PRUDENTIAL INDEX SERIES FUND, 497, 1998-01-28

PRUDENTIAL INDEX SERIES FUND
497, 1998-01-28

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Prudential Stock Index Fund

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PROSPECTUS DATED JANUARY 23, 1998

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Prudential Stock Index Fund (the Fund) is a series of Prudential Index Series
Fund (formerly Prudential Dryden Fund) (the Company), a diversified, open-end,
management investment company. The Fund's investment objective is to seek to
provide investment results that correspond to the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index. There can be no assurance
that the Fund's investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing and is
available at the Web site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated January 23, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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Investors are advised to read this Prospectus and retain it for future
reference.

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

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FUND HIGHLIGHTS

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The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.

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WHAT IS PRUDENTIAL STOCK INDEX FUND?

Prudential Stock Index Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Company is a diversified, open-end,
management investment company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek to provide investment
results that correspond to the price and yield performance of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index). There can be no
assurance that the Fund's investment objective will be achieved. See "How the
Fund Invests--Investment Objective and Policies" at page 7.

WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Fund's performance will not precisely correspond to the performance
of the S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. Potential tracking differences, brokerage and other
transaction costs and other Fund expenses may cause the Fund's return to be
lower than the return of the S&P 500 Index. See "How the Fund
Invests--Investment Objective and Policies" at page 7.

The Fund may engage in various hedging and return enhancement
strategies and use derivatives. See "How the Fund Invests--Hedging and Return
Enhancement Strategies--Risks of Hedging and Return Enhancement Strategies" at
page 12. As with an investment in any mutual fund, an investment in this Fund
can decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
manager of the Company and is compensated for its services at an annual rate of
.30 of 1% of average daily net assets of the Fund. As of December 31, 1997, PIFM
served as manager or administrator to 64 investment companies, including 42
mutual funds, with aggregate assets of approximately $62 billion. The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI, the
Subadviser or the investment adviser), furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PIFM. See "How the Fund is Managed--Manager" at page 13 and "How the Fund is
Managed--Subadviser" at page 13.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's shares. The Distributor incurs the
expense of distributing the Fund's shares under a Distribution Agreement with
the Company, none of which is reimbursed or paid for by the Fund. See "How the
Fund is Managed--Distributor" at page 14.

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2
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WHAT IS THE MINIMUM INVESTMENT?

There is no minimum initial or subsequent investment requirement for
investors who qualify to purchase shares. See "Shareholder Guide--How to Buy
Shares of the Fund" at page 18 and "Shareholder Guide--Shareholder Services" at
page 22.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through its
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer
Agent), at the net asset value per share (NAV) next determined after receipt of
your purchase order by the Transfer Agent or Prudential Securities. Class Z
shares of the Fund are offered to (i) investors who purchase $1 million or more
of shares of the Fund (or who already own $1 million of shares of other
Prudential Mutual Funds), (ii) participants in any fee-based program or trust
program sponsored by Prudential Securities, The Prudential Savings Bank, F.S.B.
or any affiliate which includes mutual funds as investment options and for which
the Fund is an available option, (iii) certain participants in the MEDLEY
Program (group variable annuity contracts) sponsored by The Prudential Insurance
Company of America (Prudential), for whom Class Z shares of the Prudential
Mutual Funds are an available investment option, (iv) Benefit Plans for which
Prudential Retirement Services serves as recordkeeper and as of September 20,
1996 (a) were Class Z shareholders of the Prudential Mutual Funds or (b)
executed a letter of intent to purchase Class Z shares of the Prudential Mutual
Funds, (v) current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund), and (vi) employees of Prudential and/or Prudential
Securities who participate in a Prudential-sponsored employee savings plan.
Class I shares are offered to pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code, provided that a plan has at least $150 million in defined
contribution assets and at least $50 million of such assets are invested in
Prudential Mutual Funds and/or annuities products. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about purchasing shares of the Fund. See
"How the Fund Values its Shares" at page 15 and "Shareholder Guide--How to Buy
Shares of the Fund" at page 18.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers two classes of shares, Class Z and Class I shares, that are sold
without an initial sales charge or contingent deferred sales charge to a limited
group of investors. Class I shares must be held in an omnibus account and are
subject to nominal transfer agency fees or expenses. Shares of the Fund are not
subject to any ongoing service or distribution expenses.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order.
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about selling their
shares. See "Shareholder Guide--How to Sell Your Shares" at page 20.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to pay dividends of net investment income, if any, and
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 15.

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3
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FUND EXPENSES

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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ........................... None
Maximum Deferred Sales Load ....................................... None
Maximum Sales Load Imposed on Reinvested Dividends ................ None
Redemption Fees ................................................... None
Exchange Fee ...................................................... None

ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)

CLASS Z CLASS I
SHARES SHARES
Management Fees ...................................... .30% .30%
12b-1 Fees ........................................... None None
Other Expenses (After Reimbursement) ................. .10% .00%
---- ----
Total Fund Operating Expenses (After Reimbursement) .. .40% .30%
==== ====

1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000
investment, assuming

(1) 5% annual return and (2) redemption at the
end of each time period:
Class Z ....................................... $4 $13 $22 $51
Class I ....................................... $3 $10 $17 $38

The above example is based on expenses incurred during the fiscal year
ended September 30, 1997, as reduced by the Manager's expense reimbursement. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist investors in understanding the
various types of costs and expenses that an investor in the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund such as Trustees' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.

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* The Manager has agreed to reimburse the Fund so that Total Fund Operating
Expenses do not exceed .40% and .30%, respectively, for Class Z and Class I
shares of the Fund. Total Fund Operating Expenses before reimbursement are
estimated to be .48% and .38%, respectively, of the average net assets of
Class Z and Class I shares of the Fund.

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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)

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The following financial highlights for the year ended September 30,
1997 have been audited by Price Waterhouse LLP, independent accountants, and for
the three years ended September 30, 1996 and the period from November 5, 1992
through September 30, 1993, have been audited by Deloitte & Touche LLP,
independent auditors, whose reports thereon were unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The financial
highlights contain selected data for a Class Z share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder Guide
- -- Shareholder Services -- Reports to Shareholders."

<TABLE>

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<CAPTION>

CLASS Z
--------------------------------------------------------------
NOVEMBER 5,
1992(a)
YEAR ENDED SEPTEMBER 30, THROUGH
----------------------------------------------- SEPTEMBER
1997* 1996 1995 1994 30,1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.06 $ 14.22 $ 11.27 $ 11.12 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(b) .................. .46 .25 .23 .26 .23
Net realized and unrealized gain
on investment transactions .............. 5.75 2.44 2.97 .11 .94
-------- -------- -------- -------- --------
Total from investment operations ...... 6.21 2.69 3.20 .37 1.17
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ...... (.26) (.28) (.22) (.18) (.05)
Distributions from net realized gains ..... (.15) (.57) (.03) (.04) --
-------- -------- -------- -------- --------
Total distributions ................... (.41) (.85) (.25) (.22) (.05)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 21.86 $ 16.06 $ 14.22 $ 11.27 $ 11.12
======== ======== ======== ======== ========
TOTAL RETURN(d): .......................... 39.34% 19.72% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........... $185,881 $184,379 $101,945 $ 50,119 $ 27,142
Average net assets (000) .................. $254,644 $142,540 $ 71,711 $ 38,098 $ 18,807
Ratios to average net assets(b):
Expenses ................................ .46% .60% .60% .60% .60%(c)
Net investment income ................... 1.66% 1.92% 2.55% 2.34% 2.41%(c)
Portfolio turnover rate ................... 5% 2% 11% 2% 1%
Average commission rate paid per share .... $ 0.0250 $ 0.0250 N/A N/A N/A

<FN>
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(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total 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 other distributions. Total return for periods of less than
a full year are not annualized. Total return includes the effect of expense
subsidies.
N/A-Data not required for these periods.
* Effective October 30, 1996, PIFM succeeded Prudential Institutional
Fund Management, Inc. as manager of the Fund.
</FN>
</TABLE>

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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS I SHARES)

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The following financial highlights have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
This information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class I share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. This information has been determined
based on data contained in the financial statements. Further performance
information is contained in the annual report, which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."

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CLASS I
-------------
AUGUST 1,
1997(a)
THROUGH
SEPTEMBER 30,
1997
------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...................... $ 21.87
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(d) .................................. .06
Net realized and unrealized gain (loss) on
investment transactions (.06)
--------
Total from investment operations ......................... --
--------
LESS DISTRIBUTIONS:

Dividends from net investment income ...................... --
Distributions from net realized gains ..................... --
--------
Total distributions ...................................... --
--------
Net asset value, end of period ............................ $ 21.87
========
TOTAL RETURN(b): .......................................... 0%
RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period (000) ........................... $312,127
Average net assets (000) .................................. $296,788
Ratios to average net assets: (d)

Expenses ................................................. .30%(c)
Net investment income .................................... 1.73%(c)

Portfolio turnover rate ................................... 5%

Average commission rate paid per share .................... $ 0.0250

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(a) Commencement of offering of Class I shares.
(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day and a
sale on the last day of the period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(c) Annualized.
(d) Net of expense subsidy.

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HOW THE FUND INVESTS

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INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO PROVIDE INVESTMENT
RESULTS THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF THE S&P 500 INDEX.
THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVE WILL BE ACHIEVED. See
"Investment Objectives and Policies--Investment Policies Applicable to
Prudential Stock Index Fund" in the Statement of Additional Information. As with
an investment in any mutual fund, an investment in this Fund can decrease in
value and you can lose money.

The Fund seeks to provide investment results that correspond to the
price and yield performance of the S&P 500 Index. The S&P 500 Index is an
unmanaged, market-weighted index of 500 stocks selected by Standard & Poor's
Corporation (S&P) on the basis of their market size, liquidity and industry
group representation. Inclusion in the S&P 500 Index in no way implies an
opinion by S&P as to a stock's attractiveness as an investment. The S&P 500
Index, composed of stocks representing more than 70% of the total market value
of all publicly traded U.S. common stocks, is widely regarded as representative
of the performance of the U.S. stock market as a whole. "Standard & Poor's(R)",
"S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance
Company of America (Prudential) and its affiliates and subsidiaries. The Fund is
not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund. See "Investment Objectives
and Policies--Investment Policies Applicable to Prudential Stock Index Fund" in
the Statement of Additional Information regarding certain additional disclaimers
and limitations of liability on behalf of S&P.

The Fund is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the investment adviser for the Fund, using a "passive" or indexing approach,
will attempt to approximate the investment performance of the S&P 500 Index by
purchasing equity securities that as a group reflect the price and yield
performance of the S&P 500 Index. The Fund intends to purchase a statistically
selected sample of the 500 stocks included in the S&P 500 Index in approximately
the same proportions as they are represented in the S&P 500 Index. In addition,
from time to time adjustments may be made in the Fund's holdings due to factors
which may include changes in the composition of the S&P 500 Index or receipt of
distributions of securities of companies spun off from S&P 500 companies.

The Fund may not hold all of the issues that comprise the S&P 500
Index because of the costs involved. Instead, the Fund will attempt to hold a
representative sample of the securities in the Index, which will be selected
utilizing a statistical technique known as "portfolio optimization." Under this
technique, each stock is considered for inclusion in the portfolio based on its
contribution to certain capitalization, industry and fundamental investment
characteristics. The Fund's portfolio is constructed so that, in the aggregate,
the capitalization, industry and fundamental investment characteristics resemble
those of the S&P 500 Index. Over time, portfolio composition is altered (or
"rebalanced") to reflect changes in the characteristics of the Index.

The investment adviser believes that this investment approach will
provide an effective method of tracking the performance of the S&P 500 Index.
Nevertheless, the investment adviser does not expect that the Fund's performance
will precisely correspond to the performance of the S&P 500 Index. The Fund will
attempt to achieve a correlation between its performance and that of the S&P 500
Index of at least 0.95, without taking into account expenses. A correlation of
1.00 would indicate perfect correlation, which would be achieved when the Fund's
net asset value, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The investment adviser will, of course, attempt to minimize any
tracking differential (i.e., the statistical measure of the difference between
the investment results of the Fund and that of the S&P 500 Index). Tracking will
be monitored at least on a monthly basis. All tracking maintenance activities
will be reviewed regularly to

<PAGE>

determine whether any changes in policies or techniques are necessary. However,
in addition to potential tracking differences, brokerage and other transaction
costs, as well as other Fund expenses, may cause the Fund's return to be lower
than the return of the S&P 500 Index. Consequently, there can be no assurance as
to how closely the Fund's performance will correspond to the performance of the
S&P 500 Index.

The Fund intends that at least 80% of its total assets will be invested
in securities included in the S&P 500 Index in the same proportions as that of
the Index. The Fund may invest the balance of its assets in: (i) equity-related
securities; (ii) obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities; (iii) put and call options on securities and
stock indices; and (iv) futures contracts on stock indices and options thereon.

Options, futures contracts, and options on futures contracts are used,
if at all, primarily to invest uncommitted cash balances, to maintain liquidity
to meet redemptions, to facilitate tracking, to reduce transaction costs or to
hedge the Fund's portfolio.

In order to invest uncommitted cash balances, maintain liquidity to
meet redemptions, or for incidental return enhancement purposes, the Fund may
also (i) enter into repurchase agreements, when-issued, delayed delivery and
forward commitment transactions; and (ii) lend its portfolio securities.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND THEREFORE
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
FUND'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT
OF 1940 (THE INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF TRUSTEES OF THE COMPANY (TRUSTEES).

EQUITY AND EQUITY-RELATED SECURITIES

THE FUND INVESTS PRIMARILY IN EQUITY SECURITIES AND THE VALUE OF THE
FUND'S INVESTMENTS WILL GO UP AND DOWN WITH THE PERFORMANCE OF THE STOCKS IN THE
S&P 500 INDEX.

The Fund may invest in equity-related securities. Equity-related
securities include common stocks, preferred stocks, securities convertible or
exchangeable for common stocks or preferred stocks, equity investments in
partnerships, joint ventures and other forms of non-corporate investments,
American Depositary Receipts, and warrants and rights exercisable for
equity securities. See "Investment Objectives and Policies--Investment Policies
Applicable to Each of the Funds--Convertible Securities, Warrants and Rights" in
the Statement of Additional Information.

American Depositary Receipts (ADRs) are U.S. dollar-denominated
certificates issued by a United States bank or trust company and represent the
right to receive securities of a foreign issuer deposited in a domestic bank or
foreign branch of a U.S. bank and traded on a U.S. exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to comparable auditing, accounting and financial reporting standards as
domestic issuers.

SECURITIES OF FOREIGN ISSUERS

The Fund may invest a portion of its assets in equity securities of
foreign issuers denominated in U.S. currency. ADRs are not deemed to be
securities of foreign issuers.

FOREIGN SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR ECONOMIC
INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF PREDICTING
INTERNATIONAL TRADE PATTERNS AND THE POSSIBILITY OF IMPOSITION OF EXCHANGE
CONTROLS. Foreign securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its instrumentalities or agencies. In addition, there may be less
publicly available information about a foreign company than
8

<PAGE>

about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government regulation
of securities exchanges, brokers and listed companies abroad than in the United
States and, with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries.

U.S. GOVERNMENT SECURITIES

The Fund may invest in 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. See
"Investment Objectives and Policies--Investment Policies Applicable to Each of
the Funds--U.S. Government Securities" in the Statement of Additional
Information.

MONEY MARKET INSTRUMENTS

The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. These obligations will be U.S. dollar
denominated. Money market instruments typically have a maturity of one year or
less as measured from the date of purchase. The Fund may invest in money market
instruments without limit for temporary defensive purposes. To the extent the
Fund otherwise invests in money market instruments, it is subject to the
limitations described above.

OTHER INVESTMENTS AND POLICIES

BORROWING

The Fund may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) from banks to take advantage
of investment opportunities, for temporary, extraordinary or emergency purposes
or for the clearance of transactions. The Fund may pledge up to 20% of its total
assets to secure these borrowings. If the Fund's asset coverage for borrowings
falls below 300%, the Fund will take prompt action to reduce its borrowings. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net asset
value of the shares to rise faster than would otherwise be the case. On the
other hand, if the investment performance of the additional securities purchased
fails to cover their cost (including any interest paid on the money borrowed) to
the Fund, the net asset value of the Fund's shares will decrease faster than
would otherwise be the case. This is the speculative factor known as "leverage."
See "Investment Objectives and Policies--Investment Policies Applicable to Each
of the Funds--Borrowing" in the Statement of Additional Information.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Illiquid
Securities" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.

<PAGE>

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund may participate in a joint repurchase account
managed by PIFM pursuant to an order of the Commission. See "Investment
Objectives and Policies--Investment Policies Applicable to Each of the
Funds--Repurchase Agreements" in the Statement of Additional Information.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price or yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will maintain, in a segregated account of the Fund, cash or
other liquid assets having a value equal to or greater than the Fund's purchase
commitments. The securities so purchased are subject to market fluctuation and
no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities, the value may be more or
less than the purchase price and an increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Fund's net asset value.

SECURITIES LENDING

The Fund may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As a matter
of fundamental policy, the Fund will not lend more than 30% of the value of its
total assets.The Fund may pay reasonable administration and custodial fees in
connection with a loan. See "Investment Objectives and Policies--Investment
Policies Applicable to Each of the Funds--Securities Lending" in the Statement
of Additional Information.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
USING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THE FUND, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY
UNSUCCESSFUL USE OF THESE STRATEGIES.These strategies currently include the use
of derivatives, such as options, futures contracts and options thereon. The
Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that any
of these strategies will succeed. See "Investment Objectives and Policies" and
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
New financial products and risk management techniques continue to be developed,
and the Fund may use these new investments and techniques to the extent
consistent with its investment objective and policies.

OPTIONS TRANSACTIONS

THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
ANY SECURITY IN WHICH IT MAY INVEST OR OPTIONS ON ANY SECURITIES INDEX. THESE
OPTIONS ARE TRADED ON U.S. EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO HEDGE
ITS
10

<PAGE>

PORTFOLIO. The Fund may write covered put and call options to generate
additional income through the receipt of premiums and purchase call options in
an effort to protect against an increase in the price of securities it intends
to purchase. The Fund may also purchase put and call options to offset
previously written put and call options of the same series. See "Investment
Objectives and Policies--Investment Policies Applicable to Each of the
Funds--Options on Securities and Securities Indices" in the Statement of
Additional Information.

A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR SECURITIES IN
THE INDEX SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR
STRIKE PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When the Fund writes a call
option, it gives up the potential for gain on the underlying securities or in
excess of the exercise price of the option during the period that the option is
open.

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT,
FOR A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO
THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put
option, in return for the premium, has the obligation, upon exercise of the
option, to acquire the securities underlying the option at the exercise price.
The Fund might, therefore, be obligated to purchase the underlying securities
for more than their current market price.

THE FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is covered
if, as long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or (ii) maintains in a segregated account,
cash or other liquid assets in an amount equal to or greater than its obligation
under the option. Under the first circumstance, the Fund's losses are limited
because it owns the underlying security; under the second circumstance, in the
case of a written call option, the Fund's losses are potentially unlimited.
There is no limitation on the amount of call options the Fund may write. See
"Investment Objectives and Policies--Investment Policies Applicable to Each of
the Funds--Options on Securities and Securities Indices" in the Statement of
Additional Information.

The Fund may also write a call option, which can serve as a limited
short hedge because decreases in value of the hedged investment would be offset
to the extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security at less than its market value.

The Fund may purchase and sell put and call options on securities
indices. Securities index options are designed to reflect price fluctuations in
a group of securities or segment of the securities market rather than price
fluctuations in a single security. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. When purchasing or selling securities index options, the Fund is
subject to the risk that the value of its portfolio securities may not change as
much as or more than the index because the Fund's investments generally will not
match the composition of the index. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Options on
Securities and Securities Indices" and "Taxes, Dividends and Distributions" in
the Statement of Additional Information.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUND,
AND THUS THE INVESTOR, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES.These futures contracts and related options will be on securities
indices. A futures contract is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.

<PAGE>

The Fund may not purchase or sell futures contracts and related options
to attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments).

Futures contracts and related options are generally subject to
segregation requirements of the Commission and coverage requirements of the
CFTC. If the Fund does not hold the security underlying the futures contract,
the Fund will be required to segregate on an ongoing basis with its Custodian
cash or other liquid assets in an amount at least equal to the Fund's
obligations with respect to such futures contracts.

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect, and
there is a risk that the value of the indices underlying the futures contract
may increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.

The Fund's ability to enter into or close out futures contracts and
options thereon is limited by the requirements of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code) for qualification as a regulated
investment company. See "Investment Objectives and Policies" and "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT
RISKS AND TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE
USE OF THESE STRATEGIES. THE FUND, AND THUS ITS INVESTORS, MAY LOSE MONEY
THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. Risks inherent in the use of
options, futures contracts and options on futures contracts include (1)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities being hedged; (2)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (3) the possible absence of a liquid
secondary market for any particular instrument at any time; (4) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (5) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

The Fund will generally purchase options and futures on an exchange
only if there appears to be a liquid secondary market for such options or
futures; the Fund will generally purchase OTC options only if the investment
adviser believes that the other party to options will continue to make a market
for such options. However, there can be no assurance that a liquid secondary
market will continue to exist or that the other party will continue to make a
market. Thus, it may not be possible to close an options or futures transaction.
The inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's

<PAGE>

outstanding voting securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.

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

HOW THE FUND IS MANAGED

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

THE COMPANY HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING
THE ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY
BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.

For the fiscal year ended September 30, 1997, total expenses as a
percentage of average net assets were .46% and .30% (annualized) for Class Z and
Class I shares, respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER),
GATEWAY CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .30
OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM is organized in New York as a
limited liability company. The Fund paid management fees to PIFM of .30 of 1% of
the Fund's average net assets during the fiscal year ended September 30, 1997.
See "Manager and Subadviser" in the Statement of Additional Information.

As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies, with aggregate
assets of approximately $62 billion.

Under the Management Agreement for the Fund, PIFM manages the
investment operations of the Fund and also administers the Company's business
affairs. See "Manager and Subadviser" in the Statement of Additional
Information.

SUBADVISER

THE PRUDENTIAL INVESTMENT CORPORATION (PIC), 751 BROAD STREET, NEWARK,
NEW JERSEY 07102, SERVES AS SUBADVISER TO THE FUND.

PURSUANT TO A SUBADVISORY AGREEMENT WITH PIFM, PIC, DOING BUSINESS AS
PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER OR THE INVESTMENT ADVISER), FURNISHES
INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE COMPANY
AND IS REIMBURSED FOR ALL REASONABLE COSTS AND EXPENSES INCURRED BY THE
SUBADVISER.

Under the Subadvisory Agreement, the Subadviser, subject to the
supervision of PIFM, is responsible for managing the assets of the Fund in
accordance with its investment objective, investment program and policies. The
Subadviser determines what securities and other instruments are purchased and
sold for the Fund and is responsible for obtaining and evaluating financial data
relevant to the Fund.

Prudential Investments Quantitative Investment Management, a unit of
the Subadviser, is responsible for the day-to-day management of the Fund and
employs a team approach to the management of the Fund.

PIFM and PIC are wholly owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.

<PAGE>

DISTRIBUTOR

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF
PRUDENTIAL.

UNDER A DISTRIBUTION AGREEMENT, THE DISTRIBUTOR INCURS THE EXPENSES OF
DISTRIBUTING THE FUND'S SHARES, NONE OF WHICH IS REIMBURSED BY OR PAID FOR BY
THE FUND. These expenses include commissions and account servicing fees paid to,
or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses.

The Manager (or one of its affiliates) may make payments from its own
resources to dealers (including Prudential Securities) and other persons which
distribute shares of the Fund. Such payments may be calculated by reference to
the NAV of shares sold by such persons or otherwise.

FEE WAIVERS AND SUBSIDY

For the fiscal year ending September 30, 1998, PIFM has agreed to
subsidize the Fund's operating expenses so that total Fund operating expenses do
not exceed .40% and .30% of the average net assets for Class Z and Class I
shares, respectively. Thereafter, PIFM may from time to time waive all or a
portion of its management fee and subsidize all or a portion of the operating
expenses of the Fund. Fee waivers and expense subsidies will increase the Fund's
total return. See "Performance Information" in the Statement of Additional
Information and "Fund Expenses" above.

PORTFOLIO TRANSACTIONS

Prudential Securities may act as a broker or futures commission
merchant for the Fund provided that the commissions, fees or other remuneration
it receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Company. Its mailing address is P.O.
Box 1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.

<PAGE>

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

HOW THE FUND VALUES ITS SHARES

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

THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY
SUBTRACTING ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE
REMAINDER BY THE NUMBER OF OUTSTANDING SHARES. THE TRUSTEES FIXED THE SPECIFIC
TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15 P.M., NEW
YORK TIME.

The Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on which
changes in the value of the Fund's portfolio securities do not materially affect
the NAV.

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

HOW THE FUND CALCULATES PERFORMANCE

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

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL
RETURN, AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE.
These figures are based on historical earnings and are not intended to indicate
future performance. The total return shows how much an investment in the Fund
would have increased (decreased) over a specified period of time (i.e., one,
five or ten years or since inception of the Fund) assuming that all
distributions and dividends by the Fund were reinvested on the reinvestment
dates during the period and less all recurring fees. The aggregate total return
reflects actual performance over a stated period of time. Average annual total
return is a hypothetical rate of return that, if achieved annually, would have
produced the same aggregate total return if performance had been constant over
the entire period. Average annual total return smooths out variations in
performance. Neither average annual total return nor aggregate total return
takes into account any federal or state income taxes which may be payable upon
redemption. The yield refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized;" that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information will be contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

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

TAXES, DIVIDENDS AND DISTRIBUTIONS

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

TAXATION OF THE FUND

THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT

<PAGE>

INCOME AND NET CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.

In addition, under the Internal Revenue Code, special rules apply to
the treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Fund will be required to
be "marked to-market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.

TAXATION OF SHAREHOLDERS

All dividends out of net investment income, together with distributions
of net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to the shareholders, will be taxable
as ordinary income to the shareholder whether or not reinvested. Any net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders will be taxable as long-term capital
gains to the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum long-term
capital gains rate for individual shareholders for securities held between 12
and 18 months currently is 28% and for securities held more than 18 months is
20%. The maximum tax rate for ordinary income is 39.6%. The maximum long-term
capital gains rate for corporate shareholders is currently the same as the
maximum tax rate for ordinary income.

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to interest income, capital gain, gain or loss from
Section 1256 contracts, dividend income from foreign corporations and income
from some other sources will not be eligible for the corporate dividends-
received deduction. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax advisers
regarding other requirements applicable to the dividends-received deduction.

Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held more than one year
and otherwise as a short-term capital gain or loss. Any such loss with respect
to shares that are held for six months or less, however, will be treated as a
long-term capital loss to the extent of any capital gain distributions received
by the shareholder. Gain or loss on shares held more than 18 months will be
considered in determining a holder's adjusted net capital gains subject to a
maximum tax rate of 20%.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this rate
is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to backup
withholding. Dividends of net investment income and short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate).

Shareholders are urged to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND
TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES AT LEAST ANNUALLY. SEE "HOW THE FUND VALUES ITS SHARES."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES
BASED ON THE NAV ON THE RECORD DATE OR SUCH OTHER DATE AS THE TRUSTEES MAY
DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS
DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN
CASH. Such election should be submitted to Prudential Mutual Fund Services LLC,
Attn: Account Maintenance Unit, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. The Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash.

IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE
THAT DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE
MONEY YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE
TIMING OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.

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

GENERAL INFORMATION

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

DESCRIPTION OF SHARES

THE COMPANY WAS ESTABLISHED AS A DELAWARE BUSINESS TRUST ON MAY 11,
1992. THE COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF
BENEFICIAL INTEREST, $.001 PAR VALUE PER SHARE, DIVIDED INTO THE FOLLOWING FIVE
SERIES OR PORTFOLIOS: THE FUND, PRUDENTIAL BOND MARKET INDEX FUND, PRUDENTIAL
EUROPE INDEX FUND, PRUDENTIAL PACIFIC INDEX FUND AND PRUDENTIAL SMALL-CAP INDEX
FUND. Each fund, other than the Fund, offers one class of shares. The Fund
offers two classes of shares. In accordance with the Company's Declaration of
Trust, the Trustees may authorize the creation of additional series of
beneficial interest and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine.

The Company's expenses generally are allocated between the Fund and
the other series of the Company on the basis of relative net assets at the time
of allocation, except that expenses directly attributable to a particular series
or class of a series of the Company are charged to that series or class, as the
case may be. Shares of the Fund, when issued, are fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The Company's
shares do not have cumulative voting rights for the election of Trustees.

THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS
UNLESS OTHERWISE REQUIRED BY LAW.THE COMPANY WILL NOT BE REQUIRED TO HOLD
MEETINGS OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES IS
REQUIRED TO BE ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT.
SHAREHOLDERS HAVE CERTAIN RIGHTS,INCLUDING THE RIGHT TO CALL A MEETING UPON A
VOTE OF 10% OR MORE OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF
VOTING ON THE REMOVAL OF ONE OR MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information
which has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the Company with
the Commission under the Securities Act. Copies of the Registration Statement
may be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.

<PAGE>

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

SHAREHOLDER GUIDE

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

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES,
PRUSEC OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL
FUND SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. PARTICIPANTS IN PROGRAMS
SPONSORED BY PRUDENTIAL RETIREMENT SERVICES SHOULD CONTACT THEIR CLIENT
REPRESENTATIVE FOR MORE INFORMATION ABOUT PURCHASING SHARES OF THE FUND. The
purchase price is the NAV next determined following receipt of an order in
proper form by the Transfer Agent or Prudential Securities. Payment may be made
by cash, wire, check or through your brokerage account. See "How the Fund Values
its Shares."

There is no minimum or subsequent investment requirement for shares of
the Fund. See "Shareholder Services."

Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a share certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive share
certificates.

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."

Your dealer is responsible for forwarding payment promptly to the Fund.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.

Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.

ELIGIBLE PURCHASERS

Class Z shares of the Fund are available for purchase by (i) investors
who purchase $1 million or more of shares (or who already own $1 million of
shares of other Prudential Mutual Funds), including those described under
"Benefit Plans" and "Prudential Retirement Programs" below, (ii) participants in
any fee-based program or trust program sponsored by Prudential Securities, The
Prudential Savings Bank, F.S.B. (or any affiliate) which includes mutual funds
as investment options and for which the Fund is an available option, (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by Prudential, for whom Class Z shares of the Prudential Mutual Funds
are an available investment option, (iv) Benefit Plans (as defined below) for
which Prudential Retirement Services serves as recordkeeper and as of September
20, 1996 (a) were Class Z shareholders of the Prudential Mutual Funds or (b)
executed a letter of intent to purchase Class Z shares of the Prudential Mutual
Funds, (v) current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund), and (vi) employees of Prudential and/or Prudential
Securities who participate in a Prudential-sponsored employee savings plan.

Class I shares of the Fund are available for purchase by pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code (collectively, Benefit
Plans), provided that the Benefit Plan has at least $150 million in defined
contribution assets and at least $50 million of such assets are invested in
Prudential Mutual Funds and/or annuities products.

In connection with the sale of shares, the Manager, the Distributor or
one of their affiliates will pay dealers, financial advisers and other persons
that distribute shares a finders' fee from its own resources based on a
percentage of the NAV of shares sold by such persons.

<PAGE>

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by
wire, you must first telephone PMFS to receive an account number at (800)
225-1852 (toll-free). The following information will be requested: your name,
address, tax identification number, class election, dividend distribution
election, amount being wired and wiring bank. Instructions should then be given
by you to your bank to transfer funds by wire to State Street Bank and Trust
Company (State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Index Series Fund, Prudential Stock Index Fund,
specifying on the wire the account number assigned by PMFS and your name and
identifying the class in which you are eligible to invest.

If you arrange for receipt by State Street of federal funds prior to
the calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.

In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential Index
Series Fund, Prudential Stock Index Fund, and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing federal funds. The minimum amount which may be invested by wire is
$1,000.

ALTERNATIVE PURCHASE PLAN. The Fund offers two classes of shares, Class
Z and Class I shares (Alternative Purchase Plan). Class Z and Class I shares
represent an interest in the same portfolio of investments of the Fund and have
the same rights and obligations, except that (i) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class; and (ii) Class I shares, which are held in a single omnibus
account, are subject to nominal transfer agency fees and expenses. The two
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below.

RIGHTS OF ACCUMULATION. Shares of the Fund and shares of other
Prudential Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) may be aggregated to determine eligibility.
See "Purchase and Redemption of Fund Shares" in the Statement of Additional
Information.

BENEFIT PLANS. Class Z shares of the Fund may be purchased by a Benefit
Plan, provided that the Benefit Plan has existing assets of at least $1 million
invested in shares of Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) or 250 eligible
employees or participants. In the case of Benefit Plans whose accounts are held
directly with the Transfer Agent or Prudential Securities and for which the
Transfer Agent or Prudential Securities does individual account recordkeeping
(Direct Account Benefit Plans) and Benefit Plans sponsored by Prudential
Securities or its subsidiaries (Prudential Securities or Subsidiary Prototype
Benefit Plans), shares may be purchased by participants who are repaying loans
made from such plans to the participant.

PRUDENTIAL RETIREMENT PROGRAMS. Class Z shares of the Fund may be
purchased by certain savings, retirement and deferred compensation plans,
qualified or non-qualified under the Internal Revenue Code, for which Prudential
serves as the plan administrator or recordkeeper, provided that (i) the plan has
at least $1 million in existing assets or 250 eligible employees and (ii) the
Fund is an available investment option. These plans include pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Internal Revenue Code, deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code and plans that
participate in the Transfer Agent's PruArray and SmartPath Programs (benefit
plan recordkeeping services) (hereafter referred to as a PruArray or SmartPath
Plan). All plans of a company for which Prudential serves as plan administrator
or recordkeeper are aggregated in meeting the $1 million threshold. The term
"existing assets" as used herein includes stock issued by a plan sponsor, shares
of Prudential Mutual Funds and shares of certain unaffiliated mutual funds that
participate in the PruArray or SmartPath Program (Participating Funds).
"Existing assets" also include monies invested in The Guaranteed Interest
Account (GIA), a group annuity insurance product issued by Prudential, and units
of the Stable Value Fund (SVF), an unaffiliated bank collective fund. Shares of
the Fund may also be purchased by plans that have monies invested in GIA and
SVF, provided (i) the purchase is made with the proceeds of a redemption from
either GIA or SVF and (ii) shares of the Fund are an investment option of the
plan.

<PAGE>

PRUARRAY ASSOCIATION BENEFIT PLANS. Class Z shares are also offered to
Benefit Plans sponsored by employers which are members of a common trade,
professional or membership association (Association) that participate in the
PruArray Program provided that the Association enters into a written agreement
with Prudential. Such Benefit Plans or non-qualified plans may purchase shares
of the Fund without regard to the assets or number of participants in the
individual employer's qualified Plan(s) or non-qualified plan(s) so long as the
employers in the Association (i) have retirement plan assets in the aggregate of
at least $1 million or 250 participants in the aggregate and (ii) maintain their
accounts with the Transfer Agent.

PRUARRAY SAVINGS PROGRAM. Class Z shares of the Fund are also offered
to employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (i) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (ii)
spouses of employees who open an IRA account with the Fund's transfer agent. The
program is offered to companies that have at least 250 eligible employees.

HOW TO SELL YOUR SHARES

YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER
SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its
Shares."

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISER.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR
REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF
YOU HOLD CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE
OF THE CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services LLC, Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be
paid to a person other than the record owner, (c) are to be sent to an address
other than the address on the Transfer Agent's records, or (d) are to be paid to
a corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Prudential Preferred
Financial Services offices. In the case of redemptions from a PruArray or
SmartPath Plan, if the proceeds of the redemption are invested in another
investment option of the plan, in the name of the record holder and at the same
address as reflected in the Transfer Agent's records, a signature guarantee is
not required.

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK
WITHIN SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Commission,
by order, so permits; provided that

<PAGE>

applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED
UNTIL THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK
HAS BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

REDEMPTION IN KIND. If the Trustees determine that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Company has, however, elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund
during a 90-day period for any one shareholder.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE
OTHER SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING
ONE OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. CLASS Z SHAREHOLDERS OF THE FUND WHO ARE ELIGIBLE TO
PURCHASE CLASS Z SHARES OF OTHER PRUDENTIAL MUTUAL FUNDS HAVE THE ABILITY TO
EXCHANGE THEIR SHARES OF THE FUND FOR CLASS Z SHARES OF ANOTHER FUND ON THE
BASIS OF THE RELATIVE NAV. SHAREHOLDERS WHO ARE ELIGIBLE TO PURCHASE CLASS A
SHARES OF OTHER PRUDENTIAL MUTUAL FUNDS AT NAV HAVE THE ABILITY TO EXCHANGE
THEIR SHARES OF THE FUND FOR CLASS A SHARES OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. CLASS I SHAREHOLDERS HAVE THE ABILITY TO EXCHANGE THEIR CLASS I
SHARES OF THE FUND FOR CLASS Z SHARES OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. An exchange will be treated as a redemption and purchase for tax
purposes.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The exchange privilege is available only in states where the
exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN
ON THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual
Fund Services LLC, Attention: Exchange Processing, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE
EXCHANGE OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES
BY MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED
ABOVE.

The exchange privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.

21
<PAGE>

FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are
not intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts, if, in the Manager's sole
judgment, such person, group or accounts were following a market timing strategy
or were otherwise engaging in excessive trading (Market Timers).

To implement this authority to protect the Fund and its shareholders
from excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.

SHAREHOLDER SERVICES

In addition to the exchange privilege, as a shareholder in the Fund,
you can take advantage of the following additional services and privileges:

o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Fund at NAV. You may direct the Transfer Agent
in writing not less than 5 full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.

o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.

o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
to shareholders, which provides for monthly or quarterly checks. See also
"Shareholder Investment Account--Systematic Withdrawal Plan" in the Statement of
Additional Information.

o REPORTS TO SHAREHOLDERS. The Fund will send you annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Fund will provide one annual and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In
addition, monthly unaudited financial data are available upon request from the
Fund.

o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (908)
417-7555 (collect).

For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.

22
<PAGE>

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

THE PRUDENTIAL MUTUAL FUND FAMILY

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

Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you invest
or send money.

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

--------------------------
TAXABLE BOND FUNDS
--------------------------

Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio

-----------------------------
TAX-EXEMPT BOND FUNDS
-----------------------------

Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

--------------------
GLOBAL FUNDS
--------------------

Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.

--------------------
EQUITY FUNDS
--------------------

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

--------------------------
MONEY MARKET FUNDS
--------------------------

o Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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

A-1

<PAGE>

No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.

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

TABLE OF CONTENTS

PAGE
----
FUND HIGHLIGHTS .......................................... 2
What are the Fund's Risk Factors and
Special Characteristics? ............................... 2
FUND EXPENSES ............................................ 4
FINANCIAL HIGHLIGHTS ..................................... 5

HOW THE FUND INVESTS ..................................... 7
Investment Objective and Policies ....................... 7
Other Investments and Policies .......................... 9
Hedging and Return Enhancement Strategies ............... 10
Investment Restrictions ................................. 12
HOW THE FUND IS MANAGED .................................. 13
Manager ................................................. 13
Subadviser .............................................. 13
Distributor ............................................. 14
Fee Waivers and Subsidy ................................. 14
Portfolio Transactions .................................. 14
Custodian and Transfer and
Dividend Disbursing Agent .............................. 14
HOW THE FUND VALUES ITS SHARES ........................... 15
HOW THE FUND CALCULATES PERFORMANCE ...................... 15
TAXES, DIVIDENDS AND DISTRIBUTIONS ....................... 15
GENERAL INFORMATION ...................................... 17
Description of Shares ................................... 17
Additional Information .................................. 17
SHAREHOLDER GUIDE ........................................ 18
How to Buy Shares of the Fund ........................... 18
How to Sell Your Shares ................................. 20
How to Exchange Your Shares ............................. 21
Shareholder Services .................................... 22
THE PRUDENTIAL MUTUAL FUND FAMILY ........................ A-1

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

MF174A

- --------------------------------------------------------------
Class Z: 74431F-20-9
CUSIP No.:
Class I: 74431F-86-0
- --------------------------------------------------------------

Prudential
Stock
Index Fund

PROSPECTUS
January 23, 1998

www.prudential.com

[Prudential Investments Logo]

<PAGE>

Prudential Bond Market Index Fund
prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund

- --------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 23, 1998
- --------------------------------------------------------------------------------

Prudential Index Series Fund (the Company) is a diversified, open-end,
management investment company comprised of five separate portfolios, or series
(each a Fund and collectively, the Funds). This Prospectus relates to the
following Funds: Prudential Bond Market Index Fund, Prudential Europe Index
Fund, Prudential Pacific Index Fund, Prudential Small-Cap Index Fund and
Prudential Stock Index Fund. Each Fund and its corresponding investment
objective is described below:

FUND INVESTMENT OBJECTIVE
---- --------------------
Prudential Bond Market Seeks to provide investment results that
Index Fund correspond to the total return performance of a
broad-based index of fixed-income securities,
currently the Lehman Brothers Aggregate Index.

Prudential Europe Seeks to provide investment results that
Index Fund correspond to the price and yield performance of
a broad-based index of securities of European
issuers, currently the Morgan Stanley Capital
International Europe Index.

Prudential Pacific Seeks to provide investment results that
Index Fund correspond to the price and yield performance of
a broad-based index of securities of issuers in
the Pacific region, currently the Morgan Stanley
Capital International Pacific Free Index.

Prudential Small-Cap Seeks to provide investment results that
Index Fund correspond to the price and yield performance of
a broad-based index of small cap stocks,
currently the Standard & Poor's 600 Small
Capitalization Stock Index.

Prudential Stock Seeks to provide investment results that
Index Fund correspond to the price and yield performance of
the Standard & Poor's 500 Composite Stock Price
Index (S&P 500 Index).

There can be no assurance that the investment objective of any Fund will be
achieved. See "How the Funds Invest--Investment Objectives and Policies." The
Funds' address is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, and their telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Funds
that a prospective investor should know before investing and is
available at the Web site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Funds has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated January 23, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Funds at the
address or telephone number noted above.The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Funds.

- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------

<PAGE>

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

FUND HIGHLIGHTS

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

The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.

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

WHAT IS EACH FUND?

The Company is comprised of five portfolios or series: Prudential Bond
Market Index Fund, Prudential Europe Index Fund, Prudential Pacific Index Fund,
Prudential Small-Cap Index Fund and Prudential Stock Index Fund (each a Fund and
collectively, the Funds). Technically, the Company is a diversified, open-end,
management investment company comprised of separate series, each of which
operates as a separate mutual fund. A mutual fund pools the resources of
investors by selling its shares to the public and investing the proceeds of such
sale in a portfolio of securities designed to achieve its investment objective.

WHAT IS THE INVESTMENT OBJECTIVE OF EACH FUND?

The investment objective of Prudential Bond Market Index Fund is to
seek to provide investment results that correspond to the total return
performance of a broad-based index of fixed-income securities; currently, the
Fund uses the Lehman Brothers Aggregate Index for that purpose. The investment
objective of Prudential Europe Index Fund is to seek to provide investment
results that correspond to the price and yield performance of a broad-based
index of securities of European issuers; currently, the Fund uses the Morgan
Stanley Capital International Europe Index (MSCI-Europe Index) for that purpose.
The investment objective of Prudential Pacific Index Fund is to seek to provide
investment results that correspond to the price and yield performance of a
broad-based index of securities of issuers in the Pacific region; currently, the
Fund uses the Morgan Stanley Capital International Pacific Free Index
(MSCI-Pacific Free Index) for that purpose. The investment objective of
Prudential Small-Cap Index Fund is to seek to provide investment results that
correspond to the price and yield performance of a broad-based index of small
cap stocks; currently, the Fund uses the Standard & Poor's 600 Small
Capitalization Stock Index (S&P 600 Index) for that purpose. The investment
objective of Prudential Stock Index Fund is to seek to provide investment
results that correspond to the price and yield performance of the S&P 500 Index.
There can be no assurance that the investment objective of any Fund will be
achieved. See "How the Funds Invest--Investment Objectives and Policies" at
page 9.

WHAT ARE THE FUNDS' RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Funds' performance will not precisely correspond to the performance
of the index whose performance each Fund seeks to replicate. Each Fund will
attempt to achieve a correlation between its performance and that of the
applicable index of at least 0.95, without taking into account expenses.
Potential tracking differences, brokerage and other transaction costs and other
Fund expenses may cause a Fund's return to be lower than the return of the index
whose performance the Fund seeks to replicate. See "How the Funds
Invest--Investment Objectives and Policies" at page 9.

Each Fund may engage in various hedging and return enhancement
strategies and use derivatives. See "How the Funds Invest--Hedging and Return
Enhancement Strategies--Risks of Hedging and Return Enhancement Strategies" at
page 19. As with an investment in any mutual fund, an investment in a Fund can
decrease in value and you can lose money.

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

<PAGE>

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

WHO MANAGES THE FUNDS?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
manager of the Company and is compensated for its services at an annual rate of
.25 of 1% of average daily net assets of Prudential Bond Market Index Fund, .40
of 1% of average daily net assets of Prudential Europe Index Fund, .40 of 1% of
average daily net assets of Prudential Pacific Index Fund, .30 of 1% of average
daily net assets of Prudential Small-Cap Index Fund and .30 of 1% of average
daily net assets of Prudential Stock Index Fund. As of December 31, 1997, PIFM
served as manager or administrator to 64 investment companies, including 42
mutual funds, with aggregate assets of approximately $62 billion. The Prudential
Investment Corporation (PIC), doing business as Prudential Investments (PI, the
Subadviser or the investment adviser), furnishes investment advisory services in
connection with the management of the Funds under Subadvisory Agreements with
PIFM. See "How the Funds are Managed--Manager" at page 19 and "How the Funds are
Managed--Subadviser" at page 20.

WHO DISTRIBUTES THE FUNDS' SHARES?

Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Funds' shares. The Distributor incurs the
expense of distributing the Funds' shares under a Distribution Agreement with
the Company, none of which is reimbursed or paid for by the Funds. See "How the
Funds are Managed--Distributor" at page 20.

WHAT IS THE MINIMUM INVESTMENT?

There is no minimum initial or subsequent investment requirement for
investors who qualify to purchase shares. See "Shareholder Guide--How to Buy
Shares of a Fund" at page 24 and "Shareholder Guide--Shareholder Services" at
page 29.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Funds through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Funds, through their
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer
Agent), at the net asset value per share (NAV) next determined after receipt of
your purchase order by the Transfer Agent or Prudential Securities. Class Z
shares of each Fund are offered to (i) investors who purchase $1 million or more
of shares of the Fund (or who already own $1 million of shares of other
Prudential Mutual Funds); (ii) participants in any fee-based program or trust
program sponsored by Prudential Securities, The Prudential Savings Bank, F.S.B.
or any affiliate which includes mutual funds as investment options and for which
the Fund is an available option, (iii) certain participants in the MEDLEY
Program (group variable annuity contracts) sponsored by The Prudential Insurance
Company of America (Prudential), for whom Class Z shares of the Prudential
Mutual Funds are an available investment option, (iv) Benefit Plans for which
Prudential Retirement Services serves as recordkeeper and as of September 20,
1996 (a) were Class Z shareholders of the Prudential Mutual Funds or (b)
executed a letter of intent to purchase Class Z shares of the Prudential Mutual
Funds, (v) current and former Directors/Trustees of the Prudential Mutual Funds
(including the Funds), and (vi) employees of Prudential and/or Prudential
Securities who participate in a Prudential-sponsored employee savings plan.
Class I shares of Prudential Stock Index Fund are offered to pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans qualified
under Sections 457 or 403(b)(7) of the Internal Revenue Code, provided that a
plan has at least $150 million in defined contribution assets and at least $50
million of such assets are invested in Prudential Mutual Funds and/or annuities
products. Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about purchasing
shares of the Funds. See "How Each Fund Values its Shares" at page 21 and
"Shareholder Guide--How to Buy Shares of a Fund" at page 24.

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

<PAGE>

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

WHAT ARE MY PURCHASE ALTERNATIVES?

Prudential Stock Index Fund offers two classes of shares, Class Z and
Class I shares, sold without an initial or contingent deferred sales charge to a
limited group of investors. Class I shares must be held in an ominibus account
and are subject to nominal transfer agency fees or expenses. Each of the other
Funds offers one class of shares (Class Z shares), sold without an initial or
contingent deferred sales charge to a limited group of investors. Shares of the
Funds are not subject to any ongoing service or distribution expenses.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

Each Fund expects to pay dividends of net investment income, if any,
and distributions of any net capital gains at least annually. Dividends and
distributions of a Fund will be automatically reinvested in additional shares of
that Fund at NAV without a sales charge unless you request that they be paid to
you in cash. See "Taxes, Dividends and Distributions" at page 22.

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

<PAGE>

<TABLE>
- --------------------------------------------------------------------------------------------------------------------

FUND EXPENSES

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

<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases .................................................. None
Maximum Deferred Sales Load .............................................................. None
Maximum Sales Load Imposed on Reinvested Dividends ....................................... None
Redemption Fees .......................................................................... None
Exchange Fee ............................................................................. None

ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets) PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
BOND MARKET EUROPE PACIFIC SMALL-CAP STOCK
INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- ---------- ---------- --------------------
CLASS Z CLASS Z CLASS Z CLASS Z CLASS Z CLASS I
---------- ---------- ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees ....................... .25% .40% .40% .30% .30% .30%
12b-1 Fees ............................ None None None None None None
Other Expenses (After Reimbursement) .. .15% .20% .20% .20% .10% .00%
--- --- --- --- --- ---
Total Fund Operating Expenses
(After Reimbursement) ............... .40% .60% .60% .50% .40% .30%
=== === === === === ===

EXAMPLE 1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:

<S> <C> <C> <C> <C>
PRUDENTIAL BOND MARKET INDEX FUND
Class Z .................................................................. $4 $13 -- --
PRUDENTIAL EUROPE INDEX FUND
Class Z .................................................................. $6 $19 -- --
PRUDENTIAL PACIFIC INDEX FUND
Class Z .................................................................. $6 $19 -- --
PRUDENTIAL SMALL-CAP INDEX FUND
Class Z .................................................................. $5 $16 -- --
PRUDENTIAL STOCK INDEX FUND
Class Z .................................................................. $4 $13 $22 $51
Class I .................................................................. $3 $10 $17 $38

The above example is based on actual data for the fiscal year ended
September 30, 1997 for Prudential Stock Index Fund and is based on expenses
expected to be incurred during the current fiscal year as reduced by the
Manager's expense reimbursement for the other Funds. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist investors in understanding the
various types of costs and expenses that an investor in a Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Funds are Managed." "Other Expenses" includes
actual operating expenses for Prudential Stock Index Fund for the fiscal year
ended September 30, 1997 and estimated operating expenses of the other Funds,
such as Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.
<FN>
- ----------

* The Manager has agreed to reimburse each Fund so that Total Fund Operating
Expenses do not exceed .40% and .30%, respectively, for Class Z and Class I
shares of Prudential Stock Index Fund and .40%, .60%, .60% and .50% of the
average net assets of Prudential Bond Market Index Fund, Prudential Europe
Index Fund, Prudential Pacific Index Fund and Prudential Small-Cap Index
Fund, respectively. Total Fund Operating Expenses before reimbursement are
estimated to be .48% and .38%, respectively, of the average net assets of
Class Z and Class I shares of Prudential Stock Index Fund and .48%, 1.11%,
1.11% and .58% of the average net assets of Prudential Bond Market Index
Fund, Prudential Europe Index Fund, Prudential Pacific Index Fund and
Prudential Small-Cap Index Fund, respectively, for the current fiscal year.
</FN>

</TABLE>
- --------------------------------------------------------------------------------

<PAGE>

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

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(PRUDENTIAL PACIFIC INDEX FUND - CLASS Z SHARES)

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

The following financial highlights have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
This information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class Z share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. This information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders." During this
period, there were no shares outstanding of Prudential Bond Market Index Fund,
Prudential Europe Index Fund or Prudential Small-Cap Index Fund.

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

CLASS Z
---------------------
SEPTEMBER 24, 1997(a)
THROUGH
SEPTEMBER 30, 1997
---------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...................... $10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(d) .................................. 0.02
Net realized and unrealized gain (loss) on
investment transactions ................................. (0.14)
-------
Total from investment operations ........................ (0.12)
-------
Net asset value, end of period ............................ $9.88
=======
TOTAL RETURN(B): .......................................... (1.20)%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........................... $24,699
Average net assets (000) .................................. $24,802
Ratios to average net assets: (d)
Expenses ................................................ .60%(c)
Net investment income ................................... 13.14%(c)
Portfolio turnover rate ................................... 0%
Average commission rate paid per share .................... $0.0087

- ----------
(a) Commencement of investment operations.

(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of the period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.

(d) Net of expense subsidy.

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

<PAGE>

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

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(PRUDENTIAL STOCK INDEX FUND - CLASS Z SHARES)

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

The following financial highlights for the year ended September 30,
1997 have been audited by Price Waterhouse LLP, independent accountants, and for
the three years ended September 30, 1996 and the period from November 5, 1992
through September 30, 1993 have been audited by Deloitte & Touche, independent
auditors, whose reports thereon were unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The financial highlights
contain selected data for a Class Z share of beneficial interest outstanding,
total return, ratios to average net assets and other supplemental data for the
periods indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide -- Shareholder
Services -- Reports to Shareholders."

<TABLE>

- -------------------------------------------------------------------------------------------------------
<CAPTION>

CLASS Z
-----------------------------------------------------------
NOVEMBER 5,
1992(A)
YEAR ENDED SEPTEMBER 30, THROUGH
---------------------------------------------- SEPTEMBER
1997* 1996 1995 1994 30,1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 16.06 $ 14.22 $ 11.27 $ 11.12 $ 10.00
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(b) ................. .46 .25 .23 .26 .23
Net realized and unrealized gain
on investment transactions ............. 5.75 2.44 2.97 .11 .94
-------- -------- -------- ------- -------
Total from investment operations ..... 6.21 2.69 3.20 .37 1.17
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... (.26) (.28) (.22) (.18) (.05)
Distributions from net realized gains .... (.15) (.57) (.03) (.04) --
-------- -------- -------- ------- -------
Total distributions .................... (.41) (.85) (.25) (.22) (.05)
-------- -------- -------- ------- -------
Net asset value, end of period ........... $ 21.86 $ 16.06 $ 14.22 $ 11.27 $ 11.12
======== ======== ======== ======= =======
TOTAL RETURN(D): ......................... 39.34% 19.72% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) .......... $185,881 $184,379 $101,945 $50,119 $27,142
Average net assets (000) ................. $254,644 $142,540 $ 71,711 $38,098 $18,807
Ratios to average net assets:(b)
Expenses ............................... .46% .60% .60% .60% .60%(c)
Net investment income .................. 1.66% 1.92% 2.55% 2.34% 2.41%(c)
Portfolio turnover rate .................. 5% 2% 11% 2% 1%
Average commission rate paid per share ... $ 0.0250 $ 0.0250 N/A N/A N/A

<FN>
- ----------
(a) Commencement of investment operations.

(b) Net of expense subsidy.

(d) Total 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 other distributions. Total return for periods of less than
a full year are not annualized. Total return includes the effect of expense
subsidies.

N/A-Data not required for these periods.

* Effective October 30, 1996, PIFM succeeded Prudential Institutional Fund
Management, Inc. as manager of the Fund.

</FN>

</TABLE>

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

<PAGE>

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

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(PRUDENTIAL STOCK INDEX FUND - CLASS I SHARES)

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

The following financial highlights have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
This information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class I share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. This information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."

CLASS I
------------------
AUGUST 1, 1997(a)
THROUGH
SEPTEMBER 30, 1997
------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $21.87
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(d) ................................... .06
Net realized and unrealized gain (loss) on
investment transactions .................................. (.06)
------
Total from investment operations ....................... --
------
LESS DISTRIBUTIONS:
Dividends from net investment income ....................... --
Distributions from net realized gains....................... --
------
Total distributions.................................... --
------
Net asset value, end of period ............................. $21.87
======
TOTAL RETURN(b): ........................................... 0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............................ $312,127
Average net assets (000) ................................... $296,788
Ratios to average net assets: (d)
Expenses ................................................. .30%(c)
Net investment income .................................... 1.73%(c)
Portfolio turnover rate ..................................... 5%
Average commission rate paid per share ...................... $0.0250

- ----------
(a) Commencement of offering of Class I shares.

(d) Net of expense subsidy.

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

<PAGE>

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

HOW THE FUNDS INVEST

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

INVESTMENT OBJECTIVES AND POLICIES

THE COMPANY IS COMPRISED OF FIVE SEPARATE SERIES (EACH A FUND AND
COLLECTIVELY, THE FUNDS): PRUDENTIAL BOND MARKET INDEX FUND, PRUDENTIAL EUROPE
INDEX FUND, PRUDENTIAL PACIFIC INDEX FUND, PRUDENTIAL SMALL-CAP INDEX FUND AND
PRUDENTIAL STOCK INDEX FUND.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL BOND MARKET INDEX FUND IS TO
SEEK TO PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE TOTAL RETURN
PERFORMANCE OF A BROAD-BASED INDEX OF FIXED-INCOME SECURITIES. THE PRUDENTIAL
BOND MARKET INDEX FUND CURRENTLY USES THE LEHMAN BROTHERS AGGREGATE INDEX FOR
THAT PURPOSE.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL EUROPE INDEX FUND IS TO SEEK TO
PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF
A BROAD-BASED INDEX OF SECURITIES OF EUROPEAN ISSUERS. THE PRUDENTIAL EUROPE
INDEX FUND CURRENTLY USES THE MSCI-EUROPE INDEX FOR THAT PURPOSE.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL PACIFIC INDEX FUND IS TO SEEK TO
PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF
A BROAD-BASED INDEX OF SECURITIES OF ISSUERS IN THE PACIFIC REGION. THE
PRUDENTIAL PACIFIC INDEX FUND CURRENTLY USES THE MSCI-PACIFIC FREE INDEX FOR
THAT PURPOSE.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL SMALL-CAP INDEX FUND IS TO SEEK
TO PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE
OF A BROAD-BASED INDEX OF SMALL CAP STOCKS. THE PRUDENTIAL SMALL-CAP INDEX FUND
CURRENTLY USES THE S&P 600 INDEX FOR THAT PURPOSE.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL STOCK INDEX FUND IS TO SEEK TO
PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF
THE S&P 500 INDEX.

THERE CAN BE NO ASSURANCE THAT THE OBJECTIVE OF ANY FUND WILL BE
ACHIEVED. See "Investment Objectives and Policies" in the Statement of
Additional Information. As with an investment in any mutual fund, an investment
in any of the Funds can decrease in value and you can lose money.

THE INVESTMENT OBJECTIVE OF PRUDENTIAL STOCK INDEX FUND IS FUNDAMENTAL.
EACH OTHER FUND'S INVESTMENT OBJECTIVE AND THE INVESTMENT POLICIES (OTHER THAN
THEIR INVESTMENT RESTRICTIONS) OF ALL FUNDS ARE NOT FUNDAMENTAL AND SO MAY BE
CHANGED BY THE BOARD OF TRUSTEES (TRUSTEES) WITHOUT SHAREHOLDER APPROVAL.
HOWEVER, SHAREHOLDERS WOULD BE NOTIFIED PRIOR TO A MATERIAL CHANGE IN A FUND'S
INVESTMENT OBJECTIVE AND POLICIES. THE BROAD-BASED INDICES USED BY THE FUNDS
(EXCEPT PRUDENTIAL STOCK INDEX FUND) MAY BE CHANGED FROM TIME TO TIME AT THE
DISCRETION OF THE SUBADVISER UNDER THE SUPERVISION OF THE TRUSTEES.

The Funds are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the investment adviser for the Funds, using a "passive" or indexing investment
approach, will attempt to approximate the investment performance of the
respective indices by holding a portfolio of stocks or bonds selected through
statistical procedures. The Funds are managed without regard to tax
ramifications. Each Fund pursues its objective through the investment policies
described below. While each Fund will seek to achieve its objective, the Funds
will differ with respect to the degree of risk that they involve.

PRUDENTIAL BOND MARKET INDEX FUND

Prudential Bond Market Index Fund seeks to provide investment results
that correspond to the total return performance of a broad-based index of
fixed-income securities. The Prudential Bond Market Index Fund currently uses

9
<PAGE>

the Lehman Brothers Aggregate Index for that purpose. The Lehman Brothers
Aggregate Index is an unmanaged index that measures the total return (capital
change plus income) provided by a universe of fixed-income securities, weighted
by market value. The Fund is neither sponsored by nor affiliated with Lehman
Brothers Inc. See "Investment Objectives and Policies--Investment Policies
Applicable to Prudential Bond Market Index Fund" in the Statement of Additional
Information.

To achieve its investment objective, Prudential Bond Market Index Fund
will purchase securities that as a group reflect the performance of the Lehman
Brothers Aggregate Index. The Fund intends to hold a representative sample of
the securities that reflect the three major classes of fixed-income investments
in the Lehman Brothers Aggregate Index: U.S. Treasury and Government agency
securities, investment-grade corporate debt obligations and mortgage-backed
securities. The securities included in the Index must be U.S. dollar-denominated
and investment-grade, and have a fixed rate coupon, a remaining maturity or
average life of at least one year and generally have an outstanding market value
of at least $100 million. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the Lehman Brothers Aggregate Index. As of December 31, 1997,
U.S. Treasury and agency securities comprised 42.91% and 6.58%, respectively of
the Index's total market value, corporate bonds comprised 19.34%, asset-backed
securities comprised 0.95% and mortgage-backed securities comprised 30.22%.

Prudential Bond Market Index Fund intends to invest at least 80% of its
total assets in the types of securities included in the Lehman Brothers
Aggregate Index in the same proportions as the Index. The Fund may invest the
balance of its assets in: (i) money market instruments; (ii) put and call
options on fixed-income securities and bond indices; and (iii) bond futures
contracts and options thereon.

PRUDENTIAL EUROPE INDEX FUND

Prudential Europe Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of European issuers. The Prudential Europe Index Fund currently uses
the MSCI-Europe Index for that purpose. The MSCI-Europe Index is an unmanaged,
diversified, capitalization weighted index currently consisting of the equity
securities of 566 companies located in 15 developed European countries. These
countries are: Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. The Fund is neither sponsored by nor affiliated with Morgan Stanley &
Co. Incorporated. See "Investment Objectives and Policies--Investment Policies
Applicable to Prudential Europe Index Fund" in the Statement of Additional
Information.

To achieve its investment objective, Prudential Europe Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Europe Index. The Fund intends to invest in a
representative sample of the stocks included in the MSCI-Europe Index in
approximately the same proportions as they are represented in that index. In
addition, from time to time adjustments may be made in the holdings of the Fund
due to factors which may include changes in the composition of the MSCI-Europe
Index. The United Kingdom, Germany and France dominate the MSCI-Europe Index,
with 32.1%, 14.6% and 11.9%, respectively, of the market capitalization of the
Index as of December 31, 1997.

Prudential Europe Index Fund intends to invest at least 80% of its
total assets in securities included in the MSCI-Europe Index in the same
proportions as the Index. The Fund may invest the balance of its assets in: (i)
money market instruments; (ii) equity-related securities; (iii) put and call
options on securities, stock indices and foreign currencies; (iv) forward
foreign currency exchange contracts; and (v) financial futures contracts on
stocks and currencies and options thereon.

PRUDENTIAL PACIFIC INDEX FUND

Prudential Pacific Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of issuers in the Pacific region. The Prudential Pacific Index Fund
currently uses the

<PAGE>

MSCI-Pacific Free Index for that purpose. The MSCI-Pacific Free Index is an
unmanaged, diversified, capitalization weighted index currently consisting of
522 equity securities listed on the stock exchanges of Australia, Japan, Hong
Kong, New Zealand, Singapore and Malaysia. The Fund is neither sponsored by nor
affiliated with Morgan Stanley & Co. Incorporated. See "Investment Objectives
and Policies--Investment Policies Applicable to Prudential Pacific Index Fund"
in the Statement of Additional Information.

To achieve its investment objective, Prudential Pacific Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Pacific Free Index. The Fund intends to invest in a
representative sample of the equity securities included in the MSCI-Pacific Free
Index in approximately the same proportions as they are represented in the
MSCI-Pacific Free Index. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the MSCI-Pacific Free Index. The MSCI-Pacific Free Index is
dominated by the Japanese stock market, which represented 76.9% of the market
capitalization of the Index as of December 31, 1997.

Prudential Pacific Index Fund intends to invest at least 80% of its
total assets in securities included in the MSCI-Pacific Free Index in the same
proportions as the Index. The Fund may invest the balance of its assets in: (i)
money market instruments; (ii) equity-related securities; (iii) put and call
options on securities, stock indices and foreign currencies; (iv) forward
foreign currency exchange contracts; and (v) financial futures contracts on
stocks and currencies and options thereon.

PRUDENTIAL SMALL-CAP INDEX FUND

Prudential Small-Cap Index Fund seeks to provide investment results
that correspond to the price and yield performance of a broad-based index of
small-cap stocks. The Prudential Small-Cap Index Fund currently uses the S&P 600
Index for that purpose. The S&P 600 Index is an unmanaged, market-value weighted
index (stock price times the number of shares outstanding) of 600 smaller
company U.S. common stocks that cover all industry sectors. Inclusion in the S&P
600 Index in no way implies an opinion by Standard & Poor's Corporation (S&P) as
to a stock's attractiveness as an investment. The S&P 600 Index currently
measures the performance of selected U.S. stocks with a market value of no
greater than $2.934 million (as of December 31, 1997). "S&P 600(R)," "Standard &
Poor's 600" and "600" are trademarks of McGraw-Hill, Inc. and have been licensed
for use by The Prudential Insurance Company of America (Prudential) and its
affiliates and subsidiaries. Prudential Small-Cap Index Fund is not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation regarding the
advisability of investing in the Fund. See "Investment Objectives and
Policies--Investment Policies Applicable to Prudential Small-Cap Index Fund" in
the Statement of Additional Information regarding certain additional disclaimers
and limitations of liability on behalf of S&P.

To achieve its investment objective, Prudential Small-Cap Index Fund
will purchase equity securities that as a group reflect the price and yield
performance of the S&P 600 Index. The Fund intends to purchase a representative
sample of the 600 stocks included in the S&P 600 Index in approximately the same
proportions as they are represented in the S&P 600 Index. In addition, from time
to time adjustments may be made in the holdings of the Fund due to factors which
may include changes in the composition of the S&P 600 Index or receipt of
distributions of securities of companies spun off from S&P 600 companies.

Prudential Small-Cap Index Fund intends to invest at least 80% of its
total assets in securities included in the S&P 600 Index in the same proportions
as the Index. The Fund may invest the balance of its assets in: (i)
equity-related securities; (ii) money market instruments, including obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities;
(iii) put and call options on securities and stock indices; and (iv) stock index
futures contracts and options thereon.

<PAGE>

PRUDENTIAL STOCK INDEX FUND

Prudential Stock Index Fund seeks to provide investment results that
correspond to the price and yield performance of the S&P 500 Index. The S&P 500
Index is an unmanaged, market-weighted index of 500 stocks selected by S&P on
the basis of their market size, liquidity and industry group representation.
Inclusion in the S&P 500 Index in no way implies an opinion by S&P as to a
stock's attractiveness as an investment. The S&P 500 Index, composed of stocks
representing more than 70% of the total market value of all publicly traded U.S.
common stocks, is widely regarded as representative of the performance of the
U.S. stock market as a whole. "Standard & Poor's (R)", "S&P (R)", "S&P 500 (R)",
"Standard & Poor's 500", and "500" are trademarks of McGraw-Hill, Inc. and have
been licensed for use by Prudential and its affiliates and subsidiaries.
Prudential Stock Index Fund is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no representation regarding the advisability of investing in the
Fund. See "Investment Objectives and Policies--Investment Policies Applicable to
Prudential Stock Index Fund" in the Statement of Additional Information
regarding certain additional disclaimers and limitations of liability on behalf
of S&P.

To achieve its investment objective, the Fund will purchase equity
securities that as a group reflect the price and yield performance of the S&P
500 Index. Prudential Stock Index Fund intends to purchase a statistically
selected sample of the 500 stocks included in the S&P 500 Index in approximately
the same proportions as they are represented in the S&P 500 Index. In addition,
from time to time adjustments may be made in the Fund's holdings due to factors
which may include changes in the composition of the S&P 500 Index or receipt of
distributions of securities of companies spun off from S&P 500 companies.

Prudential Stock Index Fund intends that at least 80% of its total
assets will be invested in securities included in the S&P 500 Index in the same
proportions as that of the Index. The Fund may invest the balance of its assets
in: (i) equity-related securities; (ii) obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities; (iii) put and call options
on securities and stock indices; and (iv) futures contracts on stock indices and
options thereon.

INVESTMENT POLICIES APPLICABLE TO EACH FUND

The Funds are each expected to invest in over 250 stocks (or bonds for
the Prudential Bond Market Index Fund). Stocks are selected for inclusion in
each applicable Fund's portfolio based on country, market capitalization,
industry weightings and fundamental characteristics such as return variability,
earnings valuation and yield. Each Fund's portfolio is constructed to have
aggregate investment characteristics similar to those of its respective index.
In order to parallel the performance of its respective index, Prudential Europe
Index Fund and Prudential Pacific Index Fund will invest in each country in
approximately the same percentage as the country's weight in the index.

The Funds may not hold all of the issues that comprise their respective
indices because of the costs involved and the illiquidity of many of the
securities. Instead, each Fund will attempt to hold a representative sample of
the securities in its respective index, which will be selected utilizing a
statistical technique known as "portfolio optimization." Under this technique,
each stock is considered for inclusion in the portfolio based on its
contribution to certain country, capitalization, industry and fundamental
investment characteristics. Each applicable Fund's portfolio is constructed so
that, in the aggregate, the country, capitalization, industry and fundamental
investment characteristics resemble those of its respective index. Over time,
portfolio composition is altered (or "rebalanced") to reflect changes in the
characteristics of the indices.

Due to the use of this sampling or "portfolio optimization" technique,
the Funds' portfolios (other than the portfolio of Prudential Stock Index Fund)
are not expected to track their benchmark indices with the same degree of
accuracy as large capitalization domestic index funds. Each Fund will attempt to
achieve a correlation between its performance and that of its respective index
of at least 0.95, in each case without taking into account expenses. A
correlation of 1.00 would

<PAGE>

indicate perfect correlation, which would be achieved when a Fund's net asset
value, including the value of its dividends and capital gains distributions,
increases or decreases in exact proportion to changes in its respective index.
The investment adviser will, of course, attempt to minimize any tracking
differential (i.e., the statistical measure of the difference between the
investment results of a Fund and that of its respective index). Tracking will be
monitored at least on a monthly basis. All tracking maintenance activities will
be reviewed regularly to determine whether any changes in policies or techniques
are necessary. However, in addition to potential tracking differences, brokerage
and other transaction costs, as well as other expenses, may cause a Fund's
return to be lower than the return of its respective index. Consequently, there
can be no assurance as to how closely a Fund's performance will correspond to
the performance of its respective index.

The Funds will not invest in money market instruments, futures
contracts, options or warrants as part of a temporary defensive strategy, such
as reducing a Fund's investments in common stocks to protect against potential
stock market declines. The Funds intend to remain fully invested, to the extent
practicable, in a pool of securities which will approximate the investment
characteristics of their respective indices. Options, futures contracts and
options on futures contracts are used, if at all, primarily to invest
uncommitted cash balances, to maintain liquidity to meet redemptions, to
facilitate tracking, to reduce transaction costs or to hedge a Fund's portfolio.
Prudential Europe Index Fund and Prudential Pacific Index Fund also may enter
into forward foreign currency exchange contracts in order to maintain the same
currency exposure as their respective indices, but not as part of a defensive
strategy to protect against fluctuations in exchange rates.

In order to invest uncommitted cash balances, maintain liquidity to
meet redemptions, or for incidental return enhancement purposes, the Funds may
also (i) enter into repurchase agreements, when-issued, delayed delivery and
forward commitment transactions; and (ii) lend their portfolio securities.

EQUITY AND EQUITY-RELATED SECURITIES

EACH FUND OTHER THAN PRUDENTIAL BOND MARKET INDEX FUND INVESTS
PRIMARILY IN EQUITY SECURITIES, AND THE VALUE OF THESE FUNDS' INVESTMENTS WILL
GO UP AND DOWN WITH THE PERFORMANCE OF THE STOCKS IN THE APPLICABLE INDEX.
INVESTMENT BY PRUDENTIAL SMALL-CAP INDEX FUND IN SMALL COMPANIES INVOLVES
GREATER RISK THAN IS CUSTOMARILY ASSOCIATED WITH MORE ESTABLISHED COMPANIES.
These companies often have sales and earnings growth rates which exceed those of
large companies; however, smaller companies often have limited operating
histories, product lines, markets or financial resources, and may lack
management depth. These companies may be subject to intense competition from
larger entities, and the securities of these companies may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of larger companies or the market averages in general.

The Funds other than Prudential Bond Market Index Fund may invest in
equity-related securities. Equity-related securities include common stocks,
preferred stocks, securities convertible or exchangeable for common stocks or
preferred stocks, equity investments in partnerships, joint ventures and other
forms of non-corporate investments, American Depositary Receipts, and
warrants and rights exercisable for equity securities. See "Investment
Objectives and Policies--Investment Policies Applicable to Each of the
Funds--Convertible Securities, Warrants and Rights" in the Statement of
Additional Information.

<PAGE>

direct investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are registered domestically, easily
transferable, and for which market quotations are readily available; and (ii)
issuers whose securities are represented by ADRs are usually subject to
comparable auditing, accounting and financial reporting standards as domestic
issuers.

SECURITIES OF FOREIGN ISSUERS

PRUDENTIAL EUROPE INDEX FUND AND PRUDENTIAL PACIFIC INDEX FUND WILL
INVEST PRIMARILY IN EQUITY SECURITIES OF FOREIGN COMPANIES. PRUDENTIAL STOCK
INDEX FUND MAY INVEST A PORTION OF ITS ASSETS IN EQUITY SECURITIES OF FOREIGN
ISSUERS DENOMINATED IN U.S. CURRENCY. FOREIGN SECURITIES INVOLVE CERTAIN RISKS
WHICH SHOULD BE CONSIDERED CAREFULLY BY AN INVESTOR IN THESE FUNDS. THESE RISKS
INCLUDE POLITICAL OR ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE
DIFFICULTY OF PREDICTING INTERNATIONAL TRADE PATTERNS, THE POSSIBILITY OF
IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF CURRENCY FLUCTUATIONS. Foreign
securities may be subject to greater fluctuations in price than securities
issued by U.S. corporations or issued or guaranteed by the U.S. Government, its
instrumentalities or agencies. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries.

IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED
BY CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN CURRENCIES. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of a Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although Prudential Europe Index
Fund and Prudential Pacific Index Fund will receive income in foreign
currencies, the two Funds will be required to compute and distribute their
income in U.S. dollars. Therefore, if the exchange rate for any such currency
declines after the Funds' income has been accrued and translated into U.S.
dollars, the Funds could be required to liquidate portfolio securities to make
such distributions, particularly in instances in which the amount of income the
Funds are required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time a Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. Prudential Europe
Index Fund and Prudential Pacific Index Fund may, but need not, enter into
futures contracts on foreign currencies, forward foreign currency exchange
contracts and options on foreign currencies for hedging purposes, including:
locking-in the U.S. dollar price of the purchase or sale of securities
denominated in a foreign currency; locking-in the U.S. dollar equivalent of
interest or dividends to be paid on such securities which are held by the Fund;
and protecting the U.S. dollar value of such securities which are held by the
Fund.

The Funds (other than Prudential Bond Market Index Fund) may invest a
portion of their assets in equity securities of foreign issuers denominated in
U.S. currency. ADRs and American Depositary Shares (both of which are U.S.
dollar-denominated certificates issued by a U.S. bank or trust company that
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a U.S. bank) are not deemed to be foreign
securities.

FIXED-INCOME OBLIGATIONS

Prudential Bond Market Index Fund will invest primarily in fixed-income
securities including U.S. Treasury obligations and securities issued or
guaranteed by U.S. Government agencies and instrumentalities, investment-grade
corporate debt obligations and mortgage-backed securities.

<PAGE>

U.S. Treasury securities, including bills, notes and bonds, are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates
and the lengths of their maturities. Obligations issued or guaranteed by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government may or may not be backed by the "full faith and credit" of
the United States.

The Fund may invest in debt securities of U.S. issuers that have
securities outstanding that are rated at the time of purchase at least BBB by
Standard & Poor's Ratings Group (S&P Ratings) or Baa by Moody's Investors
Service (Moody's) or comparably rated by a similar nationally recognized
statistical rating organization (NRSRO) or, if not rated, of comparable quality
in the opinion of the investment adviser. Securities rated Baa by Moody's are
considered to be investment grade, although they have speculative
characteristics. Changes in economic or other circumstances are more likely to
lead to a weakened capacity of issuers whose securities are rated BBB or Baa to
pay interest or repay principal than is the case for issuers of higher rated
securities. See "Description of Ratings" in the Statement of Additional
Information.

Fixed-income securities are subject to interest rate risk and income
risk. Interest rate risk is the potential for fluctuations in bond prices due to
changing interest rates. Income risk is the potential for a decline in income
due to falling market interest rates. In addition, longer-term fixed-income
securities are subject to call risk, which is the possibility that corporate
bonds will be repaid prior to maturity.

Mortgage-backed securities represent undivided ownership interests in
pools of mortgages. The issuer 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. These securities are in most cases
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. As a result of the pass-through of prepayments of principal
on the underlying securities, mortgage-backed securities are often subject to
more rapid prepayment of principal than their stated maturity would indicate.

MONEY MARKET INSTRUMENTS

The Funds may invest in high quality money market instruments,
including commercial paper of a U.S. or non-U.S. company, foreign government
securities, certificates of deposit, bankers' acceptances and time deposits of
domestic and foreign banks, and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar denominated. Money market instruments typically have a maturity of one
year or less as measured from the date of purchase. The Funds may invest in
money market instruments without limit for temporary defensive purposes. To the
extent the Funds otherwise invest in money market instruments, they are subject
to the limitations described above.

OTHER INVESTMENTS AND POLICIES

BORROWING

Each Fund may borrow an amount equal to no more than 20% of the value
of its total assets (calculated when the loan is made) from banks to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes or for the clearance of transactions. Each Fund may pledge up to 20% of
its total assets to secure these borrowings. If a Fund's asset coverage for
borrowings falls below 300%, the Fund will take prompt action to reduce its
borrowings. If a Fund borrows to invest in securities, any investment gains made
on the securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than

<PAGE>

would otherwise be the case. This is the speculative factor known as "leverage."
See "Investment Objectives and Policies--Investment Policies Applicable to Each
of the Funds--Borrowing" in the Statement of Additional Information.

ILLIQUID SECURITIES

Each Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. A Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Illiquid
Securities" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements whereby the seller of
the security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. A
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund that has entered into the repurchase agreement
will promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to repurchase
are less than the repurchase price, the Fund will suffer a loss. Each Fund may
participate in a joint repurchase account managed by PIFM pursuant to an order
of the Commission. See "Investment Objectives and Policies--Investment Policies
Applicable to Each of the Funds--Repurchase Agreements" in the Statement of
Additional Information.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Funds may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price or yield to the Fund at the time of entering into the transaction. The
Funds' Custodian will maintain, in a segregated account of the Fund, cash or
other liquid assets having a value equal to or greater than the Funds' purchase
commitments. The securities so purchased are subject to market fluctuation and
no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities, the value may be more or
less than the purchase price and an increase in the percentage of a Fund's
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Fund's net asset value.

SECURITIES LENDING

Each Fund may lend its portfolio securities to brokers or dealers,
banks or other recognized institutional borrowers of securities, provided that
the borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund that
has loaned its portfolio securities an amount equivalent to any

<PAGE>

dividend or interest paid on such securities and that Fund may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income from the borrower. As a matter of fundamental policy, a Fund
cannot lend more than 30% of the value of its total assets. A Fund may pay
reasonable administration and custodial fees in connection with a loan. See
"Investment Objectives and Policies--Investment Policies Applicable to Each of
the Funds--Securities Lending" in the Statement of Additional Information.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

THE FUNDS MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE
CERTAIN RISKS OF THEIR INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. A FUND, AND
THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. These strategies currently include the use of derivatives, such as
options, futures contracts and options thereon. A Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" and "Taxes, Dividends and
Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed, and each Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.

OPTIONS TRANSACTIONS

EACH FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
ANY SECURITY IN WHICH IT MAY INVEST OR OPTIONS ON ANY SECURITIES INDEX. THESE
OPTIONS ARE TRADED ON U.S. EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO HEDGE
A FUND'S PORTFOLIO. Prudential Europe Index Fund and Prudential Pacific Index
Fund also may purchase and write put and call options on currencies. Each Fund
may write covered put and call options to generate additional income through the
receipt of premiums and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase. Each
Fund may also purchase put and call options to offset previously written put and
call options of the same series. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Options on
Securities and Securities Indices" in the Statement of Additional Information.

A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITY, CURRENCY OR
SECURITIES IN THE INDEX SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE
PRICE OR STRIKE PRICE). The writer of a call option, in return for the premium,
has the obligation, upon exercise of the option, to deliver, depending upon the
terms of the option contract, the underlying securities or a specified amount of
cash to the purchaser upon receipt of the exercise price. When a Fund writes a
call option, it gives up the potential for gain on the underlying securities in
excess of the exercise price of the option during the period that the option is
open.

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT,
FOR A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO
THE OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer
of the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. A Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than the current market price.

EACH FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is
covered if, as long as a Fund is obligated under the option, it (i) owns an
offsetting position in the underlying security or (ii) maintains in a segregated
account, cash or other liquid assets in an amount equal to or greater than its
obligation under the option. Under the first circumstance, a Fund's losses are
limited because it owns the underlying security or currency; under the second
circumstance, in the case of a written call option, a Fund's losses are
potentially unlimited. There is no limitation on the amount of call options the
Fund may write. See "Investment Objectives and Policies--Investment Policies
Applicable to Each of the Funds--Options on Securities and Securities Indices"
in the Statement of Additional Information.

Each Fund may also write a call option, which can serve as a limited
short hedge because decreases in value of the hedged investment would be offset
to the extent of the premium received for writing the option. However, if the
security

<PAGE>

appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.

Each Fund may purchase and sell put and call options on securities
indices. Securities index options are designed to reflect price fluctuations in
a group of securities or segment of the securities market rather than price
fluctuations in a single security. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. When purchasing or selling securities index options, each Fund is
subject to the risk that the value of its portfolio securities may not change as
much as or more than the index because the Fund's investments generally will not
match the composition of the index. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Options on
Securities and Securities Indices" and "Taxes, Dividends and Distributions" in
the Statement of Additional Information.

FUTURES CONTRACTS AND OPTIONS THEREON

EACH FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUNDS,
AND THUS THEIR INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. These futures contracts and related options will be on securities
indices. A futures contract is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. A Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.

A Fund may not purchase or sell futures contracts and related options
to attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. A Fund may purchase and sell futures contracts
and related options, without limitation, for bona fide hedging purposes in
accordance with regulations of the CFTC (i.e., to reduce certain risks of its
investments).

Futures contracts and related options are generally subject to
segregation requirements of the Commission and coverage requirements of the
CFTC. If a Fund does not hold the security underlying the futures contract, the
Fund will be required to segregate on an ongoing basis with its Custodian cash
or other liquid assets in an amount at least equal to the Fund's obligations
with respect to such futures contract.

A FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect and
there is a risk that the value of the indices underlying the futures contract
may increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict each Fund's ability to
purchase or sell certain futures contracts or related options on any particular
day.

A Fund's ability to enter into and close out futures contracts and
options thereon is limited by the requirements of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code) for qualification as a regulated
investment company. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.

<PAGE>

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT
RISKS AND TRANSACTION COSTS TO WHICH A FUND WOULD NOT BE SUBJECT ABSENT THE USE
OF THESE STRATEGIES. A FUND, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY
UNSUCCESSFUL USE OF THESE STRATEGIES. Risks inherent in the use of options,
futures contracts and options on futures contracts include (1) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (2) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (3) the possible absence of a liquid secondary
market for any particular instrument at any time; (4) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and (5)
the possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
a Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.

Each Fund will generally purchase options and futures on an exchange
only if there appears to be a liquid secondary market for such options or
futures; a Fund will generally purchase OTC options only if the investment
adviser believes that the other party to options will continue to make a market
for such options. However, there can be no assurance that a liquid secondary
market will continue to exist or that the other party will continue to make a
market. Thus, it may not be possible to close an options or futures transaction.
The inability to close options and futures positions also could have an adverse
impact on a Fund's ability to effectively hedge its portfolio. There is also the
risk of loss by a Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.

INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions which
constitute fundamental policies. Fundamental policies cannot be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended
(Investment Company Act). See "Investment Restrictions" in the Statement of
Additional Information.

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HOW THE FUNDS ARE MANAGED
- --------------------------------------------------------------------------------

THE COMPANY HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING
THE ACTIONS OF THE FUNDS' MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUNDS' MANAGER CONDUCTS AND SUPERVISES THE DAILY
BUSINESS OPERATIONS OF EACH FUND. THE FUNDS' SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.

For the fiscal period ended September 30, 1997, total annualized
expenses as a percentage of net assets for Class Z shares of Prudential Pacific
Index Fund were .60%. For the fiscal year ended September 30, 1997, total
expenses as a percentage of net assets for Class Z and Class I shares of
Prudential Stock Index Fund were .46% and .30% (annualized), respectively. See
"Financial Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER),
GATEWAY CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE COMPANY AND IS COMPENSATED FOR ITS SERVICES AT AN

<PAGE>

ANNUAL RATE OF .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF PRUDENTIAL BOND
MARKET INDEX FUND, .40 OF 1% OF THE AVERAGE DAILY NET ASSETS OF PRUDENTIAL
EUROPE INDEX FUND. .40 OF 1% OF THE AVERAGE DAILY NET ASSETS OF PRUDENTIAL
PACIFIC INDEX FUND, .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF PRUDENTIAL
SMALL-CAP INDEX FUND, AND .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF
PRUDENTIAL STOCK INDEX FUND. PIFM is organized in New York as a limited
liability company . For the fiscal year ended September 30, 1997, Prudential
Stock Index Fund paid management fees to PIFM of .30% of the Fund's average net
assets. See "Manager and Subadviser" in the Statement of Additional Information.

Under the Management Agreements with the Company, PIFM manages the
investment operations of the Funds and also administers the Company's business
affairs. See "Manager and Subadviser" in the Statement of Additional
Information.

SUBADVISER

THE PRUDENTIAL INVESTMENT CORPORATION (PIC), 751 BROAD STREET, NEWARK,
NEW JERSEY 07102, SERVES AS SUBADVISER TO EACH FUND.

PURSUANT TO SUBADVISORY AGREEMENTS WITH PIFM, PIC, DOING BUSINESS AS
PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER OR THE INVESTMENT ADVISER), FURNISHES
INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE COMPANY
AND IS REIMBURSED FOR ALL REASONABLE COSTS AND EXPENSES INCURRED BY THE
SUBADVISER.

Under each Subadvisory Agreement, the Subadviser, subject to the
supervision of PIFM, is responsible for managing the assets of each Fund in
accordance with its investment objective, investment program and policies. The
Subadviser determines what securities and other instruments are purchased and
sold for each Fund and is responsible for obtaining and evaluating financial
data relevant to each Fund.

Prudential Investments Quantitative Investment Management, a unit of
the Subadviser, is responsible for the day-to-day management of Prudential
Europe Index Fund, Prudential Pacific Index Fund, Prudential Small-Cap Index
Fund and Prudential Stock Index Fund, employing a team approach to the
management of these Funds. The Global Fixed Income Group of Prudential
Investments is responsible as a team for the day-to-day management of Prudential
Bond Market Index Fund.

PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.

DISTRIBUTOR

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE SHARES OF EACH FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.

UNDER A DISTRIBUTION AGREEMENT, THE DISTRIBUTOR INCURS THE EXPENSES OF
DISTRIBUTING EACH FUND'S SHARES, NONE OF WHICH IS REIMBURSED BY OR PAID FOR BY
THE FUNDS. These expenses include commissions and account servicing fees paid
to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and

20
<PAGE>

overhead costs of Prudential Securities and Prusec associated with the sale of
each Fund's shares, including lease, utility, communications and sales promotion
expenses.

The Manager (or one of its affiliates) may make payments from its own
resources to dealers (including Prudential Securities) and other persons which
distribute shares of the Funds. Such payments may be calculated by reference to
the NAV of shares sold by such persons or otherwise.

FEE WAIVERS AND SUBSIDY

For the fiscal year ending September 30, 1998, PIFM has agreed to
subsidize the operating expenses of Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund and Prudential
Small-Cap Index Fund so that total Fund operating expenses do not exceed .40%,
.60%, .60% and .50%, respectively, of each Fund's average net assets and .40%
and .30% for Class Z and Class I shares of Prudential Stock Index Fund,
respectively. Thereafter, PIFM may from time to time waive all or a portion of
its management fee and subsidize all or a portion of the operating expenses of a
Fund. Fee waivers and expense subsidies will increase a Fund's total return. See
"Performance Information" in the Statement of Additional Information and "Fund
Expenses" above.

PORTFOLIO TRANSACTIONS

Prudential Securities may act as a broker or futures commission
merchant for the Funds provided that the commissions, fees or other remuneration
it receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for each Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Company. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Funds. PMFS is a
wholly owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.

- --------------------------------------------------------------------------------
HOW EACH FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------

A FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE TRUSTEES FIXED THE SPECIFIC TIME OF DAY FOR
THE COMPUTATION OF EACH FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.

Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Trustees. For valuation purposes, quotations of
foreign securities in a foreign currency are converted to U.S. dollar
equivalents. See "Net Asset Value" in the Statement of Additional Information.

Each Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by the Fund or days on which
changes in the value of the Fund's portfolio securities do not materially affect
the NAV.

21
<PAGE>

- --------------------------------------------------------------------------------
HOW EACH FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------

FROM TIME TO TIME A FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL
RETURN, AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE.
These figures are based on historical earnings and are not intended to indicate
future performance. The total return shows how much an investment in a Fund
would have increased (decreased) over a specified period of time (i.e., one,
five or ten years or since inception of the Fund) assuming that all
distributions and dividends by the Fund were reinvested on the reinvestment
dates during the period and less all recurring fees. The aggregate total return
reflects actual performance over a stated period of time. Average annual total
return is a hypothetical rate of return that, if achieved annually, would have
produced the same aggregate total return if performance had been constant over
the entire period. Average annual total return smooths out variations in
performance. Neither average annual total return nor aggregate total return
takes into account any federal or state income taxes which may be payable upon
redemption. The yield refers to the income generated by an investment in a Fund
over a one-month or 30-day period. This income is then "annualized;" that is,
the amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. A Fund also may
include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information will be contained in each Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."

- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

TAXATION OF THE FUND

EACH FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUNDS WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON THEIR NET INVESTMENT INCOME
AND NET CAPITAL GAINS, IF ANY, THAT THEY DISTRIBUTE TO THEIR SHAREHOLDERS. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.

In addition, under the Internal Revenue Code, special rules apply to
the treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by each Fund will be required to
be "marked-to-market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.

TAXATION OF SHAREHOLDERS

All dividends out of net investment income, together with distributions
of net short-term capital gains (i.e., the excess of net short-term capital
gains over net long-term capital losses) distributed to the shareholders, will
be taxable as

22
<PAGE>

ordinary income to the shareholder whether or not reinvested. Any net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders will be taxable as long-term capital
gains to the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum long-term
capital gains rate for individual shareholders for securities held between 12
and 18 months currently is 28% and for securities held more than 18 months is
20%. The maximum tax rate for ordinary income is 39.6%. The maximum long-term
capital gains rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income.

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent a Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to interest income, capital and currency gain, gain or
loss from Section 1256 contracts, dividend income from foreign corporations and
income from some other sources will not be eligible for the corporate dividends-
received deduction. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax advisers
regarding other requirements applicable to the dividends-received deduction.

Any gain or loss realized upon a sale or redemption of a Fund's shares
by a shareholder who is not a dealer in securities will generally be treated as
a long-term capital gain or loss if the shares have been held more than one year
and otherwise as a short-term capital gain or loss. Any such loss with respect
to shares that are held for six months or less, however, will be treated as a
long-term capital loss to the extent of any capital gain distributions received
by the shareholder. Gain or loss on shares held more than 18 months will be
considered in determining a holder's adjusted net capital gains subject to a
maximum tax rate of 20%.

WITHHOLDING TAXES

Under the Internal Revenue Code, each Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this rate
is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to backup
withholding. Dividends of net investment income and short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate).

DIVIDENDS AND DISTRIBUTIONS

EACH FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY,
AND TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM
CAPITAL LOSSES AT LEAST ANNUALLY. SEE "HOW EACH FUND VALUES ITS SHARES."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES,
BASED ON THE NAV ON THE RECORD DATE OR SUCH OTHER DATE AS THE TRUSTEES MAY
DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS
DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN
CASH. Such election should be submitted to Prudential Mutual Fund Services LLC,
Attn: Account Maintenance Unit, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. A Fund will notify each shareholder after the close of the Fund's
taxable year both of the dollar amount and the taxable status of that year's
dividends and distributions on a per share basis. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash.

<PAGE>

- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------

DESCRIPTION OF SHARES

THE COMPANY WAS ESTABLISHED AS A DELAWARE BUSINESS TRUST ON MAY 11,
1992. THE COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF
BENEFICIAL INTEREST, $.001 PAR VALUE PER SHARE, DIVIDED INTO THE FOLLOWING FIVE
SERIES OR PORTFOLIOS: PRUDENTIAL BOND MARKET INDEX FUND, PRUDENTIAL EUROPE INDEX
FUND, PRUDENTIAL PACIFIC INDEX FUND, PRUDENTIAL SMALL-CAP INDEX FUND AND
PRUDENTIAL STOCK INDEX FUND. Each Fund offers one class of shares, except for
Prudential Stock Index Fund, which offers two classes of shares. In accordance
with the Company's Declaration of Trust, the Trustees may authorize the creation
of additional series of beneficial interest and classes within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.

The Company's expenses generally are allocated among the Funds on the
basis of relative net assets at the time of allocation, except that expenses
directly attributable to a particular Fund or class of a Fund are charged to
that Fund or class. Shares of a Fund, when issued, are fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.
The Company's shares do not have cumulative voting rights for the election of
Trustees.

ADDITIONAL INFORMATION

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF A FUND

YOU MAY PURCHASE SHARES OF A FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. PARTICIPANTS IN PROGRAMS
SPONSORED BY PRUDENTIAL RETIREMENT SERVICES SHOULD CONTACT THEIR CLIENT
REPRESENTATIVE FOR MORE INFORMATION ABOUT PURCHASING SHARES OF THE FUND. The
purchase price is the NAV next determined following receipt of an order in
proper form by the Transfer Agent or Prudential Securities. Payment may be made
by cash, wire, check or through your brokerage account. See "How Each Fund
Values its Shares."

There is no minimum or subsequent investment requirement for shares of
the Funds. See "Shareholder Services."

<PAGE>

The Funds reserve the right to reject any purchase order (including an
exchange into a Fund) or to suspend or modify the continuous offering of their
shares. See "How to Sell Your Shares."

Your dealer is responsible for forwarding payment promptly to the
applicable Fund. The Distributor reserves the right to cancel any purchase order
for which payment has not been received by the third business day following the
investment.

Transactions in Fund shares may be subject to postage and handling
charges imposed by your dealer.

ELIGIBLE PURCHASERS

Class Z shares of each Fund are available for purchase by (i) investors
who purchase $1 million or more of shares (or who already own $1 million of
shares of other Prudential Mutual Funds), including those described under
"Benefit Plans", "Prudential Retirement Programs" and "PruArray Association
Benefit Plans" below, (ii) participants in any fee-based program or trust
program sponsored by Prudential Securities, The Prudential Savings Bank, F.S.B.
or any affiliate which includes mutual funds as investment options and for which
the Fund is an available option, (iii) certain participants in the MEDLEY
Program (group variable annuity contracts) sponsored by Prudential, for whom
Class Z shares of the Prudential Mutual Funds are an available investment
option, (iv) Benefit Plans (as defined below) for which Prudential Retirement
Services serves as recordkeeper and as of September 20, 1996 (a) were Class Z
shareholders of the Prudential Mutual Funds or (b) executed a letter of intent
to purchase Class Z shares of the Prudential Mutual Funds, (v) current and
former Directors/Trustees of the Prudential Mutual Funds (including the Fund),
and (vi) employees of Prudential and/or Prudential Securities who participate in
a Prudential-sponsored employee savings plan.

Class I shares of Prudential Stock Index Fund are available for
purchase by pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 or 403(b)(7) of the Internal Revenue Code
(collectively, Benefit Plans), provided that the Benefit Plan has at least $150
million in defined contribution assets and at least $50 million of such assets
are invested in Prudential Mutual Funds and/or annuities products.

PURCHASE BY WIRE. For an initial purchase of shares of a Fund by wire,
you must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, dividend distribution election, amount being wired
and wiring bank. Instructions should then be given by you to your bank to
transfer funds by wire to State Street Bank and Trust Company (State Street),
Boston, Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential Index Series Fund, specifying on the wire the account number assigned
by PMFS and your name and identifying the Fund and the applicable class if
purchasing shares of Prudential Stock Index Fund.

If you arrange for receipt by State Street of federal funds prior to
the calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the applicable Fund as of that day. See "Net Asset Value" in
the Statement of Additional Information.

In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential Index
Series Fund, the Fund whose shares you are purchasing, and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing federal funds. The minimum amount which may be
invested by wire is $1,000.

ALTERNATIVE PURCHASE PLAN. Prudential Stock Index Fund offers two
classes of shares, Class Z and Class I shares (Alternative Purchase Plan). Class
Z and Class I shares represent an interest in the same portfolio of investments
of the

25
<PAGE>

Fund and have the same rights and obligations, except that (i) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class; and (ii) Class I shares, which are held in a single omnibus
account, are subject to nominal transfer agency fees and expenses. The two
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below.

RIGHTS OF ACCUMULATION. Shares of each Fund and shares of other
Prudential Mutual Funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) may be aggregated to determine eligibility.
See "Purchase and Redemption of Fund Shares" in the Statement of Additional
Information.

BENEFIT PLANS. Class Z shares of each Fund may be purchased by a
Benefit Plan, provided that the Benefit Plan has existing assets of at least $1
million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 250
eligible employees or participants. In the case of Benefit Plans whose accounts
are held directly with the Transfer Agent or Prudential Securities and for which
the Transfer Agent or Prudential Securities does individual account
recordkeeping (Direct Account Benefit Plans) and Benefit Plans sponsored by
Prudential Securities or its subsidiaries (Prudential Securities or Subsidiary
Prototype Benefit Plans), shares may be purchased by participants who are
repaying loans made from such plans to the participant.

PRUDENTIAL RETIREMENT PROGRAMS. Class Z shares of each Fund may be
purchased by certain savings, retirement and deferred compensation plans,
qualified or non-qualified under the Internal Revenue Code, for which Prudential
serves as the plan administrator or recordkeeper, provided that (i) the plan has
at least $1 million in existing assets or 250 eligible employees and (ii) the
Fund is an available investment option. These plans include pension,
profit-sharing, stock bonus or other employee benefit plans under Section 401 of
the Internal Revenue Code, deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code and plans that
participate in the Transfer Agent's PruArray and SmartPath Programs (benefit
plan recordkeeping services) (hereafter referred to as a PruArray or SmartPath
Plan). All plans of a company for which Prudential serves as plan administrator
or recordkeeper are aggregated in meeting the $1 million threshold. The term
"existing assets" as used herein includes stock issued by a plan sponsor, shares
of Prudential Mutual Funds and shares of certain unaffiliated mutual funds that
participate in the PruArray or SmartPath Program (Participating Funds).
"Existing assets" also include monies invested in The Guaranteed Interest
Account (GIA), a group annuity insurance product issued by Prudential, and units
of The Stable Value Fund (SVF), an unaffiliated bank collective fund. Shares of
each Fund may also be purchased by plans that have monies invested in GIA and
SVF, provided (i) the purchase is made with the proceeds of a redemption from
either GIA or SVF and (ii) shares of the Fund are an investment option of the
plan.

PRUARRAY ASSOCIATION BENEFIT PLANS. Class Z shares are also offered to
Benefit Plans sponsored by employers which are members of a common trade,
professional or membership association (Association) that participate in the
PruArray Program provided that the Association enters into a written agreement
with Prudential. Such Benefit Plans or non-qualified plans may purchase shares
of a Fund without regard to the assets or number of participants in the
individual employer's qualified Plan(s) or non-qualified plan(s) so long as the
employers in the Association (i) have retirement plan assets in the aggregate of
at least $50 million (for Prudential Stock Index Fund, the retirement plan
assets must aggregate at least $1 million or have at least 250 participants) and
(ii) maintain their accounts with the Transfer Agent.

PRUARRAY SAVINGS PROGRAM. Class Z shares of each Fund are also offered
to employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (i) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (ii)
spouses of employees who open an IRA account with theTransfer Agent. The program
is offered to companies that have at least 250 eligible employees.

26
<PAGE>

HOW TO SELL YOUR SHARES

YOU CAN REDEEM SHARES OF A FUND AT ANY TIME FOR CASH AT THE NAV PER
SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How Each Fund Values its
Shares."

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISER.

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR
REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF
YOU HOLD CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE
OF THE CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
whose shares you are redeeming in care of its Transfer Agent, Prudential Mutual
Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK
WITHIN SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, or (d) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED
UNTIL A FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

REDEMPTION IN KIND. If the Trustees determine that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in

27
<PAGE>

part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How Each Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Company has, however, elected to be governed by Rule 18f-1 under
the Investment Company Act, under which a Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund during
a 90-day period for any one shareholder.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF A FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE
OTHER SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING
ONE OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. SHAREHOLDERS HAVE THE ABILITY TO EXCHANGE THEIR
CLASS Z SHARES OF A FUND FOR CLASS Z SHARES OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. SHAREHOLDERS WHO ARE ELIGIBLE TO PURCHASE CLASS A SHARES OF OTHER
PRUDENTIAL MUTUAL FUNDS AT NAV HAVE THE ABILITY TO EXCHANGE THEIR SHARES OF A
FUND FOR CLASS A SHARES OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. CLASS
I SHAREHOLDERS HAVE THE ABILITY TO EXCHANGE THEIR CLASS I SHARES OF PRUDENTIAL
STOCK INDEX FUND FOR CLASS Z SHARES OF ANOTHER FUND ON THE BASIS OF THE RELATIVE
NAV. An exchange will be treated as a redemption and purchase for tax purposes.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the
Company at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUNDS NOR THEIR AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The exchange privilege is available only in
states where the exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN
ON THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual
Fund Services LLC, Attention: Exchange Processing, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.

The exchange privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.

FREQUENT TRADING. The Funds and the other Prudential Mutual Funds are
not intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Funds reserve the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts, if, in the Manager's sole
judgment, such person, group or accounts were following a market timing strategy
or were otherwise engaging in excessive trading (Market Timers).

To implement this authority to protect each Fund and its shareholders
from excessive trading, each Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the
28
<PAGE>

Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.

SHAREHOLDER SERVICES

In addition to the exchange privilege, as a shareholder in a Fund, you
can take advantage of the following additional services and privileges:

o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Funds at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.

o REPORTS TO SHAREHOLDERS. The Funds will send you annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses, each Fund will provide one annual and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In
addition, monthly unaudited financial data are available upon request from each
Fund.

o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Funds at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (908)
417-7555 (collect).

For additional information regarding the services and privileges
described above, see "Shareholder Investment Account" in the Statement of
Additional Information.

<PAGE>

[This page intentionally left blank]

<PAGE>

- -------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------------------------------------------------

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

- ------------------------------------------
TAXABLE BOND FUNDS
- ------------------------------------------
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio

- ------------------------------------------
TAX-EXEMPT BOND FUNDS
- ------------------------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

- ------------------------------------------
GLOBAL FUNDS
- ------------------------------------------
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.

- ------------------------------------------
EQUITY FUNDS
- ------------------------------------------
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.

Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund

Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.

Prudential Jennison Active Balanced Fund

Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.

Prudential Small-Cap Quantum Fund, Inc.

Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

- ------------------------------------------
MONEY MARKET FUNDS
- ------------------------------------------
o Taxable Money Market Funds

Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund

Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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

A-1
<PAGE>

================================================================================

TABLE OF CONTENTS

PAGE
----
FUND HIGHLIGHTS ........................................................ 2
What are the Funds' Risk Factors and
Special Characteristics? ............................................. 2

FUND EXPENSES .......................................................... 5
FINANCIAL HIGHLIGHTS ................................................... 6
HOW THE FUNDS INVEST ................................................... 9
Investment Objectives and Policies .................................... 9
Other Investments and Policies ........................................ 15
Hedging and Return Enhancement Strategies ............................. 17
Investment Restrictions ............................................... 19
HOW THE FUNDS ARE MANAGED ............................................. 19
Manager ............................................................... 19
Subadviser ............................................................ 20
Distributor ........................................................... 20
Fee Waivers and Subsidy ............................................... 21
Portfolio Transactions ................................................ 21
Custodian and Transfer and
Dividend Disbursing Agent ............................................ 21
HOW EACH FUND VALUES ITS SHARES ........................................ 21
HOW EACH FUND CALCULATES PERFORMANCE ................................... 22
TAXES, DIVIDENDS AND DISTRIBUTIONS ..................................... 22
GENERAL INFORMATION .................................................... 24
Description of Shares ................................................. 24
Additional Information ................................................ 24
SHAREHOLDER GUIDE ...................................................... 24
How to Buy Shares of a Fund ........................................... 24
How to Sell Your Shares ............................................... 27
How to Exchange Your Shares ........................................... 28
Shareholder Services .................................................. 29
THE PRUDENTIAL MUTUAL FUND FAMILY ...................................... A-1

================================================================================

MF177A

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

CUSIP Nos.: Prudential Bond Market Index Fund
Class Z: 74431F-83-7
Prudential Europe Index Fund
Class Z: 74431F-81-1
Prudential Pacific Index Fund
Class Z: 74431F-82-9
Prudential Small-Cap Index Fund
Class Z: 74431F-84-5
Prudential Stock Index Fund
Class Z: 74431-20-9
Class I: 74431-86-0

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

Prudential
Bond Market
Index Fund

Prudential
Europe
Index Fund

Prudential
Pacific
Index Fund

Prudential
Small-Cap
Index Fund

Prudential
Stock
Index Fund

P R O S P E C T U S

JANUARY 23, 1998

www.prudential.com

PRUDENTIAL INVESTMENTS
LOGO

PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND

Statement of Additional Information
dated January 23, 1998

Prudential Bond Market Index Fund, Prudential Europe Index Fund,
Prudential Pacific Index Fund, Prudential Small-Cap Index Fund and Prudential
Stock Index Fund (each a Fund and collectively, the Funds) are each a series of
Prudential Index Series Fund (the Company).

The investment objective of Prudential Europe Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of European issuers. The Prudential Europe
Index Fund currently uses the Morgan Stanley Capital International Europe Index
for that purpose.

The investment objective of Prudential Pacific Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of issuers in the Pacific region. The
Prudential Pacific Index Fund currently uses the Morgan Stanley Capital
International Pacific Index for that purpose.

The investment objective of Prudential Small-Cap Index Fund is to seek
to provide investment results that correspond to the price and yield performance
of a broad-based index of small cap stocks. The Prudential Small-Cap Index Fund
currently uses the Standard & Poor's 600 Small Capitalization Stock Index for
that purpose.

The investment objective of Prudential Stock Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.

There can be no assurance that a Fund's investment objective will be
achieved. See "Investment Objectives and Policies."

The Company's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of Prudential Stock Index Fund dated
January 23, 1998, and the Prospectus of Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund, Prudential
Small-Cap Index Fund and Prudential Stock Index Fund dated January 23, 1998,
copies of which may be obtained from the Company upon request.

TABLE OF CONTENTS

PAGE
----
General Information ................................................ B-2
Investment Objectives and Policies ................................. B-2
Investment Restrictions ............................................ B-13
Trustees and Officers .............................................. B-14
Manager and Subadviser ............................................. B-19
Distributor ........................................................ B-21
Portfolio Transactions and Brokerage ............................... B-22
Purchase and Redemption of Fund Shares ............................. B-23
Shareholder Investment Account ..................................... B-24
Net Asset Value .................................................... B-27
Taxes, Dividends and Distributions ................................. B-28
Performance Information ............................................ B-30
Custodian, Transfer and Dividend
Disbursing Agent and Independent Accountants ..................... B-32
Financial Statements ............................................... B-33
Report of Independent Accountants--Prudential Pacific Index Fund ... B-48
Report of Independent Accountants--Prudential Stock Index Fund ..... B-65
Independent Auditors' Report........................................ B-66
Appendix--Description of Ratings ................................... A-1
Appendix I--General Investment Information ......................... I-1
Appendix II--Historical Performance Data ........................... II-1
Appendix III--Information Relating to Prudential ................... III-1

MF174B

<PAGE>

GENERAL INFORMATION

The Company changed its name from The Prudential Institutional Fund to
Prudential Dryden Fund effective October 30, 1996. In addition, Stock Index
Fund changed its name to Prudential Stock Index Fund at the same time. On
February 19, 1997, the Trustees approved the addition of the following four
Funds to the Company: Prudential Bond Market Index Fund, Prudential Europe
Index Fund, Prudential Pacific Index Fund and Prudential Small-Cap Index Fund.
The Company changed its name from Prudential Dryden Fund to Prudential Index
Series Fund effective January 23, 1998.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT POLICIES APPLICABLE TO PRUDENTIAL BOND MARKET INDEX FUND

If net cash outflows from Prudential Bond Market Index Fund are
anticipated, the Fund may sell securities (in proportion to their weighting in
the Lehman Brothers Aggregate Index) in amounts in excess of those needed to
satisfy the cash outflows and hold the balance of the proceeds in short-term
investments if such a transaction appears, taking into account transaction
costs, to be more efficient than selling only the amount of securities needed to
meet the cash requirements. If Prudential Bond Market Index Fund does hold
unhedged short-term investments as a result of the patterns of cash flows to and
from the Fund, such holdings may cause its performance to differ from that of
the Lehman Brothers Aggregate Index.

The Fund is not sponsored, endorsed, sold or promoted by Lehman
Brothers Inc.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities may be classified as private, governmental
or government related, depending on the issuer or guarantor. Private
mortgage-backed securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-backed securities are backed by the
full faith and credit of the United States. Government National Mortgage
Association (GNMA), the principal U.S. guarantor of such securities, is a wholly
owned corporate instrumentality of the United States within the Department of
Housing and Urban Development. Pass-through securities issued by the Federal
National Mortgage Association (FNMA) are guaranteed as to timely payment of
principal and interest by FNMA, which guarantee is not backed by the full faith
and credit of the U.S. Government. The Federal Home Loan Mortgage Corporation
(FHLMC) is a corporate instrumentality of the United States, the stock of which
is owned by the Federal Home Loan Banks. Participation certificates representing
interests in mortgages from FHLMC's national portfolio are guaranteed as to the
timely payment of interest and ultimate, but generally not timely, collection of
principal by FHLMC. The obligations of the FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by the full faith and credit of
the U.S. Government.

Prudential Bond Market Index Fund expects that private and governmental
entities may create mortgage loan pools offering pass-through investments in
addition to those described above. The mortgages underlying these securities may
be alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may be
shorter than previously customary. As new types of mortgage-backed securities
are developed and offered to investors, the Fund, consistent with its investment
objective and policies, will consider making investments in those new types of
securities.

The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location of
the mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.

Because prepayments of principal generally occur when interest rates
are declining, it is likely that the Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Fund's yield will correspondingly
decline. Thus, mortgage-backed securities may have less potential

B-2
<PAGE>

for capital appreciation in periods of falling interest rates than other fixed
income securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Fund purchases mortgage-backed securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.

INVESTMENT POLICIES APPLICABLE TO PRUDENTIAL EUROPE INDEX FUND

If net cash outflows from Prudential Europe Index Fund are anticipated,
the Fund may sell stocks (in proportion to their weighting in the Morgan Stanley
Capital International Europe Index (MSCI-Europe Index)) in amounts in excess of
those needed to satisfy the cash outflows and hold the balance of the proceeds
in short-term investments if such a transaction appears, taking into account
transaction costs, to be more efficient than selling only the amount of stocks
needed to meet the cash requirements. If Prudential Europe Index Fund does hold
unhedged short-term investments as a result of the patterns of cash flows to and
from the Fund, such holdings may cause its performance to differ from that of
the MSCI-Europe Index.

The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley
& Co. Incorporated.

INVESTMENT POLICIES APPLICABLE TO PRUDENTIAL PACIFIC INDEX FUND

If net cash outflows from Prudential Pacific Index Fund are
anticipated, the Fund may sell stocks (in proportion to their weighting in the
Morgan Stanley Capital International Pacific Free Index (MSCI-Pacific Free
Index) in amounts in excess of those needed to satisfy the cash outflows and
hold the balance of the proceeds in short-term investments if such a transaction
appears, taking into account transaction costs, to be more efficient than
selling only the amount of stocks needed to meet the cash requirements. If
Prudential Pacific Index Fund does hold unhedged short-term investments as
a result of the patterns of cash flows to and from the Fund, such holdings may
cause its performance to differ from that of the MSCI-Pacific Free Index.

The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley
& Co. Incorporated.

INVESTMENT POLICIES APPLICABLE TO PRUDENTIAL SMALL-CAP INDEX FUND

If net cash outflows from Prudential Small-Cap Index Fund are
anticipated, the Fund may sell stocks (in proportion to their weighting in the
Standard & Poor's 600 Small Capitalization Stock Index (S&P 600 Index)) in
amounts in excess of those needed to satisfy the cash outflows and hold the
balance of the proceeds in short-term investments if such a transaction appears,
taking into account transaction costs, to be more efficient than selling only
the amount of stocks needed to meet the cash requirements. If Prudential
Small-Cap Index Fund does hold unhedged short-term investments as a result of
the patterns of cash flows to and from the Fund, such holdings may cause its
performance to differ from that of the S&P 600 Index.

THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S CORPORATION (S&P). S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, TO THE SHAREHOLDERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING
THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND
PARTICULARLY OR THE ABILITY OF THE S&P 600 INDEX TO TRACK GENERAL STOCK MARKET
PERFORMANCE. S&P'S ONLY RELATIONSHIP TO PRUDENTIAL INVESTMENTS FUND MANAGEMENT
LLC (THE MANAGER) AND ITS AFFILIATES IS THE LICENSING OF CERTAIN TRADEMARKS AND
TRADE NAMES OF S&P AND OF THE S&P 600 INDEX WHICH IS DETERMINED, COMPOSED AND
CALCULATED BY S&P WITHOUT REGARD TO THE MANAGER OR THE FUND. S&P HAS NO
OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR THE SHAREHOLDERS INTO
CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P 600 INDEX. S&P IS
NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES
AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE SHARES OF
THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE
ADMINISTRATION, MARKETING OR TRADING OF THE FUND.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE MANAGER, SHAREHOLDERS, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 600 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE

B-3
<PAGE>

S&P 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.

INVESTMENT POLICIES APPLICABLE TO PRUDENTIAL STOCK INDEX FUND

If net cash outflows from Prudential Stock Index Fund are anticipated,
the Fund may sell stocks (in proportion to their weighting in the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index)) in amounts in excess of
those needed to satisfy the cash outflows and hold the balance of the proceeds
in short-term investments if such a transaction appears, taking into account
transaction costs, to be more efficient than selling only the amount of stocks
needed to meet the cash requirements. The Fund will not increase its holdings of
cash in anticipation of any decline in the value of the S&P 500 Index or of the
stock markets generally. If Prudential Stock Index Fund does hold unhedged
short-term investments as a result of the patterns of cash flows to and from the
Fund, such holdings may cause its performance to differ from that of the S&P 500
Index.

THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY S&P. S&P MAKES
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE SHAREHOLDERS OF THE
FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN
SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P 500
INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE. S&P'S ONLY RELATIONSHIP TO THE
MANAGER AND ITS AFFILIATES IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE
NAMES OF S&P AND OF THE S&P 500 INDEX WHICH IS DETERMINED, COMPOSED AND
CALCULATED BY S&P WITHOUT REGARD TO THE MANAGER OR THE FUND. S&P HAS NO
OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR THE SHAREHOLDERS INTO
CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P 500 INDEX. S&P IS
NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES
AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE SHARES OF
THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE
ADMINISTRATION, MARKETING OR TRADING OF THE FUND.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE MANAGER, SHAREHOLDERS, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

INVESTMENT POLICIES APPLICABLE TO EACH OF THE FUNDS

U.S. GOVERNMENT SECURITIES

Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which the Funds may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the U.S., Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks, Federal Land
Banks, FNMA, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the U.S. Treasury include a variety of
securities that differ in their interest rates, maturities and dates of
issuance. Because the U.S. Government is not obligated by law to provide support
to an instrumentality that it sponsors, a Fund will invest in obligations issued
by an instrumentality of the U.S. Government only if the Fund's investment
adviser determines that the instrumentality's credit risk does not render its
securities unsuitable for investment by the Fund.

B-4
<PAGE>

CONVERTIBLE SECURITIES, WARRANTS AND RIGHTS

A convertible security is a bond, debenture, corporate note, preferred
stock or other similar security that may be converted into or exchanged for a
prescribed amount of common stock or other equity securities of the same or a
different issuer within a particular period of time at a specified price or
formula. A warrant or right entitles the holder to purchase equity securities at
a specific price for a specific period of time. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

In recent years, convertibles have been developed which combine higher
or lower current income with options and other features. The Funds may invest in
these types of convertible securities.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

Each Fund has the authority to enter into reverse repurchase
agreements, dollar rolls and forward rolls, but no Fund plans to do so for the
foreseeable future; the Funds may enter into repurchase agreements. Each Fund
may enter into such agreements with banks and securities dealers which meet the
creditworthiness standards established by the Company's Trustees (Qualified
Institutions). The investment adviser will monitor the continued
creditworthiness of Qualified Institutions, subject to the oversight of the
Company's Trustees. The resale price of the securities purchased reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or date of maturity of the purchased security. The Funds receive
collateral equal to the resale price, which is marked-to-market daily. These
agreements permit each Fund to keep all its assets earning interest while
retaining "overnight" flexibility to pursue investments of a longer-term nature.

The use of repurchase agreements and reverse repurchase agreements
involve certain risks. For example, if the seller of securities under a
repurchase agreement defaults on its obligation to repurchase the underlying
securities, as a result of its bankruptcy or otherwise, a Fund will seek to
dispose of such securities, which action could involve costs or delays. If the
seller becomes insolvent and subject to liquidation or reorganization under
applicable bankruptcy or other laws, the Fund's ability to dispose of the
underlying securities may be restricted. Finally, it is possible that a Fund may
not be able to substantiate its interest in the underlying securities. To
minimize this risk, the securities underlying the agreement will be held by the
Custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the counterparty fails to resell or repurchase
the securities, a Fund may suffer a loss to the extent proceeds from the sale of
the underlying collateral are less than the repurchase price.

FIXED-INCOME SECURITIES

In general, the ratings of Moody's Investors Service (Moody's),
Standard & Poor's Ratings Group (S&P Ratings), Duff and Phelps, Inc. (Duff &
Phelps) and other nationally recognized statistical rating organizations
(NRSROs)

B-5
<PAGE>

represent the opinions of those organizations as to the quality of debt
obligations that they rate. These ratings are relative and subjective, are not
absolute standards of quality and do not evaluate the market risk of securities.
These ratings will be among the initial criteria used for the selection of
portfolio securities. Among the factors that the rating agencies consider are
the long-term ability of the issuer to pay principal and interest and general
economic trends.

Subsequent to its purchase by a Fund, an issue of debt obligations may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require the sale of the debt obligation
by the Fund, but the Fund's Subadviser will consider the event in its
determination of whether the Fund should continue to hold the obligation. In
addition, to the extent that the ratings change as a result of changes in rating
organizations or their rating systems or owing to a corporate restructuring of
Moody's, S&P Ratings, Duff & Phelps or another NRSRO, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with its
investment objectives and policies. An Appendix to this Statement of Additional
Information contains further information concerning the ratings of Moody's, S&P
Ratings and Duff & Phelps and their significance.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

To secure prices deemed advantageous at a particular time, each Fund
may purchase securities on a when-issued or delayed delivery basis, in which
case delivery of the securities occurs beyond the normal settlement period;
payment for or delivery of the securities would be made at the same time or
prior to the reciprocal delivery or payment by the other party to the
transaction. A Fund will enter into when-issued or delayed delivery transactions
for the purpose of acquiring securities and not for the purpose of leverage.
When-issued securities purchased by a Fund may include securities purchased on a
"when, as and if issued" basis under which the issuance of the securities
depends on the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring.

Securities purchased on a when-issued or delayed delivery basis may
expose a Fund to risk because the securities may experience fluctuations in
value prior to their actual delivery. A Fund does not accrue income with respect
to a when-issued or delayed delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.

SECURITIES LENDING

A Fund will enter into securities lending transactions only with
Qualified Institutions. A Fund will comply with the following conditions
whenever it lends securities: (i) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (ii) the value of the
loan is "marked to market" on a daily basis; (iii) the Fund must be able to
terminate the loan at any time; (iv) the Fund must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions on the
loaned securities and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Fund
must terminate the loan and regain the right to vote the securities. A Fund may
pay reasonable finders', administrative and custodial fees in connection with a
loan of its securities. In these transactions, there are risks of delay in
recovery and in some cases even of loss of rights in the collateral should the
borrower of the securities fail financially.

BORROWING

Each Fund may borrow from time to time, at the Subadviser's discretion,
to take advantage of investment opportunities, when yields on available
investments exceed interest rates and other expenses of related borrowing, or
when, in the Subadviser's opinion, unusual market conditions otherwise make it
advantageous for the Fund to increase its investment capacity. A Fund will only
borrow when there is an expectation that it will benefit the Fund after taking
into

B-6
<PAGE>

account considerations such as interest income and possible losses upon
liquidation. Borrowing by a Fund creates an opportunity for increased net income
but, at the same time, creates risks, including the fact that leverage may
exaggerate changes in the net asset value of Fund shares and in the yield on the
Fund. A Fund may also borrow for temporary, extraordinary or emergency purposes
and for the clearance of transactions. A Fund may borrow through forward rolls,
dollar rolls or reverse repurchase agreements, although no Fund currently has
any intention of doing so.

SECURITIES OF FOREIGN ISSUERS

The value of a Fund's foreign investments may be significantly affected
by changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of the
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.

The economies of many of the countries in which a Fund may invest are
not as developed as the economy of the U.S. and may be subject to significantly
different forces. Political or social instability, expropriation or confiscatory
taxation, and limitations on the removal of funds or other assets, could also
adversely affect the value of investments.

Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by a Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.

Brokerage commission rates in foreign countries are likely to be
higher. The securities markets in many of the countries in which a Fund may
invest will have substantially less trading volume than the principal U.S.
markets. As a result, the securities of some companies in these countries may be
less liquid and more volatile than comparable U.S. securities. There is
generally less government regulation and supervision of foreign stock exchanges,
brokers and issuers which may make it difficult to enforce contractual
obligations.

OPTIONS ON SECURITIES AND SECURITIES INDICES

A number of risk factors are associated with options transactions.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, at any particular time. If a Fund is unable to
effect a closing purchase transaction with respect to covered options it has
written, a Fund will not be able to sell the underlying securities or dispose of
assets held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and may incur transaction costs upon the purchase or sale of
underlying securities. The ability to terminate over-the-counter (OTC) option
positions is more limited than the ability to terminate exchange-traded option
positions because a Fund would have to negotiate directly with a contra party.
In addition, with OTC options, there is a risk that the contra party in such
transactions will not fulfill its obligations.

A Fund pays brokerage commissions or spreads in connection with its
options transactions, as well as for purchases and sales of underlying
securities. The writing of options could result in significant increases in a
Fund's turnover rate. A Fund's transactions in options may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code) for qualification as a regulated investment company.

The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
option on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option

B-7
<PAGE>

position by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, the Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.

Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.

If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.

A Fund will not purchase put options or call options if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Fund's net assets. The aggregate value of the obligations underlying put options
will not exceed 25% of a Fund's net assets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

A futures contract on securities or currency is an agreement to buy and
sell securities or currency at a specified price at a designated date. Futures
contracts and options thereon may be entered into for hedging purposes and for
the other purposes described in the Prospectus. A Fund may enter into futures
contracts in order to hedge against changes in interest rates, stock market
prices or currency exchange rates.

The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, and writing put options on futures contracts can serve as a
limited long hedge.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract, a Fund is required to deposit "initial margin,"
consisting of cash or U.S. Government securities, in an amount generally equal
to 10% or less of the contract value. Margin must also be deposited when writing
a call or put option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin does
not represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required by an
exchange to increase the level of its initial margin payment.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a

B-8
<PAGE>

future, the premium paid plus transaction costs are all that is at risk. In
contrast, when a Fund purchases or sells a futures contract or writes a call or
put option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might need to
sell securities at a time when such sales are disadvantageous.

Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Fund intends to enter into futures and options on futures transactions only
on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.

Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.

Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contract
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

FOREIGN CURRENCY FORWARD CONTRACTS, OPTIONS AND FUTURES TRANSACTIONS

Prudential Europe Index Fund's and Prudential Pacific Index Fund's
transactions in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of a forward contract with respect to specific receivables or
payables of a Fund generally arising in connection with the purchase or sale of
its securities and accruals of interest or dividends receivable and Fund
expenses. Position hedging is the sale of a foreign currency with respect to
security positions denominated or quoted in that currency. A Fund may not
position hedge with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time of making any sale of a
forward contract) of securities, denominated or quoted in, or currently
convertible into, such currency. A forward contract generally has no deposit
requirements, and no commissions are charged for such trades.

A Fund may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when the Fund contracts for
the purchase or sale of a security denominated in a foreign currency, or (ii)
when the

B-9
<PAGE>

Fund anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds. By entering into a forward contract for a
fixed amount of dollars for the purchase or sale of the amount of foreign
currency involved in the underlying transaction, the Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Subadviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further, the Fund may enter into a forward contract in one foreign
currency, or basket of currencies, to hedge against the decline or increase in
value in another foreign currency. Use of a different currency or basket of
currencies magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged.

Forward currency contracts (i) are traded in an interbank market
conducted directly between currency traders (typically commercial banks or other
financial institutions) and their customers, (ii) generally have no deposit
requirements and (iii) are typically consummated without payment of any
commissions. Failure by the Fund's contra party to make or take delivery of the
underlying currency at the maturity of the forward contract would result in the
loss to the Fund of any expected benefit of the transaction.

As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the contra party. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, the Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account. A Fund's ability to enter into forward foreign currency
exchange contracts may be limited by certain requirements for qualification as a
regulated investment company under the Internal Revenue Code. See "Taxes,
Dividends and Distributions."

Prudential Europe Index Fund and Prudential Pacific Index Fund may
purchase and write put and call options on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic) and OTC options
for hedging purposes in a manner similar to that in which forward foreign
currency exchange contracts and futures contracts on foreign currencies will be
employed. Options on foreign currencies are similar to options on securities,
except that the Fund has the right to take or make delivery of a specified
amount of foreign currency, rather than securities.

Generally, the OTC foreign currency options used by these Funds are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.

If the Subadviser anticipates purchasing a foreign security and also
anticipates a rise in the value of such foreign currency (thereby increasing the
cost of such security), the Fund may purchase call options or write put options
on the foreign currency. The Fund could also enter into a long forward contract
or a long futures contract on such currency, or purchase a call option, or write
a put option, on a currency futures contract. The use of such instruments could
offset, at least partially, the effects of the adverse movements of the exchange
rates.

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<PAGE>

FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS

Prudential Europe Index Fund and Prudential Pacific Index Fund may use
options on foreign currencies, futures on foreign currencies, options on futures
on foreign currencies and forward currency contracts, to hedge against movements
in the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.

A Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Subadviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.

The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.

Settlement of futures contracts, forward contracts and options
involving foreign currencies might be required to take place within the country
issuing the underlying currency. Thus, a Fund might be required to accept or
make delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.

COVERED FORWARD CURRENCY CONTRACTS, FUTURES CONTRACTS AND OPTIONS

Transactions using forward currency contracts, futures contracts and
options (other than options that a Fund has purchased) expose the Fund to an
obligation to another party. No Fund will enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other options, forward currency contracts or futures contracts,
or (2) liquid assets with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply with the
Securities and Exchange Commission (SEC) guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash or liquid assets
in a segregated account with its Custodian in the prescribed amount.

Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding forward currency contract, futures
contract or option is open, unless they are replaced with similar assets. As a
result, the commitment of a large portion of a Fund's assets to cover or
segregated accounts could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.

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<PAGE>

SEGREGATED ACCOUNTS

Each Fund will establish a segregated account with its Custodian, State
Street Bank and Trust Company (State Street), in which it will maintain cash,
U.S. Government securities, equity securities (including foreign securities),
debt securities or other liquid, unencumbered assets equal in value to its
obligations in respect of potentially leveraged transactions. These include
forward contracts, when-issued and delayed delivery securities, futures
contracts, written options and options on futures contracts (unless otherwise
covered). If collateralized or otherwise covered, in accordance with SEC
guidelines, these will not be deemed to be senior securities. The assets
deposited in the segregated account will be marked-to-market daily.

ILLIQUID SECURITIES

Each of the Funds may hold up to 15% of its net assets in illiquid
securities. Illiquid securities include repurchase agreements which have a
maturity of longer than seven days and securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

Rule 144A of the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. (NASD).

Restricted securities eligible for resale pursuant to Rule 144A and
commercial paper for which there is a readily available market will not be
deemed illiquid. The Subadviser will monitor the liquidity of such restricted
securities, subject to the supervision of the Trustees. In reaching liquidity
decisions, the Subadviser will consider, among other things, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). In addition, in order for commercial
paper that is issued in reliance on Section 4(2) of the Securities Act to be
considered liquid, (i) it must be rated in one of

B-12
<PAGE>

the two highest rating categories by at least two NRSROs, or if only one NRSRO
rates the securities, by that NRSRO, or, if unrated, be of comparable quality in
the view of the investment adviser, and (ii) it must not be "traded flat" (i.e.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.

The staff of the SEC has taken the position that purchased OTC options
and the assets used as "cover" for written OTC options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at the Fund's
election, to unwind the OTC option. The exercise of such an option would
ordinarily involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the securities used as "cover" as liquid. The Fund will also treat
non-U.S. Government IOs and POs as illiquid so long as the staff of the SEC
maintains its position that such securities are illiquid.

OTHER INVESTMENT TECHNIQUES

Each Fund may take advantage of opportunities in the area of options
and futures contracts and any other derivative instruments that are not
presently contemplated for use by such Fund or that are not currently available
but that may be developed, to the extent such opportunities are both consistent
with its investment objective and legally permissible for the Fund. Before
entering into such transactions or making any such investment, the Fund will
provide appropriate disclosure in its Prospectus.

INVESTMENT RESTRICTIONS

The investment restrictions listed below have been adopted by the
Company as fundamental policies of the Funds, except as otherwise indicated.
Under the Investment Company Act of 1940, as amended (Investment Company Act), a
fundamental policy of a Fund may not be changed without the vote of a majority
of the outstanding voting securities of the Fund. As defined in the Investment
Company Act, a "majority of a Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are present in person or represented by proxy or (ii)
more than 50% of the outstanding shares.

A Fund may not:

1. Purchase any security if, as a result, with respect to 75% of the
Fund's total assets, more than 5% of the value of its total assets (determined
at the time of investment) would then be invested in the securities of any one
issuer.

2. Purchase a security if more than 10% of the outstanding voting
securities of any one issuer would be held by the Fund.

3. Purchase a security if, as a result, 25% or more of the value of its
total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities.

4. Purchase or sell real estate or interests therein (including limited
partnership interests), although a Fund may purchase securities of issuers which
engage in real estate operations and securities which are secured by real estate
or interests therein.

5. Purchase or sell commodities or commodity futures contracts, except
that a Fund may purchase and sell financial futures contracts and options
thereon and that forward contracts are not deemed to be commodities or commodity
futures contracts.

6. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that a Fund may invest
in the securities of companies which operate, invest in or sponsor such
programs.

7. Issue senior securities, borrow money or pledge its assets, except
that each Fund may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements up to 20% of the value of its total assets to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes, or for the clearance of

B-13
<PAGE>

transactions and may pledge up to 20% of the value of its total assets to secure
such borrowings. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed delivery basis; the purchase and sale
of options, financial futures contracts and options thereon; the entry into
repurchase agreements and collateral and margin arrangements with respect to any
of the foregoing, will not be deemed to be a pledge of assets nor the issuance
of senior securities.

8. Make loans except by the purchase of fixed-income securities in
which a Fund may invest consistently with its investment objective and policies
or by use of reverse repurchase and repurchase agreements, forward rolls, dollar
rolls and securities lending arrangements.

9. Make short sales of securities.

10. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by any Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)

11. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws. The Fund has no limit with respect to
investments in restricted securities.

Whenever any fundamental investment policy or investment restriction
states a maximum percentage of a Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings, as required by applicable law.
<TABLE>
<CAPTION>

TRUSTEES AND OFFICERS

POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------- ----------------------
<S> <C> <C>
Edward D. Beach (73) Trustee President and Director of BMC Fund,
Inc., a closed-end investment company;
prior thereto, Vice Chairman of
Broyhill Furniture Industries, Inc.;
Certified Public Accountant; Secretary
and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board
of Trustees of Mars Hill College;
Director of The High Yield Income Fund,
Inc.

Delayne Dedrick Gold (59) Trustee Marketing and Management Consultant;
Director of The High Yield Income Fund,
Inc.

*Robert F. Gunia (51) Trustee Vice President, Prudential Investments
(since September 1997); Executive Vice
President and Treasurer (since December
1996), Prudential Investments Fund
Management LLC (PIFM); Senior Vice
President (since March 1987) of
Prudential Securities Incorporated
(Prudential Securities); formerly Chief
Administrative Officer (July
1990-September 1996), Director (January
1989- September 1996) and Executive
Vice President,Treasurer and Chief
Financial Officer (June 1987-September
1996) of Prudential Mutual Fund
Management, Inc.; Vice President and
Director of The Asia Pacific Fund, Inc.
(since May 1989); Director of The High
Yield Income Fund, Inc.

</TABLE>

B-14
<PAGE>
<TABLE>
<CAPTION>

POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------- ----------------------
<S> <C> <C>
Douglas H. McCorkindale (58) Trustee President (since September 1997) and
Vice Chairman (since March 1984),
Gannett Co. Inc. (publishing and media);
Director of Gannett Co. Inc., Frontier
Corporation and Continental Airlines,
Inc.

*Mendel A. Melzer, CFA (37) Trustee Chief Investment Officer (since October
751 Broad St. 1996) of Prudential Mutual Funds;
Newark, NJ 07102 formerly Chief Financial Officer
(November 1995-September 1996) of
Prudential Investments, Senior Vice
President and Chief Financial Officer
(April 1993-November 1995) of Prudential
Preferred Financial Services, Managing
Director (April 1991-April 1993) of
Prudential Investment Advisors and
Senior Vice President (July 1989-April
1991) of Prudential Capital Corporation;
Chairman and Director of Prudential
Series Fund, Inc.; Director of The High
Yield Income Fund, Inc.

Thomas T. Mooney (56) Trustee President of the Greater Rochester Metro
Chamber of Commerce; former Rochester
City Manager; Trustee of Center for
Governmental Research, Inc.; Director of
Blue Cross of Rochester, The Business
Council of New York State, Monroe County
Water Authority, Rochester Jobs, Inc.,
Executive Service Corps of Rochester,
Monroe County Industrial Development
Corporation, Northeast Midwest
Institute, First Financial Fund, Inc.,
The High Yield Income Fund, Inc. and The
High Yield Plus Fund, Inc.

Stephen P. Munn (55) Trustee Chairman (since January 1994), Director
and President (since 1988) and Chief
Executive Officer (1988-December 1993)
of Carlisle Companies Incorporated
(manufacturer of industrial products).

*Richard A. Redeker (54) President Employee of Prudential Investments;
751 Broad St. and formerly President, Chief Executive
Newark, NJ 07102 Trustee Officer and Director (October
1993-September 1996), Prudential Mutual
Fund Management, Inc., Executive Vice
President, Director and Member of the
Operating Committee (October
1993-September 1996), Prudential
Securities, Director (October
1993-September 1996) of Prudential
Securities Group, Inc., Executive Vice
President, The Prudential Investment
Corporation (PIC) (January
1994-September 1996), Director (January
1994-September 1996) of Prudential
Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc.
and Senior Executive Vice President and
Director of Kemper Financial Services,
Inc. (September 1978-September 1993);
President and Director of The High Yield
Income Fund, Inc.

</TABLE>

B-15
<PAGE>

POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------- ----------------------
<S> <C> <C>
Robin B. Smith (58) Trustee Chairman and Chief Executive Officer (since
August 1996), Publishers Clearing House;
formerly President and Chief Executive
Officer (January 1988-August 1996) and
President and Chief Operating Officer
(September 1981-December 1988) of
Publishers Clearing House; Director of
BellSouth Corporation, Texaco Inc., Spring
Industries Inc. and Kmart Corporation.

Louis A Weil, III (56) Trustee Publisher and Chief Executive Officer (since
January 1996) and Director (since September
1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996),
Publisher and Chief Executive Officer
(August 1991-December 1995) of Phoenix
Newspapers, Inc.; formerly Publisher (May
1989-March 1991) of Time Magazine,
President, Publisher & CEO (February
1986-August 1989) of The Detroit News and
member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director of The
High Yield Income Fund, Inc.

Clay T. Whitehead (59) Trustee President, National Exchange Inc. (new
business development firm) (since May
1983).

Grace C. Torres (38) Treasurer First Vice President (since December 1996) of
and PIFM; First Vice President (since March
Principal 1994) of Prudential Securities; formerly
Financial First Vice President (March 1994-September
and 1996) of Prudential Mutual Fund Management,
Accounting Inc. and Vice President (July 1989-March
Officer 1994) of Bankers Trust Corporation.

S. Jane Rose (51) Secretary Senior Vice President (since December 1996),
PIFM; Senior Vice President and Senior
Counsel (since July 1992) of Prudential
Securities; formerly Senior Vice President
(January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc.

Stephen M. Ungerman (44) Assistant Tax Director (since March 1996) of Prudential
Treasurer Investments and the Private Asset Group of
The Prudential Insurance Company of America
(Prudential); formerly First Vice President
(February 1993-September 1996) of
Prudential Mutual Fund Management, Inc. and
Senior Tax Manager (1981-January 1993) of
Price Waterhouse.

</TABLE>

B-16
<PAGE>
<TABLE>
<CAPTION>

POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------- ----------------------
<S> <C> <C>
Marguerite E.H. Morrison (41) Assistant Vice President (since December 1996) of PIFM;
Secretary Vice President and Associate General
Counsel (since September 1987) of
Prudential Securities; formerly Vice
President and Associate General Counsel
(June 1991-September 1996) of Prudential
Mutual Fund Management, Inc.

</TABLE>
- ------------

(1) Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.

* "Interested" Trustee, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, PIFM or Prudential Securities.

Trustees and officers of the Funds are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.

The officers conduct and supervise the daily business operations of the
Funds, while the Trustees, in addition to their functions set forth under
"Manager and Subadviser" and "Distributor," review such actions and decide on
general policy.

The Trustees have adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age of
72, except that retirement is being phased in for Trustees who were age 68 or
older as of December 31, 1993. Under this phase-in provision, Mr. Beach is
scheduled to retire on December 31, 1999.

Pursuant to the terms of each Management Agreement with the Funds, the
Manager pays all compensation of officers and employees of the Funds as well as
the fees and expenses of all Trustees of the Funds who are affiliated persons of
the Manager. The Company pays each of its Trustees who is not an affiliated
person of PIFM annual compensation of $2,500 in addition to certain
out-of-pocket expenses. The amount of annual compensation paid to each Trustee
may change as a result of the introduction of additional funds on whose boards
the Trustee may be asked to serve.

Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
accrues daily the amount of such Trustees' fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Company. Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Trustee. The
Company's obligation to make payments of deferred Trustees' fees, together with
interest thereon, is a general obligation of the Company.

The interested Trustees serve without compensation. The following table
sets forth the aggregate compensation paid by the Company to the Trustees who
were not affiliated with the Manager for the fiscal year ended September 30,
1997 and the aggregate compensation paid to such Trustees for service on the
Company's Board and that of all other funds managed by Prudential Investments
Fund Management LLC (Fund Complex) for the year ended December 31, 1997.

B-17
<PAGE>
<TABLE>

COMPENSATION TABLE
<CAPTION>

PENSION OR TOTAL 1997
RETIREMENT COMPENSATION
BENEFITS ACCRUED ESTIMATED FROM COMPANY
AGGREGATE AS PART OF ANNUAL AND FUND
COMPENSATION COMPANY BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM COMPANY EXPENSES RETIREMENT TO TRUSTEES
----------------- ------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Edward D. Beach--Trustee $ 2,500 NONE N/A $135,000(38/63)*
Delayne D. Gold--Trustee $ 2,500 NONE N/A 135,000(38/63)*
Robert F. Gunia--Trustee+ -- NONE N/A --
Donald D. Lennox--Former Trustee $ 2,500 NONE N/A 90,000(26/50)*
Douglas H. McCorkindale--Trustee++ $ 2,500 NONE N/A 70,000(20/35)*
Mendel A. Melzer--Trustee+ -- NONE N/A --
Thomas T. Mooney--Trustee++ $ 2,500 NONE N/A 115,000(31/64)*
Stephen P. Munn--Trustee $ 2,500 NONE N/A 45,000(15/21)*
Richard A. Redeker--Trustee+ -- NONE N/A --
Robin B. Smith--Trustee++ $ 2,500 NONE N/A 90,000(27/34)*
Louis A. Weil, III--Trustee $ 2,500 NONE N/A 90,000(26/50)*
Clay T. Whitehead--Trustee $ 2,500 NONE N/A 45,000(15/21)*
</TABLE>
- ----------

* Indicates number of Funds/portfolios in Fund Complex to which aggregate
compensation relates.
+ Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Trustees, do not receive compensation from the Company or any
fund in the Fund Complex.
++ Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1997, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to $71,640,
$143,909 and $139,097 for Messrs. McCorkindale and Mooney and Ms. Smith,
respectively.

As of January 9, 1998, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Fund.

As of January 9, 1998, the only beneficial owners, directly or indirectly,
of more than 5% of any of the Funds in the Company were: PAMCO VCA OA Account,
Attn: Jay Duffy, 30 Scranton Office Park, Moosic, PA 18507-1755 which owned
3,056,991 shares of Prudential Bond Market Index Fund (approximately 98% of
outstanding shares of such Fund); PMG IIA Fund, Prudential Insurance Company of
America Equity Products, Gateway Center Three, Stop 005, Newark, NJ 07102-4000
which owned 1,511,786 shares of Prudential Europe Index Fund (approximately 97%
of outstanding shares of such Fund); PMG IIA Fund, Prudential Insurance Company
of America Equity Products, Gateway Center Three, Stop 005, Newark, NJ
07102-4000 which owned 2,523,722 shares of Prudential Pacific Index Fund
(approximately 99% of outstanding shares of such Fund); PMG IIA Fund, Prudential
Insurance Company of America Equity Products, Gateway Center Three, Stop 005,
Newark, NJ 07102-4000 which owned 1,878,703 shares of Prudential Small-Cap Index
Fund (approximately 84% of outstanding shares of such Fund); and Prudential
Defined Contribution Services, FBO Pru-DC Qualified Clients, ATTN: John Surdy,
30 Scranton Office Park, Moosic, PA 18507-1755 and Prudential Trust Company, FBO
Pru-DC Clients, ATTN: John Surdy, 30 Scranton Office Park, Moosic, PA 18507-1755
which owned 3,132,176 and 3,893,167 Class Z shares of Prudential Stock Index
Fund (approximately 38% and 47% outstanding of Class Z shares of such Fund,
respectively); and Prudential Employee Savings Plan, ATTN: Cara India, 71
Hanover Road, Florham Park, NJ 07932-1597, and Prudential Trust Company, FBO
Prudential-DC Clients, ATTN; John Surdy, 30 Scranton Office Park, Moosic, PA
18507-1796 and Marquette Trust Co., TTEE, Hawaii Deferred Compensation Plan,
ATTN: Marlene Paver, 13100 Wayzata Blvd., Minnetonka, MN 55305-1842 who owned
12,004,490, 4,228,060 and 4,038,905 Class I shares of Prudential Stock Index
Fund (approximately 59.2%, 20.8% and 19.9% of outstanding Class I shares of such
Fund, respectively.

B-18
<PAGE>

As of January 9, 1998, Prudential Securities was the record holder for the
beneficial owners of 67,807 shares of Prudential Bond Market Index Fund
(approximately 2.1% of outstanding shares of such Fund); 47,892 shares of
Prudential Europe Index Fund (approximately 3% of outstanding shares of such
Fund); 7,533 shares of Prudential Pacific Index Fund (approximately 0.29% of
outstanding shares of such Fund); 345,248 shares of Prudential Small-Cap Index
Fund (approximately 1.5% of outstanding shares of such Fund) and 991,666 shares
of Prudential Stock Index Fund (approximately 11.9% of outstanding shares of
such Fund). In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy material to the beneficial
owners for which it is the record holder.

MANAGER AND SUBADVISER

The manager of the Company is Prudential Investments Fund Management
LLC (formerly Prudential Mutual Fund Management LLC) (PIFM or the Manager),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. PIFM
serves as manager to all of the other investment companies that, together with
the Funds, comprise the Prudential Mutual Funds. See "How the Funds are
Managed--Manager" in the Prospectus. As of December 31, 1997, PIFM managed
and/or administered open-end and closed-end management investment companies with
assets of approximately $62 billion. According to the Investment Company
Institute, as of October 31, 1997, the Prudential Mutual Funds were the 17th
largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities and Prudential.
Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned
subsidiary of PIFM, serves as the transfer agent for the Prudential Mutual Funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.

Pursuant to two Management Agreements with the Company (each a
Management Agreement and collectively, the Management Agreements), PIFM, subject
to the supervision of the Company's Board of Trustees and in conformity with the
stated policies of each Fund, manages both the investment operations of each
Fund and the composition of each Fund's portfolio, including the purchase,
retention, disposition and loan of securities and other assets. In connection
therewith, PIFM is obligated to keep certain books and records of the Company.
PIFM also administers the Company's corporate affairs and, in connection
therewith, furnishes the Company with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Funds' custodian (the Custodian), and
PMFS, the Funds' transfer and dividend disbursing agent. The management services
of PIFM for the Funds are not exclusive under the terms of the Management
Agreements and PIFM is free to, and does, render management services to others.

For its services, PIFM receives, pursuant to the Management Agreements,
a fee at an annual rate of .25 of 1% of Prudential Bond Market Index Fund's
average daily net assets, .40 of 1% of Prudential Europe Index Fund's average
daily net assets, .40 of 1% of Prudential Pacific Index Fund's average daily net
assets, .30 of 1% of Prudential Small-Cap Index Fund's average daily net assets
and .30 of 1% of Prudential Stock Index Fund's average daily net assets. The fee
is computed daily and payable monthly. Each Management Agreement also provides
that, in the event the expenses of a Fund (including the fees of PIFM, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PIFM will be
reduced by the amount of such excess. No such reductions were required during
the fiscal year ended September 30, 1997. No jurisdiction currently limits the
Funds' expenses.

In connection with its management of the business affairs of the
Company, the Manager bears the following expenses:

B-19
<PAGE>

(i) the salaries and expenses of all of its and the Company's personnel
except the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Funds' Subadviser;

(ii) all expenses incurred by the Manager or by the Company in
connection with managing the ordinary course of the Company's business, other
than those assumed by the Company as described below; and

(iii) the costs and expenses or fees payable to The Prudential
Investment Corporation, doing business as Prudential Investments (PI, the
investment adviser or the Subadviser), pursuant to two subadvisory agreements
between the Manager and the Subadviser (collectively, the Subadvisory
Agreements).

Under the terms of the Management Agreements, the Company is
responsible for the payment of the following expenses: (i) the fees payable to
the Manager, (ii) the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Funds' Subadvisers, (iii) the fees and certain
expenses of the Custodian and Transfer and Dividend Disbursing Agent, including
the cost of providing records to the Manager in connection with its obligation
of maintaining required records of the Company, pricing the Funds' shares and
the cashiering function, (iv) the charges and expenses of legal counsel and
independent accountants for the Company, (v) brokerage commissions and any issue
or transfer taxes chargeable to the Company in connection with its securities
and futures transactions, (vi) all taxes and corporate fees payable by the
Company to governmental agencies, (vii) the fees of any trade associations of
which the Company may be a member, (viii) the cost of stock certificates
representing shares of Funds of the Company, if any, (ix) the cost of fidelity
and liability insurance, (x) the fees and expenses involved in registering and
maintaining registration of the Company and of its shares with the SEC,
including the preparation and printing of the Company's registration statements
and prospectuses for such purposes, and paying the fees and expenses of notice
filings made in accordance with state securities laws, (xi) licensing fees, if
any, (xii) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders and (xiii)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Company's business.

The Management Agreements provide that PIFM will not be liable for any
error of judgment or for any loss suffered by the Company in connection with the
matters to which the Management Agreements relate, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
Each Management Agreement provides that it will terminate automatically if
assigned and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. Each Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act. The Management
Agreement for Prudential Stock Index Fund was last approved by the Trustees of
the Company, including all of the Trustees who are not parties to the contract
or interested persons of any such party as defined in the Investment Company
Act, on May 21, 1997 and by the shareholders of Prudential Stock Index Fund on
October 30, 1996. The Management Agreement for Prudential Bond Market Index
Fund, Prudential Europe Index Fund, Prudential Pacific Index Fund and Prudential
Small-Cap Index Fund was last approved by the Trustees of the Company, including
all of the Trustees who are not parties to the contract or interested persons of
any such party as defined in the Investment Company Act, on May 21, 1997.

Prudential Institutional Fund Management, Inc., the manager of
Prudential Stock Index Fund until October 30, 1996, received for the period from
September 30, 1996 through October 30, 1996,and for the fiscal years ended
September 30, 1995 and September 30, 1996, before any reduction due to the
subsidy of certain expenses of the Fund, the following management fees from the
Fund, expressed both as a dollar amount and as a percentage of the Fund's
average daily net assets: $64,568 (.40%), $570,160 (.40%) and $286,843 (.40%),
respectively. For the period from October 30, 1996 through September 30, 1997
PIFM received, before any reduction due to the subsidy by the Manager

B-20
<PAGE>

of certain expenses of Prudential Stock Index Fund, the following management
fee, expressed as both a dollar amount and as an annualized percentage of the
Fund's average daily net assets: $921,557 (.30%). During this period the Manager
subsidized certain expenses of the Fund. See "How the Fund is Managed--Fee
Waivers and Subsidy" in the Prudential Stock Index Fund Prospectus.

For the fiscal period ended September 30, 1997, PIFM received
management fees of $1,630 from Prudential Pacific Index Fund.

The Manager has entered into two Subadvisory Agreements with the
Subadviser. The Subadvisory Agreements provide that the Subadviser furnish
investment advisory services in connection with the management of the Funds. The
Subadviser is reimbursed by the Manager for the reasonable costs and expenses
incurred in furnishing its services. In connection therewith, the Subadviser is
obligated to keep certain books and records of the Funds. The Manager continues
to have responsibility for all investment advisory services to all the Funds
pursuant to the Management Agreements and supervises the Subadviser's
performance of such services.

The Global Fixed Income Group of PI is responsible as a team for the
day-to-day management of Prudential Bond Market Index Fund.

Prudential Investments Quantitative Investment Management, a unit of
PI, advises Prudential Europe Index Fund, Prudential Pacific Index Fund,
Prudential Small-Cap Index Fund and Prudential Stock Index Fund. Founded in
1975, Prudential Investments Quantitative Investment Management is among the
oldest quantitatively-oriented managers in the country; it currently manages
close to $30 billion in balanced and equity assets.

The Subadvisory Agreement for Prudential Stock Index Fund was last
approved by the Trustees, including a majority of the Trustees who are not
parties to the Subadvisory Agreement or interested persons of any such party as
defined in the Investment Company Act, on May 21, 1997, and by the shareholders
of the Fund on October 30, 1996. The Subadvisory Agreement for Prudential Bond
Market Index Fund, Prudential Europe Index Fund, Prudential Pacific Index Fund
and Prudential Small-Cap Index Fund was last approved by the Trustees, including
a majority of the Trustees who are not parties to the Subadvisory Agreement or
interested persons of any such party as defined in the Investment Company Act,
on May 21, 1997.

Each Subadvisory Agreement provides that it will terminate in the event
of its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreements. Each Subadvisory Agreement may be
terminated by the Company, the Manager or the Subadviser upon not more than 60
days', nor less than 30 days', written notice. Each Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act.

DISTRIBUTOR

Prudential Securities Incorporated (Prudential Securities or the
Distributor), One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Class Z shares of Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund and Prudential
Small-Cap Index Fund, and the Class Z and Class I shares of Prudential Stock
Index Fund.

Prudential Securities serves as the Distributor of the Funds and incurs
the expenses of distributing the shares under a Distribution Agreement with the
Company, none of which are reimbursed by or paid for by the Funds. See "How the
Funds are Managed--Distributor" in the Prospectus.

B-21

<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

PORTFOLIO TURNOVER

There are no limitations on the length of time that securities must be
held by the Funds and the Funds' annual portfolio turnover rate may vary
significantly from year to year. A portfolio turnover rate in excess of 100% may
exceed that of other investment companies with similar objectives. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. In addition, high portfolio turnover may result in increased short-term
capital gains, which, when distributed to shareholders, are treated as ordinary
income. See "Taxes, Dividends and Distributions."

Decisions to buy and sell assets for a Fund are made by the Fund's
Subadviser, subject to the overall review of the Manager and the Trustees.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Subadviser, investments of the type that the
Funds may make also may be made for those other accounts. When the Fund and one
or more other accounts managed by the Subadviser are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Subadviser to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by a Fund or the size of the position obtained or disposed of
by a Fund.

Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. No stated commission is generally applicable to securities traded in
U.S. OTC markets, but the prices of those securities include commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government securities generally are purchased from underwriters or dealers,
although certain newly-issued U.S. Government securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.

In selecting brokers or dealers to execute securities transactions on
behalf of a Fund, the Subadviser seeks the best overall terms available. The
Funds have no obligation to do business with any broker-dealer or group of
broker-dealers in executing transactions in securities. In placing orders, the
Subadviser is subject to the Company's policy to seek the most favorable price
and efficient execution taking into account such factors as price (including the
applicable commission or dealer spread), size, type, and difficulty of the
transaction, and the firm's general execution and operating facilities. In
assessing the best overall terms available for any transaction, the Subadviser
will consider the factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the Subadviser, subject to seeking best price and execution, is
authorized to cause a Fund to pay broker-dealers that furnish brokerage and
research services (as defined by Section 28(e) of the Securities Exchange Act of
1934, as amended (1934 Act)), a higher commission than another broker-dealer
that does not furnish such brokerage and research services might charge. The
Subadviser must regard such higher commissions as reasonable in relation to the
brokerage and research services provided, viewed in terms of the Subadviser's
responsibilities to the Fund or other accounts, if any, as to which it exercises
investment discretion. The fees under the Management Agreements and the
Subadvisory Agreements, respectively, are not reduced by reason of the
Subadviser receiving brokerage and research services. The Trustees of the
Company will periodically review the commissions paid by a Fund to determine if
the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Fund. OTC purchases and sales by a Fund
are transacted directly with principal market makers except in those cases in
which better prices and executions may be obtained elsewhere.

To the extent consistent with applicable provisions of the Investment
Company Act and the rules and exemptions adopted by the SEC under the Investment
Company Act, the Trustees have determined that transactions for a Fund may be
executed through Prudential Securities and other affiliated broker-dealers if,
in the judgment of the Subadviser, the use of an affiliated broker-dealer is
likely to result in price and execution at least as favorable as those of other
qualified broker-dealers, and if, in the transaction, the affiliated
broker-dealer charges the Fund a fair and reasonable rate. Furthermore, the
Trustees of the Company, including a majority of the Trustees who are not
"interested" Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities are consistent with the foregoing standard. In accordance with
Section 11(a) of the 1934 Act, Prudential Securities may not retain compensation
for effecting transactions on a national securities exchange for the Funds
unless a Fund has expressly authorized the retention of such compensation in a
written contract executed by the

B-22
<PAGE>

Fund and Prudential Securities. Section 11(a) provides that Prudential
Securities must furnish to the Funds at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for a Fund during the applicable period. Brokerage
transactions with Prudential Securities also are subject to such fiduciary
standards as may be imposed by applicable law.

The Funds may use Prudential Securities and other affiliated
broker-dealers as a futures commission merchant in connection with entering into
futures contracts and options on futures contracts if, in the judgment of the
Subadviser, the affiliated broker-dealer charges the Fund a fair and reasonable
rate. This standard would allow Prudential Securities to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction.

The Company does not market its shares through intermediary brokers or
dealers; therefore, it is not the Company's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Subadviser may place portfolio orders with qualified
broker-dealers who recommend the Company to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.

Transactions in options and futures by a Fund will be subject to
limitations established by each of the exchanges and boards of trade governing
the maximum position which may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options and futures
are written or held on the same or different exchanges or are written or held in
one or more accounts or through one or more brokers. Thus, the number of options
and futures which a Fund may write or hold may be affected by options and
futures written or held by the Subadviser and other investment advisory clients
of the Subadviser. An exchange or board of trade may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.

The Funds will not purchase any security, including U.S. Government
securities, during the existence of any underwriting or selling group relating
thereto of which Prudential Securities is a member, except to the extent
permitted by SEC rules.

During the years ended September 30, 1997, 1996 and 1995, the Company
paid $___, $0 and $965, respectively, in brokerage commissions to Prudential
Securities.

PURCHASE AND REDEMPTION OF FUND SHARES

Shares of the Funds are offered to a limited group of investors at net
asset value (NAV) without any sales charges. See "Shareholder Guide--How to Buy
Shares of the Fund" in the Prospectus of Prudential Stock Index Fund and
"Shareholder Guide--How to Buy Shares of a Fund" in the Prospectus of Prudential
Bond Market Index Fund, Prudential Europe Index Fund, Prudential Pacific Index
Fund, Prudential Small-Cap Index Fund and Prudential Stock Index Fund.

Each class of Prudential Stock Index Fund represents an interest in the
same assets of the Fund and is identical in all respects except that (i) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of the other class, (ii) Class I shares are subject to nominal
transfer agency fees or expenses, (iii) Class I shares are held in a single
omnibus account and (iv) each class has a different exchange privilege. See
"Shareholder Investment Account--Exchange Privilege."

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities
(rather than cash) will be limited to (i) reorganizations, (ii) statutory
mergers, or (iii) other acquisitions of portfolio securities that: (a) meet the
investment objective and policies of the applicable Fund, (b) are liquid and not
subject to restrictions on resale, and (c) have a value that is readily
ascertainable via listing on or trading in a recognized United States or
international exchange or market.

B-23
<PAGE>

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Company and the
Distributor, Class Z and Class I shares are sold at NAV. Using the NAV of
Prudential Pacific Index Fund and Prudential Stock Index Fund at September 30,
1997, the maximum offering price of each Fund's shares is as follows:

PRUDENTIAL PACIFIC PRUDENTIAL STOCK
INDEX FUND INDEX FUND
---------- ----------
CLASS Z

Net asset value, redemption price and
offering price per Class Z share ........... $9.88 $ 21.86
===== =========

CLASS I

Net asset value, redemption price
and offering price per Class I share ....... N/A $ 21.87
===== =========

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. Each Fund makes available
to its shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable Fund.
An investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or distribution
may reinvest such dividend or distribution at NAV by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent.

EXCHANGE PRIVILEGE

The Company makes available to its shareholders the privilege of
exchanging their shares of a Fund for shares of certain other Prudential Mutual
Funds, including one or more specified money market funds, subject in each case
to the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of a Fund. All
exchanges are made on the basis of the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a redemption
and purchase for tax purposes. Shares may be exchanged for shares of another
fund only if shares of such fund may legally be sold under applicable state
laws. For retirement and group plans having a limited menu of Prudential Mutual
Funds, the Exchange Privilege is available for those funds eligible for
investment in the particular program.

It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds, if the investor is eligible to purchase Class Z shares
of other Prudential Mutual Funds or, if not eligible, the investor may exchange
Class Z shares for Class A shares of other Prudential Mutual Funds.

CLASS I. Class I shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

Additional details about the Exchange Privilege and prospectuses for
each of the Prudential Mutual Funds are available from the Fund's Transfer
Agent, Prudential Securities or Prusec.

The Exchange Privilege may be modified, terminated or suspended on 60
days' notice, and any fund, including a Fund, or the Distributor, has the right
to reject any exchange application relating to such fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

B-24
<PAGE>

Dollar cost averaging may be used, for example, to plan for retirement,
to save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)

The following chart shows how much you would need in monthly
investments to achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>

PERIOD OF MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years ....................... $ 110 $ 165 $ 220 $ 275
20 Years ....................... 176 264 352 440
15 Years ....................... 296 444 592 740
10 Years ....................... 555 833 1,110 1,388
5 Years ....................... 1,371 2,057 2,742 3,428
</TABLE>
- ----------

(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room
and board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.

See "Automatic Savings Accumulation Plan."

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

Under ASAP, an investor may arrange to have a fixed amount
automatically invested in shares of a Fund monthly by authorizing his or her
bank account or Prudential Securities Account (including a Command Account) to
be debited to invest specified dollar amounts in shares of a Fund. The
investor's bank must be a member of the Automatic Clearing House System. Stock
certificates are not issued to ASAP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account.

In the case of shares held through the Transfer Agent (i) a $10,000
minimum account value applies, (ii) withdrawals may not be for less than $100
and (iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and Distributions."

Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

Withdrawal payments should not be considered as dividends, yield or
income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

Furthermore, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be recognized for federal income tax purposes.
Each shareholder should consult his or her own tax adviser with regard to the
tax consequences of the plan, particularly if used in connection with a
retirement plan.

TAX-DEFERRED RETIREMENT PLANS

Various qualified retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor.

B-25
<PAGE>

These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, and the administration, custodial fees and other details are
available from Prudential Securities or the Transfer Agent.

Investors who are considering the adoption of such a plan should
consult with their own legal counsel or tax adviser with respect to the
establishment and maintenance of any such plan.

TAX-DEFERRED RETIREMENT ACCOUNTS

INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.

TAX-DEFERRED COMPOUNDING(1)

CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
---------- ------- ---
10 years ................................ $ 26,165 $ 31,291
15 years ................................ 44,676 58,649
20 years ................................ 68,109 98,846
25 years ................................ 97,780 157,909
30 years ................................ 135,346 244,692
- ----------
(1) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.

MUTUAL FUND PROGRAMS

From time to time, the Company (or a Fund of the Company) may be
included in a mutual fund program with other Prudential Mutual Funds. Under such
a program, a group of portfolios will be selected and thereafter marketed
collectively. Typically, these programs are created with an investment theme,
e.g., to seek greater diversification, protection from interest rate movements
or access to different management styles. In the event such a program is
instituted, there may be a minimum investment requirement for the program as a
whole. A Fund may waive or reduce the minimum initial investment requirements in
connection with such a program.

The mutual funds in the program may be purchased individually or as a
part of a program. Since the allocation of portfolios included in the program
may not be appropriate for all investors, investors should consult their
Prudential Securities Financial Advisor or Prudential/Pruco Securities
Representative concerning the appropriate blend of portfolios for them. If
investors elect to purchase the individual mutual funds that constitute the
program in an investment ratio different from that offered by the program, the
standard minimum investment requirements for the individual mutual funds will
apply.

B-26
<PAGE>

NET ASSET VALUE

Portfolio securities of each Fund are generally valued as follows: (1)
Securities for which the primary market is on an exchange are valued at the last
sale price on such exchange 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 bid price on such day in the absence of an asked price; (2) Securities that
are actively traded in the OTC market, including listed securities for which the
primary market is believed to be over-the-counter, are valued by an independent
pricing agent or a principal market maker; (3) Securities issued in private
placements are valued at bid prices provided by primary market dealers or, if no
primary dealers are able to provide a bid price, at fair value determined by a
valuation committee of Trustees (the Valuation Committee); (4) U.S. Government
securities for which market quotations are available are valued at a price
provided by an independent broker/dealer or pricing service; (5) 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 reliable market quotations
are readily available, are valued at current market quotations as provided by an
independent broker/dealer or pricing service; (6) Short-term investments with
remaining maturities of 60 days or less are valued at cost with interest accrued
or discount amortized to the date of maturity, unless the Trustees determine
that such valuation does not represent fair value; (7) Options on securities
that are listed on an exchange are valued at the last sales price at the close
of trading on such exchange or, if there was no sale on the applicable options
exchange on such day, at the average of the quoted bid and asked prices as of
the close of such exchange; (8) Futures contracts and options thereon traded on
a commodities exchange or board of trade are valued at the last sale price at
the close of trading on such exchange or board of trade or, if there was no sale
on the applicable commodities exchange or board of trade on such day, at the
average of quoted bid and asked prices as of the close of such exchange or board
of trade; (9) Quotations of foreign securities in a foreign currency shall be
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank, dealer or pricing service; (10) Forward currency exchange
contracts are valued at the current cost of covering or offsetting such
contracts; (11) OTC options are valued at the mean between bid and asked prices
provided by a dealer, with additional prices obtained for comparison, monthly
and as indicated by monitoring of the underlying securities; (12) Securities for
which market quotations are not available, other than private placements, are
valued at a price supplied by a pricing agent approved by the Trustees; (13)
Securities for which reliable market quotations are not available or for which
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
Subadviser, does not represent fair value, are valued by the Valuation Committee
on the basis of cost of the security, transactions in comparable securities,
relationships among various securities and other factors determined by the
Subadviser to materially affect the value of the security. The Company may
engage pricing services to obtain any prices.

Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at the current rate obtained from a recognized bank or
dealer. If such quotations are not available, the rate of exchange will be
determined in good faith by or under procedures established by the Trustees of
the Company.

Trading in securities on European and Pacific securities exchanges and
OTC markets is normally completed well before the close of business on each
business day in New York (i.e., a day on which the NYSE is open for trading). In
addition, European or Pacific securities trading generally or in a particular
country or countries may not take place on all business days in New York.
Furthermore, trading takes place in various foreign markets on days which are
not business days in New York and on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in a Fund's calculation of net asset
values unless, pursuant to procedures adopted by the Trustees, the Subadviser
deems that the particular event would materially affect net asset value, in
which case an adjustment will be made. The New York Stock Exchange is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Holiday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of

B-27
<PAGE>

account, and will be charged with the liabilities in respect to such Fund and
with a share of the general liabilities of the Company. Expenses with respect to
any two or more Funds are to be allocated in proportion to the net asset values
of the respective Funds except where allocations of direct expenses can
otherwise be fairly made.

TAXES, DIVIDENDS AND DISTRIBUTIONS

The following is a brief summary of some of the more important tax
considerations affecting the Company, the Funds and their shareholders. No
attempt is made to present a detailed explanation of all federal, state, local,
and foreign income tax considerations. Neither this discussion nor the tax
discussion in the Prospectuses is intended to substitute for careful individual
tax planning. Accordingly, potential investors are urged to consult their own
tax advisers with specific reference to their own tax situation.

TAX CONSEQUENCES TO THE FUNDS

As a separate entity for federal tax purposes, each Fund intends to
qualify or continue to qualify separately for tax treatment as a regulated
investment company (RIC) under subchapter M of the Internal Revenue Code. If so
qualified, each Fund will not be subject to federal income tax with respect to
its net investment income and net realized capital gains, if any, that are
distributed to its shareholders. In order to qualify for treatment as a RIC,
each Fund will have to meet income diversification, distribution, and certain
other requirements set forth in the Internal Revenue Code. If, in any year, a
Fund should fail to qualify under the Internal Revenue Code for tax treatment as
a RIC, the Fund would incur a regular federal corporate income tax on its
taxable income, if any, for that year.

INCOME AND DIVERSIFICATION REQUIREMENTS. The income tests require each
Fund to (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities, or foreign currencies, or
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (Income Requirement) and (b) diversify its holdings so that, at
the end of each quarter of its taxable year, (i) at least 50% of the value of
the Fund's total assets is represented by cash, U.S. Government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater in value than 5%
of the value of the Fund's total assets and not more than 10% of the outstanding
voting securities, and (ii) not more than 25% of the value of its total assets
is invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other RICs).

DISTRIBUTION REQUIREMENT. Each Fund must distribute (or be deemed to
have distributed) 90% or more of its investment company taxable income
(generally consisting of net investment income, net short-term capital gain, and
net gains from certain foreign currency transactions) for each taxable year.
Each Fund also must meet certain other distribution requirements to avoid a 4%
nondeductible excise tax (these requirements are collectively referred to below
as the "RIC distribution requirements").

ZERO COUPON SECURITIES AND ORIGINAL ISSUE DISCOUNT. The Funds may
invest in zero coupon securities and other securities issued with original issue
discount. Such securities generate current income subject to the distribution
requirements without providing cash available for distribution. The Funds do not
anticipate that such investments will adversely affect their ability to meet the
RIC distribution requirements.

FOREIGN INVESTMENTS. If a Fund purchases shares in certain foreign
corporations called "passive foreign investment companies" (PFICs), the Fund may
be subject to U.S. federal income tax on a portion of any "excess distribution"
or gain from the disposition of such shares even if such income is distributed
as a dividend by the Fund to its shareholders. Because a credit for this tax
could not be passed through to shareholders, the tax effectively would reduce
the Fund's economic return from its PFIC investment. Additional charges in the
nature of interest may be imposed on a PFIC investor in respect of deferred
taxes arising from such distributions or gains. If a Fund were to invest in a
PFIC and elected to treat the PFIC as a "qualified electing fund" under the
Internal Revenue Code, then in lieu of the foregoing tax and interest, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the RIC
distribution requirements. Alternatively, a Fund may make a "mark-to-market"
election with respect to any marketable stock it holds of a PFIC. If the
election is in effect, at the end of the Fund's taxable year, the Fund will
recognize the amount of gains, if any, with respect to PFIC stock. No loss will
be recognized on PFIC stock, except to the extent of gains recognized in prior
years. Management of the Company will consider these potential tax consequences
in evaluating whether to invest in a PFIC.

B-28
<PAGE>

Net investment income or capital gains earned by a Fund's investments
in foreign securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Funds to a reduced rate of tax or exemption from tax
on this related income and gains. It is impossible to determine the effective
rate of foreign tax in advance since the amount and the countries in which the
Funds' assets will be invested are not known. The Funds intend to operate so as
to qualify for treaty-reduced rates of tax where applicable.

CURRENCY FLUCTUATIONS--SECTION 988 GAINS AND LOSSES. Gains or losses
attributable to fluctuations in exchange rates between the time a Fund accrues
dividends, interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities, generally will be treated as
ordinary income or loss. Similarly, gains or losses on the disposition of
foreign currencies or debt securities held by the Fund denominated in a foreign
currency, if any, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates, generally will also be treated as
ordinary income or loss. These gains and losses are referred to under the
Internal Revenue Code as "Section 988" gains and losses.

Furthermore, foreign currency gains and losses attributable to certain
forward contracts, futures contracts that are not "regulated futures contracts,"
equity options and unlisted non-equity options also will be treated as Section
988 gains and losses. (In certain circumstances, however, the Company may elect
capital gain or loss treatment for such transactions.) Section 988 gains and
losses will increase or decrease the amount of the Company's investment company
taxable income available for distribution. The Company does not anticipate that
any Section 988 gains and losses the Fund may realize will adversely affect the
ability of the Fund to qualify as a RIC under the Internal Revenue Code.

OPTION AND FUTURES TRANSACTIONS. The use of hedging strategies, such as
writing (selling) and purchasing options and futures contracts and entering into
forward contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses each
Fund realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in options, futures, and forward contracts derived by a Fund
with respect to its business of investing in stock, securities, or foreign
currencies, will qualify as permissible income under the Income Requirement.

Under Section 1256 of the Internal Revenue Code, gain or loss on
certain options, futures contracts, options on futures contracts (Section 1256
contracts), other than Section 1256 contracts that are part of a "mixed
straddle" with respect to which a Fund has made an election not to have the
following rules apply, will be treated as 60% long-term and 40% short-term
capital gain or loss (blended gain or loss). In addition, Section 1256 contracts
held by a Fund at the end of each taxable year will be required to be treated as
sold at fair market value on the last day of such taxable year for federal
income tax purposes and the resulting gain or loss will be treated as blended
gain or loss and will affect the amount of distributions required to be made by
a Fund in order to satisfy the RIC distribution requirements.

Offsetting positions held by a Fund involving certain futures and
options transactions may be considered to constitute "straddles" which are
subject to special rules under the Internal Revenue Code. Under these rules,
depending on different elections which may be made by the Company, the amount,
timing and character of gain and loss realized by the Company and its
shareholders may be affected.

TAX CONSEQUENCES TO SHAREHOLDERS

Ordinarily, distributions of a RIC's investment company taxable income
would be taxable to shareholders as ordinary income to the extent of the
earnings and profits of the RIC. To the extent that a distribution exceeds the
RIC's earnings and profits, it would be treated as a nontaxable return of
capital to the extent of the shareholder's tax basis in the shares of the RIC.
Distributions of net capital gain ordinarily would be taxable as long-term
capital gains. The rules discussed in this paragraph generally would apply
regardless of the length of time a shareholder holds the shares of the RIC.

The Company's present intention is to offer shares of the Funds
primarily to qualified retirement plans and other tax-exempt investors to whom
the foregoing rules do not apply. The Funds intend to satisfy the RIC
distribution requirements by distributions in the form of additional shares to
its shareholders. However, shareholders may redeem their shares, including
shares received as dividends or distributions, at any time for cash.
Distributions are generally not taxable to the participants in the shareholder
plans. Distributions from a qualified retirement plan to a participant or
beneficiary are subject to special rules. Because the effect of these rules
varies greatly with individual situations, potential investors are urged to
consult their own tax advisers.

TAX CONSEQUENCES TO NON-EXEMPT SHAREHOLDERS. Dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in any of those months are

B-29
<PAGE>

deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders that are not tax-exempt entities for the year in which that
December 31 falls.

If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Non-exempt investors also should be aware that if shares are purchased shortly
before the record date for a dividend or other distribution, the purchaser will
receive some portion of the purchase price back as a taxable distribution.

Any loss realized on a sale, redemption or exchange of shares of a Fund
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

PERFORMANCE INFORMATION

From time to time, the Company may quote a Fund's yield or total return
in advertisements or in advertisements, sales literature, reports and other
communications to shareholders.

AVERAGE ANNUAL TOTAL RETURN

A Fund may from time to time advertise its average annual total return.
Average annual total return is determined separately for Class Z and Class I
shares. See "How the Fund Calculates Performance" or "How Each Fund Calculates
Performance" in the Prospectus.

A Fund's "average annual total return" is computed according to a
formula prescribed by the SEC, expressed as follows:

P(1+T)(superior n) = ERV

Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value (ERV) at the end of a 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year period.

Average annual total return takes into account any applicable initial
or contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.

The average annual total return for the Class Z shares of Prudential
Stock Index Fund for the fiscal year ended September 30, 1997 and for the period
from commencement of operations (November 5, 1992) through September 30, 1997
was: 39.3% and 20.4%, respectively. The average annual total return for Class I
shares of Prudential Stock Index Fund for the period ended September 30, 1997
was 0.0%. The average annual total return for the Class Z shares of Prudential
Pacific Index Fund for the fiscal period from commencement of operations
(September 24, 1997) through September 30, 1997 was (1.20)% (annualized). No
shares of Prudential Small-Cap Index Fund, Prudential Bond Market Index Fund and
Prudential Europe Index Fund were outstanding during these periods.

B-30
<PAGE>

AGGREGATE TOTAL RETURN

A Fund may also advertise its aggregate total return. Aggregate total
return is determined separately for Class Z and Class I shares. See "How Each
Fund Calculates Performance" in the Prospectus.

A Fund's aggregate total return represents the cumulative change in the
value of an investment in the Fund for the specified period and is computed by
the following formula:

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value (ERV) at the end of a 1-, 5- or
10-year period (or fractional portion thereof) of a hypothetical
$1,000 investment made at the beginning of a 1-, 5- or 10-year
period assuming reinvestment of all dividends and distributions
and the effect of the maximum annual fee for participation in the
Company.

The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period.

Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.

A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities. The aggregate total return for the period from
commencement of operations (September 24, 1997) through September 30, 1997 for
Class Z shares of Prudential Pacific Index Fund was (1.2%). The aggregate total
returns for the one year and since inception periods ended September 30, 1997.
For Prudential Stock Index Fund's Class Z shares were 39.3% and 148.5%,
respectively. The aggregate total return for Class I shares of Prudential Stock
Index Fund for the period from commencement of offering such shares (August 1,
1997) through September 30, 1997 was 0.0%. No shares of Prudential Bond Market
Index Fund, Prudential Europe Index Fund or Prudential Small-Cap Index Fund were
outstanding during these periods.

From time to time, the performance of a Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)

[CHART]

Performance Comparison of Different
Types of Investments Over the Long Term
(4/1926 - 9/1997)
- --------------------------------------------------------------------------------
Common Stocks - 11.0%
Long-Term Gov't. Bonds - 5.1%
Inflation - 3.1%

- ----------
(1) Source: Ibbotson Associates Stocks, Bonds, Bills and Inflation--1997
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard and Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used indicator
of broad stock price movements. This chart is for illustrative purposes only and
is not intended to represent the performance of any particular investment or
fund. Investors cannot invest directly in an index. Past performance is not a
guarantee of future results.

B-31
<PAGE>

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Company's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Company. Subcustodians provide
custodial services for a Fund's foreign assets held outside the United States.
See "How the Fund is Managed--Custodian and Transfer and Dividend Disbursing
Agent" in the Prospectus.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison,
New Jersey 08837 serves as the Transfer and Dividend Disbursing Agent of each
Fund. PMFS is a wholly owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Company, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including, but not limited to,
postage, stationery, printing, allocable communications expenses and other
costs. For the fiscal year ended September 30, 1997, the Company incurred fees
of approximately $367,000 for the services of PMFS.

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, currently serves as the Company's independent accountants and in that
capacity audits the Funds' annual financial statements.

B-32
<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--98.2%
COMMON STOCKS--97.9%
- ------------------------------------------------------------
Australia--6.8%

6,600 Amcor Ltd. (Paper & Packaging) $ 41,527
3,000 Australian Gas & Light Co. (Natural
Gas Utilities) 20,377
7,600 Australian National Industries Ltd.
(Diversified Industries) 9,741
11,600 Boral Ltd. (Building Materials &
Products) 35,120
2,300 Brambles Industries Ltd.
(Transportation) 47,883
19,800 Broken Hill Proprietary Co., Ltd.
(Mining) 230,553
8,500 Coca-Cola Amatil Ltd. (Food &
Beverage) 90,905
11,800 Coles Myer Ltd. (Retail) 55,541
7,100 Crown Ltd.(a) (Gaming) 8,483
10,300 CSR Ltd. (Building Materials &
Products) 42,216
2,800 Email Ltd. (Appliances & Household
Durables) 9,388
1,200 F. H. Faulding Co., Ltd. (Drugs &
Health Care) 7,169
20,000 Fosters Brewing Group (Diversified
Industries) 42,145
4,600 Futuris Corp., Ltd. (Diversified
Industries) 6,779
11,700 General Property Trust (Real Estate) 22,824
6,100 GIO Australia Holdings Ltd.
(Insurance) 18,111
12,600 Goodman Fielder Ltd. (Food
Processing) 20,347
2,300 Great Central Mines Ltd. (Mining) 3,548
4,000 Hardie (James) Industries (Building
Materials & Products) 14,781
2,700 ICI Australia Ltd. (Diversified
Industries) 25,691
2,700 Leighton Holdings Ltd. (Building &
Construction) 14,273
2,500 Lend Lease Corp. Ltd. (Real Estate) 59,363
16,500 M.I.M. Holdings Ltd. (Mining) 20,192
14,500 National Australia Bank Ltd.
(Commercial Banking) 222,809
2,300 Newcrest Mining Ltd.(a) (Precious
Metals) 4,130
20,500 News Corp., Ltd. (Broadcasting &
Other Media) 105,056
16,600 Normandy Mining Ltd. (Mining) 21,036
7,200 North Ltd. (Diversified Resources) 25,417
10,400 Pacific Dunlop Ltd. (Diversified
Industries) $ 29,522
9,200 Pioneer International Ltd. (Building
Materials & Products) 31,272
1,800 Plutonic Resources Ltd. (Precious
Metals) 4,940
2,900 QBE Insurance Group Ltd. (Insurance) 18,251
6,300 QCT Resources Ltd. (Mining) 7,482
2,100 RGC Ltd. (Mining) 5,833
3,300 Rio Tinto Ltd. (Mining) 49,585
1,200 Rothmans Holdings (Tobacco) 6,769
6,200 Santos Ltd. (Oil & Gas) 31,876
4,000 Schroders Propriety Fund (Real
Estate) 7,041
1,800 Smith (Howard) Ltd. (Diversified
Industries) 17,662
6,200 Southcorp Holdings Ltd. (Diversified
Industries) 22,897
3,100 Stockland Trust Group (Real Estate) 8,238
3,000 Tabcorp Holdings Ltd. (Gaming) 15,207
12,000 Westfield Trust (Real Estate) 24,253
11,600 Western Mining Corp. Holdings Ltd.
(Diversified Resources) 54,432
17,600 Westpac Banking Corp. (Commercial
Banking) 110,880
------------
1,671,545

- ------------------------------------------------------------
Hong Kong--9.4%

13,000 Bank of East Asia (Commercial
Banking) 48,549
35,000 Cathay Pacific Air (Airlines) 49,073
22,000 Cheung Kong Ltd. (Real Estate) 247,334
25,000 China Light & Power Co. Ltd.
(Electrical Utilities) 137,623
20,000 Chinese Estates Holdings (Real
Estate) 18,091
3,000 Dickson Concept Inc. (Retail) 11,184
11,000 Hang Lung Development Co. (Real
Estate) 20,682
19,000 Hang Seng Bank Ltd. (Commercial
Banking) 233,863
35,000 Hong Kong & China Gas Co. (Natural
Gas Utilities) 72,139
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-33

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Hong Kong (cont'd.)

11,000 Hong Kong & Shanghai Hotels (Hotels &
Restaurants) $ 13,362
2,000 Hong Kong Aircraft Engineering Co.
Ltd. (Aircrafts and Parts) 6,487
120,000 Hong Kong Telecommunications Ltd.
(Telecommunications) 271,370
44,000 Hopewell Holdings Ltd. (Real Estate) 26,723
38,000 Hutchison Whampoa Ltd. (Diversified
Industries) 374,426
9,000 Hysan Development Co. (Real Estate) 26,924
4,000 Johnson Electric Holdings Ltd.
(Electronic Components) 10,907
4,000 Kumagai Gumi Ltd. (Building &
Construction) 5,815
6,000 Miramar Hotel & Investment Co.
(Hotels & Restaurants) 15,313
19,000 New World Development Co., Ltd.
(Building & Construction) 114,906
14,000 Oriental Press Group (Printing &
Publishing) 4,523
6,000 Peregrine Investments (Financial
Services) 10,196
38,000 Regal Hotel International (Hotels &
Restaurants) 9,821
16,000 Shangri La Asia Ltd. (Hotels &
Restaurants) 16,437
14,000 Shun Tak Holdings. Ltd.
(Transportation) 8,955
32,000 Sino Land Co. (Real Estate) 29,566
14,000 South China Morning Post (Printing &
Publishing) 12,754
24,000 Sun Hung Kai Properties Ltd. (Real
Estate) 282,225
16,000 Swire-Pacific Ltd. 'A' (Diversified
Industries) 122,504
4,000 Television Broadcasts Ltd.
(Broadcasting & Other Media) 14,163
23,000 Wharf Holdings Ltd. (Real Estate) 84,706
2,000 Wing Lung Bank (Commercial Banking) 11,863
------------
2,312,484

- ------------------------------------------------------------
Japan--75.3%

4,000 77th Bank(a) (Commercial Banking) 40,752
1,300 Acom Co., Ltd. (Financial Services) 67,730
900 Advantest Corp. (Electronics) $ 88,710
7,000 Ajinomoto Co., Inc. (Food Processing) 61,459
2,000 Alps Electric Co. (Electronics) 22,530
3,000 Amada Co. (Machinery & Equipment) 17,369
1,000 Amano Corp. (Electrical Equipment) 8,946
700 Aoyama Trading Co., Ltd. (Retail) 20,061
500 Arabian Oil Co.(a) (Oil & Gas) 13,874
23,000 Asahi Bank (Commercial Banking) 133,355
5,000 Asahi Breweries (Food & Beverages) 80,345
15,000 Asahi Chemical Ltd. Industries
(Chemicals) 75,665
12,000 Asahi Glass Co. (Glass Products) 93,233
5,000 Ashikaga Bank (Commercial Banking) 13,667
200 Autobacs Seven Co. (Retail) 9,360
46,000 Bank of Tokyo, Mitsubishi Bank
(Commercial Banking) 876,335
11,000 Bank of Yokohama (Commercial Banking) 43,734
8,000 Bridgestone Corp. (Tires & Rubber) 192,164
3,000 Brother Industries Ltd. (Office
Equipment & Supplies) 8,076
9,000 Canon, Inc. (Office Equipment &
Supplies) 263,149
3,000 Casio Computer Co. (Electronics) 26,837
7,000 Chiba Bank (Commercial Banking) 32,353
6,000 Chichibu Onoda Cement Corp. (Building
& Construction) 16,251
2,000 Chiyoda Corp. (Engineering &
Construction) 4,672
2,000 Chugai Pharmacy Co. (Drugs & Health
Care) 17,229
3,000 Citizen Watch Co. (Retail) 22,066
5,000 Cosmo Oil Co. (Oil & Gas) 11,679
1,500 Credit Saison Co. Ltd. (Financial
Services) 40,752
500 CSK Corp. (Computer Software &
Services) 16,483
8,000 Dai Nippon Printing Co., Ltd.
(Printing) 170,960
4,000 Daicel Chemical Industries
(Chemicals) 10,238
4,000 Daido Steel Co. (Iron & Steel) 7,786
7,000 Daiei Inc. (Retail) 38,615
1,000 Daifuku Co. (Machinery & Equipment) 7,049
3,000 Daiichi Pharmaceutical Co. (Drugs &
Health Care) 44,231
3,000 Daikin Industries (Electrical
Equipment) 18,910
2,000 Daikyo Inc. (Building & Construction) 2,352
3,000 Daimaru Inc. (Retail) 12,176
8,000 Dainippon Ink & Chemicals Inc.
(Chemicals) 27,831
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-34

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)

2,000 Dainippon Screen Manufacturing Co.,
Ltd. (Electronic Components) $ 17,726
1,000 Daito Trust Construction Co., Ltd.
(Real Estate) 10,437
5,000 Daiwa House Industries (Building &
Construction) 49,698
2,000 Daiwa Kosho Lease Co., Ltd. (Real
Estate) 11,215
14,000 Daiwa Securities Co., Ltd. (Financial
Services) 85,811
5,000 Denki Kagaku Kogyo K.K. (Chemicals) 8,780
9,000 Denso Corp. (Automobiles & Auto
Parts) 218,421
40 East Japan Railway Co. (Railroads) 187,526
3,000 Ebara Corp. (Machinery) 39,261
3,000 Eisai Co., Ltd. (Drugs & Health Care) 53,673
1,000 Ezaki Glico Co. (Food & Beverages) 7,496
2,200 Fanuc Ltd. (Electronic Components) 83,641
29,000 Fuji Bank (Commercial Banking) 319,473
5,000 Fuji Photo Film Co. (Hotels &
Leisure) 206,245
3,000 Fujikura Ltd. (Electrical Equipment) 21,445
5,000 Fujita Corp. (Construction) 3,189
1,000 Fujita Kanko Inc. (Hotels &
Restaurants) 10,768
19,000 Fujitsu Ltd.(Computers) 237,638
7,000 Furukawa Electric Co. Ltd.
(Electrical Equipment) 35,078
1,000 Gakken Co. (Printing & Publishing) 3,272
5,000 Gunma Bank (Commercial Banking) 42,657
2,000 Gunze Ltd. (Retail) 6,312
9,000 Hankyu Corp. (Railroads) 44,877
2,000 Hankyu Department Stores (Retail) 16,566
3,000 Higo Bank (Commercial Banking) 18,512
300 Hirose Electric Co., Ltd.
(Electronics) 22,091
10,000 Hitachi Zosen Corp. (Engineering &
Equipment) 23,192
33,000 Hitachi Ltd. (Electronics) 287,004
6,000 Hokuriku Bank (Commercial Banking) 16,549
10,000 Honda Motor Co., Ltd. (Automobiles) 348,712
1,000 House Food Corp. (Food Processing) 16,980
1,000 Hoya Corp. (Optical Supplies) 33,712
2,000 Inax Corp. (Building Materials &
Products) 9,608
25,000 Indonesia Bank (Commercial Banking) 310,610
2,000 Isetan Co. (Retail) 19,216
3,000 Ishihara Sangyo Kaisha(a) (Chemicals) $ 5,839
4,000 Ito Yokado Co. (Retail) 216,682
15,000 Itochu Corp. (Wholesale) 51,934
2,000 Itoham Foods Inc. (Food Processing) 7,786
2,000 Iwatani International Corp.(a)
(Wholesale) 5,351
1,000 Jaccs Co., Ltd. (Financial Services) 5,699
18,000 Japan Air Lines Co.(a) (Airlines) 65,452
11,000 Japan Energy Corp. (Oil & Gas) 17,949
4,000 Japan Steel Works (Machinery &
Equipment) 4,141
2,000 JGC Corp. (Engineering &
Construction) 6,411
9,000 Joyo Bank (Commercial Banking) 45,772
3,000 Jusco Co. (Retail) 68,334
10,000 Kajima Corp. (Building &
Construction) 43,982
3,000 Kamigumi Co., Ltd. (Transportation) 11,927
2,000 Kandenko Co. (Electrical Equipment) 12,342
5,000 Kanebo Ltd.(a) (Textiles) 5,674
4,000 Kaneka Corp. (Chemicals) 25,511
9,000 Kansai Electrical Power (Electrical
Utilities) 160,275
3,000 Kansai Paint Co. (Chemicals) 7,653
6,000 Kao Corp. (Cosmetics & Toiletries) 86,971
1,000 Katokichi Co. (Food & Beverages) 16,400
13,000 Kawasaki Heavy Industries (Machinery
& Equipment) 44,902
6,000 Kawasaki Kisen Kaisha Ltd.
(Transportation) 6,560
33,000 Kawasaki Steel Corp. (Iron & Steel) 63,141
5,000 Keihin Electric Express Railway Co.,
Ltd. (Railroads) 20,707
2,000 Kikkoman Corp. (Food Processing) 11,845
3,000 Kinden Corp. (Electrical Equipment) 39,758
17,000 Kinki Nippon Railway (Railroads) 97,018
11,000 Kirin Brewery Co. (Food & Beverages) 90,566
1,000 Kissei Pharmaceutical Co., Ltd.
(Drugs & Health Care) 16,235
1,000 Kokuyo Co. (Office Equipment &
Supplies) 23,689
10,000 Komatsu Ltd. (Machinery & Equipment) 55,910
1,000 Komori Corp. (Machinery & Equipment) 20,873
200 Konami Co. (Computer Software &
Services) 6,129
4,000 Konica Corp. (Photography) 21,337
2,000 Koyo Seiko Co. (Automobiles & Auto
Parts) 12,209
14,000 Kubota Corp. (Machinery & Equipment) 54,502
</TABLE>

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

See Notes to Financial Statements. B-35

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>

- ------------------------------------------------------------
Japan (cont'd.)

7,000 Kumagai Gumi Co.(a) (Building &
Construction) $ 5,740
3,000 Kurabo Industries (Textiles) 4,572
3,000 Kuraray Co. (Chemicals) 26,340
2,000 Kureha Chemical Industry Co. Ltd. Co.
(Chemicals) 5,367
1,000 Kurita Water Industries (Machinery &
Equipment) 19,962
1,800 Kyocera Corp. (Electronics) 117,634
4,000 Kyowa Hakko Kogyo Co. Ltd. (Drugs &
Health Care) 21,370
1,000 Kyudenko Co. Ltd. (Engineering &
Equipment) 5,715
3,000 Lion Corp. (Cosmetics & Toiletries) 10,760
1,000 Maeda Road Construction Co. (Building
& Construction) 6,055
1,000 Makino Milling Machine (Machinery &
Equipment) 5,177
2,000 Makita Corp. (Electrical Equipment) 27,334
15,000 Marubeni Corp. (Wholesale) 49,698
3,000 Maruha Corp. (Food Processing) 5,492
4,000 Marui Co.(a) (Retail) 65,932
22,000 Matsushita Electric Industrial Co.,
Ltd. (Appliances & Household
Durables) 397,250
3,000 Meiji Milk Product Co., Ltd. (Food
Processing) 9,890
4,000 Meiji Seika Kaisha (Food & Beverages) 17,394
4,000 Minebea Co.(a) (Electronic
Components) 44,397
1,000 Misawa Homes Co. (Building &
Construction) 3,595
23,000 Mitsubishi Chemical Corp. (Chemicals) 53,152
16,000 Mitsubishi Corp. (Wholesale) 155,057
22,000 Mitsubishi Electric Corp.
(Electronics) 86,557
13,000 Mitsubishi Estate Co., Ltd. (Real
Estate) 189,514
5,000 Mitsubishi Gas Chemicals Co.
(Chemicals) 17,974
33,000 Mitsubishi Heavy Industries Ltd.
(Engineering & Construction) 180,676
2,000 Mitsubishi Logistics Corp.
(Warehousing) 23,192
12,000 Mitsubishi Materials Corp.
(Metals-Non Ferrous) 35,981
5,000 Mitsubishi Oil Co. (Oil & Gas) 13,418
3,000 Mitsubishi Paper Mills (Paper &
Packaging) $ 7,355
6,000 Mitsubishi Rayon Co. (Chemicals) 19,332
13,000 Mitsubishi Trading & Banking
(Commercial Banking) 202,435
16,000 Mitsui & Co. (Wholesale) 125,768
8,000 Mitsui Engineering & Shipbuilding
Co., Ltd.(a) (Engineering &
Construction) 10,271
8,000 Mitsui Fudosan Co., Ltd. (Real
Estate) 97,407
7,000 Mitsui Marine & Fire Insurance Co.,
Ltd. (Insurance) 40,586
5,000 Mitsui Mining & Smelting Co.
(Metals-Non Ferrous) 21,494
11,000 Mitsui O.S.K. Lines (Transportation) 14,031
1,000 Mitsui Soko Co. (Warehousing) 4,390
11,000 Mitsui Trust & Banking Co.
(Commercial Banking) 54,759
5,000 Mitsukoshi Ltd. (Retail) 24,890
1,000 Mori Seiki Co. (Machinery &
Equipment) 11,679
2,000 Murata Manufacturing Co., Ltd.
(Electronics) 86,474
3,000 Mycal Corp. (Retail) 33,297
2,000 Nagase & Co. (Wholesale) 9,774
8,000 Nagoya Railroad Co. (Railroads) 28,692
400 Namco Ltd. (Gaming) 14,711
5,000 Nankai Electric Railway Co.
(Railroads) 23,772
16,000 NEC Corp. (Electronics) 194,815
4,000 NGK Insulators Ltd. (Diversified
Industries) 37,439
2,000 NGK Spark Plug Co. (Automobiles &
Auto Parts) 17,891
4,000 Nichido Fire & Marine Insurance
(Insurance) 26,174
3,000 Nichirei Corp. (Food Processing) 8,796
3,000 Nihon Cement Co. (Building &
Construction) 8,324
4,000 Nikon Corp. (Photography) 62,950
1,000 Nippon Comsys Corp. (Engineering &
Equipment) 13,004
11,000 Nippon Express Co., Ltd.
(Transportation) 64,143
6,000 Nippon Fire & Marine Insurance
(Insurance) 26,290
5,000 Nippon Light Metal Co., Ltd.
(Metals-Non Ferrous) 11,141
</TABLE>

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

See Notes to Financial Statements. B-36

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)

2,000 Nippon Meat Packers, Inc. (Food
Processing) $ 26,505
13,000 Nippon Oil Co. (Oil & Gas) 53,193
10,000 Nippon Paper Industries Co. (Paper &
Packaging) 54,833
1,000 Nippon Sharyo Ltd. (Machinery &
Equipment) 3,653
4,000 Nippon Sheet Glass Co. (Glass
Products) 8,415
3,000 Nippon Shinpan Co. (Financial
Services) 6,063
2,000 Nippon Shokubai Co. (Chemicals) 12,308
66,000 Nippon Steel Corp. (Iron & Steel) 145,415
3,000 Nippon Suisan Kaisha(a) (Food
Processing) 4,672
128 Nippon Telegraph & Telephone Corp.
(Telecommunications) 1,176,841
12,000 Nippon Yusen K.K. (Transportation) 40,255
3,000 Nishimatsu Construction Co. (Building
& Construction) 16,649
26,000 Nissan Motor Co., Ltd. (Automobiles) 155,057
2,000 Nisshinbo Industries, Inc. (Textiles) 13,236
1,000 Nissin Food Products Co., Ltd. (Food
Processing) 23,358
1,000 Nitto Denko Corp. (Electronics) 18,719
36,000 NKK Corp. (Iron & Steel) 48,306
2,000 NOF Corp. (Diversified Industries) 4,522
20,000 Nomura Securities Co., Ltd.
(Financial Services) 260,084
2,000 Noritake Co. (Appliances & Household
Durables) 12,507
6,000 NSK Ltd. (Machinery & Equipment) 25,644
5,000 NTN Corp. (Machinery & Equipment) 20,252
8,000 Obayashi Corp. (Building &
Construction) 48,306
7,000 Odakyu Electric Railway (Railroads) 34,962
11,000 Oji Paper Co. (Paper & Packaging) 49,201
1,000 Okuma Corp. (Machinery & Equipment) 4,986
2,000 Okumura Corp. (Building &
Construction) 10,321
3,000 Olympus Optical Co. (Photography) 20,152
3,000 Omron Corp. (Electronics) 62,868
2,000 Onward Kashiyama & Co., Ltd.
(Apparel) 28,825
3,000 Orient Corp. (Financial Services) $ 6,610
600 Orix Corp. (Financial Services) 45,622
26,000 Osaka Gas Co. (Natural Gas Utilities) 62,023
100 Oyo Corp. (Business Services) 2,742
4,000 Penta-Ocean Construction (Building &
Construction) 8,415
2,000 Pioneer Electronic Corp. (Appliances
& Household Durables) 42,574
2,000 Q.P. Corp. (Financial Services) 14,081
3,000 Renown Inc. (Apparel) 3,454
1,000 Rohm Co., Ltd. (Electronics) 117,618
34,000 Sakura Bank (Commercial Banking) 162,495
1,000 Sanden Corp. (Automobiles & Auto
Parts) 7,090
2,000 Sankyo Aluminium Industry Co.
(Building & Construction) 3,114
5,000 Sankyo Co. (Drugs & Health Care) 173,114
1,000 Sanrio Co.(a) (Entertainment) 6,875
2,000 Sanwa Shutter Corp. (Building &
Construction) 14,247
20,000 Sanyo Electric Co. (Appliances &
Household Durables) 61,294
3,000 Sapporo Breweries (Food & Beverages) 19,978
1,000 Secom Co., Ltd. (Business Services) 67,506
1,000 Sega Enterprises Ltd. (Electronics) 29,404
1,000 Seino Transportation Co.
(Transportation) 9,028
2,000 Seiyu Ltd. (Retail) 8,349
6,000 Sekisui Chemical Corp., Ltd.
(Building Materials & Products) 45,175
7,000 Sekisui House Ltd. (Building &
Construction) 66,678
12,000 Sharp Corp. (Appliances & Household
Durables) 109,335
500 Shimachu Co. (Retail) 10,726
1,000 Shimano Inc. (Machinery & Equipment) 23,192
8,000 Shimizu Corp. (Building &
Construction) 35,782
4,000 Shin-Etsu Chemical Co., Ltd.
(Chemicals) 109,997
4,000 Shionogi & Co. (Drugs & Health Care) 24,882
4,000 Shiseido Co., Ltd. (Cosmetics &
Toiletries) 64,276
8,000 Shizuoka Bank (Commercial Banking) 85,480
11,000 Showa Denko KK (Chemicals) 18,860
1,000 Skylark Co. (Hotels & Restaurants) 12,673
600 SMC Corp. (Machinery & Equipment) 57,152
</TABLE>

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

See Notes to Financial Statements. B-37

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)

3,000 Snow Brand Milk Products (Food
Processing) $ 9,790
3,900 Sony Corp. (Appliances & Household
Durables) 368,260
31,000 Sumitomo Bank (Commercial Banking) 467,324
17,000 Sumitomo Chemical Co., Ltd.
(Chemicals) 62,379
11,000 Sumitomo Corp. (Wholesale) 82,001
7,000 Sumitomo Electric Industries
(Electrical Equipment) 100,306
2,000 Sumitomo Forestry Co., Ltd.
(Diversified Industries) 15,738
6,000 Sumitomo Heavy Industries Ltd.
(Engineering & Construction) 15,953
7,000 Sumitomo Marine & Fire Insurance Co.
(Insurance) 48,414
32,000 Sumitomo Metal Industries(a) (Iron &
Steel) 66,529
6,000 Sumitomo Metal Mining Co. (Precious
Metals) 32,105
5,000 Sumitomo Osaka Cement Co. (Building
Materials & Products) 9,567
10,000 Taisei Corp. (Construction) 37,356
4,000 Taisho Pharmacy Co., Ltd. (Drugs &
Health Care) 105,690
1,000 Taiyo Yuden Co. (Diversified
Industries) 11,182
2,000 Takara Shuzo Co. (Food & Beverages) 10,685
1,000 Takara Standard Co., Ltd. (Building &
Construction) 7,107
3,000 Takashimaya Co. (Retail) 30,813
9,000 Takeda Chemical Industries (Drugs &
Health Care) 269,858
1,000 Takuma Co. Ltd. (Building &
Construction) 9,940
10,000 Teijin Ltd. (Chemicals) 31,475
3,000 Teikoku Oil Co. (Oil & Gas) 10,337
2,000 Toa Corp. (Building & Construction) 4,108
9,000 Tobu Railway Co. (Railroads) 37,050
1,000 Toei Co. (Entertainment) 4,995
100 Toho Co. (Entertainment) 13,501
5,000 Tohoku Electric Power Co.,
Inc.(Electrical Utilities) 80,759
21,000 Tokai Bank (Commercial Banking) $ 173,768
16,000 Tokio Marine & Fire Insurance Co.
(Insurance) 192,164
2,000 Tokyo Broadcasting System Inc.
(Broadcasting & Other Media) 35,285
2,000 Tokyo Dome Corp. (Entertainment) 19,382
13,200 Tokyo Electric Power Co. (Electrical
Utilities) 253,657
2,000 Tokyo Electron Ltd. (Electronics) 122,091
29,000 Tokyo Gas Co. (Natural Gas Utilities) 68,699
1,400 Tokyo Steel Manufacturing Co. (Iron &
Steel) 9,915
1,000 Tokyo Style Co. (Apparel) 10,022
2,000 Tokyo Tatemono Co., Ltd. (Real
Estate) 8,068
3,000 Tokyotokeiba Co. (Gaming) 5,516
11,000 Tokyu Corp. (Transportation) 52,845
7,000 Toppan Printing Co. (Printing &
Publishing) 96,828
15,000 Toray Industries Inc. (Chemicals) 88,586
5,000 Tosoh Corp. (Chemicals) 10,561
2,000 Tostem Corp. (Building Materials &
Products) 31,807
4,000 Toto Ltd. (Building Materials &
Products) 40,752
2,000 Toyo Engineering (Engineering &
Construction) 4,473
2,000 Toyo Seikan Kaisha (Containers) 34,954
7,000 Toyobo Co. (Textiles) 11,132
3,000 Toyoda Auto Loom Works Ltd.
(Machinery & Equipment) 59,637
38,000 Toyota Motor Corp. (Automobiles) 1,164,582
2,000 Tsubakimoto Chain Co. (Machinery &
Equipment) 8,150
8,000 Ube Industries Ltd. (Chemicals) 16,168
600 Uni-Charm Corp. (Paper & Packaging) 18,835
5,000 Unitika Ltd.(a) (Chemicals) 5,384
2,000 Uny Co. (Retail) 30,150
2,000 Wacoal Corp. (Apparel) 22,033
2,000 Yamaguchi Bank (Commercial Banking) 28,328
2,000 Yamaha Corp. (Entertainment) 31,144
12,000 Yamaichi Securities Co. (Financial
Services) 24,650
3,000 Yamanouchi Pharmaceutical Co., Ltd.
(Drugs & Health Care) 74,050
4,000 Yamato Transport Co. (Transportation) 49,035
</TABLE>

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

See Notes to Financial Statements. B-38

<PAGE>

Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)

2,000 Yamazaki Baking Co (Food Processing) $ 27,665
10,000 Yasuda Trust & Banking(a) (Commercial
Banking) 29,487
3,000 Yokogawa Electric Corp. (Electronic
Components) 16,276
------------
18,590,370

- ------------------------------------------------------------
Malaysia--3.1%

4,000 AMMB Holdings Berhad (Commercial
Banking) 10,489
10,000 Amsteel Corp. (Iron & Steel) 4,411
9,000 Berjaya Group Berhad (Diversified
Industries) 4,637
6,000 Berjaya Land Berhad (Real Estate) 8,070
8,000 Commerce Asset Holdings (Commercial
Banking) 8,983
2,000 Edaran Otomobil Nasional Berhad
(Automobiles) 8,021
5,000 Ekran Berhad (Building &
Construction) 6,571
10,000 Golden Hope Plants (Agriculture) 14,561
3,000 Guinness Anchor Berhad (Food &
Beverages) 4,627
6,000 Highlands & Lowlands (Agriculture) 7,515
2,000 Hong Leong Industries Berhad
(Diversified Industries) 4,134
7,000 Hong Leong Properties Berhad (Real
Estate) 4,794
2,000 Hume Industries Berhad (Building &
Construction) 4,319
6,000 Idris Hydraulic Berhad(a) (Appliances
& Household Durables) 3,813
9,000 Ioi Corp. (Agriculture) 9,107
3,000 Jaya Tiasa Holdings (Diversified
Industries) 8,283
4,000 Kedah Cement Holdings Berhad
(Building Materials & Products) 3,640
7,000 Kuala Lumpur Kepong Berhad
(Agriculture) 17,276
5,000 Land & General Berhad (Diversified
Industries) 3,224
4,000 Leader Universal Holdings (Wire &
Cable) $ 3,208
16,000 Magnum Corp. Berhad (Entertainment) 14,067
11,000 Malayan Banking Berhad (Commercial
Banking) 55,313
4,000 Malayan Cement Holdings Berhad Class
B (Building Materials & Products) 4,122
13,000 Malayan United Industries (Financial
Services) 5,695
8,000 Malayasian Airline System (Airlines) 12,833
10,000 Malayasian International Shipping
Corp. (Transportation) 19,127
8,000 Malaysian Mining Corp. Berhad
(Mining) 5,972
1,000 Malaysian Oxygen Berhad (Chemicals) 3,702
2,000 Malaysian Pacific Industries
(Diversified Services) 7,157
10,000 Malaysian Resources Corp. (Real
Estate) 8,730
8,000 MBF Capital Berhad (Financial
Companies) 6,663
8,000 Metroplex Berhad (Real Estate) 5,281
8,000 Mulpha Intl. Berhad (Wholesale) 3,381
8,000 Multi-Purpose Holdings Berhad
(Diversified Industries) 5,972
4,000 Mycom Berhad (Real Estate) 3,196
2,000 Nestle Malay Berhad (Food Processing) 11,785
2,000 New Straits Times 'A' Berhad
(Printing & Publishing) 6,047
2,000 Oriental Holdings Berhad
(Automobiles) 8,144
8,000 Pan-Malaysia Cement Works Berhad
(Building & Construction) 7,355
4,000 Perlis Plantations Berhad (Food
Processing) 8,638
6,000 Perusahaan Otomobil Nasional(a)
(Automobiles) 16,751
17,000 Public Bank Berhad (Commercial
Banking) 14,737
3,000 Rashid Hussain Berhad (Financial
Services) 6,895
12,000 Resorts World Berhad (Entertainment) 26,284
15,000 RHB Capital Berhad (Commercial
Banking) 17,769
3,000 RJ Reynolds Berhad (Tobacco) 5,136
3,000 Rothmans Pall Mall Berhad (Tobacco) 24,294
</TABLE>

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

See Notes to Financial Statements. B-39

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Malaysia (cont'd.)
3,000 Shell Refining Co. (Oil & Gas) $ 7,219
24,000 Sime Darby Berhad (Diversified
Industries) 49,976
4,000 Sungei Way Holdings (Mining) 3,677
7,000 Ta Enterprise Berhad (Financial
Services) 4,125
7,000 Tan Chong Motor Holdings
(Automobiles) 5,766
8,000 Technology Resources Industries
Berhad (Telecommunications) 9,724
30,000 Telekom Malaysia Berhad
(Telecommunications) 91,160
32,000 Tenaga Nasional Berhad (Electrical
Utilities) 86,378
7,000 Time Engineering Berhad (Building &
Construction) 4,945
3,000 UMW Holdings Berhad (Machinery &
Equipment) 6,016
8,000 United Engineers Malaysia Berhad
(Building & Construction) 25,667
13,000 YTL Corp. (Diversified Industries) 16,363
------------
765,745
- ------------------------------------------------------------
New Zealand--0.8%
27,900 Brierley Investments Ltd.
(Diversified Industries) 24,107
16,000 Carter Holt Harvey Ltd. (Diversified
Resources) 34,716
3,300 Fletcher Challenge Buildings
(Building Materials & Products) 10,772
3,400 Fletcher Challenge Energy (Oil & Gas) 15,363
8,000 Fletcher Challenge Forestry Ltd.
(Diversified Resources) 9,985
6,700 Fletcher Challenge Paper (Paper &
Packging) 13,208
5,500 Lion Nathan Ltd. (Food & Beverages) 13,447
18,000 Telecom Corp. of New Zealand
(Telecommunications) 91,244
------------
212,842
- ------------------------------------------------------------
Singapore--2.5%
8,000 City Developments Ltd. (Real Estate) 51,764
1,000 Creative Technology Ltd.(a)
(Electronic Components) 26,340
2,000 Cycle & Carriage Ltd.(a)
(Automobiles) 12,091
10,000 DBS Land Ltd. (Real Estate) 24,313
4,000 Development Bank of Singapore Ltd.
(Commercial Banking) 40,784
3,000 First Capital Corp. (Real Estate) $ 6,706
3,000 Fraser & Neave Ltd. (Food &
Beverages) 17,157
4,000 Hotel Properties Ltd. (Hotels &
Restaurants) 4,941
2,000 Inchcape Berhad (Automobiles) 6,993
1,000 Jurong Shipyard Ltd. (Engineering &
Construction) 4,444
8,000 Keppel Corp., Ltd. (Engineering &
Construction) 31,895
3,000 Natsteel Ltd. (Iron & Steel) 8,196
7,000 Neptune Orient Lines Ltd.
(Transportation) 5,444
1,000 Overseas Union Enterprises (Hotels &
Restaurants) 3,987
9,000 Overseas Chinese Banking Corp., Ltd.
(Commercial Banking) 62,352
3,000 Parkway Holdings Ltd. (Real Estate) 12,157
10,000 Singapore Airlines Ltd. (Airlines) 73,855
3,000 Singapore Press Holdings Ltd.
(Printing & Publishing) 44,117
7,000 Singapore Technologies Industrial
Corp. (Diversified Industries) 12,673
61,000 Singapore Telecommunications
(Telecommunications) 103,260
3,000 Straits Trading Co.(a) (Metals) 5,294
6,000 United Overseas Land Ltd. (Real
Estate) 7,529
8,000 United Overseas Bank Ltd. (Commercial
Banking) 59,084
10,000 UTD Industrial Corp. (Real Estate) 6,928
------------
632,304
------------
Total common stocks
(cost US$24,488,374) 24,185,290
------------
PREFERRED STOCKS--0.3%
Australia--0.3%
15,400 News Corp., Ltd. (Broadcasting &
Other Media) 68,137
5,300 Sydney Harbour Casino Holdings
Ltd.(a) (Gaming)
(cost US$72,532) 7,446
------------
75,583
------------
Total long-term investments
(cost US$24,560,906) 24,260,873
------------
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-40
<PAGE>

JOINT REPURCHASE AGREEMENT

United States--1.2%

$287 Joint Repurchase Agreement Account,
6.127%, 10/01/97

(cost US$287,000; Note 5) $ 287,000
------------
- ------------------------------------------------------------
Total Investments--99.4%

(cost US$24,847,906; Note 4) 24,547,873
Other assets in excess of
liabilities--0.6% 151,187
------------
Net Assets--100% $ 24,699,060
------------
------------
</TABLE>

- ---------------
(a) Non-income producing security.

The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of September 30, 1997 was as
follows:

<TABLE>

<S> <C>
Commercial Banking.................................... 16.2%
Telecommunications.................................... 7.1
Automobiles........................................... 7.0
Real Estate........................................... 5.3
Electronics........................................... 5.2
Appliances & Household Durables....................... 4.1
Diversified Industries................................ 3.4
Drugs & Health Care................................... 3.3
Electrical Utilities.................................. 2.9
Retail................................................ 2.8
Chemicals............................................. 2.6
Financial Services.................................... 2.4
Building & Construction............................... 2.4
Machinery & Equipment................................. 2.0
Wholesale............................................. 2.0
Railroads............................................. 1.9
Insurance............................................. 1.5
Food & Beverages...................................... 1.5
Iron & Steel.......................................... 1.4
Mining................................................ 1.4
Printing & Publishing................................. 1.4
Transportation........................................ 1.3
Office Equipment & Supplies........................... 1.2
Hotels & Restaurants.................................. 1.2
Building Materials & Products......................... 1.1
Electrical Equipment.................................. 1.1
Engineering & Construction............................ 1.0
Automobiles & Auto Parts.............................. 1.0
Food Processing....................................... 1.0
Computers............................................. 1.0
Natural Gas Utilities................................. 0.9
Broadcasting & Other Media............................ 0.9
Airlines.............................................. 0.8
Electronic Components................................. 0.8
Tires & Rubber........................................ 0.8
Paper & Packaging..................................... 0.7
Oil & Gas............................................. 0.7
Cosmetics & Toiletries................................ 0.7
Diversified Resources................................. 0.6
Entertainment......................................... 0.5
Photography........................................... 0.4
Glass Products........................................ 0.4
Business Services..................................... 0.3
Metals-Non Ferrous.................................... 0.3
Apparel............................................... 0.2
Gaming................................................ 0.2
Agriculture........................................... 0.2
Engineering & Equipment............................... 0.2
Precious Metals....................................... 0.2
Tobacco............................................... 0.1
Containers............................................ 0.1
Textiles.............................................. 0.1
Optical Supplies...................................... 0.1
Warehousing........................................... 0.1
Computer Software & Services.......................... 0.1
Aircrafts and Parts................................... 0.1
Short-Term Investment................................. 1.2
-----
99.4%
Other assets in excess of liabilities................. 0.6
-----
100.0%
-----
-----
</TABLE>

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

See Notes to Financial Statements. B-41

<PAGE>

PRUDENTIAL DRYDEN FUND
Statement of Assets and Liabilities PRUDENTIAL PACIFIC INDEX FUND

- --------------------------------------------------------------------------------
<TABLE>

Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $24,847,906)............................................................... $ 24,547,873
Foreign currency, at value (cost $4,724,397)........................................................... 4,670,182
Dividends and interest receivable...................................................................... 61,143
Due from Manager....................................................................................... 31,985
Deferred offering costs................................................................................ 19,792
----------------
Total assets........................................................................................ 29,330,975
----------------
Liabilities

Bank overdraft......................................................................................... 99,617
Payable for investments purchased...................................................................... 4,469,156
Accrued expenses and other liabilities................................................................. 34,100
Deferred offering costs payable (Note 1)............................................................... 20,123
Foreign withholding taxes payable...................................................................... 8,919
----------------
Total liabilities................................................................................... 4,631,915
----------------
Net Assets............................................................................................. $ 24,699,060
----------------
----------------
Net assets were comprised of:

Shares of beneficial interest, at par............................................................... $ 2,500
Paid-in capital in excess of par.................................................................... 24,997,700
----------------
25,000,200

Undistributed net investment income................................................................. 7,343
Net unrealized depreciation on investments and foreign currencies................................... (308,483)
----------------
Net assets, September 30, 1997......................................................................... $ 24,699,060
----------------
----------------
Net asset value per share

($24,699,060 / 2,500,020 shares of beneficial interest issued and outstanding)...................... $9.88
----------------
----------------
</TABLE>

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

See Notes to Financial Statements. B-42

<PAGE>

PRUDENTIAL DRYDEN FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Operations

- ------------------------------------------------------------
<TABLE>
<CAPTION>
September 24, 1997(a)

Through

Net Investment Income September 30, 1997
--------------------
<S> <C>

Income
Dividends (net of foreign withholding
taxes of $8,888).................... $ 51,984
Interest............................... 4,015
-----------------
Total income........................ 55,999
-----------------
Expenses
Management fee......................... 1,630
Audit fees and expenses................ 15,000
Custodian's fees and expenses.......... 10,000
Registration fees...................... 7,600
Reports to shareholders................ 1,000
Miscellaneous.......................... 831
-----------------
Total expenses...................... 36,061
Less: Expense subsidy (Note 2)......... (33,615)
-----------------
Net expenses........................ 2,446
-----------------
Net investment income..................... 53,553
-----------------
Realized and Unrealized Loss on
Investments and Foreign Currency Transactions
Net realized loss on Foreign currency
transactions........................... (46,210)
-----------------
Net change in unrealized depreciation on:
Investments............................ (300,033)
Foreign currencies..................... (8,450)
-----------------
(308,483)

-----------------
Net loss on investments and foreign
currencies............................. (354,693)
-----------------
Net Decrease in Net Assets

Resulting from Operations................. $ (301,140)
-----------------
-----------------
</TABLE>

- ---------------
(a) Commencement of investment operations.

<TABLE>
<CAPTION>
PRUDENTIAL DRYDEN FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Changes in Net Assets

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

September 24, 1997(a)

Increase (Decrease) Through

in Net Assets September 30, 1997
-------------------
<S> <C>

Operations
Net investment income................... $ 53,553
Net realized loss on foreign currency
transactions......................... (46,210)
Net change in unrealized depreciation on
investments and foreign currencies... (308,483)
-----------------
Net decrease in net assets resulting
from operations...................... (301,140)
-----------------
Fund share transactions
Net proceeds from Fund shares sold...... 25,000,200
-----------------
Total increase............................. 24,699,060
-----------------
Net Assets

Beginning of period........................ 0
-----------------
End of period.............................. $24,699,060
-----------------
-----------------
</TABLE>

- ---------------
(a) Commencement of investment operations.

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

See Notes to Financial Statements. B-43

<PAGE>

PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL PACIFIC INDEX FUND

- --------------------------------------------------------------------------------
Prudential Dryden Fund (the "Company") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The Company was established as a Deleware business trust on May 11, 1992 and
currently consists of six separate funds. Prudential Pacific Index Fund (the
'Fund') commenced investment operations on September 24, 1997 when 2,500,020
shares of beneficial interest of the Fund were sold for $25,000,200 to The
Prudential Insurance Company of America ("The Prudential").

The investment objective of the Fund is to seek to provide investment results
that correspond to the price and yield performance of a broad-based index of
securities of issuers in the Pacific region, currently the Morgan Stanley
Capital International Pacific Free Index.

- ------------------------------------------------------------
Note 1. Accounting Policies

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

Securities Valuation: Securities for which the primary market is on an exchange,
are valued at the last sale price on such exchange 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 bid price in the absence of an asked price.
Securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued by an independent pricing agent or a principal
market maker. Securities for which reliable market quotations are not available
or for which 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 subadviser, does not represent fair value, are valued at fair
value as determined by procedures established by the Company's Trustees.

Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.

In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Company's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, takes
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.

Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:

(i) market value of investment securities, other assets and liabilities--at the
closing rates of exchange;

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

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

Net realized losses on foreign currency transactions represent net foreign
exchange gains or losses from forward currency contracts, disposition of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
interest, dividends and foreign taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets and liabilities at
fiscal period end exchange rates are reflected as a component of unrealized
appreciation on investments and foreign currencies.

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

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
foreign currency transactions are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date and interest

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

B-44

<PAGE>

PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL PACIFIC INDEX FUND

- --------------------------------------------------------------------------------
income is recorded on an accrual basis. Expenses are recorded on the accrual
basis which may require the use of certain estimates by management.

Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.

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

Taxes: It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no federal income tax provision is
required.

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

Deferred Offering Expenses: Approximately $20,000 of offering and initial
registration costs have been deferred and are being amortized over the period of
benefit not to exceed 12 months from the date the Fund commenced investment
operations.

Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income and decrease
accumulated net realized loss on investments by $46,210 relating to net realized
foreign currency loss. Net investment income, net realized gains and net assets
were not affected by these changes.

- ------------------------------------------------------------
NOTE 2. AGREEMENTS

The Company has a management agreement with Prudential Investments Fund
Management LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for
all investment advisory services and supervises the subadviser's performance of
such services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Company, occupancy
and certain clerical and bookkeeping costs of the Company. The Company bears all
other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .40 of 1% of the average daily net assets of the Fund.

PIFM has agreed to subsidize the operating expenses of the Fund until September
30, 1998, so that total Fund operating expenses do not exceed .60% on an
annualized basis of the Fund's average daily net assets. For the period ended
September 30, 1997, PIFM subsidized $33,615 of the expenses of the Fund (8.25%
of average net assets annualized, $.013 per share).

PSI, PIFM and PIC are wholly-owned subsidiaries of The Prudential.

The Company, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of September 30,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.

- ------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES

Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Company's transfer agent. As of September 30, 1997, the Fund has
not yet incurred any transfer agent fees.

- ------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES

Purchases of investment securities, other than short-term investments, for the
period September 24, 1997 through September 30, 1997 were $24,560,906. There
were no sales of investment securities.

The United States federal income tax cost basis of the Fund's investments at
September 30, 1997 was $24,850,501 and, accordingly, net unrealized depreciation
for federal income tax purposes was $302,628 (gross unrealized
appreciation--$267,910; gross unrealized depreciation--$570,538).

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

B-45

<PAGE>

PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL PACIFIC INDEX FUND

- --------------------------------------------------------------------------------
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT

The Fund along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of September 30, 1997, the
Fund had a 0.02% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $287,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefor was as follows:

Credit Suisse First Boston Corp., 6.15%, in the principal amount of
$341,000,000, repurchase price $341,058,254, due 10/01/97. The value of the
collateral including accrued interest was $352,935,110.

Goldman, Sachs & Co., Inc., 6.15%, in the principal amount of $341,000,000,
repurchase price $341,058,254, due 10/01/97. The value of the collateral
including accrued interest was $347,820,010.

Morgan Stanley, Dean Witter, Discover & Co., 6.15%, in the principal amount of
$325,256,000, repurchase price $325,311,565, due 10/01/97. The value of the
collateral including accrued interest was $331,761,960.

UBS Securities LLC, 6.06%, in the principal amount of $341,000,000, repurchase
price $341,057,402, due 10/01/97. The value of the collateral including accrued
interest was $347,821,030.

- ------------------------------------------------------------
NOTE 6. CAPITAL

The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value per share. Transactions in shares of beneficial interest for the
period September 24, 1997 through September 30, 1997 were as follows:

Shares Amount
--------- -----------
<S> <C> <C>
Shares sold........................... 2,500,020 $25,000,200
--------- -----------
Net increase in shares outstanding.... 2,500,020 $25,000,200
--------- -----------
--------- -----------
</TABLE>

At September 30, 1997, all of the outstanding shares were owned by The
Prudential.

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

B-46

<PAGE>

PRUDENTIAL DRYDEN FUND
FINANCIAL HIGHLIGHTS PRUDENTIAL PACIFIC INDEX FUND

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

September 24, 1997(a)
Through
September 30, 1997
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................ $ 10.00
------
Income from investment operations

Net investment income(c).................................................... 0.02
Net realized and unrealized loss on investment and foreign currency
transactions............................................................. (0.14)
------
Total from investment operations......................................... (0.12)
------
Net asset value, end of period.............................................. $ 9.88
------
------
TOTAL RETURN(d)............................................................. (1.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................. $24,699
Average net assets (000).................................................... $24,802
Ratios to average net assets: (c)
Expenses................................................................. .60%(b)
Net investment income.................................................... 13.14%(b)
Portfolio turnover.......................................................... 0%
Average commission rate paid per share...................................... $0.0087
</TABLE>

- ---------------
(a) Commencement of investment operations.

(b) Annualized.

(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.

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

See Notes to Financial Statements. B-47

<PAGE>

PRUDENTIAL DRYDEN FUND
Report of Independent Accountants PRUDENTIAL PACIFIC INDEX FUND

- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
Prudential Dryden Fund--Prudential Pacific Index Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Dryden Fund--Prudential
Pacific Index Fund (the 'Fund', one of the portfolios constituting Prudential
Dryden Fund) at September 30, 1997, and the results of its operations, the
changes in its net assets and the financial highlights for the period September
24, 1997 (commencement of operations) through September 30, 1997, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where securities purchased had not been received, provides a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 19, 1997

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

B-48
<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.8%
COMMON STOCKS--95.8%
- ------------------------------------------------------------
Aerospace/Defense--2.1%
1,800 Aeroquip-Vickers Inc. $ 88,200
36,700 Allied-Signal, Inc. 1,559,750
65,550 Boeing Co. 3,568,378
4,100 General Dynamics Corp. 357,213
12,530 Lockheed Martin Corp. 1,336,011
4,300 Northrop Grumman Corp. 521,913
15,300 Raytheon Co. 904,612
13,700 Rockwell International Corp. 862,244
15,200 United Technologies Corp. 1,231,200
------------
10,429,521
- ----------------------------------------------------------------
Airlines--0.3%
5,850 AMR Corp.(a) 647,522
4,700 Delta Airlines, Inc. 442,681
9,700 Southwest Airlines Co. 309,794
5,000 USAir Group, Inc.(a) 206,875
------------
1,606,872
- ----------------------------------------------------------------
Aluminum--0.4%
14,600 Alcan Aluminum Ltd. 507,350
11,200 Aluminum Co. of America 918,400
4,850 Reynolds Metals Co. 343,441
------------
1,769,191
- ----------------------------------------------------------------
Automobiles & Trucks--2.0%
44,600 Chrysler Corp. 1,641,838
2,400 Cummins Engine, Inc. 187,350
6,800 Dana Corp. 335,750
4,100 Echlin Inc. 143,756
77,400 Ford Motor Co. 3,502,350
47,400 General Motors Corp. 3,172,837
11,600 Genuine Parts Co. 357,425
5,200 Johnson Controls, Inc. 257,725
4,720 Navistar International Corp.(a) 130,390
3,600 Safety-Kleen Corp. $ 86,175
------------
9,815,596
- ----------------------------------------------------------------
Banking--7.8%
37,730 Banc One Corp. 2,105,806
9,400 Bank of Boston Corp. 831,312
25,000 Bank of New York Co., Inc. 1,200,000
45,400 BankAmerica Corp. 3,328,387
6,300 Bankers Trust NY Corp. 771,750
12,700 Barnett Banks, Inc. 898,525
27,908 Chase Manhattan Corp. 3,293,144
30,000 Citicorp 4,018,125
6,900 Comerica, Inc. 544,669
13,300 CoreStates Financial Corp. 880,294
10,200 Fifth Third Bancorp 666,825
19,001 First Chicago Corp. 1,429,825
37,200 First Union Corp. 1,862,325
16,887 Fleet Financial Group, Inc. 1,107,154
3,600 Golden West Financial Corp. 323,100
6,500 H.F. Ahmanson & Co. 369,281
10,200 Huntington Bancshares, Inc. 367,838
14,400 KeyCorp 916,200
16,850 Mellon Bank Corp. 922,537
12,000 Morgan (J.P.) & Co., Inc. 1,363,500
14,200 National City Corp. 874,187
47,176 NationsBank Corp. 2,919,015
24,200 Norwest Corp. 1,482,250
20,700 PNC Bank Corp. 1,010,419
6,100 Providian Financial Corp. 242,094
3,500 Republic New York Corp. 397,688
10,500 State Street Bank Corp. 639,844
14,400 Suntrust Banks, Inc. 978,300
15,919 U.S. Bancorp 1,536,183
5,776 Wells Fargo & Co. 1,588,400
------------
38,868,977
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-49

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--3.3%
2,300 Adolph Coors Co. $ 87,113
31,800 Anheuser Busch Cos., Inc. 1,434,975
4,700 Brown-Forman Corp. 233,531
161,200 Coca-Cola Co. 9,823,125
99,700 PepsiCo, Inc. 4,044,081
24,100 Seagram Co., Ltd. 849,525
------------
16,472,350
- ----------------------------------------------------------------
Chemicals--2.0%
7,100 Air Products & Chemicals, Inc. 588,856
15,000 Dow Chemical Co. 1,360,313
73,300 E.I. du Pont de Nemours & Co. 4,512,531
5,200 Eastman Chemical Co. 322,400
6,400 Hercules, Inc. 318,400
38,200 Monsanto Co. 1,489,800
4,300 Nalco Chemical Co. 172,269
4,100 Rohm & Haas Co. 393,344
6,300 Sigma-Aldrich Corp. 207,506
4,540 Solutia Inc. (a) 90,800
8,000 Union Carbide Corp. 389,500
------------
9,845,719
- ----------------------------------------------------------------
Chemical-Specialty--0.4%
9,125 Engelhard Corp. 196,758
3,800 Great Lakes Chemical Corp. 187,388
9,200 Morton International, Inc. 326,600
10,400 Praxair, Inc. 532,350
2,700 Raychem Corp. 228,150
4,700 W.R. Grace & Co. 346,037
------------
1,817,283
- ----------------------------------------------------------------
Commercial Services--0.2%
26,425 CUC International, Inc.(a) 819,175
5,300 Deluxe Corp. 177,881
2,100 Harland (John H.) Co. 48,431
5,700 Moore Corp. Ltd. 108,300
------------
1,153,787
- ----------------------------------------------------------------
Computer Software & Services--5.6%
22,400 3Com Corp.(a) $ 1,148,000
4,600 Adobe Systems, Inc. 231,725
3,200 AutoDesk, Inc. 145,200
18,900 Automatic Data Processing, Inc. 945,000
12,700 Bay Networks, Inc.(a) 490,537
10,200 Cabletron Systems, Inc.(a) 326,400
5,100 Ceridian Corp.(a) 188,700
920 ChoicePoint Inc.(a) 34,385
43,600 Cisco Systems, Inc.(a) 3,185,525
23,650 Computer Associates International,
Inc. 1,698,366
5,050 Computer Sciences Corp.(a) 357,288
21,600 Dell Computer Corp.(a) 2,092,500
16,100 EMC Corp.(a) 939,837
5,600 KLA Instruments Corp.(a) 378,350
13,700 Micron Technology Inc. 475,219
77,900 Microsoft Corp.(a) 10,307,144
21,900 Novell, Inc.(a) 196,416
63,562 Oracle Systems Corp.(a) 2,316,040
8,000 Parametric Technology Co.(a) 353,000
15,700 Seagate Technology, Inc.(a) 567,162
11,700 Silicon Graphics Inc.(a) 307,125
24,000 Sun Microsystems Inc.(a) 1,123,500
------------
27,807,419
- ----------------------------------------------------------------
Construction--0.1%
5,400 Fluor Corp. 289,575
2,500 Foster Wheeler Corp. 109,844
2,300 Kaufman & Broad Home Corp. 49,881
1,400 Pulte Corp. 53,550
------------
502,850
- ----------------------------------------------------------------
Containers--0.2%
1,800 Ball Corp. 62,663
3,400 Bemis, Inc. 152,150
8,400 Crown Cork & Seal, Inc.(a) 387,450
9,200 Owens-Illinois, Inc.(a) 312,225
------------
914,488
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-50

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Cosmetics & Soaps--2.4%
3,400 Alberto-Culver Co. $ 103,488
8,700 Avon Products, Inc. 539,400
6,700 Clorox Co. 496,637
19,100 Colgate-Palmolive Co. 1,331,031
36,400 Gillette Co. 3,141,775
7,050 International Flavors & Fragrances
Inc. 345,450
87,900 Procter & Gamble Co. 6,070,594
------------
12,028,375
- ----------------------------------------------------------------
Diversified Gas--0.1%
6,700 Coastal Corp. 410,375
1,500 Eastern Enterprises, Inc. 55,969
3,200 NICOR Inc. 120,000
1,900 Oneok Inc. 61,987
------------
648,331
- ----------------------------------------------------------------
Drugs & Medical Supplies--9.3%
50,000 Abbott Laboratories 3,196,875
4,300 Allergan, Inc. 155,606
5,400 ALZA Corp.(a) 156,600
42,300 American Home Products Corp. 3,087,900
17,300 Amgen, Inc.(a) 829,319
3,700 Bard (C.R.), Inc. 125,569
3,600 Bausch & Lomb, Inc. 145,800
18,200 Baxter International, Inc. 950,950
8,100 Becton Dickinson & Co. 387,787
7,200 Biomet, Inc.(a) 172,800
12,500 Boston Scientific Corp.(a) 689,844
64,700 Bristol-Myers Squibb Co. 5,353,925
7,100 Cardinal Health, Inc. 504,100
36,100 Eli Lilly & Co 4,347,794
9,600 Guidant Corp. 537,600
86,600 Johnson & Johnson Co. 4,990,325
4,800 Mallinckrodt, Inc. 172,800
30,800 Medtronic, Inc. 1,447,600
78,500 Merck & Co., Inc. 7,845,094
83,900 Pfizer, Inc. 5,039,244
33,155 Pharmacia & Upjohn, Inc. $ 1,210,157
47,600 Schering- Plough Corp. 2,451,400
5,700 St. Jude Medical, Inc.(a) 199,856
4,800 United States Surgical Corp. 140,100
17,600 Warner Lambert Co. 2,374,900
------------
46,513,945
- ----------------------------------------------------------------
Electronics--4.8%
9,100 Advanced Micro Devices, Inc.(a) 296,319
14,184 AMP Inc. 759,730
8,000 Apple Computer, Inc. 173,500
3,200 Data General Corp.(a) 85,200
10,100 Digital Equipment Corp. (a) 437,456
3,000 EG&G, Inc. 62,063
29,000 Emerson Electric Co. 1,671,125
5,200 Harris Corp. 237,900
67,600 Hewlett-Packard Co. 4,702,425
106,200 Intel Corp. 9,803,587
9,400 LSI Logic Corp.(a) 301,975
38,700 Motorola, Inc. 2,781,562
9,200 National Semiconductors Corp.(a) 377,200
3,000 Perkin-Elmer Corp. 219,188
6,800 Tandy Corp. 228,650
2,200 Tektronix, Inc. 148,363
12,400 Texas Instruments Inc. 1,675,550
3,400 Thomas & Betts Corp. 185,725
------------
24,147,518
- ----------------------------------------------------------------
Environmental Services--0.3%
20,700 Laidlaw Inc. (Class B stock) 309,206
29,100 Waste Management Inc. 1,016,681
------------
1,325,887
- ----------------------------------------------------------------
Financial Services--3.8%
30,500 American Express Co. 2,497,188
3,500 Beneficial Corp. 266,656
6,900 Block (H&R), Inc. 266,513
17,400 Charles Schwab Corp. 622,050
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-51

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services (cont'd.)
7,200 Countrywide Mortgage Investments, Inc. $ 262,350
9,900 Equifax Inc. 311,231
45,000 Federal Home Loan Mortgage Corp. 1,586,250
69,000 Federal National Mortgage Assn. 3,243,000
29,300 First Data Corp. 1,100,581
8,700 Green Tree Financial Corp. 408,900
6,900 Household International Corp. 780,994
2,800 MBIA, Inc. 351,225
21,538 MBNA Corp. 872,269
21,500 Merrill Lynch & Co., Inc. 1,595,031
37,971 Morgan Stanley, Dean Witter, Discover
& Co. 2,052,807
7,100 Salomon, Inc. 533,831
12,450 SunAmerica, Inc. 487,884
4,350 Transamerica Corp. 432,825
16,310 Washington Mutual, Inc. 1,137,623
------------
18,809,208
- ----------------------------------------------------------------
Food & Beverage--2.3%
36,356 Archer-Daniels-Midland Co. 870,265
29,900 Campbell Soup Co. 1,465,100
15,500 ConAgra, Inc. 1,023,000
9,300 CPC International, Inc. 861,412
2,000 Fleming Cos., Inc. 36,625
10,450 General Mills, Inc. 720,397
4,000 Giant Foods, Inc. 130,250
24,200 H.J. Heinz Co. 1,117,737
9,300 Hershey Foods Corp. 525,450
26,800 Kellogg Co. 1,128,950
9,000 Quaker Oats Co. 453,375
6,900 Ralston Purina Co. 610,650
31,300 Sara Lee Corp. 1,611,950
11,500 Sysco Corp. 424,781
7,500 Wm. Wrigley Jr. Co. 564,844
------------
11,544,786
- ----------------------------------------------------------------
Forest Products--1.4%
3,700 Boise Cascade Corp. 155,631
6,100 Champion International Corp. 371,719
12,300 Fort James Corp. $ 563,494
5,850 Georgia-Pacific Corp. 610,594
19,716 International Paper Co. 1,085,612
36,516 Kimberly-Clark Corp. 1,787,002
7,100 Louisiana-Pacific Corp. 177,500
3,300 Mead Corp. 238,425
1,700 Potlatch Corp. 85,531
6,800 Stone Container Corp. 105,825
3,700 Temple Inland Inc. 236,800
4,500 Union Camp Corp. 277,594
6,400 Westvaco Corp. 230,800
12,900 Weyerhaeuser Co. 765,937
7,000 Willamette Industries, Inc. 267,750
------------
6,960,214
- ----------------------------------------------------------------
Gas Pipelines--0.4%
10,218 Cinergy Corp. 341,664
3,600 Columbia Gas System, Inc.(a) 252,000
6,000 Consolidated Natural Gas Co. 349,125
19,400 Enron Corp. 746,900
2,100 Peoples Energy Corp. 79,144
10,300 Williams Cos., Inc. 482,169
------------
2,251,002
- ----------------------------------------------------------------
Hospital Management--0.8%
7,000 Beverly Enterprises, Inc.(a) 121,625
43,528 Columbia/HCA Healthcare Corp. 1,251,430
22,000 Healthsouth Corp.(a) 587,125
11,000 Humana, Inc.(a) 261,938
4,300 Manor Care, Inc. 142,975
16,100 Service Corp. International 518,219
1,400 Shared Medical Systems Corp. 74,025
19,300 Tenet Healthcare Corp.(a) 562,112
12,100 United Healthcare Corp. 605,000
------------
4,124,449
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-52

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Housing Related--0.6%
2,800 Armstrong World Industries, Inc. $ 187,775
1,800 Centex Corp. 105,075
2,200 Fleetwood Enterprises, Inc. 73,838
11,000 Lowe's Companies, Inc. 427,625
10,700 Masco Corp. 490,194
6,300 Maytag Corp. 214,987
3,500 Owens Corning Fiberglas Corp. (a) 127,750
5,300 Pioneer Hi-Bred International, Inc. 482,300
6,000 Stanley Works 258,000
4,100 Tupperware Corp. 115,312
4,800 Whirlpool Corp. 318,300
------------
2,801,156
- ----------------------------------------------------------------
Insurance--4.2%
9,700 Aetna Life & Casualty Co. 789,944
28,574 Allstate Corp. 2,296,635
16,115 American General Corp. 835,966
45,568 American International Group, Inc. 4,702,048
10,650 Aon Corp. 563,119
11,400 Chubb Corp. 810,112
4,750 CIGNA Corp. 884,687
12,200 Conseco, Inc. 595,512
5,200 General Re Corp. 1,032,200
7,700 ITT Hartford Group Inc. 662,681
4,625 Jefferson-Pilot Corp. 365,375
6,800 Lincoln National Corp. 473,450
10,800 Marsh & McLennan Cos. 827,550
7,500 MGIC Investment Corp. 429,844
4,700 Progressive Corp. 503,488
8,000 SAFECO Corp. 424,000
5,400 St. Paul Cos, Inc. 440,438
8,900 Torchmark Corp. 349,325
41,761 Travelers, Inc. 2,850,188
8,900 UNUM Corp. 406,063
7,200 USF&G Corp. 165,150
10,400 Wachovia Corp. 748,800
------------
21,156,575
- ----------------------------------------------------------------
Leisure--1.1%
6,300 Brunswick Corp. $ 222,075
6,600 Harrah's Entertainment Inc.(a) 148,088
8,000 Hasbro, Inc. 225,000
7,600 ITT Corp. (New) 514,900
2,600 King World Productions, Inc.(a) 112,450
18,987 Mattel, Inc. 628,944
11,600 Mirage Resorts, Inc. (a) 349,450
43,692 Walt Disney Co. 3,522,667
------------
5,723,574
- ----------------------------------------------------------------
Lodging--0.4%
10,500 HFS, Inc.(a) 781,594
16,400 Hilton Hotels Corp. 552,475
8,200 Marriott International, Inc.(a) 582,712
------------
1,916,781
- ----------------------------------------------------------------
Machinery--1.2%
1,400 Briggs & Stratton Corp. 69,213
4,800 Case Corp. 319,800
24,500 Caterpillar Inc. 1,321,469
2,400 Cincinnati Milacron, Inc. 64,500
8,000 Cooper Industries, Inc. 432,500
16,600 Deere & Co. 892,250
7,300 Dover Corp. 495,487
5,000 Eaton Corp. 461,875
3,300 Harnischfeger Industries, Inc. 141,075
10,700 Ingersoll-Rand Co. 460,769
5,104 PACCAR Inc. 285,824
7,325 Parker Hannifin Corp. 329,625
3,950 Snap-On Inc. 181,947
9,600 Thermo Electron Corp.(a) 384,000
4,100 Timken Co. 164,256
------------
6,004,590
- ----------------------------------------------------------------
Media--1.7%
22,750 Comcast Corp. 585,813
9,400 Donnelley (R.R.) & Sons, Co. 335,463
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-53

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media (cont'd.)
6,200 Dow Jones & Co., Inc. $ 289,850
11,400 Dun & Bradstreet Corp. 323,475
9,150 Gannett Co., Inc. 987,628
7,950 Interpublic Group of Companies, Inc. 407,934
6,000 Knight-Ridder, Inc. 327,750
6,300 McGraw Hill Cos., Inc. 426,431
3,400 Meredith Corp. 112,625
5,900 New York Times Co. 309,750
36,400 Time Warner, Inc. 1,972,425
6,200 Times Mirror Co. 340,613
7,700 Tribune Co. 410,506
39,000 U.S. West Media Group 870,187
22,739 Viacom, Inc.(a) 719,121
------------
8,419,571
- ----------------------------------------------------------------
Mineral Resources--0.5%
2,600 ASARCO Inc. 83,200
23,900 Barrick Gold Corp. 591,525
6,150 Cyprus Amax Minerals Co. 147,600
9,700 Echo Bay Mines, Ltd. 55,169
12,900 Freeport-McMoran Copper & Gold, Inc. 371,681
9,800 Homestake Mining Co. 150,063
10,800 INCO, Ltd. 270,675
10,037 Newmont Mining Corp. 451,038
4,200 Phelps-Dodge Corp. 326,025
15,900 Placer Dome, Inc. 304,087
------------
2,751,063
- ----------------------------------------------------------------
Miscellaneous Basic Industry--5.0%
11,900 Applied Materials, Inc.(a) 1,133,475
13,900 Browning-Ferris Industries, Inc. 529,069
11,000 Cognizant Corp. 448,250
2,900 Crane Co. 119,263
4,100 Ecolab, Inc. 199,106
2,450 FMC Corp.(a) 217,438
11,500 Fortune Brands, Inc. 387,406
212,900 General Electric Co. 14,490,506
3,200 General Signal Corp. $ 138,400
3,300 Grainger (W.W.) Inc. 293,700
16,200 Illinois Tool Works, Inc. 810,000
8,100 ITT Industries Inc. 268,819
7,400 Loews Corp. 835,737
2,900 Millipore Corp. 142,463
500 NACCO Industries, Inc. 58,781
8,033 Pall Corp. 173,212
11,600 PPG Industries, Inc. 727,175
10,700 Textron, Inc. 695,500
8,100 TRW Inc. 444,487
17,300 Tyco International Ltd. 1,419,681
42,000 Westinghouse Electric Corp. 1,136,625
------------
24,669,093
- ----------------------------------------------------------------
Miscellaneous Consumer Growth--1.6%
5,100 American Greetings Corp. 188,063
5,900 Black & Decker Corp. 219,775
14,800 Corning, Inc. 699,300
21,400 Eastman Kodak Co. 1,389,662
2,200 Jostens, Inc. 59,675
27,000 Minnesota Mining & Manufacturing Co. 2,497,500
2,700 Polaroid Corp. 138,206
9,400 Rubbermaid, Inc. 240,288
10,400 Unilever N.V. 2,211,300
6,300 Whitman Corp. 171,675
------------
7,815,444
- ----------------------------------------------------------------
Office Equipment & Supplies--2.9%
6,800 Avery Dennison Corp. 272,000
49,232 Compaq Computer Corp.(a) 3,680,092
8,300 Honeywell, Inc. 557,656
9,000 Ikon Office Solutions Inc. 230,063
64,200 International Business Machines Corp. 6,801,187
9,400 Pitney Bowes, Inc. 781,963
10,900 Unisys Corp.(a) 166,906
20,950 Xerox Corp. 1,763,728
------------
14,253,595
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-54

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum--7.8%
5,900 Amerada Hess Corp. $ 363,956
32,000 Amoco Corp. 3,084,000
3,900 Anadarko Petroleum Corp. 280,069
5,900 Apache Corp. 252,962
4,600 Ashland Oil, Inc. 250,125
20,800 Atlantic Richfield Co. 1,777,100
7,900 Burlington Resources Inc. 405,369
42,500 Chevron Corp. 3,535,469
5,998 Enserch Exploration, Inc. (a) 53,982
161,000 Exxon Corp. 10,314,062
3,000 Kerr-McGee Corp. 206,438
2,200 Louisiana Land & Exploration Co. 172,288
51,200 Mobil Corp. 3,788,800
2,558 Monterey Resources, Inc. 53,723
21,500 Occidental Petroleum Corp. 557,656
2,900 Pennzoil Co. 231,094
17,100 Phillips Petroleum Co. 882,787
139,200 Royal Dutch Petroleum Co. (ADR)
(Netherlands) 7,725,600
4,900 Sun Co., Inc. 214,681
11,000 Tenneco, Inc. 526,625
34,400 Texaco Inc. 2,113,450
16,760 Union Pacific Resources Group, Inc. 438,902
16,300 Unocal Corp. 704,975
18,900 USX Marathon Corp 702,844
------------
38,636,957
- ----------------------------------------------------------------
Petroleum Services--1.2%
10,800 Baker Hughes, Inc. 472,500
11,600 Dresser Industries, Inc. 498,800
16,500 Halliburton Co. 858,000
1,700 Helmerich & Payne, Inc. 136,000
3,300 McDermott International, Inc. 120,450
6,800 Oryx Energy Co.(a) 172,975
28,500 PG&E Corp. 660,844
5,600 Rowan Cos., Inc.(a) 199,500
32,100 Schlumberger, Ltd. 2,702,419
5,500 Sonat Inc. 279,812
3,400 Western Atlas, Inc.(a) $ 299,200
------------
6,400,500
- ----------------------------------------------------------------
Precious Metals--0.0%
15,200 Battle Mountain Gold Co. 109,250
- ----------------------------------------------------------------
Railroads--0.7%
10,065 Burlington Northern Inc. 972,531
14,100 CSX Corp. 824,850
8,100 Norfolk Southern Corp. 836,325
16,100 Union Pacific Corp. 1,008,262
------------
3,641,968
- ----------------------------------------------------------------
Restaurants--0.5%
9,950 Darden Restaurants Inc. 115,047
44,700 McDonald's Corp. 2,128,837
8,600 Wendy's International, Inc. 182,750
------------
2,426,634
- ----------------------------------------------------------------
Retail--4.8%
16,100 Albertson's, Inc. 561,487
17,500 American Stores Co. 426,563
10,000 AutoZone, Inc.(a) 300,000
6,200 Charming Shoppes, Inc. 38,169
6,200 Circuit City Stores, Inc. 249,938
11,300 CVS Corp. 642,687
14,000 Dayton Hudson Corp. 839,125
7,500 Dillard Department Stores, Inc. 328,594
13,800 Federated Department Stores, Inc.(a) 595,125
17,900 Gap, Inc. 896,119
2,600 Great Atlantic & Pacific Tea Co., Inc. 82,550
4,800 Harcourt General, Inc. 237,900
47,449 Home Depot, Inc. 2,473,279
30,900 Kmart Corp. 432,600
16,700 Kroger Co.(a) 504,131
17,688 Limited, Inc. 432,251
4,800 Liz Claiborne, Inc. 263,700
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-55

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
16,000 J.C. Penney, Inc. $ 932,000
2,600 Longs Drug Stores Corp. 69,388
15,400 May Department Stores Co. 839,300
2,300 Mercantile Stores, Inc. 144,756
10,600 Newell Co. 424,000
18,500 Nike, Inc. (Class B) 980,500
5,100 Nordstrom, Inc. 325,125
4,000 Pep Boys - Manny, Moe & Jack 109,000
13,852 Price Costco, Inc.(a) 521,181
3,600 Reebok International, Ltd. 175,275
7,800 Rite-Aid Corp. 432,412
25,500 Sears, Roebuck & Co. 1,451,906
11,200 Sherwin-Williams Co. 329,700
2,000 Stride Rite Corp. 27,125
3,800 Supervalu, Inc. 149,150
10,300 TJX Companies, Inc. 314,794
18,800 Toys 'R' Us. Inc.(a) 667,400
147,000 Wal-Mart Stores, Inc. 5,383,875
31,900 Walgreen Co. 817,437
9,600 Winn-Dixie Stores, Inc. 340,200
8,400 Woolworth Corp. 185,850
------------
23,924,592
- ----------------------------------------------------------------
Rubber--0.2%
3,500 B.F. Goodrich Co. 158,375
5,400 Cooper Tire & Rubber 143,437
10,200 Goodyear Tire & Rubber Co. 701,250
------------
1,003,062
- ----------------------------------------------------------------
Steel--0.2%
11,472 Allegheny Teldyne, Inc. 328,386
5,600 Armco Inc.(a) 33,600
7,000 Bethlehem Steel Corp.(a) 72,188
3,100 Inland Steel Industries, Inc. 67,813
5,900 Nucor Corp. 310,856
5,500 USX Corp. - U.S. Steel Group 191,125
6,350 Worthington Industries, Inc. 128,587
------------
1,132,555
- ----------------------------------------------------------------
Telecommunications--2.2%
12,000 Alltel Corp. $ 414,000
5,987 Andrew Corp.(a) 156,785
6,300 Clear Channel Communications, Inc.(a) 408,712
7,400 DSC Communications Corp.(a) 199,338
10,700 Frontier Corp. 246,100
41,770 Lucent Technologies, Inc. 3,399,034
44,900 MCI Communications Corp. 1,318,937
9,500 NexLevel Systems, Inc.(a) 159,125
17,000 Northern Telecom Ltd. 1,766,937
4,800 Scientific Atlanta, Inc. 108,600
28,000 Sprint Corp. 1,400,000
34,000 Tele-Communications, Inc.(a) 697,000
12,000 Tellabs, Inc.(a) 618,000
------------
10,892,568
- ----------------------------------------------------------------
Textiles--0.2%
5,000 Fruit of the Loom, Inc.(a) 140,625
3,100 National Service Industries, Inc. 136,206
2,500 Russell Corp. 73,594
1,500 Springs Industries, Inc. 78,750
4,200 V.F. Corp. 389,025
------------
818,200
- ----------------------------------------------------------------
Tobacco--1.4%
157,350 Phillip Morris Cos., Inc. 6,539,859
11,900 UST, Inc. 363,694
------------
6,903,553
- ----------------------------------------------------------------
Trucking & Shipping--0.2%
2,800 Caliber System Inc. 151,900
7,500 Federal Express Corp.(a) 600,000
4,800 Ryder System, Inc. 172,500
------------
924,400
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-56

<PAGE>

Portfolio of Investments as of PRUDENTIAL DRYDEN FUND
September 30, 1997 PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utility-Communications--5.1%
32,600 AirTouch Communications.(a) $ 1,155,262
35,700 Ameritech Corp. 2,374,050
105,500 AT&T Corp. 4,674,969
50,058 Bell Atlantic Corp. 4,026,573
64,300 BellSouth Corp. 2,973,875
62,200 GTE Corp. 2,822,325
41 Netscape Communications Corp. 1,476
59,646 SBC Communications Inc. 3,660,800
31,100 U.S. West Communications Group 1,197,350
14,000 Unicom Corp. 327,250
59,000 WorldCom Inc.(a) 2,087,125
------------
25,301,055
- ----------------------------------------------------------------
Utilities - Electric--2.1%
12,200 American Electric Power, Inc. 555,100
9,900 Baltimore Gas & Electric Co. 274,725
9,800 Carolina Power & Light Co. 352,187
13,700 Central & South West Corp. 303,969
15,300 Consolidated Edison Co. 520,200
12,300 Dominion Resources, Inc. 465,862
9,700 DTE Energy Co. 295,244
23,497 Duke Power Co. 1,161,633
26,200 Edison International 661,550
15,700 Entergy Corp. 409,181
12,000 FPL Group, Inc. 615,000
7,800 General Public Utilities Corp. 279,825
18,822 Houston Industries, Inc. 409,380
8,300 Niagara Mohawk Power Corp. 79,369
4,700 Northern States Power Co. 233,825
9,700 Ohio Edison Co. 227,344
5,300 Pacific Enterprises 179,538
19,300 Pacificorp 431,837
14,600 PECO Energy Co. 342,188
10,400 PP & L Resources Inc. 227,500
15,000 Public Service Enterprise Group $ 386,250
44,000 Southern Co. 992,750
15,600 Texas Utilities Co. 561,600
6,900 Union Electric Co. 265,219
------------
10,231,276
Total common stocks
cost $361,151,805) 477,215,780
Principal Amount
(000)
SHORT-TERM INVESTMENTS--3.8%
- ----------------------------------------------------------------
U.S. Government Securities--0.2%
$1,200(b) United States Treasury Bill,
4.94%, 12/18/97
(cost $1,187,156) $ 1,187,156
------------
- ----------------------------------------------------------------
Repurchase Agreement--3.6%
17,665 Joint Repurchase Agreement Account,
6.127%, 10/01/97(Note 4)
(cost $17,665,000) 17,665,000
------------
Total short-term investments
(cost $18,852,156) 18,852,156
- ----------------------------------------------------------------
Total Investments--99.6%
(cost $380,003,961; Note 3) 496,067,937
Other assets in excess of
liabilities--0.4% 1,939,428
------------
Net Assets--100% $498,007,365
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-57

<PAGE>
PRUDENTIAL DRYDEN FUND
Statement of Assets and Liabilities PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $380,003,961)............................................................... $496,067,937
Cash.................................................................................................... 30,824
Receivable for Fund shares sold......................................................................... 3,445,272
Dividends and interest receivable....................................................................... 679,433
Receivable due from Manager............................................................................. 324,620
Deferred expenses and other assets...................................................................... 6,756
------------
Total assets......................................................................................... 500,554,842
------------
Liabilities
Payable for Fund shares reacquired...................................................................... 1,534,340
Payable for investments purchased....................................................................... 773,483
Due to broker - variation margin........................................................................ 126,875
Accrued expenses........................................................................................ 112,779
------------
Total liabilities.................................................................................... 2,547,477
------------
Net Assets.............................................................................................. $498,007,365
------------
------------
Net assets were comprised of:
Shares of beneficial interest........................................................................ $ 22,775
Paid-in capital in excess of par..................................................................... 367,445,134
------------
367,467,909
Undistributed net investment income.................................................................. 4,093,229
Accumulated net realized gain on investments......................................................... 10,104,301
Net unrealized appreciation on investments and futures contracts..................................... 116,341,926
------------
Net assets, September 30, 1997.......................................................................... $498,007,365
------------
------------
Class I:
Net asset value and redemption price per share
($312,127,196 / 14,272,607 shares of beneficial interest issued and outstanding).................. $21.87
------
------
Class Z:
Net asset value and redemption price per share
($185,880,172 / 8,502,702 shares of beneficial interest issued and outstanding)................... $21.86
-------
-------
</TABLE>

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

See Notes to Financial Statements. B-58

<PAGE>

PRUDENTIAL DRYDEN FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30, 1997
------------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $33,846)..................... $ 5,174,932
Interest................................. 1,214,412
------------
Total income.......................... 6,389,344
------------
Expenses
Management fee........................... 921,557
Transfer agent's fees and expenses... 367,000
Reports to shareholders.................. 280,000
Custodian's fees and expenses........ 176,000
Registration fees........................ 136,000
Legal fees............................... 30,000
Audit fees............................... 15,000
Administration fee....................... 26,557
Organization expense..................... 13,385
Trustees' fees....................... 11,250
Miscellaneous............................ 14,572
------------
Total expenses........................ 1,991,321
Less: Expense subsidy (Note 2).............. (681,561)
------------
Net expenses.......................... 1,309,760
------------
Net investment income....................... 5,079,584
------------
Realized and Unrealized Gain
on Investments
Net realized gain on:
Investment transactions.................. 6,467,755
Financial futures contracts.............. 4,079,275
------------
10,547,030
------------
Net change in unrealized appreciation on:
Investments.............................. 80,065,453
Financial futures contracts.............. 261,725
------------
80,327,178
------------
Net gain on investments..................... 90,874,208
------------
Net Increase in Net Assets
Resulting from Operations................... $ 95,953,792
------------
------------
</TABLE>

PRUDENTIAL DRYDEN FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September 30,
------------------------
in Net Assets 1997 1996
-------- --------
<S> <C> <C>
Operations
Net investment income......... $ 5,079,584 $ 2,743,808
Net realized gain on
investment transactions.... 10,547,030 1,791,564
Net change in unrealized
appreciation on
investments................ 80,327,178 20,293,266
-------------- -------------
Net increase in net assets
resulting from
operations................. 95,953,792 24,828,638
-------------- -------------
Dividends and distributions
Dividends to shareholders from
net investment income...... (3,111,526) (2,181,628)
-------------- -------------
Distributions to shareholders
from net realized gains.... (1,795,111) (4,441,170)
-------------- -------------
Fund share transactions
Net proceeds from shares
sold....................... 447,194,409 113,692,034
Net asset value of shares
issued to shareholders in
reinvestment of
distributions.............. 4,906,633 6,622,798
Cost of shares reacquired..... (229,519,348) (56,086,722)
-------------- -------------
Net increase in net assets
from Fund share
transactions............... 222,581,694 64,228,110
-------------- -------------
Net increase..................... 313,628,849 82,433,950
Net Assets
Beginning of year................ 184,378,516 101,944,566
-------------- -------------
End of year...................... $ 498,007,365 $ 184,378,516
-------------- -------------
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-59

<PAGE>
PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------

Prudential Dryden Fund (the "Company") is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. The Company was established as a Delaware business trust on May 11,
1992 and currently consists of six separate funds, one of which is the
Prudential Stock Index Fund (the "Fund"). Prior to October 30,
1996 the Company was named The Prudential Institutional Fund and prior to
September 20, 1996 it consisted of seven separate funds (the
"Funds"), five of which were reorganized and combined with
existing funds in the Prudential Mutual Funds family of funds (see Note 6).

The Company had no operations until July 7, 1992 when 10,000 shares of
beneficial interest of the Company were sold for $100,000 to Prudential
Institutional Fund Management, Inc. Investment operations of the Fund commenced
on November 5, 1992. The Fund's investment objective is to provide
investment results that correspond to the price and yield performance of
Standard & Poor's 500 Composite Stock Price Index.
- ------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Fund.

Securities Valuation: Securities, including options, warrants, futures contracts
and options thereon, for which the primary market is on a national securities
exchange, commodities exchange or board of trade or NASDAQ are valued at the
last sale price on such exchange or board of trade on the date of valuation or,
if there was no sale on such day, at the mean between the closing bid and asked
prices quoted on such day or at the bid price in the absence of an asked price.

Securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued by a principal market maker or independent pricing
agent.

U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.

Securities for which reliable market quotations are not available or for which
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
subadvisers, does not represent fair value, are valued at fair value as
determined under procedures established by the Trustees.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, under triparty repurchase
agreements, as the case may be take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.

Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.

Net investment income (other than transfer agent fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.

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

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

B-60

<PAGE>
PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
Dividends and Distributions: Dividends and distributions of the Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Fund will declare and distribute its net investment income and net capital
gains, if any, at least annually. Dividends and distributions are recorded on
the ex-dividend date.

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

Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.

Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and
rates.

Deferred Organizational Expenses: Approximately $450,000 of costs were incurred
in connection with the organization and initial registration of the Company and
have been deferred and are being amortized ratably over a period of sixty months
from the date each of the Funds commenced investment operations.

- ------------------------------------------------------------
NOTE 2. AGREEMENTS

The Fund had a management agreement with Prudential Institutional Fund
Management, Inc. through October 30, 1996. Pursuant to this agreement,
Prudential Institutional Fund Management, Inc. had responsibility for all
investment advisory services and supervised the subadviser's performance of
such services.

Prudential Institutional Fund Management, Inc. had a subadvisory agreement with
The Prudential Investment Corporation ("PIC") through October
30, 1996. PIC furnished investment advisory services in connection with the
management of the Fund. Prudential Institutional Fund Management, Inc. paid for
the costs and expenses attributable to the subadvisory agreement and the
salaries and expenses of all personnel of the Fund except for fees and expenses
of unaffiliated Trustees. The Fund paid for all other costs and expenses.

Through October 30, 1996 the management fee paid Prudential Institutional Fund
Management, Inc. was computed daily and payable monthly at an annual rate of .40
of 1% of the average daily net assets of the Fund. Effective October 31, 1996
the management fee paid Prudential Investments Fund Management LLC
("PIFM") is computed daily and payable monthly at an annual
rate of .30 of 1% of the average daily net assets of the Fund.

Effective October 31, 1996 the Fund entered into a management agreement with
PIFM. Pursuant to this agreement PIFM has responsibility for all investment
advisory services. PIFM has entered into a subadvisory agreement with PIC. PIC,
subject to the supervision of PIFM, manages the assets of the Fund in accordance
with its investment objectives and policies and in a manner consistent with the
previous agreement. PIFM pays for the costs and expenses attributable to the
subadvisory agreement and the salaries and expenses of all personnel of the Fund
except for fees and expenses of unaffiliated Trustees.

Effective May 1, 1997 PIFM has agreed to reimburse the Fund so that total
operating expenses do not exceed .40% of the average net assets for Class Z
shares of the Fund. Effective August 1, 1997 PIFM has agreed to reimburse the
Fund so that total operating expenses do not exceed .30% of the average net
assets for Class I shares of the Fund. For the year ended September 30, 1997,
PIFM subsidized $681,561 of the expenses of the Fund (.226% of the average net
assets of the Fund/$.030 per share).

The Fund had an administration agreement with PIFM through October 30, 1996. The
administration fee paid PIFM was computed daily and payable monthly, at an
annual rate of .17% of the Company's average daily net assets up to $250
million and .15% of the Company's average daily net assets in excess of $250
million. PIFM furnished to the Fund such services as the Fund required in
connection with the administration of the Fund's business affairs. PIFM also
provided certain transfer agent services through its wholly-owned subsidiary,
Prudential Mutual Fund Service LLC ("PMFS"). For such
services, PMFS was paid .03% of the Company's average daily net assets up to
$250 million and .02% of the Company's average daily net assets in excess of
$250 million from the administration fee paid to PIFM. Upon termination of the
administration agreement, PMFS entered into a separate transfer agency agreement
directly with the Fund.

Effective October 31, 1996 Prudential Securities Incorporated
("PSI") became the distributor of the Fund's shares. Under
the distribution agreement, PSI incurs the expenses of distributing the
Fund's shares, none of which is reimbursed by or paid for by the Fund.

Prudential Institutional Fund Management, Inc., PIC, PIFM and PSI are
wholly-owned subsidiaries of The Prudential Insurance Company of America.

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

B-61

<PAGE>
PRUDENTIAL DRYDEN FUND
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
The Fund, along with other affiliated registered investment companies (the
"funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of September 30,
1997. The funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the funds.

- ------------------------------------------------------------
NOTE 3. PORTFOLIO SECURITIES

Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended September 30, 1997 aggregated $230,411,073 and $12,947,978,
respectively.

On September 30, 1997, the Fund held 35 purchased financial futures contracts on
the S&P 500 Index expiring December, 1997. The cost of such contracts was
$16,425,800. The value of such contracts on September 30, 1997 was $16,703,750,
thereby resulting in an unrealized gain of $277,950.

The cost basis of investments for federal income tax purposes is $380,054,009
and, accordingly, as of September 30, 1997, net unrealized appreciation for
federal income tax purposes was $116,013,928 (gross unrealized
appreciation--$117,543,776 gross unrealized depreciation--$1,529,848).

- ------------------------------------------------------------
NOTE 4. JOINT REPURCHASE AGREEMENT ACCOUNT

The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. At September 30, 1997, the Fund
had a 1.31% undivided interest in the repurchase agreements in the joint
account. The undivided interest represented $17,665,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the collateral
therefor was as follows:

Credit Suisse First Boston Corp., 6.15%, in the principal amount of
$341,000,000, repurchase price $341,058,254, due 10/1/97. The value of the
collateral including accrued interest was $352,935,110.

Goldman, Sachs & Co., Inc., 6.15%, in the principal amount of $341,000,000,
repurchase price $341,058,254, due 10/1/97. The value of the collateral
including accrued interest was $347,820,010.

Morgan Stanley Dean Witter, Discover & Co., 6.15%, in the principal amount of
$325,256,000, repurchase price $325,311,564, due 10/1/97. The value of the
collateral including accrued interest was $331,761,960.

UBS Securities LLC, 6.06%, in the principal amount of $341,000,000, repurchase
price $341,057,402, due 10/1/97. The value of the collateral including accrued
interest was $347,821,030.

- ------------------------------------------------------------
NOTE 5. CAPITAL

The Fund offers Class I and Class Z shares. Class I shares are not subject to
any sales or redemption charge and are offered to certain pension, profit
sharing or other employee benefit plans qualified under Section 401, 457 or
403(b)(7) of the Internal Revenue Code. Class Z shares are not subject to any
sales or redemption charge and are offered exclusively for sale to a limited
group of investors.

The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value dividend into two classes, designated Class Z and Class I.
Transactions in shares of beneficial interest during the fiscal year ended
September 30, 1997 and the fiscal year ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Class I Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 1997:
Shares sold...................... 2,006,789 $ 42,151,000
Shares issued in reinvestment of
dividends and distributions.... -- --
Shares reacquired................ (1,553,190) (33,405,742)
----------- -------------
Net increase in shares
outstanding before exchange.... 453,599 8,745,258
Shares issued upon exchange from
Class Z........................ 13,819,008 303,202,163
----------- -------------
Net increase in shares
outstanding.................... 14,272,607 $ 311,947,421
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Year ended September 30, 1997:
Shares sold...................... 21,286,422 $ 405,043,409
Shares issued in reinvestment of
dividends and distributions.... 283,293 4,906,633
Shares reacquired................ (10,728,183) (196,113,606)
----------- -------------
Net increase in shares
outstanding before exchange.... 10,841,532 213,836,436
Shares issued upon exchange to
Class I........................ (13,819,008) (303,202,163)
----------- -------------
Net increase in shares
outstanding.................... (2,977,476) $ (89,365,727)
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
B-62
<PAGE>
PRUDENTIAL DRYDEN FUND
Notes to Financial Statements PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 1996:
Shares sold...................... 7,589,233 $ 113,692,034
Shares issued in reinvestment of
dividends and distributions.... 467,712 6,622,798
Shares reacquired................ (3,745,568) (56,086,722)
----------- -------------
Net increase in shares
outstanding.................... 4,311,377 64,228,110
----------- -------------
----------- -------------
</TABLE>

Of the shares outstanding at September 30, 1997, PIFM and affiliates owned
5,390,369 shares of the Fund.

- ------------------------------------------------------------
NOTE 6. REORGANIZATION

On May 17, 1996, the Trustees of the Company approved an Agreement and Plan of
Reorganization (the "Plan of Reorganization") for five other
series of the Company. Each Plan of Reorganization was approved by applicable
shareholders on September 7, 1996. This Fund approved a new manager, distributor
and transfer agency agreements on October 30, 1996.

Under each Plan of Reorganization, all of the assets and liabilities of the
Growth Stock Fund, Balanced Fund, Income Fund and Money Market Fund
("Series") were transferred at net asset value for equivalent
value of Class Z shares of Prudential Jennison Series Fund, Inc., Prudential
Allocation Fund--Balanced Portfolio, Prudential Government Income Fund, Inc. and
Prudential MoneyMart Assets, Inc., respectively. These Series then ceased
operations.

The Company's International Stock Fund joined the Prudential Global Fund as
separate series of a newly named Prudential World Fund, Inc. Existing
shareholders became Class Z shareholders and the International Stock Fund also
began offering Classes A, B and C shares.

Prudential Active Balanced Fund and the Fund remained a series of The Prudential
Institutional Fund (renamed the Prudential Dryden Fund). Existing shareholders
of Prudential Active Balanced Fund became Class Z shareholders and Prudential
Active Balanced Fund began offering Classes A, B and C shares. The Fund offers
Class I and Class Z shares. Effective October 30, 1996 these funds were managed
by PIFM, PMFS provides transfer agency services and PSI acts as distributor.
- --------------------------------------------------------------------------------

B-63

<PAGE>
PRUDENTIAL DRYDEN FUND
Financial Highlights PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Class I
---------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
November 5, August 1,
1992(a) 1997(b)
Year Ended September 30, Through Through
---------------------------------------------- September 30, September 30,
1997 1996 1995 1994 1993 1997
-------- -------- -------- ------- ------------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 16.06 $ 14.22 $ 11.27 $ 11.12 $ 10.00 $ 21.87
-------- -------- -------- ------- ------- ---------
Income from investment operations:
Net investment income (c)..................... .46 .25 .23 .26 .23 .06
Net realized and unrealized gain on investment
transactions............................... 5.75 2.44 2.97 .11 .94 (.06)
-------- -------- -------- ------- ------- ---------
Total from investment operations............ 6.21 2.69 3.20 .37 1.17 --
-------- -------- -------- ------- ------- ---------
Less distributions:
Dividends from net investment income.......... (.26) (.28) (.22) (.18) (.05) --
Distributions from net realized gains......... (.15) (.57) (.03) (.04) -- --
-------- -------- -------- ------- ------- ---------
Total distributions......................... (.41) (.85) (.25) (.22) (.05) --
-------- -------- -------- ------- ------- ---------
Net asset value, end of period................ $ 21.86 $ 16.06 $ 14.22 $ 11.27 $ 11.12 $ 21.87
-------- -------- -------- ------- ------- ---------
-------- -------- -------- ------- ------- ---------
TOTAL RETURN(e)............................... 39.34% 19.72% 29.02% 3.33% 11.73% 0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $185,881 $184,379 $101,945 $50,119 $27,142 $ 312,127
Average net assets (000)...................... $254,644 $142,540 $ 71,711 $38,098 $18,807 296,788
Ratios to average net assets:(c)
Expenses.................................... .46% .60% .60% .60% .60%(d) .30%(d)
Net investment income....................... 1.66% 1.92% 2.55% 2.34% 2.41%(d) 1.73%(d)
Portfolio turnover rate....................... 5% 2% 11% 2% 1% 5%
Average commission rate paid per share........ $ 0.0250 $ 0.0250 N/A N/A N/A $ 0.0250
</TABLE>

(a) Commencement of investment operations.
(b) Commencement of offering of Class I shares
(c) Net of expense subsidy.
(d) Annualized.
(e) Total 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 for periods of less than a full
year are not annualized. Total return includes the effect of expense
subsidies.
N/A--Data not required for these periods.
- --------------------------------------------------------------------------------

See Notes to Financial Statements. B-64

<PAGE>
PRUDENTIAL DRYDEN FUND
Report of Independent Accountants PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------

The Shareholders and Board of Trustees of
Prudential Dryden Fund--Prudential Stock Index Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Dryden Fund--Prudential
Stock Index Fund (the "Fund", one of the portfolios
constituting Prudential Dryden Fund) (formerly The Prudential Institutional
Fund--Prudential Stock Index Fund) at September 30, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at September 30, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provides a reasonable basis
for the opinion expressed above. The accompanying statement of changes in net
assets for the year ended September 30, 1996 and the financial highlights for
the periods other than the year ended September 30, 1997 were audited by other
independent accountants, whose opinion dated November 13, 1996 was unqualified.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 19, 1997
- --------------------------------------------------------------------------------

B-65

<PAGE>

INDEPENDENT AUDITORS' REPORT

THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PRUDENTIAL
INSTITUTIONAL FUND-STOCK INDEX FUND:

We have audited the accompanying statement of changes in net assets of The
Prudential Institutional Fund-Stock Index Fund for the year ended September 30,
1996, and the financial highlights for each of the years in the three year
period ended September 30, 1996. This financial statement and these financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on this financial statement and these financial
highlights based on our audits.

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

In our opinion, such financial statement and financial highlights present
fairly, in all material respects, the changes in net assets and the financial
highlights of The Prudential Institutional Fund-Stock Index Fund for the
respective stated period in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP
New York, New York
November 13, 1996

B-66

<PAGE>

APPENDIX

S&P RATINGS, MOODY'S AND DUFF & PHELPS RATINGS

S&P RATINGS CORPORATE BOND RATINGS:

AAA-Bonds rated AAA have the highest rating assigned by S&P Ratings to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

MOODY'S CORPORATE BOND RATINGS:

Aaa-Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.

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

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

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

A-1

<PAGE>

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

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

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

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

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

Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and A
rating categories. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.

DUFF & PHELPS BOND RATINGS:

AAA-Bonds rated AAA by Duff & Phelps are considered to be of the
highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.

AA+, AA, AA-Bonds rated A+, AA or AA- are considered to be of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.

A+, A, A-Bonds rated A+, A or A- have protection factors which are
average but adequate; however, risk factors are more variable and greater in
periods of economic stress.

BBB+, BBB, BBB-Bonds rated BB+, BBB or BBB- have below average
protection factors but are still considered sufficient for prudent investment.
These bonds demonstrate considerable variability in risk during economic cycles.

BB+, BB, BB-Bonds rated BB+, BB or BB- are below investment grade but
are still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.

B+, B, B-Bonds rated B+, B or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.

CCC-Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.

DD-Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.

A-2

<PAGE>

S&P COMMERCIAL PAPER RATINGS:

Commercial paper rate A-1 by S&P Ratings indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.

MOODY'S COMMERCIAL PAPER RATINGS:

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

DUFF & PHELPS COMMERCIAL PAPER RATINGS:

Duff & Phelps commercial paper ratings are divided into three
categories, ranging from "1" for the highest quality obligations to "3" for the
lowest. No ratings are issued for companies whose paper is not deemed investment
grade. Issues assigned the Duff 1 rating are considered top grade. This category
is further divided into three gradations as follows: Duff 1 plus--highest
certainty of timely payment, short-term liquidity, including internal operating
factors and/or ready access to alternative sources of funds, is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations; Duff 1--very high certainty or timely payment liquidity factor are
excellent and supported by strong fundamental protection factors, risk factors
are minor; Duff 1 minus-high certainty of timely payment, liquidity factors are
strong and supported by good fundamental protection factors, risk factors are
very small. Issues rated Duff 2 represent a good certainty of timely payment;
liquidity factors and company fundamentals are sound; although ongoing internal
funds needs may enlarge total financing requirements, access to capital markets
is good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.

A-3

<PAGE>

APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk, providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk,
providing "balance" to an overall portfolio and potentially achieving more
stable returns. Owning a portfolio of securities mitigates the individual risks
(and returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates.
As interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a
bond portfolio) to interest rate changes. It measures the weighted average
maturity of a bond's (or a bond portfolio's) cash flows, i.e., principal and
interest rate payments. Duration is expressed as a measure of time in years--the
longer the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate risk
only and not other risks, such as credit risk and, in the case of non-U.S.
dollar denominated securities, currency risk. Effective maturity measures the
final maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing--buying securities when prices are low and selling them
when prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact
investment returns. Compounding is the effect of continuous investment on
long-term investment results, by which the proceeds of capital appreciation (and
income distributions, if elected) are reinvested to contribute to the overall
growth of assets. The long-term investment results of compounding may be greater
than that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

I-1

<PAGE>

APPENDIX II--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on
data obtained from statistical services, reports and other services believed by
the Manager to be reliable. The information has not been independently verified
by the Manager.

This chart shows the long-term performance of various asset classes and
the rate of inflation.

[CHART]

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
<TABLE>
<S> <C>
SMALL STOCKS $4,495.99
COMMON STOCKS $1,370.95
LONG-TERM BONDS $ 33.73
TREASURY BILLS $ 13.54
INFLATION $ 8.87
</TABLE>

Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. This chart is for illustrative purposes only
and is not indicative of the past, present, or future performance of any asset
class or any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and reinvesting any
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
are usually more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

II-1

<PAGE>

Set forth below is historical performance data relating to various
sectors of the fixed-income securities markets. The chart shows the historical
total returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate
bonds, U.S. high yield bonds and world government bonds on an annual basis from
1987 through 1996. The total returns of the indices include accrued interest,
plus the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Funds or of any sector in which the
Funds invest.

All information relies on data obtained from statistical services,
reports and other services believed by the Manager to be reliable. Such
information has not been verified. The figures do not reflect the operating
expenses and fees of a mutual fund. See "Fund Expenses" in each Fund's
Prospectus. The net effect of the deduction of the operating expenses of a
mutual fund on these historical total returns, including the compounded effect
over time, could be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7%
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4%
- --------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3%
- --------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4%
- --------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
- --------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURN PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7
- --------------------------------------------------------------------------------------------------------
</TABLE>

1 LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.

2 LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

3 LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.

4 LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.

5 SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

II-2

<PAGE>

This chart illustrates the performance of major world stock markets for the
period from 1986 through September 30, 1997. It does not represent the
performance of any Prudential Mutual Fund.

Average Annual Total Returns of Major World Stock Markets 12/31/86-9/30/97 (in
U.S. Dollars)

[CHART]
<TABLE>
<S> <C>
HONG KONG 23.7%
SWEDEN 22.0%
NETHERLANDS 21.3%
SPAIN 21.0%
BELGIUM 19.7%
SWITZERLAND 17.5%
USA 17.1%
UK 17.0%
FRANCE 16.1%
GERMANY 12.3%
AUSTRIA 10.0%
JAPAN 8.8%
</TABLE>

This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.

[CHART]
<TABLE>
<S> <C>
Capital Appreciation and Reinvesting Dividends $228,416
Capital Appreciation Only $ 80,463
</TABLE>

Source: Morgan Stanley Capital International (MSCI) and Lipper Analytical
Services Inc. Used with permission. Morgan Stanley Country indices are unmanaged
indices which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.

Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.

World Stock Market Capitalization By Region
World Total: $12.7 Trillion

[CHART]
U.S. 34.6%
Pacific Basin 20.1%
Europe 42.6%
Canada 2.7%

Source: Morgan Stanley Capital International, September 30,
1997. Used with permission. This chart represents the
capitalization of major world stock markets as measured by
the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the
value of approximately 1577 companies in 22 countries
(representing approximately 60% of the aggregate market
value of the stock exchanges). This chart is for
illustrative purposes only and does not represent the
allocation of any Prudential Mutual Fund.

II-3

<PAGE>

This chart below shows the historical volatility of general interest
rates as measured by the long U.S. Treasury Bond.

LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1996)

(CHART)

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

Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1996. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.

The following chart, although not relevant to share ownership in the
Funds, may provide useful information about the effects of a hypothetical
investment diversified over different asset portfolios. The chart shows the
range of annual total returns for major stock and bond indices for the period
from December 31, 1976 through December 31, 1996. The horizontal "Best Returns
Zone" band shows that a hypothetical blended portfolio constructed of one-third
U.S. stocks (S&P 500), one-third foreign stocks (EAFE Index), and one-third U.S.
bonds (Lehman Index) would have eliminated the "highest highs" and "lowest lows"
of any single asset class.

[CHART]

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>

THE RANGE OF ANNUAL TOTAL RETURNS FOR MAJOR STOCK AND BOND
indices Over the Past 20 Years
(12/31/76-12/31/96)*
<S> <C> <C>
S&P 500 37.6% -7.2%
EAFE 69.9% -23.2%
Lehman Aggregate 32.6% -2.9%
"Best Returns Zone"
With a Diversified Blend
1/3 S&P 500 Index
1/3 EAFE Index
1/3 Lehman Aggregate Index
</TABLE>

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

*Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.

II-4

<PAGE>

APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance
Company of America (Prudential) and its subsidiaries as well as information
relating to the Prudential Mutual Funds. See "Management of the Fund--Manager"
in the Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1996 and is subject to change thereafter. All information relies on
data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC(1) are subsidiaries of Prudential, which is one of
the largest diversified financial services institutions in the world and, based
on total assets, the largest insurance company in North America as of December
31, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs almost 81,000
persons worldwide, and maintains a sales force of approximately 11,500 agents
and 6,400 financial advisors. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas. Prudential
uses the Rock of Gibraltar as its symbol. The Prudential rock is a recognized
brand name throughout the world.

Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $1 trillion. Prudential has the largest capital base ($12.1 billion) of
any life insurance company in the United States. Prudential provides auto
insurance for approximately 1.6 million cars and insures more than 1.2 million
homes.

Money Management. Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1996, Prudential had more than $322 billion in assets
under management. Prudential Investments, a business group of Prudential, (of
which Prudential Mutual Funds is a key part) manages over $190 billion in assets
of institutions and individuals. In Pension & Investments, May 12, 1997,
Prudential was ranked third in terms of total assets under management.

Real Estate. The Prudential Real Estate Affiliates, the fourth largest
real estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States.(2)

Healthcare. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care membership.

Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of October 31, 1997, Prudential Investments Fund Management was the
17th largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage
over $55 billion in mutual fund and variable annuity assets. Some of
Prudential's portfolio managers have over 20 years of experience managing
investment portfolios.

From time to time, there may be media coverage of portfolio managers
and other investment professionals associated with the Manager and the
Subadviser in national and regional publications, on television and in other
media. Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media organizations
such as The Wall Street Journal, The New York Times, Barron's and USA Today.

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

(1) Prudential Investments, a business group of PIC, serves as the Subadviser
to substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as the subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates Capital Corp. as the
subadviser to Prudential Jennison Series Fund, Inc. and Mercator Asset
Management LP, as the subadviser to International Stock Series, a portfolio
of Prudential World Fund, Inc. There are multiple subadvisers for The
Target Portfolio Trust.

(2) As of December 31, 1996.

III-1

<PAGE>

Equity Funds. Forbes magazine listed Prudential Equity Fund among
twenty mutual funds on its Honor Roll in its mutual fund issue of August 28,
1995. Honorees are chosen annually among mutual funds (excluding sector funds)
which are open to new investors and have had the same management for at least
five years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Growth Fund, a growth-style
equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.

High Yield Funds. Investing in high yield bonds is a complex and
research intensive pursuit. A separate team of high yield bond analysts monitor
the 167 issues held in the Prudential High Yield Fund (currently the largest
fund of its kind in the country) along with 100 or so other high yield bonds,
which may be considered for purchase(3). Non-investment grade bonds, also known
as junk bonds or high yield bonds, are subject to a greater risk of loss of
principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and
sophisticated research organization. Fourteen investment grade bond analysts
monitor the financial viability of approximately 1,750 different bond issuers in
the investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services
from almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to
collect detailed information on which to trade. From natural gas prices in the
Rocky Mountains to the results of local municipal elections, a Prudential
portfolio manager or trader is able to monitor it if it's important to a
Prudential mutual fund.

Prudential Mutual Funds trade approximately $31 billion in U.S. and
foreign government securities a year. PIC seeks information from government
policy makers. In 1995, Prudential's portfolio managers met with several senior
U.S. and foreign government officials, on issues ranging from economic
conditions in foreign countries to the viability of index-linked securities in
the United States.

Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.

Prudential Mutual Fund global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).

Trading Data(4). On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets(5). Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities(6).

Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- ----------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.

(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.

(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.

(6) As of December 31, 1994.

III-2

<PAGE>

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI(7).

Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).

In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities analysts were ranked as first-team finishers(8).

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

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

(7) As of December 31, 1994.

(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an invdividual
analyst and weighting them based on the size of the voting institution. In
total, the magazine sends its survey to approximately 2,000 institutions
and a group of European and Asian institutions.

III-3