Calamos Advisors LLC (Calamos), a registered investment adviser, is a wholly-owned subsidiary of Calamos Holdings LLC. As of December 31, 2006, Calamos managed approximately $44.7 billion in assets for institutions, individuals, investment companies and hedge funds. Calamos address is 2020 Calamos Court, Naperville, Illinois Clearridge Advisors, LLC (Clearridge) has offices at 399 Park Avenue, New York, New York, 10022, and is a recently-organized investment adviser that has been formed to succeed to the equity securities portfolio management business of Citigroup Asset Management, which was acquired by Legg Mason, Inc. in December Clearridge is a wholly-owned subsidiary of Legg Mason. Legg Mason, whose principal executive offices are at 100 Light Street, altimore, Maryland 21202, is a global asset management company. As of December 31, 2006, Clearridge had assets under management of approximately $115.8 billion. Davis Advisors (Davis) managed approximately $98 billion in assets as of December 31, Davis address is 2949 East Elvira Road, Suite 101, Tucson, Arizona Dreman Value Management LLC (Dreman) had approximately $21.6 billion under management as of December 29, Dreman s address is Harborside Financial Center, Plaza 10, Suite 800, Jersey City, NJ Eagle Asset Management (Eagle) is a wholly-owned subsidiary of Raymond James Financial,Inc. that was founded in Eagle employs approximately 44 investment professionals, and has approximately $13 billion in assets under management as of December 31, Eagle s address is 880 Carillon Parkway, St. Petersburg, Florida Goldman Sachs Asset Management, L.P. (GSAM) has been registered as an investment adviser with the SEC since 1990 and is an affiliate of Goldman, Sachs & Co. ( Goldman Sachs ). As of December 31, 2006, GSAM had assets under management of $627.6 billion. GSAM s address is 32 Old Slip, New York, New York

145 Hotchkis and Wiley Capital Management LLC (Hotchkis and Wiley) is a registered investment adviser, the primary members of which are HWCap Holdings, a limited liability company whose members are current and retired employees of Hotchkis and Wiley and Stephens-HW, LLC, a limited liability company whose primary member is SF Holding Corp., which is a diversified holding company. As of December 31, 2006, Hotchkis and Wiley had approximately $35.6 billion in assets under management. Hotchkis and Wiley s address is 725 South Figueroa Street, 39th Floor, Los Angeles, California J.P. Morgan Investment Management Inc. (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, 2006, J.P. Morgan and its affiliated companies had approximately $1,013 billion in assets under management worldwide. J.P. Morgan s address is 245 Park Avenue, New York, New York LSV Asset Management (LSV) was formed in LSV is a quantitative value equity manager providing active asset management for institutional clients through the application of proprietary models. As of December 31, 2006, LSV had approximately $70 billion in assets under management. LSV s address is One North Wacker Drive, Suite 4000, Chicago, Illinois Marsico Capital Management, LLC (Marsico) was organized in September 1997 as a registered investment adviser and became a wholly-owned indirect subsidiary of ank of America Corporation in January Marsico provides investment management services to other mutual funds and private accounts and, as of December 31, 2006, had approximately $83.7 billion under management. Thomas F. Marsico is the founder and Chief Executive Officer of Marsico. Marsico s address is th Street, Suite 1600, Denver, Colorado Neuberger erman Management Inc. (Neuberger erman) is a wholly owned subsidiary of Neuberger erman Inc. ( NI ), which is a wholly owned subsidiary of Lehman rothers Holdings Inc. ( LHI ). LHI, which trades on the New York Stock Exchange under the ticker symbol LEH through its subsidiaries (LHI and its subsidiaries collectively Lehman rothers ), is one of the leading global investment banks, serving institutional, corporate, government and high net worth individual clients. Lehman rothers, 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 erman and its affiliates had approximately $126.9 billion in assets under management as of December 31, Neuberger erman s address is 605 Third Avenue, New York, New York 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 SE ( Allianz SE ) is the indirect majority owner of AGI LP. Allianz SE is a European-based, multinational insurance and financial services holding company. As of December 31, 2006, PIMCO managed over $667.8 billion in assets. PIMCO s address is 840 Newport Center Drive, Newport each, California T. Rowe Price Associates, Inc. (T. Rowe Price) and its affiliates managed approximately $334.7 billion in assets as of December 31, 2006, including $41.6 billion in assets managed by T. Rowe Price International, Inc. T. Rowe Price s address is 100 East Pratt Street, altimore, Maryland Thornburg Investment Management, Inc. (Thornburg) is an independent, employee-owned investment management firm located in Santa Fe, New Mexico. 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. As of December 31, 2006, Thornburg had approximately $33.7 billion in assets under management. Thornburg s address is 119 East Marcy Street, Santa Fe, New Mexico William lair & Company LLC (William lair). Since the founding of the firm in 1935, William lair 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, 2006, William lair managed approximately $42.9 billion in assets. William lair s address is 222 West Adams Street, Chicago, Illinois

146 PORTFOLIO MANAGERS Information about the portfolio managers responsible for the day-to-day management of the Fund s Portfolios is set forth below. In addition to the information set forth below, the Fund s 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. Conservative alanced Portfolio and Flexible Managed Portfolio Fixed-Income Segments Kay T. Willcox and Malcolm Dalrymple of the Fixed Income unit (PIM-Fixed Income) of Prudential Investment Management, Inc. manage the fixed income segments of the Portfolios. Kay T. Willcox, Managing Director, has managed the fixed income portion of the Portfolios since She is also portfolio manager for PIM-Fixed Income s Core Fixed Income Strategy and is a mortgage portfolio manager. Formerly, Ms. Willcox managed a segment of The Prudential Insurance Company of America s proprietary portfolio and mutual fund fixed income portfolios, and handled mortgage-backed security analysis and trading. Ms. Willcox joined Prudential Financial in She has 24 years of investment experience. Malcolm Dalrymple, Principal, has managed the fixed income portion of the Portfolios with Ms. Willcox since He is also a portfolio manager for PIM-Fixed Income s Structured and Short Maturity Strategies and is a corporate bond portfolio manager. He has specialized in corporate bonds since Earlier, he was a money markets portfolio manager. He joined Prudential Financial in 1979 as a securities lending trader and a bank analyst. Mr. Dalrymple has 23 years of investment experience. Equity Segments QMA typically follows a team approach in the management of its portfolios. Margaret Stumpp, John Moschberger, Michael Lenarcic and Stacie Mintz are the members of QMA s portfolio management team primarily responsible for the day-to-day management of the equity portion of the Conservative alanced Portfolio. Margaret S. Stumpp, PhD, is the Chief Investment Officer of QMA. She is a portfolio manager for enhanced index equity portfolios for institutional investors and mutual fund clients. Maggie is extensively involved in quantitative research in asset allocation, security selection and portfolio construction for QMA. Maggie joined QMA s predecessor in She has published articles on finance and economics in numerous publications, including, The Financial Analysts Journal, The Journal of Portfolio Management, The Journal of Investment Management and Award Papers in Public Utility Economics. Maggie earned a A cum laude with distinction in Economics from oston University, and holds an AM and PhD in Economics from rown University. She has managed the Conservative alanced Portfolio since John W. Moschberger, CFA, is a Managing Director of QMA. 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 equitiesand foreign exchange and derivative instruments. He joined QMA s predecessor in John earned a S in Finance from the University of Delawareand an MA from Fairleigh Dickinson University. He has managed the Conservative alanced Portfolio since Michael A. Lenarcic, PhD, is a Managing Director of QMA. He manages single client accounts and co-manages two commingled balanced portfolios. He joined QMA s predecessor in Previously, Mike was a vice president at Wilshire Associates, a pension consulting firm, where he was head of the Asset Allocation Division. In this capacity, he worked with plan sponsors and investment managers in the selection of appropriate investment policies. Earlier, Mike was an assistant professor at Northeastern University where he taught Finance and Economics. He earned a A in usiness Administration from Kent State University, and holds an AM and PhD in usiness Economics from Harvard University. He has managed the Conservative alanced Portfolio since Stacie L. Mintz is a Principal of QMA. Stacie manages the overall asset allocation for several large pension plans. In addition, she manages several retail balanced portfolios and an institutional tax managed equity fund. Stacie started with the Prudential Asset Management Group in 1992 as a member of the Comptroller s Group. She joined QMA s predecessor in 1994 to work with the balanced management business. In 1997, she became a member of QMA s Investment Committee. Stacie earned a A in Economics from Rutgers University and an MA in Finance from New York University. She has managed the Conservative alanced Portfolio since

147 Margaret Stumpp, Michael Lenarcic and Stacie Mintz are primarily responsible for the day-to-day management of the equity portion of the Flexible Managed Portfolio.Their backgrounds are discussed above.ms. Stumpp has managed the Flexible Managed Portfolio since Mr. Lenarcic and Ms. Mintz began managing the Flexible Managed Portfolio in Diversified ond Portfolio Steven Kellner, Robert Tipp, and David essey 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 onds, High Yield, Emerging Markets, and ank Loans. He also is a senior portfolio manager for Investment Grade Corporate onds and is co-portfolio manager for Core Plus strategies. He has managed the 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 ond strategies, and is co-portfolio manager of Core Plus, U.S. Government, and Municipal ond strategies. Previously, Mr. Tipp served as co-head of Prudential Financial s institutional fixed income business. efore joining Prudential Financial in 1991, Mr. Tipp was a Director in the Portfolio Strategies Group at First oston 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 23 years of investment experience. David essey is Managing Director and Head of the Emerging Markets Team. Mr. essey is also co-portfolio manager for all Core Plus Fixed Income strategies. He has managed the Portfolio since From 1994 to 1999, Mr. essey 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. essey joined Prudential Financial in 1989 and has 17 years of investment experience. Equity Portfolio Spiros Sig Segalas, lair A. oyer and David A. Kiefer, CFA, are the portfolio managers of the portion of the Portfolio managed by Jennison. Mr. Segalas, Mr. oyer 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.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 lair A. oyer is a Managing Director of Jennison, which he joined in March In January 2003, Mr. oyer 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. oyer managed international equity portfolios at Arnhold & S. leichroeder, Inc. from 1989 to Prior to that, he was a research analyst and then a senior portfolio manager in the Verus Capital division at leichroeder. Mr. oyer graduated from ucknell University in 1983 with a.a. in Economics. He received a M..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 1999 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 utility and power industry. He then left to attend business school, rejoining Prudential in equity asset management in Mr. Kiefer earned a.s. from Princeton University and a M..A. from Harvard usiness 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 80

148 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 Clearridge, has been responsible for the day-to-day management of the portion of the Portfolio advised by Clearridge since February Mr. Kagan has been with Clearridge or its predecessor entities since Michael Kagan is a Managing Director, Co-Director of Research and Senior Portfolio Manager at Clearridge Advisors. Michael joined a predecessor organization in 1994 and has 21 years investment industry experience. He is an Investment Committee Member and manages large cap core, sector neutral strategies. Michael previously was employed as an Equity Analyst for Zweig Advisors and portfolio manager of the Fidelity Select Construction and Housing Fund at Fidelity Investments. Mr. Kagan received his A in Economics from Harvard College and attended MIT Sloan School of Management. Global Portfolio W. George Greig, is responsible for the day-to-day management of the portion of the Portfolio advised by William lair. Mr. Greig, a principal of William lair, has headed the firm s international investment management team since He serves as the Portfolio Manager for the William lair International Growth Fund as well as leading the Portfolio Team on separately managed portfolios. efore joining William lair, he headed international equities for PNC ank 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:. S., Massachusetts Institute of Technology; M..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 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 more than 13 years of investment and research experience. Prior to joining LSV, Mr. Vermeulen served as a portfolio manager for AP 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. rian 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. rian 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 oard 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, rian was employed by ankers Trust Company. He earned an A.. from Harvard College and an M..A. from Harvard usiness 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 ank. David earned a.a. in Finance and Political Economy with honors from Hillsdale College. He also earned the Chartered Financial Analyst accreditation. 81

149 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 ankers Trust and E.T. Petroleum. He earned a.a. from Amherst College and an M..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 ond 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 Richard urns, 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 20 years of investment experience. He has managed the Portfolio since Richard urns, 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. urns joined Prudential Financial in 1986 as a research analyst. Prior to joining Prudential Financial, Mr. urns worked in public accounting at Peat, Marwick, and Mitchell and at Colgate Palmolive. He has managed the Portfolio since 1999 and has 24 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. efore 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 oard 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 20 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 13 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 also, Spiros Sig Segalas and Kathleen A. McCarragher are the portfolio managers of the Portfolio. Mr. Del also 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 also 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 also graduated from Yale University in 1966 and received his M..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 82

150 of Jennison. He received his.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..a. in 1977 and received her M..A. from Harvard usiness 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. 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 rasil, Robert rowne and Douglas Spratley of PIM-Fixed Income are primarily responsible for the day-today management of the Portfolio. Joseph M. Tully, Managing Director, has managed the Portfolio since 1995.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 22 years of experience managing short-term fixed income investments, and 24 years of total investment experience. Manolita rasil is Vice President and portfolio manager and has managed the Portfolio since In addition, Ms. rasil 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. rasil joined Prudential Financial in 1979 and has 19 years of investment experience. Robert T. rowne is Vice President and portfolio manager and has managed the Portfolio since efore 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. rowne joined Prudential Financial in 1989 and has 13 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-to-day 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 S in Finance from the University of Delaware, and an MA from Fairleigh Dickinson University. He has managed the Portfolio since Value Portfolio David A. Kiefer, CFA, and Avi Z. erg are the portfolio managers of the Portfolio. Mr. Kiefer and Mr. erg generally have 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. 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 1999 and large cap blend 83

151 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 utility and power industry. He then left to attend business school, rejoining Prudential in equity asset management in Mr. Kiefer earned a.s. from Princeton University and a M..A. from Harvard usiness School. He has managed the Portfolio since January Avi Z. erg, is a Managing Director of Jennison, which he joined in January Prior to that, he was with Goldman Sachs Asset Management from 1997 to 2000 as an Equity Research Associate for their small and mid cap value funds. From 1995 to 1997, Mr. erg worked in equity research at Schroder Wertheim & Co. and Fir Tree Partners. From 1991 to 1995, he was a consultant with Price Waterhouse LLP. Mr. erg received his A.. in Economics magna cum laude from Harvard University in 1991 and his M..A. in Finance and Accounting with honors and distinctions from Columbia usiness School in He has managed the Portfolio since January 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. 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 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 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 International Growth Portfolio W. George Grieg is responsible for the day-to-day management of the segment of the Portfolio managed by William lair. Mr. Grieg is a principal of William lair and joined the firm in 1996 as an international portfolio manager. Mr. Grieg has managed the Portfolio since William lair became a subadviser to the Portfolio in May 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 MA in Finance from the University of Chicago. Mr. Gendelman was a certified public accountant for Ernst Young from 1983 to Mr. Gendelman has managed the Portfolio since Marsico became a subadviser to the Portfolio in November

152 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 AP Investments. Mr. Mansharamani is a Partner and Portfolio Manager since January2006. 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. efore joining Thornburg in May 1995, Mr. Fries managed equity mutual funds for 16 years with another mutual fund management company. efore joining Thornburg in March 1999, Ms. Trevisani served as an institutional sales representative for Salomon Smith arney in both New York City and London. Ms. Trevisani holds an MA degree with a concentration in Finance from Columbia University, and a A in International Relations from ucknell 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 ank in both London and New York City. Previously, Mr. Wang was an Analyst with The People s ank of China (China s central bank) in Shanghai, China. He completed his A and MA at East China Normal University and received his MA 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. 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. Zingone has managed the Portfolio since January Mr. Chen has managed the Portfolio since May 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, in-depth, 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. Although the portion of the Portfolio is managed by Hotchkis and Wiley s investment team, 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 2004, with the exception of Mr. Green, who has managed the Portfolio since February 2007 This list does not include all members of the investment team. Sheldon Lieberman, George Davis, Patricia McKenna, Stan Majcher and David Green participate in the investment decision process during the group meetings in which the team decides the stock/weight selection for the target portfolio. They have authority to direct trading activity on the Fund. Mr. Majcher and Mr. Green are jointly responsible for the day-to-day management of the Fund s cash flows, which includes directing the Fund s purchases and sales to ensure that the Fund s holdings remain reflective of the target portfolio. 85

153 Mr. Lieberman, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1994 as Portfolio Manager and Analyst. 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. Ms. McKenna, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1995 as Portfolio Manager and Analyst. Mr. Majcher, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1996 as Analyst and became Portfolio Manager in Mr. Green, currently Principal and Portfolio Manager of Hotchkis and Wiley, joined Hotchkis and Wiley in 1997 as Portfolio Manager and Analyst. David N. Dreman and E. Clifton Hoover, Jr. are the portfolio managers for the portion of the Portfolio managed by Dreman. David N. Dreman. Chairman and Chief Investment Officer of Dreman Value Management, L.L.C. and Co-Lead Portfolio Manager. egan investment career in Founder, Dreman Value Management, L.L.C. Mr. Dreman serves 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 $21.6 billion under management as of December 2006, 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 E. Clifton Hoover, Jr. Co-Chief Investment Officer and Co-Lead Portfolio Manager. egan investment career in 1985 Mr. Hoover will serve as the co-lead portfolio manager E. Clifton Hoover, Jr. has over 20 years of investment experience managing portfolios for both large and small-sized companies. Mr. Hoover joined Dreman from NFJ Investment Group, where he was Managing Director and a Portfolio Manager. Mr. Hoover successfully oversaw several Large and Small Cap portfolios at NFJ, where he had worked since In addition, he handled consultant relationship building and retail channel support From , he served as Vice President-Corporate Finance at Credit Lyonnais, where he was responsible for the financial analysis and client servicing of a $5 billion diversified corporate portfolio. Prior to that, Mr. Hoover spent two years as a Financial Analyst for Citibank and five years as a Credit Analyst/Corporate Loan Officer for Republicank (now ank of America). Mr. Hoover graduated with a Masters in Finance from Texas Tech University in SP Mid Cap Growth Portfolio Calamos Advisors employs a team approach to portfolio management, with teams led by the Co-Chief Investment Officers (the Co- CIOs) and comprised generally of the Co-CIOs, senior strategy analysts, intermediate analysts and junior analysts. The Co-CIOs and senior strategy analysts are supported by and lead a team of investment professionals whose valuable contributions create a synergy of expertise that can be applied across many different investment strategies. Portfolio holdings ar reviewed and trading activity is discussed on a regular basis by team members. Team members, including the Co-CIOs and senior strategy analysts, may each make trading decisions guided by the Portfolio s investment objectives and strategy. While day-to-day management of the Portfolio is a team effort, the Co-CIOs, along with the senior strategy analysts, have joint primary and supervisory responsibility for the Portfolio, and work with all team members in developing and executing the Portfolio s investment program. The Co-CIOs and senior strategy analysts are identified below. John P. Calamos, Sr., Co-CIO of Calamos Advisors, generally focuses on the top-down approach of diversifiication by industry sector and macro-level investment themes. Nick P. Calamos, Co-CIO of Calamos Advisors, also focuses on the top-down approach of diversification by industry sector and macro-level investment themes and, in addition, focuses on the bottom-up approach and corresponding research and analysis. John P. Calamos, Jr., John Hillenbrand, Steve Klouda, Jeff Scuderi and Jon Vacko are each senior strategy analysts. During the past five years, John P. Calamos, Sr. has been Chairman, CEO and Co-CIO of Calamos Advisors and its predecessor company. Nick P. Calamos has been Senior Executive Vice President and Co-CIO of Calamos Advisors and its predecessor company. John P. Calamos, Jr., Executive Vice President of Calamos Advisors, joined the firm in 1985 and has held various senior investment positions since that time. John Hillenbrand joined Calamos Advisors in 2002 and has been a senior strategy analyst since August Steve Klouda joined Calamos Advisors in 1994 and has been a senior strategy analyst since July Jeff Scuderi joined Calamos Advisors in 1997 and has been a senior strategy analyst since September Jon Vacko joined Calamos Advisors in

154 and has been a senior strategy analyst since July John P. Calamos Sr. and Nick P. Calamos have managed the Portfolio since Calamos Advisors became the Portfolio s subadviser in December John P. Calamos, Jr., John Hillenbrand, Steve Klouda, Jeff Scuderi and Jon Vacko have managed the Portfolio since May SP PIMCO High Yield Portfolio Mark Hudoff of PIMCO is responsible for the day-to-day management of the Portfolio s assets. Mr. Hudoff is an Executive Vice President and portfolio manager in the high yield area. He joined PIMCO in 1996, previously having been associated with CA where he worked as a fixed income strategist. Mr. Hudoff started as a credit analyst for the high yield team and moved to Europe in 2000 to build and manage our European credit business, including the management of PIMCO s European High Yield funds. He currently oversees the European team and our Global High Yield products. Mr. Hudoff has eighteen years of investment experience and holds a bachelor s degree in economics from Arizona State University, and an MA in finance from the University of Chicago School of usiness. Mr. Hudoff has managed the Portfolio since May SP PIMCO Total Return Portfolio Chris Dialynas of PIMCO is responsible for the day-to-day management of the portfolio s assets. Mr. 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 oard 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 MA in finance from The University of Chicago Graduate School of usiness. Mr. Dialynas has managed the Portfolio since September 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. A. in Economics from the College of the Holy Cross in 1982 and his M..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 erman. Mr. Fasciano has been a managing director of Neuberger erman since From 1986 through 2001, Mr. Fasciano was President of Fasciano Company,Inc. From 1983 to 1986, Mr. Fasciano was an analyst with CS Financial Corporation. Mr. Fasciano has managed the portion of the Portfolio advised by Neuberger erman since May ert oksen, Senior Vice President and Managing Director of Eagle, is responsible for the portion of the Portfolio advised by Eagle Asset Management. Mr. oksen received a.a. degree in business from City College of New York in 1970 and his M..A. in Finance from St. John s University in Mr. oksen is a Chartered Financial Analyst, and has been a Senior Vice President of Eagle since April He has portfolio management responsibilities for the Small Cap Growth Equity accounts. Mr. oksen was appointed a Managing Director of Eagle in June1999. Prior to joining Eagle, Mr. oksen was Senior Vice President and Chief Investment Officer of Raymond James Associates, Inc. where he was Chairman of the Raymond James Focus Committee. Mr. oksen has managed the portion of the Portfolio advised by Eagle since May

155 SP 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, Dolores amford, Scott Carroll, J. Kelly Flynn, Edward Perkin, Sally Pope Davis, Robert Crystal and Peter Hable. James (Chip). 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 A 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 A from Adelphi University and an MA in Finance from the Stern School of usiness at New York University. Lisa is a CFA charter holder. Dolores amford, 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 A 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. efore 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 S in Accounting from Northern Illinois University and an MA from the University of Chicago Graduate School of usiness. Scott is a CFA charter holder. J. Kelly Flynn: Vice President; Portfolio Manager Kelly is a Portfolio Manager for the US Value Team, where he has broad research responsibilities across the value 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. efore 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 for First oston in the Mergers and Acquisitions Department. Kelly has 14 years of industry experience. He received a A from Harvard and an MA from the Wharton School of usiness at the University of Pennsylvania. Edward Perkin, CFA: 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 A from the University of California, Santa arbara and an MA from Columbia usiness School. Edward is a CFA charter holder. Sally Pope Davis: Vice President; Portfolio Manager Sally is a Portfolio Manager for the U.S. Value Team, where she has broad research responsibilities across the value strategies. Prior to joining Goldman Sachs Asset Management in 2001, Sally was a Relationship Manager for two years in Private Wealth Management. Previously, she was a sell-side ank Analyst for ten years in the Goldman Sachs Investment Research Department. efore her experiences at Goldman Sachs, Sally spent two years as a ank Analyst at rown rothers Harriman Co. and six years at Chase 88

156 Manhattan. Robert Crystal: Vice President; Portfolio Manager Robert is a Portfolio Manager on the U.S. Value Team, where he covers Small Cap Value technology stocks. efore joining Goldman Sachs Asset Management, Rob was a Director at rant Point Capital Management LLC. efore that, he was a Vice President at Schroder Investment Management and Assistant Vice President at Wheat First utcher Singer. Rob joined the Value Team in March of Peter Hable is responsible for the day-to-day management of the portion of the Portfolio advised by Clearridge. Mr. Hable has more than 24 years of investment industry experience and is a Managing Director, Senior Portfolio Manager of Clearridge. Mr. Hable has a.s. in Economics from Southern Methodist University and an MA from the University of Pennsylvania s Wharton School of Finance. He has been with Clearridge or its predecessor entities since SP Strategic Partners Focused Growth Portfolio The management of and investment decisions for the portion of the Portfolio managed by Allianceernstein are made by Allianceernstein s US Large Cap Growth Team, which is responsible for management of all of Allianceernstein 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 Allianceernstein. Mr. Wallace joined Allianceernstein 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 A 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.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..a. in 1977 and received her M..A. from Harvard usiness 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 Robert W. Sharps has been 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 lue 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 Growth Fund. Prior to joining the firm in 1997, Mr. Sharps was a Senior Consultant at KPMG Peat Marwick. He earned a.s., summa cum laude, in Accounting from Towson University and an M..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. 89

157 SP Asset Allocation Portfolios PI typically uses teams of portfolio managers and analysts to manage the SP Asset Allocation Portfolios. The following portfolio managers share overall responsibility for coordinating the Portfolios activities, including determining appropriate asset allocations and Underlying Portfolio weights, reviewing overall Portfolio compositions for compliance with stated investment objectives and strategies, and monitoring cash flows. Michael Lenarcic, PhD, is a portfolio manager for the Portfolios and has discretionary responsibility to implement the Portfolios investment strategies and to invest cash flows 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 A in usiness Administration from Kent State University, and holds an AM and PhD in usiness Economics from Harvard University. Ted Lockwood is a portfolio manager for the Portfolios and a Managing Director of QMA. Previously, Mr. Lockwood was with ATT and a member of the technical staff at ATT ell Laboratories. Mr. Lockwood graduated summa cum laude with a E in Engineering from Stony rook University and received an MS in Engineering and an MA in Finance from Columbia University. James G. Russell, CIMA, CFA, is a portfolio manager for the Portfolios and has overall responsibility for PI s investment research efforts. Prior to joining PI 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. Marcus Perl, is a portfolio manager for the Portfolios and a Vice President of PI. He focuses on the quantitative modelling of asset allocation strategies, financial market research, and the formulation of investment strategy. Prior to joining Prudential in October 2000, Mr. Perl was Vice President at FX Concepts where he was responsible for market risk modelling, performance analytics, and statistical research. He also worked as an Associate at Wilshire Associates. Mr. Perl holds an MA in Finance from the Warsaw School of Economics, an MA in Econometrics from California State University Long each, and an MA in Economics from the University of Southern California. Edward L. Campbell, CFA, is a portfolio manager for the Portfolios and a Senior Associate at PI. He focuses on global macroeconomic and financial market research and the formulation of investment strategy. Prior to rejoining Prudential in August 2003, Mr. Campbell spent three years with Trilogy Advisors LLC, a $5 billion asset management firm. He also previously worked as a senior investment manager research analyst with Prudential Securities and PI. Mr. Campbell is a member of the New York Society of Securities Analysts and the CFA Institute. He received a S in Economics and International usiness from The City University of New York and holds the Chartered Financial Analyst designation. 90

158 HOW TO UY AND SELL SHARES OF THE PORTFOLIOS PURCHASING SHARES OF THE PORTFOLIOS 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. oth Class I and Class II shares of a Portfolio are sold without any sales charge at the net asset value of the Portfolio. ClassII 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. ecause 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 PORTFOLIO 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. Purchases and sales of shares of 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. 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 oards 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 91

159 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 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 Portfolios 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 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 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 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 oard of Trustees. 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. 92

160 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 alanced 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 oard of Trustees 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 alanced 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 93

161 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. DISTRIUTOR 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 shares. 94

162 OTHER INFORMATION FEDERAL INCOME TAXES Each Portfolio currently intends to be treated as a partnership for federal income tax purposes. As a result, each 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. Distributions may 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 Fund, including the application of state and local taxes. MONITORING FOR POSSILE 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. ecause 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. 95

163 FINANCIAL HIGHLIGHTS INTRODUCTION 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. ecause 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, 2006, 2005 and 2004 were drived from 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 derived from financial statements audited by another independent registered public accounting firm whose reports on those financial statements were unqualified. 96

164 Diversified ond 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... (.05) (.20) Total from investment operations Less Dividends and Distributions: Dividends from net investment income... (.59) (.50) (.45) (1.27) Distributions from net realized gains... (.08) Distributions... (.63) Tax return of capital distributions... (.01) Total dividends and distributions... (.63) (.67) (.50) (.45) (1.28) Net Asset Value, end of year... $ $ $ $ $ Total Investment Return(a) % 3.28% 5.59% 7.49% 7.07% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,150.4 $1,230.6 $1,283.7 $1,418.0 $1,370.3 Ratios to average net assets: Expenses....45%.45%.45%.44%.44% Net investment income % 4.81% 4.57% 4.02% 5.25% Portfolio turnover rate % 278% 382% 706% 595% (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. Equity Portfolio Class I 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 gain (loss) on investments (4.75) Total from investment operations (4.58) Less Dividends and Distributions: Dividends from net investment income... (.23) (.27) (.18) (.16) Distributions... (.29) Total dividends and distributions... (.29) (.23) (.27) (.18) (.16) Net Asset Value, end of year... $ $ $ $ $ Total Investment Return(a) % 11.47% 9.93% 31.65% (22.34)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $4,402.7 $4,283.9 $4,135.7 $4,012.3 $3,273.6 Ratios to average net assets: Expenses....47%.47%.48%.49%.48% Net investment income % 1.01% 1.29%.96%.88% Portfolio turnover rate... 60% 77% 50% 54% 54% (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. 97

165 Global Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $18.96 $16.43 $15.14 $11.35 $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (3.87) Total from investment operations (3.80) Less Dividends and Distributions: Dividends from net investment income... (.10) (.15) (.05) (.14) Distributions... (.13) Total dividends and distributions... (.13) (.10) (.15) (.05) (.14) Net Asset Value, end of year... $22.53 $18.96 $16.43 $15.14 $ Total Investment Return(a) % 16.06% 9.59% 34.07% (25.14)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $932.9 $814.1 $691.1 $665.6 $ Ratios to average net assets: Expenses....84%.82%.84%.87%.82% Net investment income %.77%.67%.78%.47% Portfolio turnover rate... 50% 155% 128% 88% 75% (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 ond Portfolio Year Ended December 31, (b) Per Share Operating Performance: Net Asset Value, beginning of year... $ 5.23 $ 5.42 $ 5.29 $ 4.59 $ 5.40 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (.20) (.21) Total from investment operations Less Dividends and Distributions: Dividends from net investment income... (.37) (.39) (.42) (.89) Distributions... (.42) Total dividends and distributions... (.42) (.37) (.39) (.42) (.89) Net asset Value, end of year... $ 5.33 $ 5.23 $ 5.42 $ 5.29 $ 4.59 Total Investment Return(a) % 3.41% 10.30% 25.04% 1.50% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,721.1 $1,635.7 $1,595.7 $1,466.7 $1,128.6 Ratios to average net assets: Expenses....58%.58%.59%.60%.58% Net investment income % 7.14% 7.42% 8.11% 9.36% Portfolio turnover rate... 49% 56% 65% 93% 77% (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. 98

166 Jennison Portfolio Class I Year Ended December 31, 2006(b) 2005(b) Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $ $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (5.78) Total from investment operations (5.75) Less Dividends and Distributions: Dividends from net investment income... (.02) (.08) (.04) (.03) Distributions... (.06) Total dividends and distributions... (.06) (.02) (.08) (.04) (.03) Net Asset Value, end of year... $ $ $ $ $ Total Investment Return(a) % 14.55% 9.63% 30.25% (30.95)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $2,077.3 $2,297.0 $2,044.1 $1,772.4 $1,388.8 Ratios to average net assets: Expenses....63%.63%.64%.64%.61% Net investment income....29%.10%.50%.28%.21% Portfolio turnover rate... 67% 57% 74% 69% 74% (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... $ $10.00 $10.00 $10.00 $ Income From Investment Operations: Net investment income and realized gains Dividends and distributions... (.28) (.10) (.08) (.15) Distributions... (.46) Net Asset Value, end of year... $ $10.00 $10.00 $10.00 $ Total Investment Return(a) % 2.85% 1.01%.84% 1.52% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,060.5 $851.9 $885.4 $933.7 $1,366.6 Ratios to average net assets: Expenses....43%.45%.45%.44%.43% Net investment income % 2.86% 1.01%.84% 1.52% (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. 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. 99

167 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 gain (loss) on investments (7.34) Total from investment operations (6.97) Less Dividends and Distributions: Dividends from net investment income... (.47) (.49) (.37) (.36) Distributions from net realized gains... (.77) (.51) (.93) (.22) Distributions... (.64) Total dividends and distributions... (.64) (1.24) (1.00) (1.30) (.58) Net Asset Value, end of year... $ $ $ $ $ Total Investment Return(a) % 4.54% 10.45% 28.18% (22.19)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $3,306.4 $3,212.7 $3,094.7 $2,940.9 $2,352.3 Ratios to average net assets: Expenses....37%.38%.38%.37%.37% Net investment income % 1.52% 1.64% 1.42% 1.25% Portfolio turnover rate... 3% 7% 3% 2% 4% (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. SP AIM Core Equity Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 7.62 $7.36 $6.80 $ 5.52 $ 6.51 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.01) Total from investment operations (.99) Less Dividends and Distributions: Dividends from net investment income... (.08) (.03) (.02) Distributions... (.51) Total dividends and distributions... (.51) (.08) (.03) (.02) Net Asset Value, end of year... $ 8.28 $7.62 $7.36 $ 6.80 $ 5.52 Total Investment Return(a) % 4.63% 8.79% 23.69% (15.21)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $ 37.9 $34.2 $31.8 $ 22.8 $ 13.9 Ratios to average net assets: Expenses %(b) 1.00%(b) 1.00%(b) 1.00%(b) 1.00%(b) Net investment income %(b).98%(b) 1.27%(b).70%(b).45%(b) Portfolio turnover rate... 38% 69% 68% 37% 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 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. (b) Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment income ratios would have been 1.29% and.93%, respectively, for year ended December 31, 2006, 1.28% and.70%, respectively, for the year ended December 31, 2005, 1.48% and.79%, respectively, for the year ended December 31, 2004, 1.72% and (.02)%, respectively for the year ended December 31, 2003, and 1.79% and (.34)%, respectively, for the year ended December 31,

168 SP Davis Value Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $10.68 $10.98 $ 9.80 $ 7.62 $ 9.04 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.47) Total from investment operations (1.42) Less Dividends and Distributions: Dividends from net investment income... (.10) (.04) (.05) (c) Distributions from net realized gains... (1.11) Distributions... (.27) Total dividends and distributions... (.27) (1.21) (.04) (.05) (c) Net Asset Value, end of year... $11.99 $10.68 $10.98 $ 9.80 $ 7.62 Total Investment Return(a) % 9.52% 12.53% 29.40% (15.70)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $328.0 $311.7 $285.5 $391.2 $ Ratios to average net assets: Expenses....81%.82%.82%.82%.83%(b) Net investment income....81%.87%.89%.80%.82%(b) Portfolio turnover rate... 14% 14% 34% 7% 22% (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. 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 ratios would have been.87% and.78%, respectively, for the year ended December 31, (c) Less than $.005 per share. SP International Growth Portfolio Class I Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 7.55 $ 6.85 $ 5.89 $ 4.22 $ 5.45 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.24) Total from investment operations (1.23) Less Dividends and Distributions: Dividends from net investment income... (.04) (.01) Distributions from net realized gains... (.31) Distributions... (.75) Total dividends and distributions... (.75) (.35) (.01) Net Asset Value, end of year... $ 8.30 $ 7.55 $ 6.85 $ 5.89 $ 4.22 Total Investment Return(a) % 16.39% 16.54% 39.57% (22.57)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $456.0 $453.6 $249.1 $105.6 $ 34.9 Ratios to average net assets: Expenses....97%.98% 1.02% 1.15% 1.24%(b) Net investment income....69%.64%.50%.56%.26%(b)(c) Portfolio turnover rate % 99% 137% 121% 108% (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. 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 ratios would have been 1.40% and.10%, respectively, for the year ended December 31, (c) Includes custody fee credits of.02% for the year ended December 31, If the Portfolio had not earned custodian fee credits, the annual net investment income would have been.24% for the year ended December 31,

169 SP International Value Portfolio Year Ended December 31, (c) (c) 2002 Per Share Operating Performance: Net Asset Value, beginning of year... $ 9.08 $ 8.84 $ 7.67 $ 6.08 $ 7.35 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.31) Total from investment operations (1.27) Less Dividends and Distributions: Dividends from net investment income... (.04) (.04) (.05) Distributions from net realized gains... (.83) Distributions... (.27) Total dividends and distributions... (.27) (.87) (.04) (.05) Net Asset Value, end of year... $11.40 $ 9.08 $ 8.84 $ 7.67 $ 6.08 Total Investment Return(a) % 13.77% 15.80% 27.37% (17.17)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $487.4 $389.3 $240.7 $119.9 $ 46.4 Ratios to average net assets: Expenses....99% 1.06% 1.10%(b) 1.10%(b) 1.10%(b) Net investment income % 2.08%.69%(b).89%(b).55%(b) Portfolio turnover rate % 18% 159% 87% 141% (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. 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 1.23% and.55%, respectively, for the year ended December 31, 2004, 1.30% and.69%, respectively for the year ended December 31, 2003, and 1.77% and (.12)%, respectively, for the year ended December 31, (c) Calculated based upon weighted average shares outstanding during the fiscal year. SP Large Cap Value Portfolio Year Ended December 31, (d) Per Share Operating Performance: Net Asset Value, beginning of year... $11.90 $11.56 $ 9.90 $ 7.81 $ 9.44 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.62) Total from investment operations (1.54) Less Dividends and Distributions: Dividends from net investment income... (.10) (.08) (.09) Distributions from net realized gains... (.30) Distributions... (.75) Tax Return of Capital... (c) Total dividends and distributions... (.75) (.40) (.08) (.09) Net Asset Value, end of year... $13.26 $11.90 $11.56 $ 9.90 $ 7.81 Total Investment Return(a) % 6.64% 17.75% 26.76% (16.37)% Ratios/Supplemental Data:... Net assets, end of year (in millions)... $959.6 $833.1 $601.4 $ 72.9 $ 38.3 Ratios to average net assets: Expenses....83%.83%.86%.90%(b).90%(b) Net investment income % 1.53% 1.53% 1.32%(b) 1.22%(b) Portfolio turnover rate... 71% 62% 77% 73% 96% (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. 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 ratios would have been 1.11% and 1.11%, respectively for the year ended December 31, 2003, and 1.31% and.81%, respectively, for the year ended December 31, (c) Less than $.005 per share. (d) Calculated based upon weighted average share outstanding during the year. 102

170 SP Mid-Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 7.21 $ 6.85 $ 5.73 $ 4.09 $ 7.62 Income (Loss) From Investment Operations: Net investment income (loss) (.03) (.03) (.02) (.02) Net realized and unrealized gain (loss) on investments... (.16) (3.51) Total from investment operations... (.14) (3.53) Net Asset Value, end of year... $ 7.07 $ 7.21 $ 6.85 $ 5.73 $ 4.09 Total Investment Return(a)... (1.94)% 5.26% 19.55% 40.10% (46.33)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $133.1 $152.9 $107.5 $ 58.9 $ 18.3 Ratios to average net assets: Expenses....91% 1.00%(b) 1.00%(b) 1.00%(b) 1.00%(b) Net investment income (loss)....20% (.56)%(b) (.68)%(b) (.73)%(b) (.59)%(b) Portfolio turnover rate % 94% 79% 73% 255% (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. 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 loss ratios would have been 1.02% and (.58)%, respectively, for the year ended December 31, 2005, 1.07% and (.75)%, respectively, for the year ended December 31, 2004, 1.34% and (1.07)%, respectively for the year ended December 31, 2003, and 1.68% and (1.27)%, respectively, for the year ended December 31, SP PIMCO High Yield Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $10.25 $10.67 $10.53 $ 9.17 $ 9.81 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (.27) (.64) Total from investment operations Less Dividends and Distributions: Dividends from net investment income... (.68) (.70) (.65) (.64) Distributions from net realized gains... (.15) (.10) Distributions... (.85) Total dividends and distributions... (.85) (.83) (.80) (.65) (.64) Net Asset Value, end of year... $10.33 $10.25 $10.67 $10.53 $ 9.17 Total Investment Return(a) % 4.03% 9.32% 22.41%.15% Ratios/Supplemental Data: Net assets, end of year (in millions)... $274.4 $368.6 $312.5 $248.2 $112.2 Ratios to average net assets: Expenses....70%.67%.68%.72%.82% Net investment income % 6.65% 6.68% 6.97% 7.79% Portfolio turnover rate... 59% 89% 53% 74% 108% (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. 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. 103

171 SP PIMCO Total Return Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ $11.41 $10.70 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments... (.05) (.10) Total from investment operations Less Dividends and Distributions: Dividends from net investment income... (.54) (.23) (.28) (.28) Distributions from net realized gains... (.20) (.21) (.25) (b) Distributions... (.47) Total dividends and distributions... (.47) (.74) (.44) (.53) (.28) Net Asset Value, end of year... $ $ $ $11.54 $11.41 Total Investment Return(a) % 2.39% 5.28% 5.85% 9.39% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,590.3 $1,538.2 $1,099.0 $839.1 $471.7 Ratios to average net assets: Expenses....66%(c).62%.65%.65%.67% Net investment income % 3.62% 2.01% 2.19% 3.02% Portfolio turnover rate % 590% 590% 656% 574% (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. 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 $.005 per share. (c) The expense ratio reflects the interest and fee expenses related to the liability for the floating rate notes issued in conjunction with the inverse floater securities. The total expense ratio excluding interest and fees is.64%. SP Prudential U.S. Emerging Growth Portfolio Class I Year Ended December 31, Per Share Operating Performance : Net Asset Value, beginning of year... $ 7.87 $ 8.07 $ 6.65 $ 4.68 $ 6.89 Income (Loss) From Investment Operations: Net investment income (loss) (.02) (.05) (.02) (.02) Net realized and unrealized gain (loss) on investments (2.19) Total from investment operations (2.21) Less Dividends and Distributions: Dividends from net investment income... (c) Distributions from net realized gains... (1.34) (c) Distributions... (.62) Total dividends and distributions... (.62) (1.34) (c) Net Asset Value, end of year... $ 7.99 $ 7.87 $ 8.07 $ 6.65 $ 4.68 Total Investment Return(a) % 17.77% 21.39% 42.09% (32.08)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $202.6 $194.8 $128.3 $170.0 $ 51.0 Ratios to average net assets: Expenses....67%.80%.78%.80%.90%(b) Net investment income (loss)....32% (.28)% (.53)% (.56)% (.48)%(b) Portfolio turnover rate... 70% 142% 212% 213% 299% (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 loss ratios would have been.98% and (.56)%, respectively, for the year ended December 31, (c) Less than $.005 per share. 104

172 SP Small Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ 6.62 $ 6.46 $ 6.52 $ 4.84 $ 6.94 Income (Loss) From Investment Operations: Net investment loss... (.04) (.04) (.03) (.03) (.03) Net realized and unrealized gain (loss) on investments (.03) 1.71 (2.07) Total from investment operations (.06) 1.68 (2.10) Net Asset Value, end of year... $ 7.44 $ 6.62 $ 6.46 $ 6.52 $ 4.84 Total Investment Return(a) % 2.48% (.92)% 34.71% (30.26)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $123.0 $135.7 $184.1 $ 35.0 $ 12.5 Ratios to average net assets: Expenses % 1.05% 1.09% 1.15%(b) 1.15%(b) Net investment loss... (.47)% (.44)% (.82)% (.72)%(b) (.73)%(b) Portfolio turnover rate... 53% 192% 240% 122% 109% (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. 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 loss ratios would have been 1.78% and (1.35)%, respectively, for the year ended December 31, 2003, and 2.30% and (1.89)%, respectively, for the year ended December 31, SP Small Cap Value Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $14.27 $15.51 $12.88 $ 9.68 $ Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.68) Total from investment operations (1.63) Less Dividends and Distributions: Dividends from net investment income... (.08) (.02) (c) (.05) Distributions from net realized gains... (1.75) (c) Distributions... (2.47) Total dividends and distributions... (2.47) (1.83) (.02) (c) (.05) Net Asset Value, end of year... $13.68 $14.27 $15.51 $12.88 $ 9.68 Total Investment Return(a) % 4.61% 20.69% 33.11% (14.38)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $369.0 $350.7 $393.3 $250.6 $ 99.2 Ratios to average net assets: Expenses....96%.97%.96% 1.04% 1.05%(b) Net investment income....71%.49%.69%.37%.69%(b) Portfolio turnover rate... 55% 119% 127% 90% 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 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. (b) Net of expense reimbursement. If the investment advisor had not reimbursed expenses, the annual expense and net investment loss ratios would have been 1.10% and.64%, respectively, for the year ended December 31, (c) Less than $.005 per share. 105

173 SP Strategic Partners Focused Growth Portfolio Class I Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $8.07 $ 7.00 $ 6.33 $ 5.03 $ 6.73 Income (Loss) From Investment Operations: Net investment loss... (.04) (.03) (b) (.01) (.01) Net realized and unrealized gain (loss) on investments... (.02) (1.69) Total from investment operations... (.06) (1.70) Less Distributions: Distributions... (.52) Net Asset Value, end of year... $7.49 $ 8.07 $ 7.00 $ 6.33 $ 5.03 Total Investment Return(a)... (.66)% 15.29% 10.58% 25.84% (25.26)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $38.7 $ 38.3 $ 30.1 $ 21.6 $ 10.8 Ratios to average net assets: Expenses % 1.07%(c) 1.01%(c) 1.01%(c) 1.01%(c) Net investment loss... (.47)% (.44)%(c) (.01)%(c) (.28)%(c) (.30)%(c) Portfolio turnover rate % 110% 84% 93% 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. 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 $.005 per share. (c) 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 (.51)%, respectively, for the year ended December 31, 2005, 1.28% and (.28)%, respectively, for the year ended December 31, 2004, 1.65% and (.92)%, respectively for the year ended December 31, 2003, and 1.98% and (1.28)%, respectively, for the year ended December 31, SP T.Rowe Price Large Cap Growth Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $7.71 $ 6.61 $6.23 $ 5.03 $ 7.31 Income (Loss) From Investment Operations: Net investment income (loss) (.03) (.01) (c) (.01) Net realized and unrealized gain (loss) on investments (2.27) Total from investment operations (2.28) Less Distributions: Distributions... (.95) Net Asset Value, end of year... $7.17 $ 7.71 $6.61 $ 6.23 $ 5.03 Total Investment Return(a) % 16.64% 6.10% 23.86% (31.19)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $77.7 $ 73.8 $65.7 $146.5 $ 57.7 Ratios to average net assets: Expenses %(b) 1.06%(b) 1.08% 1.06% 1.10%(b) Net investment income (loss)....25%(b) (.38)%(b) (.14)% (.11)% (.27)%(b) Portfolio turnover rate... 58% 144% 122% 38% 34% (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. 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 1.19% and.13%, respectively, for the year ended December 31, 2006, 1.16% and (.48)%, respectively, for the year ended December 31, 2005, and 1.19% and (.35)%, respectively, for the year ended December 31, (c) Less than $.005 per share. 106

174 SP Aggressive Growth Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance : Net Asset Value, beginning of year... $ 9.50 $ 8.98 $ 7.83 $ 5.90 $ 7.58 Income (Loss) From Investment Operations: Net investment income (b) Net realized and unrealized gain (loss) on investments (1.68) Total from investment operations (1.68) Less Dividends and Distributions:... Dividends from net investment income... (.02) (b) (b) Distributions from net realized gains... (.35) Distributions... (.41) Total dividends and distributions... (.41) (.37) Net Asset Value, end of year... $10.41 $ 9.50 $ 8.98 $ 7.83 $ 5.90 Total Investment Return(a) % 10.48% 14.76% 32.77% (22.16)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $201.6 $188.2 $136.9 $ 60.6 $ 15.1 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 2.29%.27%.16%.06% Portfolio turnover rate... 28% 26% 60% 22% 26% (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. 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 $.005 per share. SP alanced Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance: Net Asset Value, beginning of year... $ $ $ 9.66 $ 7.96 $ 9.02 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.16) Total from investment operations (1.05) Less Dividends and Distributions: Dividends from net investment income... (.10) (.08) (.10) Distributions from net realized gains... (.37) (.01) (.01) Distributions... (.47) Total dividends and distributions... (.47) (.47) (.09) (.10) (.01) Net Asset Value, end of year... $ $ $10.63 $ 9.66 $ 7.96 Total Investment Return(a) % 7.60% 11.09% 22.87% (11.67)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,406.3 $1,372.0 $837.0 $449.8 $ Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 3.40% 1.37% 1.83% 1.96% Portfolio turnover rate... 27% 21% 48% 12% 22% (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. 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. 107

175 SP Conservative Asset Allocation Portfolio Year Ended December 31, Per Share Operating Performance : Net Asset Value, beginning of year... $11.28 $11.20 $10.48 $ 9.16 $ 9.77 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (.73) Total from investment operations (.57) Less Dividends and Distributions: Dividends from net investment income... (.16) (.16) (.16) (.03) Distributions from net realized gains... (.39) (.03) (.01) (.01) Distributions... (.56) Total dividends and distributions... (.56) (.55) (.19) (.17) (.04) Net Asset Value, end of year... $11.66 $11.28 $11.20 $10.48 $ 9.16 Total Investment Return(a): % 5.91% 8.89% 16.49% (5.88)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $632.8 $642.0 $459.9 $281.2 $117.5 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 4.10% 1.86% 2.60% 2.79% Portfolio turnover rate... 33% 24% 47% 22% 25% (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. 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 Income (Loss) From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (1.49) Total from investment operations (1.43) Less Dividends and Distributions: Dividends from net investment income... (.06) (.04) (.05) Distributions from net realized gains... (.36) Distributions... (.35) Total dividends and distributions... (.35) (.42) (.04) (.05) (b) Net Asset Value, end of year... $ $ $ 9.80 $ 8.71 $ 6.84 Total Investment Return(a) % 9.24% 13.05% 28.27% (17.26)% Ratios/Supplemental Data: Net assets, end of year (in millions)... $1,283.9 $1,212.0 $662.7 $326.7 $ 96.4 Ratios to average net assets: Expenses....05%.05%.05%.05%.05% Net investment income % 2.65%.94% 1.10% 1.12% Portfolio turnover rate... 25% 18% 53% 18% 24% (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. 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 $.005 per share. 108

176 Notes 109

177 Notes 110

178

179 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, New Jersey 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 PSF-VUL-2

180 M Fund, Inc. Supplement dated as of January 25, 2008, to the Prospectus and Statement of Additional Information dated April 30, 2007 Effective January 1, 2008, Daniel F. yrne replaced Gerald Graves as President of M Fund, Inc., and accordingly all references to Gerald Graves should be replaced with references to Daniel F. yrne in both the Prospectus and Statement of Additional Information. The following replaces the Officer s table of the sub-section entitled Management Information on pages 20 and 21 of the Statement of Additional Information: The Officers of the Company are listed below together with their respective positions with the Company, their principal occupations during the past five years and any positions held with affiliates of the Company: Name and D.O. Daniel F. yrne* (orn: 10/27/56) David Lees* (orn: 2/1/65) Shannon Hartwell* (orn: 7/19/70) Term of Office One Year One Year One Year Length of Time Served Nine Years^ Position(s) Held with the Company President Principal Occupation(s) During Past 5 Years Senior Vice President, Chief Product & Technology Officer, M Financial Group One Year Secretary and Treasurer Accounting Manager at M Financial Group One Year Chief Compliance Chief Compliance Officer Officer, M Fund, Inc current; Corporate attorney at Perkins Cole, LLP * Interested Person of the Company for purposes of the 1940 Act. Mr. yrne serves as Senior Vice President and Chief Product & Technology Officer of M Financial Group, which wholly owns the Adviser. Mr. yrne also serves as President of the Company, President and Director of the Adviser, Director of M Financial Securities Marketing, Inc., M Financial Wealth Partners, Inc. and M Holdings, Securities, Inc., all of which are wholly-owned subsidiaries of M Financial Group. Mr. yrne serves as Senior Vice President and Director of M Financial Asset Management, Inc. and as Manager of M Administrative Services, LLC, both of which are whollyowned by M Financial Group. Mr. Lees serves as Secretary and Treasurer of the Adviser and the Company. Ms. Hartwell serves as Chief Compliance Officer of the Adviser and the Company. The address of Messrs. yrne and Lees and Ms. Hartwell is M Fund, Inc., M Financial Plaza, 1125 NW Couch Street, Portland, Oregon ^ Includes Mr. yrne's previous service as President of the Company from

181 The following replaces the sub-section entitled Investment Advisory and Other Services on page 23 of the Statement of Additional Information: Investment Adviser M Financial Investment Advisers, Inc. is the investment adviser of the Company and its Funds. Daniel F. yrne, President of the Company, serves as President of the Adviser, David Lees, Secretary and Treasurer of the Company, serves as Secretary and Treasurer of the Adviser, Shannon Hartwell, Chief Compliance Officer of the Company, serves as Chief Compliance Officer of the Adviser and JoNell Hermanson, serves as Marketing Officer of the Adviser. The Adviser is controlled by M Financial Holdings Incorporated, which does business under the name M Financial Group ( M Financial Group ). M Financial Group is engaged in providing product development and marketing support services for participating insurance agents, who, collectively, own a majority of the outstanding stock of M Financial Group. M Financial Group receives from insurance carriers compensation based, in part, upon the volume of insurance premiums generated by its participating agents. The Adviser was organized on September 11, Although the Adviser is not primarily responsible for the daily management of the Funds, the Adviser oversees the management of the assets of the Funds by each of the Sub-Advisers. In turn, each Sub-Adviser is responsible for the day-to-day management of a specific Fund.

182 M Fund, Inc. Supplement dated as of August 1, 2007, to the Prospectus and Statement of Additional Information dated April 30, 2007 The following replaces the second paragraph of the sub-section entitled Turner Investment Partners, Inc. (Turner) on page 22 of the Prospectus: A team of investment professionals comprising an investment committee manages the Turner Core Growth Fund. Robert E. Turner, Mark D. Turner, Robb Parlanti, and Halie O Shea are the members of the investment committee. Robert E. Turner, CFA, Chairman and Chief Investment Officer Growth Equities of Turner, is lead manager of the Fund (since July 4, 1996). Robert E. Turner co-founded Turner in He has 26 years of investment experience. Mark D. Turner is a co-manager of the Fund (since July 4, 1996) and is President of Turner and a Senior Portfolio Manager/Security Analyst. He co-founded Turner in He has 25 years of investment experience. Robb Parlanti is also a co-manager of the Fund (since May 1, 2005). Mr. Parlanti is a Senior Portfolio Manager/Security Analyst on the cyclical team and is a Principal of Turner. He has 20 years of experience and has been with Turner since Effective July 31, 2007, Halie O Shea is also a co-manager of the Fund. Ms. O Shea is a Security Analyst/Portfolio Manager on the growth equity team and is a Principal of Turner. She has 14 years of experience and has been with Turner since Turner has managed the Turner Core Growth Fund since January 4, 1996.

183 M FUND, INC. PROSPECTUS April 30, 2007 randes International Equity Fund Turner Core Growth Fund Frontier Capital Appreciation Fund usiness Opportunity Value Fund As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved any of the shares of M Fund, Inc. as an investment or determined whether this prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.

184 TALE OF CONTENTS Information About the Funds randes International Equity Fund Turner Core Growth Fund Frontier Capital Appreciation Fund usiness Opportunity Value Fund Investment Strategies and Risks Management of the Funds Investing with M Fund Distributions and Taxes Financial Highlights For More Information ack Cover 2

185 M Fund INFORMATION AOUT THE FUNDS M Fund, Inc. (Company) is a mutual fund group that currently offers shares in four funds (Funds): randes International Equity Fund Turner Core Growth Fund Frontier Capital Appreciation Fund usiness Opportunity Value Fund Each Fund is a separate and distinct investment portfolio. These Funds are available through the purchase of variable life insurance policies and variable annuity policies issued by certain insurance companies. Shares of the Funds also are sold directly to qualified pension and retirement plans. Those insurance companies and retirement plans may offer other portfolios in addition to offering the Funds. This Prospectus should be read along with the prospectus for the applicable insurance or annuity policies. 3

186 The Fund s Investment Goal RANDES INTERNATIONAL EQUITY FUND Q. What is the randes International Equity Fund s investment goal? A. The Fund seeks long-term capital appreciation. As with any mutual fund, there is no guarantee that the Fund will achieve its goal. Its Principal Investment Strategies Q. What is the randes International Equity Fund s principal investment strategy? A. The Fund invests mainly in equity securities of foreign issuers, including common stocks, preferred stocks and securities that are convertible into common stocks. The Fund focuses on stocks with capitalizations of $1 billion or more. The Fund also may invest in emerging market securities. The Fund s Sub-Adviser, randes Investment Partners, L.P., uses the Graham and Dodd Value Investing approach. Following this philosophy, the Sub-Adviser views stocks as parts of businesses that are for sale. The Sub- Adviser seeks to purchase a diversified group of these businesses at prices that the Sub-Adviser believes are below their true long-term value. The Key Risks The randes International Equity Fund s share price will fluctuate which means you could lose money on your investment in the Fund. The Fund s investment performance could be worse than other investments: if the stock market as a whole goes down; because investments in foreign securities may have more frequent and larger price changes than U.S. securities; because investments in foreign securities may lose value due to changes in currency exchange rates and other factors; because emerging market securities involve unique risks, such as exposure to economies less diverse and mature than that of the U.S.; because economic or political changes may cause larger price changes in emerging market securities than other foreign securities; because the Fund may be more susceptible to economic, political or regulatory changes in any single country or industry than more highly diversified funds; or if the stocks in the Fund s portfolio do not grow over the long term or grow less rapidly than expected. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. You can find more information about securities that the Fund may invest in and a more detailed description of risks under the heading Investment Strategies and Risks later in this Prospectus. 4

187 The Fund s Performance The following information may give some indication of the risks of investing in the randes International Equity Fund. It shows changes in the performance of the Fund s shares from year to year since the Fund started. The Fund s past performance does not necessarily indicate how it will perform in the future. 60 RANDES INTERNATIONAL EQUITY FUND* PERFORMANCE % 47.43% 40 Percentage % 15.37% 4.88% % % 24.00% 10.55% 26.78% * Calendar Year * Total Return % 15.37% 47.86% 4.88% (12.77)% (15.30)% 47.43% 24.00% 10.55% 26.78% * On June 30, 1998, the Fund replaced its previous Sub-Adviser, Edinburgh Fund Managers PLC, with randes Investment Partners, L.P. During the period shown in the bar chart, the highest quarterly return was 26.60% (for the quarter ended 6/30/03) and the lowest quarterly return was (21.57)% (for the quarter ended 9/30/02). The performance information shown here does not reflect fees that are paid by the insurance company separate accounts that invest in the Fund. Inclusion of those fees would reduce the total return figures for all periods. The performance information shown here reflects M Financial Investment Advisers, Inc. s (Adviser) agreement to cap certain Fund operating expenses during the period shown. If this expense cap had not been in effect, the Fund s performance results would have been less favorable. The table below shows the Fund s average annual total returns for the periods indicated, and how those returns compare to those of the Morgan Stanley Capital International - Europe, Australasia, Far East Index (MSCI EAFE Index). This index reflects the arithmetic, market value-weighted average of the performance of over 900 securities listed on the stock exchanges of the following 21 countries: Australia, Austria, elgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. It includes the effect of reinvested dividends, net of foreign taxes withheld, and is measured in U.S. dollars. The index is calculated on a total return basis. 5

188 For the Periods Ended December 31, 2006 One Year Five Years Ten Years randes International Equity Fund % 16.76% 13.23% MSCI EAFE Index % 14.98% 7.68% 1 Reflects no deduction for fees, expenses or taxes. * On June 30, 1998, the Fund replaced its previous Sub-Adviser, Edinburgh Fund Managers PLC, with randes Investment Partners, L.P. Fund Fees and Expenses: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder Transaction Expenses (fees that you pay directly from your investment): There are no fees or sales loads charged to your account when you buy or sell Fund shares. Annual Fund Operating Expenses (expenses that are deducted from Fund assets): Management Fee 0.68% Distribution (12b-1) Fee None Other Expenses*,1 0.20% Total Annual Fund Operating Expenses 0.88% * For the period from May 1, 2007 to April 30, 2008, the Adviser has contractually agreed to reimburse the Fund for certain operating expenses (other than advisory fees, brokerage or other portfolio transaction expenses or expenses for litigation, indemnification, taxes or other extraordinary expenses) to the extent that such expenses exceed 0.25% of the Fund s annualized average daily net assets. Fees and expenses shown are for the year ended December 31, Future fees and expenses may be different. 1 Other Expenses include Acquired Fund fees and expenses, which represent the Fund s share of the fees and expenses of any other fund in which the Fund invests. These fees and expenses are less than 0.01% of the average net assets of the Fund. The fee table above does not include the fees and charges associated with variable annuity or variable insurance products, which are disclosed separately in the prospectuses for those products. Fees and expenses for those products will typically include a sales load and/or a surrender charge as well as other charges for the insurance benefits. The fee table above also does not include any fees and charges incurred with respect to qualified retirement plans. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a hypothetical 5% return each year and that the Fund s operating expenses remain the same. These expense examples do not reflect the fees and charges imposed by the applicable insurance company or retirement plan. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years $90 $281 $488 $1,084 6

189 The Fund s Investment Goal TURNER CORE GROWTH FUND Q. What is the Turner Core Growth Fund s investment goal? A. The Fund seeks long-term capital appreciation. As with any mutual fund, there is no guarantee that the Fund will achieve its goal. Its Principal Investment Strategies Q. What is the Turner Core Growth Fund s principal investment strategy? A. The Fund invests mainly in common stocks of U.S. companies that the Sub-Adviser believes have strong earnings growth potential. The Fund s Sub-Adviser, Turner Investment Partners, Inc., uses a bottom-up approach to investing. A bottomup approach involves selecting stocks based on the perceived strength of individual companies rather than focusing first on industry groups and then selecting stocks within those groups. The Sub-Adviser s style is based on the philosophy that earnings expectations drive stock prices. The Sub-Adviser uses a process that involves a combination of quantitative, fundamental, and technical analyses: Quantitative: A key quantitative tool employed is a proprietary computer model, used to assess a universe of about 5,000 companies according to a diverse range of earnings-growth and valuation factors. Those companies ranked highly in the model qualify for further consideration. Once purchased, holdings that deteriorate in the rankings become candidates for sale. Fundamental: Traditional research is performed to determine if the companies under consideration will exceed, meet, or fall short of Wall Street analysts consensus earnings expectations. This process typically involves discussions with company management, industry experts and competitors in an effort to anticipate changes in the outlook for corporate earnings. Technical: Technical analysis involves the study of charts detailing a company s trading and price history and may serve as additional confirmation of Turner s research and to help to identify attractive points for purchase or sale of a security. The Key Risks The Turner Core Growth Fund s share price will fluctuate, which means you could lose money on your investment in the Fund. The Fund s investment performance could be worse than other investments: if the stock market as a whole goes down; if the market continually values the stocks in the Fund s portfolio lower than the Sub-Adviser believes they should be valued; if the earnings of the growth-oriented companies in which the Fund invests do not grow or grow less rapidly than expected; due to the Fund s active trading approach, which will increase the costs the Fund s portfolio incurs; or because growth investing emphasizes stock price appreciation over current income from dividends. It is not expected that the Fund will own a substantial amount of securities that pay dividends. Investors in the Fund should not expect dividend income to offset any decline in the prices of portfolio securities. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. You can find more information about securities that the Fund may invest in and a more detailed description of risks under the heading Investment Strategies and Risks later in this Prospectus. 7

190 The Fund s Performance The following information may give some indication of the risks of investing in the Turner Core Growth Fund. It shows changes in the performance of the Fund s shares from year to year since the Fund started. The Fund s past performance does not necessarily indicate how it will perform in the future. 50 TURNER CORE GROWTH FUND PERFORMANCE % 34.56% 28.32% 34.58% Percentage %-23.60%-26.52% 13.92% 11.19% 8.52% Calendar Year Total Return % 34.56% 40.11% (11.15)% (23.60)% (26.52)% 34.58% 11.19% 13.92% 8.52% During the period shown in the bar chart, the highest quarterly return was 28.11% (for the quarter ended 12/31/99) and the lowest quarterly return was (20.24)% (for the quarter ended 9/30/01). The performance information shown here does not reflect fees that are paid by the insurance company separate accounts that invest in the Fund. Inclusion of those fees would reduce the total return figures for all periods. The performance information shown here reflects the Adviser s agreement to cap certain Fund operating expenses during the period shown. If this expense cap had not been in effect, the Fund s performance results would have been less favorable. The table below shows the Fund s average annual total returns for the periods indicated, and how those returns compare to those of the Russell 1000 Growth Index. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. For the Periods Ended December 31, 2006 One Year Five Years Ten Years Turner Core Growth Fund % 6.33% 8.36% Russell 1000 Growth Index % 2.70% 5.45% 1 Reflects no deduction for fees, expenses or taxes. 8

191 Fund Fees and Expenses: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder Transaction Expenses (fees that you pay directly from your investment): There are no fees or sales loads charged to your account when you buy or sell Fund shares. Annual Fund Operating Expenses (expenses that are deducted from Fund assets): Management Fee 0.45% Distribution (12b-1) Fee * For the period from May 1, 2007 to April 30, 2008, the Adviser has contractually agreed to reimburse the Fund for certain operating expenses (other than advisory fees, brokerage or other portfolio transaction expenses or expenses for litigation, indemnification, taxes or other extraordinary expenses) to the extent that such expenses exceed 0.25% of the Fund s annualized average daily net assets. Fees and expenses shown are for the year ended December 31, Future fees and expenses may be different. 1 Other Expenses include Acquired Fund fees and expenses, which represent the Fund s share of the fees and expenses of any other fund in which the Fund invests. These fees and expenses are less than 0.01% of the average net assets of the Fund. The fee table above does not include the fees and charges associated with variable annuity or variable insurance products, which are disclosed separately in the prospectuses for those products. Fees and expenses for those products will typically include a sales load and/or a surrender charge as well as other charges for the insurance benefits. The fee table above also does not include any fees and charges incurred with respect to qualified retirement plans. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a hypothetical 5% return each year and that the Fund s operating expenses remain the same. These expense examples do not reflect the fees and charges imposed by the applicable insurance company or retirement plan. Although your actual costs may be higher or lower, based on these assumptions your costs would be: None Other Expenses*, % Total Annual Fund Operating Expenses 0.65% 1 year 3 years 5 years 10 years $66 $208 $362 $810 9

192 FRONTIER CAPITAL APPRECIATION FUND The Fund s Investment Goal Q. What is the Frontier Capital Appreciation Fund s investment goal? A. The Fund seeks maximum capital appreciation. As with any mutual fund, there is no guarantee that the Fund will achieve its goal. Its Principal Investment Strategies Q. What is the Frontier Capital Appreciation Fund s principal investment strategy? A. The Fund invests in common stock of U.S. companies of all sizes, with emphasis on stocks of companies with capitalizations that are consistent with the capitalizations of those companies found in the Russell 2500 Stock Index. The Fund s Sub-Adviser, Frontier Capital Management Company, LLC, seeks to invest in companies with unrecognized earnings potential. Earnings per share, growth and price appreciation are important factors. Wall Street analysts do not usually widely follow small to mid-sized companies like those in which the Fund invests, and institutional investors usually do not own a large percentage of them. The cornerstone of Frontier s investment process is internally generated fundamental research. Stocks are sold if earnings growth potential is realized, when the fundamental reasons for purchase are no longer valid, or when a more attractive situation is identified. The Key Risks The Frontier Capital Appreciation Fund s share price will fluctuate which means you could lose money on your investment in the Fund. The Fund s investment performance could be worse than other investments: if the stock market as a whole goes down; if earnings growth estimates of companies the Fund invests in are not achieved; or because securities of smaller-cap companies may be more thinly traded and may have more frequent and larger price changes than securities of larger cap companies. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. You can find more information about securities that the Fund may invest in and a more detailed description of risks under the heading Investment Strategies and Risks later in this Prospectus. 10

193 The Fund s Performance The following information may provide some indication of the risks of investing in the Frontier Capital Appreciation Fund. It shows changes in the performance of the Fund s shares from year to year since the Fund started. The Fund s past performance does not necessarily indicate how it will perform in the future. FRONTIER CAPITAL APPRECIATION FUND PERFORMANCE % % Percentage % 1.68% 7.66% -1.00% % 15.13% 16.30% 9.33% Calendar Year Total Return % 1.68% 44.17% 7.66% (1.00)% (25.28)% 55.89% 9.33% 15.13% 16.30% During the period shown in the bar chart, the highest quarterly return was 26.17% (for the quarter ended 12/31/98) and the lowest quarterly return was (23.79)% (for the quarter ended 9/30/01). The performance information shown here does not reflect fees that are paid by the insurance company separate accounts that invest in the Fund. Inclusion of those fees would reduce the total return figures for all periods. The performance information shown here reflects the Adviser s agreement to cap certain Fund operating expenses during the period shown. If this expense cap had not been in effect, the Fund s performance results would have been less favorable. The table below shows the Fund s average annual total returns for the periods indicated, and how those returns compare to those of the Russell 2500 Index. The Russell 2500 Index is comprised of the 2,500 smallest capitalization securities in the Russell 3000 Index, representing approximately 7% of the Russell 3000 total market capitalization. The index is reconstituted annually in June, based upon the May 31 market capitalization rankings. The index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. 11

194 For the Periods Ended December 31, 2006 One Year Five Years Ten Years Frontier Capital Appreciation Fund % 11.26% 12.52% Russell 2500 Stock Index % 12.18% 11.26% 1 Reflects no deduction for fees, expenses or taxes. Fund Fees and Expenses: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder Transaction Expenses (fees that you pay directly from your investment): There are no fees or sales loads charged to your account when you buy or sell Fund shares. Annual Fund Operating Expenses (expenses that are deducted from Fund assets): Management Fee 0.90% Distribution (12b-1) Fee None Other Expenses*, % Total Annual Fund Operating Expenses 1.08% * For the period from May 1, 2007 to April 30, 2008, the Adviser has contractually agreed to reimburse the Fund for certain operating expenses (other than advisory fees, brokerage or other portfolio transaction expenses or expenses for litigation, indemnification, taxes or other extraordinary expenses) to the extent that such expenses exceed 0.25% of the Fund s annualized average daily net assets. Fees and expenses shown are for the year ended December 31, Future fees and expenses may be different. 1 Other Expenses include Acquired Fund fees and expenses, which represent the Fund s share of the fees and expenses of any other fund in which the Fund invests. These fees and expenses are less than 0.01% of the average net assets of the Fund. The fee table above does not include the fees and charges associated with variable annuity or variable insurance products, which are disclosed separately in the prospectuses for those products. Fees and expenses for those products will typically include a sales load and/or a surrender charge as well as other charges for the insurance benefits. The fee table above also does not include any fees and charges incurred with respect to qualified retirement plans. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a hypothetical 5% return each year and that the Fund s operating expenses remain the same. These expense examples do not reflect the fees and charges imposed by the applicable insurance company or retirement plan. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years $110 $343 $595 $1,317 12

195 The Fund s Investment Goal USINESS OPPORTUNITY VALUE FUND Q. What is the usiness Opportunity Value Fund s investment goal? A. The Fund seeks long-term capital appreciation. As with any mutual fund, there is no guarantee that the Fund will achieve its goal. Its Principal Investment Strategies Q. What is the usiness Opportunity Value Fund s principal investment strategy? A. The Fund invests primarily in equity securities of U.S. issuers in the large-to-medium-capitalization segment of the U.S. stock market. The Fund s Sub-Adviser, Iridian Asset Management LLC, uses a value investing approach. The Sub-Adviser focuses on company valuation and seeks to identify catalysts for corporate change. These catalysts may include management changes, significant stock repurchases and/or dividend policy, acquisition/consolidation, divestiture/ spin-off, strategy to enhance shareholder value, unrecognized or non-performing asset and changes in industry conditions. Once a catalyst for change is identified, the Sub-Adviser purchases the stock of the company (or companies) it believes to be undervalued that may benefit from the change. The Key Risks The usiness Opportunity Value Fund s share price will fluctuate, which means you could lose money on your investment in the Fund. The Fund s investment performance could be worse than other investments: if the stock market as a whole goes down; if the stocks the Fund invests in remain inexpensive and do not realize their expected full value; if the Sub-Adviser does not correctly identify company valuations and/or catalysts; if the catalysts identified by the Sub-Adviser do not produce the expected changes; or if the companies the Fund invests in do not benefit from the expected changes as anticipated by the Sub-Adviser. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. You can find more information about securities that the Fund may invest in and a more detailed description of risks under the heading Investment Strategies and Risks later in this Prospectus. 13

196 The Fund s Performance The following information may provide some indication of the risks of investing in the usiness Opportunity Value Fund. It shows changes in the performance of the Fund s shares from year to year since the Fund started. The Fund s past performance does not necessarily indicate how it will perform in the future USINESS OPPORTUNITY VALUE FUND % Percentage % 13.89% % Calendar Year Total Return % 22.60% 7.81% 13.89% During the period shown in the bar chart, the highest quarterly return was 15.25% (for the quarter ended 6/30/03) and the lowest quarterly return was (5.36)% (for the quarter ended 3/31/03). The performance information shown here does not reflect fees that are paid by the insurance company separate accounts that invest in the Fund. Inclusion of those fees would reduce the total return figures for all periods. The performance information shown here reflects the Adviser s agreement to cap certain Fund operating expenses during the period shown. If the expense cap had not been in effect, the Fund s performance results would have been less favorable. The table below shows the Fund s average annual total returns for the periods indicated, and how those returns compare to those of the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of those Russell 1000 securities with lower price-to-book ratios and lower forecasted growth values. For the Periods Ended December 31, 2006 Since Inception One Year (2/1/02) usiness Opportunity Value Fund % 9.15% Russell 1000 Value Index % 11.22% 1 Reflects no deduction for fees, expenses or taxes. 14

197 Fund Fees and Expenses: This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder Transaction Expenses (fees that you pay directly from your investment): There are no fees or sales loads charged to your account when you buy or sell Fund shares. Annual Fund Operating Expenses (expenses that are deducted from Fund assets): Management Fee 0.64% Distribution (12b-1) Fee * For the period from May 1, 2007 to April 30, 2008, the Adviser has contractually agreed to reimburse the Fund for certain operating expenses (other than advisory fees, brokerage or other portfolio transaction expenses or expenses for litigation, indemnification, taxes or other extraordinary expenses) to the extent that such expenses exceed 0.25% of the Fund s annualized average daily net assets. Fees and expenses shown are for the year ended December 31, Future fees and expenses may be different. 1 Other Expenses include Acquired Fund fees and expenses, which represent the Fund s share of the fees and expenses of any other fund in which the Fund invests. These fees and expenses are less than 0.01% of the average net assets of the Fund. The fee table above does not include the fees and charges associated with variable annuity or variable insurance products, which are disclosed separately in the prospectuses for those products. Fees and expenses for those products will typically include a sales load and/or a surrender charge as well as other charges for the insurance benefits. The fee table above also does not include any fees and charges incurred with respect to qualified retirement plans. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a hypothetical 5% return each year, that the Fund s operating expenses remain the same and that the expense reimbursement reflected in the fee table above is in effect for the one year time period. These expense examples do not reflect the expense reimbursement or the fees and charges imposed by the applicable insurance company or retirement plan. Although your actual costs may be higher or lower, based on these assumptions your costs would be: None Other Expenses*, % Total Annual Fund Operating Expenses 0.94% Expense Reimbursement* 0.05% Net Expenses 0.89% 1 year 3 years 5 years 10 years $91 $295 $515 $1,150 15

198 Can a Fund Depart from its Normal Strategies? INVESTMENT STRATEGIES AND RISKS Each Fund may depart from its normal strategies by taking temporary defensive positions in response to adverse market, economic, political or other conditions. When a Fund takes a temporary position, it will invest all or a substantial portion of its assets in U.S. Government securities, money market funds or securities, or other debt instruments. During these times, a Fund may not achieve its investment goals. Do the Funds Engage in Active Trading of Securities? The Turner Core Growth Fund and the usiness Opportunity Value Fund may engage in active and frequent trading to achieve their investment goals. This high rate of portfolio turnover may increase transaction costs, which would lower the Fund s performance. Can a Fund Change Its Investment Goal? A Fund s investment goal may be changed by a vote of the oard of Directors of the Company without shareholder approval. You would be notified at least 30 days before any change took effect. Conflicts of Interest Certain conflicts of interest may exist between the interests of the variable annuity contract owners, variable life insurance policy owners and plan participants. The Company currently does not believe that ownership by each such type of entity will cause any disadvantage to owners of any of such entities. However, the oard of Directors of the Company monitors the Funds to identify any conflicts of interest that may cause such a disadvantage and that cannot be reconciled. If such situations arise, the oard of Directors will decide at that time what action should be taken in response to the conflicts. Additional Information About the Funds randes International Equity Fund The randes International Equity Fund will normally invest at least 80% of its total assets in equity securities of issuers located in at least three countries other than the United States. These countries may include, but are not limited to, the nations of Western Europe, North and South America, Australia, Africa and Asia. This strategy is not fundamental (it may be changed without shareholder approval), but should the Fund decide to change this strategy, it will provide shareholders with at least 60 days notice. Securities will generally be purchased in the form of common stock, American Depository Receipts (ADRs), European Depository Receipts (EDRs) or Global Depository Receipts (GDRs). The Fund may invest in any single country if, at the time of purchase, the Fund s investment in such country does not exceed the greater of: 25% of its total assets; or 150% of the weighting of such country as represented in the MSCI EAFE Index. The Fund may invest in any single industry if, at the time of purchase, the Fund s investment in such industry does not exceed 25% of the Fund s total assets. The limitation does not apply to U.S. government securities. The Fund also may invest up to, at the time of purchase, 20% of its total assets in emerging market securities. 16

199 The Fund also may: invest in recently organized companies; participate in forward foreign currency exchange contracts for purposes of settling trades; and lend its portfolio securities. In seeking out foreign securities for purchase, the Sub-Adviser does not attempt to match the security allocations of foreign stock market indices. Therefore, the Fund s country weightings may differ significantly from country weightings found in published foreign stock indices. For example, the Sub-Adviser may choose not to invest the Fund s assets in a country whose stock market, at any given time, may comprise a large portion of a published foreign stock market index. At the same time, the Sub-Adviser may invest significant amounts of the Fund s assets in countries whose representation in such an index may be small or non-existent. The Sub-Adviser selects stocks for the Fund based on their individual merits and not necessarily on their geographic locations. Turner Core Growth Fund Generally, the Turner Core Growth Fund will be fully invested and will typically consist of 60 to 80 securities. Portfolio exposure is generally limited to 5% of assets in any single issuer, subject to exceptions for securities that comprise more than 3% of the S&P 500 Index. For those securities, the Fund may hold up to two times the index weighting. The Fund may invest: up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by American Depository Receipts (ADRs); in companies with market capitalizations of $500 million or less; and in recently organized companies. The Fund also may: keep a portion of assets in cash or cash equivalents pending investment or for liquidity purposes; and lend its portfolio securities. Frontier Capital Appreciation Fund The Frontier Capital Appreciation Fund s portfolio is not restricted to any one segment of the market; however, generally a majority of its portfolio will consist of stocks of small- to medium-capitalization companies. The Fund s portfolio will typically consist of 100 to 175 stocks. The Fund may invest: up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by ADRs; in companies with market capitalizations of $500 million or less; and in recently organized companies. The Fund may also: keep a portion of assets in cash or cash equivalents pending investment or for liquidity purposes; and lend its portfolio securities. 17

200 usiness Opportunity Value Fund The Fund typically consists of 45 to 55 equity securities of issuers with capitalizations of $5 billion or more. The Fund also may: invest up to 15% of the value of its total assets in securities of foreign issuers that are listed on U.S. exchanges or are represented by ADRs; keep a portion of assets in cash or cash equivalents pending investment or liquidity needs; lend its portfolio securities; and purchase warrants. Additional Information About Fund Investments Equity Securities. Equity securities include: common stocks; preferred stocks; securities convertible into common stocks; and equity and index linked notes. American Depository Receipts (ADRs), European Depository Receipts (EDRs), and Global Depository Receipts (GDRs). ADRs, EDRs and GDRs are securities that represent an ownership interest in a foreign security. ADRs are generally issued by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. EDRs and GDRs are European and global receipts, respectively, evidencing a similar arrangement. ADRs, EDRs and GDRs may be sponsored (issued with the cooperation of the issuer whose stock underlies the receipt) by the issuer or be unsponsored (issued without the involvement of the issuer whose stock underlies the receipt). The issuers of unsponsored ADRs, EDRs and GDRs are not required to disclose certain material information to the holders of such securities. Foreign Companies. A foreign company is one that is organized under the laws of a foreign country and: has the principal trading market for its stock in a foreign country; or derives at least 50% of its revenues or profits from operations in foreign countries or has at least 50% of its assets located in foreign countries. Emerging Market Securities. Emerging market securities are issued by a company that: is organized under the laws of an emerging market country (any country other than Australia, Austria, elgium, razil, Canada, China, Denmark, Finland, France, Germany, Greece, Holland, Hong Kong, Italy, Japan, Luxembourg, Mexico, New Zealand, Norway, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States); has its principal trading market for its stock in an emerging market country; or derives at least 50% of its revenues or profits from operations within emerging market countries or has at least 50% of its assets located in emerging market countries. 18

201 General Risks of Investing in the Funds Market Risk. A Fund that invests in common stocks is subject to stock market risk. Stock prices in general may decline over short or even extended periods, regardless of the success or failure of a particular company s operations. Stock markets tend to run in cycles, with periods when stock prices generally go up and periods when they generally go down. Common stock prices tend to go up and down more than those of bonds. Interest Rate Risk. To the extent that a Fund invests in debt securities, the Fund is subject to the risk that the market value of the debt securities will decline because of rising interest rates. The prices of debt securities are generally linked to the prevailing market interest rates. In general, when interest rates rise, the prices of debt securities fall, and when interest rates fall, the prices of debt securities rise. The price volatility of a debt security also depends on its maturity. Generally, the longer the maturity of a debt security the greater its sensitivity to changes in interest rates. In part to compensate investors for this higher risk, debt securities with longer maturities generally offer higher yields than debt securities with shorter maturities. Credit Risk. To the extent that a Fund invests in debt securities, the Fund is subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal. Securities rated in the lowest category of investment grade securities (rated by Standard & Poor s Rating Service or aa by Moody s Investor Service, Inc.) have some risky characteristics and changes in economic conditions are more likely to cause issuers of these securities to be unable to make payments. Foreign Investing. Investing in foreign securities poses unique risks such as fluctuation in currency exchange rates, market illiquidity, price volatility, high trading costs, difficulties in settlement, regulations on stock exchanges, limits on foreign ownership, possibility of expropriation or nationalization, confiscatory taxation, less stringent accounting, reporting and disclosure requirements, and other considerations. In the past, equity and debt instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets. Emerging Markets Risk. Investments in a country that is still relatively underdeveloped involves exposure to economic structures that are generally less diverse and mature than in more developed countries and to political and legal systems which may be less stable. In the past, markets of developing countries have had more frequent and larger price changes than those of developed countries. Political Risk. Political risk includes the risk of war, terrorism or related events. Political risk also includes the risk of nationalization or expropriation of assets by governments. For example, a Fund may invest in Eastern Europe and former states of the Soviet Union. These countries were under communist systems that took control of private industry. This could occur again in this region or others in which a Fund may invest, in which case the Fund may lose all or part of its investment in that country s issuers. Currency Exchange Risk. Investments that are denominated in currencies other than the U.S. dollar are subject to currency exchange risk. ecause the value of the U.S. dollar against other currencies will vary, a decline in the exchange rate would reduce the value of certain portfolio investments. Forward foreign currency exchange contracts, which involve an obligation to purchase or sell a specific currency at a future date at a specified price, may be used in an attempt to protect against currency exchange risk. Futures Contracts. There are several special risks involved with the use of futures contracts. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of a Fund could create the possibility that losses on the futures contract will be greater than gains in the value of the Fund s position. The loss from investing in futures transactions that are unhedged or uncovered, is potentially unlimited. In addition, futures markets could be illiquid in some circumstances and a Fund might not be able to close out certain positions without incurring substantial losses. 19

202 Small Company Investment Risk. Investing in securities of smaller, lesser-known companies involves greater risks than investing in larger, more mature, better- known issuers. These increased risks include: an increased possibility of portfolio price volatility; more volatility in price than larger-capitalization stocks; less certain growth prospects; lower degree of liquidity in the markets for such stocks; greater sensitivity of smaller companies to changing economic conditions; and greater business risks resulting from their limited product lines, markets, distribution channels, and financial and managerial resources. Small Capitalization Stock Risk. The stock prices of smaller companies may fluctuate independently of larger company stock prices. Thus, small company stocks may decline in price as large company stock prices rise, or rise in price as large company stock prices decline. Investors should, therefore, expect that to the extent a Fund invests in stock of small-capitalization companies, the net asset value of that Fund s shares may be more volatile than, and may fluctuate independently of, broad stock market indices, such as the S&P 500. Furthermore, the securities of companies with small stock market capitalizations may trade less frequently and in limited volumes. Recently Organized Companies and IPOs. Investments in recently organized companies and in many initial public offerings ( IPOs ) have the same risks as small company investments, but to a greater degree, including the risk of significant price fluctuations over short periods of time. Securities Lending. The Funds may lend their portfolio securities to certain qualified brokers. Investors ank and Trust Company acts as the securities lending agent for the Funds. The loans are collateralized at all times with cash or securities with a value at least equal to the value plus accrued interest of the securities on loan. As with other extensions of credit, the Funds may bear the risk of delay in recovery or even loss of rights in the collateral should the borrowers of the securities fail financially. The Funds receive compensation in the form of fees, or retain a portion of interest on the investments of any cash received as collateral for lending their securities. The Funds also continue to receive interest or dividends on the securities loaned. The Funds have a securities lending program whereby each Fund may loan its portfolio securities in an amount up to of its total assets. The Funds receive cash (US currency), US Government or US Government agency obligations as collateral against the loaned securities. To the extent that a loan is collateralized by cash, such collateral is invested by the securities lending agent in short-term instruments, money market mutual funds and other shortterm investments that meet certain quality and diversification requirements. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for loans of non-us securities) of the market value of the loaned securities at the inception of each loan. The market value of the loaned securities is determined each day at the close of business of the Funds and any additional required collateral is delivered to the Fund the next day. The collateral received is recorded on a lending Fund s statement of assets and liabilities, along with the related obligation to return the collateral. Should the borrower of the securities fail financially, there is a risk of delay in recover of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers that are deemed to be of good financial standing. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and the securities lending agent, is the Fund s securities lending income. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders fees, which are divided between the Fund and Investors ank & Trust Company, as the securities lending agent and the total amount of the lenders fees is recorded as securities lending income for the applicable Fund. 20

203 Portfolio Holdings Disclosure The Company has adopted policies and procedures that govern the disclosure of the Funds portfolio holdings. The Company will post complete lists of the Funds portfolio holdings as of the end of each month on its website at Once you reach the website, you can find the portfolio holdings by looking under the Products/Service link and clicking on the M Fund Holdings, which is a hyperlink to the current holdings list. The Company intends to post the portfolio holdings no later than the fifth business day of the succeeding month. Each month s complete list of the Funds portfolio holdings will remain available on until the Company files with the SEC a Form N-CSR or a Form N-Q report for the period that includes the date as of which that list of portfolio holdings was current (these reports generally are filed by March 11 for the fourth quarter, May 30 for the first quarter, September 8 for the second quarter, and November 29 for the third quarter). The Company s policies and procedures regarding website disclosure of the Funds portfolio holdings, as well as the Company s other policies and procedures relating to disclosure of the Funds portfolio holdings, are described in the Statement of Additional Information. Investment Adviser MANAGEMENT OF THE FUNDS M Financial Investment Advisers, Inc., (the Adviser) located at 1125 NW Couch Street, Portland, Oregon 97209, is the investment adviser of the Company and its Funds. The Adviser has been registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act) since November As of December 31, 2006, the Adviser had approximately $874 million in assets under management, all of which were the assets of the Company. The Adviser began managing the Company at its commencement of operations (January 4, 1996). The Adviser is responsible for providing (or arranging for the provision of) overall business management and administrative services necessary for the Company s operations. In this regard, the Adviser may select Sub-Advisers who have shown good investment performance in their areas of expertise to manage the Funds. The oard of Directors supervises the Adviser s management of the Sub-Advisers. The Company has received an exemptive order from the Securities and Exchange Commission (SEC) that allows the Adviser to change a Sub-Adviser, or change the terms of a sub-advisory contract, without shareholder approval. The Adviser has the ultimate responsibility to oversee the Sub-Advisers and to recommend to the oard of Directors their hiring, termination, and replacement. The Adviser also supervises the various other service providers to the Company, including the Company s custodian, transfer agent, administration agent, and accounting services agent. In addition, the Adviser is responsible for ensuring the Company s compliance with applicable legal requirements and also for ensuring that the Funds investment objectives, policies and restrictions are followed. Each Fund pays the Adviser a fee for its services. The Adviser retains 0.15% of the average daily net assets of each Fund. The Adviser pays the balance of the fee it receives from each Fund to the applicable Sub-Adviser. The fee paid to the Adviser by each Fund for the year ended December 31, 2006 is shown in the table below: Fee to the Adviser (as a % of average Fund daily net assets) randes International Equity Fund % Turner Core Growth Fund % Frontier Capital Appreciation Fund % usiness Opportunity Value Fund % 21

204 Advisory and Sub-Advisory Contract Approvals A discussion of the basis for the oard of Directors approvals of the advisory and sub-advisory contracts for the Funds is available in the Funds semi-annual report to shareholders for the period ended June 30, Sub-Advisers The Sub-Advisers make the day-to-day decisions regarding buying and selling specific securities for a Fund. Each Sub-Adviser manages the investments held by the Fund it serves according to the applicable investment goals and strategies. Additional information regarding portfolio manager compensation, other accounts managed by each portfolio manager and each manager s ownership of securities of funds they manage may be found in the Funds Statement of Additional Information. randes Investment Partners, L.P. (randes) El Camino Real, Suite 500, San Diego, California Sub-Adviser to the randes International Equity Fund Effective June 30, 1998, randes became the Sub-Adviser to the randes International Equity Fund. randes has been registered as an investment adviser with the SEC since As of December 31, 2006, randes managed approximately $117 billion of assets. The randes International Equity Fund is team-managed by an investment committee, whose members are senior portfolio management and research analysts of the firm including Messrs. Glenn Carlson, rent Woods, Amelia Morris, Jim rown, Keith Colestock and rent Fredberg who are members of the firm s Investment Oversight Committee. The Investment Oversight Committee monitors the investment process of and establishes broad standards and practices to be followed by each of randes Investment Committees. Glenn Carlson has been with randes since 1996, serving as Managing Partner from , co-chief Executive Officer (CEO) from and CEO since rent Woods has been Managing Director of Investments since 2002 and served as Managing Partner from Amelia Morris, Jim rown and Keith Colestock serve randes Investment Partners as Directors of Investments, each serving randes for nearly ten years. rent Fredberg has served as a Senior Research Analyst since Turner Investment Partners, Inc. (Turner) 1205 Westlakes Drive, Suite 100, erwyn, Pennsylvania Sub-Adviser to the Turner Core Growth Fund Turner has provided investment advisory services to investment companies since Turner has been registered as an investment adviser with the SEC since As of December 31, 2006, Turner managed approximately $22.8 billion of assets. A team of investment professionals comprising an investment committee manages the Turner Core Growth Fund. Robert E. Turner, Mark D. Turner and Robb Parlanti are the members of the investment committee. Robert E. Turner, CFA, Chairman and Chief Investment Officer Growth Equities of Turner, is lead manager of the Fund (since July 4, 1996). Robert E. Turner co-founded Turner in He has 26 years of investment experience. Mark D. Turner is also a co-manager of the Fund (since July 4, 1996) and is President of Turner and a Senior Portfolio Manager/Security Analyst. He co-founded Turner in He has 25 years of investment experience. Robb Parlanti is also a comanager of the Fund (since May 1, 2005). Mr. Parlanti is a Senior Portfolio Manager/Security Analyst on the cyclical team and is a Principal of Turner. He has 20 years of experience and has been with Turner since Turner has managed the Turner Core Growth Fund since January 4,

205 Frontier Capital Management Company, LLC (Frontier) 99 Summer Street, oston, Massachusetts Sub-Adviser to the Frontier Capital Appreciation Fund Frontier has been registered as an investment adviser with the SEC since As of December 31, 2006, Frontier managed approximately $6.1 billion of assets. Michael A. Cavarretta, CFA, is the person primarily responsible for the day-to-day management of the Fund s investment portfolio (since January 5, 1996). Mr. Cavarretta is President of Frontier and holds a.s. degree from the University of Maine and an M..A. degree from Harvard usiness School. He joined Frontier in 1988 and has served as sole portfolio manager for Frontier s capital appreciation portfolios since Frontier has managed the Frontier Capital Appreciation Fund since January 4, Iridian Asset Management LLC (Iridian) 276 Post Road West, Westport, Connecticut Sub-Adviser to the usiness Opportunity Value Fund Iridian has been registered as an investment adviser with the SEC since As of December 31, 2006, Iridian managed approximately $10.4 billion of assets. A team of investment professionals comprised of portfolio managers and research analysts manages the Fund portfolio. David Cohen, Co-CEO and Co-Chief Investment Officer, is the primary portfolio manager and has been working on the Fund since February 1, Mr. Cohen co-founded Iridian in 1996 and was with its predecessor firm since Since January 1, 2004, Thomas Zankel, Managing Director, has served as a secondary portfolio manager of the Fund. Mr. Zankel has been with Iridian Asset Management LLC since its inception in Iridian has managed the usiness Opportunity Value Fund since February 1, Similar Funds The Funds are not available for purchase directly by the general public, and are not the same as other mutual fund portfolios with very similar or nearly identical names that are sold directly to the public. However, the investment objectives and policies of certain Funds may be very similar to the investment objectives and policies of other mutual fund portfolios that are managed by the Sub-Advisers. Nevertheless, the investment performance and results of each Fund may be lower, or higher, than the investment results of such other (publicly available) portfolios. There can be no assurance, and no representation is made, that the investment results of any of the Funds will be comparable to the investment results of any other mutual fund portfolio, even if the other portfolio is also managed by the Fund s Sub-Adviser, has the same investment objectives and policies, and has a very similar name. INVESTING WITH M FUND Choosing the Appropriate Funds to Match Your Goals Investing well requires a plan. We recommend that you meet with your financial adviser to plan a strategy that will best meet your financial goals. Your financial adviser can help you buy a variable annuity or variable life insurance contract that will allow you to choose the Funds. Purchasing Shares You cannot buy shares of the Funds directly. You can invest indirectly in the Funds through your purchase of a variable annuity or variable life insurance contract or your participation in a retirement plan. You should read this 23

206 prospectus and the prospectus of the variable annuity or variable life insurance contract carefully before you choose your investment options. The variable annuity and variable life insurance contracts are issued by separate accounts of various insurance companies. The insurance companies buy Fund shares for their separate accounts based on the instructions that they receive from the contract owners. Market Timing Programmed, large, frequent or short-term transfers among the Funds or between a Fund and other investment options can cause risk with adverse effects for other contract owners (and beneficiaries and underlying fund portfolios). These risks and harmful effects include: (1) dilution of the interest of long-term investors in a Fund if purchases or transfers into or out of a Fund are made at values that do not reflect an accurate value for the Fund s underlying portfolio securities (some market timers attempt to do this through methods known as time-zone arbitrage and liquidity arbitrage ); (2) an adverse effect on portfolio management, such as impeding a Sub-Adviser s ability to sustain an investment objective, causing the Fund to maintain a higher level of cash than would otherwise be the case, or causing the Fund to liquidate investments prematurely (or otherwise at an inopportune time) to pay withdrawals or transfers out of the Fund; and (3) increased brokerage and administrative expenses. These costs are borne by all contract owners invested in the Fund, not just those making transfers. Therefore, the Company reserves the right to reject any transfer or purchase order if, in the Company s judgment, the Fund or other investors would potentially be adversely affected. The oard of Directors has determined that it is not necessary for the Funds to have any specific policies and procedures regarding frequent transfers because each of the Participating Insurance Companies has its own policies and procedures regarding its contract owner s transfer activity. Each Participating Insurance Company has supplied and certified that it has established procedures to monitor and deter market-timing activity. The Adviser does not have, nor has it had, written agreements that provide for market timing. Selling Shares To meet various obligations under the variable annuity or variable life insurance contracts or retirement plans, the insurance company separate accounts or retirement plans may sell Fund shares to generate cash. For example, a separate account may sell Fund shares and use the proceeds to pay a contract owner who requested a partial withdrawal or who canceled a contract. Proceeds from the sale are usually sent to the separate account on the next business day. The Fund may suspend sales of shares or postpone payment dates when the New York Stock Exchange (NYSE) is closed (other than weekends or holidays), when trading on the NYSE is restricted, or as otherwise permitted by the SEC. Pricing of Fund Shares Each Fund s share price, also called net asset value per share (NAV), is determined as of the close of regular trading, normally 4:00 p.m. New York time, on each day when the NYSE is open. The NYSE is scheduled to be open Monday through Friday throughout the year, except for certain federal and other holidays. Each Fund calculates its NAV by dividing the total value of its assets, less its liabilities, by the number of its shares outstanding. The value of each Fund s securities and assets is based on their market values. Certain exceptions follow. Short-term debt securities that mature in 60 days or less are valued by the amortized cost method, which approximates market value. Investments for which market quotations are not readily available are valued at their fair value as determined by a Pricing Committee appointed by the oard of Directors. Market quotations may not be readily available or may not be representative of market values for many reasons including: (1) the occurrence of a significant 24

207 event between the time of the close of the applicable exchange or market in which the investment is traded and the time of the Fund s NAV calculation; or (2) no quotations are available from brokers, which indicates that there is low trading volume or there is a thin market in the security. Use of fair value pricing could cause a Fund to value securities higher or lower than a fund that uses market quotations, which could cause a Fund s NAV per share to differ significantly from the NAV per share that would have been calculated using current market value. As security valuation issues arise, the Pricing Committee shall be convened to consider all the appropriate factors relevant to establishing the value of the security in question. In determining the fair value of a security, the Pricing Committee is authorized to rely on information and recommendations provided by third parties, including, principally, the Sub-Adviser that manages the Fund. Fair value determinations made by the Pricing Committee, including the factors considered and the valuation methodology recommended by the Adviser or Sub-Adviser managing the Fund, are documented and reported to the oard of Directors and submitted for ratification at the next scheduled oard meeting. Securities mainly traded on a non-u.s. exchange are generally valued according to the latest closing values on that exchange prior to the closing of the NYSE. However, if a significant event occurs after the time that the closing value on the non-u.s. exchange was determined, the value of the security may be determined based on its fair value, as determined by the Pricing Committee. This may cause the value of the security on the books of the Fund to be significantly different from the closing value on the non-u.s. exchange and may affect the calculation of a Fund s NAV. A significant event may include corporate actions, earnings announcements and significant fluctuations in domestic or foreign stock or bond markets. ecause portfolio securities that are primarily listed on non-u.s. exchanges may trade on weekends or other days when a Fund does not price its shares, the value of a Fund s portfolio securities may change on days when shareholders will not be able to buy or sell shares. DISTRIUTIONS AND TAXES Each of the Funds intends to distribute to its shareholders substantially all of its income and capital gains, if any, on an annual basis. Tax Information ecause you do not own shares of the Funds directly, your tax situation is not likely to be affected by a Fund s distributions. The separate accounts in which you own a variable annuity, variable life insurance contract or retirement plan, as the owner of the Fund s shares, may be affected. Please refer to the prospectus for the variable annuity or variable life insurance contract or to the retirement plan documents for tax information regarding those products. 25

208 FINANCIAL HIGHLIGHTS The following selected financial highlights are derived from the Company s audited financial statements included in the Company s Annual Report to Shareholders. The financial highlights tables are intended to help you understand each Fund s financial performance for the past five years. Certain information reflects results for a single Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). These total return figures do not reflect any fees or charges deducted from the insurance company separate account or from the variable annuity or life insurance policies, which, if reflected, would result in lower total return figures. The Company s financial statements and report of PricewaterhouseCoopers LLP, independent registered public accounting firm, included in the Annual Report to Shareholders for the Company s fiscal year ended December 31, 2006 are incorporated by reference into the Statement of Additional Information. The following data should be read in conjunction with such financial statements, related notes, and other financial information contained in the Annual Report. The Annual Report contains additional performance information about the Funds and is available, as described below. 26

209 M Fund, Inc. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) randes International Equity Fund Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, Net asset value, beginning of year $ $ $ $ 9.97 $ Income from investment operations: Net investment income Net realized and unrealized gain (loss) on investments (2.04) Total from investment operations (1.90) Less distributions to shareholders: From net investment income (0.27) (0.25) (0.18) (0.13) (0.14) From net realized capital gains (1.68) (0.99) (0.87) (0.36) Total distributions (1.95) (1.24) (1.05) (0.13) (0.50) Net asset value, end of year $ $ $ $ $ 9.97 Total Return % 10.55% 24.00% 47.43% (15.30)% Ratios/Supplemental Data: Net assets, end of year (000 s) $494,394 $323,942 $274,756 $186,238 $121,293 Net expenses to average daily net assets % 0.92% 0.92% 0.97% 0.97% Net investment income to average daily net assets % 1.42% 1.40% 1.15% 1.34% Portfolio turnover rate % 27% 27% 26% 23% Without the reimbursement of expenses by the adviser, the ratios of net expenses and net investment income to average net assets would have been: Expenses N/A N/A N/A N/A N/A Net investment income N/A N/A N/A N/A N/A 27

210 M Fund, Inc. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Turner Core Growth Fund Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, Net asset value, beginning of year $ $ $ $ 9.82 $ Income from investment operations: Net investment income * Net realized and unrealized gain (loss) on investments (3.58) Total from investment operations (3.55) Less distributions to shareholders: From net investment income (0.11) (0.07) (0.04) (0.03) (0.03) From net realized capital gains (0.69) Total distributions (0.80) (0.07) (0.04) (0.03) (0.03) Net asset value, end of year $ $ $ $ $ 9.82 Total Return % 13.92% 11.19% 34.58% (26.52)% Ratios/Supplemental Data: Net assets, end of year (000 s) $132,046 $142,169 $117,570 $ 96,241 $ 66,980 Net expenses to average daily net assets % 0.68% 0.66% 0.70% 0.70% Net investment income to average daily net assets % 0.45% 0.28% 0.25% 0.29% Portfolio turnover rate % 149% 158% 168% 279% Without the reimbursement of expenses by the adviser, the ratios of net expenses and net investment income to average net assets would have been: Expenses N/A N/A N/A 0.72% 0.75% Net investment income N/A N/A N/A 0.23% 0.24% * Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.03 per share. 28

211 M Fund, Inc. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Frontier Capital Appreciation Fund Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, Net asset value, beginning of period $ $ $ $ $ Income from investment operations: Net investment loss (0.03)* (0.12) (0.09) (0.09) (0.10) Net realized and unrealized gain (loss) on investments (4.18) Total from investment operations (4.28) Less distributions to shareholders: In excess of net realized capital gains (2.43) (1.88) Total distributions (2.43) (1.88) Net asset value, end of period $ $ $ $ $ Total Return % 15.13% 9.33% 55.89% (25.28)% Ratios/Supplemental Data: Net assets, end of period (000 s) $175,122 $147,352 $170,092 $136,225 $ 72,688 Net expenses to average daily net assets % 1.11% 1.09% 1.11% 1.13% Net investment loss to average daily net assets (0.12)% (0.55)% (0.49)% (0.63)% (0.70)% Portfolio turnover rate % 29% 44% 39% 33% Without the reimbursement of expenses by the adviser, the ratios of net expenses and net investment income to average net assets would have been: Expenses N/A N/A N/A N/A N/A Net investment income N/A N/A N/A N/A N/A * Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.04 per share. 29

212 M Fund, Inc. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) usiness Opportunity Value Fund Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, (a) Net asset value, beginning of period $ $ $ $ 7.83 $ Income from investment operations: Net investment income Net realized and unrealized gain (loss) on investments (2.17) Total from investment operations (2.12) Less distributions to shareholders: From net investment income (0.06) (0.08) (0.06) (0.06) (0.05) From net realized capital gains (1.02) (1.04) (0.08) Total distributions (1.08) (1.12) (0.14) (0.06) (0.05) Net asset value, end of period $ $ $ $ $ 7.83 Total Return % 7.81% 22.60% 29.65% (21.20)%* Ratios/Supplemental Data: Net assets, end of period (000 s) $72,742 $52,440 $36,684 $ 19,182 $10,779 Net expenses to average daily net assets % 0.90% 0.90% 0.90% 0.90%** Net investment income to average daily net assets % 0.57% 0.78% 0.81% 0.71%** Portfolio turnover rate % 111% 85% 67% 75%* Without the reimbursement of expenses by the adviser, the ratios of net expenses and net investment income (loss) to average net assets would have been: Expenses % 1.01% 1.27% 1.53% 1.90%** Net investment income (loss) % 0.68% 0.41% 0.18% (0.29)%** (a) Fund commenced operations on February 1, * Not annualized. ** Annualized for periods less than one year. 30

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214 For More Information For investors who want more information about the Funds, the following documents are available free upon request. Statement of Additional Information (SAI): The SAI provides additional information about the Funds and is legally a part of this prospectus (it is incorporated herein by reference). Annual/Semi-Annual Reports: The Company s annual and semi-annual reports to shareholders provide additional information about the Funds investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds performance during the Company s last fiscal year. You can get free copies of the SAI, our annual and semi-annual reports, other information and answers to your questions about the Funds by contacting your financial adviser, or by writing to or calling the Company at: M Fund, Inc. M Financial Plaza 1125 NW Couch Street Portland, Oregon (888) If you are part of the M Member Network, you may obtain copies of the SAI and the annual and semi-annual reports on the Internet at: If you are not part of the M Member Network, contact M Fund, Inc. at the address or telephone number above to obtain your free copy. You may also review and copy the SAI, the annual and semi-annual reports, and other information about the Funds at the Public Reference Room of the Securities and Exchange Commission in Washington, D.C. Call (202) for information on the operation of the Public Reference Room. You can also view the SAI, the annual and semi-annual reports and other information on the EDGAR database on the Commission s Internet website at You can obtain copies of this information, after paying a duplicating fee, by electronic request at the following address: publicinfo@sec.gov, or by writing to: Public Reference Section/U.S. Securities and Exchange Commission/Washington, D.C M FUND, INC. randes International Equity Fund Turner Core Growth Fund Frontier Capital Appreciation Fund usiness Opportunity Value Fund Investment Company Act file no

215 Privacy Notice This notice is being provided on behalf of the companies listed in this Notice. It describes how information about you is handled and the steps we take to protect your privacy. We call this information customer data or just data. If you have other Prudential products or relationships, you may receive a separate privacy notice describing the practices that apply to those products or relationships. If your relationship with us ends, we will continue to handle data about you the same way we handle customer data. Protecting Customer Data We maintain physical, electronic, and procedural safeguards to protect customer data. The only persons who are authorized to have access to it are those who need access to do their jobs. We require them to keep the data secure and confidential. Information We Collect We collect data you give us and data about the products and relationships you have with us, so that we can serve you, including offering products and services to you. It includes, for example: your name and address, income and Social Security number. We also collect data others give us about you, for example: medical information for insurance applications, consumer reports from consumer reporting agencies and participant information from organizations that purchase products or services from us for the benefit of their members or employees, for example, group life insurance. Sharing Data We may share data with affiliated companies and with other companies so that they can perform services for us or on our behalf. We may, for example, disclose data to other companies for customer service or administrative purposes. We may disclose limited information such as: your name, address, and the types of products you own to service providers so they can provide marketing services to us. We may also disclose data as permitted or required by law, for example: to law enforcement officials, in response to subpoenas, to regulators, or to prevent fraud. We do not disclose data to Prudential affiliates or other companies to allow them to market their products or services to you. We may tell you about a product or service that a Prudential company or other companies offer. If you respond, that company will know that you were in the group selected to receive the information. Annual Notices We will send notices at least once a year, as federal and state laws require. We reserve the right to modify this policy at any time. If you have questions about Prudential s Privacy Notice please call us. The toll-free number is (800) Prudential, Prudential Financial and the Prudential Financial logo are registered service marks of The Prudential Insurance Company of America, Newark, NJ and its affiliates. The Prudential Insurance Company of America, 751 road Street, Newark, NJ Your Financial Security, Your Satisfaction & Your Privacy Privacy 0001 Ed. 2/2007

216 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 and Separate Accounts Prudential Insurance Company of America, The American Skandia Life Assurance Corporation Pruco Life Insurance Company Pruco Life Insurance Company of New Jersey Separate accounts of The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey, and American Skandia Life Assurance Corporation Prudential Retirement Insurance and Annuity Company (PRIAC) PRIAC Variable Contract Account A Insurance Agencies Prudential Direct Insurance Agency of Massachusetts, Inc. Prudential General Agency of Ohio, Inc. Prudential General Insurance Agency of New Mexico, Inc. Prudential General Agency of Texas, Inc. Prudential Insurance Agency, LLC roker-dealers and Registered Investment Advisers American Skandia Investment Services, Inc. American Skandia Marketing, Inc. Global Portfolio Strategies, Inc. Prudential ache 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 ank and Trust Companies Prudential ank & Trust, FS Prudential Trust Company Investment Companies and Other Investment Vehicles High Yield Income Fund, Inc., The JennisonDryden Mutual Funds Nicholas-Applegate Fund, Inc. Prudential Capital Partners, L.P. Prudential ache Commodities, LLC Prudential Institutional Liquidity Portfolio, Inc. Strategic Partners Mutual Funds Target Portfolio Trust, The P Financial Services, Inc. ILIX-D2695

217 MPremier SM VUL VARIALE UNIVERSAL LIFE INSURANCE MPremier SM VUL is issued by Pruco Life Insurance Company in all states except 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 road Street Newark, NJ All are Prudential Financial, Inc. companies. MPremier SM 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 Pruco Life Insurance Company 213 Washington Street, Newark, NJ Telephone: MPVUL ED 5/2007